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Introduction to ContractsThe Agreement: Offer
The Agreement: AcceptanceConsideration
Reality of Consent
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Capacity to ContractIllegality
WritingRights of Third Parties
Performance and Remedies
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Capacity to Contract
No brilliance is needed in the law. Nothing but common sense, and relatively clean fingernails.
John Mortimer
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
The meaning of capacityThe classes of persons without
capacityThe rights to disaffirm or ratifyThe duties of disaffirmance
14 - 4
A person must have the ability to give consent before he can be legally bound to an agreement, thus capacity is the ability to incur legal obligations and acquire legal rights
Definition
14 - 5
Groups lacking capacity: Minors Those suffering a mental disability Those who are intoxicated
Effect -- a person who contracts without the requisite capacity may avoid the contract at his/her option
The Lack of Capacity
14 - 6
Right to avoid a contract is disaffirmance Only the minor may avoid the contract
Example of disaffirmance: Stroupes v. The Finish Line, Inc.
Court ruled that a minor’s employment contracts, including arbitration agreements, were voidable by the minor
If minor wants to affirm the contract, adult party must perform
Minor’s Right to Disaffirm
14 - 7
Minors may not avoid contracts if statutory exception exists Marriage, educational loans, insurance
Emancipation of minor from parents does not give minor capacity to contract
Minor’s power to avoid contracts does not end on day he/she reaches age of majority, but continues for reasonable time thereafter
Details About Disaffirmance
14 - 8
Ratification occurs when a person who reaches majority indicates that he/she intends to be bound by a contract made while still a minor May be express or implied by conduct
Ratification
14 - 9
Each party has duty to return to the other any consideration (money, goods) that the other has given
If the consideration given by the adult has been lost, damaged, destroyed, or depreciated in value, courts are split on whether the minor party must make restitution to the adult party
Duties Upon Disaffirmance
14 - 10
Disaffirming minors are required to pay reasonable value for necessaries (required for survival) furnished to them Quasi-contractual theory
Example: Young v. Weaver Was the apartment really
a necessity for Young?
Duties Upon Disaffirmance
14 - 11
Like minors, people who suffer from a mental illness or defect are disadvantaged in their ability to protect their interests in the bargaining process, thus contract law makes their contracts void or voidable
Test: Did the person have sufficient mental capacity to understand the nature and effect of the contract?
Capacity & Mental Impairment
14 - 12
If a contract is voidable due to mental impairment, the person may: Disaffirm the contract Once he/she regains capacity, ratify
the contract Upon disaffirmance, consideration
must be returned and the person is liable for reasonable value of any necessaries
Right to Disaffirm or Ratify
14 - 13
Intoxication is a ground for lack of capacity only when it is so extreme that the person is unable to understand the nature of the bargaining process
Note: courts are not sympathetic!
Contracts of Intoxicated Persons
14 - 14