Bài giảng Business Law (13th edition) - Chapter 14: Capacity to Contract

ContractsIntroduction to ContractsThe Agreement: OfferThe Agreement: AcceptanceConsiderationReality of Consent3McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.ContractsCapacity to ContractIllegalityWritingRights of Third PartiesPerformance & Remedies3McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.Capacity to ContractPAETRHC14“No brilliance is needed in the law. Nothing but common sense, and relatively clean fingernails.” John MortimerLearning ObjectivesThe meaning of capacityThe classes of persons without capacityThe rights to disaffirm or ratifyThe duties of disaffirmance 14 - *Person must have ability to give consent before being legally bound to agreement, thus capacity is the ability to incur legal obligations and acquire legal rightsA person who contracts without necessary capacity may avoid the contract at his/her optionDefinition 14 - *Status incapacity refers to minors, factual incapacity includes those suffering from a mental disability and intoxicated personsContract in which one party lacks capacity is voidable at the option of person lacking capacityRight to avoid a contract is disaffirmanceExample: Stroupes v. The Finish Line, Inc.The Lack of Capacity 14 - *Those who suffer from a mental illness may be disadvantaged in their ability to protect their interests in the bargaining processThus, their contracts are void or voidableTest: Did the person have sufficient mental capacity to understand the nature and effect of the contract?Capacity & Mental Impairment14 - *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 processNote: courts are not sympathetic!Contracts of Intoxicated Persons14 - *Each party has duty to return to the other any consideration the other has givenThe incapacitated may be liable for damages See Dodson v. SchraderIncapacitated person generally required to pay reasonable value for necessities (required for survival) furnished to themExample: Young v. WeaverWas the apartment a necessity?Duties Upon Disaffirmance14 - *Ratification occurs when a person who reaches majority or is no longer suffering a mental disability or intoxication indicates either expressly or impliedly, that he intends to be bound by a contract made while incapacitatedRatification14 - *Test Your KnowledgeTrue=A, False = BCapacity is the ability to know the details of the legal rights in a contractRatification is the actual signature on the written contractDisaffirmance is the right to avoid a contract due to incapacity14 - *Test Your KnowledgeTrue=A, False = BA minor’s right to disaffirm a contract ends on the day the minor achieves the age of majorityIntoxicated persons are always allowed to disaffirm a contractPersons with a mental incapacity may disaffirm a contract, but cannot ratify the contract14 - *Test Your KnowledgeMultiple ChoiceThe “benefit rule” states that when a minor disaffirms a contract: (a) They have no further duties(b) Recovery of the full purchase price is subject to a deduction for the minor’s use of the merchandise (c) They have the duty to return the subject goods14 - *Test Your KnowledgeMultiple ChoiceTed just turned 17 years old. Emancipated from his parents, Ted bought a car from CarCo. Two weeks after he bought the car, Ted damaged it. Ted returned the vehicle to CarCo asking for a full refund. CarCo must: (a) Give Ted back the full amount(b) Pay Ted only the present value of the car (c) Pay Ted the purchase price less the current value of the car14 - *Thought QuestionsThe requirement of capacity is rooted in ancient law. Should the law continue to protect minors and intoxicated persons? Why or why not? 14 - *