Presentation on theme: "Legal Capacity To Contract"— Presentation transcript:
1 Legal Capacity To Contract Chapter 9Legal Capacity To Contract
2 Capacity of Individuals and Organizations Section 1Capacity of Individuals and Organizations
3 Contractual Capacityability to understand the consequences of a contract*Note. Definition does NOT require that a person understand the actual terms of the contract which may be written in technical legal terminology.
4 People who Lack Contractual Capacity Under the influence (drugs/alcohol)minorsMentally ill
5 Age of Majority Age at which you can be legally bound to contracts The age of majority is most states is 18Person who has not yet reached the age of majority is a minor. Being a part of the minority ends the day before your birthday.
6 People who lack capacity, their contracts are voidable. Disaffirmance : In contract law, it means a refusal to be bound by a previous legal agreement.
7 Dissafirmance Example Assume a protected party (minor) bought a car from a dealership and wrecked it. The minor could disaffirm the contract and recover any payments made. The dealership would only be able to get back the destroyed car.
8 The problem with giving minors the ability to disaffirm (refuse to be bound) a contract and get back what they had given to the other party is that no one will want to contract with them.As a consequence, another protection was afforded those who lack capacity. This is known as…
9 You sell a fur coat to a minor for $5,000 NecessariesYou sell a fur coat to a minor for $5,000Things needed to maintain life:FoodShelterClothingshe only pays $200
10 When a minor becomes of age, they may be able to disaffirm a contract for a reasonable length of time.
11 Acting towards the contract as though one intends to be bound by it. RatificationActing towards the contract as though one intends to be bound by it.*Note. Ratification can NEVER occur before the age of majority.
12 Minors are also bound to their contracts if they are EMANCIPATED. Ratification ExampleYou are 17 and buy a car from your friend who is 21. Two months later, you turn 18 and decided to disaffirm your contract for the car. However after you turned 18 you continued to make two additional payments on the car. Therefore, because you ratified the contract even after you became of age, you are bound to the agreement.Minors are also bound to their contracts if they are EMANCIPATED.
13 Severing of child-parent relationship EmancipationSevering of child-parent relationshipYou ARE bound to legal contracts
14 Formal Emancipation You become of age Informal Emancipation You are not of age, but child-parent relationship is cut-off
15 Evidence of Informal Emancipation Parent and minor agree that the parent will cease supportMinor marriesMinor moves outMinor joins the armed forcesMinor undertakes full employmentMinor gives birth***States vary in treatment of emancipated minors
16 harder to define than you think Mental incapacityharder to define than you thinkDefinition: A person lacks the ability to understand the consequences of his/her contractual acts.
17 Inhaling products *glue or aerosols IntoxicationInhaling products *glue or aerosolsAlcoholDrugs
18 Scope of AuthorityPeople who work for a company that are given the authority to bind the organization to contracts.
19 Alicia sells flowers. Her friend Tiara worked for a grocery store as a cashier. One day Alicia stopped by during Tiara’s break and asked if she could sell flowers through the grocery store. Tiara said yes and signed a contract to purchase 10 dozen roses for the store. When Alicia tried to deliver the roses, they were refused by the store’s manager and Alicia sued.Is the store bound by Tiara’s contract?
20 Limits on the Rights of Those Without Capacity Section 2Limits on the Rights of Those Without Capacity
21 GOALSRecognize the time frame during which a contract can be disaffirmed.Identify contracts that CANNOT be disaffirmed.Discuss the effects of misrepresentation of age on contracts.
22 While still a minor, Bob bought a stereo system on credit from Best Buy for $500. Bob paid $100 down and promised to pay $50 a month on the unpaid balance until the debt was paid off. After making four payments, two of which were made after he reached the age of majority, Bob decided to disaffirm the contract and return the equipment.Can Bob do so?
23 Any time while still under the incapacity, or Generally, people lacking contractual capacity can disaffirm a contract for goods or services that are not necessariesAny time while still under the incapacity, orWithin a reasonable time after attaining capacity.
24 For a minor, ratification must occur after achieving majority. After attaining capacity, a person may ratify the contract made while under an incapacity.For a minor, ratification must occur after achieving majority.Ratification must consist of either of the following:Giving a new promise to perform as agreedAny act (such as making payments to the seller)
25 Disaffirmance and Loss of Value In most states, if minors are unable to return exactly what was received under the contract, they can still get everything they gave.Damaged goodsLost, consumed, or destroyed goods
26 In some states, however, a minor must return everything in same condition it was received. If the minor can’t, then the minor has to pay the difference.
27 Contracts that CANNOT be Dissafirmed Court-approved contractsMajor commitments (join army)Banking contracts (making deposit)Insurance contracts (life insurance)Work-related contracts (buying job equipment)Sale of realty (buying a house)Apartment rental (Signing a Lease)
28 Ron, a mature looking minor, lied about his age when buying $700 worth of clothes at Fresh Wear. He used his older brother’s driver’s license as his identification and his name when signing the contract. Three months later, Ron had paid $375 on the $700 contract. He became bored with the clothes and returned it to the store and demanded the his $375 back.Must the store return his money?
29 Minors are liable for their torts and delinquent or criminal conduct that comes out of a contractual transaction, although typically they still have the right to disaffirm their contracts.