BLAW 2301 Lecture Notes - Lecture 15: Rescission, Puffery, Inequality Of Bargaining Power
26 Jun 2018
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CH 15 VOIDABLE CONTRACTS, CAPACITY&CONSENT
Capacity: The legal ability of a party to enter a contract. Someone may lack capacity
because of his young age or mental infirmity
Consent: Whether a contracting party truly understood the terms of the contract and
whether she made the agreement voluntarily. Consent issues arise in cases of fraud,
mistake, duress and undue influence
Voidable contract: When a contract is voidable, the INJURED party may choose to
terminate it
Capacity
Minors:
A minor is someone under the age of 18
Minors can generally only create voidable contracts
A voidable contract MAY be canceled by the party who lacks capacity (only the party
who lacks capacity can cancel the agreement)
A void contract is illegal from the beginning and may not be enforced by either party. A
voidable contract is legal but permits one party to escape, if she so wishes.
Ex: ford vs 17 yr old- entitled to his money back
Disaffirmance
A minor who wishes to escape a contract may generally disaffirm it
1) Disaffirm: To give notice of refusal to be bound by an agreement thru oral
comments, in writing or not do the obligated actions.
Or a minor can also undo a contract that has already been completed by filing a suit to
rescind (To cancel a contract formally by court) the contract.
Restitution
A minor who disaffirms a contract must return the consideration he has received, to the
extent he is able
Most states do not require a minor to provide restitution if they are unable to do so
BUT some states follow status quo rule, only required to return to minor the profit
margin.
EX: normal Restitution- homecoming bought car gifted it was 17. Filed for money back.
Does not have to return car back if not able to.
Exception: Necessaries
A necessary is something essential to the minor’s life and welfare: Food,
clothing, housing, and medical care are necessaries.
On a contract for necessaries, a minor can still get out of the contract BUT
must pay for the value of the benefit received
find more resources at oneclass.com
find more resources at oneclass.com
Exception: Misrepresentation of Age
No clear rule among the states, some will allow minor who lied about age to
disaffirm, some will not
Timing of Disaffirmance/Ratification
Minor can disaffirm anytime before turning 18
Minor can disaffirm for a reasonable time after turning 18(timings vary by state)
Once the minor ratifies after turning 18 she can no longer disaffirm
Ratification: Words or actions indicating an intention to be bound by a contract
Mentally Impaired Persons:
–A person suffers from a mental impairment if, by reason of mental illness or defect, he is
unable to understand the nature and consequences of the transaction
–A party suffering a mental impairment usually creates only a voidable contract
–The law presumes that an adult, 18+, is mentally competent, U have to prove u were
incompetent in order to be considered mentally impaired at incident to have contract voidable.
–The law creates an exception: if a person has been adjudicated incompetent, then all of his
future agreements are void.
–Intoxication
When one party is so intoxicated that he cannot understand the nature and
consequences of the transaction, the contract is voidable, But must take restitution.
–Restitution
A mentally infirm party who seeks to void a contract must make restitution.
Generally, courts require a mentally infirm person to make full restitution if the contract
is to be rescinded. If restitution is impossible, the court will not rescind the agreement
unless the infirm party can show bad faith by the other.
Consent
Fraud
–An injured person must show the following:
The defendant knew that his statement was false, or that he made the statement
recklessly and without knowledge of whether it was false
The false statement was material/ important
The injured party justifiably relied on the statement
1) Element One: Intentional or Reckless Misrepresentation of Fact
•Does not have to be a lie
•Opinions and puffery do not amount to fraud
Puffery »A statement is puffery when a reasonable person would realize that it is a sales
pitch, representing the exaggerated opinion of the seller. “this is the best car u’ll ever
drive”
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Capacity: the legal ability of a party to enter a contract. Someone may lack capacity because of his young age or mental infirmity. Consent: whether a contracting party truly understood the terms of the contract and whether she made the agreement voluntarily. Consent issues arise in cases of fraud, mistake, duress and undue influence. Voidable contract: when a contract is voidable, the injured party may choose to terminate it. A minor is someone under the age of 18. Minors can generally only create voidable contracts. A voidable contract may be canceled by the party who lacks capacity (only the party who lacks capacity can cancel the agreement) A void contract is illegal from the beginning and may not be enforced by either party. A voidable contract is legal but permits one party to escape, if she so wishes. Ex: ford vs 17 yr old- entitled to his money back.
