Contracts: Capacity, Legality, Mutuality, And Statute Of Frauds

Capacity.

1. Minors.
2. Mentally incompetent persons.
3. Intoxicated parties.

Any person until they reach the age of 21 years.

18 years old.

A minor.

No formality, the minor person can disaffirm orally, in writing, or by conduct indicating reputation.

It can occur only after the minor reaches the majority.

A substitution with a quasi-or-implied-in-law contract.

Quasi-contract.

Foods, shelter, clothing, medical service, and perhaps some educational or training expenses.

Note: Many courts declare that the ward’s minor is unemancipated and living with parents or another guardian; nothing purchased by the minor is necessary.

An incompetent person.

If a person has been adjudged incompetent by a court.

It is void and has no legal effect.

The contract is voidable by the incompetent party or a guardian appointed later.

Notes: 1). However, one who deals with an incompetent party in good faith is entitled to restitution. 2). Incompetent parties are liable in quasi-contract for necessaries.

It may be valid or voidable.

The person must be intoxicated to the extent necessary to lack contractual capacity.

Legality.

When the formation or performance of an agreement violates a criminal law, constitutes a tort, or is determined by the court to be contrary to public policy.

1. Agreement unduly restrains marriage.
2. Surrogate-mother agreements.
3. Agreements that unduly restrain competition.
4. Board exculpatory clauses (those excusing a party from liability for his or her torts).
5. Contracts calling for immoral acts.
6. Agreements are found to be unfair, oppressive, or unconscionable.

An unconscionable agreement.

Adhesion contract.

• Procedural unconscionability arises from the way agreement is reached.
• Substantive unconscionability is based on shockingly unjust terms, such as depriving a party of a remedy for the other’s breach or leaving a party with no benefit from the contract.

1. Loans with interest rates exceeding those allowed by usury law.
2. Gambling.
3. Noncompliance with licensing requirements.
4. Antitrust infractions.

An agreement consists of an offer and acceptance.

Objective intent.

To determine whether the indication of mutual assent was subjectively an act of free will.

He or she may void the contract.

Fraud, mistake, duress, and undue influence.

Fraud.

• A false representation or the concealment of a material fact.
• Intent to misrepresentation (scienter).
• Intent to induce reliance.
• Reasonable or justifiable reliance by the injured party.
• Damage resulting from the misrepresentation.

Even when the defrauded party is aware of entering into a contract and intends to do so.

Note: The contract is voidable.

It occurs when a party’s signature is obtained by a fraudulent misrepresentation that directly relates to the signing of a contract.

Note: The purported contract is void.

The injured party may recover damage as an alternative to voiding the contract.

The remedy available to the injured party is rescission.

Innocent misrepresentation.

Note: It can be oral, written, or implied from conduct.

Negligent misrepresentation.

Note: It can be oral, written, or implied from conduct.

Remedies are rescission (the right to void the contract) and damages (reliance and consequential damages).

A mistake.

Unilateral or individual mistakes and bilateral or mutual mistakes.

If only one party to a contract acts on the basis of a mistaken assumption.

If the other party knew of the mistake, or it is so obvious that a reasonable person would have noticed.

When both parties are mistaken about the same material fact.

Note: Mutual mistake is ground for rescission or a sufficient defense in an action on the contract.

A material fact.

Improper threat.

The contract is voidable by the innocent party.

Economic duress.

Note: Merely taking advantage of another’s financial difficulty is not duress.

Physical compulsion.

When one party to a contract dominates the other party so as to deprive that party of free will.

Note: The contract may be voidable as a result of undue influence.

Statute of frauds.

To promotes the reliability of evidence that an alleged contract exists.

The statute of fraud requires the agreement or some memorandum or note of it to be in writing and signed by the party to be bound by its terms.

• The name of the parties
• The term and conditions of the contract.
• A reasonably certain description of the subject matter.
• The signature of the party is to be bound.
• The recitation of the consideration.

Electronic Signature in Global and National Commerce Act of 2000.

• An electronic signature satisfies a requirement of a signature.
• An electronic record satisfies a requirement for writing.
• A contract is not denied legal effect solely because an electronic record was used in its formation.

• Contracts involving an interest in land.
• Contracts that by their terms can not possibly be performed within one year.
• Collateral (Secondary) promises by which a person promises to answer for the debt or duty of another (the suretyship provision).
• Promises made in consideration of marriage.
• Contracts for the sale of goods for $500 or more (UCC Article 2).