Transcript 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
1. Minors
2. Intoxicated
3. Mentally Impaired

Minors

Minors – Under the age of majority
 In Ohio the age of majority is 18
 Ends the day before the birthday of
the age
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
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
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
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

Emancipated

Emancipated – Severing the parentchild 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
Emancipated

Formal emancipation
 Court decrees the minor emancipated

Informal emancipated
 Arises from the conduct of the parent and
minor
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

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

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
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

9-1 Assessment

Turn to page 161 and complete the 9-1
Assessment Questions
9-1 Assessment
False
2. True
3. B
4. B
5. False
6. True
1.
9-1 Assessment
Probably not. Clare purchased
necessaries so she cannot disaffirm. If
she paid more than the reasonable value,
she would receive the excess back.
8. No. Courts do allow a reasonable period
of time after entering majority to evaluate
the contracts made during minority.
However, five months is far too long.
Making her monthly payments beyond a
month or two would be ratification.
7.
When can disaffirmance occur

Disaffirmance – can happen:
1. Any time still under the incapacity
2. 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
Ratification
For a minor, ratification must occur after
achieving majority.
 Ratification may consist of:

1. Giving a new promise to perform as
agreed
2. Any act (such as making a payment) that
clearly indicates the party’s intention to be
bound
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.

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

Misrepresenting Age
Minors who lie about their age may
disaffirm contracts
 However, they are liable for the tort of
false representation

9-2 Assessment

Turn to page 165 and complete the 8
questions