LESSON 2.3
CAPACITY TO CONTRACT
GOALS
 Know how to determine if someone has
the capacity to contract
 Understand how apparent assent to a
contract may be invalidated
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Lack of Contractual Capacity
 Minors
 When a minor buys a necessity (food, clothes,
shelter) they must pay fair market value not the
contracted price.
 When a minor buys an unnecessary item
(luxuries: mp3 player, cell phone) then they must
pay the contracted price.
 They may also be able to avoid of disaffirm the contract
 Disaffirm – when you return the consideration that
binds the contract
 Ratification – when a person acts as if they are
going to go through with the contract
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Lack of Contractual Capacity
 Mental incapacity
 Does the person understand the consequences of
the contract.
 People with severe mental illness, severe mental
retardation, or severe senility lack capacity
 Intoxication
 Someone using alcohol, drugs, or anything else
that would impair your judgment
 Many courts will not disaffirm a contract if you
were only temporarily intoxicated because
intoxication is voluntary. If you are a habitual
drunk, then it is the same as if you are insane
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Lack of Genuine Assent
 Mistake
 Most mistakes will not release someone from a contract.
 If you don’t read the contract, the contract is still valid
 If the wrong item is identified, then the contract is void.
 Example: you contracted for a red car, but they delivered a blue car.
 Concealment
 You do not have to reveal everything about the item you are
selling.
 If the other party asks, you must answer them.
 Misrepresentation and fraud
 Misrepresentation – an innocent misstatement will make a contract
voidable.
 If the misrepresentation is on purpose, then it would be considered
fraud.
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Lack of Genuine Assent
 Undue influence and duress
 Undue influence – when there is pressure put on
someone to go into contract.
 This contract is voidable
 Duress – a wrongful threat denies a person free
will to contract.
 Includes bodily harm, threats against the person or their
home.
 Unconscionability – when one person has
unequal bargaining power over the other
person.
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Example
 Steven inspected a 5-year-old car with the intention of buying it.
 He asked the owner, Allan, how many miles were on the engine.
 Allan said, "As you can see from the odometer, it only has
30,000 miles on it, and I'm the only one who has ever owned
 it.“
 A written contract was executed, and Steven took the car to the
local automobile dealer to be inspected.
 The dealer informed Steven that the car had often been
serviced there, and that the odometer had been replaced at
about 100,000 miles.
 This was a fraudulent misrepresentation on Allan's part, making
the contract voidable by Steven. However, if Steven continued
to make his monthly payments to Allan after discovering the
truth, this would ratify the contract and Steven would lose his
ability to rescind.
What’s Your Verdict?
 Albert had cancer and was being treated by Dr. Bennington.
 He had carefully followed the doctor's advice, and the treatment
had been successful.
 One day, during a periodic checkup, Dr. Bennington said to
Albert, "To prevent the cancer from recurring, you need to
reduce the stress in your life.
 Long drives in the country are great for that.
 Come to think of it, I'm selling my convertible right now. You
should buy it."
 Without investigating, Albert followed the doctor's directions and
 contracted to buy the car.
 Later he found the price he'd agreed to pay was nearly double
the market value.
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Answer
 In What's Your Verdict? the contract would be voidable by
Albert.
 Although more difficult to prove when it is not present, a typical
confidential relationship is not always necessary to show undue
influence.
 The type of relationship that fosters the exercise of undue
influence could arise in many situations such as between a
housekeeper and her elderly employer.
 It also could arise between a disabled person and his or her
neighbor.
 However, the law presumes undue influence exists in
confidential relationships.
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Examples
1.
Manuela rented an apartment and later discovered that the roof leaked. She
asked the landlord to make repairs, but he refused.
Manuela said that she would move out unless the landlord either made the
repairs or lowered the rent. The landlord lowered the rent. Does Manuela's
conduct make the modification to the contract voidable due to duress?
2. Evelyn was 86 years old and of sound mind. However, she relied upon her
nephew Jamal, an accountant, to advise her in business matters. During one of
Jamal's visits, he persuaded her to sell him a valuable painting for about 80
percent of its true value.
Evelyn agreed and signed a contract. Then she had the painting appraised and
learned its true value. She continued with the transaction by accepting payment
for the painting. Two months after she died her estate sued for rescission of the
contract.
Jamal defended by claiming that Evelyn had ratified by accepting payment after
learning of the value of the painting. Who prevails, Evelyn's estate or Jamal?
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What’s Your Verdict?
3. Grafters sold a used car to Camacho for $11,000. Graffter told
her that the car had been driven only 15,000 miles, had never
been in an accident, and had the original paint. In fact, Graffter,
after side-swiping a bridge abutment had repaired and repainted
the car with a far cheaper paint than the original, set back the
odometer from 48,000 miles, and stuffed the transmission with
sawdust to quiet the rattling sounds emitted by it. Shortly after
Camacho purchased the car, the transmission stopped working
and a mechanic at a garage near her home pointed out the
various ways that she had been deceived by Grafter.
 What remedies are available to Camacho?
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Answer
 In What's Your Verdict? Graffter intentionally lied about the car and
actively concealed the damage from the accident. The deception
injured Camacho because the car was not worth $11,000. Accordingly,
as Camacho could establish fraud, she could have her contract
rescinded and be awarded compensatory and punitive damages. Note
that in jurisdictions that require that the victim act with diligence to
check the statements allegedly made to defraud, Camacho might not
be able to collect damages as she could have had a mechanic examine
the car before purchasing it. In such a case, she would instead have to
be content with rescission as a remedy.
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Chapter 7 Genuineness
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