Title: Contractual Capacity
1Contractual Capacity
2Limited Capacity
- Minors
- Incompetent Persons
- Intoxication
- Mentally Incompetent Persons
3Mental 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
4Minors
- 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).
5Minors
- 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.
6Dissafirmance
- A minor can disaffirm a fully executed contract
without placing the adult in status quo. - A minor must return goods in their possesion
7Exceptions
- 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.
8Exceptions / 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)
9Ratification
- 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.
10Legality
- A contract to do something that is illegal is
void from the outset and unenforceable.
11Legality
- Contracts may be illegal and void because they
are -
- Contrary to Statute
- or
- Contrary to Public Policy
12Contrary 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.
13Contrary 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
14Contrary 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.
15Contrary 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
16Contrary 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
17Contracts 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.
18Contracts 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.
19Contracts Contrary to Public Policy/Unconscionable
Contracts
- Contracts which are so unfair that they Shock
the Conscience - Procedural Unconscionability.
- Substantive Unconscionability.
20Contracts 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)
21Contracts Contrary to Public Policy/Unconscionable
Contracts
- Substantive unconscionability characterizes
those contracts, or portions of contracts, in
which the terms are oppressive or overly harsh.
22Contracts 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.)
23Contracts 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.