Viodable Contracts: Capacity and Consent Flashcards
Capacity
concerns the legal ability of a party to enter a contract in the first place
ex: age or mental infirmity
Consent
refers to whether a contracting party truly understood what she was getting into and whether she made the agreement voluntarily
ex: arise in cases of fraud, mistake, duress, and undue influence
Minors
in contract law under the age of 18
Disaffirmance
a minor who wishes to escape from a contract may give notice of refusal to be bound by an agreement
Rescind
a minor can go further and undo a contract that has already been completeled by filling a suit to cancel a contract
Restitution
a minor who disaffirms a contract must return the consideration he has received to the extent he is able. Resorting an injured party to its original position
Status quo rule
if a minor can not return the consideration the adult or store is only required to return its profit margin to the minor
Ratification
Words or actions indicating an intention to be bound by a contract
-minors right to disaffirm ends if they ratify
exception: necessaries
something essential to the minors life and welfare. on a contract of nesccesarries a minor must pay for the value of the benefit received
ex: food, clothing, housing
exception: misrepresentation of age
rules change somewhat if minor lies about his age. there is no clear rule
what is a person if they by reason of mental illness or defect is unable to understand the nature and consequences of the transaction?
mentally impaired person
when a person creates only a voidable contract and they have the right to disaffirm what are they? (voidable not void)
mentally impaired person
when the law creates an exception if a person has been adjudicated insane, then all of his future agreements are…
void
Adjudicated insane
a judge has made a formal finding that a person is mentally incompetent and has assigned the person a guardian
intoxication
when one party is so intoxicated that he cannot understand the nature and consequences of the transaction, the contract is voidable
Landmark case: Babcock v. Engel
- Charles Engel drinking alone at home
- made agreement with Babcock
- trade 320 acre-farm and $2,000 worth of property for a hotel
- Engels property is worth twice the value of the hotel
- Engel later refused to honor the deal
- Babcock sued
- Jury sided with Engel
- Babcock appealed
- Was Engel intoxicated that his agreement with Babcock became voidable?
- Yes, affirmed.
Four claims that parties make in an effort to rescind a contract based on lack of valid consent
- fraud
- mistake
- duress
- undue influence
Bilateral mistake
occurs when both parties negotiate based on the sane factual error
-if the parties contract based on an important factual error, the contract is voidable by the injured party
Conscious uncertainty
no rescission is permitted where one of the parties now he is taking on a risk; he realizes there is uncertainty about the quality of the thing being exchanged
Unilateral mistake
occurs when only one party enters a contract under a mistaken assumption
To rescind for unilateral mistake a party must demonstrate that they entered the contract because of a basic factual error and that either…
- enforcing the contract would be unconscionable
2. the nonmistaken party knew of the error
Duress
An improper threat made to force another party to enter into a contract
If one party makes an improper threat that causes the victim to enter into a contract and the victim had no reasonable alternative then the contract is…
voidable
A claim of economic duress looks at these factors
- acts that have no legitimate business purpose
- greatly unequal barraging power
- an unnaturally large gain for one party
- financial distress to one party
