Transcript Document 7649185

Definition
• A person must have
the ability to give
consent before he can
be legally bound to an
agreement, thus
capacity is the ability
to incur legal
obligations and
14 - 1
The Lack of Capacity
• Groups lacking capacity:
– Minors
– Those suffering a mental disability
– Those who are intoxicated
• Effect -- a person who contracts
without the requisite capacity may
avoid the contract at his/her
option
14 - 2
Minor’s Right to Disaffirm
• Right to avoid a contract is
disaffirmance
– Only the minor may avoid the contract
• Example of disaffirmance:
– Stroupes v. The Finish Line, Inc.
• Court ruled that a minor’s employment
contracts, including arbitration agreements,
were voidable by the minor
• If minor wants to affirm the contract,
14 - 3
Details About Disaffirmance
• Minors may not avoid contracts if
statutory exception exists:
– Marriage, educational loans, insurance
• Fact that a minor is emancipated
(independent from parents) does
not give minor capacity to contract
14 - 4
Details About Disaffirmance
• An exculpatory clause (e.g.,
liability waiver) signed by a parent
does not necessarily waive the
minor’s rights
– See Creech v. Melnik
• Minor’s power to avoid contracts
does not end on day he/she
reaches the age of majority, but
14 - 5
Ratification
• Ratification occurs when a person
who reaches majority indicates
that he/she intends to be bound
by a contract made while still a
minor
– May be express or implied by conduct
14 - 6
Duties Upon Disaffirmance
• Each party has duty to return to
the other any consideration
(money, goods) that the other has
given
• If the consideration given by the
adult has been lost, damaged,
destroyed, or depreciated in
value, courts are split on whether
14 - 7
Dodson v. Shrader
• Facts & Procedural History:
– Dodson, age 16, bought a truck from the
Shraders
– Dodson drove truck until engine ruined
– Dodson contacted Shraders to obtain full
refund, which they refused to make
– Dodson filed suit
– Shraders argued for difference between
present value of truck ($500) and purchase
price ($4900)
14 - 8
Dodson v. Shrader
• Issue & Ruling:
– Must Dodson make restitution?
– Purpose of “infancy doctrine” is protect
minors from their own lack of judgment
• Should not work hardship on innocent
merchant
– “Benefit Rule” holds that, upon rescission,
recovery of the full purchase price is subject
to a deduction for the minor’s use of the
merchandise
14 - 9
Duties Upon Disaffirmance
• Disaffirming minors are
required to pay
reasonable value for
necessities (required
for survival) furnished
to them
– Underlying theory is quasicontractual
• Example: Young v.
Weaver
14 - 10
Capacity & Mental Impairment
• Like minors, people who suffer from a
mental illness or defect are
disadvantaged in their ability to protect
their interests in the bargaining
process, thus contract law makes their
contracts void or voidable
• Test: Did the person have sufficient
mental capacity to understand the
nature and effect of the contract?
14 - 11
Right to Disaffirm or Ratify
• If a contract is voidable due to
mental impairment, the person
may:
– Disaffirm the contract
– Once he/she regains capacity, ratify the
contract
• Upon disaffirmance, consideration
must be returned and the person is
liable for reasonable value of any
14 - 12
Contracts of Intoxicated Persons
14 - 13
• Intoxication is a
ground for lack of
capacity only when it
is so extreme that the
person is unable to
understand the
nature of the
bargaining process
• Note: courts are not