Chapter 13 Capacity and Genuine Assent Twomey Business

Defenses to Formation [13 -1] Aliens Outmoded Married Persons Lack of Contractual Capacity Status Incapacity Minors Factual Incapacity Intoxication Mental Unilateral Mistake No, unless reliance on statement Mutual Mistake Law - No Mistake Possible Grounds for Avoiding Contract Expectations - No Deception Duty Nondisclosure Statute Fraud Intent to Conceal Undue Influence Physical Duress Economic Pressure (c) 2000 West Legal Studies Material Fact - Yes Innocent Misrepresentation Chapter 13 2

Avoidance of Contract Lack of Contractual Capacity Mistake Status Incapacity Factual Incapacity Unilateral Induced by or Known to Other Party Mutual Mistake Possible Grounds for Avoiding Contract Innocent Misrepresentation Deception Nondisclosure Fraud Undue Influence Pressure Duress (c) 2000 West Legal Studies Chapter 13 Physical Economic 3

Possible Remedies for Lack of Genuine Agreement [13 -2] Deception Pressure Mistake There is NOT a genuine agreement of the parties Damages Recession Reformation (c) 2000 West Legal Studies Chapter 13 4

Chapter 13 Summary An agreement that otherwise appears to be a contract may not be binding because one of the parties lacks contractual capacity. In such a case, the contract is ordinarily voidable at the election of that party who lacks contractual capacity. In some cases, the contract is void. (c) 2000 West Legal Studies Chapter 13 5

Chapter 13 Summary [2] Ordinarily, contractual incapacity is the inability, for mental or physical reasons, to understand that a contract is being made and to understand its general terms and nature. This is typically the case when it is claimed that incapacity exists because of insanity or intoxication. The incapacity of minors arises because society is discriminating in favor of that class to protect them from unwise contracts. (c) 2000 West Legal Studies Chapter 13 6

Chapter 13 Summary [3] In most states today, the age of majority is 18. Minors can avoid most contracts. If a minor received anything from the other party, the minor, on avoiding the contract, must return what had been received from the other party if the minor still has it. (c) 2000 West Legal Studies Chapter 13 7

Chapter 13 Summary [4] When a minor avoids a contract for a necessary, the minor must pay the reasonable value of any benefit received. The concept of a necessary has expanded. (c) 2000 West Legal Studies Chapter 13 8

Chapter 13 Summary [5] Only minors are liable for their contracts. Parents of a minor are not liable on the minor’s contracts merely because they are the parents. Frequently, an adult will enter into the contract as a co-party of the minor and is then liable without regard to whether the minor has avoided the contract. (c) 2000 West Legal Studies Chapter 13 9

Chapter 13 Summary [6] The contract of an insane person is voidable to much the same extent as the contract of a minor. An important distinction is that if a guardian has been appointed for the insane person, a contract made by the insane person is void and not merely voidable. (c) 2000 West Legal Studies Chapter 13 10

Chapter 13 Summary [7] An intoxicated person lacks contractual capacity to make a contract if the intoxication is such that the person does not understand that a contract is being made. The consent of a party to an agreement is not genuine or voluntary in certain cases of mistake, deception, or pressure. When this occurs, what appears to be a contract can be avoided by the victim of such circumstances or conduct. (c) 2000 West Legal Studies Chapter 13 11

Chapter 13 Summary [8] As to mistake, it is necessary to distinguish between unilateral mistakes that are unknown to the other contracting party and those that are known. Mistakes that are unknown to the other party usually do not affect the binding character of the agreement. A unilateral mistake of which the other contracting party has knowledge or has reason to know makes the contract avoidable by the victim of the mistake. (c) 2000 West Legal Studies Chapter 13 12

Chapter 13 Summary [9] The deception situation may be one of innocent misrepresentation, nondisclosure, or fraud. Innocent misrepresentation generally has no effect on the binding quality of an agreement, although there is a trend to recognize it as a ground for avoiding the contract. (c) 2000 West Legal Studies Chapter 13 13

Chapter 13 Summary [10] A few courts allow recovery of damages. When one party to the contract knows of a fact that has a bearing on the transaction, the failure to volunteer information about that fact to the other contracting party is called nondisclosure. (c) 2000 West Legal Studies Chapter 13 14

Chapter 13 Summary [11] When concealment goes beyond mere silence and consists of actively taking steps to hide the truth, the conduct may be classified as fraud rather than nondisclosure. There is a growing trend to hold fine-print clauses not binding on theory that they are designed to hide the truth from the other contracting party. (c) 2000 West Legal Studies Chapter 13 15

Chapter 13 Summary [12] Consumer protection statutes often outlaw fineprint clauses by requiring particular contracts or particular clauses in contracts to be printed in type of a specified size. A statement of opinion, value, or law cannot ordinarily be the basis for fraud liability, although it can be when the maker of the false statement claims to be an expert on the particular subject matter and is making the statement as an expert. (c) 2000 West Legal Studies Chapter 13 16

Chapter 13 Summary [13] The free will of a person, essential to the voluntary character of a contract, may be lacking because the agreement had been obtained by pressure. This may range from undue influence through the array of threats of extreme economic loss (called economic duress) to the threat of physical force that would cause serious personal injury or damage to property (called physical duress). (c) 2000 West Legal Studies Chapter 13 17

Chapter 13 Summary [14] The mere fact that one party to the contract has great bargaining power and offers the other party a printed contract on a take-it-or-leave-it basis (an adhesion contract) does not prove that the agreement was not voluntary. However, some courts have held that in such cases the agreement is not voluntary if the weaker party cannot obtain the desired goods or services elsewhere. (c) 2000 West Legal Studies Chapter 13 18

Chapter 13 Summary [15] When the voluntary character of an agreement has been destroyed by mistake, deception, or pressure, the victim may avoid or rescind the contract or may ratify the contract and obtain money damages from the wrongdoer. When the mistake consists of an error in putting an oral contract in writing, either party may ask the court to reform the writing so that it states the parties’ actual agreement. (c) 2000 West Legal Studies Chapter 13 19