Chapter 14 Capacity to Contract What is Capacity Capacity the ability to incur legal obligations and acquire legal rights People who lack capacity minors legally known as infants persons suffering from mental illnesses or defects and intoxicated persons o Contract law gives them the right to avoid contracts that they enter during incapacity Effect of Lack of Capacity voidable Normally a contract in which one or both parties lack capacity is considered A bargain is considered to be void if at the time of formation of the bargain a court had adjudicated adjudged or decreed one or more of the parties to be mentally incompetent or one or more of the parties was so impaired he could not even manifest assent ex comatose or unconscious Capacity of Minors Minors Right to Disaffirm Disaffirmance right to avoid a contract Exceptions to the Minor s Right to Disaffirm Some statues about exceptions to minors right to disaffirm Statutes prevent minors from disaffirming such transactions as marriage agreements to support their children educational loans life and medical insurance contracts contracts for transportation by common carriers and certain types of contracts approved by a court such as contracts to employ a child actor Releases Signed by Parents or Guardians Contract provisions that release a party from liability for future negligence known as exculpatory clauses releases and liability waivers are extremely common ways for business to attempt to reduce their liability Period of Minority Emancipation In almost all states the age of majority for contracting purposes is now 18 Emancipation the termination of a parent s right to control a child and receive services and wages from him Even if emancipated still no capacity to contract if under 18 Time of Disaffirmance disaffirmed until majority Contracts entered during minority that affect title to real estate cannot be All other contracts entered during minority may be disaffirmed as soon as the Contracts entered in minority can be disaffirmed some time after a minor reaches o Some states have statutes that prescribe a definite time limit on the power o In most states there is no set time limit on the time during which a person may disaffirm after reaching majority contract is formed majority of avoidance Ratification The act of affirming the contract and surrendering the right to avoid the contract is known as ratification o Makes a contract valid from its inception Can be expressed in an oral or written statement or it can be implied by conduct on the part of the former minor Duties upon Disaffirmance Duty to Return Consideration Upon disaffirmance each party has the duty to return to the other any consideration that the other has given Minor cannot recover goods that have been transferred to a good faith purchaser Must the Disaffirming Minor Make Restitution A split of Authority A minor who cannot fully return the consideration that was given to them is not obligated to pay the adult for the benefits they have received or to compensate the adult for loss or depreciation of the consideration Minors Obligation to Pay Reasonable Value of Necessaries Necessary something that is essential for the minor s continued existence and general welfare that has not been provided by the minor s parents or guardian o Ex food clothing shelter medical care tools of the minor s trade basic educational or vocational training A minor s liability for necessaries supplied to him is quasi contractual o The minor is liable for the reasonable value of the necessaries that they actually receive Effect of Misrepresentation of Age State law is divided among those states that take the position that the minor who misrepresents his age will be estopped prevented from asserting his infancy as a defense and those that will allow a minor to disaffirm regardless of his misrepresentation of age Capacity of Mentally Impaired Persons Theory of Incapacity Contract law makes those people who suffer from a mental illness or defect contract s void or voidable to protect them from the results of their own impaired perceptions and judgment and from others who might take advantage of them Tests for Mental Incapacity Insanity mental illness brain damage mental retardation senility The usual test for mental incapacity is a cognitive one that is courts ask whether the person had sufficient mental capacity to under the nature and effect of the contract The Effect of Incapacity Caused by Mental Impairment
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