Chapter 10Chapter 10

Law of CapacityLaw of Capacity

What is Capacity?What is Capacity?

• Having the maturity and experience to Having the maturity and experience to protect self interestprotect self interest

• The ability to understand that contract is The ability to understand that contract is being made & its general meaningbeing made & its general meaning

• Who lacks capacity?Who lacks capacity?– MinorsMinors– IntoxicatedIntoxicated– Mentally incapacitated Mentally incapacitated

Capacity RightsCapacity RightsTwo basic protections granted to those who lack capacityTwo basic protections granted to those who lack capacity

• Necessaries vs. Non- necessariesNecessaries vs. Non- necessaries– Necessaries = needed to maintain lifeNecessaries = needed to maintain life– Non-necessaries = luxuriesNon-necessaries = luxuries

Read third column – page 143Read third column – page 143

• DisaffirmanceDisaffirmance– Returning considerationReturning consideration

• RatificationRatification– Acting in order to be bound to a contractActing in order to be bound to a contract

Protected Parties…Protected Parties…

• MinorityMinority– Under 18- Under 18- in most in most

statesstates

• EmancipationEmancipationSevering child-parent Severing child-parent

relationshiprelationship

1.1. Both agreeBoth agree2.2. MarriageMarriage3.3. Moving outMoving out4.4. MilitaryMilitary5.5. ChildrenChildren6.6. Full-time jobFull-time job

• Mental IncapacityMental Incapacity– Can the party Can the party

understand?understand?

• IntoxicationIntoxication– Stricter standard Stricter standard

b/c voluntaryb/c voluntary

Which contracts can be Which contracts can be disaffirmed?disaffirmed?

• Non-NecessariesNon-Necessaries– Can be disaffirmed if the party lack Can be disaffirmed if the party lack

capacitycapacity

What’s your Verdict – Page 143What’s your Verdict – Page 143

• NecessariesNecessaries– The right to pay “fair market value”The right to pay “fair market value”

What’s your verdict? What’s your verdict?

Against their parents’ wishes, Garcia and Against their parents’ wishes, Garcia and Wesly – both minors – left home. Together Wesly – both minors – left home. Together they signed a 12-month least to rent a they signed a 12-month least to rent a nearby furnished apartment from Krohn at nearby furnished apartment from Krohn at the bargain price of $350 a month. After the bargain price of $350 a month. After three months, the teenagers ran out of three months, the teenagers ran out of money and returned to their homes. money and returned to their homes. Krohn could not find new tenants.Krohn could not find new tenants.•Could he hold the minors liable for the Could he hold the minors liable for the rent?rent?

• Necessity? Or Non-necessity? Necessity? Or Non-necessity? – Non-necessity –Non-necessity –

• They did not HAVE to move They did not HAVE to move out of parents houseout of parents house

•Krohn could not hold them Krohn could not hold them liable for the rentliable for the rent

Capacity in OrganizationsCapacity in Organizations

• Scope of authorityScope of authority– The ability to bind an organization to a The ability to bind an organization to a

contractcontract

What’s your verdictWhat’s your verdict

Alicia was a wholesaler of flowers. Her friend, Alicia was a wholesaler of flowers. Her friend, Caryn, worked for a grocery store as a checker. Caryn, worked for a grocery store as a checker. One day Alicia stopped by during Caryn’s break One day Alicia stopped by during Caryn’s break and asked if she could sell her flowers through that and asked if she could sell her flowers through that store. Caryn said yes and signed a contract to store. Caryn said yes and signed a contract to purchase 10 dozen roses for the store. When Alicia purchase 10 dozen roses for the store. When Alicia tried to deliver the roses, they were refused by the tried to deliver the roses, they were refused by the store and Alicia sued.store and Alicia sued.•Is the store bound by Caryn’s contract? Is the store bound by Caryn’s contract? •No – Caryn was a cashier and did not have the “authority” No – Caryn was a cashier and did not have the “authority” to make this decisionto make this decision

What’s your Verdict?What’s your Verdict?

• While still a minor, Beach bought a stereo While still a minor, Beach bought a stereo system on credit from McReam’s Electronic system on credit from McReam’s Electronic Cloud for $500. Beach paid $100 down and Cloud for $500. Beach paid $100 down and promised to pay $50 a month on the unpaid promised to pay $50 a month on the unpaid balance until the debt was paid. After making balance until the debt was paid. After making four payments, two of which were made after four payments, two of which were made after he reached the age of majority, Beach decided he reached the age of majority, Beach decided to disaffirm the contract and return the to disaffirm the contract and return the equipment.equipment.

• Can Beach do this?Can Beach do this?– Next

Time of Disaffirmance & Time of Disaffirmance & RatificationRatification

• Persons lacking contractual Persons lacking contractual capacity can disaffirm a contract capacity can disaffirm a contract for non-necessariesfor non-necessaries– Any time while still under the Any time while still under the

incapacityincapacity– Within a reasonable time after Within a reasonable time after

attaining capacityattaining capacity

Time of Disaffirmance & Time of Disaffirmance & RatificationRatification

• RatificationRatification– Minor must ratify Minor must ratify afterafter reaching reaching

majority & may consist of…majority & may consist of…• Promise to performPromise to perform• Act’s clearly indicating agreementAct’s clearly indicating agreement

• Back to Beach

Answer to What’s My Answer to What’s My Verdict…..Verdict…..

• Beach ratified the contract by Beach ratified the contract by making payments after reaching making payments after reaching majority….majority….– Sorry Beach…you cut off your power Sorry Beach…you cut off your power

to disaffirm to disaffirm

Return of goods or Return of goods or servicesservices

• In ALL states, when a minor In ALL states, when a minor disaffirms, anything of value the disaffirms, anything of value the minor received must be returnedminor received must be returned

• The minor is entitled to then get The minor is entitled to then get back everything that was given to back everything that was given to other partyother party

Return of goods or Return of goods or servicesservices

• Loss of valueLoss of value– Most states…Most states…

• If minor is unable to return exactly what was If minor is unable to return exactly what was received under contractreceived under contract

– They can still get back everything they gaveThey can still get back everything they gave» Includes returning damaged goodsIncludes returning damaged goods» Includes returning nothing because goods Includes returning nothing because goods

were lost or stolenwere lost or stolen

– Some states…Some states…• A minor must return everything in same conditionA minor must return everything in same condition

– If not minor must pay difference in valueIf not minor must pay difference in value

What’s Your Verdict?What’s Your Verdict?

• Lamon, a minor, bought a diamond ring Lamon, a minor, bought a diamond ring and necklace for his fiancée, Morgan. and necklace for his fiancée, Morgan. He paid for the items in weekly He paid for the items in weekly installments of $10. On the day Lamon installments of $10. On the day Lamon achieved majority, he and Morgan achieved majority, he and Morgan quarreled. Morgan returned the ring to quarreled. Morgan returned the ring to Lamon but refused to part with the Lamon but refused to part with the necklace.necklace.

• Can Lamon return the ring to the jeweler Can Lamon return the ring to the jeweler and receive a refund for the ring and and receive a refund for the ring and necklace?necklace?

AnswerAnswer

• Morgan was entitled to keep the Morgan was entitled to keep the necklacenecklace– It was a giftIt was a gift

• Lamon could return the ring and Lamon could return the ring and demand a refund for both piecesdemand a refund for both pieces– He is entitled to the money for the He is entitled to the money for the

ringring• In most states, he is even entitled to what In most states, he is even entitled to what

he paid for the necklacehe paid for the necklace

Contracts that can’t be Contracts that can’t be disaffirmeddisaffirmed

• DEPENDS ON DEPENDS ON STATESTATE– Court approvedCourt approved

• Child actorsChild actors• SportsSports

– Major Major commitmentscommitments• Joining armed Joining armed

forcesforces• Educational loansEducational loans

– BankingBanking• withdrawals withdrawals

– InsuranceInsurance

– Work relatedWork related

– Reality salesReality sales

– Apartment rentalApartment rental

Misrepresentation of ageMisrepresentation of age

• Can usually disaffirmCan usually disaffirm

– ButBut

• May be held liable for tort of…?May be held liable for tort of…?

False representation

Enrichment Activity – Law of Capacity

Cases involving minors have often made the news in recent years. Research Internet articles to investigate a case involving levels of mental capacity, emancipation, and /or intoxication. Research and gather information about the case. Did the minor go to jail? Was there a trial? Were they tried as an adult? Information should also include overview of the case, minor’s demographics, injury, trial details (if one took place), and verdict. Create a professional PowerPoint including this information. Your PowerPoint should only include approximately 6 -8 lines of information per slide. Use appropriate graphics and class vocabulary. Animate slide show professionally. Minimum of 5 slides

Wrap the chapter/unitWrap the chapter/unit

• Analyze Real Cases Analyze Real Cases – p.152p.152 26-29 26-29

• Complete the Complete the Cases for Legal Cases for Legal ThinkingThinking– P. 113, 127,141, 153P. 113, 127,141, 153