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CHAPTER 12 CONTRACTUAL CAPACITY AND REALITY OF CONSENT. DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.). LEGAL CAPACITY.

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CHAPTER 12 CONTRACTUAL CAPACITY AND REALITY OF CONSENT


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chapter 12 contractual capacity and reality of consent

CHAPTER 12 CONTRACTUAL CAPACITY AND REALITY OF CONSENT

DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8th Ed.)

legal capacity
LEGAL CAPACITY
  • For a contract to be considered valid and enforceable, the parties must have the legal ability to bind themselves to the agreement.
  • Incapacity is the exception, not the rule.
  • Burden of proof regarding incapacity falls on the party raising it as a defense to enforce the contract or as basis for rescission of the contract.
legal capacity3
LEGAL CAPACITY
  • Law determines contractual capacity by looking at the relative bargain power of the parties.
  • Issues of contractual capacity can arise if contract involves minors, persons lacking mental capacity, aliens, convicts, and in some states-married women.
  • Contracts made by these people may be absolutely void, voidable (the insane), or valid (if lucid when contract was formed).
minors
MINORS
  • Most states no longer use common law but instead use statutory law.
    • Common Law: anyone under the age of 21.
    • Statutory Law: in most states those under the age of 18.
  • Some states allow for termination of infancy status upon marriage or emancipation.
    • Emancipation: free from the control or power of another.
minors5
MINORS
  • Disaffirmance/Recission
    • To protect minors in dealing with adults, the law allows minors to disaffirm (avoid) their contract.
    • Except in certain specialized cases.
      • Necessaries.
    • Disaffirms contract, action results in a voidable contract.
    • The right to disaffirm is absolute and personal to the minor.
minors6
MINORS
  • Disaffirmance must be in total to be effective.
  • Minor can disaffirm either expressly (verbal or written) or implied by course of conduct.
    • For disaffirmance to be effective, minor must objectively manifest intent not to be bound by the contract.
  • Duty of Restoration: the minor must return to the adult the property or other consideration that was the object of the contract.
minors7
MINORS
  • Rescission: ability to have the contract set aside.
    • Parent or other adult co-sign the contract.
  • Misrepresentation of Age.
    • Minor intentionally misrepresents age.
    • The contract can be voided anytime during age of minority or a reasonable time upon reaching the age of majority.
    • Power of disaffirmance, whether contract is executory or executed.
minors8
MINORS
  • Ratification.
    • Minor has indicated approval of the contract.
    • Minor has indicated an intention to be bound by the provisions of the contract.
    • Takes two separate forms:
      • Express; or
      • Implied.
minors9
MINORS
  • Necessaries.
    • Things that directly foster the minor’s well-being.
    • Even is absence of ratification a minor will still be liable for transactions if the adult provided the necessaries.
    • Rule applied subjectively.
minors10
MINORS
  • Special Statutes.
    • State Legislatures make minors liable in a variety of circumstances according to special statutes.
  • Torts and Crimes.
    • Law protects adult’s interest when an adult has suffered losses owing to minor’s torts and crimes.
    • Cannot disaffirm unless minor is of tender years (too young to understand the consequences of his/her actions).
insane persons
INSANE PERSONS
  • Lack the capacity to make a binding contract.
  • Person must be so mentally infirm or deranged.
  • Lunacy, mental retardation, senility, alcohol or drug abuse are irrelevant.
insane persons12
INSANE PERSONS
  • Effects of Transactions by Insane Persons.
    • Guardian has the legal capacity to contract.
    • To disaffirm a contract, person must prove insanity at the time of contracting.
    • To determine if transaction is void, voidable or enforceable depends on facts.
      • Contract is absolutely void if court judges insanity.
      • Insane person regains sanity the person may ratify contract made during period of insanity.
insane persons13
INSANE PERSONS
  • Necessaries.
    • Law makes insane persons liable for necessaries in quasi contract.
    • Fewer controversies arise regarding whether medical or legal services are necessaries.
intoxicated persons
INTOXICATED PERSONS
  • Validity of a contract depends on the degree of intoxication.
    • If intoxication limits mental capacity of the individual, contract is voidable at the option of the intoxicated person. If mental capacity is not affected, contract is valid and enforceable.
aliens
ALIENS
  • Citizens of a foreign country.
  • Depends on treaties between countries and legal and illegal alien designations.
  • Enemy aliens are countries we are officially at war, and cannot enforce contracts.
convicts
CONVICTS
  • Person convicted of a felony or treason has certain contractual disabilities, in many states.
  • Disabilities applicable only during imprisonment.
married women
MARRIED WOMEN
  • Under early common law, married women’s contracts were void.
  • Law viewed women as their husbands’ property.
  • Reflected in Married Women’s Property Acts.
    • Almost eliminated by all states by statute or judicial decision.
the requirement of reality of consent
THE REQUIREMENT OF REALITY OF CONSENT
  • Law has to ascertain whether consent given by parties is real or whether the facts differ from those to which the parties have agreed.
  • Law requires reality of consent as a prerequisite to form a contract.
fraud
FRAUD
  • Deliberate misrepresentation of a material fact with the intent to induce another person to enter into a contract that will be injurious to that person.
fraud20
FRAUD
  • Elements of Fraud.
    • Misrepresentation of a fact.
    • Materiality of the fact.
    • Defendant commits scienter.
    • Intent to deceive.
    • Plaintiff relied on the deception.
    • Injury or detriment.
fraud21
FRAUD
  • Silence.
    • At common law mere silence was not fraud.
      • Fraud necessitates some sort of overt communication.
      • Cannot be liable for fraud unless said or done something.
    • Modern trend is to reject this idea.
misrepresentation
MISREPRESENTATION
  • Lacks the element of scienter and intent to deceive.
mistake
MISTAKE
  • Occurs when the parties are wrong about the existence or absence of a past or present fact that is material to their transaction.
  • Parties must be wrong about material facts.
  • Legal mistake not synonymous with ignorance, inability or inaccurate judgements relating to value or quality.
mistake24
MISTAKE
  • Unilateral Mistake.
    • Only one party is mistaken about a material fact.
  • Bilateral Mistake.
    • Both parties are in error about the essence of the agreement.
  • Reformation.
    • Rewrite the contract to reflect the parties actual intentions.
duress
DURESS
  • Other party has forced one into the contract against one’s will.
  • Coercion must be extreme that the victim has lost all ability to assent freely and voluntarily to the transaction.
    • Evidence of physical threats.
    • Threats that cause intense mental anguish.
undue influence
UNDUE INFLUENCE
  • Use of relationship of trust and confidence to extract contractual advantages.
unconscionability
UNCONSCIONABILITY
  • May signal a lack of meaningful assent to a contract.
  • May justify a court’s subsequent intervention on behalf of the injured party.