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Presentation on theme: "LESSON 2.3 CAPACITY TO CONTRACT"— Presentation transcript:

4/1/2017 LESSON 2.3 CAPACITY TO CONTRACT Know how to determine if someone has the capacity to contract Understand how apparent assent to a contract may be invalidated

2 Lack of Contractual Capacity
Minors When a minor buys a necessity (food, clothes, shelter) they must pay fair market value not the contracted price. When a minor buys an unnecessary item (luxuries: mp3 player, cell phone) then they must pay the contracted price. They may also be able to avoid of disaffirm the contract Disaffirm – when you return the consideration that binds the contract Ratification – when a person acts as if they are going to go through with the contract © South-Western Educational Publishing

3 Lack of Contractual Capacity
Mental incapacity Does the person understand the consequences of the contract. People with severe mental illness, severe mental retardation, or severe senility lack capacity Intoxication Someone using alcohol, drugs, or anything else that would impair your judgment Many courts will not disaffirm a contract if you were only temporarily intoxicated because intoxication is voluntary. If you are a habitual drunk, then it is the same as if you are insane © South-Western Educational Publishing

4 Lack of Genuine Assent Mistake Concealment Misrepresentation and fraud
Most mistakes will not release someone from a contract. If you don’t read the contract, the contract is still valid If the wrong item is identified, then the contract is void. Example: you contracted for a red car, but they delivered a blue car. Concealment You do not have to reveal everything about the item you are selling. If the other party asks, you must answer them. Misrepresentation and fraud Misrepresentation – an innocent misstatement will make a contract voidable. If the misrepresentation is on purpose, then it would be considered fraud. © South-Western Educational Publishing

5 Lack of Genuine Assent Undue influence and duress
Undue influence – when there is pressure put on someone to go into contract. This contract is voidable Duress – a wrongful threat denies a person free will to contract. Includes bodily harm, threats against the person or their home. Unconscionability – when one person has unequal bargaining power over the other person. © South-Western Educational Publishing

6 Example Steven inspected a 5-year-old car with the intention of buying it. He asked the owner, Allan, how many miles were on the engine. Allan said, "As you can see from the odometer, it only has 30,000 miles on it, and I'm the only one who has ever owned it.“ A written contract was executed, and Steven took the car to the local automobile dealer to be inspected. The dealer informed Steven that the car had often been serviced there, and that the odometer had been replaced at about 100,000 miles. This was a fraudulent misrepresentation on Allan's part, making the contract voidable by Steven. However, if Steven continued to make his monthly payments to Allan after discovering the truth, this would ratify the contract and Steven would lose his ability to rescind.

7 What’s Your Verdict? Albert had cancer and was being treated by Dr. Bennington. He had carefully followed the doctor's advice, and the treatment had been successful. One day, during a periodic checkup, Dr. Bennington said to Albert, "To prevent the cancer from recurring, you need to reduce the stress in your life. Long drives in the country are great for that. Come to think of it, I'm selling my convertible right now. You should buy it." Without investigating, Albert followed the doctor's directions and contracted to buy the car. Later he found the price he'd agreed to pay was nearly double the market value. © South-Western Educational Publishing

8 Answer In What's Your Verdict? the contract would be voidable by Albert. Although more difficult to prove when it is not present, a typical confidential relationship is not always necessary to show undue influence. The type of relationship that fosters the exercise of undue influence could arise in many situations such as between a housekeeper and her elderly employer. It also could arise between a disabled person and his or her neighbor. However, the law presumes undue influence exists in confidential relationships. © South-Western Educational Publishing

9 Examples 1. Manuela rented an apartment and later discovered that the roof leaked. She asked the landlord to make repairs, but he refused. Manuela said that she would move out unless the landlord either made the repairs or lowered the rent. The landlord lowered the rent. Does Manuela's conduct make the modification to the contract voidable due to duress? Evelyn was 86 years old and of sound mind. However, she relied upon her nephew Jamal, an accountant, to advise her in business matters. During one of Jamal's visits, he persuaded her to sell him a valuable painting for about 80 percent of its true value. Evelyn agreed and signed a contract. Then she had the painting appraised and learned its true value. She continued with the transaction by accepting payment for the painting. Two months after she died her estate sued for rescission of the contract. Jamal defended by claiming that Evelyn had ratified by accepting payment after learning of the value of the painting. Who prevails, Evelyn's estate or Jamal? © South-Western Educational Publishing

10 What’s Your Verdict? Grafters sold a used car to Camacho for $11,000. Graffter told her that the car had been driven only 15,000 miles, had never been in an accident, and had the original paint. In fact, Graffter, after side-swiping a bridge abutment had repaired and repainted the car with a far cheaper paint than the original, set back the odometer from 48,000 miles, and stuffed the transmission with sawdust to quiet the rattling sounds emitted by it. Shortly after Camacho purchased the car, the transmission stopped working and a mechanic at a garage near her home pointed out the various ways that she had been deceived by Grafter. What remedies are available to Camacho? © South-Western Educational Publishing

11 Answer In What's Your Verdict? Graffter intentionally lied about the car and actively concealed the damage from the accident. The deception injured Camacho because the car was not worth $11,000. Accordingly, as Camacho could establish fraud, she could have her contract rescinded and be awarded compensatory and punitive damages. Note that in jurisdictions that require that the victim act with diligence to check the statements allegedly made to defraud, Camacho might not be able to collect damages as she could have had a mechanic examine the car before purchasing it. In such a case, she would instead have to be content with rescission as a remedy. © South-Western Educational Publishing

12 Chapter 7 Genuineness © South-Western Educational Publishing


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