1. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10 Slide 1 Law of Capacity 10-1 10-1Capacity Rights 10-2 10-2Limitations on Capacity Rights CHAPTER 10 Lessons

2. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10 Slide 2 Capacity Rights Identify parties who have contractual capacity Identify what contracts can be disaffirmed Explain the role of capacity in organizations LESSON 10-1 GOALS

3. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 3 WHAT IS CAPACITY? Contractual capacity is the ability to understand that a contract is being made and its general meaning.

4. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 4 CAPACITY RIGHTS Necessaries Non-necessaries Disaffirmance Ratification

5. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 5 MINORS In most states, people under the age of 18 In a few states, age of majority is 19 or 21 Also referred to as being in their minority or under the age of majority

6. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 6 EMANCIPATION Emancipation is the severing of the child-parent relationship. Early emancipation Formal emancipation occurs when a court decrees the minor emancipated. Informal emancipation arises from the conduct of the minor and the parent.

7. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 7 EVIDENCE OF INFORMAL EMANCIPATION The parent and minor agree that the parent will cease support The minor marries The minor moves out of the family home The minor joins the armed forces The minor gives birth The minor undertakes full-time employment

8. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 8 MENTAL INCAPACITY Mental incapacity is much less precisely defined than minority. The test is whether the party understands the consequences of his or her contractual acts.

9. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 9 INTOXICATION Intoxication can arise from using alcohol, from using drugs, or inhaling products such as glue or aerosols. Many courts are reluctant to allow disaffirmance for intoxication when it may injure another.

10. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 10 WHICH CONTRACTS CAN BE DISAFFIRMED? Necessaries are goods and services that are reasonably required to maintain a person’s lifestyle. Non-necessaries are all other goods and services or relative luxuries.

11. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 11 CAPACITY IN ORGANIZATIONS Some people who work for organizations have the capacity to bind the organizations to contracts. Capacity to contract can be created when the employer tells an employee that he or she is authorized to bind the organization. Capacity to contract can be created when an organization leads others to believe that a person has certain authority.

12. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10 Slide 12 Limitations on Capacity Rights Identify the time when a contract cannot be disaffirmed Identify contracts that cannot be disaffirmed Explain the consequences of misrepresenting age LESSON 10-2 GOALS

13. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 13 TIME OF DISAFFIRMANCE Any time while still under the incapacity Within a reasonable time after attaining capacity

14. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 14 RATIFICATION Ratification may consist of either of the following Giving a new promise to perform as agreed Any act that clearly indicates the party’s intention to be bound

15. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 15 RETURN OF GOODS OR SERVICES Loss of value Obligations of party with capacity

16. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 16 WHAT CONTRACTS CANNOT BE DISAFFIRMED? Court-approved contracts Major commitments Banking contracts Insurance contracts Work-related contracts Sale of realty Apartment rental

17. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 10Slide 17 MISREPRESENTING YOUR AGE In most states minors who lie about their age may disaffirm their contracts. In these states, a minor who gives a false age may be held liable for the tort of false representation