Chapter 11 Legal Environment of Business

Which statement is true about the ability of minors to enter into contracts?

A minor may enter into any contract an adult can, except for contracts that are expressly prohibited for minors.

Which type of lack of capacity is easiest to prove?

Minor status

In what situation is a minor most likely to be able to terminate a contract?

When a minor orders books for school

What is the term for the legal ability to enter into a binding contract?

contractual capacity

What is the term for when a person legally declares that he or she does not wish to be bound by a contract that he or she has made?

disaffirmance

Christiana is seventeen years old and has been emancipated. Christiana shares an apartment with a roommate and totally supports herself. Christiana purchases a stereo from Best Stereo Place, Inc. and signs an installment agreement to pay for the stereo over the next twelve months. After paying on the stereo for three months, Christiana decides she no longer wants the stereo. To avoid the rest of the payments on the stereo, Christiana can:

do nothing. Because Christiana signed the contract as an emancipated minor, she has no grounds to rescind the contract.

If a minor misrepresents their age, they:

my be liable for the return of consideration.

What is the term for when a person legally accepts the terms of a contract that could have been avoided due to incapacity?

ratification

What factors may cause a person to lack contractual capacity? Choose 3 answers.

severe intoxication mental incompetence being under the age of majority (usually 18)

Gavin and Allison are having drinks after work. After several rounds, the topic of Gavin's sports car comes up. Gavin is extremely proud of his sports car and brags about it all the time. To impress Allison, Gavin offers to sell Allison his expensive sports car for $5,000. Allison jumps at the deal, because she knows the car is worth much more than $5,000. They even write the "deal" down on a napkin, and both Gavin and Allison sign the napkin. The next morning, when Allison brings $5,000 to purchase the sports car, Gavin explodes. Gavin tells Allison that he was just kidding and that he would never sell his expensive sports car for such a low price. When Allison tries to enforce the deal:

Gavin can either rescind the contract based on incapacity or ratify the contract.

Isabel is 17 years old and wants to stop paying for the use of the local gym, but wishes to continue teaching classes. Her contract with the company includes terms regarding her employment and use of the facility. What must she do to properly disaffirm the contract? Choose 2 answer choices.

Isabel must let gym staff know she is terminating the contract. Isabel must disaffirm both the gym membership obligations and the employment terms in the contract.

Ruby, a seventeen-year-old, purchases a car from Smitz Used Auto Sales and agrees to pay for it over a period of twenty-four months. Ruby makes the payments for four months but then decides the car payment is too much for her limited budget. Ruby tells Smitz that she wants to stop making payments and that she wants out of the contract completely. The contract between Ruby and Smitz can be canceled by:

Ruby, because she is a minor, but Ruby must return the car.

Samuel has mental competency issues. Samuel entered into a contract with Beth, but now Samuel is petitioning the court to terminate the contract. What options does the court have in ruling in the case? Choose 2 answer choices.

The contract is void if Samuel has been previously determined to be mentally incompetent. The contract is voidable if Samuel was incompetent at the time the contract was formed.

When might a contract made by a mentally incompetent person be enforceable?

The incompetent person was lucid at the time the contract was made.

What factors may overturn a minor's right to disaffirm a contract? Choose 3 answers.

The minor misrepresented the minor's age while engaging in business as an adult. The contract is for necessaries. The minor ratifies the contract after reaching the age of majority.

A parent will be liable on their child's contract in the following situations:

The parent has co-signed on the contract.

What must happen after a contract made while intoxicated is declared void?

The party who sought to void the contract must make restitution.

What is the term for the process by which a person under the age of majority is legally declared to be an adult?

emancipation

Marie and Molly enter into a written contract to sell Marie's home to Molly. At the time the contract is executed, Marie tells Molly that for the last six months she has been sharing the home with a family of extraterrestrial beings. Marie states that she has asked the extraterrestrials to move out, but they won't; therefore, she is selling the family home to get rid of them and is willing to sell the home to Molly for well below market price. After the sale of the home is complete, Marie's children challenge the sales contract on the grounds that Marie did not have the mental capacity necessary to enter into a contract, even though Marie has not been declared incompetent by the courts. The contract between Marie and Molly can be rescinded:

if Marie's children can prove that Marie lacked the mental capacity to comprehend the nature, purpose, and consequences of the contract.

Depending on the circumstances at the time of contracting, a contract made by a mentally incompetent person may be: (Choose 3 answers.)

void. voidable. valid.