chapter 13 capacity and genuine assent twomey, business law and the regulatory environment (14th...

Chapter 13Chapter 13

Capacity and Genuine AssentCapacity and Genuine Assent

Twomey, Business Law and the Regulatory Environment (14th Ed.)

(c) 2000 West Legal Studies Chapter 13 2

Defenses to Formation [13-1]Defenses to Formation [13-1]Aliens

Married Persons

Minors

Intoxication

Mental

No, unless reliance on statement

Law - No

Expectations - No

Duty

Statute

Intent to Conceal

Material Fact - Yes

Physical

Economic

Status Incapacity

Factual Incapacity

Unilateral Mistake

Mutual Mistake

Innocent

Misrepresentation

Nondisclosure

Fraud

Undue Influence

Duress

Lack of Contractual

Capacity

Mistake

Deception

Pressure

PossibleGrounds

for AvoidingContract

Outmoded


Physical

Economic

Status Incapacity

Factual Incapacity

Mutual Mistake

Innocent

Misrepresentation

Nondisclosure

Fraud

Undue Influence

Duress

Lack of Contractual

Capacity

Mistake

Deception

Pressure

PossibleGrounds

for AvoidingContract

Avoidance of ContractAvoidance of Contract

Unilateral Induced by or Known to Other Party


There is NOT a

genuine agreement

of the parties

Recession

Reformation

Damages

Mistake

Deception

Pressure

Possible Remedies for Lack of Possible Remedies for Lack of Genuine Agreement Genuine Agreement [13-2] [13-2]

Possible Remedies for Lack of Possible Remedies for Lack of Genuine Agreement Genuine Agreement [13-2] [13-2]


Chapter 13 SummaryChapter 13 SummaryChapter 13 SummaryChapter 13 Summary

An agreement that otherwise appears to be a contract may not be binding because one of the parties lacks contractual capacity. In such a case, the contract is ordinarily voidable at the election of that party who lacks contractual capacity. In some cases, the contract is void.


Ordinarily, contractual incapacity is the inability, for mental or physical reasons, to understand that a contract is being made and to understand its general terms and nature. This is typically the case when it is claimed that incapacity exists because of insanity or intoxication. The incapacity of minors arises because society is discriminating in favor of that class to protect them from unwise contracts.

Chapter 13 Summary Chapter 13 Summary [2][2]Chapter 13 Summary Chapter 13 Summary [2][2]


In most states today, the age of majority is 18. Minors can avoid most contracts. If a minor received anything from the other party, the minor, on avoiding the contract, must return what had been received from the other party if the minor still has it.



When a minor avoids a contract for a necessary, the minor must pay the reasonable value of any benefit received. The concept of a necessary has expanded.



Only minors are liable for their contracts. Parents of a minor are not liable on the minor’s contracts merely because they are the parents. Frequently, an adult will enter into the contract as a co-party of the minor and is then liable without regard to whether the minor has avoided the contract.



The contract of an insane person is voidable to much the same extent as the contract of a minor. An important distinction is that if a guardian has been appointed for the insane person, a contract made by the insane person is void and not merely voidable.



An intoxicated person lacks contractual capacity to make a contract if the intoxication is such that the person does not understand that a contract is being made. The consent of a party to an agreement is not genuine or voluntary in certain cases of mistake, deception, or pressure. When this occurs, what appears to be a contract can be avoided by the victim of such circumstances or conduct.



As to mistake, it is necessary to distinguish between unilateral mistakes that are unknown to the other contracting party and those that are known. Mistakes that are unknown to the other party usually do not affect the binding character of the agreement. A unilateral mistake of which the other contracting party has knowledge or has reason to know makes the contract avoidable by the victim of the mistake.



The deception situation may be one of innocent misrepresentation, nondisclosure, or fraud. Innocent misrepresentation generally has no effect on the binding quality of an agreement, although there is a trend to recognize it as a ground for avoiding the contract.



A few courts allow recovery of damages. When one party to the contract knows of a fact that has a bearing on the transaction, the failure to volunteer information about that fact to the other contracting party is called nondisclosure.



When concealment goes beyond mere silence and consists of actively taking steps to hide the truth, the conduct may be classified as fraud rather than nondisclosure. There is a growing trend to hold fine-print clauses not binding on the theory that they are designed to hide the truth from the other contracting party.



Consumer protection statutes often outlaw fine-print clauses by requiring particular contracts or particular clauses in contracts to be printed in type of a specified size. A statement of opinion, value, or law cannot ordinarily be the basis for fraud liability, although it can be when the maker of the false statement claims to be an expert on the particular subject matter and is making the statement as an expert.



The free will of a person, essential to the voluntary character of a contract, may be lacking because the agreement had been obtained by pressure. This may range from undue influence through the array of threats of extreme economic loss (called economic duress) to the threat of physical force that would cause serious personal injury or damage to property (called physical duress).



The mere fact that one party to the contract has great bargaining power and offers the other party a printed contract on a take-it-or-leave-it basis (an adhesion contract) does not prove that the agreement was not voluntary. However, some courts have held that in such cases the agreement is not voluntary if the weaker party cannot obtain the desired goods or services elsewhere.



When the voluntary character of an agreement has been destroyed by mistake, deception, or pressure, the victim may avoid or rescind the contract or may ratify the contract and obtain money damages from the wrongdoer. When the mistake consists of an error in putting an oral contract in writing, either party may ask the court to reform the writing so that it states the parties’ actual agreement.


chapter 13 capacity and genuine assent twomey, business law and the regulatory environment (14th...

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