Chapter 10 section 1-2

Business LawChapter 10Section 1-2Mr. Whisel

Section 10.1 Goals

Identify parties who have contractual capacity

Identify what contracts can be disaffirmed

Explain the role of capacity Standards

Reading and Writing 1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11

BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC

Civics and Government 5.1.12 ABCDEFHIJM, 5.2.12 ABCDEFG,

5.3.12 AB

Hot Debate!

Angela was a 17-year old high school student who, at her boyfriend’s urging, signed a contract to work as a model for a modeling agency. Angela claimed she was 22 years old. She received her first assignment a week later. It involved flying to New York City for a magazine photo shoot. The day before the photo shoot, Angela’s father Simon learned what his daughter had done. Simon called the agency and informed them that Angela would not be at the photo shoot the next day, and that he would not allow his daughter to be a model. As result, the magazine had to cancel the photo shoot and they lost over $5,000.

Can Simon prevent Angela from carrying out the terms of the contract?

Can Angela be held liable for the magazines losses?

What’s Your Verdict?

Susan, age 16, walked into a fur shop out of curiosity and became enthralled with the idea of owning a fur jacket. A persuasive sales lady told her she would be able to use it for the rest of her life and that it was a good investment. Her Aunt had recently died and willed her enough for the jacket. A week later, she realized that at this time in her life she didn’t have a use for the jacket.

Can Susan get her money back?

What is Capacity?

Lack of maturity or experience to protect oneself

Law of Capacity Grants special contractual rights designed

to protect one from being cheated Parties

Minors Intoxicated Mentally Incapacitated

Minor One who is under the age of majority Most states say 18 or younger

What is Capacity?

Contractual Capacity The ability to understand that a

contract is being made and its general meaning.

Capacity Rights Two basic protections granted to

those who lack capacity Necessaries

Things needed to maintain life and lifestyle Non-necessaries

Things that for them are relative luxuries Must pay contracted price Have the option to disaffirm the contract

What is Capacity?

Disaffirmance Involves giving back the consideration by

both parties. Can Susan give back the jacket and

get her money back? Minors can disaffirm contracts for non-

necessaries during their minority and for a short time after their majority

Ratification Acting toward the contract as though one

intends to be bound by it. Ratification cuts off the right to disaffirm

What is Capacity?

Minors People under the age of 18 Minority or Under the Age of Majority A few states majority is not reached until

19-21 Minority ends the day before the birthday

of the age of majority Emancipation

The severing of the child-parent relationship.

Ends duty for the parent to take care of the child

Automatically emancipated when reaching the age of majority

Emancipation

Formally When a court decrees the minor

emancipated Informal Emancipation

The parent and minor agree that the parent will cease support

The minor marries The minor moves out of the family home The minor becomes a member of the armed

forces The minor gives birth The minor undertakes full-time employment

What is Capacity?

Mental Incapacity Much less precisely defined than minority Test to determine whether the person

knows what they did/or are doing If you are ruled insane

Complete lack of capacity All contracts for these people are void

Intoxication Arises from using alcohol, drugs, or

inhaling toxic products. Courts will only disaffirm if you were so

intoxicated that you did not know you were contracting

Intoxication is a voluntary act, therefore the penalty is heightened


Against their parents’ wishes, Garcia and Wesley- both minors- left home. Together they signed a 12-month lease to rent a nearby furnished apartment from Krohm at the bargain price of $350 a month. After 3 months, the teenagers ran out of money and returned to their homes. Krohm could not find new tenants.

Could he hold the minors liable for the rent?

Which Contracts Can Be Disaffirmed? Two rights given to those who

lack capacity Right to disaffirm non-necessaries Right to pay a fair price instead of

the contract price What are necessaries? What are non-necessaries? Is a car a necessary?


Alicia was a wholesaler of flowers. Her friend, Caryn, worked for a grocery store as a checker. One day Alicia stopped by during Caryn’s break and asked if she could sell her flowers through that store. Caryn said yes and signed a contract to purchase 10 dozen roses for the store. When Alicia tried to deliver the roses, they were refused by the store and Alicia sued.

Is the store bound by Caryn’s contract?

Capacity in Organizations Some people in organization are

entrusted to make decisions for the organization this is called Scope of Authority.

Usually people in power in an organization make decision that can bind the company Is Caryn a person in power?

Section 10.1 Goals

Identify parties who have contractual capacity

Identify what contracts can be disaffirmed

Explain the role of capacity Standards

Reading and Writing 1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11

BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC


5.3.12 AB

End of Section 10.1

Think About Legal Concepts Think Critically About Evidence

Section 10.2 Goals

Identify the time when a contract cannot be disaffirmed

Identify contracts that cannot be disaffirmed

Explain the consequences of misrepresentation of age

Standards Reading and Writing

1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11 BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC


5.3.12 AB


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

Can Beach do this?

Time of Disaffirmance and Ratification Person with the lack of capacity

Can normally disaffirm contracts for non-necessaries

Any time while still under the incapacity Within a reasonable time after attaining

capacity

Ratification can occur after capacity is attained Cannot be disaffirmed then

Ratification Consists of: Giving a new promise to perform as

agreed Any act that clearly indicates the party’s

intention to be bound


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

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

Return of Goods or Services Minor Disaffirmance

Anything of value that the minor received must be returned upon disaffirmance

Loss of Value If the item is used or damaged full

value cannot be returned. Lamon only entitled to the money

from the ring If not good condition full refund will

not be given


Upon graduation from high school; Robinson, age 17, began a business doing electrical work. He bought $375 in tools from Muller. The venture was a disappointing failure. Discouraged after a month, Robinson asked Muller to take back the tools and to return his $375 payment.

Must Muller do so?

What Contracts Cannot Be Disaffirmed? Common Exceptions

Court-Approved Contracts Major Commitments

Armed Forces contracts Educational Loans Marriage contracts

Banking Contracts Deposits, Withdraws, and Savings Account

Insurance Contracts Life Insurance

Work-Related Contracts Starting a Business

Sale of Realty Selling or borrowing against property that is owned

by the minor Apartment Rental

Some states will not allow the contract to be disaffirmed


Ron, a mature-looking minor, lied about his age when be bought an extensive wardrobe of clothing from the Casuals Shop. Ron show his older brother’s drivers license an identification. He also used his brother’s name on the installment contract. By October, Ron had paid $325 on the $785 contract. He then became bored with the wardrobe and returned it to the store and demanded the return of all payments.

Must the store return the money?

Misrepresenting Your Age Giving a false age may be held

liable for the tort of false representation

Although capacity rights apply they are held accountable for delinquent or criminal conduct Other party can collect from the

minors damages even thought the minor may disaffirm.

Section 10.2 Goals

Identify the time when a contract cannot be disaffirmed

Identify contracts that cannot be disaffirmed

Explain the consequences of misrepresentation of age

Standards Reading and Writing

1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11 BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC


5.3.12 AB

End of Section 10.2

Think About Legal Concepts Think Critically About Evidence Chapter in Review

Chapter 10 section 1-2

Education

Transcript of Chapter 10 section 1-2