CHAPTER NINE Competent Parties

Copyright © Houghton Mifflin Company. All rights reserved.9 | 2 Competent Parties Only parties who are legally and mentally capable can enter into a binding contract. Parties are assumed to be competent to enter a contract until proof of incompetency is presented. –The proof of incompetency must come from the incompetent party.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 3 Competent Parties (continued) Under the law some parties are considered incompetent to enter contracts: –Minors (in many states persons under the age of 18 are considered minors.) –Persons under the influence of alcohol or drugs –Mentally ill persons are considered incompetent to enter a contract. If a person has been declared mentally incompetent by a court their contracts are considered void.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 4 Minors Most states consider an adult to be person who has attained the age of majority (18 in most states). Agreements between an adult and minor can be set aside by the minor. –The adult can not set aside a contract formed with minor. –When a minor sets aside a contract it is referred to as “disaffirming the contract.” –If the minor does not disaffirm the contract it is considered enforceable.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 5 Minors (continued) The law allows a minor to disaffirm a contract to protect the minor. –Generally the minor can disaffirm the contract at anytime: Before the age of majority Within a reasonable time of reaching the age of majority Courts will not let a minor use the right to disaffirm the contract as a sword to injure an adult. –The protection is shield for the minor.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 6 Minors (continued) Some states will allow the minor to disaffirm the contract even where the consideration the minor is returning is damaged or destroyed. Many states are starting to hold the minor liable for depreciation or the decline in value of the consideration supplied by the adult while it was in the minor’s possession.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 7 Minors (continued) Many states limit situations where a minor may disaffirm a contract: –A minor cannot disaffirm a contract for life or accident insurance. –A minor cannot disaffirm the obligation to payback a student loan. –A minor cannot disaffirm a contract for an airline ticket. –A minor cannot disaffirm a contract with a college. –A minor cannot disaffirm the sale of stock or a transaction with a bank. –A minor cannot disaffirm a marriage contract –A minor cannot disaffirm a contract for service in the armed forces. –A minor cannot disaffirm a contract to perform as an actor or musician.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 8 Minors (continued) Age misrepresentation – generally, where a minor lies about his/her age and enters into a contract – will not allow the minor to disaffirm in most states. Ratification by a minor –Ratification means the contract will become legally binding. –A minor can ratify a contract after reaching the majority. –If the minor does not disaffirm the contract within a reasonable time of reaching the age of majority the law will say the minor ratified the contract.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 9 Minors (continued) Minors Liability for Necessaries –Necessaries are those items that a person needs to live. Necessaries include: Food, clothing and shelter Medical care, education, services of attorney in a civil tort or criminal case Generally, items such as televisions, jewelry, sporting goods, etc. are not considered necessaries. –The social and economic status of a minor can be a factor in considering whether an item is a necessary. Issues such as the minor’s financial condition, marital status, and whether the minor is being supported by parents or is emancipated will be factors is considering whether an item is a necessary.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 10 Intoxication If a party can prove at the time a contract was formed that they were intoxicated enough to lack capacity: –The contract is voidable at the option of the party who is under the influence of drugs or alcohol. –The courts generally have little sympathy for parties who are claiming intoxication. –The person is claiming intoxication must disaffirm their contract within a reasonable time.

Copyright © Houghton Mifflin Company. All rights reserved.9 | 11 Mental Competence When a court has ruled a person mentally incompetent, any business contract that person tries to enter is VOID. Courts will appoint a guardian to handle business transactions for a person in this situation. If a court has not previously ruled a person mentally incompetent, but the person is mentally incompetent at the time of contracting, the contract is VOIDABLE – at the option of the incompetent party.