Chapter 10

CAPACITY

Incapacity

• Individuals in certain protected classes are legally incapable of incurring binding contractual obligations. Those persons may assert the defense of incapacity and the contract is

voidable

at their option.

Protected Classes

• I. MINORS • II. Incompetent Persons • III. Intoxicated Persons

Minors

• Age of majority in most states is 18. Married persons under 18 are considered adults.

• Infants (minors) lack capacity to enter into a contract binding themselves. A contract entered into between an infant and an adult is voidable (NOT VOID) by the minor but binding on the adult. Minors, or their guardians, may disaffirm or repudiate the obligation.

Ratification

• Minors may ratify a contract only after turning 18, or for a reasonable period after turning reaching majority. • Ratification may be express, or implied from conduct, i.e., a minor keeps the consideration for an unreasonable period of time after turning 18; a minor continues to use the property or accepts benefits from the deal) • Selling the property to a third person constitutes ratification.

• • Ratification is final and can’t be withdrawn.

• Ratification must be of the “whole” contract - all or nothing.

Minor’s Right to Disaffirm

• If contract is still

executory,

and no one has performed, minor can always disaffirm.

• If

executed contract

, minor may still disaffirm but minor is obligated to return the consideration/property. • If executed contract but the property is wrecked, or used, the minor’s rights vary by State: – Minor may disaffirm contract and return the wrecked or used property in exchange for all value paid. If the consideration is used up, lost or destroyed, minor does not have to pay the other party.

– Minor may disaffirm the contract and return the wrecked or used property. But, minor has a duty of restitution and must pay for the reasonable use or depreciation of the property. Minor must return the seller to approximately the same position as if the sale had never occurred.

Minor’s Duty to Third Parties

• Once a minor sells goods to an adult, the adult has obtained a “voidable” title, rather than a “good” title. Minors can repudiate and recover possession from the adult.

• Under old law, if the property was then sold to a “good faith purchaser for value”, the minor could still avoid the contract and recover the property.

• UCC has modified this rule with respect to sale of goods, a person with voidable title has power to transfer valid title to a GFP.

• Common law rule still applies to sales of real property by minors. A minor may rescind her deal from the GFP. And, the adult still remains liable on the deed to GFP

Necessaries

• Minors, intoxicated, incompetents, must pay for reasonable value of necessaries.

• Food • Clothing • Medical services • Textbooks • Cameras, stereos, boats, etc. are NOT necessaries

Minor “Lies” about Age

• Majority Rule - Minor can still disaffirm • Minority View - Minor may NOT disaffirm if adult reasonably relied on misrepresentation. Leave parties alone.

• Other states - Minor must restore other party to his original position, and allow defrauded party to recover damages.

Incompetents

• An incompetent is one whose mental capacity is such that (s)he is unable to understand the nature an consequences of his/her acts.

Incompetents under Guardianship

• If there is a guardian appointed, a contract by the incompetent (person adjudged insane), is VOID.

• Guardian may ratify the contract, if so desired.

• Incompetents, like minors,liable for fair value of necessaries.

Mental Illness/Defect

• Contract is voidable if person is unable to comprehend the nature and effect of his acts. • A person who has a mental defect and is able to understand what he is doing, but unable to control his behavior in a reasonable manner, may repudiate if other party didn’t know about condition.

Intoxication/Prescribed Medications

• Voidable if it can be shown that the intoxicated person’s reason and judgment were impaired to such an extent that he did not understand the legal consequences of his actions. Must disaffirm promptly.