1. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. CHAPTER 9 Legal Capacity to Contract 9-1 9-1Contractual Capacity of Individuals and Organizations 9-2 9-2Limits on the Rights of Those Without Capacity

2. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 2 9-1Contractual Capacity of Individuals and Organizations GOALS Identify parties who lack contractual capacity Explain the role of capacity in organizations

3. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 3 WHAT IS CAPACITY? Contractual capacity means the ability to understand the consequences of a contract. Does not mean you understand the terms of the contract Does not require an understanding of the language of the contract

4. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 4 LACKING CAPACITY Parties legally recognized to lack capacity Minors Those under 18 in NYS Reach the age of majority for contract law the day BEFORE your birthday. Those mentally incapacitated The intoxicated

5. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 5 LACKING CAPACITY Contracts of parties lacking capacity are considered voidable. Disaffirmance means the refusal to be bound by a previous legal commitment. Protected party gets back whatever was put into the contract Other party may or may not get back their consideration

6. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 6 LACKING CAPACITY Contracts of parties lacking capacity must pay a reasonable value for necessaries Things needed to maintain life – food, clothing and shelter typically Some states include cars, emergency medical care, and televisions.

7. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 7 LACKING CAPACITY Minors’ contracts are voidable. May be disaffirmed during age of minority May be disaffirmed for a reasonable length of time after reaching the age of majority. May be ratified after reaching the age of majority May be ratified by words. May be ratified by acting as though one intends to be bound by a contract.

8. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 8 Minors Minors may be bound to contracts if they are emancipated (severing of the child-parent relationship). Emancipated upon reaching age or majority Formal emancipation – court order Informal emancipation Parent and minor agree that parent will cease support The minor marries. Minor moves out of the family home. Minor joins the armed forces. Minor gives birth. Minor undertakes full-time employment.

9. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 9 CHECKPOINT What three classifications of individuals lack contractual capacity?     

10. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 10 WHO HAS CONTRACTUAL CAPACITY IN ORGANIZATIONS? Scope of authority Employer grants authority to employee Assumption of authority based on job title

11. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 11 CHECKPOINT What is the legal significance to a business of an employee’s scope of authority?     

12. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 12 9-2Limits on the Rights of Those Without Capacity GOALS Recognize the time frame during which a contract can be disaffirmed Identify contracts that cannot be disaffirmed Discuss the effects of misrepresentation of age on contractual responsibilities

13. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 13 WHEN CAN DISAFFIRMANCE OCCUR AND WHAT MUST BE DONE AT THAT TIME? Any time while still under the incapacity Within a reasonable time after attaining capacity

14. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 14 WHAT MUST BE DONE UPON DISAFFIRMANCE? Loss of value Obligations of party with capacity

15. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 15 DISAFFIRMANCE TIMELINE

16. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 16 CHECKPOINT When can a person who lacks contractual capacity disaffirm a contract?     

17. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 17 CONTRACTS THAT CANNOT BE DISAFFIRMED Court-approved contracts Major commitments Banking contracts Insurance contracts Work-related contracts Sale of realty Apartment rental

18. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 18 CHECKPOINT What contracts entered into by minors cannot be disaffirmed in any of the 50 states?     

19. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 19 CONTRACTUAL EFFECT OF MISREPRESENTING AGE Other party to the contract may collect damages Minor still may be able to disaffirm contract

20. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 20 CHECKPOINT If minors lie about their age, what happens in most states with regard to their ability to disaffirm contracts for goods and services that are not necessaries?     

21. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 21 PREVENT LEGAL DIFFICULTIES In making contracts... Always observe and remember factors about the other person indicating whether or not they have full contractual capacity. If you are dealing with a representative of a business, ask questions about the person’s ability to bind the organization in contract. Ask for identification for anyone who looks like they are within a decade of the age of majority. Continued on the next slide

22. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 22 PREVENT LEGAL DIFFICULTIES If the people you want to contract with have alcohol on their breath, watch for signs of drunkenness. If they display these symptoms and you still want to contract with them, be sure you have a witness or other proof of the fact that they know they are making a contract. Remember the other party in a transaction is seldom primarily concerned with your best interest and generally is not obligated to volunteer information about their capacity. Continued on the next slide

23. LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 SLIDE 23 PREVENT LEGAL DIFFICULTIES When contracting with the elderly, be certain that they can understand the consequences of any contract you enter into with them. If you are a minor, do not misrepresent your age. The consequences may hurt you more than not being allowed to contract.