B-law ch 11

Unconscionable contract

(Agreement so unfair that it is "void of conscience")

-Example: Adhesion contract

(Contract created by a party and presented to other party on a "take-it-or-leave-it" basis or contracts where terms are hidden or difficult to read)

Usurious loan agreement

(loan contract exceeding state-imposed maximum interest rate)

Contracts with no legal purpose and/or subject matter

-Example: Agreement to commit crime/tort

Contracts violating statute(s) and/or "public policy"

-Example: Usurious loan agreement (loan contract exceeding state-imposed maximum interest rate) -Example: Unconscionable contract (Agreement so unfair that it is "void of conscience") -Example: In some states, covenants not to compete are considered against "public policy." - Example: Contract to perform a service which the performing party has no license to perform

Substantive Unconscionability

-Involves overly harsh or lopsided substance in a contract

Individuals Who Have Only Limited Capacity to Contract

-Minors -Mentally Incapacitated Persons (excluding those who have been adjudicated to be incapacitated, which are addresssed separately) -Intoxicated Persons *These contracts are "voidable" rather than "void"

Individuals who have no capacity to enter into a contract

-has been adjudicated insane -has been adjudicated habitual drunkard -has had a legal guardian appointed to enter into contracts on his or her behalf

Exceptions to Minor's Right to Disaffirm Contract

1)Contract for Necessaries 2) Ratifications (express and implied)

Illegal contracts

1)Contracts with no legal purpose and/or subject matter 2)Contracts violating statute(s) and/or "public policy"

To exercise right:

1)the minor need only demonstrate, through words and/or actions, intent to rescind contract 2)Minor must return any consideration received (if still in minor's possession/control), regardless of condition - this is called the duty of *"restoration"* 3)Even if consideration damaged/destroyed, other party has no recourse against minor (except in some states which modify this rule to require *"restitution,"* which is some of those states may only be required if the minor acted intentionally or recklessly or fraudulently represented age) 4)Rules designed to discourage competent parties from entering into contracts with minors

Ratification

Acceptance of terms of contract (entered into as a minor) after reaching age of majority

Contract for Necessaries

Contracts that supply minor with basic necessities of life -Examples: food, clothing, shelter, basic medical services

Effect of Illegal Agreement

General Rule: When an agreement is illegal, the contract is void (as opposed to voidable) Exception: When that would harm an innocent party who was justifiably ignorant of the law - Example: Someone who has contracted for a service for which the other party is not licensed to perform the service

covenants not to compete

In some states, _____ are considered against "public policy."

Contractual Capacity

Mental ability to understand rights and obligations established by contract, with the presumptive ability to understand how to comply with terms of agreement

Disaffirmance ("Power of Avoidance"):

Minors' right, until reasonable time after reaching age of majority, to disaffirm/avoid their contracts

General Rule of Law:

Natural persons over the age of majority (18 in most states) are presumed to have the full legal capacity to enter into binding legal contracts

Implied ratification

Occurs when former minor takes action after reaching age of majority consistent with intent to ratify contract *Note: If the minor has already disaffirmed, there is no contract left to ratify.

Expressed ratification

Occurs when, after reaching age of majority, individual states (either orally or in writing) that he/she intends to be bound by contract entered into while a minor

General Rule:

Parents not liable for contracts entered into by their minor children Exception to the rule is contracts for necessaries of life (premised upon the parents' duty to supply necessaries) Parental liability would not extent to contracts for necessaries if the minor has become emancipated (which means the minor has voluntarily left the home and no longer lives with his or her parents)

Procedural Unconscionability

Relates to conditions that would impair one party's understanding of a contract/contract terms