CAPACITY

1
CAPACITY

• The ability to incur legal obligations and
  acquire legal rights

2
What do you think?

• Pete is at Coachs, has several cocktails
• Pete sells Tom his Notre Dame ring for 15 so he
  can buy even more beer
• Next day Pete offers the 15 back for the ring
• Tom refuses, saying valid K
• Pete says he was intoxicated, and that K is
  voidable at his option
• Result? Why? Rule of law?

3
Contractual Capacity

• Third Element of a K
• The legal ability to enter into a K relationship
• Existence presumed
• ...more than just the physical ability to say
  Yes or shake hands or sign on the dotted
  line...
• Found lacking in 3 types of people

4
Look for CAPACITY problems

• Minors
• Persons suffering from mental illness or defect
• Intoxicated persons

5
But first...

• Review
• Void v. Voidable
• Executed v. Executory
• Important concepts
• Disaffirmance
• Ratification
• Restitution
• Necessaries
• Fraud (next chapter)

6
DISAFFIRMANCE

• Affirm validate, confirm, state positively
• In K parlance the right to avoid a K
• personal to the person with the power, or her
  representative
• No special form needed... words or conduct
  enough... simply act inconsistently with duties
  under K

7
Disaffirmance

• When?
• at any time during minority
• reasonable time after attaining majority
• limited by statute in some states
• e.g., student loan payments, med care, etc.

8
Disaffirmance

• What about the stuff?
• Majority Rule simply return the goods, whatever
  their condition
• Minority (fewer number of states) Rule duty of
  restitution (Dodson v. Shrader, p. 240)
• return the other party to the status quo
• minor gets her consideration back
• sometimes even if already transferred to another
  party... but note UCC exception for a BFP
• Duty of restitution, while minority view, growing
  in acceptance...

9
Minors

• Legal Infants
• Common law 21 years of age
• Ratification of 21st Amendment led to reduction
  in many states... but
• retained in almost all for the purchase of
  alcohol
• For contracting purposes, 18

10
Hertz, Avis, National, Budget?

• Why can they discriminate against minors?
  ...against those of majority age?
• Can they discriminate against senior citizens?
• Age Discrimination?

11
Minors

• Presumption of legal competency to enter into K
  with just about everyone... except minors
• minors dont have to prove lack of competency
• other classes (mental impairment, intoxicated
  individuals) may have to be able to show lack of
  competency...

12
K with a Minor?

• Voidable at option of minor
• Regardless of whether executed or executory
• Wait a minute.... can I just walk away from a
  deal....?
• buy the car, total it, claim minor status and
  renege on payments?

13
K with a Minor - Fully Executory

• K to sell Honda to a Freshmen who isnt quite 18
  yet
• Promises exchanged... 10,500 in cash --
  possession of car
• But neither party has delivered, only a signed
  writing indicating intention
• Easy... deal canceled by disaffirmance

14
K with a Minor - Partially Executed

• Agreement to purchase Honda... car transferred,
  down payment made plus installments
• Parents find out, seek to have K rescinded
• Rescission not technically possible (why?),
• disaffirmance?

15
Return of Consideration...

• Upon disaffirmance
• minors are entitled to the return of any
  consideration that they have given to the
  adult...
• in return, minors are obligated to return any
  consideration given by the adult that they have
  in their possession...
• note important exception...

16
Honda Totaled

• Frank Freshman cant return, because it wont
  even roll downhill
• can he still disaffirm?
• does he have to pay?
• after all, Im out my Honda and !
• Most states
• allow Frank Freshman to disaffirm
• no obligation to pay

17
Honda Totaled

• Rationale for no requirement to pay up for lost,
  damaged or consumed consideration?
• Note some states require minor to put the adult
  back to the status quo.... i.e., as if the K had
  never come into existence
• what is this called?

18
Exceptions to the Rule...

• Necessaries
• obligation to pay for reasonable value of these
  items
• essential for minors continued existence and
  general welfare... and not already provided by
  parent
• e.g., food, shelter, medical care, clothes, tools
  of trade, basic education
• look to facts of case and age, station in life,
  personal circumstances

19
Webster Street Partnership v. Sheridan

• What are necessaries?
• flexible, varies according to the facts of each
  case...
• Articles are not necessaries if...
• parent is able and willing to provide
• In this case, could Sheridan could go home at any
  time?...
• look to testimony

20
Sheridans Testimony

• Q During the time that you were living there
  did you at any time, feel free to home or
  anything like that?
• A Well, I had a feeling I could, but I just
  wanted to see if I could make it on my own.
• Q Had you been driven from your home?
• A No.
• Q You didnt have to go?
• A No.

21
How about Mr. Mrs. Sheridan?

• Why not hit them up for the ?
• generally, parents arent responsible for the Ks
  that their children enter into
• but will be liable for the value of necessaries
  provided
• Businesses usually protect themselves by doing
  what?

22
RATIFICATION

• The right of a minor to disaffirm doesnt last
  forever...
• Intention to be bound by K after reaching
  majority makes power to disaffirm disappear...
• Ratification makes the K valid from its inception

23
Requirements for Ratification

• How does a minor ratify?
• Words or actions?
• Express or Implied?
• continued use and/or payment are inconsistent
  with disaffirmance
• What is a reasonable amount of time?
• E.g. Bobby Floars Toyota v. Smith

24
Bobby Floars Toyota v. Smith

• Issue is voluntary relinquishment ten months
  after attaining majority a timely disaffirmance?
• Look to particulars
• automobile that is constantly depreciating
• continued to possess, operate, and make payments
• acceptance of benefits ratification

25
But he had an ID...

• Misrepresentation of age
• No uniform rule
• Majority minor can still disaffirm
• theory cant acquire capacity just by saying you
  have it...
• Some minors who misrepresent are estopped from
  asserting infancy as a defense
• Tort action against minor a possibility

26
But his parents kicked him out

• Emancipated Minors Married Minors
• Minority status may be terminated by emancipation
  
• termination of a parents right to control a
  child
• no formal requirements
• implied or express consent of parents
• Minority status may also be terminated by
  marriage.

27
INTOXICATED PERSONS

• i.e., youre drunk
• do you have mental capacity to
• comprehend the legal consequences of
• entering into the K?
• If not, K is voidable at option of the
  intoxicated party
• Disaffirm while still intoxicated or reasonable
  time thereafter...restitution

28
Intoxicated Persons

• How does the court determine how intoxicated a
  person was?
• causes problems, so
• look at the deal itself
• reasonable people, objective criteria
• Note this just isnt a real good defense to the
  formation of a K

29
Problem 13-1

• What does Kira have to prove?
• was she intoxicated at the time of the sale
• We dont have results of a blood test, so what
  will the court use to make a determination?

30
Mentally Incompetent

• Adjudged Mentally Incompetent?
• K is void
• Lack mental capacity to comprehend subject
  matter, nature and consequences?
• K is voidable
• Disaffirmance rules... similar to intox