Essentials Of Business Law Chapter 9 Competent Parties McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Essentials of Business LawChapter 9-2 Capacity To Contract Must be competent  Legal age Age of majority  Normal mentality Insane and mentally impaired persons are not competent  Considered by law to be capable of understanding the meaning of a contract  Contractual capacity Possess the ability to make a valid contract

Essentials of Business LawChapter 9-3 Minors Contract Minors are not legally required to carry out most contracts Age of majority varies from state to state  18, 19 or 21  Legal birthday is 12:01 a.m. Of the day before ones actual birthday Minors can disaffirm most contracts  Competent party is bound  Exception is contract for necessaries Examples: food, shelter, clothing, and medical care

Essentials of Business LawChapter 9-4 Minors Contract At age of majority minor must either:  Ratify entire contract By an act that shows intention to live up to the terms of the contract  Disaffirm contract within a reasonable time If a reasonable amount of time passes without disaffirming the contract it is considered ratified

Essentials of Business LawChapter 9-5 Minors Contract Disaffirmance  May be done before reaching the legal age  May be done within a reasonable time after reaching adulthood  State intention either orally or in writing not to honor a contract  May be implied by the acts of the person Example: failing to make an installment payment on a loan

Essentials of Business LawChapter 9-6 Minors’ Enforceable Contracts Necessaries that are not provided by their parents or a guardian  Generally liable for necessaries purchased Minor’s emancipation  Have the rights and obligations of a person of legal age  Results from marriage or from voluntary separation of a minor from his or her parents or guardians Abandonment  Surrender of the special protection given to them by the law

Essentials of Business LawChapter 9-7 Minors’ Torts And Crimes Laws do not protect a minor who commits a crime or a tort Criminal action  Injuries to another person  Damages to another person’s property Tort action  Negligence that causes another person to suffer a money loss  Making damaging statements Written or orally

Essentials of Business LawChapter 9-8 Mentally Incompetent Persons of unsound mind lack mental capacity  Examples include: insanity, Alzheimer’s disease, brain injury, drugs, or alcohol Most contracts are voidable and cannot be enforced May have lucid periods during which he or she can exercise sound judgment  Will be held to the contract if proven Necessaries  Liable for the reasonable value

Essentials of Business LawChapter 9-9 Influence Of Alcohol Or Drugs Persons unable to understand the nature and effect of contract Contract can be voided at his or her option Considered mentally incompetent Necessaries  Liable for the reasonable value