Wednesday, March 3, 2010
6 - Contracts – Formation (Defenses-Capacity)
Contracts – Formation (Defenses-Capacity)
PLEASE NOTE THAT THE FOLLOWING IS TAKEN FROM SOME OF MY CLASS NOTES, SOME OF WHICH IS MY OWN PERSONAL WORK AND SOME OF WHICH BELONGS TO CONCORD LAW SCHOOL. IT IS POSTED TO HELP MY IL STUDENTS IN PARTICULAR. IT CANNOT BE DISSEMINATED WITHOUT EXPRESS, WRITTEN PERMISSION.
First, keep in mind that this topic is “Defenses to Formation.” This means that these defenses must be discussed at the end of contracts formation, before you move on to Contract Performance.
The basic defenses to contract formation are (1) capacity, (2) mistake, (3) duress, (4) undue influence, (5) unconscionability, (6) fraud/deceit (fraudulent misrepresentation), (7) statute of frauds and (8) the parol evidence rule. For the most part, the most important, in the order of importance, are the statute of frauds, the parol evidence rule and mistake. It doesn’t mean that the others aren’t covered.
1. Capacity – There are two main areas in capacity: (1) infancy or minority and (2) mental capacity. Let’s start with infancy.
The age for infancy may vary from state to state, but most states use 18 years of age as the age of majority. In this area, any agreement entered into by a minor is voidable by that minor, though it cannot be voided until the minor reaches the age of majority. There are three exceptions: (1) Necessities of Life (necessaries) – reasonable amounts for those things like food, shelter, clothing, medical care, education and sometimes legal fees. Generally, necessaries are only applicable if a minor has been emancipated. Emancipation is a question of fact based upon the minor’s station in life and upon abandonment by parents and the acceptance of emancipation by the minor.
Most jurisdictions will have specific statutes or well established case law, so in real practice, remember to look it up. In addition, watch for issues like obligations to pay child support until a certain age, though most support agreement will include emancipation language.
Back to avoidance of contracts, an infant may disaffirm at any time prior to ratification and once the minor reaches the age of majority, disaffirmance becomes irrevocable. Note that any manifestation of unwillingness is a disaffirmance and a minor may only disaffirm the entire contract. On the other hand, a minor can only ratify or exercise his power of avoidance, after attaining the age of majority. Ratification or avoidance can be accomplished by failure to make a timely disaffirmance, by express ratification or any conduct manifesting intent to ratify.
A minor is generally not liable for misrepresentation under the majority view even if it is willful, though there is a split of authority for deceit of willful misrepresentation of age. If that is the case, the other party may avoid such an agreement.
Other than minority, mental capacity is also a defense. An agreement in this area is voidable by the guardian of a mentally competent person. An exception is if the guardian has been appointed because of the mental infirmity. Then it is void. In this area, restitution is available if the other party took no advantage of the incompetent person and had no reason to know of the infirmity. As with minority, the mentally incompetent person, or her estate, is liable for necessities.
Next time in contracts we’ll look at the defense of mistake.
Professor Doug Holden
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