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Chapter 14 CONTRACTS: CAPACITY AND GENUINE ASSENT PowerPoint Presentation
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Chapter 14 CONTRACTS: CAPACITY AND GENUINE ASSENT. Contractual Capacity. An agreement that otherwise appears to be a contract may not be binding because one of the parties lacks contractual capacity.

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contractual capacity
Contractual Capacity
  • 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.
    • Status Incapacity.
    • Factual Incapacity.
contractual capacity3
Contractual Capacity
  • 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.
  • Incapacity may be due to:
    • being a minor.
    • Insanity.
    • Intoxication.
minors
Minors
  • Minors can avoid most contracts.
    • Must be within reasonable time.
    • Minor must return what had been received from the other party if the minor still has it.
    • Minor must pay the reasonable value of a necessary.
  • Restitution by Minor after Avoidance.
    • Original Consideration Intact.
    • Original Consideration Damaged/Destroyed.
minors5
Minors
  • Recovery of Property.
  • Contracts for Necessaries.
  • Ratification of Minor’s Voidable Contract.
    • No Special Form of Ratification.
    • Reasonable time after Emancipation.
  • Contracts The Minors Cannot Avoid.
    • Educational loans, medical care, court-approved, bank accounts, insurance policies.
mentally incompetent persons
Mentally Incompetent Persons
  • The contract of an MI 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 MI person, a contract made by the insane person is void (not merely voidable).
intoxicated persons
Intoxicated Persons
  • 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.
unilateral mistake
Unilateral Mistake
  • Contracts may be avoided due to mistake by one or both of the parties.
  • Unilateral Mistake.
    • Mistake unknown to the other party usually does not affect the binding character of the agreement.
    • A mistake known to the other contracting party makes the contract avoidable by the victim of the mistake.
mutual mistake
Mutual Mistake
  • Mutual Mistake: When both parties are mistaken about a basic, material fact of the contract, the adversely affected party may avoid the contract.
  • Reformation for Mistake in Transcription or Printing of the Contract.
deception
Deception
  • Innocent misrepresentation: there is a trend to allow it as a ground for avoiding the contract.
  • Fraud: When concealment goes beyond silence and consists of actively hiding the truth, the conduct is fraud rather than nondisclosure.
    • Statements of Opinion are not fraud.
  • Contract is voidable by the innocent person.
deception11
Deception
  • Nondisclosure.
    • General Rule: There is no legal duty to volunteer information to the other party.
    • Exceptions:
      • Serious Defect that could not be discovered.
      • Confidential Relationship.
      • Active Concealment.
pressure
Pressure
  • The free will of a person, essential to the voluntary character of a contract, is lacking if the agreement is obtained by pressure. Contract is voidable.
  • Undue influence: where the beneficiary of the contract is in a position of extreme power over the maker of the contract.
  • Duress:
    • Physical Duress: Threat of physical force that would cause serious personal injury or damage to property.
    • Economic Duress: against free will.
review
Review

Lack of

Contractual

Capacity

Status Incapacity

Minors

Factual Incapacity

Intoxication

Mental

Unilateral Induced by/Known to Other Party

Mistake

Possible

Grounds

for

Avoiding

Contract

Mutual Mistake

Innocent

Misrepresentation

Nondisclosure

Deception

Fraud

Undue Influence

Physical

Pressure

Duress

Economic