Law of Capacity

1
Law of Capacity
CHAPTER 10

• 10-1 Capacity Rights
• 10-2 Limitations on Capacity Rights

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Capacity Rights
LESSON 10-1

• Identify parties who have contractual capacity
• Identify what contracts can be disaffirmed
• Explain the role of capacity in organizations

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WHAT IS CAPACITY?

• Contractual capacity is the ability to understand
  that a contract is being made and its general
  meaning.
• You possess the
• A-B-I-L-I-T-Y to understand

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WHAT IS CAPACITY?

• Person doesnt have to understand the actual
  terms (written in technical legal terminology)
• Person does not need to merely understand the
  terms

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Parties with special contractual rights

• All of these parties are incapacitated
• Minors / intoxicated / mentally incapacitated

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Protections for those who lack capacity

• Contracts of most parties who lack capacity are
  considered voidable.
• D I S A F F I R M A N C E refusal to be bound
  by a previous legal commitment

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Disaffirmance

• Protected party disaffirms contract ? receives
  back whatever they have put into the contract
• Other party may or may not get back their
  consideration

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Disaffirmance

• i.e. minor buys an ATV from a dealership and then
  wrecks it.
• Minor could disaffirm contract and recover any
  payments made.
• Dealership could only recover the damaged ATV

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Problems with contracting

• Legal ability to disaffirm a contract
• Ability to get back whatever had been given to
  the other party
• Reluctance to enter into contracts with
  incapacitated persons

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Another protection --

• Applies when protected parties purchase things
  classified as necessaries
• Things needed to maintain life typically food,
  clothing, and shelter
• Must pay a reasonable value even if contract is
  disaffirmed

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Necessaries

• Minor buys a 5,000. fur coat
• Disaffirms contract
• Required to pay ???
• Good cloth coat 200-300 for fur coat if she
  chose to keep it
• Punishment to seller for taking advantage of
  minors in contractual dealings

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MINORS

• In most states, people under the age of 18
• In a few states, age of majority is 19 or 21
• Also referred to as being in their minority or
  under the age of majority
• Ends the day before the birthday of the age set
  as the age of majority

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Minors

• Contracts are considered voidable
• May disaffirm contracts during their minority
• May also disaffirm for a reasonable length of
  time after achieving their majority

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Age of Majority

• After the age of majority, the power to disaffirm
  is immediately cut off if the person ratifies the
  contract
• Ratification acting toward the contract as
  though one intends to be bound by it
• ? Can never occur before the age of majority

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EMANCIPATION

• Emancipation is the severing of the child-parent
  relationship.
• Early emancipation
• Formal emancipation occurs when a court decrees
  the minor emancipated.
• Informal emancipation arises from the conduct of
  the minor and the parent.

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EVIDENCE OF INFORMAL EMANCIPATION

• The parent and minor agree that the parent will
  cease support
• The minor marries
• The minor moves out of the family home
• The minor joins the armed forces
• The minor gives birth
• The minor undertakes full-time employment

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New Jersey

• Termination of support at age of majority or as
  determined by court Newburgh v. Newburgh, 88 N.J.
  529, 443 A.2d 1031 (1982) held that the court has
  jurisdiction to award a payment of support and
  expenses of a child attending college even though
  the child has reached the age of majority.

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MENTAL INCAPACITY

• Mental incapacity is much less precisely defined
  than minority.
• The test is whether the party understands the
  consequences of his or her contractual acts.

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INTOXICATION

• Intoxication can arise from using alcohol, from
  using drugs, or inhaling products such as glue or
  aerosols.
• Many courts are reluctant to allow disaffirmance
  for intoxication when it may injure another.
• Stricter standard because intoxication is a
  voluntary act

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Temporarily Intoxicated

• Being so under the influence of alcohol or drugs
  that you do not even know that you are entering a
  contract

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Permanently Intoxicated

• Being unable to turn down a drink or drug
  whenever offered
• Often referred to as habitual drunkard in
  several states
• Contracts are considered void

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WHICH CONTRACTS CAN BE DISAFFIRMED?

• Necessaries are goods and services that are
  reasonably required to maintain a persons
  lifestyle.
• Non-necessaries are all other goods and services
  or relative luxuries.

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CAPACITY RIGHTS

• Necessaries
• Non-necessaries
• Disaffirmance
• Ratification

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CAPACITY IN ORGANIZATIONS

• Some people who work for organizations have the
  capacity to bind the organizations to contracts.
• Capacity to contract can be created when the
  employer tells an employee that he or she is
  authorized to bind the organization.
• Capacity to contract can be created when an
  organization leads others to believe that a
  person has certain authority.

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CAPACITY IN ORGANIZATIONS

• If someone has this capacity, it is said to be
  within his or her scope of authority

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Limitations on Capacity Rights
LESSON 10-2

• Identify the time when a contract cannot be
  disaffirmed
• Identify contracts that cannot be disaffirmed
• Explain the consequences of misrepresenting age

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TIME OF DISAFFIRMANCE

• Any time while still under the incapacity
  (necessaries goods or services that are not
  necessaries)
• Within a reasonable time after attaining capacity

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RATIFICATION

• Ratification may consist of either of the
  following

• Giving a new promise to perform as agreed
• Any act (such as making payments to the seller)
  that clearly indicates the partys intention to
  be bound

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Whats your verdict?

• Beach (minor) bought stereo system on credit from
  McReams Electronic Cloud for 500
• Beach paid 100 down - 50/mo. payments
  afterwards
• After making 4 payments (2 while minor, 2 while
  majority) wants to disaffirm
• Can he do so?

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Whats your verdict?

• No -- Beach ratified the contract by making
  payments after reaching majority
• Once ratification occurs, it cannot be withdrawn

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• Rights of Minors in Contracts for Goods and
  Services that are Not Necessaries

Time Majority or Capacity Attained
TIME
TIME
Period of Minority
Period of Majority
Right to disaffirm
Right to disaffirm lasts For a reasonable length
of time after majority is ottained
Ratification cuts off the right to disaffirm
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What must be done upon disaffirmance

• Minor disaffirms
• ? anything of value minor received and still has,
  must be returned
• ? can return used or damaged goods
• Minor then entitled to get back everything that
  was given to the other party

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RETURN OF GOODSOR SERVICES

• Loss of value
• Minor can return nothing because goods have been
  lost, consumed or destroyed
• In some states, minor must return everything in a
  condition as good as it was when received
• If this cannot be done, must pay the difference
  in value, or deduct the difference from the
  amount to be refunded

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• Lamon (minor) buys diamond engagement ring
  necklace for finacee, Morgan
• Weekly installments ? 10
• 18 quarreled and Morgan returns ring but not
  necklace
• Can Lamon return ring necklace and receive a
  full refund?

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In some states --

• Morgan legally keep necklace
• Lamon could return the ring and demand refund
  for monies paid for necklace ring
• most certainly entitled to money paid on ring (
  and in some states necklace)
• Why? Necklace is no longer in his possession

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RETURN OF GOODSOR SERVICES

• Obligations of party with capacity
• Cannot enforce nor avoid all or any part of a
  contract for goods or services that are not
  necessaries

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WHAT CONTRACTS CANNOT BE DISAFFIRMED?

• Court-approved contracts minors working as
  actors/actresses, professional sports
• Major commitments enlisting in armed services /
  educational loans / marriage
• Banking contracts make deposits withdrawals
• Insurance contracts over ½ states do not allow
  minors to disaffirm

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• Work-related contracts minors who engage in
  business or trade
• Sale of realty cannot disaffirm until after
  achieving majority
• Apartment rental a few states will not allow
  the minor to disaffirm, even if its not a
  necessary

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MISREPRESENTING YOUR AGE

• In most states minors who lie about their age may
  disaffirm their contracts.
• In these states, a minor who gives a false age
  may be held liable for the tort of false
  identification