cheeseman blaw8e ch12

25-1

Chapter 12

Capacity and Legality

Introduction

Law presumes that parties have contractual capacity to enter into the contract

Certain persons do not have this capacity: Minors Insane persons Intoxicated persons

A contract to perform an illegal act is called an illegal contract

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall. 12-2

Minors

A person who has not reached the age of majority Common law defines minors as:

Females under the age of 18 Males under the age of 21

Many states have enacted statutes that specify the age of majority Generally 18 years of age for both males and

females


Minors

The most prevalent age of majority is 18 years of age for both males and females

Any age below the statutory age of majority is called the period of minority


KEY ISSUES RELATINGTO MINORS AND

CONTRACTS

KEY ISSUES RELATINGTO MINORS AND

CONTRACTS

The Infancy Doctrine Ratification

Parents’ Liability for Their

Children’s Contracts

Necessaries of Life

Minors


Key Issues Relating to Minors and Contracts

Infancy doctrine: A doctrine that allows minors to disaffirm (cancel) most contracts they have entered into with adults

Disaffirmance: The act of a minor to rescind a contract under the infancy doctrine Disaffirmance may be done orally, in writing, or

by the minor’s conduct



Minor’s duty of restoration Duty of restoration: A rule that states that a minor

is obligated only to return the goods or property he or she has received from the adult in the condition it is in at the time of disaffirmance

Duty of restitution: A rule that states that if a minor has transferred money, property, or other valuables to the competent party before disaffirming the contract, that party must place the minor in status quo



Ratification: The act of a minor after the minor has reached the age of majority by which he or she accepts a contract entered into when he or she was a minor

Parents’ liability for their children’s contracts Parents owe a legal duty to provide food, clothing,

shelter, and other necessaries of life for their minor children



Parents are liable for their children’s contracts for necessaries of life if they have not adequately provided such items

The parental duty of support terminates if a minor becomes emancipated

Emancipation: The act or process of a minor voluntarily leaving home and living apart from his or her parents



Necessaries of life: Food, clothing, shelter, medical care, and other items considered necessary to the maintenance of life Minors must pay the reasonable value of

necessaries of life for which they contract


Mentally Incompetent Persons

Law protects people suffering from substantial mental incapacity from enforcement of contracts.

To be relieved of duties under a contract, law requires a person to have been legally insane at the time of entering contract Legal insanity: A state of contractual incapacity,

as determined by law



Two standards concerning contracts of mentally incompetent persons: Adjudged insane: Declared legally insane by a

proper court or administrative agency A contract entered into by a person adjudged

insane is void



Insane, but not adjudged insane: Being insane but not having been adjudged insane by a court or an administrative agency A contract entered into by such person is generally

voidable


Intoxicated Person

A person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence The contract is not voidable by the other party if

that party had contractual capacity


Intoxicated Person

Under the majority rule The contract is voidable only if the person was so

intoxicated when the contract was entered into that he or she was incapable of understanding or comprehending the nature of the transaction


Legality

Lawful contract: A contract that has a lawful object Illegal contract: A contract that has an illegal object.

Such contracts are void


Contracts Contrary to Statutes

Both federal and state legislatures have enacted statutes that prohibit certain types of conduct

Contracts to perform activities that are prohibited by statute are illegal contracts


Usury Laws

A law that sets an upper limit on the interest rate that can be charged on certain types of loans


Contracts to Commit Crimes

Contracts to commit criminal acts are void If the object of a contract becomes illegal after the

contract is entered into because the government has enacted a statute that makes it unlawful, the parties are discharged from the contract The contract is not an illegal contract unless the

parties agree to go forward and complete it


Case 12.1 Illegal Contract

Case Parente v. Pirozzoli 866 A.2d 629, Web 2005 Conn. App. Lexis 25 (2005) Appellate Court of Connecticut

Issue Is the partnership agreement an illegal contract that

was void and unenforceable by the court?


Gambling Statutes

Statutes that make certain forms of gambling illegal States provide various criminal and civil penalties for

illegal gambling


Effect of Illegality

A doctrine that states that the courts will refuse to enforce or rescind an illegal contract and will leave the parties where it finds them



Persons who can assert an exception from the general rule of the effect of finding an illegal contract Innocent persons who were justifiably ignorant of

the law or fact that made the contract illegal Persons who were induced to enter into an illegal

contract by fraud, duress, or undue influence



Persons who entered into an illegal contract who withdraw before the illegal act is performed

Persons who were less at fault than the other party for entering into the illegal contract

In pari delicto: A situation in which both parties are equally at fault in an illegal contract


Contracts Contrary to Public Policy

Contract contrary to public policy: A contract that has a negative impact on society or that interferes with the public’s safety and welfare Immoral contract: A contract whose objective is

the commission of an act that society considers immoral


Special Business Contracts and Licensing Statutes

Contract in restraint of trade: A contract that unreasonably restrains trade

Licensing statute: A statute that requires a person or business to obtain a license from the government prior to engaging in a specified occupation or activity


Farah Mahmood

"regulatory licensing statute" and "revenue-raising statute" are missing here.

Case 12.2: Licensing Statute

Case Sturdza v. United Arab Emirates 11 A.3d 251, Web 2011 D.C. App. Lexis 2 (2011) District of Columbia Court of Appeals

Issue Does Sturdza’s lack of a District of Columbia’s

architects license bar her from recovering damages from UAE?



Exculpatory clause (release of liability clause): A contractual provision that relieves one (or both) of the parties to a contract from tort liability for ordinary negligence Also known as a release of liability clause



Covenant not to compete (noncompete clause): A contract that provides that a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for a specified time following the sale of the business or termination of employment Also called a noncompete clause


Unconscionable Contracts

Unconscionable contract: A contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust This doctrine may not be used merely to save a

contracting party from a bad bargain


Elements of Unconscionability

The parties possessed severely unequal bargaining power

The dominant party unreasonably used its unequal bargaining power to obtain oppressive or manifestly unfair contract terms

The adhering party had no reasonable alternative


Elements of Unconscionability

If the court finds that a contract or contract clause is unconscionable, it may Refuse to enforce the contract Refuse to enforce the unconscionable clause but

enforce the remainder of the contract Limit the applicability of any unconscionable

clause so as to avoid any unconscionable result


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