Contract Law: Capacity and Legality

Contractual Capacity

• Definition: Mental status required to understand the implications of signing a contract.

• Minors:

  • Under 18 can enter contracts but can void them.
  • Adults cannot void a contract with a minor.
  • Right to void is called the right to disaffirm until the age of maturity.
  • Example: A minor renting an apartment can void the lease upon reaching adulthood, responsible for past dues, not future liabilities.
  • Restitution: Returning property after voiding a contract.
  • Necessaries: Minors are liable for contracts involving necessities (food, shelter, clothing).
  • Ratification: Upon reaching 18, a minor can affirm a contract by continuing with it, making them liable.

• Mentally Incompetent Individuals:

  • Intoxication: Contracts signed while intoxicated can be voided upon sobering up within a reasonable time.
  • Mentally Incompetent:
    • Court-appointed guardians: Contracts are void due to lack of capacity.
    • Without guardians: Contracts are voidable if the individual did not understand the contract's implications.

Legality

• Contracts must have a legal purpose.

• Illegal Contracts: Void.

  • Example: Purchasing marijuana in Ohio.
  • Usury Laws: Illegal interest rates make contracts void.
  • Gambling: Legal restrictions can void certain contracts.

• Contracts Contrary to Public Policy:

  • Covenant Not to Compete:
    • Common in business sales and employment.
    • Must be reasonable in time and geography.
  • Unconscionable Contracts: Oppressive contracts can be voided.
  • Exculpatory Clauses:
    • Release liability for certain risks (e.g., amusement parks).
    • Liability remains for negligence.

Assent and Genuine Agreement

• Mistakes:

  • Future Value: Contracts are enforceable despite mistakes.
  • Material Fact: Allows for contract cancellation.
  • Unilateral Mistake: Affects one party; allows for cancellation.
  • Bilateral Mistake: Both parties confused; contract voidable.

• Fraudulent Misrepresentation:

  • Misrepresentation with intent to deceive.
  • Innocent party can rescind and seek restitution.

• Undue Influence and Duress:

  • Undue Influence: Pressure from a trusted individual.
  • Duress: Threats of harm or extortion.

Statute of Frauds

• Certain contracts must be in writing:
  • Real Property: Mortgages and home sales.
  • Long-term Contracts: Over one year.
  • Collateral: Co-signing loans.
  • Prenuptial Agreements: Must be documented.
  • Sale of Goods: Transactions over $500.

This chapter concludes the discussion on the basic requirements of contract law, preparing to transition into detailed explorations of contract breaches and remedies in the next chapter.