Chapter 7Contracts: Capacity,

Legality,Assent and Form

Chapter 7Contracts: Capacity,

Legality,Assent and Form

What are some exceptions to a minor’s disaffirmance of a contract?

When does intoxication make a contract voidable?

When does mental incapacity render a contract void?

What contracts must be in writing to be enforceable?

What are some exceptions to a minor’s disaffirmance of a contract?

When does intoxication make a contract voidable?

When does mental incapacity render a contract void?

What contracts must be in writing to be enforceable?

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

Contractual CapacityContractual Capacity

Minors (under 18)Contracts with minors are voidable by the

minor (not the innocent party) even if there is fraud, but liable for necessaries.

Disaffirmance of the contract by the minor or within a reasonable time after he turns 18.

• Minor must return goods in a timely manner.

Emancipated minor can ratify the contract.

Minors (under 18)Contracts with minors are voidable by the

minor (not the innocent party) even if there is fraud, but liable for necessaries.

Disaffirmance of the contract by the minor or within a reasonable time after he turns 18.

• Minor must return goods in a timely manner.

Emancipated minor can ratify the contract.

Contractual CapacityContractual Capacity

Intoxicated PersonIf sufficiently intoxicated, contract is

voidable, but courts rarely permit this.Mentally Incompetent Person (MIP)

MIP is adjudicated (by a court) and has a guardian appointed. Only guardian can sign an enforceable contract.

If MIP signs contract, it is voidable.

Intoxicated PersonIf sufficiently intoxicated, contract is

voidable, but courts rarely permit this.Mentally Incompetent Person (MIP)

MIP is adjudicated (by a court) and has a guardian appointed. Only guardian can sign an enforceable contract.

If MIP signs contract, it is voidable.

LegalityLegality Contracts Contrary to Statute: VOID

UsuryGamblingLicensing statutes

• Is a contract with an unlicensed person enforceable?

Contracts Contrary to Public PolicyContracts in Restraint of Trade (price fixing)Covenants Not to Compete (OK if ancillary)Unconscionable Contracts or Clauses

Contracts Contrary to Statute: VOIDUsuryGamblingLicensing statutes

• Is a contract with an unlicensed person enforceable?

Contracts Contrary to Public PolicyContracts in Restraint of Trade (price fixing)Covenants Not to Compete (OK if ancillary)Unconscionable Contracts or Clauses

Exculpatory ClausesSeek to release a party from liability no

matter who is at fault.Generally unenforceable if the business

is important to the public interest (schools, banks, common carriers).

May be enforceable if private and not in the public interest (amusement park).

Exculpatory ClausesSeek to release a party from liability no

matter who is at fault.Generally unenforceable if the business

is important to the public interest (schools, banks, common carriers).

May be enforceable if private and not in the public interest (amusement park).

LegalityLegality

Effect of IllegalityEffect of Illegality

Court will not enforce an illegal agreement.

Exceptions:Justifiable ignorance of the facts.Members of a protected class.Withdrawal from the agreement.Fraud, Duress or Undue Influence.

Court will not enforce an illegal agreement.

Exceptions:Justifiable ignorance of the facts.Members of a protected class.Withdrawal from the agreement.Fraud, Duress or Undue Influence.

Genuineness of AssentGenuineness of Assent

MistakesMistake of Value (contract is enforceable)Mistake of Fact

• Unilateral Mistake of Material Fact—mistaken party does not have the right to cancel contract unless (1) the non-mistaken party knew or should have known about the mistake, or (2) there is a clerical error.

• Bilateral Mistakes—if both are mistaken either one can cancel the contract.

MistakesMistake of Value (contract is enforceable)Mistake of Fact

• Unilateral Mistake of Material Fact—mistaken party does not have the right to cancel contract unless (1) the non-mistaken party knew or should have known about the mistake, or (2) there is a clerical error.

• Bilateral Mistakes—if both are mistaken either one can cancel the contract.

Fraudulent Misrepresentation

Fraudulent Misrepresentation

Innocent party can cancel the contract.Plaintiff must show:

Misrepresentation of a material fact (not opinion) by conduct, silence or words

Intent to deceiveInnocent party must justifiably rely on the

misrepresentation.Plaintiff must have suffered a legal injury

Innocent party can cancel the contract.Plaintiff must show:

Misrepresentation of a material fact (not opinion) by conduct, silence or words

Intent to deceiveInnocent party must justifiably rely on the

misrepresentation.Plaintiff must have suffered a legal injury

Undue Influence & Duress

Undue Influence & Duress

Undue InfluenceArises from a special relationship of trust.A stronger party overcomes a weaker party’s

free will by exerting psychological influence. Duress

Threat of physical force or extortionCan serve as basis for rescission of contract.Economic need, by itself, is not duress.

Undue InfluenceArises from a special relationship of trust.A stronger party overcomes a weaker party’s

free will by exerting psychological influence. Duress

Threat of physical force or extortionCan serve as basis for rescission of contract.Economic need, by itself, is not duress.

Statute of FraudsStatute of FraudsRequires certain contracts to be in

writing and signed to be enforceable.A contract involving an interest in land.A contract that by its terms cannot be

performed within 1 year of execution.Collateral contracts to answer for the debt

of another.Prenuptial agreement. Contracts for sale of goods over $500.

Requires certain contracts to be in writing and signed to be enforceable.A contract involving an interest in land.A contract that by its terms cannot be

performed within 1 year of execution.Collateral contracts to answer for the debt

of another.Prenuptial agreement. Contracts for sale of goods over $500.

Statute of FraudsStatute of Frauds

Writing must be signed by the party against whom enforcement is sought.

Exceptions to S/F:Partial performance AdmissionsPromissory Estoppel/ Detrimental

reliance.

Writing must be signed by the party against whom enforcement is sought.

Exceptions to S/F:Partial performance AdmissionsPromissory Estoppel/ Detrimental

reliance.