BUSINESS LAW TODAY Essentials 9th Ed Roger LeRoy Miller - Institute for University Studies, Arlington, Texas Gaylord A Jentz - University of Texas at Austin, Emeritus Chapter Contracts: Capacity, Legality, Assent, and Form © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Learning Objectives      Does a minor have the capacity to enter into an enforceable contract? What does it mean to disaffirm a contract? What is an exculpatory clause? In what circumstances might exculpatory clauses be enforced? When will they not be enforced? In what types of situations might voluntary consent to a contract’s terms be lacking? What are the elements of fraudulent misrepresentation? What contracts must be in writing to be enforceable? © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Contractual Capacity  The legal ability to enter into a contractual relationship Full competence No competence Limited competence © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Minors  In most states, a person is no longer a minor for contractual purposes at the age of 18  A minor can enter into any contract that an adult can  A contract entered into by a minor is voidable at the option of that minor © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Disaffirmance  A contract can be disaffirmed at any time during minority or for a reasonable period after the minor comes of age  Minor must disaffirm the entire contract  Disaffirmance can be expressed or implied © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Minor’s Obligation on Disaffirmance  In most states, minor need only return the goods (or other consideration) subject to the contract, provided the goods are in the minor’s possession or control  In increasing number of states, the minor must restore the adult to the position held before the contract was made © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Exceptions to Minor’s Right to Disaffirm  Misrepresentation of Age Generally, minor can disaffirm the contract But growing number of states prohibit disaffirmance and hold the minor liable  Contracts for Necessaries Contracts for food, clothing, shelter may be disaffirmed by minor, who remains liable for the reasonable value of goods or services © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Exceptions to Minor’s Right to Disaffirm  Insurance  Not viewed as necessaries, so minor can disaffirm contract and recover all premiums paid  Loans Seldom considered to be necessaries Exception: • Loan to a minor for the express purpose of enabling the minor to purchase necessaries © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Ratification  Occurs when a minor, on or after reaching majority, indicates (expressly or impliedly) an intention to become bound by a contract made as a minor  Executed v Executory contracts © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use Parent’s Liability  Contracts Parents not liable (This is why parents are usually required to sign any contract made with a minor)  Torts (Statutes Vary): Minors are personally liable for their own torts Liability imposed on parents only for willful acts of their minor children Liability imposed on parents for their children negligent acts that result from their parents’ negligence © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 10 Exculpatory Clauses  Release a party from liability in the event of monetary or physical injury, no matter who is at fault Courts generally view these clauses with disfavor © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 17 Effect of Illegality  Justifiable Ignorance of the Facts  Members of Protected Classes  Withdrawal from an Illegal Agreement  Severable or Divisible Contracts  Contract Illegal through Fraud, Duress, or Undue Influence © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 18 Voluntary Consent: Mistakes © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 19 Mistakes  Mistake of Value (or Quality) Contract is enforceable  Unilateral Mistake (of Fact) Party does not have the right to cancel contract unless: • (1) the non-mistaken party knew or should have known about the mistake, or • (2) there is a clerical error © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 20 Mistakes  Bilateral (Mutual) Mistakes—if both are mistaken, either one can cancel the contract  CASE 9.2 Inkel v Pride ChevroletPontiac, Inc (2008) For mutual mistake to occur, both parties must have been mistaken about a material fact This was a matter of fact for a jury © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 21 Fraudulent Misrepresentation  Contract is voidable by innocent party Injured party must show: Misrepresentation of a material fact (not opinion) by conduct, of law, silence, or words Opinion is not fact (unless it is an expert opinion)  CASE 9.3 Rosenweig v Givens (2009) Whether fraud was committed in the context of a fiduciary relationship between the parties was a question of fact for a jury © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 22 Fraudulent Misrepresentation  Injured party must show (cont’d): Intent to deceive Also known as “scienter.” Innocent party must have justifiably relied on the misrepresentation Plaintiff must have suffered a legal injury © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 23 Undue Influence & Duress  Undue Influence Arises from a special relationship of trust A stronger party overcomes a weaker party’s free will by exerting psychological influence  Duress Threat of physical force or extortion Can serve as basis for rescission of contract Economic need, by itself, is not duress © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 24 Form: Statute of Frauds © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 25 Statute of Frauds—Writing Requirement  Requires certain contracts to be in writing and signed to be enforceable, as follows: Interest in Land: A contract involving an interest in land Includes sales, fixtures, leases, mortgages, and easements One Year Rule: A contract that by its terms cannot be performed within year of execution  © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 26 ‘One Year Rule’ © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 27 Statute of Frauds  Collateral Promises: answer for the debt of another Contracts with Primary vs Secondary Obligations Only secondary obligations must be in writing Exception – “Main Purpose” Rule: guarantor seeks to secure personal benefit  Promises Made in Consideration of Marriage Unilateral promise for money or property must be in writing © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 28 Statute of Frauds  Contracts for the Sale of Goods over $500 must be in writing  Exceptions: Partial performance, detrimental reliance © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 29 Statute of Frauds Exceptions  Exceptions to Statute of Frauds: Admissions by party against whom enforcement is sought Promissory Estoppel (or Detrimental Reliance)  Special UCC Exceptions Oral contracts for sale of customized goods may be enforced Oral contracts between merchants may be enforced © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 30 Statute of Frauds— Sufficiency of the Writing  What Constitutes a Writing?  Written contract(s) or memorandum(s) (paper or electronic) SIGNED by the party against whom enforcement is sought (typically the defendant in the case)  Documents can be “incorporated” into each other  What Must be Contained in the Writing?  Essential terms only  Must name parties  Be signed by party against whom enforcement is sought (usually the Defendant) Proving an “e-signature” is a matter for trial © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use 31 ... be expressed or implied © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a... competence Limited competence © 2011 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a... Reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected