Capacity

People lacking contractual capacity

Historically, these people included women, minors, or insane persons. Today, married women have been removed from this category. Through statutes, other categories were added for classes of people for whom guardians had been appointed, such as habitual drunkards, narcotic addicts, spendthrifts, the elderly, and convicts.

Three I's of Incapacity

1. Infancy 2. Insanity 3. Intoxication

Contract for a Necessary

A contract that supplies the minor with the basic necessities of life, generally thought of as food, clothing, shelter, and basic medical services. Some courts define a necessary as what is needed for the minor to maintain his standard of living and financial and social status. Whether an item is considered a necessary is also related to whether the minor's parents are willing to provide the item in question for the minor.

Misrepresentation of age of majority by a minor

Another contractual issue on which the states disagree is the minor's misrepresentation of his age. The majority rule is that misrepresentation does not affect a minor's right to disaffirm a contract, but some states hold that when a minor who appears to be of majority age misrepresents his age and a part relies on that misrepresentation, the minor gives up the right to disaffirm the agreement. Other states have found a compromise between the two extreme positions either by requiring the minor to restore the competent party to that party's precontract position before allowing the disaffirmance, or by allowing the minor to disaffirm but then giving the competent party the right to sue the minor in tort and recover damages for fraud.

Disaffirmance of the Contract

Because their contracts are voidable, minors have the right, until a reasonable time after reaching the age of majority, to disaffirm, or avoid, their contracts. No formalities are required to disaffirm the contract; the minor need only manifest an intention to rescind the contract, either by words or by actions. However, the minor must avoid the entire contract; he cannot choose to disaffirm only a portion of it. The disaffirmance must soccer before or within a reasonable time of the minor reaching the age of majority, determined on a case-by-case basis.

Liability of Minors for Necessaries

Contracts for necessaries are sometimes considered an exception to the rule that minors can disaffirm their contracts. A minor can disaffirm contracts for necessaries; however, the minor will be held liable for the reasonable value of the necessary. The purpose of this limitation is to ensure that minors can obtain the basic necessities of life when their parents will not provide them.

Parents' Liability for their Children's Contracts, Necessaries, and Torts

Contracts: As a general rule, parents are not liable for the contracts entered into by their minor children. Because of this rule, merchants are often reluctant to enter into contracts with minors unless some competent person is willing to agree to cosign the contract. In that way, the competent person will be legally bound to perform the obligations undertaken by the minor if the minor no longer wishes to live up to the terms of the contract. Necessaries: Parents do, however, have a legal duty to provide their children with the basic necessities of life. Thus, they may be held liable in some states for the reasonable value of necessaries for which their children enter into contracts. Torts: In most states, parents are not liable for the torts of their minor children. Minors are liable for their own personal torts. In many states, however, parents may be label when a child causes harm because the parent failed to supervise the child properly.

Intoxicated Persons

For purposes of determining capacity, intoxicated persons include those under the influence of alcohol or drugs. There is some variation among states in the treatment of the capacity of intoxicated persons to enter into contracts. As a general rule, most states follow the Restatement of Contracts (Section 16), which provides that contracts of an intoxicated person are voidable by the intoxicated person if the other party had reason to know that because of the intoxicated person's condition, that person was unable to understand the nature and consequences of the transaction or was unable to act in a reasonable manner in relation to the transaction. If the intoxication merely causes someone to exercise poor judgment, the person's capacity to enter into a legally binding contract is not affected. Likewise, if one party has no way of knowing that the other was intoxicated at the time the agreement was made, and the agreement is fair, it will be upheld by most courts.

Adjudicated Insane & Guardians

If a person's mental deficiencies have resulted in him being adjudicated insane and a guardian has been appointed for him, he has no capacity to enter into contracts, and any contract he attempts to enter into is void. Guardians may be appointed not only for those who are adjudicated insane but also for those who are adjudicated habitual drunkards and those whose judgment has been impaired because of a condition such as Alzheimer's. In any case, although the person for whom the guardian has been appointed no longer has the legal capacity to enter into contracts, the guardian has the legal capacity to enter into contracts on that person's behalf.

Incapacity

Incompetence; some sort of mental or physical defect that prevents a natural person from being able to enter into a legally binding contract. Depending on the nature and extent of the defect, a person may either have no capacity, and therefore any attempted contract is void, or limited capacity, resulting in the ability to form only voidable contracts

Infancy Incapacity

Is the person a minor? If yes, contract is voidable.

Insanity Incapacity

Is the person suffering from mental deficiencies that prevent him from understanding his legal obligations? If yes, contract is voidable. Does the person's mental deficiency simply impair her judgment about the desirability of the contract but not prohibit her from understanding her obligations under it? If yes, contract is valid.

Intoxication Incapacity

Is the sober party aware that the intoxicated person is so impaired that he is unable to understand his legal obligations? If yes, contract is voidable. Is the intoxication such that it impairs only the intoxicated person's judgment but not her understanding of her contractual obligations? If yes, contract is valid. Has the intoxicated person been adjudicated a habitual drunkard? If yes, contract is void.

Emancipation

Occurs when a minor's parents or legal guardians give up their right to exercise legal control over the minor, typically when the minor moves out of the parents' house and begins supporting himself. Often the minor will petition the court for a declaration of emancipation. In most cases, when a minor marries, she/he is considered emancipated.

Implied Ratification

Occurs when the former minor takes some action after reaching the age of majority that is consistent with an intent to ratify the contract. Most courts find that continuing to act in accordance with the contract, such as continuing to make regular payments under a contract after reaching the age of majority, constitutes ratification.

Express Ratification

Occurs when, after reaching the age of majority, the person states, either orally or in writing, that she intends to be bound by the contract entered into as a minor.

Ratification

Once a person reaches the age of majority, she may ratify, or legally confirm, contracts made as a minor. Once ratified, the contract is no longer voidable. Ratification may be either express or implied.

Once an Intoxicated Person becomes Sober

Once sober, the intoxicant has the ability to ratify or disaffirm the contract. Courts tend to be unsympathetic to intoxicants and will fairly liberally interpret behavior that seems like ratification as ratifying the contract. If the contract is disaffirmed on the basis of intoxication, each party to the contract must return the other to the condition he was in at the time the contract was entered into. Also, as with contracts of persons who have limited capacity, a contract of an intoxicated person for necessaries will be enforced for the reasonable value of the necessaries.

Mentally Incapacitated Persons

Persons suffering from a mental illness/deficiency may have full, limited, or no legal capacity to enter into a binding contract, depending on the extent and nature of their deficiency. If a person suffers from mental problems yet still understands the nature of the contract and the obligations imposed by it, the person may enter into a binding legal agreement. However, a person has only limited capacity to enter into a contract if he suffers from a mental illness/deficiency that presents him from understanding the nature and obligations of the transaction he is entering into. As with contracts of minors, a contract of a person suffering from a mental deficiency that is for necessaries can be enforced for the reasonable value of the necessary.

Minor

Someone under the age of 18 (in all but three states). In most states, a person is given full legal capacity to enter into contracts when he becomes emancipated before reaching the age of majority.

Capacity

The legal ability to enter into a binding contract; the 3rd element of a legally binding contract A person who has legal capacity to contract is one who has the mental ability to understand his rights and obligations unser a contract and therefore will presumably be able to understand how to comply with the terms of the agreement.

Expectations to the Minor's Right to Disaffirm the Contract

The minor's right to disaffirm is designed to protect the minor from competent parties that might otherwise take advantage of the minor. But there are certain situations determined that the minor should not have the right to disaffirm the contract. As a general rule, most states will not allow a minor to disaffirm contracts for life insurance, health insurance, psychological counseling, the performance of duties related to stock and bond transfers and bank accounts, education loan contracts, child support contracts, marriage contracts, and contracts to enlist in the armed services.

Obligations/Duty of the Minor on Disaffirmance

The obligations of the minor on disaffirmance vary from state to state. Most states simply require the minor to notify the competent party of the intent to disaffirm and return to the competent party any consideration received under the contract that was still under the minor's control, regardless of the condition of the consideration. If the consideration has been destroyed or damaged, the minor returns what is left of it, and the other party has no recourse against the minor under most circumstances. This rule views minors as innocents in need of protection from competent adults who would otherwise take advantage of minors. Some states have modified the duty rule, holding that the minor has a duty of restitution that required her to place the competent party back in the position that party was in at the time the contract was made.