Contractual Capacity
Chp. 9
Chapter Overview
Capacity is the legal ability to enter into a contract. Minors have particular rights and obligations established by the courts when it comes to contracts. Once a person reaches age 18, they are considered to have reached legal adulthood in every state in the nation. In addition to minors, other persons are able to avoid contracts. Mentally impaired and intoxicated people, convicts, and aliens lack the capacity to enter into a contract. In this chapter, you will learn valuable information that will help you exercise your rights as a minor and as an adult.
Minor’s Rights and Obligations
Capacity - the legal ability to enter a contract
Rebuttable presumption - You presume the party you are entering into a contract with has the capacity to do so…this presumption can be challenged in court.
When you are in the age of minority you are a person below the age of majority…a person who has not yet reached the age of adulthood.
~The law permits minors to rescind or void their contracts within certain limits.You are considered in your age of majority when you have reached the age of legal adulthood (18 years old)
~A person become 18 years old for legal purposes when you become 18 at midnight at the start of the day preceding their 18th birthday.
Emancipation occurs when minors are no longer under the control of their parents.It is a legal process which takes place when an individual who has not yet reached the normal age of majority can be declared to no longer be a minor if they are paying their own bills, supplying their own place of residence, and are no longer reliant upon their parent or legal guardian in any way.
~If you are emancipated you have contractual capacity and are fully responsible for your own contracts.
Misrepresentation of Age
- A minor who claims to be over the age of majority (but isn’t) has committed fraud.
- If a minor lies about their age and then disaffirms their contract, they could be sued by the adult for fraud – the adult would have to prove all 5 elements of fraud were present, including the element of actual loss:
(1) false representation of fact
(2) knowledge of falsity by lying minor
(3) intent to deceive the adult
(4) reasonable reliance by the adult
(5) actual loss - Most states consider it a criminal offense when a minor lies about his/her age to buy age-restricted products.
Contracts of Minors
Minors should be protected by the law because they are considered immature, inexperienced, lacking education, naive
These things could lead an adult to take advantage of a minor.
Voidable Contracts
To disaffirm a contract means a minor can avoid a contract if they choose…they will show intent not to live up to the contract by a statement or some other act.
- The law provides young people with a second chance when they use poor judgment while entering into contracts
To Disaffirm a Contract Minors Should Do The Following:
- Return the Merchandise - In most states, a minor can get back the full amount they paid for an item even if they no longer have that item.
- Disaffirm the whole contract - A minor must affirm or disaffirm all parts of the contract, cannot pick and choose.
- Disaffirm contracts made with other minors - When minors entering into contracts with each other, both have the right to disaffirm
Ratification of Minors' Contracts
Ratifications can only be done upon reaching majority, and it may be accomplished:
(1) orally
(2) in writing
(3) by one’s actions (using or selling items)
(4) making an installment payment on an item or keeping an item for a reasonable period of time
Contracts for Necessaries
A minor is responsible for paying for their necessaries if they can prove they needed the items and their parents were not adequately providing for them.
Necessaries are (necessities) such as food, clothing, shelter, and medical care.
- Because minors are able to disaffirm contracts, the law warns adults against contracting with minors, except for necessaries.
Other Contractual Capacity Rules
If a mentally impaired person has been declared insane or incompetent by a court action, and a guardian has been appointed, their contracts are absolutely valid.
- An intoxicated person can disaffirm a contract if they can prove they were so intoxicated that they didn’t understand the purpose, nature, or effect of the transaction.
Teacher Watkins Memorial High School