1. CONTRACTUAL CAPACITY DEFINED

2. MINORS

3. MENTALLY INCOMPETENT PERSONS

4. INTOXICATED PERSONS

A. CONTRACTUAL

CAPACITY

Some persons lack contractual capacity, a lack that embraces both those who have a

status incapacity, such as minors,

and those who have a

factual incapacity, such as person who are insane

ability to understand a contract is being made and to understand its general meaning

Everyone is presumed to have capacity unless it is proven that capacity is lacking or there is status incapacity

Over the centuries, the law has declared that some classes of persons lack contractual capacity. The purpose is to protect these classes by giving them the power to get out of unwise contracts.

Of these classes the most important today is the class identified as minors

contrasts with incapacity imposed because of the class or group to which a person belongs

may exist when, because of a mental condition caused by medication, drugs, alcohol, illness, or age, a person does not understand that a contract is being made or understand its general nature

May make contracts.

To protect them, however, the law has always treated minors as a class lacking contractual capacity.

At common law, any person, male or female, under 21 years of age. At common law, minority ended the day before the twenty-first birthday.

The "day before the birthday" rule is still followed, but the age of majority has been reduced from 21 to 18.

(B) MINOR'S POWER

TO AVOID CONTRACTS

A contract is voidable at the election of the minor.

Minor may affirm or ratify the contract on attaining majority by performing the contract, by express approving the contract, or by allowing a reasonable time to lapse without avoiding the contract

A minor may avoid or disaffirm a contract by any expression of an intention to repudiate the contract.

Any act inconsistent with the continuing validity of the contract is also an avoidance.

A minor can disaffirm a contract only during minority and for a reasonable time after attaining majority.

After the lapse of a reasonable time, the contract is deemed ratified and cannot be avoided by the minor.

Generally, the fact that the minor has misrepresented his or her age does not affect the minor's power to disaffirm the contract. Some states hold that such fraud of a minor bars contract avoidance. Some states permit the minor to disaffirm the contract in such a case but require the minor to pay for any damage to the property received under the contract.

In any case, the other party to the contract may disaffirm it because of the minor's fraud

(C) RESTITUTION BY MINOR

AFTER AVOIDANCE

When a minor still has what was received from the other party, the minor, on avoiding the contract, must return it to the other party or offer to do so. 

Must put things back to the original position:

restore the status quo ante

If the minor cannot return what has been received because it has been spent, used, damaged or destroyed,

the minor can still disaffirm the contract and is required to return only what remains. 

When a minor disaffirms a contract, the other contracting party must return the money received. Any property received from the minor must also be returned. 

(E) CONTRACTS

FOR NECESSARIES

Originally limited to food, clothing, lodging.

Extended to things relating to health, education, and comfort of the minor

Ex. the rental of a house used by a married minor

When a third person supplies the parents or guardian of a minor with goods or services that the minor needs, the minor is not liable for these necessaries because the third person's contract is with the parent or guardian, not with the minor.

When necessary medical care is provided a minor, a parent is liable at common law for the medical expenses provided. At common law, the child can be held contractually liable for her necessary medical expenses when the parent is unable or unwilling to pay.

Can ratify a contract only after attaining majority.

The minor must have attained majority, or the ratification would itself be regarded as voidable

verb ( -fies, -fied) [ trans. ]

sign or give formal consent to (a treaty, contract, or agreement), making it officially valid. See note at approve .

Statutes in many states deprive a minor of the right to avoid

- an education loan                     - a contract for medical care

- a contract made while running a business

- a contract approved by a court

- a contract made in performance of a legal duty

- a contract relating to bank accounts, insurance policies, or corporate stock

1) Liability of Parent

Ordinarily not liable. May be if the child is acting as the agent of the parent in making the contract. Also the parent is liable to a seller for the reasonable value of necessaries supplied by the seller to the child if the parent had deserted the child.

2) Liability of Cosigner

Another person such as parent or a friend may sign along with the minor to make the contract more acceptable to the third person. The cosigner is bound independently of the minor. If the minor disaffirms the contract, the cosigner remains bound by it. When the debt to the creditor is actually paid, the obligation of the cosigner is discharged. 

A person with a mental disorder may be so disabled as to lack capacity to make a contract.

If the person is so mentally incompetent as to be unable to understand that a contract is being made or the general nature of the contract, the person lacks contractual capacity.

Upon becoming competent, the formerly incompetent person can either ratify or disaffirm the contract.

A mentally incompetent person or his estate is liable for the reasonable value of all necessaries furnished that individual.

If a court appoints a guardian for the incompetent person, a contract made by that person before the appointement may be ratified or, in some cases, disaffirmed by the guardian.

If the incompetent person makes a contract after a guardian has been appointed, the contract is void and not merely voidable

capacity of a party to contract and the validity of the contract are not affected by the party's being impaired by alcohol at the time of making the contract so long as the party knew that a contract was being made

If the degree of intoxication is such that a person doesn't know that a contract is being made, the contract is voidable by that person.

The validity of a contract may be affected by the fact that one or both of the parties made a mistake.

In some cases, the mistake may be caused by the misconduct of one of the parties.

- Unilateral Mistake

- Mutual Mistake

- Mistake in the Transcription or Printing of the Contract: Reformation

- a mistake by only one of the parties

- does not affect the contract when the mistake is unknown to the other contracting party

- the party making the mistake may avoid the contract if the other contracting party knew or should have known of the mistake

the contract is voidable by the adversely affected party if the mistake has a material effect on the agreed exchange

A contract based on a mutual mistake in judgment is not voidable by the adversely affected party

7. Mistake in the Transcription

or Printing of the Contract:

Reformation

One of the parties may have been misled by a fraudulent statement.

In such situations, there is no true or genuine assent to the contract, and it is voidable at the innocent party's option.

- Intentional Misrepresentation

- Fraud

- Negligent Misrepresentation

- Nondisclosure

Fraud is a generic term.

However, where a party is induced into making a contract by a material misrepresentation of fact, this form of fraudulent activity adversely affects the genuineness of the assent of the innocent party.

the making of a material misrepresentation (or false statement) of fact with

1) knowledge of its falsity or reckless indifference to its truth

2) the intent that the listener rely on it

3) the result that the listener does so rely, and

4) the consequence that the listener is harmed

there must be material misrepresentation of fact.

Such a misrepresentation is one that is likely to induce a reasonable person to assent to a contract

The person hearing the statement recognizes or should recognize that it is merely the speaker's personal opinion, not a statement of fact.

A statement of opinion may be fraudulent when the speaker knows of past or present facts that make the opinion false.

Required for an individual to recover damages for fraud.

The injured party may recover the actual losses suffered as a result of the fraud as well as punitive damages when the fraud is gross or oppressive.

The injured party has the right to have the court order the rescission or cancellation of the contract that has been induced by fraud.

predicted on a negligently made false statement

when the speaker failed to exercise due care regarding material information communicated to the listener but did not intend to deceive

The contract is voidable at the option of the injured party when this occurs of a material fact tht the listener relies on resulting in harm to the listener.

fraud

vs

negligent misrepresentation

While fraud requires the critical element of a known or recklessly made falsity, a claim of negligent misrepresentation contains similar elements except it is predicted on a negligently made false statement.

If fraud is proven, as opposed to misrepresentation, recovery of punitive damages in addition to actual damages can occur.

Because it may be difficult to prove the intentional falsity required for fraud, it is common for a lawsuit to allege both a claim of fraud and a claim of negligent misrepresentation

Ordinarily, a party to a contract has no duty to volunteer information to the other party.

Consequently, the nondisclosure of information that is not asked for does not impose fraud liability or impair the validity of a contract.

1) Unknown Defect or Condition

2) Confidential Relationship

3) Active Concealment

1) Unknown Defect or Condition

If parties stand in a confidential relationship, failure to disclose information may be regarded as fraudulent.

Ex. in an attorney-client relationship, the attorney has a duty to reveal anything that is material to the client's interest when dealing with the cleitn. The attorney's silence has the same legal consequence as a knowingly made false statement that there was no material fact to be told the client.

Nondisclosure may be more than the passive failure to volunteer information.

It may consist of a positive act of hiding information from the other party by physical concealment, or it may consist of knowingly or recklessly furnishing the wrong information.

Such conduct constitutes fraud.

Ex. Selling a house and covering up termite damage.

influence that is asserted upon another person by one who dominates that person

Contract is then voidable. It may be set aside by the dominated pesron unless the dominating person can prove that, at the time the contract was made, no unfair advantage had been taken

not well-defined

ordinarily includes the relationships of parent and child, guardian and ward, physician and patient, and attorney and client, and any other relationship of trust and confidence in which one party exercises a control or influence over another