Law of Capacity

1. Lessons Chapter 10 CHAPTER 10 Law of Capacity 10-1 Capacity Rights 10-2 Limitations on Capacity Rights

2. GOALS Chapter 10 LESSON 10-1 Capacity Rights Identify parties who have contractual capacity Identify what contracts can be disaffirmed Explain the role of capacity in organizations

3. Chapter 10 WHAT IS CAPACITY? Contractual capacity is the ability to understand that a contract is being made and its general meaning.

4. Chapter 10 CAPACITY RIGHTS • Necessaries • Non-necessaries • Disaffirmance • Ratification

5. Chapter 10 MINORS • In most states, people under the age of 18 • In a few states, age of majority is 19 or 21 • Also referred to as being in their minority or under the age of majority

6. Chapter 10 EMANCIPATION • Emancipation is the severing of the child-parent relationship. • Early emancipation • Formal emancipation occurs when a court decrees the minor emancipated. • Informal emancipation arises from the conduct of the minor and the parent.

7. Chapter 10 EVIDENCE OF INFORMAL EMANCIPATION • The parent and minor agree that the parent will cease support • The minor marries • The minor moves out of the family home • The minor joins the armed forces • The minor gives birth • The minor undertakes full-time employment

8. Chapter 10 MENTAL INCAPACITY • Mental incapacity is much less precisely defined than minority. • The test is whether the party understands the consequences of his or her contractual acts.

9. Chapter 10 INTOXICATION • Intoxication can arise from using alcohol, from using drugs, or inhaling products such as glue or aerosols. • Many courts are reluctant to allow disaffirmance for intoxication when it may injure another.

10. Chapter 10 WHICH CONTRACTS CAN BE DISAFFIRMED? • Necessaries are goods and services that are reasonably required to maintain a person’s lifestyle. • Non-necessaries are all other goods and services or relative luxuries.

11. Chapter 10 CAPACITY IN ORGANIZATIONS • Some people who work for organizations have the capacity to bind the organizations to contracts. • Capacity to contract can be created when the employer tells an employee that he or she is authorized to bind the organization. • Capacity to contract can be created when an organization leads others to believe that a person has certain authority.

12. GOALS Chapter 10 LESSON 10-2 Limitations on Capacity Rights Identify the time when a contract cannot be disaffirmed Identify contracts that cannot be disaffirmed Explain the consequences of misrepresenting age

13. Chapter 10 TIME OF DISAFFIRMANCE • Any time while still under the incapacity • Within a reasonable time after attaining capacity

14. Chapter 10 RATIFICATION Ratification may consist of either of the following • Giving a new promise to perform as agreed • Any act that clearly indicates the party’s intention to be bound

15. Chapter 10 RETURN OF GOODSOR SERVICES • Loss of value • Obligations of party with capacity

16. Chapter 10 WHAT CONTRACTS CANNOT BE DISAFFIRMED? • Court-approved contracts • Major commitments • Banking contracts • Insurance contracts • Work-related contracts • Sale of realty • Apartment rental

17. Chapter 10 MISREPRESENTING YOUR AGE • In most states minors who lie about their age may disaffirm their contracts. • In these states, a minor who gives a false age may be held liable for the tort of false representation