Legal Capacity to Contract Chapter 9

Section 9-1

Goals• Identify parties who lack contractual

capacity.• Explain the role of capacity in

organizations.

What’s Your Verdict?

Page 155

Can Alexis get her money back?

Contractual Capacity

• Contractual capacity – is the ability to understand the consequences of a contract. – Note: This does not mean that a person

understands the contractual terms only the ability to understand them.

What do you think?

Keep in mind the definition of contractual capacity. Currently with the subprime mortgage crisis many borrowers are claiming that they did not understand the contractual terms of the contract they entered into when borrowing the money for their homes. Given this fact do you think the government has the responsibility to protect those individuals? Why or why not?

Age of Majority

• Anyone who is over the legal age to enter into a contract.

• Legal ages to enter into contracts are set by the states. (In most states the legal age is 18)

Minor

• Anyone under the age of majority.

• Usually ends the day before the birthday.

Minority

• Minority – is the state of being below the age of majority.

Dissaffirmance

• Dissaffirmance – a refusal to be bound by a previous legal commitment.– Usually the party that dissafirms gets back what

they put into the contract.

– The other party may or may not get back their consideration.

Necessaries

• The courts realize that protected may have to contract for the “necessities” in life. Food, shelter, etc….

• When protected parties contract for such items they must at least pay a reasonable value for such items even when the disaffirm the contract.

Think Critically Through Visuals

Page 156

Law BriefPage 156

• Please write a definition defining the term necessity as it applies to contract law.

• What do you consider a necessity?

Minors

• Minors may disaffirm contracts.

• However a minor upon reaching the age of majority may choose to ratify the contract.

• Remember: Ratification is acting toward the contract as though one intends to be bound by the contract.

Emancipation

• Emancipation - is the severing of the parent child relationship.

• Usually a minor becomes emancipated upon reaching the age of majority.

Formal Emancipation

• Forman emancipation takes place when a court decrees the minor emancipated from their parent.

Informal Emancipation

• Informal emancipation arises from the conduct of the minor and the parent.

Examples of Informal Emancipation

• The parent and minor agrees 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 give birth.

• The minor undertakes full-time employment.

Emancipation of minors in Pennsylvania

• In the article “Emancipation of Minors in Pennsylvania” please read section II. SCHOOL ATTENDANCE AND RESIDENCE.

• Keep the article for your reference.

• Answer the following questions on a separate sheet of paper.

Emancipation of minors in Pennsylvania

• At what age can a student leave school without his or her parent of guardian’s permission? And why do you think that age was set?

• Can homeless students attend school in the district where the located?

• What can happen if a minor is at the compulsory age for school attendance and does not regularly attend school according to Pennsylvania truancy law?

Those Mentally Incapacitated

• Mentally Incapacitated – means that a person lacks the ability to understand the consequences of his or her contractual acts.

• People suffering from:– Severe mental illness.

– Severe mental retardation.

– Severe senility.

The Insane

• The insane are included in the definition of mentally incapacitated.

• However, the rules surrounding necessaries are applied to an insane person’s purchase of food, clothing, and shelter.

The Intoxicated

• The courts are reluctant to consider an intoxicated party’s contracts voidable.

• The courts typically allow dissaffirmance only for those who are so intoxicated they do not know they are contracting.

What Do You Think?

• What do you think about minors being held in the same classification and same contractual standards as people who are mentally incapacitated or intoxicated?

• Do you think the age of majority in PA should be increased or decreased from the age of 18 years of age? Why or why not.

A Question of Ethics

Page 157

Analyze Real Cases

• Read question #26 in Analyze Real Cases on page 166 and answer the questions at the end.

Contractual Capacity Within Organizations

• Scope of Authority – if someone has the capacity to bind the organization into a contract.

• Capacity can be created when the organization leads others to believe that a person has certain authority.

What’s Your Verdict?

Page 158“Is the store bound by Caryn’s

contract?”

Think Critically Through Visuals

Page 158

Assessment 9-1

• Think About Legal Concepts– Questions 1 through 6

• Think Critically About Evidence– Question 7 through 9

• You may work with a partner, however please hand your answers in on a paper with your own name.

Section 9-2Goals

• Recognize the time frame during which a contract can be disaffirmed.

• Identify contracts that cannot be disaffirmed.• Discuss the effects of misrepresentation of

age on contractual responsibilities.

What’s Your Verdict?

Page 160“Can Beach do so?”

What’s Your Verdict?

Page 160“What if Beach disaffirmed but after

making the four payments before he reached majority?”

When Can Dissaffirmance Occur And What Must Be Done At That Time?

• Generally a person lacking contractual capacity can disaffirm a contract for necessaries or goods or services that are not necessaries:– Any time while still under the incapacity.

–Within a reasonable time after attaining capacity.

Ratification

• Ratification may consists of either of the following:– Giving a promise to perform as agreed.

– Any act that clearly indicates that party’s intention to be bound.

What must be done upon Disaffirmance

• When a minor disaffirms, anything of value the minor received and still has must be returned.

• The minor is then entitled to give back everything that was given to the other party.

Loss of Value

• In most states if minors are unable to return exactly what was received under the contract, they can still get back everything they gave.– This is true even if a minor returns used or

damaged goods.

– This is also true even if a minor returns nothing because the goods have been lost, consumed, or destroyed.

What Do You Think?

• What are some steps merchants can take to protect their interests when contracting with minors?

Obligations Of Party With Capacity

• A party with capacity can neither enforce or avoid all or any part of a contract for goods or services that are not necessaries against a party lacking capacity.

Contracts That Cannot Be Disaffirmed

• Some contracts with minors cannot be disaffirmed. The most common examples are…..

Court-Approved Contracts

• In all states, minors cannot void any contract approved for them by a court.

Major Contracts

• In all states, contracts to enlist in the armed services and contracts for education loans cannot be disaffirmed.

• Marriage contracts by minors cannot be disaffirmed.

Banking Contracts

• In most states, minors are permitted to make deposits in banks and savings and loans and are treated as adults.

Insurance Contracts

• More than one-half of the states provide that minors who are over a certain age may not disaffirm certain contracts of life insurance.

Work-Related Contracts

• In most states, minors who engage in business or trade cannot disaffirm agreements involving their business.

Sale of Reality

• In some states, a minor who owns real property and sells it or borrows money against it cannot disaffirm until after achieving majority.

Apartment Rental

• In a few states, the lease of an apartment cannot be disaffirmed even if the apartment is not a necessary.

What’s Your Verdict?

Page 161“Must Muller do so?”

Contractual Effect of Misrepresenting Age

• In most states, a minor who misrepresents his or her age may still disaffirm the contract.– However, in these states, a minor who gives a false

age may be held liable for the tort of false representation.

Think Critically Through Visuals

Page 162

Analyze Real Cases

• Read questions #25 in Analyze Real Cases on page 166 and answer the questions at the end.

Case for Legal Thinking

• With a partner read “Case for Legal Thinking” on page 167 and answer the questions at the end of the case.

Assessment 9-2

• Think About Legal Concepts– Questions 1 through 4

• Think Critically About Evidence– Question 5 through 8

• You may work with a partner, however please hand your answers in on a paper with your own name.

Think Critically About Evidence

• Page 165• Questions 20 though 23.

• You may work with a partner, however please hand your answers in on a paper with your own name.

Analyze Real Cases

• Read questions #27 & 28 in Analyze Real Cases on page 166 and answer the questions at the end.