Section 7.1 Contractual Capacity
What You’ll Learn
How to explain the legal concept of minority
How to identify the rights of minors in relation
to contracts
How to identify contracts that are voidable by a
minor
How a person can ratify a contract made in
minority
How to identify others, besides minors, who
can rescind contracts
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Why It’s Important
Understanding the rights afforded to minors
in contract law will enable you to exercise
your rights and help others.
Pre-Learning Question
What is capacity?
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
capacity (p. 147)
Legal Terms
rebuttable presumption (p. 147)
majority (p. 148)
minor/minority (p. 148)
emancipated (p. 148)
abandoned (p. 148)
ratify (p. 154)
necessaries (p. 156)
guardian (p. 157)
aliens (p. 157)
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Section Outline
The Requirement of Capacity
Minor’s Rights and Obligations
Definition of Minority
Misrepresentation of Age
Contracts of Minors
Voidable Contracts Ratification of Minors’ Contracts
Contracts for Necessaries Special Statutory Rules
Other Contractual Capacity Rules
Mentally Impaired Persons Intoxicated Persons
Other Capacity Limitations
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
The Requirement of Capacity
Capacity, one of the six elements
of a contract, is the legal ability to
enter a contract.
Capacity relates directly to the
involvement of minors in contracts.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Minor’s Rights and Obligations
When people enter into contracts,
they are permitted by law to presume
that the other party or parties have the
capacity to contract.
This presumption, known as a
rebuttable presumption, can be
challenged in court.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Minor’s Rights and Obligations
The presumption of capacity plays a key role
in contracts made by minors because the law
permits minors, within certain limits, to
rescind or void their contracts.
The court has established specific
standards regarding who is considered a
minor and what the term minority means.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Pre-Learning Question
How would you define a minor?
Why would the contracts of minors be
different from the contracts of adults?
What other classes of persons may be
able to avoid contracts? Why?
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Definition of Minority
The age of legal adulthood is known
as the age of majority.
A person who has not yet reached
majority is considered a minor and
is still in his or her minority.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Legal Age
1972 - voting age was lowered from 21 to 18.
- Many states lowered age of majority from 21 to 18.
For years the age of majority was also the age at a
person could begin to buy alcoholic beverages.
Now - the age of majority is 18 nationwide
- Most states have raised legal drinking age to 21.
For legal purposes, people turn 18 at the
beginning of the day before their 18th birthday.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Emancipation and Abandonment
Some states have declared that minors who
are no longer under the control of their parents
are emancipated.
This means they are responsible for their
contracts.
A minor who marries or leaves home, giving up all
rights to parental support, is considered
emancipated and is said to have abandoned the
protection afforded him or her as a minor.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Misrepresentation of Age
If a minor claims to be over the age
of majority, then he or she has
committed fraud.
Fraud is a wrongful act, and minors
are responsible for their wrongful
acts.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Misrepresentation of Age
Some states allow the other party to sue
a minor who has misrepresented his or
her age for fraud. Other states do not.
However, it is illegal to lie about your
age in order to buy age-restricted
products, such as alcohol.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Contracts of Minors
The law shields minors when they
make contracts to protect them from
unscrupulous adults. Minors may be
vulnerable because of
Immaturity
Inexperience
Understanding Business and Personal Law
Lack of education
Naïveté
Capacity to Contract
Section 7.1 Contractual Capacity
Voidable Contracts
Contracts made by minors are
voidable by the minor.
This means that minors may disaffirm,
or avoid, their contracts if they so
choose.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Voidable Contracts
To disaffirm a contract means to show the
intent not to live up to the contract by a
statement or some other act.
By permitting minors to have the privilege
of disaffirming contracts, the law provides
young people with a second chance
when they use poor judgment.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Returning the Merchandise
If a minor still has the merchandise he
or she received upon entering a
contract, that merchandise must be
returned when the contract is
disaffirmed.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Disaffirming the Whole Contract
A minor may not affirm parts of a contract
that are favorable and disaffirm the
unfavorable parts.
Disaffirming Contracts Made
with Other Minors
When two minors enter into a contract with
each other, both parties have the right to
disaffirm the contract.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Ratification of Minors’ Contracts
After reaching the age of majority, a
person can ratify, or approve,
contracts made during minority.
Understanding Business and Personal Law
Capacity to Contract
7.1
Section
7.1 Contractual Capacity
Offer
1
Ratification
A business advertisement in
a newspaper can constitute
an offer of sale, even if the
advertisement is aimed
toward minors.
Acceptance
2
If a minor agrees to the
terms of an offer, then a
voidable contract is created.
Reaching Majority
3
When a minor reaches the
age of majority, his or her
contracts can be ratified.
Understanding Business and Personal Law
Ratification
4
Using or selling an item
obtained by contract for a
reasonable time after
reaching the age of majority
has the effect of ratifying
the contract. Ratification
can also be accomplished
orally or in writing.
Capacity to Contract
Section 7.1 Contractual Capacity
Contracts for Necessaries
A minor is held responsible for the
fair value of necessaries.
Necessaries, or necessities,
include food, clothing, shelter, and
medical care.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Special Statutory Rules
There are many differences in state
statutes regarding minors.
Minors should check the statutes of
their own state to find out about
special contractual capacities that
they may be allowed.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Other Contractual
Capacity Rules
Other classes of persons are also able
to avoid contracts.
Mentally impaired persons
Intoxicated persons
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Mentally Impaired Persons
Mentally impaired persons also have the
right to disaffirm contracts because they are
considered unable to make sound
judgments.
Before a guardian is appointed to look
after the affairs of a mentally impaired
person, his or her contracts are voidable.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Intoxicated Persons
Persons who are intoxicated by alcohol or
drugs at the time they enter a contract are
sometimes able to disaffirm those contracts.
To disaffirm 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 of
the transaction.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Other Capacity Limitations
Other classes of persons lack the capacity to
enter into certain types of contracts.
1. Convicts—people convicted of a crime.
2. Aliens—people who are living in this
country but owe their allegiance to another
country.
3. Enemy aliens—some foreign-born persons
designated as such during time of war.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Why does the law shield minors when
making contracts?
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Section 7.1 Assessment
Reviewing What You Learned
1. What does it mean to be a minor?
2. What rights do minors have regarding contracts?
3. What contracts are voidable by a minor?
4. How can a person ratify a contract made in
minority?
5. Name two other classes of persons who are
able to avoid contracts.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Section 7.1 Assessment
Critical Thinking Activity
Misrepresenting Your Age
Should the act of misrepresenting your age
if you are a minor be considered fraud?
Why or why not?
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Section 7.1 Assessment
Legal Skills in Action
What Is a Good Age?
Over the past 30 years, the voting age, the age
of majority, and the age at which a person
could buy alcoholic beverages has changed.
In a paragraph no less than 10 sentences long
debate your position on the ages for voting,
majority, and buying alcoholic beverages.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
ANSWER
To protect the minor from an
unscrupulous adult who might take
advantage of him or her.
Answer #1
A minor is a person who has not yet
reached the age of legal adulthood.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Section 7.1 Assessment
Reviewing What You Learned
Answer #2
Minors may disaffirm, or avoid, the contracts if they
so choose.
Answer #3
In essence all contracts are voidable by a minor;
however, minors may still have some responsibilities
when avoiding contracts and some states may have
special statutory rules regarding minors and
contracts.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Section 7.1 Assessment
Reviewing What You Learned
Answer #4
Upon reaching majority, a person can ratify a
contract by approving of the contract orally, in
writing, or by some action.
Answer #5
Mentally impaired persons and intoxicated
persons.
Understanding Business and Personal Law
Capacity to Contract
Section 7.1 Contractual Capacity
Section 7.1 Assessment
Critical Thinking Activity
Misrepresenting Your Age Answer
Answers may vary, but should compare the
elements of fraud with the misrepresentation
of age if you are a minor.
Legal Skills in Action Answer
What Is a Good Age?
Debates will vary, but should include
information that supports their positions.
Understanding Business and Personal Law
Capacity to Contract