Comprehensive Volume, 18th Edition

Chapter 14: Capacity and Genuine Assent

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Contractual Incapacity

An agreement that otherwise appears to be a contract may not be binding because one of the parties lacks contractual capacity.

In such a case, the contract is ordinarily voidable at the election of that party who lacks contractual capacity. In some cases, the contract is void.

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Contractual Incapacity

Contractual incapacity is the inability, for mental or physical reasons, to understand that a contract is being made and to understand its general terms and nature.

Incapacity may be due to:being a minor

insanity

intoxication

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PossibleGrounds

for AvoidingContract

Minors

Intoxication

Mental

Status Incapacity

Factual Incapacity

Lack of Contractual

Capacity

Innocent

Misrepresentation

Nondisclosure

Fraud

Deception

Physical

Economic

Undue Influence

Duress Pressure

Mutual MistakeMistake

Unilateral Induced by or Known to Other Party

Factors Which May Invalidate Contract

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Incapacity of Minors

Minors can avoid most contracts. The minor, on avoiding the contract, must return what had been received from the other party if the minor still has it.

When a minor avoids a contract for a necessary, (item essential to basic living needs) the minor must pay the reasonable value of any benefit received.

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Incapacity Due to Insanity

The contract of an insane person is voidable to much the same extent as the contract of a minor.

An important distinction is that if a guardian has been appointed for the insane person, a contract made by the insane person is void and not merely voidable.

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Incapacity Due to Intoxication

An intoxicated person lacks contractual capacity to make a contract if the intoxication is such that the person does not understand that a contract is being made.

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Involuntary Agreement

The consent of a party to an agreement is not genuine or voluntary in certain cases of mistake, deception, or pressure.

When this occurs, what appears to be a contract can be avoided by the victim of such circumstances or conduct.

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Mistake

Mistakes that are unknown to the other party usually do not affect the binding character of the agreement.

A unilateral mistake of which the other contracting party has knowledge or has reason to know makes the contract avoidable by the victim of the mistake.

When both parties are mistaken about a basic, material fact of the contract, the adversely affected party may avoid the contract.

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DeceptionInnocent misrepresentation generally has no effect on the agreement, though there is a trend to allow it as a ground for avoiding the contract. When one party knows of a fact that has a bearing on the transaction, the failure to volunteer that fact is called nondisclosure.When concealment goes beyond silence and consists of actively hiding the truth, the conduct is fraud rather than nondisclosure.

There is a growing trend to hold fine-print clauses not binding on the theory that they are designed to hide the truth from the other contracting party.

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PressureThe free will of a person, essential to the voluntary character of a contract, is lacking if the agreement is obtained by pressure. Contracts made under pressure are voidable; this includes:

Undue influence, where the beneficiary of the contract is in a position of extreme power over the maker of the contractThreats of extreme economic loss (economic duress)Threat of physical force that would cause serious personal injury or damage to property (physical duress)

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Possible Remedies for Lack of Genuine Agreement

Mistake Pressure

Avoidance or Rescission Reformation

Damages

Deception

There is NOT a

genuine agreement

of the parties