Legal Capacity to Contract Chapter 9

Contractual Capacity – the ability to understand the consequences of a contract Does not require that a person understand the actual terms

Those parties who lack such capacity include (1)minors, (2)the intoxicated, and (3)the mentally ill/handicapped All of these parties are said to be incapacitated or incapable

The Age of Majority Minors (or the minority) are defined as individuals under the age of majority Most states majority is 18 – Some 19 or 21

parties who lack capacity are considered voidable The contracts of most parties who lack capacity are considered voidable

Disaffirmance – a refusal to be bound by a previous legal commitment Protected party, generally, is to receive back whatever they have put in

What about Necessities? Minors could be held liable for contracts made for necessities – things needed to maintain life (ie. food, clothing and shelter) Even if contract is disaffirmed, at least some, if not all, of the cost may still be required to be paid

Emancipation Severing of the child-parent relationship Ends the duty of the parent to support a child and the duty of a child to obey the parent ** Minors may also find themselves bound to contracts if they are emancipated

Formal Emancipation Occurs when a court decrees (declares) the minor emancipated

Informal Emancipation Parent and minor agree to the ceasing of support Minor marries Minor moves out of the family home

4. Minor becomes a member of the armed forces 5. Minor gives birth 6. Minor undertakes full-time employment

Mentally Incapacitated Those people with severe mental illness, severe mental retardation, or severe senility (mental weakness from old age)

The Intoxicated Those under the influence of alcohol, drugs or inhalant products If a judge holds that a person is in a permanent state of alcoholism, that person’s contracts are considered void

Scope of Authority A range of acts an organization has authorized an employee to do (ie. bind a company/ organization to a contract) Capacity can come from a delegation or an apparent authority

Limits on the Rights of Those Without Capacity

When can Disaffirmance Occur? Generally, a person lacking capacity can disaffirm a contract… Any time while under the incapacity or.. Within a reasonable time after attaining capacity UNLESS… New promise or action is given after majority is reached

In most cases, minors must return everything received in a condition as good as it was when it was received!

Contracts That Can’t be Disaffirmed Court-approved Contracts (all states) Actors/actresses, professional athletes Major Commitments (all states) Armed forces, student loans, and marriage

4. Insurance Contracts (most states) 3. Banking Contracts (most states) 4. Insurance Contracts (most states) 5. Work-related Contracts (most states) 6. Sale of Realty (some states) 7. Apartment Rental (few states)

Misrepresentation of Age In most states, a minor who gives a false age may still disaffirm their contract BUT…may be held liable for the tort of false misrepresentation