The ability to understand that a contract is being made and to understand its general meaning.
Two Types of Incapacity
Status Incapacity are classes of persons that lack contractual capacity, such as minors.
Factual Incapacity exists when a person has incapacity due to a mental condition caused by medication, drugs, alcohol, illness or age, a person doesn't understand that a contract is being made.
Who is a minor?
A minor is any person under the age of 18.
What is the effect of a contract with a minor?
A contract with a minor is voidable at the election of the minor.
To disaffirm a contract by any expression of an intention to repudiate the contract. A minor can disaffirm a contract only during minority and for a reasonable time after attaining majority.
What is the effect if a minor misrepresents his age?
Generally, the fact that the minor has misrepresented his or her age does not affect the minor's power to disaffirm the contract. Some states hold that such fraud of a minor bars contract avoidance. Some states permit the the minor to disaffirm the contract in such a case but require the minor to pay for any damage to the property recevied under the contract.
What power does the other party to the contract have because of age misrepresentation?
In any case, the other party to the contract may disaffirm it because of the minor's fraud.
What must the minor do with the consideration when a contract is avoided?
The minor must put things back to the original position, or as it is called, restore the status quo ante. If the original consideration can't be returned what remains of it must be returned, and if nothing remains the contract can still be disaffirmed.
What must the other party do with the consideration if the the contract is avoided?
The other contracting party must return the money or property received.
Things needed related to health, education, and comfort of a minor.
What is the result if a minor doesn't disaffirm a contract before reaching the age of majority?
A former minor can't disaffirm a contract that has been ratified after reaching majority.
What are some contracts that minors can not avoid?
Statutes in many states deprive a minor of the right to avoid an educational loan; a contract for medical care; a contract made while running a business; a contract approved by the court; a contract made in performance of a legal duty; and a contract relating to bank accounts, insurance policies, or corporate stock.
What is the effect of a contract with a mentally incompetent person?
If the person is unable tp understand that a contract is being made or the general nature of the contract, the person lacks contractual capacity. If the incompetent person makes a contract after a guardian has been appointed, the contract is void.
What is the effect of a contract with an intoxicated person?
The capacity of a party to contract and the validity of the contract are not affected by the party's being impaired by alcohol at the time of making the contract so long as the party knew that a contract was being made.
Two Kinds of Mistakes
Unilateral Mistake is a mistake by only one of the parties as to a fact does not affect the contract when the mistake is unknown to the othe contracting party.
Mutual Mistake is when both parties enter into a contract under a mutually mistaken understanding concerning a basic assumption of fact or law on which the contract is made.
What is the legal effect of a contract with mistakes?
A contract with a unilateral mistake the validity of the contract is not affected.
If a mutal mistake is made the contract is voidable by the adversely affected party if the mistake has a material effect on the agreed exchange.
The making of a material misrepresentation of fact with 1.) knowledge of its falsity or reckless indifference to its truth, 2.) the intent that the listener rely on it, 3.) the result that the listener does so rely, and 4.) the consequence that the listener is harmed.
What is the legal effect of a statement of opinion or value?
Ordinarily, matters of opinion of value or opinions about future events are not regarded as fraudulent.
What is the general rule regarding disclosure of information?
A party to a contract has no duty to volunteer information to the other party.
Influence that is asserted upon another person by one who dominates that person. This occurs in confidential relationships.
A party enters into a contract to avoid a threatened danger
What are the Two Types of Duress?
Physcial Duress is when the threatened danger is physical harm to person or property.
Economic Duress is the threat of financial loss.