A person must have the ability to give consent before he can be legally bound to an agreement, thus

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Definition

• 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

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The Lack of Capacity

• 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

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Minors Right to Disaffirm

• Right to avoid a contract is disaffirmance
• Only the minor may avoid the contract
• Example of disaffirmance
• Stroupes v. The Finish Line, Inc.
• Court ruled that a minors employment contracts,
  including arbitration agreements, were voidable
  by the minor
• If minor wants to affirm the contract, adult
  party must perform

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Details About Disaffirmance

• Minors may not avoid contracts if statutory
  exception exists
• Marriage, educational loans, insurance
• Fact that a minor is emancipated (independent
  from parents) does not give minor capacity to
  contract

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Details About Disaffirmance

• An exculpatory clause (e.g., liability waiver)
  signed by a parent does not necessarily waive the
  minors rights
• See Creech v. Melnik
• Minors power to avoid contracts does not end on
  day he/she reaches the age of majority, but
  continues for a reasonable period of time
  afterwards

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Ratification

• 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

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Duties Upon Disaffirmance

• 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

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Dodson v. Shrader

• Facts Procedural History
• Dodson, age 16, bought a truck from the Shraders
• Dodson drove truck until engine ruined
• Dodson contacted Shraders to obtain full refund,
  which they refused to make
• Dodson filed suit
• Shraders argued for difference between present
  value of truck (500) and purchase price (4900)
• Trial court found for Dodson and full refund

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Dodson v. Shrader

• Issue Ruling
• Must Dodson make restitution?
• Purpose of infancy doctrine is protect minors
  from their own lack of judgment
• Should not work hardship on innocent merchant
• Benefit Rule holds that, upon rescission,
  recovery of the full purchase price is subject to
  a deduction for the minors use of the
  merchandise
• Reversed and remanded in favor of the Shraders

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Duties Upon Disaffirmance

• Disaffirming minors are required to pay
  reasonable value for necessities (required for
  survival) furnished to them
• Underlying theory is quasi-contractual
• Example Young v. Weaver
• Was the apartment really a necessity for Young?

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Capacity Mental Impairment

• 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?

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Right to Disaffirm or Ratify

• 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

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Contracts of Intoxicated Persons

• 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!

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