Contractual Capacity

1
Chapter 7

• Contractual Capacity

2
Chapter Overview

• Reasons why a minor may disaffirm a contract
• How minority is determined
• How contracts between minors are treated
• Other reasons related to capacity that can make a
  contract voidable

3
The Opening Scene, pg. 145

• Alena
• Jake
• Arkadi
• Viktor
• Mr. Barenblatt
• When is a person considered a minor?
• Why does the law permit minors to void their
  contracts?
• Are there any exceptions to the rule that says
  that minors can void their contracts?
• What individuals, besides minors, can void their
  contracts?

4
Class Discussion

• Have any of you ever signed a contract?
• Can you name some of the protections afforded to
  minors who sign contracts?

5
Chapter 7, Section 1

• Contractual Capacity
• Capacity the legal ability to enter into a
  contract
• Minors dont have full capacity to contract
• Scope of Authority the range of acts authorized
  by an organization or individual
• Treasurer- Signs checks
• President- Can sign contracts
• Agent- Negotiate Contracts
• If you act outside your authority you can be held
  personally responsible!

6
Chapter 7, Section 1

• Contractual Capacity
• Rebuttable Presumption The law says people are
  permitted to presume the other party has the
  capacity to contract
• BUT, it can be challenged in court
  (Circumstances)
• Concept plays key role in contracts
• Especially ones made by minors
• Law permits minors to rescind or void their
  contracts within limits

7
Capacity to Contract

• Defined
• A person who has not yet reached the age of legal
  adulthood, known as the age of majority
• No age of majority, then they are considered a
  minor
• Commonly referred to as minority
• Minority doesnt end at age 18
• Anything as a minor, alters capacity

8
Capacity to Contract

• History
• In 1972, when the voting age was lowered from 21
  to 18 most states lowered the age of majority.
• Common acceptance of this idea means you turn the
  age of majority at the beginning of the day
  before your 18th birthday

9
Capacity to Contract

• Emancipated minors Some states have declared
  minors who are no longer under control of their
  parents are Emancipated.
• Basically means they are responsible for their
  contracts
• A minor who leaves home or marries, giving up all
  rights to parental support, is considered
  Emancipated

10
Capacity to Contract

• Emancipated minors Such individuals are said to
  have abandoned the protection afforded them as
  minors
• Most merchants are reluctant to deal with these
  minors fearing the shield of minority
• Charged as an Adult
• Formal emancipated minors
• All minors are held for torts.

11
Capacity to Contract

• Misrepresentation of age considered fraud and
  you can be held responsible
• To prevail all 5 elements of fraud must be
  present
• Some states allow minors to be sued for fraud,
  others dont
• Still considered a crime to lie about ones age
  to buy age restricted products-even PA

12
Protection of Minors

• Why should minors be protected by the law when it
  comes to contracts?
• Immaturity, inexperience, lack of education,
  naiveté

13
Protection of Minors

• Should an adult who permits minors to use their
  IDs to misrepresent their age also be held liable?

14
Web Quest Article Research

• Using the Internet find a specific article on
  Adults helping minors with fraudulent ID issues
  etc
• Printout article
• Read Article
• Be prepared to discuss your article

15
Contracts of Minors

• Voidable Contracts
• Example 1, pg. 151
• Opening Scene
• Jake, who is 16, attempts to disaffirm his
  contract with the Buy-a-heap used car lot.
• He gives a letter that states his intent to Mr.
  Barenblatt.
• Jake is a minor, and as a result, Buy-a-heap will
  have to comply with his request.

16
Contracts of Minors

• Second chance By permitting minors to have the
  privilege of disaffirming contracts the law
  provides young people with a way to fix poor
  judgment
• Done through dissaffirmance return of
  consideration/values
• Usually by both parties return
• Give back item
• Released contract

17
Contracts of Minors

• Disaffirming a Contract minors must disaffirm
  all or none of the contracts they engaged in.
• They may not be selective in what they disaffirm
• Generally, a person lacking contractual capacity
  can disaffirm a contract for non-necessaries
• any time while still under the incapacity
• within a reasonable time after attaining capacity
• Not banking or marriage contracts

18
Contracts of Minors

• Disaffirming a Contract All States deny minors
  that court approved contracts, enlistments
  contracts, and educational loans can be
  disaffirmed
• (Cant be done!)
• When the consideration by both parties has been
  given back, the contract is said to be disaffirmed

19
Contracts of Minors

• Return of Merchandise if the minor still has
  the merchandise, he or she will have to return it
• Even if the items contracted were damaged
• Tendered Offer of compensation
• Some states allow for deductions
• Minors have a reasonable amount of time after
  reaching majority to disaffirm their contracts
• Not in Armed Forces

20
Contracts of Minors (continued)

• Disaffirming Contracts Made with other Minors
  when two minors contract, both have the right to
  disaffirm
• Some states even allow minors to disaffirm real
  estate deals when they turn age of majority

21
Contracts of Minors (continued)

• Disaffirming Contracts Made with other Minors
  Example 2, pg. 153
• Rob, who is 15, offered to sell his mountain bike
  to Corey, who is 16. Corey initially agreed to
  buy it but then change his mind

22
Ratification of Minors Contracts

• Ratification
• After reaching the age of majority, a person can
  ratify contracts made during minority
• Can be by actions/behavior
• Ends privilege of minority
• Only upon reaching majority
• Done orally, in writing, or by actions
• Promise to perform as agreed
• Cant be revoked or withdrawn

23
Ratification of Minors Contracts

• Ratification
• Colleen bought car when she was 17 years old.
• She made a down payment
• Promised to pay balance over two years in
  installments
• After she reached 18, she continued to pay
• Her actions were considered ratification

24
Contracts for Necessaries

• Necessaries or Necessities Defined as Food,
  clothing, shelter, medical care
• Things need to maintain life----
• Example 3, pg. 156

25
Contracts for Necessaries

• A minor is held responsible for fair value of
  necessaries
• Necessaries are called necessities
• Under common law, ones station in life has a
  bearing on whether an item is a necessary
• Not the same for every person
• Example 150 pair of custom-made shoes may be
  considered necessary for someone with a foot
  injury
• In contrast, a designer pair would be considered
  a luxury

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Contracts that cannot be disaffirmed
All States

• (1) court-approved contracts
• (2) major commitments
• Armed services, education loans, marriage
  contracts
• (3) banking contracts
• (4) insurance contracts
• (5) work-related contracts
• Engaged in business or trade
• (6) sale of realty
• (7) apartment rental

Most States
Some States
27
Chapter 7 Work Packet

• Complete work packet for chapter 7

28
Web Quest Article Research

• Using the Internet find an article on minors
  voiding a contract, by being declared
  emancipated, or by being involved with other
  minors in a contract when its disaffirmed
• Printout article
• Read Article
• Be prepared to discuss

29
Capacity Situations that Might Disaffirm a
Contract

• Mental Impairment
• Intoxication
• Drug Use
• Alien Status
• Legal Age

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(No Transcript)
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Capacity Situations that Might Disaffirm a
Contract

• Mental Impairment
• Same rights given to minors
• Substantially, Does the person understand the
  consequences of actions?
• Considered unable to make sound judgments
• Before a guardian is appointed, any contracts are
  voidable for an mentally impaired person
• Held responsible for fair value of necessaries

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Capacity Situations that Might Disaffirm a
Contract

• Intoxication Drug Use
• Must be at the time they enter into contract
• Treated the same as mentally impaired or minors
• Must be so intoxicated they didnt understand the
  contracts
• Purpose
• Nature
• Effect

33
Capacity Situations that Might Disaffirm a
Contract

• Alien Status
• People who are living in this country but owe
  allegiance to another country
• Often give enemy status and denied certain legal
  protections
• Legal Age
• Majority vs. Minority

34
You Be The Judge!

• Joy and Raul woke up with severe headaches one
  morning after a night of partying and remembered
  they had married each other at an all-night
  wedding chapel.
• Joy wants to void the marriage immediately.
• Raul wants to stay married.
• Can Joy avoid her marriage contract?

35
You Be The Judge!

• To void a contract for this reason
• A person must have been so intoxicated at the
  time of the contracting that he or she did not
  understand the purpose, nature, or effect if the
  transaction
• The judge or jury must decide that question of
  intoxication
• Generally, you cant disaffirm marriage contracts
  (Pre-nuptial)

36
Youre the Judge

• Mary Robinson, a 17-year old high school
  graduate, applied to Ed Rice for a job and was
  hired on a one-year contract. Nothing was said
  about Robinsons age, but when Rice discovered
  she was only 17, he discharged her.
• Did Rice have a legal right to do this?
• No! An adult who contracts with a minor is
  usually bound by that contract!

37
Youre the Judge

• Patty Okari, 14, bought a video game at a store.
  A sign said No returns---All Sales Final After
  using the game for a week, she returned it to the
  store and asked for a refund. Is she legally
  entitled to a refund?
• Yes! Minors may return goods other than
  necessaries and get their money back. In a few
  states, an amount may be deducted if the goods
  are damaged or soiled.

38
Youre the Judge

• Ethel OConner bought a CD player on the day
  before her 18th birthday. That same day, she
  changed her mind and sought to return it and get
  her money back. She claimed that she could return
  the purchase because she was a minor. Was she
  correct?
• No! Persons reach majority at the beginning of
  the day before their 18th birthday.

39
Class Work

• Chapter 7 Packet Due _at_ Exam Time!
• Exam Next Class!