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CHAPTER 10:

CAPACITY AND LEGALITY

 

A. MINORS

1. Minors do not always have the maturity, experience or

sophistication needed to enter into contracts with adults.

2. INFANCY DOCTRINE

a. Disaffirmance. Contracts entered into by persons

b. Duties of Restoration and Restitution. The adult

(2) the minor has a duty of restitution if, at the

c. Misrepresentation of Age

(1) Misrepresentation of age is a form of fraud or

3. RATIFICATION

4. NECESSARIES OF LIFE

5. PARENTS' LIABILITY FOR THEIR CHILDREN'S

CONTRACTS

a. Parents have a legal duty to provide the necessities

B. MENTALLY INCOMPETENT PERSONS

1. Mental incapacity may arise because of mental illness,

brain damage, mental retardation, senility, and the like

2. Adjudged Insane. Contracts entered into by these persons

are void. The reason is that the court has removed legal

capacity from the ward and placed it with the ward's court

appointed guardian.

3. Insane, But Not Adjudged Insane. These contracts are not

void, they are voidable by the party with the mental

impairment. Here the doctrine requires a return to the

status quo, although contracts for necessities are

enforceable under the quasi-contract theory.

a. status quo for the party not knowing they were

C. INTOXICATED PERSONS

1. When available, intoxicated persons can avoid the

contract by returning the party with full capacity to the

status quo.

2. The tests include the amount of alcohol or drugs

consumed and the ability to hold the intoxicant.

 

D. ILLEGALITY--CONTRACTS CONTRARY TO STATUTES

 

1. Usury Laws

 

2. Gambling Statutes

 

3. Sabbath Laws. Blue laws or Sunday laws.

 

4. Contracts to Commit a Crime

 

5. Licensing Laws. These cover certain professions such as

doctors, CPAs, plumbers, contractors. Some states

specify in their licensing laws that contracts entered into

by persons required to have a license cannot be enforced

by the person lacking the license. If the statute is silent on

this issue, then:

 

a. Regulatory Statutes are enacted to protect the public

 

b. Revenue Raising Statutes are enacted to raise

E. ILLEGALITY--CONTRACTS CONTRAY TO PUBLIC

POLICY

 

1. Immoral Contract. Generally what is considered immoral

must be determined based upon the practices and beliefs

of society in defining moral conduct, not the personal

beliefs of the particular judge.

2. Contracts in Restraint of Trade. Generally contracts

entered into which would violate anti-trust laws or

common law unfair competition laws, e.g. palming off.

3. Covenants Not to Compete. Generally protect good will

or reputation.

a. the line of business protected

b. the geographic area protected

c. the duration of the restriction

4. Exculpatory Clauses. These clauses seek to relieve parties

to a contract from tort liability.

a. Ordinary Negligence are okay

b. Cannot be used for torts involving willful conduct

E. EFFECT OF ILLEGALITY

1. Illegal contracts are void and unenforceable by the courts.

The court will leave the parties as it finds them.

2. Exceptions to the General Rule

a. innocent persons who are justifiably ignorant of the

F. UNCONSCIONABLE CONTRACTS

1. The general rule says that under freedom of contract

theory, if the contract has a lawful object and the four

elements of the contract exist, the court will enforce the

contract according to its terms. That is, the court will not

act to save a person from unwise or unprofitable deals.

2. But, some otherwise legal contracts are so oppressive or

manifestly unfair that they are unjust.

3. Elements of an Unconscionable Contract

a. The parties possessed severely unequal bargaining

b. The dominant party unreasonably used its unequal

c. The adhering party had no reasonable alternative

3. Remedies for Unconscionability

a. refuse to enforce the contract

b. refuse to enforce the unconscionable clause(s), but