Business Law - Chapter 8
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What types of contracts are voidable
- Intoxicated person
- Court has not declared someone mentally incompetent yet
- fraudulent misrepresentation
- undue influence
What types of contracts are void
- Mentally incompetent
- Illegal - Gambling, loan sharks
What are the two options a minor can take with a contract?
- Disaffirmance: legal avoidance of a contractual obligation (void the contract)
- Ratification: the acceptance, or affirmation of a legal obligation (make the contract valid)
What are the rules for disaffirmance of a contract by a minor?
- the minor must disaffirm the entire contract
- return the received goods
- some court will not allow a minor to void a contract if they committed fraud (misrepresenting his/her age)
- minors can void a contract for necessaries, but is still liable for the reasonable value of goods
what are the two different types of ratification of a contract by a minor
- express ratification: occurs when the minor in writting or orally, explicitly assumes the obligations imposed by the contracts
- Implied ratification: occurs when the conduct of the minor is inconsistent with disaffirmance or when the minor fails to disaffirm an executed contract within a reasonable time after reaching the age of majority
Are parents liable for contracts entered in by a minor
only for necessaries
When is a contract enforceable for an intoxicated person
if despite being intoxicated the person understood the legal consequences of entering into the contract
When is a contract voidable for a mentally incompetent person?
When the court has not previously declared the person to be mentally incompetent
What are some contracts that are contrary to statute
- usury: Lender makes a loan at an interest rate above the lawful maximum
- gambling: gambling contracts that go against state statutes
- licensing statutes: contracts entered into by persons who do not have license, when one is required by state, will not be enforceable unless the underlying purpose of the statute is to raise government revenues.
What are types of contracts that are contrary to public policy
- contracts in restraint of trade: contracts to reduce or restrain free competition are illegal and prohibited by statutes.
- Unconscionable contracts and clauses: when a contract or contract clause is so unfair that it is oppressive to one party
- Exculpatory clauses: An exculpatory clause is a clause that releases a party from liability in the event of monetary or physical injury
what happens when there is a unilateral mistake made in a contract
The mistaken party is bound by the contract unless 1) the other party knows or should have known of the mistake or 2) the mistake is an inadvertent mathematical error committed without gross negligence
What happens when there is a bilateral mistake made in a contract
when both parties are mistaken about the same material fact, such as identity, either party can avoid the contract
What elements are necessary to establish fraud in a contract
- A misrepresentation of a material fact must occur
- There must be an intent to deceive
- The innocent party must justifiably rely on the misrepresentation
Define undue influence
one party's free will has been overcome by the undue influence exerted by the other party.
Define Duress under a contract
The tactic of forcing a party to enter a contract under the fear of a threat
What types of contracts fall under the statutes of fraud (required to be in writing)?
- Interest in land (sales, leases, or mortgages)
- contract that cannot be performed within one year
- collateral promises: contracts made between a guarantor and a creditor whose terms make the guarantor secondarily liable
- promises made in consideration of marriage, including promises to make a monetary payment or give property in consideration of a promise to marry and prenuptial agreements made in consideration of marriage
- UCC: sale of goods priced at $500 or more
What are the requirements to constitute an enforceable contract under the statue of frauds
- signed by the party against whom enforcement is sought
- name the parties
- identify the subject matter
- state with reasonable certainty the essential terms of the contract
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