Legal capacity to contract

1. Legal capacity to contract Chapter 9, Section 1

2. What is capacity? • Contractual Capacity – the ability to understand the consequences of a contract. • Note: Does not require the person to understand the actual terms whether they are expressed in legal jargon or not • Some Parties have specialized contractual rights due to lack of capacity • Necessities Test – can these people provide their own 3 major necessities: food, clothing, shelter • Minors • Age of Majority to Contracts- age in which a person is entitled to the management of their own affairs • 18 in most states, 19 or 21 in a few • Minor – A person who has not reached the age of majority • Minority – ends the day before the birthday of the age legally set as the age of minority (18, 19, 21) • Mentally Incapacitated • The Intoxicated

3. Protections to those who lack capacity The primary protection to all those who lack capacity is DISAFFIRMANCE (refusal to be bound by the contractual obligations). MAJOR PROBLEM- NO ONE WANTS TO ENTER INTO A CONTRACT WITH THESE PEOPLE • Minors – The contract is ratified (made legally binding) as soon as they enter the age of majority or if the minor is emancipated (minor is legal separated from parent). May be formal (court approved) or informal (no court order) but must have evidence if informal: • The parent and minor agree that the parent will cease support • The minor marries • The minor moves out of the family home • The minor gives birth • The minor takes on full employment • Those Mentally Incapacitated – mental illness and mental retardation. Temporary insanity is temporary lack of capacity • The Intoxicated – can arise from using legal or illegal drugs. If the intoxication is high enough, that person loses the capacity to enter into a contract.

4. Who has capacity in a company? • Scope of Authority – company authorization to enter into a contract on behalf of the company

5. Limits on the rights of those without capacity Chapter 9, Section 2

6. When Can Disaffirmance Occur? Generally, anyone who does not have contractual capacity can disaffirm a contract for necessities or goods and services that are non necessities. WHEN CAN IT OCCUR: • Anytime while still under incapacity OR • Within a reasonable time after attaining capacity AFTER ATTAINING CAPACITY, RATIFICATION CAN OCCUR. RATIFICATION CAN CONSIST OF EITHER OF THE FOLLOWING: • Giving a new promise to perform as agreed • Any act (such as making payments) that clearly indicates the party’s intention to be bound by the contract

7. What must be done upon disaffirmance? • In most states when a minor disaffirms, anything of value the minor received must be returned. • Loss of Value – Minors must give what they received back, even if it isn’t worth full value • Obligations of Party with capacity – The party lacking capacity can enforce contractual obligations with the party with capacity. In other words, if they both signed the contract the minor, intoxicated, or mentally incapacitated can force the contract to be recognized.

8. Contracts that cannot be disaffirmed • Court Approved Contracts • Major Commitments • Banking Contracts • Insurance Contracts • Work-Related Contracts • Sale of Realty • Apartment Rentals

9. Misrepresenting age in contracts • Minors have been known to misrepresent their age. In most states, minors who lie about their age may still disaffirm a contract. But they can be liable for tort of negligence: misrepresentation.

10. Assignment • Create a comic illustrating lack of capacity in a contract.