Presentation on theme: "CHAPTER Capacity Rights 10-2 Limitations on Capacity Rights"— Presentation transcript:
1CHAPTER 10 10-1 Capacity Rights 10-2 Limitations on Capacity Rights 4/1/2017Chapter 10CHAPTER 10Law of CapacityLessons10-1 Capacity Rights10-2 Limitations on Capacity Rights
2Capacity Rights GOALS LESSON 10-1 CHAPTER 104/1/2017Chapter 10LESSON 10-1Capacity RightsGOALSIdentify parties who have contractual capacityIdentify what contracts can be disaffirmedExplain the role of capacity in organizations
3CHAPTER 104/1/2017Chapter 10WHAT IS CAPACITY?Contractual capacity is the ability to understand that a contract is being made and its general meaning.You possess theA-B-I-L-I-T-Y to understand;
4CHAPTER 104/1/2017Chapter 10WHAT IS CAPACITY?Person doesn’t have to understand the actual terms (written in technical legal terminology)Person does not need to merely understand the terms
5Parties with special contractual rights CHAPTER 104/1/2017Chapter 10Parties with special contractual rightsAll of these parties are incapacitated:Minors / intoxicated / mentally incapacitated
6Protections for those who lack capacity CHAPTER 104/1/2017Chapter 10Protections for those who lack capacityContracts of most parties who lack capacity are considered voidable.D I S A F F I R M A N C E – refusal to be bound by a previous legal commitment
7CHAPTER 104/1/2017Chapter 10DisaffirmanceProtected party disaffirms contract receives back whatever they have put into the contractOther party may or may not get back their consideration
8CHAPTER 104/1/2017Chapter 10Disaffirmancei.e. minor buys an ATV from a dealership and then wrecks it.Minor could disaffirm contract and recover any payments made.Dealership could only recover the damaged ATV
9Problems with contracting CHAPTER 104/1/2017Chapter 10Problems with contractingLegal ability to disaffirm a contractAbility to get back whatever had been given to the other partyReluctance to enter into contracts with incapacitated persons
10CHAPTER 104/1/2017Chapter 10Another protection --Applies when protected parties purchase things classified as “necessaries”Things needed to maintain life – typically food, clothing, and shelterMust pay a “reasonable value” even if contract is disaffirmed
11Necessaries Minor buys a $5,000. fur coat Disaffirms contract CHAPTER 104/1/2017Chapter 10NecessariesMinor buys a $5,000. fur coatDisaffirms contractRequired to pay ???Good cloth coat $200-$300 for fur coat if she chose to keep itPunishment to seller for taking advantage of minors in contractual dealings
12MINORS In most states, people under the age of 18 CHAPTER 104/1/2017Chapter 10MINORSIn most states, people under the age of 18In a few states, age of majority is 19 or 21Also referred to as being in their minority or under the age of majorityEnds the day before the birthday of the age set as the age of majority
13Minors Contracts are considered voidable CHAPTER 104/1/2017Chapter 10MinorsContracts are considered voidableMay disaffirm contracts during their minorityMay also disaffirm for a reasonable length of time after achieving their majority
14CHAPTER 104/1/2017Chapter 10Age of MajorityAfter the age of majority, the power to disaffirm is immediately cut off if the person ratifies the contractRatification – acting toward the contract as though one intends to be bound by it Can never occur before the age of majority
15CHAPTER 104/1/2017Chapter 10EMANCIPATIONEmancipation is the severing of the child-parent relationship.Early emancipationFormal emancipation occurs when a court decrees the minor emancipated.Informal emancipation arises from the conduct of the minor and the parent.
16EVIDENCE OF INFORMAL EMANCIPATION CHAPTER 104/1/2017Chapter 10EVIDENCE OF INFORMAL EMANCIPATIONThe parent and minor agree that the parent will cease supportThe minor marriesThe minor moves out of the family homeThe minor joins the armed forcesThe minor gives birthThe minor undertakes full-time employment
17CHAPTER 104/1/2017Chapter 10New JerseyTermination of support at age of majority or as determined by court Newburgh v. Newburgh, 88 N.J. 529, 443 A.2d 1031 (1982) held that the court has jurisdiction to award a payment of support and expenses of a child attending college even though the child has reached the age of majority.
18CHAPTER 104/1/2017Chapter 10MENTAL INCAPACITYMental incapacity is much less precisely defined than minority.The test is whether the party understands the consequences of his or her contractual acts.
19CHAPTER 104/1/2017Chapter 10INTOXICATIONIntoxication can arise from using alcohol, from using drugs, or inhaling products such as glue or aerosols.Many courts are reluctant to allow disaffirmance for intoxication when it may injure another.Stricter standard because intoxication is a voluntary act
20Temporarily Intoxicated CHAPTER 104/1/2017Chapter 10Temporarily IntoxicatedBeing so under the influence of alcohol or drugs that you do not even know that you are entering a contract
21Permanently Intoxicated CHAPTER 104/1/2017Chapter 10Permanently IntoxicatedBeing unable to turn down a drink or drug whenever offeredOften referred to as “habitual drunkard” in several statesContracts are considered “void”
22WHICH CONTRACTS CAN BE DISAFFIRMED? CHAPTER 104/1/2017Chapter 10WHICH CONTRACTS CAN BE DISAFFIRMED?Necessaries are goods and services that are reasonably required to maintain a person’s lifestyle.Non-necessaries are all other goods and services or relative luxuries.
23CAPACITY RIGHTS Necessaries Non-necessaries Disaffirmance Ratification CHAPTER 104/1/2017Chapter 10CAPACITY RIGHTSNecessariesNon-necessariesDisaffirmanceRatification
24CAPACITY IN ORGANIZATIONS CHAPTER 104/1/2017Chapter 10CAPACITY IN ORGANIZATIONSSome people who work for organizations have the capacity to bind the organizations to contracts.Capacity to contract can be created when the employer tells an employee that he or she is authorized to bind the organization.Capacity to contract can be created when an organization leads others to believe that a person has certain authority.
25CAPACITY IN ORGANIZATIONS CHAPTER 104/1/2017Chapter 10CAPACITY IN ORGANIZATIONSIf someone has this capacity, it is said to be within his or her scope of authority
26Limitations on Capacity Rights CHAPTER 104/1/2017Chapter 10LESSON 10-2Limitations on Capacity RightsGOALSIdentify the time when a contract cannot be disaffirmedIdentify contracts that cannot be disaffirmedExplain the consequences of misrepresenting age
27CHAPTER 104/1/2017Chapter 10TIME OF DISAFFIRMANCEAny time while still under the incapacity (necessaries & goods or services that are not necessaries)Within a reasonable time after attaining capacity
28RATIFICATION Ratification may consist of either of the following CHAPTER 104/1/2017Chapter 10RATIFICATIONRatification may consist of either of the followingGiving a new promise to perform as agreedAny act (such as making payments to the seller) that clearly indicates the party’s intention to be bound
29CHAPTER 104/1/2017Chapter 10What’s your verdict?Beach (minor) bought stereo system on credit from McReam’s Electronic Cloud for $500Beach paid $100 down - $50/mo. payments afterwardsAfter making 4 payments (2 while minor, 2 while majority) – wants to disaffirmCan he do so?
30CHAPTER 104/1/2017Chapter 10What’s your verdict?No -- Beach ratified the contract by making payments after reaching majorityOnce ratification occurs, it cannot be withdrawn
31CHAPTER 104/1/2017Chapter 10Rights of Minors in Contracts for Goods and Services that are Not NecessariesTime Majority or Capacity AttainedTIMETIMEPeriod of MinorityPeriod of MajorityRight to disaffirmRight to disaffirm lastsFor a reasonable lengthof time after majorityis ottainedRatification cuts off the right to disaffirm
32What must be done upon disaffirmance CHAPTER 104/1/2017Chapter 10What must be done upon disaffirmanceMinor disaffirms – anything of value minor received and still has, must be returned can return used or damaged goodsMinor then entitled to get back everything that was given to the other party
33RETURN OF GOODS OR SERVICES CHAPTER 104/1/2017Chapter 10RETURN OF GOODS OR SERVICESLoss of value –Minor can return nothing because goods have been lost, consumed or destroyedIn some states, minor must return everything in a condition as good as it was when receivedIf this cannot be done, must pay the difference in value, or deduct the difference from the amount to be refunded
34Weekly installments $10 Chapter 10Lamon (minor) buys diamond engagement ring & necklace for finacee, MorganWeekly installments $1018 – quarreled and Morgan returns ring but not necklaceCan Lamon return ring & necklace and receive a full refund?
35In some states -- Morgan – legally keep necklace Chapter 10In some states --Morgan – legally keep necklaceLamon – could return the ring and demand refund for monies paid for necklace & ringmost certainly entitled to money paid on ring ( and in some states – necklace)Why? Necklace is no longer in his possession
36RETURN OF GOODS OR SERVICES CHAPTER 104/1/2017Chapter 10RETURN OF GOODS OR SERVICESObligations of party with capacityCannot enforce nor avoid all or any part of a contract for goods or services that are not necessaries
37WHAT CONTRACTS CANNOT BE DISAFFIRMED? CHAPTER 104/1/2017Chapter 10WHAT CONTRACTS CANNOT BE DISAFFIRMED?Court-approved contracts – minors working as actors/actresses, professional sportsMajor commitments – enlisting in armed services / educational loans / marriageBanking contracts – make deposits & withdrawalsInsurance contracts – over ½ states do not allow minors to disaffirm
38Work-related contracts – minors who engage in business or trade Chapter 10Work-related contracts – minors who engage in business or tradeSale of realty – cannot disaffirm until after achieving majorityApartment rental – a few states will not allow the minor to disaffirm, even if it’s not a necessary
39MISREPRESENTING YOUR AGE CHAPTER 104/1/2017Chapter 10MISREPRESENTING YOUR AGEIn most states minors who lie about their age may disaffirm their contracts.In these states, a minor who gives a false age may be held liable for the tort of false identification