Understanding Business and Personal Law Contractual Capacity Section 7.1 Capacity to Contract What...

Understanding Business and Personal Law

Contractual Capacity Contractual Capacity Section 7.1Section 7.1

Capacity to Contract

What You’ll Learn

How to explain the legal concept of minorityHow to explain the legal concept of minorityHow to identify the rights of minors in relation How to identify the rights of minors in relation to contractsto contractsHow to identify contracts that are voidable by a How to identify contracts that are voidable by a minorminorHow a person can ratify a contract made in How a person can ratify a contract made in minorityminorityHow to identify others, besides minors, who How to identify others, besides minors, who can rescind contractscan rescind contracts




Why It’s Important

Understanding the rights afforded to minors Understanding the rights afforded to minors in contract law will enable you to exercise in contract law will enable you to exercise your rights and help others.your rights and help others.

Pre-Learning Question Pre-Learning Question

What is capacity?




Legal Termscapacity (p. 147)capacity (p. 147)rebuttable presumption (p. 147)rebuttable presumption (p. 147)majority (p. 148)majority (p. 148)minor/minority (p. 148)minor/minority (p. 148)emancipated (p. 148)emancipated (p. 148)abandoned (p. 148)abandoned (p. 148)ratify (p. 154)ratify (p. 154)necessaries (p. 156)necessaries (p. 156)guardian (p. 157)guardian (p. 157)aliens (p. 157)aliens (p. 157)




The Requirement of Capacity Section OutlineSection Outline

Minor’s Rights and Obligations Definition of Minority Misrepresentation of Age Contracts of MinorsVoidable Contracts Ratification of Minors’ ContractsContracts for Necessaries Special Statutory Rules Other Contractual Capacity Rules Mentally Impaired Persons Intoxicated PersonsOther Capacity Limitations




CapacityCapacity, one of the six elements , one of the six elements of a contract, is the legal ability to of a contract, is the legal ability to enter a contract.enter a contract.Capacity relates directly to the Capacity relates directly to the involvement of minors in contracts.involvement of minors in contracts.

The Requirement of CapacityThe Requirement of Capacity




When people enter into contracts, When people enter into contracts, they are permitted by law to presume they are permitted by law to presume that the other party or parties have the that the other party or parties have the capacity to contract.capacity to contract.

Minor’s Rights and Obligations Minor’s Rights and Obligations

This presumption, known as a This presumption, known as a rebuttable presumptionrebuttable presumption, can be , can be challenged in court.challenged in court.




The presumption of capacity plays a key role The presumption of capacity plays a key role in contracts made by minors because the law in contracts made by minors because the law permits minors, within certain limits, to permits minors, within certain limits, to rescind or void their contracts.rescind or void their contracts.

Minor’s Rights and Obligations Minor’s Rights and Obligations

The court has established specific The court has established specific standards regarding who is considered a standards regarding who is considered a minor and what the term minority means.minor and what the term minority means.




Pre-Learning Question Pre-Learning Question

How would you define a minor?

Why would the contracts of minors be different from the contracts of adults?

What other classes of persons may be able to avoid contracts? Why?




The age of legal adulthood is known The age of legal adulthood is known as the age of as the age of majoritymajority..A person who has not yet reached A person who has not yet reached majority is considered a majority is considered a minorminor and and is still in his or her is still in his or her minorityminority..

Definition of Minority Definition of Minority




1972 - voting age was lowered from 21 to 18. 1972 - voting age was lowered from 21 to 18. - Many states lowered age of majority from 21 to 18- Many states lowered age of majority from 21 to 18 ..

Legal Age Legal Age

For years the age of majority was also the age at a For years the age of majority was also the age at a person could begin to buy alcoholic beverages.person could begin to buy alcoholic beverages.

Now - the age of majority is 18 nationwideNow - the age of majority is 18 nationwide- Most states have raised legal drinking age to 21.- Most states have raised legal drinking age to 21.

For legal purposesFor legal purposes, people turn 18 at the , people turn 18 at the beginning of the day before their 18beginning of the day before their 18 thth birthday. birthday.




Some states have declared that minors who Some states have declared that minors who are no longer under the control of their parents are no longer under the control of their parents are are emancipatedemancipated..This means they are responsible for their This means they are responsible for their contracts.contracts.

Emancipation and Abandonment Emancipation and Abandonment

A minor who marries or leaves home, giving up all A minor who marries or leaves home, giving up all rights to parental support, is considered rights to parental support, is considered emancipated and is said to have emancipated and is said to have abandonedabandoned the the

protection afforded him or her as a minor.protection afforded him or her as a minor.




If a minor claims to be over the age If a minor claims to be over the age of majority, then he or she has of majority, then he or she has committed fraud.committed fraud.Fraud is a wrongful act, and minors Fraud is a wrongful act, and minors are responsible for their wrongful are responsible for their wrongful acts.acts.

Misrepresentation of Age Misrepresentation of Age




Some states allow the other party to sue Some states allow the other party to sue a minor who has misrepresented his or a minor who has misrepresented his or her age for fraud. Other states do not.her age for fraud. Other states do not.

Misrepresentation of Age Misrepresentation of Age

However, it is illegal to lie about your However, it is illegal to lie about your age in order to buy age-restricted age in order to buy age-restricted products, such as alcohol.products, such as alcohol.




Contracts of Minors Contracts of Minors

The law shields minors when they The law shields minors when they make contracts to protect them from make contracts to protect them from unscrupulous adults. Minors may be unscrupulous adults. Minors may be vulnerable because ofvulnerable because of

ImmaturityImmaturityInexperienceInexperience

Lack of educationLack of educationNaïvetéNaïveté




Voidable Contracts Voidable Contracts

Contracts made by minors are Contracts made by minors are voidable by the minor. voidable by the minor.

This means that minors may disaffirm, This means that minors may disaffirm, or avoid, their contracts if they so or avoid, their contracts if they so choose.choose.




Voidable Contracts Voidable Contracts

To disaffirm a contract means to show To disaffirm a contract means to show the intent not to live up to the contract by the intent not to live up to the contract by a statement or some other act.a statement or some other act.

By permitting minors to have the privilege By permitting minors to have the privilege of disaffirming contracts, the law provides of disaffirming contracts, the law provides young people with a second chance young people with a second chance when they use poor judgment.when they use poor judgment.




Returning the Merchandise Returning the Merchandise

If a minor still has the merchandise he If a minor still has the merchandise he or she received upon entering a or she received upon entering a contract, that merchandise must be contract, that merchandise must be returned when the contract is returned when the contract is disaffirmed. disaffirmed.




Disaffirming the Whole Contract Disaffirming the Whole Contract

A minor may not affirm parts of a contract A minor may not affirm parts of a contract that are favorable and disaffirm the that are favorable and disaffirm the unfavorable parts.unfavorable parts.

Disaffirming Contracts MadeDisaffirming Contracts Madewith Other Minorswith Other Minors

When two minors enter into a contract with When two minors enter into a contract with each other, both parties have the right to each other, both parties have the right to disaffirm the contract.disaffirm the contract.




Ratification of Minors’ Contracts Ratification of Minors’ Contracts

After reaching the age of majority, a After reaching the age of majority, a person can person can ratifyratify, or approve, , or approve, contracts made during minority.contracts made during minority.




7.17.1

Ratification Ratification

11

22

33 44

A business advertisement in a newspaper can constitute an offer of sale, even if the advertisement is aimed toward minors.

OfferOffer

If a minor agrees to the terms of an offer, then a voidable contract is created.

AcceptanceAcceptance

Reaching Majority Reaching Majority

When a minor reaches the age of majority, his or her contracts can be ratified.

Ratification Ratification

Using or selling an item obtained by contract for a reasonable time after reaching the age of majority has the effect of ratifying the contract. Ratification can also be accomplished orally or in writing.




Contracts for Necessaries Contracts for Necessaries

A minor is held responsible for the A minor is held responsible for the fair value of necessaries.fair value of necessaries.NecessariesNecessaries, or necessities, , or necessities, include food, clothing, shelter, and include food, clothing, shelter, and medical care.medical care.




Special Statutory Rules Special Statutory Rules

There are many differences in state There are many differences in state statutes regarding minors.statutes regarding minors.Minors should check the statutes of Minors should check the statutes of their own state to find out about their own state to find out about special contractual capacities that special contractual capacities that they may be allowed.they may be allowed.




Other Contractual Other Contractual Capacity RulesCapacity Rules

Other classes of persons are also able Other classes of persons are also able to avoid contracts.to avoid contracts.

Mentally impaired personsMentally impaired personsIntoxicated persons Intoxicated persons




Mentally Impaired Persons Mentally Impaired Persons

Mentally impaired persons also have the Mentally impaired persons also have the right to disaffirm contracts because they are right to disaffirm contracts because they are considered unable to make sound considered unable to make sound judgments.judgments.

Before a Before a guardianguardian is appointed to look is appointed to look after the affairs of a mentally impaired after the affairs of a mentally impaired person, his or her contracts are voidable.person, his or her contracts are voidable.




Intoxicated Persons Intoxicated Persons

Persons who are intoxicated by alcohol or Persons who are intoxicated by alcohol or drugs at the time they enter a contract are drugs at the time they enter a contract are sometimes able to disaffirm those contracts.sometimes able to disaffirm those contracts.

To disaffirm a contract for this reason, a To disaffirm a contract for this reason, a person must have been so intoxicated at the person must have been so intoxicated at the time of the contracting that he or she did not time of the contracting that he or she did not understand the purpose, nature, or effect of understand the purpose, nature, or effect of the transaction.the transaction.




Other Capacity Limitations Other Capacity Limitations

Other classes of persons lack the capacity to Other classes of persons lack the capacity to enter into certain types of contracts.enter into certain types of contracts. 1.1. Convicts—people convicted of a crime.Convicts—people convicted of a crime. 2.2. AliensAliens—people who are living in this —people who are living in this

country but owe their allegiance to another country but owe their allegiance to another country.country.

3.3. Enemy aliens—some foreign-born persons Enemy aliens—some foreign-born persons designated as such during time of war.designated as such during time of war.




Why does the law shield minors when making contracts?




Reviewing What You Learned1. What does it mean to be a minor?

Section 7.1 Assessment

2. What rights do minors have regarding contracts?3. What contracts are voidable by a minor?

4. How can a person ratify a contract made in minority?

5. Name two other classes of persons who are able to avoid contracts.





Critical Thinking ActivityMisrepresenting Your Age Should the act of misrepresenting your age if you are a minor be considered fraud? Why or why not?





Legal Skills in ActionWhat Is a Good Age?

Over the past 30 years, the voting age, the age of majority, and the age at which a person could buy alcoholic beverages has changed. In a paragraph no less than 10 sentences long debate your position on the ages for voting, majority, and buying alcoholic beverages.




ANSWERANSWER

To protect the minor from an unscrupulous adult who might take advantage of him or her.

Answer #1

A minor is a person who has not yet reached the age of legal adulthood.




Reviewing What You Learned

Minors may disaffirm, or avoid, the contracts if they so choose.


Answer #2

In essence all contracts are voidable by a minor; however, minors may still have some responsibilities when avoiding contracts and some states may have special statutory rules regarding minors and contracts.

Answer #3




Reviewing What You Learned

Upon reaching majority, a person can ratify a contract by approving of the contract orally, in writing, or by some action.


Answer #4

Mentally impaired persons and intoxicated persons.

Answer #5





Critical Thinking ActivityMisrepresenting Your Age Answer

Answers may vary, but should compare the elements of fraud with the misrepresentation of age if you are a minor.

Legal Skills in Action AnswerWhat Is a Good Age? Debates will vary, but should include information that supports their positions.

Understanding Business and Personal Law Contractual Capacity Section 7.1 Capacity to Contract What...

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