Anderson 19th Ed. 2005

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Chapter 14CONTRACTS CAPACITY AND GENUINE ASSENT
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Elements of a Contract

• Elements of a contract
• an agreement
• between competent parties
• based on genuine assent of the parties
• supported by consideration
• made for a lawful objective
• in the form required by law if any

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Contractual Capacity

• An agreement that otherwise appears to be a
  contract may not be binding because one of the
  parties lacks contractual capacity.
• In such a case, the contract is ordinarily
  voidable at the election of that party who lacks
  contractual capacity. In some cases, the contract
  is void.
• Status Incapacity.
• Factual Incapacity.

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Contractual Capacity

• Contractual incapacity is the inability, for
  mental or physical reasons, to understand that a
  contract is being made and to understand its
  general terms and nature.
• Incapacity may be due to
• being a minor.
• Insanity.
• Intoxication.

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Minors

• Minors can avoid most contracts.
• Must be within reasonable time.
• Minor must return what had been received from the
  other party if the minor still has it.
• Minor must pay the reasonable value of a
  necessary.
• Restitution by Minor after Avoidance.
• Original Consideration Intact.
• Original Consideration Damaged/Destroyed.

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Minors

• Recovery of Property.
• Contracts for Necessaries.
• Ratification of Minors Voidable Contract.
• No Special Form of Ratification.
• Reasonable time after Emancipation.
• Contracts The Minors Cannot Avoid.
• Educational loans, medical care, court-approved,
  bank accounts, insurance policies.

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Mentally Incompetent Persons

• The contract of an MI person is voidable to much
  the same extent as the contract of a minor.
• An important distinction is that if a guardian
  has been appointed for the MI person, a contract
  made by the insane person is void (not merely
  voidable).

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Intoxicated Persons

• An intoxicated person lacks contractual capacity
  to make a contract if the intoxication is such
  that the person does not understand that a
  contract is being made.

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Unilateral Mistake

• Contracts may be avoided due to mistake by one or
  both of the parties.
• Unilateral Mistake.
• Mistake unknown to the other party usually does
  not affect the binding character of the
  agreement.
• A mistake known to the other contracting party
  makes the contract avoidable by the victim of the
  mistake.

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Mutual Mistake

• Mutual Mistake When both parties are mistaken
  about a basic, material fact of the contract, the
  adversely affected party may avoid the contract.
• Reformation for Mistake in Transcription or
  Printing of the Contract.

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Deception

• Innocent misrepresentation there is a trend to
  allow it as a ground for avoiding the contract.
• Fraud When concealment goes beyond silence and
  consists of actively hiding the truth, the
  conduct is fraud rather than nondisclosure.
• Statements of Opinion are not fraud.
• Contract is voidable by the innocent person.

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Deception

• Nondisclosure.
• General Rule There is no legal duty to volunteer
  information to the other party.
• Exceptions
• Serious Defect that could not be discovered.
• Confidential Relationship.
• Active Concealment.

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Pressure

• The free will of a person, essential to the
  voluntary character of a contract, is lacking if
  the agreement is obtained by pressure. Contract
  is voidable.
• Undue influence where the beneficiary of the
  contract is in a position of extreme power over
  the maker of the contract.
• Duress
• Physical Duress Threat of physical force that
  would cause serious personal injury or damage to
  property.
• Economic Duress against free will.

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Review