Ch 13: Capacity And Legality (Contracts)

Front 1

age of majority

Back 1

when a person is no longer a minor - usually 18 years

Front 2

emancipation

Back 2

a child's parent or legal guardian relinquishes the legal right to exercise control over the child
(minority status terminated by this)

Front 3

disaffirmance

Back 3

the legal avoidance, or setting aside, of a contractual obligation
*must be towards the entire contract, not a portion of it

Front 4

majority rule

Back 4

the minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor's possession or control

Front 5

minority rule

Back 5

the duty to restore the adult party to the position that she or he held before the contract was made
*current trend to hold minor's responsible for damage, ordinary wear and tear, and the depreciation of goods

Front 6

Exceptions to a Minor's Right to Disaffirm

Back 6

Misrepresentation of Age
Contracts of necessaries
Insurance and Loans

Front 7

Necessaries

Back 7

items that fulfill basic needs such as food, clothing, shelter, and medical services, at a level of value required to maintain the minor's standard of living or financial and social status
-a minor who enters into a contract for necessaries may disaffirm the contract but remains liable for the reasonable value of the goods

Front 8

Requirements for a contract to qualify as a contract for necessaries

Back 8

1. The item contracted for must be necessary for the minor's subsistence
2. The value of the necessary item must be up to a level required to maintain the minor's standard of living or financial and social status
3. the minor must not be under the care of a parent or guardian who is required to supply this item
*Unless these three criteria are met, the minor can disaffirm the contract WITHOUT being liable for the reasonable value of the goods used

Front 9

ratification

Back 9

the act of accepting and giving legal force to an obligation that previously wa not enforceable

Front 10

express ratification

Back 10

takes place when the individual states orally or in writing that he or she intends to be bound by the contract

Front 11

implied ratification

Back 11

takes place when the individual indicates an intent to abide by the contract

Front 12

parents' liability

Back 12

Parents are genearlly not liable for contracts made by minor children acting on their own

Front 13

intoxication

Back 13

condition in which a person's normal capacity to act or think is inhibited by alcohol or some other drug
- if contract made when intoxicated, it can be voidable or valid (and thus enforceable)
- for voidable: the person must prove that the intoxication impaired his reason and judgement severly
-if the person understoof the legal consequences of the agreement, the contract will be enforceable

Front 14

dissaffirmance in intoxication

Back 14

If contract voidable bc of a person's intoxication, that person has the option of disaffirming it while intoxicated and for a reasonable time after becoming sober
*person must be able to return all consideration received

Front 15

Mental Incompetence - when the contract will be void

Back 15

if the court has previously determined that a person is mentally incompetent, any contract made by the mentally incompetent person is void - no contract exists

Front 16

Mental Incompetence - when the contract will be voidable

Back 16

if a court has not previously judged a person to be a mentally incompetent but the person was incompetent at the time the contract was formed - the contract may be voidable
-voidable if the person did not know he or she was entering into the contract or lacked the mental capacity to comprehend its nature, purpose, and consequences

Front 17

Mental Incompetence - when the contract will be valid

Back 17

A contract entered into by a mentally incompetent person may be valid if the person had capacity at the time the contract was formed

Front 18

lucid interval

Back 18

a temporary restoration of sufficient intelligence, judgement, and will during which he or she will be considered to have full legal capacity

Front 19

Contracts Contrary to Statute

Back 19

- Contracts to commit a crime
-Usury
-Gambling
-Online Gambling
-Sabbath (Sunday) Laws
-Licensing Statutes
*being contrary to a statute makes the contract illegal and unenforceable

Front 20

Contracts to Commit a Crime

Back 20

- These are illegal
*If the object or performance of the contract be rendered illegal AFTER the contract has been entered into, the contract is still considered to be discharged by law

Front 21

Usury

Back 21

A lender who makes a loan at an interest rate above the lawful maximum commits this crime
*every state has a statute that sets the maximum rate of interest that can be charged for different types of transactions, including ordinary loans

Front 22

Gambling

Back 22

any scheme that involves a distribution of property by chance among persons who have paid a valuable consideration for the opportunity (chance) to receive the property
*some states allow gambling, some only certain types of gambling

Front 23

Online Gambling

Back 23

'if the person engaged in gambling is located in New York, then New York is the location where the gambling occured" - this is according to ONE case
-other state courts varry

Front 24

Blue Laws

Back 24

prohibit the formation or performance of certain contracts on a Sunday
*all contracts entered into on Sunday are illegal but can be ratified during a weekday
*many states do not enforce Sunday laws, some state courts have held these to be unconstitutional because they interfere with the freedom of religion

Front 25

Licensing Statutes

Back 25

When a person enters into a contract with an unlicensed individual, the contract may still be enforceable
-If statue expressly declares that a lack of a license bars the enforcement of work-related contracts: VOID
-If statue doesn't:
--if purpose is to protect the public from unauthorized individual's - it is normally illegal and unenforceable
-- if purpose is to raise government revenues a contract entered into without an unlicensed practioner is enforceable (although the unlicensed person is usually fined)

Front 26

Contracts Contrary to Public Policy

Back 26

-Contracts in restraint of trade
-Unconscionable Contracts or clauses
-Exculpatory clauses
-Dscriminatory Clauses

Front 27

covenant not to compete (sale of ongoing business)

Back 27

a restrictive covenant
-generally contracts in restraint of trade are illegal but this is an exception
-often contained as ancillary clauses in contracts concerning the sale of an ongoing business
- created when a seller agrees not to open a new store in a certain geographic area surrounding the existing store
(Ex: a well known merchant sellers her store and opens a competing business a block away - this covenant prevents this behavior)

Front 28

covenant not to compete (Employment contracts)

Back 28

People in middle- or upper-level management positions commonly agree not to work for competitors or not to start competing businesses for a specified period of time after termination of employment
-these are legal as long as the specified period of time is not excessive in duration and the geographic restriction is reasonable

Front 29

unconscionable

Back 29

contracts that are so uncrupulous or grossly unfair as to be "void of conscience"
(procedural or substantive)

Front 30

Procedural unconscionability

Back 30

how a term becomes part of a contract and involves factors that make it difficult for a party to know or understand the contract terms (Ex: inconspicuous print, unintelligible language)
-Also, contracts entered into because of one party's vastly superior bargaining power

Front 31

adhesion contract

Back 31

a contract written exclusiively by one party (the dominant party, usually the seller or creditor) and presented to the other (the adhering party, usually the buyer or borrower) on a take-it-or-leave-it basis
-The adhering party has no opportunity to negotiate

Front 32

Substantive unconscionability

Back 32

characterizes those contracts, or portions of contracts, that are oppressive or overly harsh

Front 33

exculpatory clause

Back 33

clauses that release a party from liability in the event of a monetary or physical injury NO MATTER WHO IS AT FAULT
-courts dislike them but do enforce them when they don't contravene public policy, are not ambiguous, and do not claim to protect parties fromm liability for intentional misconduct
- Ex: health clubs, racetracks, amusement parks, skiing facilities use these to limit their liability for patrons' injuries

Front 34

discriminatory contracts

Back 34

contracts in which a party promises to discriminate on the basis of race, color, national origin, religion, gender, age, or disability are contrary to statute and public policy - are unenforceable

Front 35

il pari delicto

Back 35

"equally at fault"
-in most illegal contracts both parties are considered "equally at fault"
- contract is void (deemed never to have existed)

Front 36

Exceptions to General Rule (that neither party to an illegal bargain can sue for breach)

Back 36

-Justifiable Ignorance of the facts
-Members of Protected Classes
-Withdrawal from an Illegal Agreement
-Contract Illegal through Fraud, Duress, or Undue Influence

Front 37

Justifiable Ignorance of the facts (exceptions)

Back 37

when one of the parties is relatively innocent, courts will allow the parties to return to their original positions

Front 38

Members of Protected Classes (exceptions)

Back 38

when a statute is clearly designed to protect a certain class of people, a member of that class can enforce a contract in violation of the statute even though the other party cannot.

Front 39

Withdrawal from an Illegal Agreement

Back 39

If an agreement has been only partly carried out and the illegal portion of the bargain has not yet been performed, the party rendering performance can withdraw from the contract and recover the performance or its value

Front 40

Contract Illegal through Fraud, Duress, or Undue Influence

Back 40

When a party has been induced to enter into an illegal bargain by fraud, duress, or undue influence on the part of the other party, that party will be allowed to recover for the performance or its value

Front 41

Severable contracts (divisible)

Back 41

consists of distinct part that can be performed separately, with separate consideration provided for each part
*if severable into legal and illegal portions, a court may enforce the legal portion but not the illegal portion