Legal Capacity To Contract

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Chapter 9

• Legal Capacity To Contract

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Section 1

• Capacity of Individuals and Organizations

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Contractual Capacity

• ability to understand the consequences of a
  contract

Note. Definition does NOT require that a person
understand the actual terms of the contract which
may be written in technical legal terminology.
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People who Lack Contractual Capacity

• Under the influence (drugs/alcohol)

minors
Mentally ill
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Age of Majority

• Age at which you can be legally bound to
  contracts
• The age of majority is most states is 18
• Person who has not yet reached the age of
  majority is a minor. Being a part of the
  minority ends the day before your birthday.

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• People who lack capacity, their contracts are
  voidable.
• Disaffirmance In contract law, it means a
  refusal to be bound by a previous legal agreement.

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Dissafirmance Example Assume a protected party
(minor) bought a car from a dealership and
wrecked it. The minor could disaffirm the
contract and recover any payments made. The
dealership would only be able to get back the
destroyed car.
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The problem with giving minors the ability to
disaffirm (refuse to be bound) a contract and get
back what they had given to the other party is
that no one will want to contract with them. As
a consequence, another protection was afforded
those who lack capacity. This is known as
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Necessaries
You sell a fur coat to a minor for 5,000

• Things needed to maintain life
• Food
• Shelter
• Clothing

she only pays 200
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When a minor becomes of age, they may be able to
disaffirm a contract for a reasonable length of
time.
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Ratification
Acting towards the contract as though one intends
to be bound by it.
Note. Ratification can NEVER occur before the
age of majority.
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Ratification Example You are 17 and buy a car
from your friend who is 21. Two months later, you
turn 18 and decided to disaffirm your contract
for the car. However after you turned 18 you
continued to make two additional payments on the
car. Therefore, because you ratified the
contract even after you became of age, you are
bound to the agreement.
Minors are also bound to their contracts if they
are EMANCIPATED.
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Emancipation
Severing of child-parent relationship
You ARE bound to legal contracts
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Formal Emancipation

• You become of age

Informal Emancipation
You are not of age, but child-parent relationship
is cut-off
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Evidence of Informal Emancipation

• Parent and minor agree that the parent will cease
  support
• Minor marries
• Minor moves out
• Minor joins the armed forces
• Minor undertakes full employment
• Minor gives birth

States vary in treatment of emancipated minors
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Mental incapacity
harder to define than you think
Definition A person lacks the ability to
understand the consequences of his/her
contractual acts.
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Intoxication

• Inhaling products glue or aerosols

Alcohol
Drugs
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Scope of Authority
People who work for a company that are given the
authority to bind the organization to contracts.
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Alicia sells flowers. Her friend Tiara worked
for a grocery store as a cashier. One day Alicia
stopped by during Tiaras break and asked if she
could sell flowers through the grocery store.
Tiara said yes and signed a contract to purchase
10 dozen roses for the store. When Alicia tried
to deliver the roses, they were refused by the
stores manager and Alicia sued. Is the store
bound by Tiaras contract?
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Section 2

• Limits on the Rights of Those Without Capacity

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GOALS

• Recognize the time frame during which a contract
  can be disaffirmed.
• Identify contracts that CANNOT be disaffirmed.
• Discuss the effects of misrepresentation of age
  on contracts.

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While still a minor, Bob bought a stereo system
on credit from Best Buy for 500. Bob paid 100
down and promised to pay 50 a month on the
unpaid balance until the debt was paid off.
After making four payments, two of which were
made after he reached the age of majority, Bob
decided to disaffirm the contract and return the
equipment. Can Bob do so?
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Generally, people lacking contractual capacity
can disaffirm a contract for goods or services
that are not necessaries

1. Any time while still under the incapacity, or
2. Within a reasonable time after attaining capacity.

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• After attaining capacity, a person may ratify the
  contract made while under an incapacity.

• For a minor, ratification must occur after
  achieving majority.

• Ratification must consist of either of the
  following
• Giving a new promise to perform as agreed
• Any act (such as making payments to the seller)

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Disaffirmance and Loss of Value

• In most states, if minors are unable to return
  exactly what was received under the contract,
  they can still get everything they gave.
• Damaged goods
• Lost, consumed, or destroyed goods

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• In some states, however, a minor must return
  everything in same condition it was received. If
  the minor cant, then the minor has to pay the
  difference.

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Contracts that CANNOT be Dissafirmed

• Court-approved contracts
• Major commitments (join army)
• Banking contracts (making deposit)
• Insurance contracts (life insurance)
• Work-related contracts (buying job equipment)
• Sale of realty (buying a house)
• Apartment rental (Signing a Lease)

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Ron, a mature looking minor, lied about his age
when buying 700 worth of clothes at Fresh Wear.
He used his older brothers drivers license as
his identification and his name when signing the
contract. Three months later, Ron had paid 375
on the 700 contract. He became bored with the
clothes and returned it to the store and demanded
the his 375 back. Must the store return his
money?
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• Minors are liable for their torts and delinquent
  or criminal conduct that comes out of a
  contractual transaction, although typically they
  still have the right to disaffirm their
  contracts.