Chapter 14 & 15 Flashcards
Emancipation of a minor
When minority status is terminated by a legal guardian by relinquishing their right to control the child.
Elements of minor disaffirmance
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
How long can a minor disaffirm a contract?
Throughout minority and for a reasonable time after turning 18 (6 months)
General rule regarding minor disaffirmance if they lied about their age
Minors can disaffirm even if they lied about their age, but some states prohibit disaffirmance in the case of fraud by a minor.
Instances where minors cannot disaffirm
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.
Ratification
The act of accepting or confirming a contract that was previously not enforceable.
When can a minor ratify a contract?
A minor can ratify a contract they entered into as a minor once they turn 18, either expressly or impliedly.
Parent liability in minority contracts
General Rule: Parents are not liable for contracts entered into by their children acting on their own.
Exception: necessaries and when parents co-sign
Test for valid capacity of intoxicated person
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.
Court presumptions when considering the capacity of an intoxicated party
1) Courts presume the contract is valid;
2) Court looks for objective indications to determine the lack of capacity.
How long does a party proven to be intoxicated have to disaffirm the contract?
Must disaffirm while still intoxicated or for a reasonable time after becoming sober. Must also return all consideration received.
Contracts formed by a party previously deemed mentally incompetent are:
Automatically void.
A guardian appointed by the court can enter contracts on their behalf.
Ex. Britney Spears dad
A party who has not been deemed mentally incompetent can rescind a contract if they:
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
Contracts formed with a mentally incompetent party are voidable by
Only the mentally incompetent party
Lucid Interval
Mentally incompetent people can enter a contract if they had capacity when they entered it.
Contract for the sale of organs in Texas
Lacks legality, illegal in Texas, so the contract is unenforceable.
Usury
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.
Gambling contracts
Illegal in all states. Even if gambling is permitted.
Contracts with unlicensed parties
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.
Contracts in Restraint of Trade
Contract where 2 parties agree not to compete against each other with the sole objective to limit competition. Illegal and void.
Covenant not to Compete - Sale of business or employment requirements
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.
2 Types of Unconscionable Contracts
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.
Components that fall under Procedural Unconscionability
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
Adhesion Contract
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.
Common Tells for Substantive Unconscionability
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
Exculpatory Clause
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.
*Factors in determining whether or not to enforce an exculpatory clause
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
Discriminatory Contracts
Party promises to discriminate on the basis of race, color, origin, religion, gender, age, etc. Not enforceable
Pari Delicto
Equally at fault; Both parties are at fault in an illegal contract
Enforcement and Recovery of illegal contracts
1) If the contract is executory, neither party can enforce it
2) If it has already been executed, neither party can recover damages
Instances where a court will issue recovery to an illegal contract
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.
Contracts can be rescinded on a mistake of
Mistake of Fact
Unilateral Mistake definition and when unilateral mistakes are enforceable
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
Bilateral Mistake of Fact
When both parties misunderstand one or more facts. Either party may rescind when both parties are mistaken about the same material fact.
Fraudulent Misrepresentation
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
Elements to qualify as Fraudulent Misrepresentation
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
Innocent Misrepresentation
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.
Undue Influence
When a special, trusting relationship is exploited to greatly influence and overcome a party’s free will. Ex. Attorney-client, older-younger, boss-employee
Duress
When one party was forced into the agreement with threats of wrongful or illegal activities (blackmail). Threat of a civil suit is not unlawful.
Economic Duress
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
