Bartek, Thompson, Bond, Meanix
What is Capacity, you ask?
 Contractual Capacity- defined by the law to mean the
ability to understand the consequences of a contract.
 Some people have special contractual rights due to
lack of capacity; for example Minors
 The intoxicated
 The mentally incapacitated
Minority
 For contract law purposes minors are defined as
anyone under the age of majority.
 The age of majority, meaning someone is permitted to
handle his own affairs, is 18 in most states.
 Anyone younger is considered a minor.
 Minority ends the day before the birthday of the age
set for majority.
Protection for those who Lack Capacity
 Disaffirmance- It is the primary protection for those
who lack contractual capacity.
 It is the refusal to be bound by a previous legal
commitment, and the one who lacked capacity is
legally able to get back what he put in to the contract.
 Another protection given to those who lack capacity
such as minors is the right to purchase necessariesthe things need to maintain life.
 When the protected make contracts for necessaries
they must at least pay a reasonable value for them if
they disaffirm the actual purchase contract.
Minors
 The contracts made by minors are considered voidable
 Minors may disaffirm contracts during their minority
or for a reasonable length of time after becoming part of
majority (18 in most states)
 Ratification- the acting toward the contract as
though one intends to be bound by it
 Minors can be bound to contracts if they are
emancipated.
Emancipation
 Emancipation-is the severing of parent-child relationship
and state may require loss of capacity protection
 Formal emancipation is when the court decrees the minor
is emancipated
 Informal emancipation occurs when
 The parent and minor agree that their will be no more





parental support.
The minor gets married.
The minor moves out.
The minor joins the army.
The minor gives birth.
The minor undertakes full time employment.
The Mentally Incapacitated
 Mental Incapacity- under contract law, meaning
someone lacks the ability to understand the
consequences of his contractual acts.
 These people include, those with mental illness, mental
retardation, severe senility, or if they are ruled
permanently insane
 All contracts executed by this person are void.
However, rules surrounding necessaries apply to the
insane person.
CASE
 Emily was 88 years old when she contracted to sell her
family home to her daughter Gail for about 15 percent
of its value. At the time, she was suffering from
advanced Alzheimer’s disease and didn’t understand
the consequences of the transaction. Two months later
Emily died. Her will provided for all her property to be
split equally among her four children. The children
sued to have the deed set aside. Is the contract
voidable?
ANSWER
 Yes, because Emily lacked the mental capacity when
she deeded the home to Gail.
The Intoxicated
 Can arise from using alcohol or drugs such as marijuana or
crack cocaine or inhaling glue.
 Most courts are reluctant to consider an intoxicated
person’s contracts voidable because this would allow
disaffirmance for intoxication even though it may injure an
innocent person.
 If the judge sees that a person is an alcoholic those persons
contracts are considered voidable.
 http://www.youtube.com/watch?v=5dBM4o6AXXs&featur
e=related
Capacity
LES 306 Business Law- Contractual
Contractual capacity in
organizations
 Scope of authority- the capacity one has within the range
of acts the organization has authorized him or her to do.
 Capacity is also created when the organization leads others
to believe that someone has a certain authority.
 Capacity to contract can be created when the employer tells
an employee that they are authorized to bind the
organization
 When doing business with organizations it is important to
ensure that the person signing the contract has the scope
of authority to bind the organization.
What your verdict?
 Alicia was a wholesaler of flowers. Her friend Caryn
worked at a grocery store as a checker. One day Alicia
stopped by during Caryn’s break and asked if she could
sell her flowers through that store. Caryn said yes and
signed a contract to purchase ten dozen roses for the
store. When Alicia tried to deliver the roses they were
refused by the store and Alicia sued. Is the store bound
by Caryn’s contract?
ANSWER
 The store is not bound by the contract but Caryn may
be liable to Alicia for the lost profit on the sale of roses.