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Contractual Capacity

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Title: Contractual Capacity


1
Contractual Capacity
  • Chapter 13

2
Limited Capacity
  • Minors
  • Incompetent Persons
  • Intoxication
  • Mentally Incompetent Persons

3
Mental Incompetence
  • Contracts made by persons who
    are not able to comprehend the subject
    matter, nature and consequences of their actions,
    due to mental illness or intoxications are
    voidable.
  • If a person has been adjudged incompetent by a
    court any contract the enter into is void

4
Minors
  • Minor Someone below the age of 18
  • A minor can enter into any contract that an adult
    can enter into, as long as it is not prohibited
    by law.
  • (for example, the sale of alcoholic
  • beverages).

5
Minors
  • A minor can disaffirm a contract by manifesting
    an intent not to be bound.
  • A contract can ordinarily be disaffirmed at any
    time during minority or for a reasonable time
    after a minor comes of age.

6
Dissafirmance
  • A minor can disaffirm a fully executed contract
    without placing the adult in status quo.
  • A minor must return goods in their possesion

7
Exceptions
  • Misrepresentation of Age
  • Most courts it makes no difference
  • Some courts prohibit the minor to disaffirm
  • Some courts allow the minor to diaffirm but allow
    the adult to sue for damages in tort.

8
Exceptions / Necessaries
  • Necessaries are food, clothing, shelter,
  • medicine, and hospital care-whatever a court
    believes is necessary to maintain a person's
    status.
  • A minor may disaffirm a contract for necessaries
    but will be liable for the reasonable value.
    (Necessaries must be necessary)

9
Ratification
  • When a minor performs acts inconsistent with
    disaffirmance
  • or
    fails to disaffirm an executed
    contract within a reasonable time after reaching
    the age of majority.

10
Legality
  • A contract to do something that is illegal is
    void from the outset and unenforceable.

11
Legality
  • Contracts may be illegal and void because they
    are
  • Contrary to Statute
  • or
  • Contrary to Public Policy

12
Contrary to Statute / Usury
  • Virtually every state has a statute that sets the
    maximum rate of interest that can be charged for
    different types of transactions, including
    ordinary loans.
  • A lender who makes a loan at an interest rate
    above the lawful maximum is guilty of usury.

13
Contrary to Statute / Usury
  • In a few states, a usurious loan is a void
    transaction, and the lender cannot recover either
    the principal or the interest.
  • A number of states allow the lender to
    recover only the principal of a usurious loan
    along with interest up to the legal maximum.
  • In other states, the lender can recover the
    principal amount of the loan but not the interest

14
Contrary to Statute / Gambling
  • All states have statutes that regulate gambling.
    Traditionally, state statutes have deemed
    gambling contracts to be illegal and thus void.
  • Gambling - any scheme that involves
  • distribution of property by chance among persons
    who have paid a valuable consideration for the
    opportunity (chance) to receive the property.
  • Gambling is the creation of risk for the purpose
    of assuming it.

15
Contrary to StatuteLicensing Statutes.
  • All states require that members of certain
    professions or occupations obtain licenses
    allowing them to practice.
  • Such as Physicians, lawyers, real estate
    brokers, architects, electricians, and
    stockbrokers

16
Contrary to StatuteLicensing Statutes
  • When a person enters into a contract with an
    unlicensed individual, the contract may or may
    not be enforceable, depending on the nature of
    the licensing statute.
  • Regulatory - Contract illegal
  • Revenue Raising - Contract enforceable

17
Contracts Contrary to Public Policy / Restraint
of Trade
  • Contracts in restraint of trade (anticompetitive
    agreements) usually adversely affect the public
    (which favors competition in the economy) and
    typically violate one or more federal or state
    statutes.

18
Contracts In Restraint of Trade Exception
  • Covenants not to compete are valid if they are
  • Ancillary to another contract
  • Sale of Business
  • Employment Contract
  • To protect interest created in the contract
  • No more restrictive than necessary to protect
    those interests.

19
Contracts Contrary to Public Policy/Unconscionable
Contracts
  • Contracts which are so unfair that they Shock
    the Conscience
  • Procedural Unconscionability.
  • Substantive Unconscionability.

20
Contracts Contrary to Public Policy/Unconscionable
Contracts
  • Procedural unconscionability has to do with how a
    term becomes part of a contract. Usually
    involves
  • Inconspicuous print,
  • Unintelligible language
    ("legalese"),
  • Lack of an opportunity to read the contract
    or to ask question
  • Vastly superior bargaining power (adhesion
    contracts)

21
Contracts Contrary to Public Policy/Unconscionable
Contracts
  • Substantive unconscionability characterizes
    those contracts, or portions of contracts, in
    which the terms are oppressive or overly harsh.

22
Contracts Contrary to Public Policy/Exculpatory
Clauses.
  • Clauses that release a party from liability in
    the event of monetary or physical injury, no
    matter who is at fault
  • Exculpatory clauses may be enforced when the
    parties are private businesses not involved in
    enterprises considered important to the public
    interest. (health clubs, amusement parks, skiing
    facilities, horse-rental concessions, golf-cart
    concessions, and skydiving organizations.)

23
Contracts Contrary to Public Policy/Exculpatory
Clauses.
  • Generally, an exculpatory clause will not be
  • enforced if the party seeking its enforcement is
    involved in a business that is important to the
    public interest.( public utilities, common
    carriers, banks)
  • Exculpatory clauses in rental agreements for
    commercial property are frequently upheld, but
    contrary to public policy and illegal and
    unenforceable when they are included in
    residential property leases.
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