Chapter 7: Contracts: Capacity, Legality, Assent, and Form

Week 7. Chapter content to be written. The description below sets out what the chapter will cover.

An agreement can include offer, acceptance, and consideration and still not be enforceable. This second contracts chapter covers the defenses a party can raise to avoid a contract: one party lacked the capacity to contract, the purpose of the contract was illegal, consent was not real, or the agreement was not put in the required form.

7.1 Planned Sections

Capacity. Minors' contracts and the right to disaffirm, exceptions for necessaries and certain other contracts, ratification, and parents' liability. Contracts made by intoxicated persons and by persons with mental incompetence.

Legality. Contracts that violate statutes (usury, gambling, licensing statutes) and contracts against public policy. Covenants not to compete and how courts judge whether they are reasonable, including recent federal and state developments. Exculpatory clauses, unconscionability, and adhesion contracts. The effect of illegality, and when a party is not equally at fault.

Genuine Assent. Unilateral and bilateral (mutual) mistakes of fact. Fraudulent misrepresentation and its elements, including statements of opinion and fraud by silence. Undue influence and duress.

The Statute of Frauds. Which contracts must be in writing: interests in land, contracts that cannot be performed within one year, collateral promises, promises made in consideration of marriage, and sales of goods of $500 or more. Exceptions such as partial performance, admissions, and promissory estoppel. What counts as a sufficient writing, including electronic records.

The Parol Evidence Rule and Contract Interpretation. Integrated contracts, when outside evidence can be used, the plain meaning rule, and the standard rules of interpretation (specific terms over general ones, handwritten terms over printed ones, ambiguity read against the drafter).

7.2 Featured Case

Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). Ora Lee Williams, a mother supported by public assistance, bought household goods on installment from the same store over several years. A clause in fine print spread each payment across all of her purchases, so the store could repossess everything she had ever bought if she missed a payment on her latest item, a stereo. The D.C. Circuit held that courts may refuse to enforce a contract that is unconscionable, meaning one in which one party had no meaningful choice and the terms are unreasonably favorable to the other. It sent the case back for the trial court to apply that standard.

Why this case: It defines procedural and substantive unconscionability, and it raises the ethics of selling to vulnerable customers through form contracts.

Discussion question: The clause was legal, and Williams signed the contract. Should courts protect people from agreements they willingly signed? Where should the line be?

7.2.1 Short Case Summaries

• Sherwood v. Walker, 66 Mich. 568, 33 N.W. 919 (1887). A cow sold for beef because both parties believed she was barren turned out to be pregnant and worth roughly ten times as much. The seller could rescind for mutual mistake about the basic nature of what was sold. (Genuine assent: mistake)

7.3 Planned Features

• A decision tree students can use to spot contract defenses in a fact pattern.
• A clause-review exercise: identifying problem language in a sample employment agreement that contains a non-compete and a liability waiver.
• Key terms: capacity, disaffirmance, ratification, necessaries, usury, unconscionability, exculpatory clause, covenant not to compete, mutual mistake, fraudulent misrepresentation, duress, Statute of Frauds, parol evidence rule.