Contract Defenses: Incapacity and Illegality (2024)

Incapacity and Illegality

Inthis presentation, we will discuss two defenses to contract formation: incapacityand illegal contracts.

Incapacity to Contract

Three categories of people can avoidcontact obligations based on incapacity in some cases:

-minors

-vulnerableparties, and

-intoxicatedpeople.

Minors

Until a minor reaches the age ofmajority, many contracts he or she enters into are voidable.[1]Even if the contract is voidable, the contract is enforceable if the minorratifies it after reaching the age of majority, meaning that she expresses acquiescenceto the agreement.[2] Ratificationcan be implied from the circ*mstances. For example, in Fletcher v. Marshall,a minor tenant signed a lease, but continued to pay rent after turning eighteenyears old. The court held that by paying rent after turning eighteen, thetenant had ratified the original lease and that incapacity was therefore no barto enforcement.[3]

If a minor wants to disaffirm a contractupon attaining the age of majority, 18 in most states, he must do so within areasonable time after reaching the age of majority. For example, returning apreviously purchased car two weeks after turning 18 was soon enough to qualifyas a disaffirmation.[4]The minor had the right to disaffirm even though the car had decreased invalue, which illustrates that parties contract with minors at their own risk.

While minors can void agreements theyenter into with adults, the adults do not have the same options. This is why,for example, credit card companies, no matter how desperate they are forcustomers, will not issue credit cards to minors.

While minors can disaffirm most contractsthat they make, there are some exceptions. Minors can be held responsible for contractsto purchase goods or services that are necessary for their health andsustenance, such as contracts for medical care, shelter and food.[5]Moreover, certain stated do not allow disaffirming certain other contracts. Forexample, in Hawaii, minors cannot disaffirm arbitration provisions inemployment contracts.[6]

Vulnerable Parties

A contract may also be unenforceablewhen the contracting party is either unable to understand the nature andconsequences of the transaction or is unable to act in a reasonable manner.These circ*mstances may be products of mental illness, age or other infirmity. Thesecontracts are voidable only by the infirm party.

If the other party had no reason to knowof the infirmity, a court can enforce the agreement to the extent necessary toavoid injustice. For example, if a seemingly competent (but in fact,incompetent) person contracts to purchase a car, she can void the contract.However, if the car has decreased in value while held by the incompetent party,a court may require a refund of only the car’s current value.[7]

Intoxicated People

Intoxicated people also canpotentially avoid contract formation due to lack of capacity if the othercontracting party knows or should know that the intoxication is so severe that heis unable to understand the nature and consequences of the contract or isunable to act in a reasonable manner. As in the case of minors, intoxicatedpeople can later ratify a contract, when they become sober. Failure todisaffirm within a reasonable time after becoming sober or conduct thatindicates acquiescence to the contract also counts as ratification.[8]

Illegality

Another way to invalidate contractformation is to claim contract illegality, which arises when the contract hasillegal consideration, such as when a murderer promises to kill someone foranother party in exchange for $50,000.[9]

Contracts that provide for illegalconsideration are void. The contract is void if the contemplated action isillegal in the jurisdiction in which it is to be performed. The subject matterneed not be criminal or immoral; it needs only be unlawful. For example, acontract to build a home where the construction would violate local zoningordinances is void.

Incapacity to contract and illegalityare two of the most well-known caveats to contract enforceability. Thesedefenses help prevent injustice that could result from contract enforceabilitythat would violate public policy.

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