Chapter 9 Legal Capacity To Contract. Section 1 Capacity of Individuals and Organizations.

Chapter 9

Legal Capacity To Contract

Section 1

Capacity of Individuals and Organizations

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.

People who Lack Contractual Capacity

Under the influence

(drugs/alcohol)

minors Mentally ill

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.

People who lack capacity, their contracts are voidable.

Disaffirmance : In contract law, it means a refusal to be bound by a previous legal agreement.

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.

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…

Things needed to maintain life:

•Food

•Shelter

•Clothing

When a minor becomes of age, they may be able to disaffirm a contract for a reasonable length of time.

Acting towards the

contract as though

one intends to be

bound by it. *Note. Ratification can NEVER occur before the age of majority.

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.

Formal Emancipation

You become of age

Informal Emancipation

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

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

Definition: A person lacks the ability to understand the consequences of his/her contractual acts.

Intoxication

Inhaling products *glue or aerosols

Alcohol Drugs

People who work for a company that are given the authority to bind the organization to contracts.

Alicia sells flowers. Her friend Tiara worked for a grocery store as a cashier. One day Alicia stopped by during Tiara’s 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 store’s manager and Alicia sued.

Is the store bound by Tiara’s contract?

Section 2

Limits on the Rights of Those Without Capacity

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.

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?

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.

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:

1.Giving a new promise to perform as agreed

2.Any act (such as making payments to the seller)

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

In some states, however, a minor must return everything in same condition it was received. If the minor can’t, then the minor has to pay the difference.

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)

Ron, a mature looking minor, lied about his age when buying $700 worth of clothes at Fresh Wear. He used his older brother’s driver’s 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?

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.