518-10KDefensesandRemediesoutline

518-10KDefensesandRemediesoutline - CHAPTER TEN CONTRACT...

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CHAPTER TEN CONTRACT DEFENSES AND REMEDIES Introduction This chapter discusses legal capacity and legality A defense to a contract is a legal excuse for failing to perform Capacity and legality may serve as a defense Although most contracts are discharged by complete performance, there are other ways to discharge a contract This chapter also discusses the kind of damages and remedies that are available Elements of a Contract: Part 2 LEGAL CAPACITY Two issues: Mental competency and Age When a person is adjudged mentally incompetent and a guardian appointed, they have no legal capacity to enter a contract and the contract is void Limited competence exists when one or both parties are: 1. minors, 2. are intoxicated, or 3. are mentally incompetent, but not officially judged to be mentally incompetent by a court These parties have full legal capacity to enter into a contract, but they may be able to avoid liability under the contract The contract is voidable Minors The age of majority varies from state to state, but we use 18 Minor may disaffirm with exceptions as to necessities
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At any time prior to or within a reasonable time after reaching the age of majority Failing to do so the contract is ratified If the contract is executory, a minor has no obligation to act Inaction does not constitute ratification Only after reaching the age of majority may a person ratify a contract made as a minor A contract to purchase necessities may not be totally disaffirmed by a minor The minor is liable for the reasonable value of the goods or services actually used The law imposes a quasi-contractual duty to pay if no parent or guardian is willing and able to furnish the required necessities Under the Uniform Commercial Code a minor may not recover goods that she sells to an adult if the adult purchaser transfers the goods to a bona fide (good faith) purchaser for value The third party has a right to keep goods purchased in good faith even though there is a dispute between the original parties If both parties are minors, each has a right to disaffirm When the minor disaffirms the contract, and no third party is involved, the adult must return the item to the minor or its equivalent value, if unavailable The minor must also return whatever was received In most states, the minor’s duty is only to return goods or other consideration The minor is not responsible for: 1. depreciation or 2. nonwillful damage
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Swalberg v. Hannegan Fraud on the part of the minor? Four different approaches: 1. Minor may still disaffirm (because they still lack capacity) and must only return what is left (if anything); 2. Minor may disaffirm but the item must be returned to the adult; 3. Minor may disaffirm but is liable for fraud; 4. Minor may not disaffirm. LEGALITY
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518-10KDefensesandRemediesoutline - CHAPTER TEN CONTRACT...

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