Legal Capacity to Contract. What is Capacity Contractual Capacity – Ability to understand the...
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Transcript of Legal Capacity to Contract. What is Capacity Contractual Capacity – Ability to understand the...
BUSINESS LAW: CH 9
Legal Capacity to Contract
What is Capacity
Contractual Capacity – Ability to understand the consequences of a contractDoes not require that a person understand
the actual terms of the contract
Lack Some Capacity
Three groups lacking some capacity
1. Minors
2. Intoxicated
3. Mentally Impaired
Minors
Minors – Under the age of majorityIn Ohio the age of majority is 18Ends the day before the birthday of
the age
Protecting those lacking capacity Contracts of those lacking capacity are
voidableDisaffirmance – Protection granted to those
lacking capacity○ In contract law it means a refusal to be bound
by a previous legal commitment○ When a protected party disaffirms a contract,
by law the protected party is to receive whatever they have put into the contract
- The other party may or may not get back their consideration
Disaffirm
Example – A protected party bought a four-wheel ATV from a dealership and then wrecked it. You can disaffirm the contract and recover any payments made.The dealership would only be able to
recover the damaged ATV
Necessities
Necessities – things needed to maintain lifeThe protected must at least pay a
reasonable value for the necessities even if they disaffirm the actual purchase contract
Minors
Contracts are considered voidable (may get out of)
May also disaffirm for a reasonable length of time after achieving the age of majority.
After majority, the power to disaffirm is immediately cut off if you ratify the contract
Minors also may find themselves bound to their contract if they are Emancipated
Emancipated
Emancipated – Severing the parent-child relationshipEnds the duty of the parent to support a
child and the duty of the child to obey their parent
Upon reaching the age of majority you are emancipated
Emancipated
Formal emancipationCourt decrees the minor emancipated
Informal emancipatedArises from the conduct of the parent and
minor
Informal Emancipated
The parent and minor agree 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 gives birth The minor undertakes full-time
employment
Mentally Incapacitated
Mentally Incapacitated - A person lacks the ability to understand the consequences of his or her contract
If permanently Insane – Contract is Void Temporary Insane – Contract is Voidable
Intoxicated
Does the person have the ability to understand the consequences
Courts typically allow disaffirmance only for those who are so temporarily intoxicated that they do not even know they are contractingStricter because intoxication is a voluntary act
If a person is in a permanent state of intoxication – Contract is void
Who has contractual capacity in organizations Scope of Authority – has capacity to
contract People acting outside the scope of
authority, are personally liable when the organization isn’t
9-1 Assessment
Turn to page 161 and complete the 9-1 Assessment Questions
9-1 Assessment
1. False
2. True
3. B
4. B
5. False
6. True
9-1 Assessment
7. Probably not. Clare purchased necessaries so she cannot disaffirm. If she paid more than the reasonable value, she would receive the excess back.
8. No. Courts do allow a reasonable period of time after entering majority to evaluate the contracts made during minority. However, five months is far too long. Making her monthly payments beyond a month or two would be ratification.
When can disaffirmance occur
Disaffirmance – can happen:1. Any time still under the incapacity
2. Within a reasonable time after attaining capacity
After attaining capacity, a person can ratify their contract
Ratification – Action by the party indicating intent to be bound by the contract
Ratification
For a minor, ratification must occur after achieving majority.
Ratification may consist of:1. Giving a new promise to perform as
agreed
2. Any act (such as making a payment) that clearly indicates the party’s intention to be bound
What must be done upon disaffirming When a minor disaffirms, anything of
value the minor received and still has must be returned.
The minor is entitled to get back everything that was given to the other party.
Contracts that cannot be disaffirmed Court approved contracts Major commitments – armed services,
educational loans Banking contract Insurance Contracts Work Related Contracts Sales of Realty Apartment rental
Misrepresenting Age
Minors who lie about their age may disaffirm contracts
However, they are liable for the tort of false representation
9-2 Assessment
Turn to page 165 and complete the 8 questions