Law of Capacity

1. Law of Capacity Law of Capacity Chapter 10 with Mrs. Welch

2. CAPACITY TO CONTRACT • Two parties that are competent: • Contractual capacity is the ability to understand that a contract is being made and its general meaning • Can assume legal responsibility for their acts • These parties have the capacity to enter into binding contracts

3. Capacity Rights • Necessaries • Things needed to maintain life and lifestyle • Only pay the fair market value (rather than contracted price) • Non-necessaries • Things that are relative luxuries • Must pay the contracted price, but the protected parties can disaffirm the contract

4. Capacity Rights • Disaffirmance • Giving back the consideration by both parties • Minors can disaffirm contracts for non-necessaries during their minority (under 18) • Minors can also disaffirm for a reasonable length of time after achieving their majority • Ratification of a contract after the age of majority cuts off the power to disaffirm

5. Incompetent Parties • Lack the capacity because of: • AGE • UNSOUND MIND • UNDER THE INFLUENCE OF ALCOHOL OR DRUGS • IMPRISONED PERSONS • ENEMY ALIENS

6. Mental Incapacity • Does the party understand the consequences of their contractual acts? • Severe mental illness, mental retardation, & senility • Lack capacity • All contracts void

7. Intoxication • Does the party understand the consequences of their contractual acts? • Did the party even know they were contracting? • Higher standard because intoxication is a voluntary act

8. Lacking Capacity due to Age • Minor (Infant) • Person who has not reached the age of full maturity of mind and judgment. • Law regards a minor as too inexperienced to enter into business deals on equal terms with adults, a minor is given the special protection of the law.

9. The 26th Amendment • Grants those 18 or older the right to vote, thus giving them the right to: • Make contracts • Sue and be sued • Make wills

10. When can a minor become competent to contract? • Emancipation • A person is said to have reached majority on that day when: • Marriage • Move Out • Join Armed Forces • Childbirth • Full-Time Employment • On the day before his or her 18th birthday

11. What if a minor enters into a contract with an adult? • They may avoid or refuse to perform it • The contract is said to bevoidableat the option of the minor

12. A minor’s liability forNecessaries • Contracts made by a minor relate to things needed to sustain his or her life and well-being or that of the minor’s dependent family.

13. A minor’s liability forNecessaries While her parents were out of town. Melissa became very ill with the flu. She drove to a health-care clinic and engaged a doctor’s services for an examination, diagnosis, and treatment. Can the doctor collect a fee, does the doctor have a valid claim for services rendered?

14. A minor’s liability for Non-Necessaries Nelson, 17, was a member of a well-to-do family. Her parents kept her adequately supplied with clothes. While her parents were away on a short trip, Nelson went to Bloomingdale’s and ordered a new fur coat. May Nelson later refuse to take the coat?

15. Which Contracts Can Be Disaffirmed? • Necessaries (fair price) • Must be suitable for that person’s economic and social status • Must not already possess those goods/services • Food, clothing, shelter, education, medical care • Non-Necessaries (disaffirm) • Things not needed to maintain one’s economic or social status • Cosmetics, jewelry, liquor, tobacco, perfume

16. A minor’s disaffirmance of voidable contracts • Voidable contracts usually involve non-necessaries (luxuries) or goods and services bought for ornamental or pleasure purposes. • A minor may choose to disaffirm voidable contracts at any time before reaching the age of majority. • In that case, purchased goods must be returned

17. When can a minor disaffirm a voidable contract? • Within a reasonable time after attaining majority • Depends on the circumstances of each case • It is a question of fact that a jury would be called on to decide • Disaffirming a contract for the purchase of expensive jewelry would undoubtedly differ from that for a purchase of corporate stock

18. What if a minor fails to disaffirm a voidable contract on reaching majority? • These contracts are legally deemed to have beenaffirmed or ratified • Exception to the rule: • Must wait until reaching majority before disaffirming a contract involving Real Property

19. Misrepresentation of Age by a Minor • Even if a minor deliberately misrepresents his or her age, the minor may still disaffirm a voidable contract • Exception to the rule: Misrepresented age to deceit

20. Capacity in Organizations • Scope of authority • If someone within an organization has the right to bind the organization to contracts

21. Return of Goods or Services • When a minor disaffirms, anything of value the minor received and still has must be returned (all states) • Minor is entitled to get back everything that was given to the other party

22. Return of Goods or Services • Loss of Value • Page 147, What’s Your Verdict? • In most states: • Morgan can keep necklace! • Lamon can get money back for both items! • Obligations of Party with Capacity • The party with capacity cannot enforce or avoid all or any part of a contract for non-necessaries with a party lacking capacity

23. Which Contracts Cannot be Disaffirmed? • Court-Approved Contracts • All states • Minors employed as actors • Major Commitments • All states • Contract to enlist in the armed forces, marriage • Banking Contracts • Most states • Insurance Contracts • Most states • Work-Related Contracts • Most states • Page 148, What’s Your Verdict? • Sale of Realty • Some states • Apartment Rental • Few states

24. You Be The Judge Brian, seventeen, bought a computer from Best Buy. Shortly after his 18th birthday, Brian sold the computer. Then Brian decided to avoid the contract and demanded a return of the price he paid for the computer. Best Buy refused to return the money and claimed that Brian couldn’t avoid the contract. Who was right?

25. You Be The Judge Amanda, 17, was hurt in a volleyball game. A doctor was called to the scene to set Ashley’s broken leg. Later, the doctor sent a bill for $100 for services rendered. Amanda refused to pay the bill, claiming that, as a minor, she wasn’t liable. Assuming the charge was reasonable, can the doctor hold Ashley liable for payment of the bill?

26. When can a minor disaffirm a voidable contract? Burke, 17, bought a rare collection of China for $1000. Shortly before her 18th birthday. Burke returned the collection to the dealer and asked for her money back. What are Burke’s legal rights?

27. Case #1: Sales Contract Ryan, 16 years of age, bought a basketball at Play-It-Again Sports store. If Ryan changed his mind the next day and returned the basketball, is the store legally required to refund his money?

28. Case #2: Sales Contract Nick, 17 years of age, agreed to buy a used all-terrain vehicle (ATV) for $400 from Eric (an adult). Nick paid $50 deposit and agreed to pay the balance when he picked up the ATV the following Tuesday. When Nick appeared with the money. Eric told him that he had changed his mind about selling the ATV and offered to return Nick’s deposit. Was Eric within his legal rights?