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Quote of the Day I am not young enough to know everything. J.M. Barrie, British playwright
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
If one party makes a threat that causes the victim to enter into a contract, with no reasonable alternative, the contract is voidable. Duress 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
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
Both parties must have the capacity to make a deal, and both must give genuine consent. Both parties must have the capacity to make a deal, and both must give genuine consent.