Chapter 14 & 15

Question 1

Emancipation of a minor

Answer 1

When minority status is terminated by a legal guardian by relinquishing their right to control the child.

Question 2

Elements of minor disaffirmance

Answer 2

1) A minor must express their intent to disaffirm thorough words or conduct
2) Minor must disaffirm the entire contract, not just parts of it
3) Only minor can disaffirm, adult cannot
4) Minor must return both parties to status quo

Question 3

How long can a minor disaffirm a contract?

Answer 3

Throughout minority and for a reasonable time after turning 18 (6 months)

Question 4

General rule regarding minor disaffirmance if they lied about their age

Answer 4

Minors can disaffirm even if they lied about their age, but some states prohibit disaffirmance in the case of fraud by a minor.

Question 5

Instances where minors cannot disaffirm

Answer 5

1) Marriage and armed services contracts
2) When a minor enters a contract for necessaries, they can disaffirm but remains liable for the reasonable value of the goods already received.

Question 6

Ratification

Answer 6

The act of accepting or confirming a contract that was previously not enforceable.

Question 7

When can a minor ratify a contract?

Answer 7

A minor can ratify a contract they entered into as a minor once they turn 18, either expressly or impliedly.

Question 8

Parent liability in minority contracts

Answer 8

General Rule: Parents are not liable for contracts entered into by their children acting on their own.
Exception: necessaries and when parents co-sign

Question 9

Test for valid capacity of intoxicated person

Answer 9

1) While intoxicated, did they understand the nature of the transaction?
2) While intoxicated, did they understand the legal consequences of their actions? If no to either, than they lacked capacity.

Question 10

Court presumptions when considering the capacity of an intoxicated party

Answer 10

1) Courts presume the contract is valid;
2) Court looks for objective indications to determine the lack of capacity.

Question 11

How long does a party proven to be intoxicated have to disaffirm the contract?

Answer 11

Must disaffirm while still intoxicated or for a reasonable time after becoming sober. Must also return all consideration received.

Question 12

Contracts formed by a party previously deemed mentally incompetent are:

Answer 12

Automatically void.
A guardian appointed by the court can enter contracts on their behalf.
Ex. Britney Spears dad

Question 13

A party who has not been deemed mentally incompetent can rescind a contract if they:

Answer 13

1) Did not know they were entering into a contract; or
2) Lacked the mental capacity to understand its nature, purpose, and consequences
*These must be true AT TIME OF ENTERING THE CONTRACT

Question 14

Contracts formed with a mentally incompetent party are voidable by

Answer 14

Only the mentally incompetent party

Question 15

Lucid Interval

Answer 15

Mentally incompetent people can enter a contract if they had capacity when they entered it.

Question 16

Contract for the sale of organs in Texas

Answer 16

Lacks legality, illegal in Texas, so the contract is unenforceable.

Question 17

Usury

Answer 17

A contract that exceeds the maximum interest rate. In Texas, the max rate is 10%
Usurious contracts are usually not voided, just changed to a 10% rate by the court.

Question 18

Gambling contracts

Answer 18

Illegal in all states. Even if gambling is permitted.

Question 19

Contracts with unlicensed parties

Answer 19

1) If the purpose of the license is to protect the public (accountant, lawyer), than the contract is illegal and unenforceable.
2) If the purpose of the license is revenue raising (hunting/fishing), a court may enforce it and fine the unlicensed party.

Question 20

Contracts in Restraint of Trade

Answer 20

Contract where 2 parties agree not to compete against each other with the sole objective to limit competition. Illegal and void.

Question 21

Covenant not to Compete - Sale of business or employment requirements

Answer 21

To be enforceable, geographic and time restrictions must be reasonable.
Covenant not to Compete against “common callings” are illegal. In Texas “common calling” includes doctors and lawyers.

Question 22

2 Types of Unconscionable Contracts

Answer 22

1) Procedural Unconscionability: Party’s lack of understanding deprived him of any meaningful choice.
2) Substantive Unconscionability: When contracts - or portions of contracts - are oppressively harsh.

Question 23

Components that fall under Procedural Unconscionability

Answer 23

1) Inconspicuous print (small font)
2) Unintelligible language
3) Lack of opportunity to read the contract or ask questions about its meaning
4) Disparity between the parties
5) Adhesion Contracts that unreasonably favor the drafter

Question 24

Adhesion Contract

Answer 24

Contract that is exclusively written by one party and presented on a “take it or leave it” basis. Those that unreasonably favor the drafter are unconscionable.

Question 25

Common Tells for Substantive Unconscionability

Answer 25

Contracts that deprive one party of benefits under the agreement, or leave that party without a chance of remedy for nonperformance of the other.
Ex. One party can sue while the other must go to arbitration

Question 26

Exculpatory Clause

Answer 26

Clauses that release a party from liability in the event of monetary or physical injury, no matter who is at fault. Includes any attempt by the first party to hold the other party responsible for their own actions.

Question 27

*Factors in determining whether or not to enforce an exculpatory clause

Answer 27

1) Should be obvious; in bold, all caps, different color
2) Wording should be clear and understandable so that an ordinary person knows what they are agreeing to.
3) The bargaining power of each party and public policy
4) The intent of the parties; Intent to relieve a party from liability must be clear and unequivocal
5) Clause cannot shield parties from intentional conflict

Question 28

Discriminatory Contracts

Answer 28

Party promises to discriminate on the basis of race, color, origin, religion, gender, age, etc. Not enforceable

Question 29

Pari Delicto

Answer 29

Equally at fault; Both parties are at fault in an illegal contract

Question 30

Enforcement and Recovery of illegal contracts

Answer 30

1) If the contract is executory, neither party can enforce it
2) If it has already been executed, neither party can recover damages

Question 31

Instances where a court will issue recovery to an illegal contract

Answer 31

1) Justifiable ignorance of the facts (contract with an unlicensed professional)
2) Being a member of a protected class who may enforce an otherwise illegal contract against themselves (not receiving overtime after 40 hours because contract didn’t specify)
3) Withdrawing from an illegal agreement before any illegal activity occurred.
4) Contract was entered in due to fraud, duress, undue influence; and
5) Divisible contracts where certain parts can be performed separately from the illegal parts. Each part must have separate consideration.

Question 32

Contracts can be rescinded on a mistake of

Answer 32

Mistake of Fact

Question 33

Unilateral Mistake definition and when unilateral mistakes are enforceable

Answer 33

Mistake by one party; doesn’t usually give the mistaken party right to recovery unless
1) The other party knew or should have known that a mistake of fact was made
2) The error was due to a substantial mathematical mistake

Question 34

Bilateral Mistake of Fact

Answer 34

When both parties misunderstand one or more facts. Either party may rescind when both parties are mistaken about the same material fact.

Question 35

Fraudulent Misrepresentation

Answer 35

When a party is induced into joining a contract because the other party fraudulently misrepresented a material fact with the intention to deceive the other party.
Ex. Telling the other party it’s a van gogh but you know its a fake

Question 36

Elements to qualify as Fraudulent Misrepresentation

Answer 36

1) Misrepresentation of material fact. Statements of opinions are not fraudulent unless coming from an expert.
2) Intent to deceive (scienter): Making a statement that they know is not true or with a reckless disregard for the truth
3) Innocent party relies on the misrepresentation of fact
4) To collect damages, the party must have been harmed as a result of the misrepresentation

Question 37

Innocent Misrepresentation

Answer 37

When a party makes a statement they believe to be true, but is not, they are guilty of innocent misrepresentation. The other party can rescind the contract, but can’t receive damages.

Question 38

Undue Influence

Answer 38

When a special, trusting relationship is exploited to greatly influence and overcome a party’s free will. Ex. Attorney-client, older-younger, boss-employee

Question 39

Duress

Answer 39

When one party was forced into the agreement with threats of wrongful or illegal activities (blackmail). Threat of a civil suit is not unlawful.

Question 40

Economic Duress

Answer 40

If a party creates a need for an item and then exacts a very high price for the item.
Ex. Ben provides insulin for the town and steals Abel’s insulin so he must pay a crazy high price for it from Ben