Chapter 13 Outline
I.
II.
Contractual Capacity
A. Minors
B. Intoxicated Persons
C. Mentally Incompetent Persons
Legality
A. Contracts Contrary to Statute
B. Contracts Contrary to Public Policy
C. The Effect of Illegality
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§1: Contractual Capacity
• Contractual Capacity.
The minimum mental capacity required by
law for a party who enters into a contract to
be bound by it. Certain persons are
generally not considered to have sufficient
capacity to be bound by their contracts.
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Contractual Capacity
A. Minors
B. Intoxicated Persons
C. Mentally Incompetent
Persons
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Minors
• In most states, a person is no longer a minor
for contractual purposes at the age 18.
• A minor can enter into any contract that an
adult can.
• A contract entered into by a minor is
voidable at the option of that minor.
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Minor’s Right to Disaffirm
• A contract can be disaffirmed at any time
during minority or for a reasonable period
after the minor comes of age.
• Minor must disaffirm the entire contract.
• Disaffirmance can be expressed or implied.
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Minor’s Obligation on
Disaffirmance
• In most states, minor need only return the
the goods (or other consideration) subject to
the contract, provide the goods are in the
minor’s possession or control.
• In increasing number of states, the minor
must restore the adult to the position held
before the contract was made.
• Case : Dodson v. Shrader (1992).6
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Ratification
• Minor, or after reaching majority, indicates
(expressly or impliedly) an intention to
become bound by a contract made as a
minor.
• Executed v. Executory contracts.
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Parent’s Liability
• Contracts.
– Parents not liable (This is why parents are
usually required to sign any contract made with
a minor).
• Torts (Statutes Vary):
– Minors are personally liable for their own torts.
– Liability imposed on parents only for willful
acts of their minor children.
– Liability imposed on parents for their children
negligent acts that result from their parents’
negligence.
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Intoxication
• Lack of contractual capacity at the time the
contract is being made.
• Contract can be either voidable or valid.
– Courts look at objective indications to
determine if contract is voidable.
• If voidable:
– Person has the option to disaffirm, or
– Person may ratify the contract expressly or
impliedly.
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Mentally Incompetent Persons
• Void.
– If a person has been adjudged mentally incompetent by a
court of law and a guardian has been appointed.
• Voidable.
– If the person does not know he or she is entering into the
contract or lacks the mental capacity to comprehend its
nature, purpose, and consequences.
• Valid.
– If person is able to understand the nature and effect of
entering into a contract yet lack capacity to engage in
other activities.
– Lucid Interval.
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Legality
A. Contracts Contrary to Statute
B. Contracts Contrary to Public
Policy
C. The Effect of Illegality
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§2: Legality
• A contract to do something prohibited by
federal or state statutory law is illegal and
therefore void (never existed).
– Contract that calls for for a tortious act.
– Contract that calls for an act contrary to public
policy.
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Contracts Contrary to Statute
•
•
•
•
Usury.
Gambling.
Sabbath Laws.
Licensing Statutes.
– Case : RCDI Construction v. Spaceplan
(2001).
• Contracts to Commit a Crime.
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Contracts Contrary
to Public Policy
•
•
•
•
•
•
Contracts contrary to public policy are void.
Unconscionable Contracts or Clauses.
Procedural or Substantive Unconscionability.
Exculpatory Clauses.
Discriminatory Contracts.
Contracts for the Commission of a Tort.
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Contracts Contrary
to Public Policy
1.
2.
3.
4.
Contracts in Restraint of Trade
Covenants Not to Compete
Unconscionable Contracts
Exculpatory Clauses
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Contracts Contrary
to Public Policy
• Contracts in Restraint of Trade
– Anti-Competitive Agreements are void.
• Exception: Covenant not to Compete and Sale of Business.
• Exception: Covenant not to Compete in Employment.
• Unconscionable Contracts/Clauses.
– Exculpatory clauses.
– Case : Beaver v. Grand Prix Karting (2001).
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Unconscionable Contracts
• Procedural—one party lacks any
meaningful choice regarding terms because
of small print, lack of opportunity to read
the k, or difficult language.
• Substantive—the k contains terms that
deprive one party of the benefit of their
bargain or a remedy for breach by the other
party.
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Exceptions to the General Rule
•
•
•
•
Justifiable Ignorance of the Facts.
Members of Protected Classes.
Withdrawal from an Illegal Agreement.
Contract Illegal through Fraud, Duress, or
Undue Influence.
___________________
• Severable or Divisible Contracts.
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