BLAW 280 CH 14 Capacity to Contract

T/F: If a minor is shown to have superior intelligence and business experience, he may not disaffirm a contract.

false

T/F: If a party has been drinking at the time a contract was formed, the party is seen as lacking the capacity to form the contract.

false

if he delays longer than a period of time that is considered to be reasonable under the circumstances

he will run the risk of ratifying(affirming) the contract

a former minor's continued performance of his part of the contract after reaching majority has been held to imply

his intent to ratify a contract

who lacks capacity?

1) infants (minors) 2) impaired (mentally) 3) intoxicated (drugs and alcohol)

Jon age 17, wants to lease a car from ABC Auto Company. Jon misrepresents his age on a false identification card as being 21. Jon leases the vehicle. Can Jon later disaffirm the contract? A) Some courts allow Jon to cancel the contract, even though he misrepresented his age. B) Since a car is a necessary of life, Jon will not be able to disaffirm the contract. C) The age of majority in most states is now 17, so Jon will not be able to disaffirm the contract. D) Both "b" and "c".

A

Kate went out with her friends to a local bar one night. She got very intoxicated and was not able to tell the taxi driver her address so that he could drive her home. One of her friends gave the taxi driver Kate's address. However, the taxi driver saw an opportunity to make money and charged Kate $500 for the 2 mile ride to her house. Kate let him take the cash out of her wallet. Under the circumstances, A) Kate can disaffirm the contract because she was too intoxicated to understand the transaction. B) Kate cannot disaffirm the contract because she paid the taxi driver in cash. C) The taxi driver can disaffirm the contract because Kate was too intoxicated to understand the transaction. D) None of the above.

A

Rachel, an autistic adult, entered a one-year contract to rent an apartment. (Autism is a mental illness that involves diminished mental capacity.) The rent for the one-bedroom apartment is $1,500, although prevailing rents for equivalent apartments in the neighborhood are approximately $1,000. Rachel lived in the apartment for three months and moved out. If her guardian sues for rescission of the rental agreement, a court would probably find that A) The contract can be rescinded since Rachel lacked capacity. However Rachel is liable in quasi contract for the three months she lived there at the agreed-upon rate, i.e. $4,500 ($1,500 times three months). B) The contract can be rescinded since Rachel lacked capacity. However, Rachel is liable in quasi contract for the three months she lived there at a fair market value, i.e. $3,000 ($1,000 times three months). C) The contract could be rescinded for lack of capacity only if it did not involve a necessity. Since housing is a necessity, then the contract is binding on Rachel. She is liable for breach of contract regarding the remainder of the lease. D) The contract can be rescinded for lack of capacity. Therefore Rachel is not liable under the lease and can receive a refund of $4,500 ($1,500 times three months).

B

Cecil was an adult with diminished mental capacity. He entered an agreement to buy stock in a privately-held company. In the three months subsequent to the purchase, the price of the stock has doubled. Under these circumstances, the other party may: A) Disaffirm the contract. B) Rescind the contract and get the return of the stock in exchange for refunding the purchase price to Cecil. C) Reform the contract to reflect the current fair market price. D) None of the above.

D

Karen had her mentally ill grandmother sign an agreement transferring the grandmother's house to Karen for a small fraction of the home's value. Under these circumstances: A) Karen may affirm the contract since shelter is a necessary of life. B) Karen may affirm the contract since she is in the position of her grandmother's guardian. C) Grandma may disaffirm the contract since shelter is a necessary of life. D) Grandma may disaffirm the contract since she lacked mental capacity.

D

If a contract is voidable due to mental impairment, the person may:

Disaffirm the contract Once he/she regains capacity, ratify the contract

test for mental incapacity

a person who suffers from a mental illness or defect does not necessarily mean that he lacks capacity court asks whether the person had sufficient mental capacity to understand the nature and effect of the contract

voidable contracts

a valid contract which may be either affirmed or rejected at the option of one of the parties. At most, one party to the contract is bound. The unbound party may repudiate (reject) the contract, at which time the contract becomes void.

IF a minor wishes to enforce a contract

adult must perform it (they are bound to the contract unless it is disaffrimed)

who has the capacity to contract?

adults of sound mind

quasi-contractual

although there is no contract between the parties, the relationship resembles a contractual one

if a former minor's acceptance or retention of benefits given by the other party for an unreasonable time after he has reached majority can constitute

as implied ratification

for people who lack capacity, contract law gives them the right to

avoid(escape the legal consequences of) contracts that they enter during incapacity

contracts entered during minority that affect title to real estate cannot

be disaffirmed until he reaches majority age (21), even then he has the right to disaffirm for a small period of time after he turns 21

if you lack capacity?

by operation of laws, you are not able to enter into an enforceable contract those contracts will become voidable/void contracts

if neither party has performed his part of the contract, the parties' relationship will simply be

canceled by disaffirmance

if after the contract is formed the court finds that the person who manifested consent lacked capacity on thr grounds of mental illness or defect

contract is voidable

the contracts of people who are suffering from a mental defect at the time of a contract

contract is voidable

minor's obligation to pay reasonable value of neccessaries

disaffirming minors are required to pay the reasonable value of items that have been furnished to them (necessaries, something essential to their welfare, clothes shelter, etc)

even though a minor is emancipated

doesn't give him capacity to contract

what if the minor has paid money to the adult and the adult has given property to the minor?

each party has the duty to the other any consideration that the other has given minor must return any consideration given to him by the adult that remains in his possession and vice versa (duty to return consideration)

T/F: An adult who knowingly enters into a contract with a minor can disaffirm the contract at any time.

false

if the adult has neither performed or relied on the contract

former minor is likely accorded a longer period of time in which to disaffirm

the right to disaffirm for the mentally impaired

if contrCT IS VOIDABLE, PERSON WHO LACKED CAPACITY AT THE TIME THE CONTRACT IS FORMED HAS THE RIGHT TO DISAFFIRM THE CONTRACT

a minor's liability for necessaries supplied to him is quasi-contractual

minor is liable for the reasonable value of the necessaries that she actually receives (not liable for the entire price agreed on if that price exceeds the actual value of the necessaries and that were contracted but she did not recieve)

capacity of minors

minors or their legal guardians have a right to disaffirm(avoid) a contract no formal act or written statement is required to make a valid disaffirmance any words or acts that effectively communicate disaffirmance

if the minor is unable to return the consideration

most states will permit him to disaffirm the contract

if person suffers from severe mental or physical impairment and prevents them from even being able to manifest consent

no contract is formed

Exception to the minor's right to disaffirm

not every contract involving a minor is voidable some examples of unavoidable contracts: marriage agreements o support their children educational loans life and medical insurance contracts, contracts for transportation by common carriers contracts to employ child actors

Emancipation

termination of a parent's right to control a child and receive services and wages from him no formal requirement parent's expressed or implied consent

ratification

surrendering the right to void a contract can be expressed in an oral or written statement, it can be implied through conduct of the former minor

Capacity to contract

the ability to incure legal obligations and acquire legal rights

in determining whether a person may disaffirm after reaching majority, a major factor the court considers is whether

the adult has rendered performance under the contract or relied on the contract

if a person under guardianship at the time the contract is formed

the contract is considered void

if the consideration given by the adult party has been lost, damaged, destroyed, or simply has depreciated in value

the minor is not obligated to pay the adult for the benefits she has recieved or to compensate the adult's loss

Effect of Misrepresentation of Age

the minor is responsible for the losses suffered by the adult, either by allowing the adult to counterclaim against the minor for the tort of deceit or by requiring the minor to reimburse the adult for use or depreciation of his property

if the adult has relied on a contract or has given something of value to a minor

the minor must disaffirm within a reasonable time after reaching majority

T/F: Minors disaffirming contracts for necessaries are still required to pay the reasonable value of the necessaries furnished to them under the contract.

true

T/F: Those who are suffering from a mental defect may normally disaffirm the contract.

true

under the Restatement of contracts provides that a person's contracts are voidable if he is

unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition (or not)

exception to the duty to return consideration for a minor

under the UCC, a minor cannot recover good that have been transferred to a good faith purchaser