Capacity and Legality
Minors
- infancy doctrine -- minors under the age of majority may disaffirm (cancel). Most contracts, they have entered into with adults. Such a contract is voidable by the minor, but not by the adult.
- disaffirmance -- disaffirmance must occur before were within a reasonable time after the minor reaches the age of majority.
- competent parties duty of restitution -- if a minor in this affirms a contract, the adult must place the minor and status quo by returning the value of the consideration that the minor paid.
- miners duty upon disaffirmance
- miners duty of restoration -- generally, upon disaffirmance of the contract, a minor owes a duty to return the consideration to the adult and whatever condition it is in at the time of the conference
- miners duty of restitution -- a miners duty is to place the adult in status quo by returning a value of the consideration paid by the adult at the time of contracting if the minor:
- misrepresented his or her age
- intentionally or with gross negligence caused the loss of the adults property
- ratification -- if a minor does not disaffirm a contract during the period of minority or within a reasonable time after reaching the age of majority, the contract is ratified. "Accepted"
- necessaries of life -- miners are obligated to pay the reasonable value for the necessaries of life (e.g., food, clothing, shelter)
- special contracts -- many states have enacted statutes that make miners liable on certain types of contracts, such as for medical care, health and life insurance, educational loan agreements, and the like
- emancipation -- occurs when a minor voluntarily leaves home and lives apart from his or her parents. The parent's duty to support the minor terminates upon emancipation
Mentally incompetent persons
- adjudged insane -- contracts by person who have been adjudged insane are void. That is, such a contract cannot be enforced by either the sane or insane party
- insane, but not adjudged insane -- contracts by person who are insane, but have not been adjudged insane are voidable by the insane person, but not by the competent party to the contract
- duty of restitution -- a person who has dealt with an insane person must place the insane person and status quo by returning the value of the consideration paid by the insane person at the time of contracting. Most states placed the same duty on insane persons when they void the contract.
- necessaries of life -- insane persons are obligated to pay the reasonable value for the necessaries of life
Intoxicated persons
- intoxicated persons -- contracts by intoxicated persons are voidable by the intoxicated person, but not by the competent party to the contract
- duty of restitution -- both parties know a duty to place the other party in status quo by returning the value of the consideration paid by the other party at the time of contracting
- necessaries of life -- intoxicated persons are obligated to pay the reasonable value for necessaries of life
Illegality
Contracts contrary to statutes
Contracts that violate statutes are illegal, void, and unenforceable.
- usury laws -- he set the upper limit on the annual interest rate can be charged on certain types of loans by certain lenders
- gambling statutes -- these make certain types of gambling illegal
- Sabbath laws -- these prohibit or limit the carrying on a certain secular activities on Sundays. Also called Sunday laws or blue laws
- criminal statutes -- contracts to commit crimes are illegal
- licensing statutes
- regulatory statutes -- these are licensing statutes enacted to protect the public. Unlicensed persons cannot recover payment for providing services that a licensed person is required to provide.
- revenue-raising statutes -- these are the licensing statutes enacted to raise money for the government. Unlicensed persons can enforce contracts and recover for rendering services.
Contracts contrary to public policy
Contracts that violate public policy are legal, void, and unenforceable
- immoral contracts -- a contract, whose objective is the commission of an act that is considered immoral by society is illegal
- contracts in restraint of trade -- contracts that unreasonably restrain trade or illegal
- exculpatory clauses -- contract clauses that relieve one or both of the parties to the contract from tort liability for ordinary negligence are called exculpatory clauses. Exculpatory clauses that affect public interest, that result from superior bargaining power, or that attempt to relieve one of liability for intentional torts,fraud, recklessness, or gross negligence are legal. Reasonable exculpatory clauses between parties of equal bargaining power are legal.
- covenants not to compete -- these are contracts that provide a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for specified time following the sale of the business or termination of employment. Also called noncompete clauses. They are illegal if they are unreasonable in mind of business, geographic area, wartime. Reasonable noncompete clauses are legal and enforceable.
Effect of illegality
- General rule -- an illegal contract is void. Therefore, the parties cannot sue for nonperformance. If the contract has been executed, the court will leave the parties where it finds them.
- exceptions to the general rule -- an innocent party can use the courts to recover consideration paid or damages under an illegal contract where the person:
- was justifiably ignorant of the law or fact that made the contract illegal
- was induced to enter into the illegal contract by fraud, or undue influence
- withdrew from the illegal contract before it was performed
- was less at fault than the other party to the illegal contract
Unconscionable contracts
Contracts or oppressively on fairer on just are called unconscionable contracts, or contracts of adhesion.
- elements of unconscionable contracts:
- the parties possessed severely unequal bargaining power
- the dominant party unreasonably used its power to obtain oppressive or manifestly unfair contract terms
- the adhering party had no reasonable alternative
- remedies for unconscionability: where a contract or contract clause is found to be unconscionable, the court may be one of the following:
- refuse to enforce the contract
- refused 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
