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Legal Capacity to Contract. What is Capacity  Contractual Capacity – Ability to understand the consequences of a contract Does not require that a person.

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Presentation on theme: "Legal Capacity to Contract. What is Capacity  Contractual Capacity – Ability to understand the consequences of a contract Does not require that a person."— Presentation transcript:

1 Legal Capacity to Contract

2 What is Capacity  Contractual Capacity – Ability to understand the consequences of a contract Does not require that a person understand the actual terms of the contract

3 Lack Some Capacity  Three groups lacking some capacity 1. Minors 2. Intoxicated 3. Mentally Impaired

4 Minors  Minors – Under the age of majority In Ohio the age of majority is 18 Ends the day before the birthday of the age

5 Protecting those lacking capacity  Contracts of those lacking capacity are voidable Disaffirmance – Protection granted to those lacking capacity ○ In contract law it means a refusal to be bound by a previous legal commitment ○ When a protected party disaffirms a contract, by law the protected party is to receive whatever they have put into the contract -The other party may or may not get back their consideration

6 Disaffirm  Example – A protected party bought a four-wheel ATV from a dealership and then wrecked it. You can disaffirm the contract and recover any payments made. The dealership would only be able to recover the damaged ATV

7 Necessities  Necessities – things needed to maintain life The protected must at least pay a reasonable value for the necessities even if they disaffirm the actual purchase contract

8 Minors  Contracts are considered voidable (may get out of)  May also disaffirm for a reasonable length of time after achieving the age of majority.  After majority, the power to disaffirm is immediately cut off if you ratify the contract  Minors also may find themselves bound to their contract if they are Emancipated

9 Emancipated  Emancipated – Severing the parent- child relationship Ends the duty of the parent to support a child and the duty of the child to obey their parent Upon reaching the age of majority you are emancipated

10 Emancipated  Formal emancipation Court decrees the minor emancipated  Informal emancipated Arises from the conduct of the parent and minor

11 Informal Emancipated  The parent and minor agree that the parent will cease support  The minor marries  The minor moves out of the family home  The minor becomes a member of the armed forces  The minor gives birth  The minor undertakes full-time employment

12 Mentally Incapacitated  Mentally Incapacitated - A person lacks the ability to understand the consequences of his or her contract  If permanently Insane – Contract is Void  Temporary Insane – Contract is Voidable

13 Intoxicated  Does the person have the ability to understand the consequences  Courts typically allow disaffirmance only for those who are so temporarily intoxicated that they do not even know they are contracting Stricter because intoxication is a voluntary act  If a person is in a permanent state of intoxication – Contract is void

14 Who has contractual capacity in organizations  Scope of Authority – has capacity to contract  People acting outside the scope of authority, are personally liable when the organization isn’t

15 9-1 Assessment  Turn to page 161 and complete the 9-1 Assessment Questions

16 9-1 Assessment 1. False 2. True 3. B 4. B 5. False 6. True

17 9-1 Assessment 7. Probably not. Clare purchased necessaries so she cannot disaffirm. If she paid more than the reasonable value, she would receive the excess back. 8. No. Courts do allow a reasonable period of time after entering majority to evaluate the contracts made during minority. However, five months is far too long. Making her monthly payments beyond a month or two would be ratification.

18 When can disaffirmance occur  Disaffirmance – can happen: 1. Any time still under the incapacity 2. Within a reasonable time after attaining capacity  After attaining capacity, a person can ratify their contract Ratification – Action by the party indicating intent to be bound by the contract

19 Ratification  For a minor, ratification must occur after achieving majority.  Ratification may consist of: 1. Giving a new promise to perform as agreed 2. Any act (such as making a payment) that clearly indicates the party’s intention to be bound

20 What must be done upon disaffirming  When a minor disaffirms, anything of value the minor received and still has must be returned.  The minor is entitled to get back everything that was given to the other party.

21 Contracts that cannot be disaffirmed  Court approved contracts  Major commitments – armed services, educational loans  Banking contract  Insurance Contracts  Work Related Contracts  Sales of Realty  Apartment rental

22 Misrepresenting Age  Minors who lie about their age may disaffirm contracts  However, they are liable for the tort of false representation

23 9-2 Assessment  Turn to page 165 and complete the 8 questions


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