CHAPTER 10:CHAPTER 10: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
under the age of 18 are voidable. But the contract
must be disaffirmed during infancy or within a
reasonable time after becoming an adult.
b. Duties of Restoration and Restitution. The adult
must return the minor to the status quo by returning
the value of the consideration paid by the minor.
(1) the minor has a duty of restoration, that is to
return whatever the minor received in
whatever condition it is in at the time of
disaffirmance.
(2) the minor has a duty of restitution if, at the
time of entering into the contract, the minor
misrepresented their age or if the minor
intentionally or with gross negligence caused
the loss of the adult's property.
c. Misrepresentation of Age
(1) Misrepresentation of age is a form of fraud or
deceit. Generally minors are responsible for
their intentional wrong doings.
3. RATIFICATION
4. NECESSARIES OF LIFE
5. PARENTS' LIABILITY FOR THEIR CHILDREN'S
CONTRACTS
a. Parents have a legal duty to provide the necessities
of life (food, clothing, shelter) for their children.
Therefore, a parent has legal liability for the
children's contracts for these necessities if they have
not provided them.
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
dealing with a person lacking capacity.
b. periods of lucid behavior result in valid contracts
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
revenue.
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
involving intentional wrong doing, reckless conduct,
or gross negligence.
c. Often these clauses are found in business bailment
situations, cloak rooms, parking lots, cleaning
establishments, medical service contracts, and
certain sale contracts.
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
law which made the contract illegal.
b. illegal contracts induced by fraud, duress, or undue
influence.
c. whenever rescission is sought before the illegal act
occurs or is performed.
d. occasionally when one party is less at fault than the
other, that it they are not in pari delicto.
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
power
b. The dominant party unreasonably used its unequal
bargaining power to obtain oppressive or manifestly
unfair contract terms
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
enforce the rest of the contract.
c. limit the applicability of the unconscionable clause
to avoid the unconscionable result.