1. 14-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2. 14-2 3 Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent Contracts P A R T

3. 14-3 3 Capacity to Contract Illegality Writing Rights of Third Parties Performance and Remedies Contracts P A R T

4. 14-4 Capacity to Contract PA E TR HC 14 No brilliance is needed in the law. Nothing but common sense, and relatively clean fingernails. John Mortimer

5. 14-5 Learning Objectives Explain concept of capacity List the classes of persons without capacity and the effect on a contract Describe the rights to disaffirm or ratify and duties of disaffirmance

6. 14-6 A person must have the ability to give consent before he can be legally bound to an agreement, thus capacity is the ability to incur legal obligations and acquire legal rights Definition

7. 14-7 Groups lacking capacity: –Minors –Those suffering a mental disability –Those who are intoxicated Effect -- a person who contracts without the requisite capacity may avoid the contract at his/her option The Lack of Capacity

8. 14-8 Right to avoid a contract is disaffirmance –Only the minor may avoid the contract Example of disaffirmance: –Woodman v. Kera LLC: Parent or guardian cannot contractually bind a minor ward. If minor wants to affirm the contract, adult party must perform Minor’s Right to Disaffirm

9. 14-9 Minors may not avoid contracts if statutory exception exists –Marriage, educational loans, insurance Emancipation of minor from parents does not give minor capacity to contract Minor’s power to avoid contracts does not end on day he/she reaches age of majority, but continues for reasonable time thereafter Details About Disaffirmance

10. 14-10 Ratification occurs when a person who reaches majority indicates that he/she intends to be bound by a contract made while still a minor –May be express or implied by conduct Ratification Joining ROTC during high school indicates intent to serve in the military as an adult

11. 14-11 Each party has duty to return to the other any consideration (money, goods) that the other has given If the consideration given by the adult has been lost, damaged, destroyed, or depreciated in value, courts are split on whether the minor party must make restitution to the adult party Duties Upon Disaffirmance

12. 14-12 Disaffirming minors are required to pay reasonable value for necessaries (required for survival) furnished to them –Quasi-contractual theory Example: Young v. Weaver –Was the apartment really a necessity for Young? Duties Upon Disaffirmance

13. 14-13 Like minors, people who suffer from a mental illness or defect are disadvantaged in their ability to protect their interests in the bargaining process, thus contract law makes their contracts void or voidable Test: Did the person have sufficient mental capacity to understand the nature and effect of the contract? Capacity & Mental Impairment

14. 14-14 If a contract is voidable due to mental impairment, the person may: –Disaffirm the contract –Once he/she regains capacity, ratify the contract Upon disaffirmance, consideration must be returned and the person is liable for reasonable value of any necessaries Right to Disaffirm or Ratify

15. 14-15 Intoxication is a ground for lack of capacity only when it is so extreme that the person is unable to understand the nature of the bargaining process Note: courts are not sympathetic! Contracts of Intoxicated Persons

16. 14-16 Thought Question The requirement of capacity is rooted in ancient law. Should the law continue to protect minors and intoxicated persons? Why or why not?