Disaffirming a contract would amount to:

In order for a contract to be legally binding, all of the individuals who signed the agreement must have "contractual capacity." Contractual capacity is a legal term that refers to the minimum mental capacity required to enter into an agreement. In other words, individuals who lack the capacity to contract are presumed to not know what they're doing, and they can "void," or set aside, the contract.

The law recognizes three categories of individuals who lack the capacity to contract: minors, individuals with psychological disabilities, and intoxicated persons. If anyone from these categories enters into a contract, the agreement might be considered "voidable" by them. This protects the party who lacks capacity from being forced to go through with a deal that takes advantage of his or her lack of savvy.

Let's look at some situations in which a person might lack the legal capacity to enter into a legally binding contract.

Can a Minor Sign a Contract?

Minors (those under the age of 18, in most states) lack the capacity to make a contract. So a minor who signs a contract can either honor the deal or void the contract. There are a few exceptions, however. For example, in most states, a minor cannot void a contract for necessities like food, clothing, and lodging.

Also, a minor can void a contract for lack of capacity only while still under the age of majority. In most states, if a minor turns 18 and hasn't done anything to void the contract, then the contract can no longer be voided.

Disaffirmance by a Minor

A minor can "disaffirm," or set aside, a contract by stating their intention to not honor the contract. The minor can state this intention verbally (in words or in writing) or through actions that indicate the minor does not intend to honor the contract. For example, if a child entered into an agreement to mow his neighbor's lawn, and then the child sells his lawnmower, that action indicates his intention to disaffirm the contract.

However, the disaffirmation must happen before the minor comes of age, and the minor can't pick and choose which parts of the contract to set aside. Further, if the minor paid provided consideration, such as money to the other party, the other party must give the consideration back to the minor following disaffirmation.

Mental Incapacity and Contracts

A person who lacks mental capacity can void, or have a guardian void, most contracts (except contracts for necessities). As with contracts with minors, the contract is voidable, and not automatically void. In other words, the person who lacked the capacity to enter the contract can either end the contract or permit it to go ahead as agreed on.

In most states, the standard for mental capacity is whether the party understood the meaning and effect of the words comprising the contract or transaction. This is called the "cognitive" test.

Some states use what's called the "affective" test: a contract can be voided if one party is unable to act in a reasonable manner and the other party has reason to know of the condition.

And some states use a third measure, called the "motivational" test. Courts in these states measure capacity by the person's ability to judge whether or not to enter into the agreement. These tests may produce varying results when applied to mental conditions such as bipolar disorder.

Can an Intoxicated Person Sign a Contract?

People who are intoxicated by drugs or alcohol are usually not considered to lack the capacity to contract. Courts generally rule that those who are voluntarily intoxicated shouldn't be allowed to avoid their contractual obligations, but should instead have to take responsibility for the results of their self-induced altered state of mind.

However, if a party is so far gone as to be unable to understand even the nature and consequences of the agreement, and the other (sober) party takes advantage of the person's condition, then the contract may be voidable by the inebriated party.

������� Ratification: Accepting and giving legal force to an obligation that previously was (1) not enforceable and/or (2) voidable. Ratification may be either express or implied.

������� Express Ratification: A person lacking contractual capacity at the time they formed a contract may, upon (re-)gaining the necessary capacity to do so, expressly ratify the contract by stating, orally or in writing, that they intend to be bound by the contract.

����� Implied Ratification: Likewise, a person lacking contractual capacity at the time they formed a contract may, upon (re-)gaining the necessary capacity to do so, impliedly ratify the contract

(1)�� by acting in a manner that is clearly inconsistent with disaffirmance or avoidance or,

(2)         in the case of a minor, by failing to disaffirm within a reasonable time after reaching the age of majority.

LEGALITY

Contracts Contrary to Statute� 4317.03

��������������� Usury:� The maximum amount of interest that can be charged on a contract or loan.� InTexas, you can obtain the principal and excess interest, as well as attorney fees.

������������� Gambling:� Here we are talking about the classic gambling we all think about, such asLas Vegas, etc.� We are not talking about �betting� on a day trade, or when someone is going to die if we buy an insurance policy. Sometimes the distinction probably blurs, however.

������������� Sunday Laws: Once it was illegal to contract or sell goods on a Sunday.� For the most part, these types of laws have been unenforced, ignored, or repealed.

������������� Licensing Statutes: You cannot legally perform certain services (thereby contract for them) if you do not have the proper license.� For example,� being a stock broker, CPA, attorney, plumber, taxi driver, etc.� Generally the contract is unenforceable or rescindable.�

������������� Contracts to commit a crime: we usually think of a �hit� when we consider this type of contract, but it can be anything that is illegal against a statute.� For example, an agreement to buy illegal drugs at a certain value, to buy all stolen cars of a particular thief, etc.

������������������ Contracts in Restraint of Trade: Anti trust regulations usually cover these, but price fixing and other such type of agreements are also included in this problem area.

������������� Compare, however, that covenants not to compete, which may restrain new businesses from developing, are allowed in one general sense: if you sell a business to someone, a covenant not to compete may be executed to protect the purchaser of the business. Otherwise, if someone sold a store and then opened another one just like it a few blocks away, the old customers would likely return to the old vendor. The general rule is it must be part of the sale of a business.�

������������� Unconscionable Contracts or Clauses: basically we are talking about an agreement that is so unfair as to be �void of conscience�.�

������������� Procedural Unconscionablity: Here the classic example is the contract by adhesion, loaded with the legalese no one understands.� Basically a take it or leave it type of situation, which is discussed in another chapter later.

������������� Substantive Unconscionablity: here we are talking about the specific terms of the so called agreement, such as selling someone an old 286 computer to someone ignorant of computers for $2,500 today! This would �shock the conscience� of the court as well as most folks.

������������� Exculpatory Clauses: here we are talking about writing into a contract the ability for one side to release themselves automatically from any form of liability resulting from an accident, loss of money, or similar such damaging situation no matter who was at fault. Generally these clauses are not enforced and generally these type of clauses are contrary to public policy.� However, not always, like we learn in the law.�� Notice, however, we are not talking about the �release� form that is generally enforceable, but is separate and distinct from something in another contract like the exculpatory clauses here.

������������� Other Contracts: examples might be contracts that discriminate on basis of race, creed, national origin, religion, gender and /or age.� Others include requiring someone to perform a tort, interfere with a public official, and or delay prevent or obstruct the legal process.

Generally, the illegal contract is VOID.� Further, the courts generally� won�t help either party.Of course, there are exceptions:

������������� Justifiable ignorance of the facts:� what do we mean here?� A good example is a transportation company unknowingly transports some illegal materials and incurs costs, etc, and as such should be compensated for their efforts.

������������� Members of protected classes:� Here we are talking about violations of rules and regulations that are to protect specific �classes� of persons.� For example, if you are required to work only so many hours but wind up working additional hours, you are still to be compensated for such excess.� For example, pilots and airline personnel.�

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������������� Withdrawal from an illegal contract: Classic example, you wager and put down your bets.� Either side can ask for the money back before the event is concluded, for example a bet on the Super Bowl and repudiating the bet before it begins.

������������� Contract otherwise illegal due to fraud, duress or undue influence: generally the victim can recover for the performance or value of the contract.

������������� Severable (Divisible) Contracts:� generally the court will enforce the legal portion of the divisible contract but not the illegal portion.� If the contract is indivisible, then the entire contract fails.

What is Disaffirmation?

Which of the following can discharge a contract?

When something of value is exchanged in a contract?

When consent is not said to be free?