Contract Law: Capacity and Legality

Study Notes

Minors: Generally lack capacity to contract, meaning they can disaffirm contracts.
- Exceptions: Contracts for necessities (e.g., food, shelter) and ratification (when a minor confirms the contract after reaching the age of majority).
- Parents' liability: Parents are generally not liable for contracts entered by their minor children, unless they have co-signed or consented.
Mentally Incapacitated: Persons proven by a court to be mentally incapacitated lack capacity to contract.
Intoxication: Individuals under the influence of alcohol or drugs may lack capacity to contract, but must prove they were so intoxicated that they didn't understand the nature of the agreement.

Violating Statutes: Contracts contrary to state or federal statutes are unenforceable.
- Examples: Agreements to commit crimes or torts, agreements that require a license but lack one, usury (charging excessive interest), gambling, and blue laws/Sabbath laws (restricting certain activities on Sundays).
Violating Public Policy: Contracts violating public policy are also unenforceable.
- Example: Restraint of trade agreements, which restrict competition.

Unconscionability: A doctrine that allows courts to invalidate contracts that are grossly unfair.
- Procedural Unconscionability: Unfairness in the bargaining process (e.g., one party has significant power over the other).
- Substantive Unconscionability: Unfair terms within the contract itself.
- Contracts of Adhesion: A "take it or leave it" contract with little room for negotiation, often considered procedurally unconscionable.

Void ab initio: The contract is void from the beginning, meaning it never existed.
In pari delicto: Both parties are equally at fault for the illegal purpose of the contract.

Essential for a Valid Contract: Without genuine assent, a contract is voidable and can be rescinded.
Factors that Affect Assent: Mistake, misrepresentation, undue influence, and duress.

Unilateral Mistake: One party is mistaken about a material fact of the contract. Generally, this doesn't void the contract unless the other party knew or should have known about the mistake.
Mutual Mistake: Both parties are mistaken about a material fact of the contract. This may void the contract depending on the nature of the mistake.

Misrepresentation: An untrue statement of fact that induces another party to enter into a contract.
- Innocent Misrepresentation: The party making the statement believes it's true but is actually false.
- Scienter: Knowledge that a statement is false (required for negligent and fraudulent misrepresentation).
- Negligent Misrepresentation: The party making the statement should have known it was false.
- Fraudulent Misrepresentation: The party making the statement knows it's false and intends to deceive the other party.
  - Includes: Intentional misrepresentation, concealment, non-disclosure, and intent to deceive.
  - Justifiable Reliance: The deceived party must have reasonably relied on the false assertion.

Undue Influence: A party's dominant position over the other party influences the other party to enter into a contract (e.g., doctor-patient, attorney-client).