1. Legal Capacity to Contract Chapter 9

2. Section 9-1 Goals Identify parties who lack contractual capacity.
Explain the role of capacity in organizations.

3. Can Alexis get her money back?
What’s Your Verdict?
Page 155
Can Alexis get her money back?
Alexis would be able to dissaffirm her contract, return the luggage, and receive back the money she paid for the luggage.

4. Contractual Capacity
Contractual capacity – is the ability to understand the consequences of a contract.
Note: This does not mean that a person understands the contractual terms only the ability to understand them.

5. What do you think?
Keep in mind the definition of contractual capacity. Currently with the subprime mortgage crisis many borrowers are claiming that they did not understand the contractual terms of the contract they entered into when borrowing the money for their homes. Given this fact do you think the government has the responsibility to protect those individuals? Why or why not?

6. Age of Majority
Anyone who is over the legal age to enter into a contract.
Legal ages to enter into contracts are set by the states. (In most states the legal age is 18)

7. Minor Anyone under the age of majority.
Usually ends the day before the birthday.

8. Minority
Minority – is the state of being below the age of majority.

9. Dissaffirmance
Dissaffirmance – a refusal to be bound by a previous legal commitment.
Usually the party that dissafirms gets back what they put into the contract.
The other party may or may not get back their consideration.

10. Necessaries
The courts realize that protected may have to contract for the “necessities” in life. Food, shelter, etc….
When protected parties contract for such items they must at least pay a reasonable value for such items even when the disaffirm the contract.

11. Think Critically Through Visuals
Page 156
No, the perfume is not a necessity. In most states, even if she used the perfume or gave it away in portions to her friends, she could still disaffirm and get her full payment back.

12. Law Brief Page 156
Please write a definition defining the term necessity as it applies to contract law.
What do you consider a necessity?

13. Minors Minors may disaffirm contracts.
However a minor upon reaching the age of majority may choose to ratify the contract.
Remember: Ratification is acting toward the contract as though one intends to be bound by the contract.

14. Emancipation
Emancipation - is the severing of the parent child relationship.
Usually a minor becomes emancipated upon reaching the age of majority.

15. Formal Emancipation
Forman emancipation takes place when a court decrees the minor emancipated from their parent.

16. Informal Emancipation
Informal emancipation arises from the conduct of the minor and the parent.

17. Examples of Informal Emancipation
The parent and minor agrees that the parent will cease support.
The minor marries.
The minor moves out of the family home.
The minor becomes a member of the armed forces.
The minor give birth.
The minor undertakes full-time employment.

18. Emancipation of minors in Pennsylvania
In the article “Emancipation of Minors in Pennsylvania” please read section II. SCHOOL ATTENDANCE AND RESIDENCE.
Keep the article for your reference.
Answer the following questions on a separate sheet of paper.

19. Emancipation of minors in Pennsylvania
At what age can a student leave school without his or her parent of guardian’s permission? And why do you think that age was set?
Can homeless students attend school in the district where the located?
What can happen if a minor is at the compulsory age for school attendance and does not regularly attend school according to Pennsylvania truancy law?

20. Those Mentally Incapacitated
Mentally Incapacitated – means that a person lacks the ability to understand the consequences of his or her contractual acts.
People suffering from:
Severe mental illness.
Severe mental retardation.
Severe senility.
People with sever mental illness, severe mental retardation, or severe senility lack capacity.

21. The Insane
The insane are included in the definition of mentally incapacitated.
However, the rules surrounding necessaries are applied to an insane person’s purchase of food, clothing, and shelter.
If the judge rules that a person was insane when the contract was made but the condition was only temporary, the contract is considered voidable.

22. The Intoxicated
The courts are reluctant to consider an intoxicated party’s contracts voidable.
The courts typically allow dissaffirmance only for those who are so intoxicated they do not know they are contracting.
If a judge holds that a person is in a permanent state of alcoholism, that person’s contracts are considered void. “Habitual Drunkard” – being unable to turn down a drink or drug whenever offered.

23. What Do You Think?
What do you think about minors being held in the same classification and same contractual standards as people who are mentally incapacitated or intoxicated?
Do you think the age of majority in PA should be increased or decreased from the age of 18 years of age? Why or why not.

24. A Question of Ethics Page 157
Although being somewhat intoxicated can in no way approximate legal duress, it does diminish the capacity of an individual to bargain. In the interest of fair dealing, Perkins therefore could be considered to have an ethical obligation not to foster such behavior but has no ethical responsibility for preventing such activity by impinging on the rights of other to drink. The salespeople do have an ethical responsibility to those whose resources they may be commiting to be unimpaired during the bargaining.

25. Analyze Real Cases
Read question #26 in Analyze Real Cases on page 166 and answer the questions at the end.
The consumption of alcohol is some slight evidence of intoxication. That fact that it was Zehmer who wrote up the agreement is powerful evidence that he was not intoxicated and that he was not jesting. Therefore, Zehmer lost.

26. Contractual Capacity Within Organizations
Scope of Authority – if someone has the capacity to bind the organization into a contract.
Capacity can be created when the organization leads others to believe that a person has certain authority.
Note that business must be careful how they word job titles so not to give the appearance that someone has the capacity to contract for the organization and does not. Note that when a person contracts for an organization without the capacity to contract for that organization they remain personally liable for that contract.

27. “Is the store bound by Caryn’s contract?”
What’s Your Verdict?
Page 158
“Is the store bound by Caryn’s contract?”
The store is not bound by the contract but Caryn may be liable to Alicia for the lost profit on the sale of the roses.

28. Think Critically Through Visuals
Page 158
The broadest scope of authority will be with the manager as that person must make a variety of contracts to facilitate the operation of the supermarket. The person making the most contracts but with a limited scope of authority will be the sales clerk.

29. Assessment 9-1 Think About Legal Concepts
Questions 1 through 6
Think Critically About Evidence
Question 7 through 9
You may work with a partner, however please hand your answers in on a paper with your own name.
Answers:
Think About Legal Concepts
False
(b) the purchase of groceries at a market
(b) 18
True
Think Critically About Evidence
7. No, Clare purchases necessaries so she cannot dissaffirm.
8. Yes, the gown was probably not a necessary for Tanya.
9. Yes, the only thing required to hold a person who is voluntarily intoxicated to a contract is a showing that they knew they where making a contract. The same hold true for marriage contracts by the way.

30. Section 9-2
Goals
Recognize the time frame during which a contract can be disaffirmed.
Identify contracts that cannot be disaffirmed.
Discuss the effects of misrepresentation of age on contractual responsibilities.

31. What’s Your Verdict? Page 160 “Can Beach do so?”
Beach ratified the contract by making payments after reaching majority. These actions cut off his power to disaffirm. Once ratification occurs, it may not be withdrawn.

32. What’s Your Verdict? Page 160
“What if Beach disaffirmed but after making the four payments before he reached majority?”
Beach would have to return the stereo to the dealer, and the dealer would have to return his money.

33. When Can Dissaffirmance Occur And What Must Be Done At That Time?
Generally a person lacking contractual capacity can disaffirm a contract for necessaries or goods or services that are not necessaries:
Any time while still under the incapacity.
Within a reasonable time after attaining capacity.

34. Ratification Ratification may consists of either of the following:
Giving a promise to perform as agreed.
Any act that clearly indicates that party’s intention to be bound.

35. What must be done upon Disaffirmance
When a minor disaffirms, anything of value the minor received and still has must be returned.
The minor is then entitled to give back everything that was given to the other party.

36. Loss of Value
In most states if minors are unable to return exactly what was received under the contract, they can still get back everything they gave.
This is true even if a minor returns used or damaged goods.
This is also true even if a minor returns nothing because the goods have been lost, consumed, or destroyed.

37. What Do You Think?
What are some steps merchants can take to protect their interests when contracting with minors?
Have an adult contract rather than a minor.

38. Obligations Of Party With Capacity
A party with capacity can neither enforce or avoid all or any part of a contract for goods or services that are not necessaries against a party lacking capacity.

39. Contracts That Cannot Be Disaffirmed
Some contracts with minors cannot be disaffirmed. The most common examples are…..

40. Court-Approved Contracts
In all states, minors cannot void any contract approved for them by a court.

41. Major Contracts
In all states, contracts to enlist in the armed services and contracts for education loans cannot be disaffirmed.
Marriage contracts by minors cannot be disaffirmed.

42. Banking Contracts
In most states, minors are permitted to make deposits in banks and savings and loans and are treated as adults.

43. Insurance Contracts
More than one-half of the states provide that minors who are over a certain age may not disaffirm certain contracts of life insurance.

44. Work-Related Contracts
In most states, minors who engage in business or trade cannot disaffirm agreements involving their business.

45. Sale of Reality
In some states, a minor who owns real property and sells it or borrows money against it cannot disaffirm until after achieving majority.

46. Apartment Rental
In a few states, the lease of an apartment cannot be disaffirmed even if the apartment is not a necessary.

47. What’s Your Verdict? Page 161 “Must Muller do so?”
Robinson would not be able to avoid his contract if he lived in a state with such a law.

48. Contractual Effect of Misrepresenting Age
In most states, a minor who misrepresents his or her age may still disaffirm the contract.
However, in these states, a minor who gives a false age may be held liable for the tort of false representation.
Point out to the class the “educated minor” case with the minor and Eastern Airlines. The minor would buy a first class ticket several times a year, fly somewhere then disaffirm the contract. When it was brought to court the court ruled that the minor was using the disaffimation law to gouge Eastern Airlines; and forced the minor to pay for the price of a coach class ticket.

49. Think Critically Through Visuals
Page 162
This assures that banks will deal with minors as they probably would not if minors could disaffirm their banking actions. Minors would, thereby, be with tout the bank accounts that are vital to facilitating other areas where disaffirmance is not allowed.

50. Analyze Real Cases
Read questions #25 in Analyze Real Cases on page 166 and answer the questions at the end.
#25: The car actually was sold to a minor even though the sham paperwork indicated a sale to the companion. The minor disaffirmed and Quality Motors ignored this. Quality Motors must bear the loss associated by the wreck.

51. Case for Legal Thinking
With a partner read “Case for Legal Thinking” on page 167 and answer the questions at the end of the case.
The evidence indicating that Hauer had mental capacity was the letter from her treating physician and the termination of her guardianship.
Hauer’s brain injury, subsequent determination of incompetence, and appointment of a guardian are evidence of incompetence. In addition, Hauer’s lack of understanding of the transaction and her deficient cognitive abilities also provide evidence of incompetence.
Possible answer: The evidence of incapacity is greater because the psychologial expert testified about Hauer’s mental state at the other evidence is about her mental state prior to the transaction.

52. Assessment 9-2 Think About Legal Concepts
Questions 1 through 4
Think Critically About Evidence
Question 5 through 8
You may work with a partner, however please hand your answers in on a paper with your own name.
Answers:
Think About Legal Concepts
True
(e.) both c & d
False
(c.) gambling contracts
Think Critically About Evidence
5. No, is most states, insurance contracts cannot be disaffirmed.
6. No, Linda’s conduct in accepting the books for six months is probably ratification which eliminates her right to disaffirm.
7. No, contracts to enlist in the armed forces cannot be disaffirmed by a minor.
8. Yes, on disaffirmance the minor is generally obligated only to return that much of the consideration as she possesses. (here a burned out motorcycle.)

53. Think Critically About Evidence
Page 165
Questions 20 though 23.
You may work with a partner, however please hand your answers in on a paper with your own name.

54. Analyze Real Cases
Read questions #27 & 28 in Analyze Real Cases on page 166 and answer the questions at the end.
#27: No the apartment is not a necessary when parents are providing other housing. Yes, Sheridan and Wilwerding can disaffirm.
#28: The Camaro is a non-necessary so Kevin can disaffirm. Because he is only obligated to five back that much of the consideration as he possesses, he could have retuned the wrecked Camaro and received back his whole $4, Because he received $1, for the wrecked Camaro, his refund was reduced by that amount and hre received $3,