When Are Contracts Unenforceable? [No. 86]

Summary

This script delves into the nuances of contract law, highlighting that not all agreements are enforceable despite appearing valid. It discusses contracts against public interest, such as slavery, and those involving individuals lacking contractual capacity, like those with schizophrenia or minors. The law aims to protect society's values and ensure rational, mutually beneficial exchanges. However, it also acknowledges the potential negative consequences of overprotection, such as reluctance to engage with those deemed less capable.

Takeaways

• 📜 Contracts may appear valid with offer, acceptance, and consideration but can be unenforceable at law.
• 🚫 Agreements against public interest, like slavery, are unenforceable regardless of consent.
• 🧩 Contracts can be void if made by individuals lacking the capacity to contract due to mental incapacity or intoxication.
• 🤔 The essence of contract law is to facilitate rational bargains that improve parties' conditions and social welfare.
• 🔍 Contracts with incapacitated individuals are void as they do not understand the agreement they are entering.
• 👶 'Infants' or individuals under the age of majority can only incur voidable obligations, which is meant to protect them.
• 🚗 The ability to void contracts can discourage businesses from dealing with minors, impacting their opportunities.
• 💭 The purpose of contract law is to let people declare their values through reasoned transactions in the marketplace.
• ⚖️ Unintended consequences must be considered when using contract law to protect individuals, as it can affect societal interactions.
• 🛑 Enforcing obligations where a party is not fully capable due to age or incapacity does not fulfill the purpose of contract law and may be deemed unenforceable.

Q & A

What makes a contract appear valid on the surface but not enforceable at law?

A contract may appear valid if it superficially has the elements of offer, acceptance, and consideration or alternatives like promissory restitution or promissory estoppel, but it might not be enforceable if it goes against public interest or involves parties lacking the capacity to contract.

Why are contracts against public interest, such as slavery, unenforceable?

Contracts that are against public interest, like those involving slavery, are unenforceable because they are considered abhorrent to societal values, and courts will not honor them even if the parties involved desire them.

What is the significance of a person's capacity to contract in the enforceability of a contract?

A person's capacity to contract is crucial because if they are incapacitated, such as due to a mental disorder like schizophrenia, they may not understand the agreement they are entering. Contracts entered into by such individuals are unenforceable.

How does being extremely drunk affect a person's ability to enter into a legally binding contract?

If a person is extremely drunk and signs a contract without knowledge of what they are signing, they are not entering into a voluntary and informed exchange. This lack of understanding and volition makes the contract unenforceable.

What is the core principle behind contract law according to the script?

The core principle behind contract law is that parties enter into bargains that they believe will rationally improve their situation, contributing to the efficient allocation of property and increasing overall social welfare.

Why are contracts with individuals under the age of majority often voidable?

Contracts with individuals under the age of majority (often 18) are voidable to protect young people who may not fully understand the implications of the agreements they are entering into.

What is the potential negative effect of statutes protecting minors in contract law?

The potential negative effect of such statutes is that other parties may be wary of dealing with minors, as they can void their obligations at any time, which could adversely affect the financial interests of the other party.

How does contract law aim to facilitate the declaration of personal values?

Contract law allows individuals to use their reason to declare what they value most by entering into transactions that they believe will improve their value, thus facilitating personal and societal benefit.

What happens when a party enters the marketplace without full faculties, and why are such contracts often deemed unenforceable?

When a party enters the marketplace without full faculties, due to young age or incapacitation, they cannot fulfill the purpose of contract law, which is to improve personal value through rational transactions. As a result, such contracts are often deemed unenforceable.

What is the role of unintended consequences in the application of contract law as per the script?

Unintended consequences play a significant role in the application of contract law, as seen in the example of minors being able to void contracts, which can lead to reluctance from other parties to engage in agreements with them. This highlights the need for careful consideration in how contract law is used to protect individuals.

Outlines

00:00

📜 Unenforceable Contracts Due to Public Interest and Capacity

This paragraph discusses the concept of unenforceable contracts, focusing on those that are against public interest, such as slavery, and those involving parties lacking the capacity to contract. It explains that contracts made by individuals who are incapacitated due to mental illness or extreme intoxication are not enforceable because they do not represent a voluntary and informed agreement. The paragraph also touches on the legal status of 'infants,' or individuals under the age of 18, who can only incur voidable obligations, a protection that also has potential negative consequences, such as reluctance from others to engage in contracts with them.

Keywords

💡Contracts

Contracts are legally binding agreements between two or more parties that are enforceable by law. In the video, contracts are the central theme, with discussions around their validity and enforceability, emphasizing the importance of having the elements of offer, acceptance, and consideration.

💡Offer

An offer is an expression of willingness to enter into a contract on certain terms, made with the understanding that it will become binding as soon as it is accepted by the other party. The script mentions that superficially having an offer is not enough for a contract to be enforceable.

💡Acceptance

Acceptance in contract law is the unqualified agreement to the terms of an offer. The script notes that even if there is an offer, without genuine acceptance, a contract may not be valid.

💡Consideration

Consideration is something of value that is exchanged between parties as part of a contract. The script explains that consideration, or an alternative like promissory estoppel, is necessary for a contract to be enforceable, but not all agreements with consideration are valid.

💡Public Interest

Public interest refers to the common good or welfare of the public at large. The video script uses the example of slavery to illustrate that contracts that are against public interest are unenforceable, regardless of the parties' agreement.

💡Capacity to Contract

Capacity to contract is the ability of a party to enter into a legally binding contract. The script mentions that a person may lack this capacity due to mental incapacity, such as schizophrenia, which can render a contract unenforceable.

💡Incapacitated

A person is considered incapacitated if they are unable to understand the nature and consequences of their actions, such as due to a mental disorder or extreme intoxication. The script explains that contracts entered into by incapacitated individuals are not enforceable.

💡Voluntary Exchange

Voluntary exchange is a fundamental principle of contract law, where parties enter into an agreement willingly and knowingly. The script points out that if a party is not capable of making a voluntary exchange, as in the case of being extremely drunk, the contract is not valid.

💡Social Welfare

Social welfare refers to the overall well-being and happiness of a society. The video script connects the purpose of contract law to the promotion of social welfare by ensuring that property and resources are allocated efficiently.

💡Infants

In contract law, 'infants' typically refers to individuals who are under the age of majority, usually 18. The script discusses how contracts made by infants are voidable, which is intended to protect young people but can also lead to reluctance from others to enter into contracts with them.

💡Voidable Obligations

Voidable obligations are those that can be declared void at the option of one party, often due to a lack of capacity or other legal infirmities. The script uses the term in the context of contracts made by infants, which they can choose not to honor.

💡Unintended Consequences

Unintended consequences are outcomes that were not predicted or intended by the creators of a policy or law. The script warns that using contract law to protect individuals can have negative side effects, such as the reluctance of businesses to deal with those they perceive as needing protection.

💡Marketplace

The marketplace is a broad term referring to the environment where goods and services are bought and sold. The video script uses the marketplace as a metaphor for the arena where individuals use reason to decide how transactions will improve their value.

Highlights

Contracts can appear valid superficially but may not be enforceable at law.

The most obvious unenforceable agreements are those against the public interest, such as slavery.

Courts will not honor agreements that are abhorrent to social values, even if desired by the parties involved.

Contracts can be unenforceable if made by someone lacking the capacity to contract, such as individuals with schizophrenia.

An incapacitated person who does not understand the bargain they are striking cannot form a valid contract.

Contracts signed by someone extremely drunk without knowledge of what they are signing are not voluntary exchanges.

The heart of contract law is parties entering into bargains they think will make them better off, benefiting society.

People who aren't thinking clearly or perceiving reality cannot achieve the intended social welfare from their agreements.

In most states, 'infants' or people under the age of 18 can only incur voidable obligations to protect young people.

Statutes protecting young people can have negative effects, making others wary of dealing with them due to potential refusal to honor obligations.

Unintended consequences must be considered when using contract law to protect people, as seen with 'infants' and car leases.

The purpose of contract law is to allow people to declare their values through reasoned transactions in the marketplace.

When a party is not entering the marketplace with full faculties, the purpose of contract law is not fulfilled, often deeming obligations unenforceable.

Contracts involving parties with young age or incapacitation fail to meet the goals of contract law enforcement.

The enforceability of contracts is tied to the parties' ability to perceive reality and make rational decisions.

The social welfare of society is increased when property is allocated to its places of highest value through rational bargains.

Transcripts

There are many ways that contracts can appear valid because of superficially having the

elements of offer, acceptance and consideration, or some alternative to consideration like

promissory restitution or promissory estoppel But these agreements, in fact, are not enforceable

at law.

The most obvious category of enforceable agreements are the ones that are totally against the

public interest.

So there are things that are simply wrong for society, such as slavery.

Likewise, contracts to sell yourself into slavery are unenforceable.

Courts will not honor those agreements, even if you desire them, because they are abhorrent

to our social values.

Contracts can also be unenforceable, when they're made by someone who doesn't have what

we call the capacity to contract.

A person might be incapacitated because they have, for example, a schizophrenia and they're

not perceiving reality properly.

So they enter into a bargain in which they appear to be understanding normally.

But they don't actually understand the bargain that they're striking.

As a result, that contract fails because the person was incapacitated at the time.

Someone who's extremely drunk and signed something without having any knowledge of what they're

signing, likewise, did not enter into a voluntary volitional exchange.

Remember, the heart of contract law is that by parties entering into bargains that they

think rationally will make them better off.

That moves society slowly but surely to allocate property to its places of highest value.

That will help the property go to its best use and increase the social welfare of the

entire society.

Well, a person who isn't thinking clearly or isn't perceiving reality is not going to

get this sort of result from his or her agreement..

We also have in most states, people who are what we call as a matter of law “infants,”

meaning someone under the age of majority.

In most places, anyone under the age of 18.

People under 18 can only incur voidable obligations, and this is designed to protect young people.

However, these statutes can have a negative effect also.

Other people are wary about dealing with infants, because at any time, the infant could refuse

to honor his or her obligations.

So you may have tried to get a lease for a car when you were 16 and just got your driver's

license, and found that no car company would make a lease with you.

Well, that's because they knew that you could void that lease at any time, which could not

work out in their financial interest.

So it's a good reminder, we have to be careful about how much we use contract law to protect

people because there's always unintended consequences from the law.

Once again, we see that the purpose of contract law is to allow people to declare what they

value most.

By using their faculties of reason, a person can enter into the marketplace and decide

how a transaction will improve his or her value.

And when a party is not entering into that marketplace with full faculties, either because

of young age and not having fully developed or because of being incapacitated for any

number of reasons, then this purpose of contract law is not being fulfilled by enforcing that

obligation.

Such obligations will often be deemed unenforceable.