Comprehensive Volume, 18th Edition
Chapter 14: Capacity
and Genuine Assent
Contractual Incapacity
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14
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.
Contractual Incapacity
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:
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being a minor
insanity
intoxication
Factors Which May Invalidate Contract
Lack of
Contractual
Capacity
Status Incapacity
Minors
Factual Incapacity
Intoxication
Unilateral Induced by
or Known to Other Party
Possible
Grounds
for
Avoiding
Contract
Mental
Mistake
Mutual Mistake
Innocent
Misrepresentation
Deception
Nondisclosure
Fraud
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Undue Influence
Pressure
Duress
Physical
Economic
Incapacity of Minors
Minors can avoid most contracts.
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, (item essential to basic living
needs) the minor must pay the reasonable
value of any benefit received.
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Incapacity Due to Insanity
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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.
Incapacity Due to Intoxication
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.
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Involuntary Agreement
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.
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Mistake
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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.
When both parties are mistaken about a basic,
material fact of the contract, the adversely
affected party may avoid the contract.
Deception
Innocent misrepresentation generally has no
effect on the agreement, though there is a trend
to allow it as a ground for avoiding the contract.
When one party knows of a fact that has a
bearing on the transaction, the failure to
volunteer that fact is called nondisclosure.
When concealment goes beyond silence and
consists of actively hiding the truth, the conduct
is fraud rather than nondisclosure.
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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.
Pressure
The free will of a person, essential to the
voluntary character of a contract, is lacking if
the agreement is obtained by pressure.
Contracts made under pressure are voidable;
this includes:
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Undue influence, where the beneficiary of the
contract is in a position of extreme power over the
maker of the contract
Threats of extreme economic loss (economic duress)
Threat of physical force that would cause serious
personal injury or damage to property (physical
duress)
Possible Remedies for Lack of
Genuine Agreement
Deception
Pressure
Mistake
There is NOT a
genuine
agreement
of the parties
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Avoidance or
Rescission
Damages
Reformation