Capacity and Consent

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CHAPTER 14
Capacity and Consent
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Quote of the Day

• I am not young enough to know everything.
• J.M. Barrie,
• British playwright

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Capacity

• Capacity is the legal ability to enter into a
  contract.
• A voidable contract may be canceled by the party
  to the contract who lacks capacity.
• In some cases, lack of capacity creates a void
  contract.

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Minors

• Disaffirmance
• A minor generally may disaffirm a contract that
  is, he may notify the other party he refuses to
  be bound by the agreement.
• The minor also has the option of filing a suit to
  rescind the contract, that is, to have a court
  formally cancel it.
• Restitution
• A minor who disaffirms a contract must return the
  consideration he has received, to the extent he
  is able.

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Minors -- Exceptions

• Fully Executed Contracts
• In some states, minors may not disaffirm fully
  executed contracts.
• Timing
• Minors may disaffirm a contract up to a
  reasonable time after turning 18, unless they
  ratify the contract after turning 18.

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Minors -- Exceptions

• Necessaries
• A necessary is something essential to the minors
  life and welfare.
• On a contract for necessaries, a minor must pay
  for the value of the benefit received.
• Misrepresentation of Age
• Some states will not allow a minor to disaffirm
  if he has lied about his age.
• Other states allow the minor to receive only the
  value of the returned goods.

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Mentally Impaired Persons

• Definition
• A person with mental illness or defect, who is
  unable to understand the nature and consequences
  of a transaction.
• Generally creates only a voidable contract.
• Intoxication
• When an intoxicated person makes a contract, it
  is voidable.
• Restitution
• A mentally infirm party who seeks to void a
  contract must make restitution.

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Misrepresentation and Fraud

• Innocent misrepresentation
• means the owner believes the statement to be true
  and has a good reason for that belief.
• Fraudulent misrepresentation
• means the owner knows that the statement is false.

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Misrepresentation and Fraud

• To rescind a contract based on misrepresentation
  or fraud, a party must show three things
• (1) there was a false statement of fact
• Puffery (exaggerated sales talk) is not a
  statement of fact.
• (2) the statement was fraudulent or material and
  
• (3) the injured person justifiably relied on the
  statement.

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Plaintiffs Remedy for Misrepresentation or Fraud

• If the makers statement is fraudulent, the
  injured party generally has a choice of
  rescinding the contract or suing for damages.
• Sale of Goods
• UCC 2-721 permits a party to rescind a contract
  and then sue for damages whether the
  misrepresentation was fraudulent or innocent.

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Nondisclosure of a Fact

• Is misrepresentation only
• To Correct a Previous Assertion
• To Correct a Basic Mistaken Assumption
• A seller must report any known latent defect that
  the buyer is not expected to discover himself.
• To Correct a Mistaken Understanding about a
  Writing
• In A Relationship of Trust
• When one party naturally expects openness and
  honesty, based on a close relationship, the other
  party must act accordingly.

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Mistake -- Bilateral

• A bilateral mistake occurs when both parties
  negotiate based on the same factual error.
• If the parties contract based on an important
  factual error, the contract is voidable by the
  injured party.
• Conscious Uncertainty
• No rescission is allowed where one of the parties
  knows she is taking a risk.

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Mistake -- Unilateral

• Sometimes only one party enters a contract under
  a mistaken assumption, a situation called
  unilateral mistake.
• to rescind for unilateral mistake, a party must
  demonstrate that she entered the contract of a
  basic factual error and that either
• (1) enforcing the contract would be
  unconscionable or
• (2) the nonmistaken party knew of the error.

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Undue Influence

• To prove, one must demonstrate
• A relationship between the two parties either of
  trust or of domination, and
• Improper persuasion of the stronger party

Duress

• If one party makes a threat that causes the
  victim to enter into a contract, with no
  reasonable alternative, the contract is voidable.

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Economic Duress

• In analyzing a claim of economic duress, courts
  look at these factors
• Acts that have no legitimate business purpose
• Greatly unequal bargaining power
• An unnaturally large gain for one party
• Financial distress for one party

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Both parties must have the capacity to make a
deal, and both must give genuine consent.