Contractual Capacity: Understanding Ability to Contract & Exceptions for Minors, Intoxicat, Study notes of Law

Download Contractual Capacity: Understanding Ability to Contract & Exceptions for Minors, Intoxicat and more Study notes Law in PDF only on Docsity! Chapter 9 – Contractual Capacity Section 9 -1 Contractual Capacity – ability to understand the consequences of a contract This concept is not about whether the contracting party really does understand the terms of a specific contract – only that: - They possess the potential ability to understand them While sounding contradictory its possible. Ex. Remember Bill our car buyer from the chapter on Genuine Assent, he didn’t fully understand the contract terms (had to pay sales tax) but he certainly had the potential ability to understand the terms. Chapter 9 – Contractual Capacity In contracting, some parties are assumed, by definition, to lack “Capacity”. They are: - Minors (who a minor is varies by state) - Intoxicated (drugs or alcohol) - Mentally Impaired (could include impairment due to illness) These groups are all said to be incapacitated, and can’t be legally bound by a contract Chapter 9 – Contractual Capacity Voidable Rescission Disaffirmance Like the contract never happened (Party can ignore there contractual obligations) Contract was executed/ratified but we do our best to put everything back to how it was pre- contract Voidable and the incapacitated party gets back whatever they put into the contract, but they are not obligated to put things right for the other party What’s going on – why is the law so unfair to the people contracting with incapacitated? Contracts – Capacity Under disaffirmance, some unusual outcomes can occur: - Minors can be encouraged to contract, and take advantage of disaffirmance rules - Others will not want to contract with those lacking capacity, like a minor, fearing they will later disaffirm the contract, and not pay for things There are special provisions in the rules to protect against this: Necessaries vs. Unnecessaries Under this rule, the incapacitated can’t contract for certain things and then disaffirm. If buying Necessary items; food, clothing, shelter they are required to pay reasonable value for what they got. Ex. #1 - Minor contracts for a $5,000 fur coat. They later disaffirm (don’t pay) the contract, keeping the coat. Under the law they must pay at least a reasonable amount for the coat – say $200, the cost of a good cloth coat. Contracts – Capacity (Necessaries) Example #2: Nash, a tailor on Madison Avenue, entered into a contract to supply Rico (a UIC undergraduate student) with 6 custom T-shirts, costing $35 each. Rico was a minor. Nash sought payment from Rico, who claimed he was a minor and would disaffirm the contract and keep the T-shirts. How might the judge find? These are clothes (necessaries), so Rico should have to pay at least a reasonable amount for the T-Shirts. Perhaps $10 a shirt vs. the custom cost of $35 a shirt. Another Rule related to Capacity Recall the act of ratification under a contract. Ratification says the contracting party loses the right to void (in this case disaffirm) a contract, if they take action under the contract. This usually applies for a minor. I minor can disaffirm while they remain incapacitated (still a minor). Upon reaching majority and acting under the contract, the opportunity to void and disaffirm the contract is lost. Chapter 9 – Contractual Capacity Example #3 - Imagine a 17 year old minor named Roberto goes to the Apple store, buys an iPhone X and a one year contract, with cancellation fees. Later that week he drops the phone and cracks the screen. Can he go back to the store and demand his money back? (The courts don’t think about cell phones as necessary.) Does he have to return the phone? ______________________________________________________________ Answer: As a minor, if the phone is not considered “necessary” then Roberto can disaffirm and avoid future payments. He gets his money back and the Apple store only gets the damaged phone back. Chapter 9 – Contractual Capacity Example 3 (continued). Let’s assume Roberto has now turned 18 (past the age of minority) Roberto makes several monthly contractual payments. He drops the phone and cracks the screen. What happens to Roberto’s right to void the contract as a minor? ___________________________________________________________ Answer: Even though he bought the phone as a minor, he loses the ability to disaffirm the contract, because he ratified it. His act of making monthly payments after turning 18 was his ratification. Contracts - Capacity Lying about your age? Even if you lie – as a minor you are still allowed to disaffirm the contract (But may have to deal with the crime of misrepresentation if damage occurs) The concept is represented well in this movie clip, from the movie “Liar, Liar” https://www.bing.com/videos/search?q=youtube%2c+liar+liar%2c+courtroom +scene%2c+lied+about+her+age&docid=608003253743718176&mid=3E1A06 1DA3795ECE46F33E1A061DA3795ECE46F3&view=detail&FORM=VIRE Chapter 9 – Contractual Capacity Mentally Incapacitated The definitions for what constitutes mental incapacity can vary a lot. It can relate to mental incapacity (sometimes temporary, the mentally underdeveloped, and disease or age related capacity Court will often have to determine whether the person had the ability to understand the contract at the time it was entered into Case #2 - The Case of Emily’s Will Emily was 88 years old when she contracted to sell her family home to her nurse, Gail, for about 15% of its fair value. At the time, she was being care for by her nurse due to an advanced case of Alzheimer’s Disease and didn’t understand the consequences of the transaction. Two months later Emily died. Her will provided for all her property to be split equally among her four children. Emily’s children sued to have the sale set aside (undone) because Emily lacked the mental capacity to contract. How do you think the court found and why?