1. Contractual capacity: In order for a contract to be binding, the parties to the contract must
have what the law regards as proper contractual capacity. The law assumes that everyone has
the capacity to make contracts except for those who fall into certain categories. These
categories are:
2. Minors: A minor is a person who has not yet reached the age of majority (adulthood). In
most states, a person who is 18 years of age is considered to be an adult. Generally, all
contracts entered into by a minor are voidable at the option of the minor.
a. Emancipated minors: An emancipated minor is a person who, because of marriage or
other reasons, is no longer under the supervision of an adult. Even though they no longer
have parental or adult guidance, they still have the right to void contracts.
b. Disaffirmance: A minor may disaffirm a contract simply by giving notice of his or her
intention to void the contract. A minor may disaffirm anytime before reaching the age of
majority. In some states, a minor may have a reasonable time to disaffirm after reaching
the age of majority.
1) Minor’s obligations upon disaffirmance: When a minor signs a contract and
receives something, what is the minor’s obligation when the contract is disaffirmed?
In most states, the minor must return the item. If the item has been used or damaged,
the minor need only return what he or she has left. In some states, the minor may be
obligated to pay a reasonable amount for the use of the item. In still other states, the
minor must pay the difference between the value of the item when it was received and
when it was returned.
2) Where minor has sold the item: Can a minor disaffirm a contract when he or she
has sold the item to a buyer and the buyer turns around and sells the item to another
person? In the past, the minor could disaffirm the contract and require the second
buyer to give up the item even though he or she, in good faith, paid the fair value of
the item. The traditional rule has been changed in the UCC. The UCC would allow
the second buyer to keep the item. The original seller would bear the loss.
c. Ratification: A minor can ratify a contract only after becoming an adult. Once ratified,
the minor loses the right to disaffirm a second time. A contract can be ratified in three
ways:
1) Express ratification: The minor, after reaching the age of majority affirms the
agreement.
a) Partial ratification: A minor can only ratify the entire contract, not simply a
part.
2) Implied ratification: A car is sold to a minor. After becoming an adult, the buyer
makes alterations to the car and sells it. These actions are consistent with those of a
person who purchased the car. By implication, the buyer has ratified the sale.
3) Failure to make a timely disaffirmance: The minor continues to use the item after
becoming an adult and makes no attempt to disaffirm. d. Exceptions for certain types of contracts: By law, certain types of contracts, such as for
student loans and necessities cannot be voided by minors.
1) Necessities: Minors who have the means to pay are responsible for “necessities”
purchased by them. Necessities are defined as everyday living expenses, and are
made up of basic items such as food, clothing, transportation, and lodging. What is
basic, of course, will vary from minor to minor.
a) Reasonable value: A minor who purchases necessities is only required to pay the
reasonable value of the item he or she received, not the list price.
Example: A minor buys a jacket at Neiman Marcus for $50, but the reasonable
value of the jacket is $30. If this jacket is deemed to be a necessity, the minor is
only required to pay the reasonable value ($30).
b) Necessities purchased but not used: A minor is only required to pay for
necessities that he or she actually bought and used. An item of necessity that was
purchased but not used may be returned.
c) Misrepresentation of age: What is the result in cases where the minor lies and
claims that he or she is an adult? In most states, the minor still has the right to
void the agreement. In some states, if the minor misrepresented his or her age and
the other party relied on the misrepresentation, the minor may not disaffirm the
contract. In still other states, the minor who lies about his or her age will be
required to pay the reasonable value of the item he or she received.
2) Torts committed by a minor. A minor is responsible for committing a tort. But
there are occasions when a tort is so interconnected with a contract so that in order to
pursue the tort claim, the contract must be upheld. In such instances the minor cannot
be sued for the tort.
Example: A minor lies and rents a car from an adult, and becomes involved in a car
accident. In order to sue for the injury the minor caused, the contract renting the car
must be upheld. Since the minor can disaffirm the contract, he could not be sued for
the tort.
3. Incompetent persons: Incompetence can cover a number of situations. In most cases,
incompetence refers to those who suffer from some form of mental disability.
a. Person under guardianship: If a court has appointed a guardian to supervise the needs
of a person, any contract entered into by that person (ward) is void. A person who is
under guardianship is still responsible for necessities and for contracts entered into by the
ward and later ratified by the guardian.
b. Mental incapacity: A contract entered into by a person who has some form of mental
disability that prevents the person from understanding the nature of a contract and the
consequences of entering into a contract is voidable. Suffering from a form of mental
illness, by itself, is not enough. The mental illness must be such that the person cannot
understand what it means to enter into a contract or the consequences of entering into a
contractual relationship.
1) Mental defect need not be permanent: If the mental illness meets the standard
outlined above, it need not be permanent. 4. Intoxicated persons: A person who lacks awareness of the subject matter of a contract and
the consequences of entering into a contract because he or she is intoxicated is able to
disaffirm the contract. The person who wishes to disaffirm must do so within a reasonable
period of time. A person who disaffirms the contract must return whatever he or she received
as a result of the contract. The result is the same in cases where a person’s cognitive abilities
are impaired by medication.
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