Bus-115 (Business Law): Chapter 10 Guide
Contractual elements: Capacity, legality and written contracts
Learning Objectives
After reading this chapter, students should be able to accomplish the following objectives:
- Identify the age of minority and the age of majority.
- Explain the legal status of a contract made by a minor.
- Differentiate between ratification and disaffirmance.
- Identify the effects of mental impairment on a contract.
- Discuss the contractual capacity of a drugged or intoxicated person.
- Explain the legality of agreements to commit torts and crimes.
- Identify those agreements made illegal under statutory law.
- Enumerate those agreements contrary to public policy.
- Explain what happens under the doctrine of in pari delicto.
- Explain the effects of illegality.
Major Concepts
10-1. The Final Elements
The third element essential to a legally effective contract is the legal ability to enter into a contractual relationship. This legal ability is known as capacity. Under the law, there is a rebuttable presumption that anyone entering a contract has the legal capacity to do so. Because the presumption is rebuttable, a party can attack it. Minors are allowed this privilege. Minority means that an individual has not yet attained the age of majority. An exception to the rule about minors and contracts involves necessaries. By statute and court decision, certain other types of contracts have been excepted from the general rule that the contracts of minors are voidable at the minor’s option.
10-2. Other Capacity Problems
Contracts of persons who are mentally infirm or mentally ill, but not legally declared insane, may be valid or voidable, depending on the seriousness of the mental problem. Persons declared to be insane by competent legal authority are denied the right to enter into contracts, and contracts entered into may be declared void. Incompetence related to alcohol or drugs must be of such a degree that the contracting party has lost the ability to comprehend or be aware of the obligations being accepted under the contract.
10-3. Agreements to Engage in Unlawful Activity
An agreement might have offer, acceptance, mutual assent, competent parties, and consideration and still be invalid if the objective of the agreement is to do something that is illegal. These contracts include those to commit crimes, to commit torts, or to violate statutory law. Public policy is a general legal principle that says no one should be allowed to do anything that tends to hurt the public at large. Agreements found void for a violation of public policy include agreements to obstruct justice, agreements interfering with public service, agreements to defraud creditors, exculpatory agreements, and agreements in restraint of trade.
10-4. Consequences of Illegality
Contracts that involve illegal agreements are invalid. Moreover, promises to commit illegal acts may lead to indictment and prosecution. If an entire agreement is illegal, no binding contract results. If only part of an agreement is illegal, the court may rescind only those parts found to be illegal. When both parties are equally at fault in creating an illegal agreement, the court will award no damages to either. When the parties are not in equal fault, relief will often be granted if sought by the innocent party.
