Understanding Contractual Capacity: A Comprehensive Guide to Minors and Contracts

1. Chapter 7 Contractual Capacity

2. Chapter Overview • Reasons why a minor may disaffirm a contract • How minority is determined • How contracts between minors are treated • Other reasons related to capacity that can make a contract voidable

3. The Opening Scene, pg. 145 • Alena • Jake • Arkadi • Viktor • Mr. Barenblatt • When is a person considered a minor? • Why does the law permit minors to void their contracts? • Are there any exceptions to the rule that says that minors can void their contracts? • What individuals, besides minors, can void their contracts?

4. Class Discussion • Have any of you ever signed a contract? • Can you name some of the protections afforded to minors who sign contracts?

5. Chapter 7, Section 1 • Contractual Capacity • Capacity – the legal ability to enter into a contract • Minorsdon’t have full capacityto contract • Scope of Authority – the range of acts authorized by an organization or individual • Treasurer- Signs checks • President- Can sign contracts • Agent- Negotiate Contracts • If you act outside your authority you can be held personally responsible!

6. Chapter 7, Section 1 • Contractual Capacity • Rebuttable Presumption: The law says people are permitted to presume the other party has the capacity to contract • BUT, it can be challenged in court (Circumstances) • Concept plays key role in contracts • Especially ones made by minors • Law permits minors to rescind or void their contracts within limits

7. Capacity to Contract Defined: • A person who has not yet reached the age of legal adulthood, known as the age of majority • No age of majority, then they are considered a minor • Commonly referred to as minority • Minority doesn’t end at age 18 • Anything as a minor, alters capacity

8. Capacity to Contract History In 1972, when the voting age was lowered from 21 to 18 most states lowered the age of majority. Common acceptance of this idea means you turn the age of majority at the beginning of the day before your 18th birthday

9. Capacity to Contract • Emancipated minors – Some states have declared minors who are no longer under control of their parents are Emancipated. • Basically means they are responsible for their contracts • A minor who leaves home or marries, giving up all rights to parental support, is considered Emancipated

10. Capacity to Contract • Emancipated minors – Such individuals are said to have abandoned the protection afforded them as minors • Most merchants are reluctant to deal with these minors fearing the shield of minority • “Charged as an Adult” • Formal emancipated minors • All minors are held for torts.

11. Capacity to Contract • Misrepresentation of age – considered fraud and you can be held responsible • To prevail all 5 elements of fraudmust be present • Some states allow minors to be sued for fraud, others don’t • Still considered a crime to lie about one’s age to buy age restricted products-even PA

12. Protection of Minors Why should minors be protected by the law when it comes to contracts? Immaturity, inexperience, lack of education, naiveté

13. Protection of Minors Should an adult who permits minors to use their IDs to misrepresent their age also be held liable?

14. Web Quest: Article Research • Using the Internet find a specific article on Adults helpingminors with fraudulent ID issues etc… • Printout article • Read Article • Be prepared to discuss your article

15. Contracts of Minors • Voidable Contracts • Example 1, pg. 151 • Opening Scene: • Jake, who is 16, attempts to disaffirm his contract with the Buy-a-heap used car lot. • He gives a letter that states his intent to Mr. Barenblatt. • Jake is a minor, and as a result, Buy-a-heap will have to comply with his request.

16. Contracts of Minors • Second chance:By permitting minors to have the privilege of disaffirming contracts the law provides young people with a way to fix poor judgment • Done through dissaffirmance – return of consideration/values • Usually by both parties return • Give back item • Released contract

17. Contracts of Minors • Disaffirming a Contract – minors must disaffirm all or noneof the contracts they engaged in. • They may not be selective in what they disaffirm • Generally, a person lacking contractual capacity can disaffirm a contract for non-necessaries • any time while still under the incapacity • within a reasonable time after attaining capacity • Not banking or marriage contracts

18. Contracts of Minors • Disaffirming a Contract –All States deny minors that court approved contracts, enlistments contracts, and educational loans can be disaffirmed • (Can’t be done!) • When the consideration by both parties has been given back, the contract is said to be disaffirmed

19. Contracts of Minors • Return of Merchandise – if the minor still has the merchandise, he or she will have to return it • Even if the items contracted were damaged • Tendered “Offer of compensation” • Some states allow for deductions • Minors have a “reasonable” amount of time after reaching majority to disaffirm their contracts • Not in Armed Forces

20. Contracts of Minors (continued) • Disaffirming Contracts Made with other Minors – when two minors contract, both have the right to disaffirm • Some states even allow minors to disaffirm real estate deals when they turn age of majority

21. Contracts of Minors (continued) • Disaffirming Contracts Made with other Minors –Example 2, pg. 153 • Rob, who is 15, offered to sell his mountain bike to Corey, who is 16. Corey initially agreed to buy it but then change his mind

22. Ratification of Minors’ Contracts • Ratification • After reaching the age of majority, a person can ratify contracts made during minority • Can be by actions/behavior • Ends privilege of minority • Only upon reaching majority • Done orally, in writing, or by actions • Promise to perform as agreed • Can’t be revoked or withdrawn

23. Ratification of Minors’ Contracts • Ratification • Colleen bought car when she was 17 years old. • She made a down payment • Promised to pay balance over two years in installments • After she reached 18, she continued to pay • Her actions were considered ratification

24. Contracts for Necessaries • Necessaries or Necessities: Defined as Food, clothing, shelter, medical care • Things need to maintain life---- • Example 3, pg. 156

25. Contracts for Necessaries • A minor is held responsible for fair value of necessaries • Necessaries are called necessities • Under common law, one’s “station in life”has a bearing on whether an item is a necessary • Not the same for every person • Example: $150 pair of custom-made shoes may be considered necessary for someone with a foot injury • In contrast, a designer pair would be considered a luxury

26. Contracts that cannot be disaffirmed All States Most States Some States (1) court-approved contracts (2) major commitments Armed services, education loans, marriage contracts (3) banking contracts (4) insurance contracts (5) work-related contracts Engaged in business or trade (6) sale of realty (7) apartment rental

27. Chapter 7 Work Packet Complete work packet for chapter 7

28. Capacity Situations that Might Disaffirm a Contract Mental Impairment Intoxication Drug Use Alien Status Legal Age

30. Capacity Situations that Might Disaffirm a Contract • Mental Impairment • Same rights given to minors • Substantially, “Does the person understand” the consequences of actions? • Considered unable to make sound judgments • Before aguardianis appointed, any contracts are voidable for an mentally impaired person • Held responsible for fair value of necessaries

31. Capacity Situations that Might Disaffirm a Contract • Intoxication & Drug Use • Must be at the time they enterinto contract • Treated the same as mentally impaired or minors • Must be so intoxicated they didn’t understand the contract’s: • Purpose • Nature • Effect

32. Capacity Situations that Might Disaffirm a Contract • Alien Status • People who are living in this country but owe allegiance to another country • Often give enemy status and denied certain legal protections • Legal Age • Majority vs. Minority

33. You Be The Judge! • Joy and Raul woke up with severe headaches one morning after a night of partying and remembered they had married each other at an all-night wedding chapel. • Joy wants to void the marriage immediately. • Raul wants to stay married. • Can Joy avoid her marriage contract?

34. You Be The Judge! To void a contract for this reason: • A person must have been so intoxicated at the time of the contracting that he or she did not understand the purpose, nature, or effect if the transaction • The judge or jury must decide that question of intoxication • Generally, you can’t disaffirm marriage contracts (Pre-nuptial)

35. You’re the Judge Mary Robinson, a 17-year old high school graduate, applied to Ed Rice for a job and was hired on a one-year contract. Nothing was said about Robinson’s age, but when Rice discovered she was only 17, he discharged her. Did Rice have a legal right to do this? No! An adult who contracts with a minor is usually bound by that contract!

36. You’re the Judge Patty Okari, 14, bought a video game at a store. A sign said: “No returns---All Sales Final” After using the game for a week, she returned it to the store and asked for a refund. Is she legally entitled to a refund? Yes! Minors may return goods other than necessaries and get their money back. In a few states, an amount may be deducted if the goods are damaged or soiled.

37. You’re the Judge Ethel O’Conner bought a CD player on the day before her 18th birthday. That same day, she changed her mind and sought to return it and get her money back. She claimed that she could return the purchase because she was a minor. Was she correct? No! Persons reach majority at the beginning of the day before their 18th birthday.

38. Class Work Chapter 7 Packet Due @ Exam Time! Exam: Next Class!