Deck 7: Capacity and Illegality

Question 1

All answers should be written in complete sentences. A simple "yes" or "no" is insufficient.
Explain why courts allow certain persons to avoid the enforcement of contracts due to "incapacity."

Answer 1

Persons become incapable to enter into contract under certain circumstances that are perceived as legally impossible. The major restrictions for which law of contracts protect the parties are as follows:
• Minors who are under the age of 18 years
• Mentally infirm, who has either permanent or temporary mental disability
• Persons who got intoxicated or under influence of alcohol, or drugs
Courts allow persons who are minors, mentally infirm and influenced by the alcohol and drugs to avoid the enforcement because these people do not have the capacity to under the transaction due to their inability. Minors need parental guide to make any decisions as per law. If law does not protect these people to avoid enforcement then minor's inability to understand consequence of the contract can become advantage to the opposite party. Similarly, people with permanent and temporary mental disorders and also people who are in the state of over consumption of alcohol and drugs do not hold capacity to understand the transaction. If the opposite parties take advantage of such situation of a person to make the contracts, then court should protect them to avoid enforcement.

Question 2

All of the following statements are FALSE; state why they are false and then rewrite them as a
true statement. Write a brief fact pattern that illustrates your answer
All contracts entered into by minors are avoidable by the minor.

Answer 2

The person who is under the age of 18 is considered as minor. According to the law, minors do not have contractual capacity and the contracts that they have entered are invalid until they become majors.
There are two major exceptions to the minors in terms of contract enforcement, which is as follows:
• Contract of necessities such as good, clothing, medical care etc. Minorities under the contract of necessities are not avoidable as law protects the suppliers.
• Contracts that are governed by legislation such as banking, education loans, military enlistments etc. are not avoidable.
All contracts entered into by minors are not invalid. There is exception imposed by law that contracts related to necessities and contracts governed by legislation are not avoidable. Therefore, statement "All contracts entered into by minors are avoidable by minor" is incorrect.
The correct statement is "all contracts entered into by minors are not avoidable by minors."

Question 3

Courts will likely rule that a covenant not to compete is valid where

A)The company has many competitors in the market.
B)The company can show that the employee has special training and knowledge gained from working at the previous job.
C)The employee can show that she cannot get a job in the state without violating the covenant.
D)The company can show that the employee has special knowledge that if applied at another company would drive them out of business.

Answer 3

Covenant not to compete is an employment clause that restricts the employee not to work for competitor and also not to become a competitor to the company for the specified time and location after leaving the employment. Generally these agreements are considered invalid as it restricts the trade, livelihood of the person and market competition. The terms under this clause is also perceived as illegal restraint of trade. However, court has the ability to separate the clauses in the contract and make it unenforceable that can impact employee livelihood and restrain those that protects the valid business interest.
Company can have many competitors in the market but that cannot be considered as a valid by courts to rule covenant not to compete unless employee activity has a valid impact on business interest.
Therefore, option is incorrect.
Courts cannot rule covenant not to compete is valid unless the special training and knowledge gained by the employee through their company means is unique and highly confidential and its usage in another company can drive out their business.
Therefore, option is incorrect.
If an employee shows that she cannot get a job in the state without violating the covenant, then courts are more likely to rule out covenant not to compete as it is affecting the livelihood of the former employee.
Therefore, option is incorrect.
If company can show that the employee gained special knowledge from the means of their company can drive them out of the business if applied at another company, then court can rule that covenant not to compete is valid.
Therefore, option is correct.

Question 4

All answers should be written in complete sentences. A simple "yes" or "no" is insufficient.
Explain the difference between contracts that are malum in se and malum prohibitum.Can the courts enforce any of these contracts

Question 5

All of the following statements are FALSE; state why they are false and then rewrite them as a
true statement. Write a brief fact pattern that illustrates your answer
Persons must be certified by a court as mentally insane in order to avoid enforcement of a contract.

Question 6

Courts will likely find that a party had capacity to contract where

A)The person was 17½ years old.
B)The person was completely intoxicated and it was apparent to everyone at the bar.
C)The person was elderly and had some lapses of short-term memory.
D)The person was heavily medicated at the time, but otherwise had no mental disability.

Question 7

All answers should be written in complete sentences. A simple "yes" or "no" is insufficient.
When are contracts "severable"

Question 8

All of the following statements are FALSE; state why they are false and then rewrite them as a
true statement. Write a brief fact pattern that illustrates your answer
All contracts with intoxicated persons are voidable.

Question 9

Which of the following is a valid ratification of a contract:

A)Continuing to make payments on the lease of the apartment after the tenant turns 18.
B)Continuing to make payments on the lease of a new car after the purchaser turns 18.
C)Signing a contract with witnesses.
D)Making payments toward a contract that the purchaser believes is for a life insurance contract but in reality is for a new car.

Question 10

All answers should be written in complete sentences. A simple "yes" or "no" is insufficient.
What is a covenant not to compete Are they enforceable

Question 11

All of the following statements are FALSE; state why they are false and then rewrite them as a
true statement. Write a brief fact pattern that illustrates your answer
Minors must formally ratify their contracts by contacting the other party on their 18 th birthday.

Question 12

All answers should be written in complete sentences. A simple "yes" or "no" is insufficient.
What proof might the court look at to determine whether a person was suffering under a mental disability and therefore able to avoid the contract

Question 13

All of the following statements are FALSE; state why they are false and then rewrite them as a
true statement. Write a brief fact pattern that illustrates your answer
Courts will strike the entire illegal contract.

Question 14

All of the following statements are FALSE; state why they are false and then rewrite them as a
true statement. Write a brief fact pattern that illustrates your answer
Covenants not to compete are unenforceable because they are malum prohibitum as they prohibit free commerce and employment.

Question 15

All of the following statements are FALSE; state why they are false and then rewrite them as a
true statement. Write a brief fact pattern that illustrates your answer
A person is only considered under the influence if he has had too much to drink or has used illicit drugs.