Which of the following is correct regarding a minors right to Disaffirm a contract quizlet?

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1. Social Science
2. Law
3. Civil Law

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Terms in this set (49)

Contractual Capacity

-Legal ability to enter into a contractual relationship.
-A person determined by court to be mentally incompetent cannot form a valid contract.
-In other situations, capacity may exist, but contract is not legally binding.

Minors

The age of majority (when a person is no longer a minor) for contractual purposes is eighteen years in almost all states. Some states provide for the termination of minority on marriage.

Emancipation

occurs when a child's parent or legal guardian relinquishes the legal right to exercise control over the child.

The general rule is that a minor can

enter into any contract that an adult can, except contracts prohibited by law for minors.

A contract entered into by a minor is

voidable at the option of that minor, subject to certain exceptions.

Disaffirmance

-The legal avoidance, or setting aside, of a contractual obligation.
-A minor must express his or her intent, through words or conduct, not to be bound to the contract.
-The minor must disaffirm the entire contract, not merely a portion of it.
-Only the minor may disaffirm; any adult party to the contract remains bound unless and until the minor's disaffirmance releases her.

Disaffirmance within a Reasonable Time:

-Contract can be disaffirmed at any time during minority, or for a reasonable period after minor is emancipated.
-Minor must disaffirm the entire contract.
-Disaffirmance can be expressed or implied.

Minors' Obligations on Disaffirmance

-All states' laws permit minors to disaffirm contracts but differ on the extent of a minor's obligations on disaffirmance.
-Many courts hold that the minor need only return the goods subject to the contract, provided the goods are in the minor's possession or control.
-Some states place an additional duty of restitution on the minor to restore the adult party to the position she or he held before the contract was made.

Exceptions to a Minor's Right to Disaffirm:

-Minors can disaffirm contracts even when they have misrepresented their age.
-Some states have enacted laws to prohibit disaffirmance in these situations or when the minor misrepresented their age while engaged in business as an adult.

Exceptions

-A minor who enters into a contract for necessaries (basic needs such as food and clothing) may disaffirm the contract but remains liable for the reasonable value of the goods.
-These contacts are enforceable only to the level of value needed to maintain the minor's standard of living.

Ratification

is the act of accepting and giving legal force to an obligation that previously was not enforceable. A minor who has reached the age of majority can ratify a contract expressly or impliedly.

Express ratification

takes place when the individual has reached the age of majority and states orally or in writing that she/he intends to be bound by the contract.

Implied ratification

takes place when the minor—on reaching the age of majority— indicates an intent to abide by the contract.

If a minor fails to disaffirm a contract within a reasonable time after reaching the age of majority,

then the court must determine whether the conduct constitutes ratification or disaffirmance.

Parents' Liability

-Parents are not usually liable for contracts made by minor children acting on their own.
-Businesses normally require parents to cosign any contract made with a minor.
-The parents are personally obligated under the contract to perform the conditions of the contract—even if their child avoids liability.

Intoxication

-A condition in which a person's normal capacity to act or think is inhibited by alcohol or some other drug.
-A contract entered into by an intoxicated person can be either voidable or valid.

The agreement may be voidable

even with voluntary intoxication if the person was intoxicated enough to lack mental capacity.

The contract is enforceable if

the person understood the legal consequences of the agreement despite intoxication.

Courts look at objective indications of the intoxicated person's condition to

determine if he or she lacked the required capacity.

If a contract is voidable because one party was intoxicated,

that person must disaffirm while still intoxicated or within a reasonable time after becoming sober.

The person claiming intoxication typically must

be able to return all consideration received.

Contracts for necessaries are voidable, but

the intoxicated person is liable in a quasi contract for the reasonable value of the consideration received.

(Ratification) An intoxicated person may

ratify a contract expressly or impliedly once sober.
-Implied ratification occurs when a person enters into a contract while intoxicated and fails to disaffirm the contract within a reasonable time after becoming sober.
-Acts or conduct inconsistent with an intent to disaffirm will also ratify the contract.

Mental Incompetence

Contracts made by mentally incompetent persons can be void, voidable, or valid.

When the Contract Will Be Void

-If a court has previously determined a person to be mentally incompetent, any contract made by that person is void.
-The court will appoint a guardian who will represent the mentally incompetent individual and enter into binding legal obligations on his or her behalf.

When the Contract Will Be Voidable

-A party who is not determined to be mentally incompetent by a court of law may avoid a contract if at the time of contracting, that person (1) did not know he was entering into a contract or (2) lacked the mental capacity to understand its nature, purpose, and consequences.
-Only the incompetent party has the option of disaffirming his contractual obligations.
-Any competent party to the contract remains bound unless released by the incompetent party's disaffirmance.

When the Contract Will Be Valid

A contract entered into by a person who is mentally ill—but not previously declared incompetent—may be valid if the person had capacity at the time the contract was formed, such as during a lucid interval (when a person's intelligence, judgment, and will are temporarily restored).

A contract is valid and enforceable only if

it is formed for a legal purpose.

A contract to do something that is prohibited by federal or state statutory law is

illegal, void from the outset, and unenforceable.

Contracts Contrary to Statute

Statutes often set forth rules specifying what may be included in contracts and what is prohibited.

Contracts to Commit Crimes

A contract to commit a crime is unenforceable and void.

Usury

A lender who makes a loan at an interest rate above the lawful maximum commits usury.

Usurious contracts are

illegal and may be void in their entirety, although most states simply limit the interest the lender is permitted to collect.

Gambling

is the creation of risk for the purpose of assuming it.
-Most gambling contracts are illegal and unenforceable—even in states where certain forms of regulated gambling are permitted.

Licensing Statutes

-All states require that certain professionals (e.g., physicians) obtain a license from the state.
-Whether a contract with an unlicensed person is legal and enforceable depends on the purpose of the statute.

If the statute's purpose is to protect the public,

a contract with an unlicensed practitioner is usually illegal and unenforceable.

If the statute's purpose is to raise government revenues,

a court may enforce the contract and fine the unlicensed person.

Contracts Contrary to Public Policy

Some contracts are not enforceable because of the negative impact they would have on society.

Contracts in Restraint of Trade

Contracts that tend to reduce competition for the provision of goods or services in a market.

Covenants Not to Compete and the Sale of an Ongoing Business

-Many contracts involve a restraint called a covenant not to compete (or a restrictive covenant).
-To be enforceable, geographic restrictions must be reasonable and must be effective only for a reasonable period of time after the sale is completed.

Covenants Not to Compete in Employment Contracts

-Agreements not to compete (or noncompete agreements) may be included in employment contracts.
-Employees cannot work for competitors or start competing businesses for a specified period of time after termination of employment.
-Noncompete agreements are legal in most states if the specified period of time (of restraint) is not excessive and the geographic restriction is reasonable.

Unconscionable Contracts or Clauses

Contracts whose bargains are so oppressive that the courts relieve innocent parties of part or all of their duties.

Procedural unconscionability

-often involves inconspicuous print, unintelligible language ("legalese"), lack of an opportunity to read the contract or ask questions about its meaning, or a disparity in bargaining power between the two parties such that the weaker party's consent is not voluntary.
-Such situations may involve an adhesion contract (one that is written exclusively by one party and presented to the other on a take-it-or-leave-it basis).

Substantive unconscionability

-occurs when contracts—or portions of contracts—are oppressive or overly harsh.
-Courts tend to focus on provisions that deprive one party of benefits under the agreement or leave that party without a remedy for nonperformance by the other.

Exculpatory Clauses

-Release a party from liability in the event of monetary or physical injury—no matter who is at fault.
-Enforceable when they are not against public policy, are not ambiguous, and do not shield parties from intentional conduct.

Discriminatory Contracts

Party promises to discriminate on the basis of race, color, national origin, religion, gender, age, or disability are contrary to both statute and public policy, and unenforceable.

Effect of Illegality

-An illegal contract is void and both parties are usually considered to be in pari delicto (equally at fault).
-If the contract is executory, neither party can enforce it; if it has been executed, neither party can recover damages.
-Generally, the courts do not care if one wrongdoer in an illegal contract is unjustly enriched at the expense of the other.

Exceptions to the general rule include (Effect of Legality):

-justifiable ignorance of the facts;
-being a member of a protected class who may enforce an otherwise illegal contract (even if the other party cannot); and
-withdrawing from an illegal agreement before any illegality occurs.

Other exceptions to the general rule include (Effect of Legality):

-a contract that was entered into due to fraud, duress, or undue influence; and
-severable (or divisible) contracts that consist of distinct parts which can be performed separately—with separate consideration provided for each part.

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