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11-2 Capacity to Contract A competent party is a person who must meet all the following conditions: Must be of legal age. Must have normal mental capacity. Is considered by law to be capable of understanding the meaning of a contract. A competent party must have contractual capacity—the ability to make a valid contract. Learning Outcome 11-1: Explain what is meant by contractual capacity and define competent parties. Page: 172

Capacity to Contract (cont.) 11-3 Capacity to Contract (cont.) Minor: A person who has not yet reached the age of majority. Minors and persons who are mentally ill or mentally challenged cannot make legally binding contracts, although they are not denied the opportunity to benefit from their legal rights. The responsibility of determining whether a person is competent to contract rests on everyone who enters into a contract with such a person. Learning Outcome 11-1: Explain what is meant by contractual capacity and define competent parties. Page: 172

11-4 Minors’ Contracts Until individuals reach legal age, or the age of majority, they are not legally required to carry out most of their contracts The legal age of majority varies from state to state. The legal age is 18 in most states, and 19 or 21 in others. According to the coming of age rule in common law, a person’s legal birthday is 12:01 a.m. of the day before his or her actual birthday. However, under the modern birthday rule, a person attains a given age on the anniversary date of his or her birth. Learning Outcome 11-2: Discuss minors’ contracts and how the age of majority impacts the legality of contracts. Page: 172

Avoidance of Minors’ Contracts 11-5 Avoidance of Minors’ Contracts In contracts between a minor and a competent person, only the minor has the privilege of disaffirmance, or avoidance of the contract; the competent party is bound. In contracts for necessities (food, shelter, clothing, employment, and medical care), in many states the minor is bound as well. Also, generally, a minor may not disaffirm a contract involving the sale or purchase of real estate. Learning Outcome 11-2: Discuss minors’ contracts and how the age of majority impacts the legality of contracts. Page: 172

Example: Avoidance of Minors’ Contracts 11-6 Facts: Fifteen-year-old Dillon made a $100 clothing purchase from a store using a credit card. One month later, when he received the credit card bill, he refused to pay, claiming that he was not responsible for the payment as a minor. However, a contract made for necessities by a minor, even while he is intoxicated, must be paid for their reasonable value. Since food, clothing, employment, and medical care are considered necessities, Dillon can be held liable to pay the reasonable value of the clothing. Learning Outcome 11-2: Discuss minors’ contracts and how the age of majority impacts the legality of contracts. Page: 172

Ratification of Minors’ Contracts 11-7 Ratification of Minors’ Contracts Whether a contract has not yet been performed (an executory contract) or fully performed (an executed contract), the minor may disaffirm the contract if he or she wishes. Once the minor reaches the legal age of majority, the contract must be either ratified (that is, agreed to) or disaffirmed within a reasonable time. Learning Outcome 11-2: Discuss minors’ contracts and how the age of majority impacts the legality of contracts. Page: 173

Ratification of Minors’ Contracts (cont.) 11-8 A contract involving a minor can be ratified by an act that shows that the minor party intends to live up to the terms of the contract. If a reasonable period of time passes after a minor reaches legal age and he or she has said nothing about disaffirming the contract, it is considered ratified in the eyes of the law. When a contract is ratified, the entire contract must be ratified, not merely a part of it. Learning Outcome 11-2: Discuss minors’ contracts and how the age of majority impacts the legality of contracts. Page: 173

Disaffirmance of Minors’ Contracts 11-9 An individual may disaffirm a contract, that is, state his or her intention either orally or in writing not to honor a contract that had been made before reaching legal age. Disaffirmance may be done before reaching the legal age or within a reasonable time after reaching adulthood. Disaffirmance, like ratification, may be implied by the acts of the person who has reached legal age and wishes to disaffirm. Learning Outcome 11-2: Discuss minors’ contracts and how the age of majority impacts the legality of contracts. Page: 173

Minors’ Enforceable Contracts 11-10 Minors’ Enforceable Contracts The law that protects minors from their contractual commitments is not intended to deny them the opportunity to enter into contracts for necessaries that are not provided by their parents or a guardian. As a result of a minor’s emancipation, he or she assumes many of the rights and obligations of a person of legal age. Emancipation could result from marriage or from voluntary separation of a minor from his or her parents or guardians. A minor is liable only for the reasonable value of necessaries purchased by him or her. Learning Outcome 11-2: Discuss minors’ contracts and how the age of majority impacts the legality of contracts. Page: 174

Liability for Minors’ Torts and Crimes 11-11 The law does not protect minors who have committed a tort or a crime. A minor may be liable for such injuries or damages and may be prosecuted by the state in a criminal action. A minor may be held liable for money damages in a tort action when he or she: Destroys property and/or appropriates it. Causes another person to suffer a money loss through his or her negligence. Persuades another person to break a contract Makes damaging statements in writing or orally. Learning Outcome 11-3: Describe the operation of the law as it relates to liability for a minor’s torts and crimes. Page: 175

Liability for Minors’ Torts and Crimes (cont.) 11-12 State laws that determine liability for minors’ torts and crimes vary from state to state. In most states, parents are not held liable for torts committed by their children. However, if a child causes damage due to a lack of parental supervision, the parent may be held for any damages caused by the unsupervised child . In many states, when a minor disaffirms a contract and returns the goods, he or she can be held liable for damages to the goods. Learning Outcome 11-3: Describe the operation of the law as it relates to liability for a minor’s torts and crimes. Page: 176

Contracts of the Mentally Incompetent 11-13 Mentally incompetent people cannot make binding contracts to safeguard their own affairs. Consequently, most of their contracts are considered voidable and cannot be enforced against them if they do not carry them out. If the person entered into a contract during a lucid interval and the other party can prove it, such a mentally ill person will be held to the contract. A person with mental incompetence is liable for the reasonable value of necessaries that he or she buys, unless he or she can return them. For all other contracts, the person who is mentally incompetent can recover his or her money or property, but the other party’s consideration must be returned if possible. Learning Outcome 11-4: Assess the legal status of contacts made by persons who are incompetent. Page: 177

Contracts of the Mentally Incompetent (cont.) 11-14 A contract with a person who has been declared insane by the courts is void: Even if the other party who contracted with the incompetent individual did not know that he or she had been declared insane by the courts. Even if the contract was made during a lucid period. When a court classifies a person as insane, it appoints a legal guardian to handle his or her affairs. Any contracts the insane person makes thereafter are considered void, not simply voidable. However the legal guardian is usually liable for purchases on necessaries. Learning Outcome 11-4: Assess the legal status of contacts made by persons who are incompetent. Page: 177

Example: Contracts of the Mentally Incompetent 11-15 Facts: Trudy suffered from a mental condition that was medically declared insanity. Trudy hired Julio to build a sundeck for her house. However, a week before the construction was complete, she died in a car accident. When Julio approached her son to collect the amount due to him for the construction, the son refused to pay the bill, claiming that Trudy was mentally incompetent when she hired Julio. Since a contract with a person who has been declared insane by the courts is void, even if the party who contracted with the incompetent individual was unaware, Julio cannot avail any remedy because the contract itself is void. Learning Outcome 11-4: Assess the legal status of contacts made by persons who are incompetent. Page: 177

Contract of Persons affected by Drugs or Alcohol 11-16 When a person makes a contract while intoxicated by alcohol or drug use and is unable to understand the nature and effect of the contract, the contract is voidable at his or her option. The law considers the impaired person to have been mentally incompetent at the time the contract was made. If a contract does not involve necessaries, the person who wishes to disaffirm it on the grounds that he or she was intoxicated or affected by drugs when the contract was made must either return the other party’s consideration or prove that he or she lost possession of it while still impaired. Learning Outcome 11-4: Assess the legal status of contacts made by persons who are incompetent. Page: 177