Chapter 7: Capacity to Contract

ratification

1. Approval of unauthorized act; 2. Indication by adult that a contract made while a minor is binding

minor torts

As a general rule, a minor is liable for torts as fully as an adult is. If minors misrepresent their age, and the adults with whom they contract rely on the misrepresentation to their detriment, the minors have committed a tort. The law is not uniform throughout the United States as to whether or not minors are bound on contracts induced by misrepresenting their age

intoxication rules also include?

those on drugs

If a person is incompetent but has not been so declared by the court, then the person's contracts are:

voidable, not void Like a minor, the person must pay the reasonable value of necessaries that have been supplied

The minor is the sole judge as to?

whether a voidable contract will be binding

Can a minor ratify only part of a contract?

A minor cannot ratify part of a contract and disaffirm another part; all or none of it must be ratified

legal right of disaffirmance?

A minor has the legal right to disaffirm a voidable contract at any time during minority or within a reasonable time after becoming of age

convicts

Although many states have repealed their former laws restricting the capacity of a convict (one convicted of a major criminal offense, namely, a felony or treason) to contract, some jurisdictions still have limitations

The minor's liability is quasi-contractual in nature

The reasonable value of what is actually received must be paid in order to prevent the minor from being unjustly enriched. The minor is not, however, required to pay the contract price.

or an agreement to be enforceable at law, all parties must:

have the legal and mental capacity to contract. This means that the parties must have the ability to understand that a contract is being made, have the ability to understand its general nature, and have the legal competence to contract

minor ratification

means indicating one's willingness to be bound by promises made during minority. It is in substance a new promise and may be oral, written, or merely implied by conduct; however, some states require it to be in writing.

if a sale is made to a minor?

If a sale is made to a minor, the minor may avoid the contract and demand a refund of the purchase price years later Because few minors exercise this right, businesspeople often run the risk of contracting with minors rather than seeking absolute protection against loss

adult purchasing from a minor

If an adult purchases personal property from a minor, the adult has only a voidable title to the property -If the property is sold to an innocent third party before the minor disaffirms the contract, the innocent third party obtains good title to the property -However, the minor may recover from the adult the money or the value of property received from the third party

determining mental impairment

In determining a mentally incompetent person's capacity to contract, the intensity and duration of the incompetency must be determined. In most states, if a person has been formally adjudicated incompetent, contracts made by the person are void without regard to whether they are reasonable or for necessaries

minor business contracts

Many states, either by special statutory provision or by court decisions, have made a minor's business contracts fully binding. If a minor engages in a business or employment in the same manner as a person who has legal capacity, contracts that arise from such business or employment cannot be set aside.

necessaries include

Necessaries include items required for a minor to have a reasonable standard of living that are not provided by the minor's parents or guardian -food, cloths, shelter

People also may put themselves in a condition that destroys contractual capacity. Contracts made by people who have become so intoxicated that they cannot understand the meaning of their acts are voidable

On becoming sober, such persons may affirm or disaffirm contracts they made when drunk. If one delays unreasonably in disaffirming a contract made while intoxicated, however, the right to have the contract set aside may be lost

convict

Person found guilty by court of a major criminal offense

minor

Person under the legal age to contract

disaffirmance

Repudiation of a voidable contract -election to avoid it or set it aside

other enforceable contracts for minors

These contracts include educational loan agreements, contracts for medical care, contracts made with court approval or in performance of a legal duty, and contracts involving bank accounts. Some states find that contracts may be enforced against a married minor

Objectives:

Who has capacity to make a contract What happens if a minor signs a contract

in the eyes of the law, some parties lack such capacity because of:

age, physical condition, or public policy. Among those whom the law considers to be incompetent, at least to some degree, are minors, mentally incompetent people, intoxicated people, and convicts.

Most states have enacted statutes making individuals competent to contract at:

18 years of age (19 for Nebraska)

necessaries

Items required for living at a reasonable standard

Because in general it is risky to deal with minors, every businessperson must know how to be protected when contracting with them

The safest way is to have an adult (usually a parent or guardian) join in the contract as a cosigner with the minor. This gives the other party to the contract the right to sue the adult who cosigned

Although most contracts made by minors are voidable, a few are not. These include?

contracts for necessaries, business contracts, and other specially enforced contracts, such as student loan agreements

If a contract is between two minor

each has the right to avoid it. Should the minor die, the personal representative of the minor's estate may avoid the contract that the minor could have avoided

Almost all of a minor's contracts are voidable at the:

minor's option. That is, if a minor so desires, the minor can avoid or repudiate the contract. If a minor wishes to treat a contract made with an adult as valid, the adult is bound by it. An adult cannot avoid a contract on the ground that the minor might avoid it.

when disaffirming a contract

minors must return whatever they may have received under the contracts, provided they still have possession of it. The fact that the minor does not have possession of the property, however, regardless of the reason, does not prevent the exercise of the right to disaffirm the contract

When must ratification be made?

must be made within a reasonable time after reaching majority

On disaffirmance, anything of value received under the contracts that the person still has:

must be returned

If a minor contracts for necessaries

the contract is voidable, but the minor is liable for the reasonable value of whatever has been received

convict limitations

these range from depriving convicts of rights as needed to provide for the security of the penal institutions in which they are confined and for reasonable protection of the public, to classifying convicts as under a disability, as are minors and insane persons. In these instances, the disability lasts only as long as the person is imprisoned or supervised by parole authorities.

If a person is purposely caused to become drunk in order to be induced to contract, the agreement:

will be invalid

The significance of the law is that:

with but few exceptions, people deal with minors at their own risk The purpose of the law is to protect minors from unscrupulous adults, but in general the law affords the other party no more rights in scrupulous contracts than in unscrupulous ones