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Last week recall that I talked about the need for persons to have the capacity to enter into a contract. Therefore, kids and intoxicated people may have grounds to avoid the contract. Recall even further back that I discussed that some contracts are illegal. Today, I will discuss the difference between void and voidable. In addition, I will go into contracting with legal persons better known as business entities.

Void vs. Voidable

If you noticed I used the term “voidable” as opposed to void. We make a distinction in the law between the two. Void contracts are ones that the court will not recognize. They are either illegal or very improper. Recall that a contract is a promise or series of promises that a court will enforce. Therefore, a void contract is an oxymoron in a way as a court will nullify it.

A voidable contract is a type of improper contract, but the victim has the choice whether to avoid the contract or honor it. Therefore, using the kid example again, the child has till age 18 to avoid the contract, but may choose not to if they do nothing and continue to comply with the contract’s terms by age 19.

One way to remember the difference is that void, is like a black hole, a completely empty space. Therefore, a void contract is not even there, it is nothing (because a court of law will not enforce it). On the other hand for voidable, just put an “a” in front of it and you will get the concept. The contract can be avoided.

What about Legal Persons?

So far I have talked about living, breathing people, but if you follow my blog and have come to my law talks, then you know that corporations, limited liability companies, and the like are separate entities; they are legal persons that can contract. However, we understand that this is a legal fiction. The brick-and-mortar store is not going to sprout arms and grab a pen and sign a document. A person does it, and normally this is fine.

However, consider pre-formation and post-windup of the business. For start-ups, the issue is sometimes you are getting things prepared for your company, but have not filed your paperwork with the state, and thus YOU are contracting with vendors, suppliers, etc . . . On the other end, if you have entered the winding up process a fellow co-owner still has authority to the bind the company with third parties.

Therefore, you want to make sure after your articles are filed that you get contracts changed over to reflect they are with the business (as the legal person) and not you the (individual person). When winding up the business you want to make sure you send out notices to everyone who deals with the business so that your co-owner is not continuing to enter agreements with your business as it winds up (because you will owe them if that co-owner skips out).

As a side note, remember if you are contracting with someone check if you are contracting with them or their entity, sometimes it does matter and that is when limited liability comes into play.

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Well, continuing on our tour of contract law, remember that last time I talked about what constitutes a contract and what is good consideration for a contract.  Today I am going to talk about capacity and the difference between void and voidable contracts.
Who can Enter a Contract?

An enforceable contract is only created when both parties have maturity and mental capacity. Why? Well, we decided a long time ago that a promise for a promise require some degree of understanding, and if one party did not comprehend they would be at a disadvantage.

Who lacks Maturity and Mental Capacity?

In terms of maturity, it will be minors. Businesses always have to be wary about selling things to kids. The law in contracts (as with many other parts of the law) assumes minors need protection due to lack of maturity. The goal is avoid the car salesman selling the shiny new red truck to the 15-year old who has no idea how much car loan payments are.

In terms of mental capacity, intoxicated, drugged out, and mentally handicapped people will lack mental capacity. Why? They are not in their right mind. A court of law may feel that if one party was intoxicated and the other side knew about it, and was trying to take advantage of the fact, that the contract is voidable.

Therefore, when entering a contract (and remember what I told you last week a contract is not a formal looking set of paper!) be wary of kids and drunks.

What Happens When Entering a Contract with Someone Who Lacks Maturity or Mental Capacity?

For children, if they enter a contract they may still have to comply with the terms if they do nothing to rescind the agreement once they reach the age of majority. Therefore, for teens in modeling, and they sign the modeling agreement at 17, then wait till 19 to complain about it – they may not be able to get out of it. Additionally, for necessities a minor’s parents may be forced to pay fair market value.

Other than the mentally handicapped (unless they should become lucid at some point) the drunk who does not appear to be drunk or is trying use their drunkenness to get out of a contract may have also still have to comply. Basically, the court would make them prove they were drunk and had a lack of capacity.

Check back next week, where I will talk about the difference between void and voidable contracts and entering contracts with legal persons (i.e. business entities).  As always, I urge you to “Subscribe” today!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.