1. Legal Capacity to Contract Chapter 9
9.1 Contractual Capacity of
Individuals and Organizations
Contracts Unit

2. Objectives TLW identify parties who lack contractual capacity.
TLW explain the role of capacity in organizations.

3. Contractual Capacity
Contractual capacity - the ability to understand the consequences of a contract.
The law assumes that certain parties do not have the maturity or experience to protect their self interests. The law grants these parties special contractual rights designed to protect them from being cheated.

4. People without capacity:
Incapacitated or Incompetent parties (people with no contractual capacity):
Minors
Intoxicated (alcohol or drugs)
Mentally impaired

5. People without capacity:
People without capacity may still make contracts for Necessaries.

6. Necessaries
Things needed to maintain life (basic food, clothing, shelter, transportation that the minor does not already have and that are not provided by a parent).
Protected parties have valid contracts for necessaries; however, they must pay only the fair market value rather than the contracted price.

7. Incompetent Parties Minors - people below the age of majority
19 in Nebraska
NE law also refers to you as infants.

8. Minors - Emancipation
Emancipation - severing the parent/child relationship (marriage, military, move out of house, give birth, full- time employment). Minor is then treated as an adult.
Formal emancipation - minor goes
to court and asks that the parental
obligations be ended; he/she can
no longer live at home and can
support him/herself.
Emancipated minors may be held to contracts, especially for necessaries.

9. Mental Incapacity
Mental Incapacity - the courts look at whether a person understands the consequences of his or her contractual acts.
Used for people with severe mental illness, severe mental retardation, or severe senility.
Their contracts are voidable with same exceptions as minors.

10. Incompetent Parties
If a person has been declared incompetent or insane by a court, all contracts are void (except necessaries).
The court appoints a
guardian who makes
contracts on behalf of
the incompetent party.

11. Incompetent Parties
Intoxicated - people under the influence of alcohol or drugs.
Their contracts are voidable, but only if they are so intoxicated that they don’t even understand that they
are making a contract.

12. Scope of Authority
Scope of authority - within an organization, some people have been authorized to make contracts.
When someone makes a contract without having that authority, the contract is voidable for the business, and the person making the contract may be bound.
But if the organization did something to imply that the person had that authority, the contract is valid for the business.
Discuss examples with
your partner.

13. Cyber Law
Cyber Law (page 161) - should there be Internet restrictions so children cannot access pornography?
Is there a free speech right
at issue?
Are there less restrictive
means to limit a
child’s access?

14. V,V,V Contracts – using a clean page in your notebook, list the contracts we’ve learned so far which fit into each of these categories. Work with your partner.
Valid
Void
Voidable