Name ______________________________________Date __________Class _______________
LESSON 9-1 CONTRACTUAL CAPACITY OF INDIVIDUALS AND ORGANIZATIONS
Lesson 9-1 Outline
I.
What is Capacity?
A. Protections for Those Who Lack Capacity
B. Minors
C. Those Mentally Incapacitated
D. The Intoxicated
II.
Who Has Contractual Capacity in Organizations?
Lesson 9-1 Review
Vocabulary Review
Define the following vocabulary terms.
1. contractual capacity
meaning.
2. age of majority
3. minor
The ability to understand that a contract is being made and its general
The age at which a person can be legally bound to contracts.
A person who has not reached the age of majority, which is usually 18.
4. disaffirmance
Ending a contract when both parties give back the consideration.
5. necessaries
Things needed to maintain life and lifestyle.
6. ratification
Acting toward a contract as though one intends to be bound by it.
7. emancipation
The severing of the child-parent relationship.
8. mental incapacity
9. intoxication
Not having the ability to understand the consequences of contractual acts
Mental impairment caused by voluntary use of alcohol, drugs, or inhalants.
10. scope of authority
Within the range of acts an organization has authorized a party to do.
Chapter 9 Legal Capacity to Contract
51
Lesson 9-1 Review (continued)
Concept Review
11. Why are some parties protected with special contractual rights?
A contract requires an offer, acceptance, mutual assent, and consideration. The law protects
certain parties (minors, the mentally incapacitated, and the intoxicated), because they are
assumed not to have contractual capacity, the ability to understand that a contract is being
made and its general meaning. Therefore, they cannot reasonably assent to a contract. The
law assumes that these protected parties cannot protect their self-interests.
12. Why do both vendors and employees of an organization need to be concerned with scope of
authority?
Scope of authority defines what kinds of contracts an employee or associate is authorized to
make for the organization. A vendor should be certain the employee has the authority to
make the contract, as it will not be valid if the employee does not have such authority. The
employee also should be aware of the scope of authority because the employee may be held
personally responsible for the consideration in the contract if he or she makes it outside the
scope of authority.
Goals Review
13. Identify parties who have contractual capacity.
Everyone has contractual capacity except minors, mentally incapacitated persons, and
intoxicated persons.
14. What is the role of capacity in organizations?
Capacity in an organization refers to what an employee or associate is authorized to
contract for in the name of the organization. An employee or associate cannot enter a valid
contract for some consideration beyond his or her capacity. Nor can the association be held
responsible for such a contract if the employee or associate enters it.
52
Copyright © Thomson/South-Western Publishing
Name ______________________________________Date __________Class _______________
LESSON 9-2 LIMITS ON THE RIGHTS OF THOSE WITHOUT CAPACITY
Lesson 9-2 Outline
I.
When Can Disaffirmance Occur and What Must be Done at That tine?
A. What Must be Done upon Disaffirmance?
1. Loss of Value
2. Obligations of Party With Capacity
II. Contracts That Cannot Be Disaffirmed
A. Court-Approved Contracts
B. Major Commitments
C. Banking Contracts
D. Insurance Contracts
E. Work-Related Contracts
G. Sale of Realty
H. Apartment Rental
III.
Contractual Effect of Misrepresenting Age
Chapter 9 Legal Capacity to Contract
53
Lesson 9-2 Review
Concept Review
1. When can a person lacking contractual capacity disaffirm a contract for necessaries, goods, or
services?
A person lacking contractual capacity can disaffirm a contract for necessaries, goods, or
services (1) any time while still under the incapacity, or (2) within a reasonable time after
attaining capacity.
2. What are some of the contracts that minors can make for goods or services that are not
necessaries that cannot be disaffirmed?
(1) court-approved contracts (2) major commitments (3) banking contracts (4) insurance
contracts (5) work-related contracts (6) sale of realty (7) apartment rental.
3. What are the consequences if a minor lies about his or her age when affirming a contract
A minor who lies about his or her age when affirming a contract can still be held liable for
torts or delinquent or criminal behavior arising from a contractual transaction. They still
have the right to disaffirm their contract, however, the other party to the contract may
collect from a minor any damages suffered because of the minor’s fraud even though the
minor may be able to disaffirm the contract.
Concept Review
4.
Identify the time when a contract can or cannot be disaffirmed.
Disaffirmance can occur at any time until capacity is gained or regained. It also can occur
during a reasonable period of time beyond the attaining of capacity to allow the person in
question to review her or his contracts to see which ones to ratify and which to disaffirm.
5.
Identify contracts that cannot be disaffirmed.
Minors cannot disaffirm court-approved contracts or major commitments. In most states
banking, insurance, and work-related contracts cannot be disaffirmed. In some states the
sale of realty and apartment rental contracts cannot be disaffirmed. The states also are
uniform in disallowing disaffirmance of court-approved contracts and major commitments
such as enlisting in the armed services, contracting for education loans, and marriage
contracts.
6.
What are the consequences of a minor misrepresenting his or her age?
A minor who misrepresents age may be liable for a tort of false representation and although
still having capacity rights to disaffirm a contract may also be liable for damages in the tort.
54
Copyright © Thomson/South-Western Publishing