Legal Capacity to Contract Chapter 9 Legal Capacity to Contract

What Must Be In A Contract? Contract agreement between two parties that creates an obligation. 6 major requirements: (next slides) Offer & Acceptance Consideration Genuine Assent Capacity Legality Writing

#4 - Capacity Contractual Capacity - ability to understand they are entering into a contract and the consequences of a contract. Incapacitated parties who have special contractual rights due to a legally recognized lack of such capacity including: Minors The intoxicated The mentally incapacitated

Protection for Lack of Capacity Disaffirmance a refusal to be bound by a previous legal commitment When a protected party disaffirms a contract, by law the protected party is to receive back whatever they have entered into the contract. Necessaries are things needed to maintain life. (food, clothing, shelter) Protected parties must pay at least a reasonable value for the necessaries even if they disaffirm the actual purchase contract

Minors Minors contracts are considered voidable Can disaffirm contracts during minority Age of majority - age at which a person can be legally bound to contracts (18) Minority minor part of a person's life, end the day before they turn the age of 18

Emancipation Severing of child-parent relationship. Parent & minor agree to cease support Minor marries Minor moves out of family home Minor becomes member of armed forces Minor gives birth Minor undertakes full-time employment Bound to contracts if emancipated, even if it is before the age of majority (18).

Mental Incapacity By Law, means that a person lacks the ability to understand the consequences of his or her contracts. Severe mental illness Judge rules that a person is insane, then they lack capacity and contracts are void.

Intoxicated Excessive use of alcohol or drugs Intoxication, viewed by Law, means a person lacks the ability to understand consequences of their contracts. (same definition as incapacity) Stricter standard is used because it is a VOLUNTARY act. “Habitual Drunkard” – Void contracts

When can a person who lacks contractual capacity disaffirm a contract? Disaffirmance can occur at any time until… capacity is gained or regained

Clare was 17, a minor in her state, when she bought a week’s worth of groceries at a local supermarket. Later she discovered that she spent too much money and was going to be over her weekly budget. So she took the groceries back and asked for her money back. If she sues, will she get her money back? Page 161

Tanya bought a car two weeks before her 18th birthday Tanya bought a car two weeks before her 18th birthday. After making her fifth monthly payment, she decided was beyond her ability to afford and tried to avoid the contract on the basis that she had been a minor when she entered into the contract. Was she able to do so? Page 161

Disaffirmance Disaffirmance: a refusal to be bound by a previous legal commitment A person lacking contractual capacity can disaffirm a contract for necessaries or goods or services that are not necessaries: Any time while still under the incapacity Within a reasonable time after attaining capacity Page 161

Ratification Ratification: action by the party indicating intent to be bound by the contract. (For a minor, ratification must occur after achieving majority) Ratification consists of: Giving a new promise to perform as agreed Any act that clearly indicates the party’s intention to be bound. Page 161

Contracts that Cannot be Disaffirmed Court-Approved Contracts Minors cannot void any contracts approved for them by a court. (e.g. minors who are emplyed as actors/actresses/professionals in sports usually have their contracts approved by a court. Once approved, these contracts may not be disaffirmed. Page 161

Contracts that Cannot be Disaffirmed Major Commitments In ALL states, contracts to enlist in the armed services and contracts for educational loans cannot be disaffirmed. Also, marriage contracts of minors cannot be disaffirmed.

Contracts that Cannot be Disaffirmed Banking Contracts In MOST states, minors are permitted to make deposits in banks and in savings and loan associations. Most states also permit minors to make withdrawals as if they were adults, without any right to disaffirm these transactions. Page 161

Contracts that Cannot be Disaffirmed Insurance Contracts More than one-half of the states provide that minors who are over a certain age may not disaffirm certain contracts of life insurance. Work-Related Contracts In most states, minors who engage in a business or trade cannot disaffirm agreements involving their businesses.

Contracts that Cannot be Disaffirmed Sale of Realty / Apartment Rental In some states, a minor who owns real property and sells it or borrows money against it cannot disaffirm until after achieving majority. In a few states, the lease of an apartment cannot be disaffirmed even if the apartment is not a necessary. Page 161

What’s Your Verdict? Upon graduation from high school, Robinson, age 17, began a business doing electrical work. He bought $375 in tools from Muller. The venture was a disappointing failure. Discouraged after a month, Robinson asked Muller to take back the tools and to return his $375 payment. Must Muller do so? Muller would not have to comply with Robinson’s demands in such states as Robinson would not be able to avoid the purchase contract made for his business.

Checkpoint If minors lie about their age, what happens in most states with regard to their ability to disaffirm contracts for goods and services are not necessaries? Even if minors lie about their age, they still may disaffirm their contracts for goods or services that are not necessaries. Page 161

Page 166-167 Legal Vocabulary # 1-11 Hot Debate # 19 Think Critically # 20-23 http://www.bloomberg.com/apps/news?pid=email_en&sid=aOsV2TLja8jU#