Download Capacity and Legality - Business Law - Lecture Slides and more Slides Commercial Law in PDF only on Docsity! Business Law Chapter 6: Capacity and Legality Docsity.com Introduction • Contracts must have a legal subject in order to be enforceable. Docsity.com • Capacity is an essential element of a contract because it shows that a party understood the contractual obligation. Docsity.com • Capacity refers to a party’s ability to understand what is happening, the effect of what agreeing to a contract means and the ability to exercise free will in making this choice. Docsity.com • Capacity is not the same thing as wise choice. • A person can exercise poor judgment, enter into a contract that is disadvantageous, or even make a bad bargain, and still have full, legal capacity to contract. Docsity.com Natural Persons • Any person who is not disqualified for some reason can enter into a contract, provided that he or she has legal capacity. Docsity.com Artificial Persons • Corporations, and some other forms of business entities, are considered to be artificial persons. • They can bargain, negotiate and enter into contracts. • Artificial persons have capacity. Docsity.com Legal Competency • To say that a person is legally competent is to say that he has the ability to know, understand and voluntarily engage in actions that can affect his interests. Docsity.com Advanced Age • No state, for instance, has a rule stating that a person above a specific age is presumed to be legally incompetent to enter into a contract. • A person’s age is one of the factors that a court may take into account when it assesses a person’s capacity. Docsity.com Physical Infirmity • A disabled person who has the mental capacity to contract may do so, regardless of the disability. • A person may be in such severe pain, or under the influence of drugs, that his capacity will be affected. Docsity.com Guardianship • When a person has been declared mentally incompetent, it is common for a court to appoint a guardian to represent that person. Docsity.com The Other Party’s Good Faith • A party’s good faith does not circumvent the rules surrounding capacity. Docsity.com Intoxication • Intoxication resembles a form of insanity. Docsity.com Authority • When we say the person has authority to enter into a contract it simply means that he or she has legal capacity and has no legal impediment to becoming a party to a contract. Docsity.com Third party contracts • Third party contracts stem not from their involvement in the contract but from the fact that they derive some benefit from the contract between the other parties. Docsity.com Creditor • Creditor beneficiaries are created when a contract’s provisions include a promise to satisfy an outstanding debt. Docsity.com Beneficiary • Anyone who benefits from something or who is treated as the real owner of something for tax or other purposes. Docsity.com Legal subject of contract • A contract is void when the subject of the contract is illegal, such as a contract to engage in illegal activity or for an illegal purpose. Docsity.com Contracts that are illegal because of subject • Contracts that involve illegal actions are void for a very simple reason. Docsity.com • If this were not so, then a party seeking to enforce the contract could bring an action through the court system and request that a judge rule on the contract. Docsity.com
