Bài giảng Business Law - Chapter 14: Capacity to Contract

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin3Introduction to ContractsThe Agreement: OfferThe Agreement: AcceptanceConsiderationReality of ConsentContractsPART3Capacity to ContractIllegalityWritingRights of Third PartiesPerformance and RemediesContractsPARTCapacity to ContractPAETRHC14No brilliance is needed in the law. Nothing but common sense, and relatively clean fingernails. John MortimerLearning ObjectivesExplain concept of capacityList the classes of persons without capacity and the effect on a contractDescribe the rights to disaffirm or ratify and duties of disaffirmance 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 rightsDefinition Groups lacking capacity:MinorsThose suffering a mental disabilityThose who are intoxicatedEffect -- a person who contracts without the requisite capacity may avoid the contract at his/her optionThe Lack of Capacity Right to avoid a contract is disaffirmanceOnly the minor may avoid the contractExample of disaffirmance:Woodman v. Kera LLC: Parent or guardian cannot contractually bind a minor ward. If minor wants to affirm the contract, adult party must performMinor’s Right to Disaffirm Minors may not avoid contracts if statutory exception exists Marriage, educational loans, insuranceEmancipation of minor from parents does not give minor capacity to contractMinor’s power to avoid contracts does not end on day he/she reaches age of majority, but continues for reasonable time thereafter Details About DisaffirmanceRatification 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 RatificationJoining ROTC during high school indicates intent to serve in the military as an adultEach party has duty to return to the other any consideration (money, goods) that the other has givenIf 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 partyDuties Upon DisaffirmanceDisaffirming minors are required to pay reasonable value for necessaries (required for survival) furnished to themQuasi-contractual theoryExample: Young v. WeaverWas the apartment really a necessity for Young?Duties Upon DisaffirmanceLike 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 voidableTest: Did the person have sufficient mental capacity to understand the nature and effect of the contract?Capacity & Mental ImpairmentIf a contract is voidable due to mental impairment, the person may:Disaffirm the contractOnce he/she regains capacity, ratify the contractUpon disaffirmance, consideration must be returned and the person is liable for reasonable value of any necessariesRight to Disaffirm or RatifyIntoxication 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 PersonsThought QuestionThe requirement of capacity is rooted in ancient law. Should the law continue to protect minors and intoxicated persons? Why or why not?