CONTRACTUAL CAPACITY [4318]
���� Contractual Capacity: The minimum mental capacity
required by law for a party who enters into a contractual agreement to be bound
by it. Common law recognizes three classes of persons who are generally not
considered to have sufficient capacity to be bound by their contracts:
����� Minors: In virtually all states,
unmarried persons under the age of eighteen (18) are permitted to enter into
any contract an adult can, provided that the contract is not one prohibited by
law for minors (e.g., agreement to purchase cigarettes or alcohol). However,
unlike those entered into by adults, contracts entered into by minors are
generally voidable by the minor.
����� Mentally
Impaired or Incompetent
Persons: Like�wise, contracts entered into by persons who are, at the time of
contracting, intoxicated [impaired] (voluntarily or not) or mentally
incompetent are generally voidable.
����� Unlike a
void contract, which is unenforceable
on its face, a voidable contract is presumed to be enforceable
but for the presence of some factor -- here,
the contractual capacity of one of the parties -- which permits a party lacking capacity to avoid his or her otherwise
valid contractual obligations.
CONTRACTS WITH MINORS 4318.02
I������ Disaffirmance: In order
for a minor to avoid a contract, he or she need only manifest an intention not to be bound by it.
����� This
intent to avoid, or �disaffirm,� the
contract may be manifested by words or actions.
����� Generally
speaking, a minor may disaffirm a contract at any time during minority
or for a reasonable time after the minor comes of age.
����� When
a minor disaffirms a contract, all property that he or she has transferred as
consideration can be recovered -- even if it was subsequently
transferred to a third party.
����� Disaffirmance
must be timely.
����� The
contract must be disaffirmed in its entirety.
����� Only
the minor has the option of disaffirming his or her contractual obligations;
any adult parties to the contract remain bound by it unless released by the
minor�s disaffirmance.
������� The Minor�s
Obligations on Disaffirmance: Upon disaffirmance, a majority
of states require only that
the minor return any goods or other consideration in his or her possession.
����� However,
a growing minority of states further
requires that the minor take whatever additional steps are required to restore the adult to the position he or she was in prior to
entering the contract.
����� Parents�
Liability: As a general rule, parents are not liable for the
contracts made by their minor children unless:
(1)�� one or more parent(s) co-sign the contract, and thereby assume personal
liability for its performance, even if their minor child disaffirms the
contract; and/or
(2)�� the minor child committed some wrongful act associated with
the contract at the direction of one or both parent(s).
������� Misrepresentations
Regarding Age:
Most states will permit disaffirmance even
if the minor misrepresented his or her age when entering into the
agreement. However,
����� some states prohibit disaffirmance in all cases where
the minor misrepresented his or her age;
����� other states prohibit disaffirmance in cases where the minor
has engaged in business as an adult;
����� some courts refuse to allow minors to disaffirm fully
performed contracts unless they can return all con�sideration received;
and
����� some courts permit disaffirmance but subject the minor to
tort liability for his or her misrepresentation.
����� Liability for
Necessaries: A minor who enters into a contract to purchase food,
shelter, clothing, medical attention, and/or other goods or services necessary
to maintain the minor�s well-being will generally be liable for the reasonable
value of those goods and services even if the minor disaffirms the
contract.
RATIFICATION 4318.02e
������� Ratification: Accepting and giving legal force to an obligation
that previously was (1) not
enforceable and/or (2) voidable.
Ratification may be either express or
implied.
������� Express Ratification: A person
lacking contractual capacity at the time they formed a contract may, upon
(re-)gaining the necessary capacity to do so, expressly ratify the contract by
stating, orally or in writing, that they intend to be bound by the contract.
����� Implied Ratification: Likewise,
a person lacking contractual capacity at the time they formed a contract may,
upon (re-)gaining the necessary capacity to do so, impliedly ratify the
contract
(1)�� by acting in a
manner that is clearly inconsistent with disaffirmance or avoidance or,
(2)
in the
case of a minor, by failing to disaffirm within a reasonable time after
reaching the age of majority.
LEGALITY
Contracts
Contrary to Statute� 4317.03
��������������� Usury:�
The maximum amount of interest that can be charged on a contract or
loan.� In
������������� Gambling:�
Here we are talking about the classic gambling we all think about, such
as
������������� Sunday Laws: Once it
was illegal to contract or sell goods on a Sunday.� For the most part, these types of laws have
been unenforced, ignored, or repealed.
������������� Licensing Statutes: You
cannot legally perform certain services (thereby contract for them) if you do
not have the proper license.� For example,� being a stock
broker, CPA, attorney, plumber, taxi driver, etc.� Generally the contract is unenforceable or
rescindable.�
������������� Contracts to commit a crime: we
usually think of a �hit� when we consider this type of contract, but it can be anything
that is illegal against a statute.� For example, an agreement to buy illegal drugs at a certain value,
to buy all stolen cars of a particular thief, etc.
������������������ Contracts in Restraint of Trade: Anti
trust regulations usually cover these, but price fixing and other such type of
agreements are also included in this problem area.
������������� Compare,
however, that covenants not to compete, which may restrain new businesses from
developing, are allowed in one general sense: if you sell a business to
someone, a covenant not to compete may be executed to protect the purchaser of
the business. Otherwise, if someone sold a store and then opened another one
just like it a few blocks away, the old customers would likely return to the old vendor. The general rule is it must be
part of the sale of a business.�
������������� Unconscionable Contracts or Clauses: basically
we are talking about an agreement that is so unfair as to be �void of
conscience�.�
������������� Procedural Unconscionablity: Here the classic example is the contract
by adhesion, loaded with the legalese no one understands.� Basically a take it or leave it type of
situation, which is discussed in another chapter later.
������������� Substantive Unconscionablity:
here we are talking about the specific terms of the so called agreement, such
as selling someone an old 286 computer to someone ignorant of computers for
$2,500 today! This would �shock the conscience� of the court as well as most
folks.
������������� Exculpatory Clauses:
here we are talking about writing into a contract the ability for one
side to release themselves automatically from any form of liability resulting from
an accident, loss of money, or similar such damaging situation no matter who was at fault. Generally these
clauses are not enforced and generally these type of
clauses are contrary to public policy.�
However, not always, like we learn in the law.�� Notice, however, we are not talking about
the �release� form that is generally enforceable, but is separate and distinct
from something in another contract like the exculpatory clauses here.
������������� Other Contracts: examples might be contracts that
discriminate on basis of race, creed, national origin, religion, gender and /or
age.� Others include requiring someone to
perform a tort, interfere with a public official, and or delay
prevent or obstruct the legal process.
Generally,
the illegal contract is VOID.� Further,
the courts generally�
won�t help either party.Of course,
there are exceptions:
������������� Justifiable
ignorance of the facts:� what do we
mean here?� A good example is a
transportation company unknowingly transports some illegal materials and incurs
costs, etc, and as such should be compensated for their efforts.
������������� Members
of protected classes:� Here we are
talking about violations of rules and regulations that are to protect specific
�classes� of persons.� For example, if
you are required to work only so many hours but wind up working additional
hours, you are still to be compensated for such excess.� For example, pilots and
airline personnel.�
�������������
������������� Withdrawal
from an illegal contract: Classic example, you wager and put down your
bets.� Either side can ask for the money
back before the event is concluded, for example a bet on the Super Bowl and
repudiating the bet before it begins.
������������� Contract
otherwise illegal due to fraud, duress or undue influence: generally the
victim can recover for the performance or value of the contract.
������������� Severable
(Divisible) Contracts:� generally the
court will enforce the legal portion of the divisible contract but not the
illegal portion.� If the contract is
indivisible, then the entire contract fails.