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Business Law: Ch 9

Business Law: Ch 9. Legal Capacity to Contract. What is Capacity. Contractual Capacity – Ability to understand the consequences of a contract Does not require that a person understand the actual terms of the contract . Lack Some Capacity. Three groups lacking some capacity Minors

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Business Law: Ch 9

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  1. Business Law: Ch 9 Legal Capacity to Contract

  2. What is Capacity • Contractual Capacity – Ability to understand the consequences of a contract • Does not require that a person understand the actual terms of the contract

  3. Lack Some Capacity • Three groups lacking some capacity • Minors • Intoxicated • Mentally Impaired

  4. Minors • Minors – Under the age of majority • In Ohio the age of majority is 18 • Ends the day before the birthday of the age

  5. Protecting those lacking capacity • Contracts of those lacking capacity are voidable • Disaffirmance – Protection granted to those lacking capacity • In contract law it means a refusal to be bound by a previous legal commitment • When a protected party disaffirms a contract, by law the protected party is to receive whatever they have put into the contract • The other party may or may not get back their consideration

  6. Disaffirm • Example – A protected party bought a four-wheel ATV from a dealership and then wrecked it. You can disaffirm the contract and recover any payments made. • The dealership would only be able to recover the damaged ATV

  7. Necessities • Necessities – things needed to maintain life • The protected must at least pay a reasonable value for the necessities even if they disaffirm the actual purchase contract

  8. Minors • Contracts are considered voidable (may get out of) • May also disaffirm for a reasonable length of time after achieving the age of majority. • After majority, the power to disaffirm is immediately cut off if you ratify the contract • Minors also may find themselves bound to their contract if they are Emancipated

  9. Emancipated • Emancipated – Severing the parent-child relationship • Ends the duty of the parent to support a child and the duty of the child to obey their parent • Upon reaching the age of majority you are emancipated

  10. Emancipated • Formal emancipation • Court decrees the minor emancipated • Informal emancipated • Arises from the conduct of the parent and minor

  11. Informal Emancipated • The parent and minor agree that the parent will cease support • The minor marries • The minor moves out of the family home • The minor becomes a member of the armed forces • The minor gives birth • The minor undertakes full-time employment

  12. Mentally Incapacitated • Mentally Incapacitated - A person lacks the ability to understand the consequences of his or her contract • If permanently Insane – Contract is Void • Temporary Insane – Contract is Voidable

  13. Intoxicated • Does the person have the ability to understand the consequences • Courts typically allow disaffirmance only for those who are so temporarily intoxicated that they do not even know they are contracting • Stricter because intoxication is a voluntary act • If a person is in a permanent state of intoxication – Contract is void

  14. Who has contractual capacity in organizations • Scope of Authority – has capacity to contract • People acting outside the scope of authority, are personally liable when the organization isn’t

  15. 9-1 Assessment • Turn to page 161 and complete the 9-1 Assessment Questions

  16. When can disaffirmance occur • Disaffirmance – can happen: • Any time still under the incapacity • Within a reasonable time after attaining capacity • After attaining capacity, a person can ratify their contract • Ratification – Action by the party indicating intent to be bound by the contract

  17. Ratification • For a minor, ratification must occur after achieving majority. • Ratification may consist of: • Giving a new promise to perform as agreed • Any act (such as making a payment) that clearly indicates the party’s intention to be bound

  18. What must be done upon disaffirming • When a minor disaffirms, anything of value the minor received and still has must be returned. • The minor is entitled to get back everything that was given to the other party.

  19. Contracts that cannot be disaffirmed • Court approved contracts • Major commitments – armed services, educational loans • Banking contract • Insurance Contracts • Work Related Contracts • Sales of Realty • Apartment rental

  20. Misrepresenting Age • Minors who lie about their age may disaffirm contracts • However, they are liable for the tort of false representation

  21. 9-2 Assessment • Turn to page 165 and complete the 8 questions

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