Capacity Legal Ability

1. Capacity Legal Ability

2. Capacity • Capacity is the legal ability to enter into a contract. • Two primary categories of individuals lack contractual capacity: minors (those under the legal age of majority; usually 18 years), and those suffering from sufficiently severe mental incompetence. (Intoxicated persons ,Insane persons. ) • Lack of capacity may be used as an affirmative defense in a breach of contract lawsuit or as a basis for seeking contract rescission. • If there is no capacity, the contract is void. If there is partial capacity, the contract is voidable--

3. Who is a minor • Minor is a person under the legal age of majority. The age of majority is 18 years old. • Minors have partial capacity. . If there is partial capacity, the contract is voidable–

4. Why should minors be protected ? • Minors are very often exploited , ill treated and their proprieties stolen. law provides that it is the duty of the court to guard against their lack of knowledge and experience • So there are the laws regarding minors agreement • Minors agreement is void • A minor can be promisee and can receive a benefit – partnership • a minor cannot be declared as insolvent • A minor can be an agent • A minor can apply for share

5. General Rules minor • 1: Minors may disaffirm contracts at their option 2: If a minor disaffirms a contract after receiving benefits, restitution must be paid for the benefit Disaffirmance &Restitution- • Disaffirmance- A minor generally may disaffirm a contract; that is, he may notify the other party he refuses to be bound by the agreement. The minor also has the option of filing a suit to rescind the contract, that is, to have a court formally cancel it. Some contracts may not be disaffirmed, Enlistment contracts ,Marriage contracts , Educational loans • Restitution- A minor who disaffirms a contract must return the consideration he has received, to the extent he is able. After reaching majority, the minor may ratify the contract

6. Minors -- Exceptions • Fully Executed Contracts - In some states, minors may not disaffirm fully executed contracts.( compensation ) • Timing at attaining majority - Minors may disaffirm a contract up to a reasonable time after turning 18, unless they ratify the contract after turning 18. • Necessaries-A necessary is something essential to the minor’s life and welfare-( goods services , loans) . On a contract for necessaries, a minor must pay for the value of the benefit received. • Misrepresentation of Age - a minor is not allowed to disaffirm if he has lied about his age.

7. Case 1- fully executed contract • H, a minor, bought an auto from L. He paid 1,00,000 down and agreed to path that make ten weekly installment payments of 25,000 each. Four weeks later, the automobile broke down. L denied responsibility and H had the car repaired at a cost of 37000. H returned the title to L and asked for his money back, but L refused • Henry asked Lemke to take the car back and he sued Lemke to recover the money he had paid (action for rescission). • Lemke argued that to get rescission, Henry should be required to make restitution for the value of the automobile he had received

8. Minor's obligations to pay for necessaries of life • A minor must pay the reasonable value of food, clothing, shelter, medical care, and other items considered necessary to the maintenance of life. In addition, some statutes require a minor to pay for the following: • Medical, surgical, and pregnancy care • Psychological counseling • Health and life insurance • Performance of duties relating to stock and bond transfers, bank accounts, and the like • Educational loan agreements • Contracts to support children • Contracts to enlist in the military • Artistic, sports, and entertainment contracts that have been entered into with the approval of the court

9. Case 2 • R graduated from high school and was married and expecting a baby while still a minor. R received no financial assistance from his parents, and needed to get a job to support himself and his family. R went to bdjobs, an employment agency, and signed a contract wherein he agreed to pay a fee (based on starting salary) if bdjobs succeeded in assisting him in finding a job. • bdjobs referred Rogers to Squre, where he was employed at a starting salary that entitled bdjobs to a fee of 10,000 • When bdjobs sued to collect the fee, R argued that he was entitled to avoid the contract due to lack of capacity based on his status as a minor. • bdjobs argued that the services provided were necessities, and that Rogers should have to pay reasonable value (provide restitution).

10. CASE 3 • Smith, a minor, purchased a car on credit from Floars Toyota a month before his eighteenth birthday. After making payments for eleven months and ten months after reaching age 18 (age of majority), Smith returned the car to Floars and refused to make further payments. Floars sued for breach of contract, and Smith asserted the affirmative defense of lack of capacity.

11. Mentally Impaired • A person with mental illness or defect, who is unable to understand the nature and consequences of a transaction. • Mental incompetence may arise from a variety of conditions including mental illness, mental retardation, brain injury, brain disease, and intoxication arising from drugs or alcohol. • Idoiocy – whose mental power is completely absent • Lunancy or insanity – dieses of brain

12. Mentally Impaired • . Mental incompetence will result in legal incapacity only where the individual is impaired to the extent that she is unable to understand the purpose or effect of the contract. • If a person is adjudicated insane, the contract is void . If person is insane in fact, the contract is voidable • The person may disaffirm when restored to capacity • Guardian of the person may disaffirm on the individual’s behalf • If the contract is “just and reasonable”, some states will not allow the person to disaffirm it

13. Unsound mind • A person is said to be of sound mind for the purpose of making a contract if , at the time when he makes it he is capable of understanding it and of forming a rational judgment as to its effect upon his interest • A person who is usually of unsound mind but occasionally of sound mind may make a contract when he is sound mind • A person who is usually of sound mind but occasionally of un sound mind may make a contract when he is sound mind • A person who is usually of sound mind but occasionally of unsound mind may not make a contract when he is unsound mind

14. Intoxicated Persons • When an intoxicated person makes a contract, it is voidable. • Under the influence of drugs or alcohol . - Was the person so intoxicated as to not know the nature and substance of the agreement • Contract is voidableat the option of the intoxicated person • Restitution -A mentally infirm party who seeks to void a contract must make restitution. Intoxication rarely results in a lack of contractual capacity because intoxicationtypically impairs judgment, but not the person's ability to know the subject of the contract and its basic consequences. those lacking in average intelligence or suffering from minor mental impairments are not deemed to be lacking in contractual capacity merely because they are less able to protect their own interests in a market economy.

15. CASE • Mr. Lucy had known the Zane for many years and had been anxious to buy their farm for about eight years. One night, Lucy stopped by the Zane' restaurant to have a drink or two with Zane. While there, Lucy said to Zane: "I bet you wouldn't take $50,000 for that place." Zane replied, "Yes, I ff would too; you wouldn't give fifty." • Several times during the evening, while the two drank whisky and talked, the conversation returned to the farm. Eventually Lucy got Zane to write up an agreement to sell the farm to Lucy for $50,000 on the back of a restaurant check. • When Lucy objected to the first draft because it didn't include Zane's wife, Zane tore it up and rewrote the agreement and asked Mrs. Zane to sign (which she did). • Zane later refused to convey the farm on the grounds that he lacked capacity due to alcohol intoxication. Lucy sued for breach of contract. Zane testified that at the time the deal was made he "was high as a Georgia pine," and that the transaction was made by "a bunch of two doggoned drunks bluffing to see who could talk the biggest and say the most."

16. Disqualified person • Alien – citizen with foreign state can make contract , if he is the citizen of the country of which a war breaks out the contract is void • Foreign govt. can enter into contract through agents • Person without license