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Buisness Law Today Chapter 11

Buisness Law Today Chapter 11

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Published by: paralegal922 on Feb 02, 2010
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12/03/2012

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CHAPTTRI
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.CONTRACTUALAPACITY.LEGALITY-THEEFFECTFLLEGALITYCHAPTENOUItIl{ETEARIIINGOBIECIIVESAFTEREADINGHIS HAPTER,OU HOULDEABLETONSWERHE OLLOWINGUESTIONS:
Whataresomeexceptionsotherulethat aminorcan disaffinn(avoid)anycontract?Doesanintoxicatedpersonhavehe capacityoenterntoan enforceableontract?Does hementalincompetenceofonepartynecessarilymake acontractvoid?Underwhatcircumstanceswillacovenantnottocompetebeenforceable?Whenwill suchcovenantsot be enforced?Whatis anexculpatorylause?n wl-ratircum-stancesmightexculpatorylauseseenforced?Whenwilltheynotbeenforced?ourtsgenerallywantcontractso beenforceable,ndmuchof thelaw isdevotedoaidinitheenforceabilityofcontracts.Noneiheless,asindicatedin thechapter-openingquo"tation,libertyofcontract"snot absolute.'r otherwords,not all peoplecan-"t.tJgdtybindingcontractsi alltimes.Contractsenterednto bypersonsackinghec"pa.iry"todo,o-"'ybevoidable.Similarly,contractsallingfor theperformanceof anillegalactarellegalandthusvoid-theyare-notontractstall.In thischapter,weexam-
I
ine contractualcapacityandsomeaspectsf illegalbargains'Contractualcapacitysthelegalabilityto enternio a contractualelationship'Courtsgenerallypr"r,rr11.heexistencef contractualcapacity,utin somesituatiot-ts,apacityi,lu.king'o,maybequestior-rable.personwl-rohas beendeterminedbya courtto_bementally"incompetent,or example,cannotorm alegallybindingcontractwith anotherparty.n othersituations,partlmayhavethecapacityo enterntoavalid contractbuti]]"irlrohaveherightto ruoidirbllityr-rndert. Forexample,minors--orinfants,as heynr.'.o-*or1lyreferiedo inthelaw-usr-rallyarenot legallyboundbycontracts'n thissection,welookatthe effectof youth,intoxication,andn'rentalncompetenceon con-tractualcapacity.
56libertvf
contlact
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notanabsoluteconcePt.t isrelativeomanyconditionsof imendplacendcircumstane,)'
BenjaminCardozo,870-1938(AssociateusticeofthetlnitedStatcsSuprcneCourt,I 932-l938)
CONTRACTUATAPACIfiThehresholdmentalaPacitYrequiredy aworaPartYhoentersntoa contracto beboundbyhat contract.
287 trfiHIT
CAPACITYNDEGALITY
 
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he Legal nformationlnstitute t CornellLawSchoolprovides tablewith linksto state statutesgoverningheemancipation fminors.Coto
288lnilmll
CONTRACTSTable_Emancipation.htm.EMANCIPATIONIn regardominors,he actofbeingfreed romparentalontrol; ccurswhen a child'sarentr legalguardianelinquisheshe egal ightto exerciseontrolver he child.Normally, minorwho leaves ometosupportimself rherselfsconsideredmancipated.DISAFFIRMAN€EThe egalavoidance,rsetting side,of a contractualbligation.This minor is discussinghepurchaseof a usedcar with o solesperson.When o minor disaffirmsa controd,such os o contractto buy o car,moststotes requirethe minor ta returnwhotever he or shepurchosed,if it iswithinhis or her control. Whydosome sfofesrequire more?(Michaelewman/PhotoEdit)
Minors
Today,nvirtuallyall states, he ageofmaiority(whena persons nolonger a minor){orcontractualurposess eighteenears-theso-calledoming of age.Theageofmajor-ity may still be hventy-oneor other purposes, owever,such as the purchaseandcon-sumptionof alcohol.)n addition, somestates rovideor the terminationof minority onmarriage.Minority statusmay also be terminated bya minor's emancipation,whichoccurswhen a child's parentor legal guardianelinquishes helegal right to exerciseon-trol over he child.Normally, minors who leavehome to support hemselvesre consid-ered emancipated.Severaljurisdictionspermit minorsto petition acourtforemancipation hemselves.or business urposes,minormaypetitiona courtto betreatedas an adult.The generalule is that a minor can enterntoany contractan adultcan,providedhatthe contracts notoneprohibited by law forminors(forexample,he saleof aicoholicbeverages r tobacco).A contract enteredntobya minot, however,s voidableat theoption of thatminor, subject o certain exceptionstobe discussed hortly).To exercisethe option to avoid a conhact,a minor need only manifestan intentionnot to be boundbyit. The minor"avoids"he contractby disaffirmingt,DisaffirmanceThe legalavoidance, r setting side, f acontractual bligations referredto as disaffirmance.To disaffirm,a minor must express,hrough wordsor conduct,his orherintent notto bebound to the contract.The minormust disaffirmhe entire contract,not merelya portionof it. For nstance, minor cannotdecide okeeppartof the goods ur-chased nder a contractandreturn the remaininggoods.Whena minor disaffirmscon-tract,the minor canrecoveranyproperty that she or he transferredo the adultasconsiderationor the contract,even f it is then in the possessionf a thirdparty.lA contract can ordinarilybe disaffirmedat any timeduringminorityl or for areason-able timeafter the minor comesof age.What constitutes"reasonable"imemay vary.Two months would probablybe consideredeasonable,ut exceptn unusualcircum-stances, courtmay not find itreasonableo wait a yearor more aftercoming of ageodisaffirm. f anindividual fails o disaffirman executed ontractwithin areasonabieimeafterreaching he age of majority, a court willlikely hold that the contracthasbeenrati-fied(ratificationwill be discussed hortly).Note that an adult who entersnto a contract witha minor cannotavoidhisorhercontractualdutieson the groundhat the minor candoso. Unless he minor exerciseshe optionto disaffirmhe contract, headult party normally is bound byit.A Minor's Obligations onDisaffirmanceAlthough all staies'awspermitminorsto disaffirm contractswithcertain exceptions),nclud-ing executed ontracts, tate awsdifferon the extentofa minor's obli-gationson disaffirmance.Maioilty Rule. Courtsinamajority of stateshold that the minorneed only return the goodsorother consideration)ubiecto the con-tract,provided the goods are in the minor'spossession r conkol.tnExAMpTEtflJimGarrison,aseventeen-year-old,urchases com-
l.The Uniform CommercialCode(UCC),n Section403(l),allowsn exceptionf the hirdpartl s a'goodfaith purchaseror value."SeeChapter 19.2. In some tates,owever, minor who entersntoacontract or the saleoflandcannotdisaffirm he contractntilsheor hereacheshe ageofmajorilv.
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putertom RadioShack.Whiletransportinghecomputerohistrome,Garrison,hroughno faultofhis own,isinvolvedn a caraccident.As a resultof the accident,heplasticcasingof thecomputers broken.Thenext day,he returnshecomputero Radio Shackandd--isaffirmshecontract.Underthemajorityview, thisreturnfulfillsGarrison'sdutyevenhoughhecomputersnow damaged.Garrisons entitledoreceivea refundof thepurchaserice(ifpaidin cash)orto berelievedofanyfurther obligationsunderanagree-menttopurchasehecomputeroncredit.ElMinoityRute.Agrowingnumberofstates,eitherbystatuteor bycourtdecision,placean addiiionaldutyontheminor-thedutytorestore headultparty othe positionsheorheheld beforeire contractwasmade. tFExAIttPtEttrSixteen-year-oldosephDodsonboughtapickuptruckfor$4,900rom a used-carealer.Althoughthetruck developed-eJh"rric"lproLl.*rninemonthsater,Dodsoncontinuedodrivet until theengineblewup anditstoppedunning.ThenDodsondisaffirmedhecontractandattemptedo rehrrnthe trucktolhedealeror arefundof thefull purchaserice.The dealerefusedoacceptthepickuporrefundthemoney.Dodsonfiled suit. Ultimately,heTennesseeupremeCo.,tt"llo1y.dDodsono disaffirmhecontractbutrequiredhim tocompensatehesellerfor thedepreciatedalue-notihepurchaserice-ofihepickup.3Efftis examplellus-trateshetendamongtoday'scourtsohold aminorresponsibleor damage,ordinarywearandtear,anddepreciationfgoodshattheminor usedprior todisafiirmance.ExceptionsotheMinor'sRightto DisaffirmStatecourtsandegislaturesavecarvedout sJveralxceptionso theminor'sright todisaffirm.Somecontractsannotbeavoidedsimplyasa matteroflaw, onthegroundof publicpolicy.For example.marriagecontractsandcontractsoenlistn thearmedservicesall into thiscategory.Othercontractsmaynotbe disaffirmedor differenteasons,ncludingthosediscussedere,MisrepresentationofAge.Supposehataminor tellsa sellershes hventy-oneearsoldwhensheisreallyseventeen.Ordinarily,the minorcandisaffirmthe contracteventhoughshehasmisrepresenteder age.Moreover,nsomeurisdictionsheminoris notliableforthetort offraudulentmisrepresentation,herationalebeingthat suchatortjudgmentmightindirectlyorcetheminor toperformthe contract.'Ilr-,-"1ryl,irisdictiots,ho*"u.r,aminorwhohasmisrepresentedis orher agecanbeboundbya contractundercertaincircumstances.First,severalstateshaveenactedstatuteslr preciselyhis purpose.nthesestates,misrepresentationf ages enoughtoprohibitdisaffirmance.Otherstatutesrohibitdisaffirmancey aminor whohasengagedin businesssanadult.Second,somecourtsefuseo allowminorso disaffirmexecuted(fullyperformed)contractsunlessheycanteturnthe considerationeceived.Thecom-binrilinoftheminors'misrepresentationsndtheiruniustenrichmenthas persuadedthesecourtsoestopprevent) heminorsrom assertingontractualncapacity.Contractsfotl,Jecessaries.Aminor whoentersntoa contractfor necessariesmaydisaf-firmthe contractbutremainsiableor thereasonablealueof thegoodsused.Necessariesarebasicneeds,sr,rchsood,clothing,shelter,andmedicalsewices,t alevelof valuerequiredomaintainheminor'sstandardfiving orfinancialandsocialtatus.hus, whatwilibe considerednecessaryorone personmay be aluxuryfor another.Additionally,whatis considerednecessaryependsn whetherhe minoris underthe careor controlofhis orherparents,whoarerequiredbylaw to providenecessariesor theminor.If a
tDrd*" r.Shr"drr1zlS.W.zd545(Tenn.1992).SeealsoRestatementhird)of Restitution,Sections16 and33(2004).
289 IEIMII
CAPACITYND EGATITY
NECESSARIES
Necessitiesequiredor life,suchasfood,shelter,lothing,nd medicalattention;mayncludewhateversbelievedo be necessaryomaintainaperson's tandardflivingorfinancialnd socialtatus.

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