Chapter 9
Legal Capacity To
Contract
Section 1
Capacity of Individuals
and Organizations
Contractual Capacity
ability to understand
the consequences of a
contract
*Note.
Definition does NOT
require that a person
understand the actual terms
of the contract which may
be written in technical legal
terminology.
People who Lack Contractual
Capacity
minors
Mentally
ill
Under the
influence
(drugs/alcohol)
Age of Majority
Age at which you can be legally
bound to contracts
The age of majority is most states is
18
Person who has not yet reached the
age of majority is a minor. Being
a part of the minority ends the
day before your birthday.
People who lack capacity,
their contracts are
voidable.
Disaffirmance : In contract
law, it means a refusal to
be bound by a previous
legal agreement.
Dissafirmance Example
Assume a protected party (minor)
bought a car from a dealership and
wrecked it. The minor could
disaffirm the contract and recover
any payments made. The dealership
would only be able to get back the
destroyed car.
The problem with giving minors
the ability to disaffirm (refuse to
be bound) a contract and get back
what they had given to the other
party is that no one will want to
contract with them.
As a consequence, another
protection was afforded those who
lack capacity. This is known as…
Things needed
to maintain life:
•Food
•Shelter
•Clothing
When a minor becomes of age,
they may be able to disaffirm a
contract for a reasonable
length of time.
*Note. Ratification can NEVER
occur before the age of majority.
Ratification Example
You are 17 and buy a car from your friend
who is 21. Two months later, you turn 18 and
decided to disaffirm your contract for the car.
However after you turned 18 you continued to
make two additional payments on the car.
Therefore, because you ratified the contract
even after you became of age, you are bound
to the agreement.
Minors are also bound to their
contracts if they are EMANCIPATED.
Formal Emancipation
You become of age
Informal Emancipation
You are not of age, but childparent relationship is cut-off
Evidence of Informal
Emancipation
• Parent and minor agree that the
parent will cease support
• Minor marries
• Minor moves out
• Minor joins the armed forces
• Minor undertakes full employment
• Minor gives birth
***States
vary in treatment of
emancipated minors
Definition: A person lacks
the ability to understand
the consequences of
his/her contractual acts.
Intoxication
Alcohol
Drugs
Inhaling products
*glue or aerosols
People who work for a company
that are given the authority to
bind the organization to
contracts.
Alicia sells flowers. Her friend Tiara
worked for a grocery store as a cashier.
One day Alicia stopped by during Tiara’s
break and asked if she could sell flowers
through the grocery store. Tiara said
yes and signed a contract to purchase 10
dozen roses for the store. When Alicia
tried to deliver the roses, they were
refused by the store’s manager and
Alicia sued.
Is the store bound by Tiara’s contract?
Section 2
Limits on the Rights of
Those Without Capacity
GOALS
• Recognize the time frame during which
a contract can be disaffirmed.
• Identify contracts that CANNOT be
disaffirmed.
• Discuss the effects of
misrepresentation of age on contracts.
While still a minor, Bob bought a
stereo system on credit from Best
Buy for $500. Bob paid $100
down and promised to pay $50 a
month on the unpaid balance until
the debt was paid off. After
making four payments, two of
which were made after he reached
the age of majority, Bob decided
to disaffirm the contract and
return the equipment.
Can Bob do so?
Generally, people lacking contractual
capacity can disaffirm a contract for
goods or services that are not
necessaries
1. Any time while still under the
incapacity, or
2. Within a reasonable time after
attaining capacity.
After attaining capacity, a person may
ratify the contract made while under
an incapacity.
For a minor, ratification must occur
after achieving majority.
Ratification must consist of either of the
following:
1.Giving a new promise to perform as agreed
2.Any act (such as making payments to the
seller)
Disaffirmance and Loss of Value
In most states, if minors are unable to
return exactly what was received under
the contract, they can still get
everything they gave.
• Damaged goods
• Lost, consumed, or destroyed goods
In some states, however, a
minor must return
everything in same
condition it was received.
If the minor can’t, then the
minor has to pay the
difference.
Contracts that CANNOT be
Dissafirmed
•
•
•
•
•
Court-approved contracts
Major commitments (join army)
Banking contracts (making deposit)
Insurance contracts (life insurance)
Work-related contracts (buying job
equipment)
• Sale of realty (buying a house)
• Apartment rental (Signing a Lease)
Ron, a mature looking minor, lied about
his age when buying $700 worth of
clothes at Fresh Wear. He used his
older brother’s driver’s license as his
identification and his name when
signing the contract. Three months
later, Ron had paid $375 on the $700
contract. He became bored with the
clothes and returned it to the store and
demanded the his $375 back.
Must the store return his money?
Minors are liable for their torts
and delinquent or criminal
conduct that comes out of a
contractual transaction,
although typically they still have
the right to disaffirm their
contracts.