Defenses and Validity

Question 1

Under what circumstances does someone lack the capacity to contract?

Answer 1

1. Minors
2. Mental incapacity
3. Intoxication

Question 2

What is rescission?

Answer 2

An equitable remedy for when a contract is voidable by either party.
Neither party to a rescinded contract has any further rights or obligations, with the exception of restitution for any benefit conferred in performance of the rescinded contract.

Question 3

What is the validity rule for minors?

Answer 3

The contract is voidable at the option of the minor until a reasonable time after they reach the age of majority.

Question 4

What is the necessity exception for minors?

Answer 4

If the minor is emancipated or contracts out of necessity, the court may find the contract enforceable, and the minor is liable for the “reasonable” value under a quasi-contract

Question 5

What are the two types of mental incapacity?

Answer 5

1. Cognitive incapacity: where the person is unable to understand the very nature of the transaction and the consequences
2. Volitional incapacity: when a person is aware of the basic nature and effect of a transaction, but is incapable of acting in a reasonable manner with respect to the transaction (ex: an addiction)

Question 6

What is the rule for contract validity involving cognitive incapacity?

Answer 6

A cognitive incapacity will render the contract voidable in itself.
Exception: when the other party is unaware of the incapacity, the terms are fair, and nonenforcement would be unjust under the circumstances.

Question 7

What is the rule for contract validity involving volitional incapacity?

Answer 7

A volitional incapacity will render a contract voidable only if the other party had reason to know of the incapacity.
Exception: the person lacking capacity may ratify the contract if at some point they regain capacity.

Question 8

What is the rule for contract validity involving an adjudicated guardianship?

Answer 8

Any agreement made by a person under an adjudicated guardianship is automatically void.

Question 9

What is the rule for contract validity involving an intoxicated person?

Answer 9

The contract is voidable at the option of the intoxicated person ONLY if the other party has reason to know of their intoxication.
Ratification is common, because any effort at rescission must be very prompt after becoming sober.