Chapter 12 Flashcards
Persons without Contractual Capacity (to enter a contract)
1) minors
2) Mentally incompetent persons
3) Intoxicated Persons
Minors-Infancy Doctrine
Infancy Doctrine gives minors rights to:
1) disaffirm (or cancel) most contracts they have entered into with adults.
2) choose whether to enforce a contract (i.e., the contract is voidable by a minor)
3) the adult party is bound to the minor’s decision.
* if both parties to a contract are minors, both parties have the right to disaffirm the contract.
* a minor may not affirm one part of a contract and disaffirm another part.
Minors-Disaffirmance
the act of a minor to rescind a contract under the infancy doctrine. Disaffimance may be done orally, in writing, or by the minor’s conduct.
*the contract may be disaffirmed at any time prior to the person’s reaching the age of majority plus a “reasonable time.”
Minor’s Duty of Restoration
a rule that states that a minor is obligated only to return the goods or property he or she has received from the adult in the condition it is in at the time of disaffimance, even if the item has been consumed, lost, or destoryed or has depreciated in value by the time of disaffirmance.
Minor’s Duty of Restitution
A rule that states that if a minor has transferred money, property, or other valuables to the competent party before disaffirming the contract, that party must place the minor in status quo.
- the minor must be restored to the same position he or she was in before the minor entered into the contract. If the consideration has been sold or has been depreciated in value, the competent party must pay the minor the cash equivalent.
- most states provide that the minor owes a duty of restitution and must put the adult in status quo upon disaffirmance of the contract if the mionr’s intentional, reckless, or grossly negligent conduct caused the loss of value to the adult’s property. (ex. if a minor misrepresents their age)
Minors-Ratification
if a minor does not disaffirm a contract either during the period of minority or within a reasonable time after reaching the age of majority, the contact is considered ratified (accepted). Hence, the minor (who is now an adults) is bound by the contract; the right to disaffirm the contract is lost. Note that any attempt by a minor to ratify a contract while still a minor can be disaffirmed just as the original contract can be disaffirmed.
Minors-Parents’ Liability for Their Children’s Contracts
- parent’s own a legal duty to provide food, clothing, shelter, and other necessaries of life for their minor children.
- parents are liable for their children’s contracts for necessaries of life if they have not adequately provided such items.
- parental duty of support terminates if a minor becomes emancipated.
Minors- Emancipation
the act or process of a minor voluntarily leaving home and living apart from this or her parents.
Minors-Necessaries of Life
food, clothing, shelter, medical care, and other items considered necessary to the maintenance of life. *minors must pay the reasonable value of necessaries of life for which they contract.
Doctrine of Quasi-contract
*seller’s recovery is based on the equitable doctrine of quasi-contract rather than on the contract itself.
the minor is obligated only to pay the reasonable value of the goods or services received.
Mentally Incompetent Persons
- will not be bound by the contract.
- could arise because of mental illness brain damage, mental retardation, senility, and the like.
- to be relieved of his or her duties under a contract they must:
1) must have been legally insane at the time of entering into the contract. *called legal insanity. - most state’s use the objective cognitive, understanding test to determine legal insanity, under this test, the person’s mental incapacity must render that person incapable of understanding or comprehending the nature of the transaction.
- mere weakness of intellect, slight psychological or emotional problems, or delusions, does not constitute legal insanity.
Mentally Incompetent Persons
two cases where a person is considered legally insane:
1) Adjudged insane
2) Insane but not adjudged insane
Adjudged Insane
declared legally insane by a proper court or administrative agency. A contract entered into by a person adjudged insane is void.
*The court-appointed guardian is the only one who has the legal authority to enter into contracts on behalf of the person who has been adjudged insane.
Insane but not adjudged insane
being insane but not having been adjudged insane by a court or an administrative agency.
- a contract entered into by such person is generally voidable. Some states hold that such a contract is void.
- contract is voidable by the insane person; the competent party cannot void the contract.
- if a person has alternating periods of sanity and insanity, so any contract made by such persons during a lucid interval are enforceable. contracts made while the person was not legally sane can be disaffirmed.
- insane persons are liable in quasi-contract to pay the reasonable value for the necessaries of life they receive.
Intoxicated Persons
a person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence.
- Under the majority rule, the contract is voidable only if the person was so intoxicated when the contract was entered into that he or she was incapable of understanding or comprehending the nature of the transaction.
- intoxicated persons are liable in quasi-contract to pay the reasonable value for necessaries they receive.
Disaffirmance Rule
Adjudged insane: contract is void, neither party can enforce the contract.
Insane but not adjudged insane: contract is voidable by the insane person; the competent party cannot void the contract.
Covenant not to compete
a contract that provides that a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for a specified time following the sale of the business or termination of employment. Also called a noncompete clause.
In order to be lawful they need to b reasonable in 3 respects:
1) line of business protected
2) the geographic area protected
3) the duration of the restriction.
*a convenant that is found to be unreasonable is not enforceable as written.
Exculpatory Clause (Release of liability clause)
a contractual provision that relieves one (or both) of the parties to a contract from tort liability for ordinary negligence. *also known as a release of liability clause.
- can relieve a party of liability for ordinary negligence.
- cannot be used in a situation involving willful conduct, intentional torts, fraud, recklessness, or gross negligence.
- do not have to be reciprocal (one party may be relieved of tort liability, whereas the other party is not).
- exculpatory clauses that either affect the public interest or result from superior bargaining power are usually found to be void as against public policy.
Unconscionable Contracts
a contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust.
Elements of Unconscionability
The following elements must be shown to prove that a contract or a clause in a contract is unconscionable:
1) the parties possessed severely unequal bargaining power.
2) the dominant party unreasonably used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms.
3) the adhering party had no reasonable alternative.
What will a court do if they find a contract clause unconscionable
1) refuse to enforce the contract
2) refuse to enforce the unconscionable clause but enforce the remainder of the contract.
3) limit the applicability of any unconscionable clause so as to avoid any unconscionable result.
