Legal Capacity to Contract Business Law: Ch 9

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

Lack Some Capacity Three groups lacking some capacity Minors Intoxicated Mentally Impaired

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

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

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

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

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

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

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

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

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

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

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

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

9-1 Assessment False True B

9-1 Assessment Probably not. Clare purchased necessaries so she cannot disaffirm. If she paid more than the reasonable value, she would receive the excess back. 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.

When can disaffirmance occur Disaffirmance – can happen: Any time still under the incapacity 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

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

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.

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

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

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