Contracts Flashcards
What are the defenses based on lack of capacity?
Contracts of infants (minors), mental incapacity, and intoxication
Contracts of Infants (Minors)
A lack of capacity defense (i.e., contract is voidable) available to infants (“minors”) (think anyone < 18 unless otherwise stated).
Generally, minors lack the capacity to enter into a contract binding on themselves. But note: contractual promises by an adult to a minor are still binding on the adult.
Minors may disaffirm a contract (must disaffirm the contract as a whole) any time before or shortly after turning 18 (the age of majority), in which case they must return anything received under the contract that still remains at the time of disaffirmance.
If the contract is for “necessaries” (food, shelter, clothing, and medical care), a minor who disaffirms will be liable in restitution for the value of the benefits received.
The minor does not, however, have to return any part of the consideration that has been squandered, wasted or negligently destroyed.
A minor may affirm (choose to be bound by the contract as a whole) upon reaching 18 (the age of majority). Affirmance can be express or by conduct (e.g., failing to disaffirm within a reasonable time after reaching majority).
Look for statutory exceptions for student loans, insurance contracts, and employment agreements to safeguard proprietary information.
Mental Incapacity
A lack of capacity defense (i.e., the contract is voidable) for persons whose mental capacity is so deficient that they are incapable of understanding the nature and significance of a contract.
They may disaffirm either when lucid or by an appointed legal representative.
They may affirm during a lucid interval or upon complete recovery, even without formal restoration by judicial action.
Like minors, they are liable in quasi-contract for necessaries (i.e., they are liable in restitution for the value of the benefits received).
After a guardian is appointed, any attempted contracts by an incapacitated person under said guardianship are void.
Intoxicated Persons
A lack of capacity defense (i.e., contract is voidable) for persons who are so intoxicated that they do not understand the nature and significance of their promise.
Contract is voidable only if the other party had reason to know of the intoxication.
The intoxicated person may affirm upon recovery.
The intoxicated person is liable in quasi-contract/restitution for the value of any necessaries furnished during the period of incapacity.
Duress
Duress is a defense that renders a contract voidable. Contracts induced by duress (e.g., where someone is threatened) are voidable and may be rescinded as long as they are not affirmed.
Generally, taking advantage of another person’s economic needs is not duress, but withholding something someone wants or needs will constitute economic duress if: (1) the party threatens to commit a wrongful act that would seriously threaten the other contracting party’s property or finances; and (2) there are no adequate means available to prevent the threatened loss.
Undue Influence
Undue influence is a defense that renders a contract voidable. Contracts induced by undue influence (e.g., where the dominant party is in a confidential or caregiver relationship with the influenced party) are voidable and may be rescinded as long as they are not affirmed.
Elements of undue influence are: (1) undue susceptibility to pressure by one party, and (2) excessive pressure by the other party.
