Business law essay questions
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lawchapter13.pptCapacity and Consent
- Capacity is the legal ability to enter into a contract.
Minors (under age 18) and those with mental impairment usually lack capacity.
- 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.
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- Disaffirmance
A minor 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.
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- 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.
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©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
- Necessaries
A necessary is something essential to the minor’s 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.
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- 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.
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©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
- 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,
Or that the speaker makes a reckless misrepresentation.
- The distinction lies in intent.
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- 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.
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- If the maker’s 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.
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- Nondisclosure of a fact is misrepresentation only when disclosure is necessary:
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.
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- A bilateral mistake occurs when both parties negotiate based on the same factual error.
If the parties’ contract is 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.
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- 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 non-mistaken party knew of the error.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
- If one party makes a threat that causes the victim to enter into a contract, with no reasonable alternative, the contract is voidable.
- 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
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©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
- To prove there has been undue influence, one must demonstrate:
A relationship between the two parties either of trust or of domination, and
Improper persuasion by the stronger party
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied, or duplicated, or posted to a publicly accessible website, in whole or in part.
