CHAPTER 12 CONTRACTUAL CAPACITY AND REALITY OF CONSENT

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CHAPTER 12 CONTRACTUAL CAPACITY AND REALITY OF
CONSENT
DAVIDSON, KNOWLES FORSYTHE Business Law Cases
and Principles in the Legal Environment (8th Ed.)
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LEGAL CAPACITY

• For a contract to be considered valid and
  enforceable, the parties must have the legal
  ability to bind themselves to the agreement.
• Incapacity is the exception, not the rule.
• Burden of proof regarding incapacity falls on the
  party raising it as a defense to enforce the
  contract or as basis for rescission of the
  contract.

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LEGAL CAPACITY

• Law determines contractual capacity by looking at
  the relative bargain power of the parties.
• Issues of contractual capacity can arise if
  contract involves minors, persons lacking mental
  capacity, aliens, convicts, and in some
  states-married women.
• Contracts made by these people may be absolutely
  void, voidable (the insane), or valid (if lucid
  when contract was formed).

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MINORS

• Most states no longer use common law but instead
  use statutory law.
• Common Law anyone under the age of 21.
• Statutory Law in most states those under the
  age of 18.
• Some states allow for termination of infancy
  status upon marriage or emancipation.
• Emancipation free from the control or power of
  another.

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MINORS

• Disaffirmance/Recission
• To protect minors in dealing with adults, the law
  allows minors to disaffirm (avoid) their
  contract.
• Except in certain specialized cases.
• Necessaries.
• Disaffirms contract, action results in a voidable
  contract.
• The right to disaffirm is absolute and personal
  to the minor.

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MINORS

• Disaffirmance must be in total to be effective.
• Minor can disaffirm either expressly (verbal or
  written) or implied by course of conduct.
• For disaffirmance to be effective, minor must
  objectively manifest intent not to be bound by
  the contract.
• Duty of Restoration the minor must return to
  the adult the property or other consideration
  that was the object of the contract.

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MINORS

• Rescission ability to have the contract set
  aside.
• Parent or other adult co-sign the contract.
• Misrepresentation of Age.
• Minor intentionally misrepresents age.
• The contract can be voided anytime during age of
  minority or a reasonable time upon reaching the
  age of majority.
• Power of disaffirmance, whether contract is
  executory or executed.

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MINORS

• Ratification.
• Minor has indicated approval of the contract.
• Minor has indicated an intention to be bound by
  the provisions of the contract.
• Takes two separate forms
• Express or
• Implied.

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MINORS

• Necessaries.
• Things that directly foster the minors
  well-being.
• Even is absence of ratification a minor will
  still be liable for transactions if the adult
  provided the necessaries.
• Rule applied subjectively.

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MINORS

• Special Statutes.
• State Legislatures make minors liable in a
  variety of circumstances according to special
  statutes.
• Torts and Crimes.
• Law protects adults interest when an adult has
  suffered losses owing to minors torts and
  crimes.
• Cannot disaffirm unless minor is of tender years
  (too young to understand the consequences of
  his/her actions).

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INSANE PERSONS

• Lack the capacity to make a binding contract.
• Person must be so mentally infirm or deranged.
• Lunacy, mental retardation, senility, alcohol or
  drug abuse are irrelevant.

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INSANE PERSONS

• Effects of Transactions by Insane Persons.
• Guardian has the legal capacity to contract.
• To disaffirm a contract, person must prove
  insanity at the time of contracting.
• To determine if transaction is void, voidable or
  enforceable depends on facts.
• Contract is absolutely void if court judges
  insanity.
• Insane person regains sanity the person may
  ratify contract made during period of insanity.

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INSANE PERSONS

• Necessaries.
• Law makes insane persons liable for necessaries
  in quasi contract.
• Fewer controversies arise regarding whether
  medical or legal services are necessaries.

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INTOXICATED PERSONS

• Validity of a contract depends on the degree of
  intoxication.
• If intoxication limits mental capacity of the
  individual, contract is voidable at the option of
  the intoxicated person. If mental capacity is
  not affected, contract is valid and enforceable.

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ALIENS

• Citizens of a foreign country.
• Depends on treaties between countries and legal
  and illegal alien designations.
• Enemy aliens are countries we are officially at
  war, and cannot enforce contracts.

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CONVICTS

• Person convicted of a felony or treason has
  certain contractual disabilities, in many states.
• Disabilities applicable only during imprisonment.
  

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MARRIED WOMEN

• Under early common law, married womens contracts
  were void.
• Law viewed women as their husbands property.
• Reflected in Married Womens Property Acts.
• Almost eliminated by all states by statute or
  judicial decision.

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THE REQUIREMENT OF REALITY OF CONSENT

• Law has to ascertain whether consent given by
  parties is real or whether the facts differ from
  those to which the parties have agreed.
• Law requires reality of consent as a prerequisite
  to form a contract.

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FRAUD

• Deliberate misrepresentation of a material fact
  with the intent to induce another person to enter
  into a contract that will be injurious to that
  person.

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FRAUD

• Elements of Fraud.
• Misrepresentation of a fact.
• Materiality of the fact.
• Defendant commits scienter.
• Intent to deceive.
• Plaintiff relied on the deception.
• Injury or detriment.

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FRAUD

• Silence.
• At common law mere silence was not fraud.
• Fraud necessitates some sort of overt
  communication.
• Cannot be liable for fraud unless said or done
  something.
• Modern trend is to reject this idea.

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MISREPRESENTATION

• Lacks the element of scienter and intent to
  deceive.

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MISTAKE

• Occurs when the parties are wrong about the
  existence or absence of a past or present fact
  that is material to their transaction.
• Parties must be wrong about material facts.
• Legal mistake not synonymous with ignorance,
  inability or inaccurate judgements relating to
  value or quality.

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MISTAKE

• Unilateral Mistake.
• Only one party is mistaken about a material fact.
• Bilateral Mistake.
• Both parties are in error about the essence of
  the agreement.
• Reformation.
• Rewrite the contract to reflect the parties
  actual intentions.

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DURESS

• Other party has forced one into the contract
  against ones will.
• Coercion must be extreme that the victim has lost
  all ability to assent freely and voluntarily to
  the transaction.
• Evidence of physical threats.
• Threats that cause intense mental anguish.

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UNDUE INFLUENCE

• Use of relationship of trust and confidence to
  extract contractual advantages.

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UNCONSCIONABILITY

• May signal a lack of meaningful assent to a
  contract.
• May justify a courts subsequent intervention on
  behalf of the injured party.