Chapter 10 Law of Capacity

Capacity Rights GoalsGoals –

What is Capacity? Having the maturity and experience to protect self interestHaving the maturity and experience to protect self interest The ability to understand that contract is being made & its general meaningThe ability to understand that contract is being made & its general meaning Who lacks capacity?Who lacks capacity? –Minors –Intoxicated –Mentally incapacitated

Capacity Rights Two basic protections granted to those who lack capacity Necessaries vs. Non- necessariesNecessaries vs. Non- necessaries –Necessaries = needed to maintain life –Non-necessaries = luxuries Read third column – page 143 DisaffirmanceDisaffirmance –Returning consideration RatificationRatification –Acting in order to be bound to a contract

Protected Parties… MinorityMinority –Under 18- in most states EmancipationEmancipation Severing child-parent relationship 1.Both agree 2.Marriage 3.Moving out 4.Military 5.Children 6.Full-time job Mental Incapacity –Can the party understand? Intoxication –Stricter standard b/c voluntary

Which contracts can be disaffirmed? Non-NecessariesNon-Necessaries –Can be disaffirmed if the party lack capacity What’s your Verdict – Page 143 NecessariesNecessaries –The right to pay “fair market value”

What’s your verdict? Against their parents’ wishes, Garcia and Wesly – both minors – left home. Together they signed a 12-month least to rent a nearby furnished apartment from Krohn at the bargain price of $350 a month. After three months, the teenagers ran out of money and returned to their homes. Krohn could not find new tenants. Could he hold the minors liable for the rent?Could he hold the minors liable for the rent?

Necessity? Or Non-necessity?Necessity? Or Non-necessity? –Non-necessity – They did not HAVE to move out of parents house They did not HAVE to move out of parents house Krohn could not hold them liable for the rentKrohn could not hold them liable for the rent

Capacity in Organizations Scope of authorityScope of authority –The ability to bind an organization to a contract

What’s your verdict Alicia was a wholesaler of flowers. Her friend, Caryn, worked for a grocery store as a checker. One day Alicia stopped by during Caryn’s break and asked if she could sell her flowers through that store. Caryn said yes and signed a contract to purchase 10 dozen roses for the store. When Alicia tried to deliver the roses, they were refused by the store and Alicia sued. Is the store bound by Caryn’s contract?Is the store bound by Caryn’s contract? No – Caryn was a cashier and did not have the “authority” to make this decisionNo – Caryn was a cashier and did not have the “authority” to make this decision

What’s your Verdict? While still a minor, Beach bought a stereo system on credit from McReam’s Electronic Cloud for $500. Beach paid $100 down and promised to pay $50 a month on the unpaid balance until the debt was paid. After making four payments, two of which were made after he reached the age of majority, Beach decided to disaffirm the contract and return the equipment.While still a minor, Beach bought a stereo system on credit from McReam’s Electronic Cloud for $500. Beach paid $100 down and promised to pay $50 a month on the unpaid balance until the debt was paid. After making four payments, two of which were made after he reached the age of majority, Beach decided to disaffirm the contract and return the equipment. Can Beach do this?Can Beach do this? –Next Next

Time of Disaffirmance & Ratification Persons lacking contractual capacity can disaffirm a contract for non-necessariesPersons lacking contractual capacity can disaffirm a contract for non-necessaries –Any time while still under the incapacity –Within a reasonable time after attaining capacity

Time of Disaffirmance & Ratification RatificationRatification –Minor must ratify after reaching majority & may consist of… Promise to performPromise to perform Act’s clearly indicating agreementAct’s clearly indicating agreement Back to BeachBack to BeachBack to BeachBack to Beach

Answer to What’s My Verdict….. Beach ratified the contract by making payments after reaching majority….Beach ratified the contract by making payments after reaching majority…. –Sorry Beach…you cut off your power to disaffirm

Return of goods or services In ALL states, when a minor disaffirms, anything of value the minor received must be returnedIn ALL states, when a minor disaffirms, anything of value the minor received must be returned The minor is entitled to then get back everything that was given to other partyThe minor is entitled to then get back everything that was given to other party

Return of goods or services Loss of valueLoss of value –Most states… If minor is unable to return exactly what was received under contractIf minor is unable to return exactly what was received under contract –They can still get back everything they gave »Includes returning damaged goods »Includes returning nothing because goods were lost or stolen –Some states… A minor must return everything in same conditionA minor must return everything in same condition –If not minor must pay difference in value

What’s Your Verdict? Lamon, a minor, bought a diamond ring and necklace for his fiancée, Morgan. He paid for the items in weekly installments of $10. On the day Lamon achieved majority, he and Morgan quarreled. Morgan returned the ring to Lamon but refused to part with the necklace.Lamon, a minor, bought a diamond ring and necklace for his fiancée, Morgan. He paid for the items in weekly installments of $10. On the day Lamon achieved majority, he and Morgan quarreled. Morgan returned the ring to Lamon but refused to part with the necklace. Can Lamon return the ring to the jeweler and receive a refund for the ring and necklace?Can Lamon return the ring to the jeweler and receive a refund for the ring and necklace?

Answer Morgan was entitled to keep the necklaceMorgan was entitled to keep the necklace –It was a gift Lamon could return the ring and demand a refund for both piecesLamon could return the ring and demand a refund for both pieces –He is entitled to the money for the ring In most states, he is even entitled to what he paid for the necklaceIn most states, he is even entitled to what he paid for the necklace

Contracts that can’t be disaffirmed DEPENDS ON STATEDEPENDS ON STATE –Court approved Child actorsChild actors SportsSports –Major commitments Joining armed forcesJoining armed forces Educational loansEducational loans –Banking withdrawalswithdrawals –Insurance –Work related –Reality sales –Apartment rental

Misrepresentation of age Can usually disaffirmCan usually disaffirm –But May be held liable for tort of…?May be held liable for tort of…? False representation

Enrichment Activity – Law of Capacity Cases involving minors have often made the news in recent years. Research Internet articles to investigate a case involving levels of mental capacity, emancipation, and /or intoxication. Research and gather information about the case. Did the minor go to jail? Was there a trial? Were they tried as an adult? Information should also include overview of the case, minor’s demographics, injury, trial details (if one took place), and verdict. Create a professional PowerPoint including this information. Your PowerPoint should only include approximately 6 -8 lines of information per slide. Use appropriate graphics and class vocabulary. Animate slide show professionally. Minimum of 5 slides

Wrap the chapter/unit Analyze Real CasesAnalyze Real Cases –p Complete the Cases for Legal ThinkingComplete the Cases for Legal Thinking – P. 113, 127,141, 153