CHAPTER 12 Capacity to Contract

Contractual Capacity Capacity = ability of a person to do a legally valid act Limited Capacity –Minors Presumed not able to bargain as effectively as an adult Contracts voidable by minor(i.e. right to disaffirm)

Minors’ Contracts Limited Capacity –Minors New York Management Group v. Brown-Miller, p.209 –A minor is allowed to disaffirm her modeling contract despite the fact that her mother also signed the contract. The court adopts a protective stance toward the minor in this case. It points out the perils of dealing with minors. Normally, in agency law, children cannot act as principals. This case nicely points out the difference between contracting with minors and adults. Ignorance of minority does not bar disaffirmance.

Minors’ Contracts Limited Capacity –Minors Question 7 at the end of the chapter –Yes. At common law a minor could disaffirm her consent or consent executed by another on her behalf. The legislature can change this right in order to give the minor the right to make binding contracts. The legislature impliedly did this in regard to having one’s name or picture used for commercial purposes. This brings certainty to an important industry that necessarily uses minors for its work. Since these pictures are not pornographic, there is no need to allow disaffirmance on public policy grounds. Shields v. Gross, 488 N.E..2d 108 (Ct. App. N.Y. 1983).

Minors’ Contracts Limited Capacity –Minors Question 8 at the end of the chapter Mitchell v. Mizerski –A minor is allowed to disaffirm his contract for car repairs despite the fact he has no consideration to return and that his father negotiated part of the contract and held title to the car. –The court adopts a very protective stance toward the minor-beneficiary in this case. It points out the perils of dealing with minors, especially when there are well-defined rules which businesses should be aware of. –Normally, in agency law, children cannot act as principals. This case nicely points out the difference between contracting with minors and adults. –What would happen if the father had been found to be a party to the contract? –It is likely the father held title to the car because a dealer would not want to sell such an expensive item to a minor. –The ignorance of minority does not bar disaffirmance.

Minors’ Contracts Minors’ may disaffirm contracts at any time during their minority and for a reasonable time after attaining majority (usually at age 18) –Reasonable time depends upon the facts and circumstances If not disaffirm within a reasonable time = ratify –Disaffirm by doing anything that clearly indicates to the other party an intent not to be bound by the terms of the contract Likewise, upon reaching majority, any act that clearly indicates intent to be bound = ratify –In re Score Board, p. 210 »An attempted disaffirmance of a contract is invalid because the minor, Kobe Bryant, continued to perform contractual duties after attaining majority. Performance in part may also be seen as evidence of ratification –Question 6 at end of chapter –Fletcher v. Marshall »An attempted disaffirmance of a contract is invalid because the minor lived in the apartment for two weeks after attaining majority.

Minors’ Contracts Minors’ may disaffirm contracts at any time during their minority and for a reasonable time after attaining majority (usually at age 18) –If transaction involving real property, cannot disaffirm until majority –Consequence of disaffirming = return of consideration both ways, where possible Attempt to establish “status quo ante” where possible –Sheller v. Frank’s Nursery & Crafts, Inc., p.212 »A minor is not allowed to disaffirm an agreement to arbitrate her employment dispute. »The court here assumed that the minor would be adequately protected by the arbitration process. It also found that minors are not entitled to be put in a position superior to the one they would have been in if they had never entered a voidable agreement, and to allow Sheller to avoid the arbitration clause would be to allow her to retain the advantage of employment.

Minors’ Contracts Minors’ may disaffirm contracts at any time during their minority and for a reasonable time after attaining majority (usually at age 18) –Consequence of disaffirming = return of consideration both ways, where possible Attempt to establish “status quo ante” where possible –Question 4 at end of chapter »Yes. There is a modern trend among state, through judicial action or legislation, to balance the rights of minors against those of innocent merchants. Generally, these new rules hold that the minor’s recovery of the consideration paid is subject to a deduction for the value of use, or the depreciation or deterioration of the consideration. When young persons are demanding and assuming more responsibilities, when they are charged with committing crimes, serving in the military, transacting a great deal of business, and acting in almost all other respects as an adult, it seems timely to reexamine the minority capacity doctrine. The common law is evolutionary; it should be changed when the reason for the rule no longer exists. Principle and public policy argue for a modification here. Many young people work and collect money, and spend it without oversight or restriction. It seems intolerably burdensome if merchants cannot deal with them safely, in a fair and reasonable way. Hereafter, when there has not been overreaching in any way, there has been no undue influence, and the contract is fair and reasonable, minors cannot recover the amount paid without allowing deduction for use, depreciation, or damage to the property while in their hands. Dodson v. Schrader, 824 S.W.2d 545 (Sup. Ct. Tenn. 1992).

Minors’ Contracts Emancipation = the termination of a parent’s right to receive services and wages from a child and to generally control him –Not usually affect capacity of a minor to contract Mitchell v. State Farm Mutual Automobile Insurance Co., p.213 –The court finds that emancipation does not give a minor the capacity to contract.

Minors’ Contracts Misrepresentation of Age –General rule is that it should not affect capacity, but some courts have estopped disaffirmance for deceit

Minors’ Contracts Necessaries = those things essential to a minor’s continued existence (e.g. food, shelter, clothing, medical care, education) –Minors usually held liable under quasi contract for reasonable value of necessaries already received –Schmidt v. Prince George’s Hospital, p.214 The court holds that a minor is liable her emergency hospital treatment because it was a necessary. Schmidt was only held liable because her father refused to pay. Parents are generally liable for their children’s medical expenses. Schmidt argued that it was her father who should have been sued, and not her. The court found that Schmidt, as an adult, could sue her father. They found that this would not be against the parent-child immunity from suit doctrine because there is no parent-child relationship which will be disrupted by the suit. A suit against the father by the hospital was not viable due to the statute of limitations.

Minors’ Contracts Necessaries = those things essential to a minor’s continued existence (e.g. food, shelter, clothing, medical care, education) –Question 5 at end of chapter.No. Medical aid is a necessary and a minor may be sued for it. Although parents are generally liable for their children’s medical expenses, there are exceptions. The inability or refusal of a parent to pay can make the minor liable, as can his emancipation. In such cases, the minor can then seek reimbursement for those medical expenses from the person who negligently caused them. It would be manifestly unjust to hold a minor liable for necessary medical expenses but deny him the opportunity to recover those expenses from the wrongdoer. Garay v. Overholtzer, 631 A.2d 429 (Ct. App. Md. 1993).

Contractual Capacity Limited Capacity –Mentally Impaired or Incompetent (or Intoxicated, in some jurisdictions) Presumed unable to bargain effectively Test: At time of contract, whether sufficient mental capacity to understand the nature and effect of the contract –“Periods of lucidity” -If sufficient evidence that was in a period of lucidity when contracted = bound

Contractual Capacity Limited Capacity –Mentally Impaired or Incompetent (or Intoxicated, in some jurisdictions) Effect = Voidable –Right to disaffirm –Unless adjudicated incompetent, then may be void

Contractual Capacity Limited Capacity –Mentally Impaired or Incompetent (or Intoxicated, in some jurisdictions) Usually held liable under quasi contract for reasonable value of necessaries already received If regain capacity can ratify –Saret-Cook v. Gilbert, Kelley, Crowley and Jennett, p. 216 »An employee is not allowed to avoid a release of all claims against her employer. Her enjoyment of the benefits she received in exchange for signing the release showed ratification. Sarver-Cook claimed incapacity only at the time of the signing of the release, and not later, when she received the benefits that firm offered her in exchange for signing the release. Had she also been incapacitated at that time, the court may have waived the requirement. Note that the Supreme Court has found that failure to pay back a payment for signing a waiver of age discrimination claims, when the circumstances surrounding the signing did not meet the congressionally-mandated requirements, does not bar suit. The inability to pay back the money (as was claimed in this case) was important to the decisions.

Contractual Capacity Limited Capacity –Mentally Impaired or Incompetent (or Intoxicated, in some jurisdictions) Usually held liable under quasi contract for reasonable value of necessaries already received If regain capacity can ratify –Question 10 at end of chapter »Sarver v. Bellsouth Telecommunications, Inc., p.155 »An employee is not allowed to avoid a release of all claims against his employer. His retention of the $14,085 he received in exchange for signing the release showed ratification. »Sarver claimed incapacity only at the time of the signing of the release, and not later when he failed to pay back the money. Had he also been incapacitated at that time, the court may have waived the requirement.