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Capacity and Legality Capacity and Legality
Capacity and Legality Capacity and Legality
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Capacity
The law presumes that the parties to a contract have the requisite contractual capacity to enter into the contract. Certain persons do not have this capacity:
Minors Insane persons Intoxicated persons
2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Capacity (continued)
The common law of contracts and many state statutes protect persons who lack contractual capacity from having contracts forced on them. The person asserting incapacity bears the burden of proof.
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Minors
Common law defines minors as:
Females under the age of 18; and Males under the age of 21
Many states have enacted statutes that specify the age of majority.
The most prevalent age of majority is 18 years of age for both males and females.
2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Minors (continued)
Any age below the statutory age of majority is called the period of minority. Thus, a minor is:
A person who has not reached the age of majority.
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Ratification
KEY ISSUES RELATING TO MINORS AND CONTRACTS Parents Liability for Their Childrens Contracts Necessaries of Life
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Competent Partys Duty of Restitution if the minor has transferred consideration to the competent party before disaffirming the contract, that party must place the 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman minor in status quo.
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Ratification
If a minor does not disaffirm a contract either during the period of minority or within a reasonable time after reaching the age of majority:
The contract is considered ratified (accepted). The minor (now an adult) is bound by the contract. The right to disaffirm the contract has been lost.
2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Necessaries of Life
Minors are obligated to pay for the necessaries of life:
Food, Shelter, Clothing, Medical Services
The sellers recovery is based on the equitable doctrine of quasi-contract rather than on the contract itself.
The minor is obligated only to pay the reasonable value of the goods or services.
2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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Parents Liability for Their Childrens Contracts Parents owe a legal duty to provide food, clothing, shelter, and other necessaries of life for their minor children. Parents are liable for their childrens contracts for necessaries of life if they have not adequately provided such items. The parental duty of support terminates if a minor 2007 Prentice Hall, Business Law,emancipated. becomes sixth edition, Henry R. Cheeseman
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Legal Insanity a state of contractual incapacity as determined by law. The law has developed two standards concerning contracts of mentally incompetent persons:
1. 2.
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Adjudged Insane
A person who has been adjudged insane by a proper court or administrative agency. A contract entered into by such a person is void. Neither party can enforce the contract.
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Intoxicated Person
A person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence. Most states provide that contracts entered into by such intoxicated persons are voidable by that person. The contract is not voidable by the other party if that 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman party had contractual capacity.
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Illegality
One requirement to have an enforceable contract is that the object of the contract must be lawful. Contracts with an illegal object are void and therefore unenforceable. There are two key categories of illegality:
Contracts contrary to statutes Contracts contrary to public 2007 Prenticepolicy Law, sixth edition, Henry R. Cheeseman Hall, Business
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Effect of Illegality
Since illegal contracts are void, the parties cannot sue for nonperformance. The court will generally refuse to enforce or rescind an illegal contract. The court will generally leave the parties where it finds them.
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an illegal contract withdrawn before the illegal act is performed. 4. Persons who were less at fault than the other party for entering into the illegal contract.
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Covenants not to compete that are ancillary to a legitimate sale of a business or employment contract are lawful if they are reasonable in three aspects:
1. 2. 3.
The line of business protected. The geographical area protected. The duration of the restriction.
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Doctrine of Unconscionability
Some lawful contracts are so oppressive or manifestly unfair that they are unjust. To prevent the enforcement of such contracts, the courts have developed the equitable doctrine of unconscionability. A contract found to be unconscionable under this doctrine is called an 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman unconscionable contract, or a contract of adhesion.
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Doctrine of Unconscionability
(continued)
Elements that must be shown to prove that a contract or clause is unconscionable: The parties possessed severely unequal bargaining power. The dominant party unreasonably used its unequal bargaining power. The adhering party had no reasonable alternative.
2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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