Chapter 13

Minor's Right to Disaffirm

A 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.

Minority Rule

An increasing number of states hold that the minor must restore the adult to the position held before the contract was made

Minors

At 18 years, a minor is emancipated and has the legal capacity to enter into any contract that an adult can. However, a contract entered into by a minor is voidable at the option of that minor and can be disaffirmed

Substantive Unconscionability

Characterizes those contracts, or portions of those contracts, that are oppressive or overly harsh

Contracts for necessaries

Contracts for food, clothing, shelter may be disaffirmed by minor, who remains liable for the reasonable value of goods or services

Licensing Statutes

Contracts enforceability depends on purpose

Contracts Contrary to Statute

Contracts to commit a crime Contracts for Usury Gambling Online Gambling Licensing Statutes

Contracts Contrary to public policy

Contracts/Clauses: In restraint of trade, unconscionable, exculpatory, discriminatory

Exceptions to Contracts in Restraint of Trade

Covenant not to compete and sale of an ongoing business Covenant not to compete in employment is enforceable as long as time and geographic terms are reasonable

Intoxication (Disaffirmance and Ratification)

Disaffirmance: Voidable Ratification: After sobering up

Gambling

Distribution of property based on chance among persons who have paid valuable consideration

Legality

For a contract to be enforceable, it must be formed for legal purpose. A specific clause in contract can be illegal, but rest of contract can be enforceable. Contract to commit a tortious act is illegal.

Contracts in Restraint of Trade

Generally Void

Misrepresentation of Age

Generally a minor can disaffirm the contract. But some states prohibit disaffirmance and hold the minor liable

Illegal Contracts

Generally void. If contract is executory, cannot be enforced. Unjust enrichment is not an issue

Void- Mental Incompetence

If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed

Voidable- Mental Incompetence

If the person does not know he or she is entering into the contract or lacks the mental capacity to comprehend its nature, purpose, and consequences

Exceptions to Illegal Contracts

Justifiable ignorance of the facts, members of protected classes

Intoxication

Lack of capacity at the time the contract is being made. Contract is either voidable or valid, depending on circumstances

Majority Rule

Minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor's possession or control

Exceptions to a minor's right to disaffirm

Misrepresentation of Age Contracts for Necessaries Ratification Parent's Liability

Contracts for Usury

Most states limit the interest the lender may collect on the contract

Emancipation

Occurs when a child's parents or legal guardian relinquishes the legal right to exercise control over the child

Ratification

Occurs when a minor, on or after reaching majority, indicates (expressly or implied) an intention to become bound by a contract made as a minor

Procedural Unconscionability

Often involves inconspicuous print, unintelligible language (legalese), or the lack of an opportunity to read the contract or ask questions about its meaning

Parent's Liability

Parent's generally not liable, unless they co-sign with minor

Examples of Contractual Capacity

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

Unconscionable Contracts or Clauses

Procedural Unconscionability, Substantive Unconscionability

Contracts to commit a crime

Unenforceable

Online Gambling

Unlawful Internet Gambling Enforcement Act (2006) bars electric payments, and allows civil forfeiture

Types of Mental Incompetence Contracts

Void, Voidable, Valid

Valid- Mental Incompetence

When a person is able to understand the nature and effect of entering into a contract but may lack capacity to engage in other activities (known as lucid intervals)

Age of Majority

When a person is no longer a minor

Discriminatory Contracts

in which a 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

Contractual Capacity

legal ability to enter into a contractual relationship

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