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Business Law: Ch 9. Legal Capacity to Contract. What is Capacity. Contractual Capacity – Ability to understand the consequences of a contract Does not require that a person understand the actual terms of the contract . Lack Some Capacity. Three groups lacking some capacity Minors

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Business law ch 9

Business Law: Ch 9

Legal Capacity to Contract

What is capacity
What is Capacity

  • Contractual Capacity – Ability to understand the consequences of a contract

    • Does not require that a person understand the actual terms of the contract

Lack some capacity
Lack Some Capacity

  • Three groups lacking some capacity

  • Minors

  • Intoxicated

  • Mentally Impaired


  • Minors – Under the age of majority

    • In Ohio the age of majority is 18

    • Ends the day before the birthday of the age

Protecting those lacking capacity
Protecting those lacking capacity

  • Contracts of those lacking capacity are voidable

    • Disaffirmance – Protection granted to those lacking capacity

      • In contract law it means a refusal to be bound by a previous legal commitment

      • When a protected party disaffirms a contract, by law the protected party is to receive whatever they have put into the contract

        • The other party may or may not get back their consideration


  • Example – A protected party bought a four-wheel ATV from a dealership and then wrecked it. You can disaffirm the contract and recover any payments made.

    • The dealership would only be able to recover the damaged ATV


  • Necessities – things needed to maintain life

    • The protected must at least pay a reasonable value for the necessities even if they disaffirm the actual purchase contract


  • Contracts are considered voidable (may get out of)

  • May also disaffirm for a reasonable length of time after achieving the age of majority.

  • After majority, the power to disaffirm is immediately cut off if you ratify the contract

  • Minors also may find themselves bound to their contract if they are Emancipated


  • Emancipated – Severing the parent-child relationship

    • Ends the duty of the parent to support a child and the duty of the child to obey their parent

    • Upon reaching the age of majority you are emancipated


  • Formal emancipation

    • Court decrees the minor emancipated

  • Informal emancipated

    • Arises from the conduct of the parent and minor

Informal emancipated
Informal Emancipated

  • The parent and minor agree that the parent will cease support

  • The minor marries

  • The minor moves out of the family home

  • The minor becomes a member of the armed forces

  • The minor gives birth

  • The minor undertakes full-time employment

Mentally incapacitated
Mentally Incapacitated

  • Mentally Incapacitated - A person lacks the ability to understand the consequences of his or her contract

  • If permanently Insane – Contract is Void

  • Temporary Insane – Contract is Voidable


  • Does the person have the ability to understand the consequences

  • Courts typically allow disaffirmance only for those who are so temporarily intoxicated that they do not even know they are contracting

    • Stricter because intoxication is a voluntary act

  • If a person is in a permanent state of intoxication – Contract is void

Who has contractual capacity in organizations
Who has contractual capacity in organizations

  • Scope of Authority – has capacity to contract

  • People acting outside the scope of authority, are personally liable when the organization isn’t

9 1 assessment
9-1 Assessment

  • Turn to page 161 and complete the 9-1 Assessment Questions

When can disaffirmance occur
When can disaffirmance occur

  • Disaffirmance – can happen:

    • Any time still under the incapacity

    • Within a reasonable time after attaining capacity

  • After attaining capacity, a person can ratify their contract

    • Ratification – Action by the party indicating intent to be bound by the contract


  • For a minor, ratification must occur after achieving majority.

  • Ratification may consist of:

    • Giving a new promise to perform as agreed

    • Any act (such as making a payment) that clearly indicates the party’s intention to be bound

What must be done upon disaffirming
What must be done upon disaffirming

  • When a minor disaffirms, anything of value the minor received and still has must be returned.

  • The minor is entitled to get back everything that was given to the other party.

Contracts that cannot be disaffirmed
Contracts that cannot be disaffirmed

  • Court approved contracts

  • Major commitments – armed services, educational loans

  • Banking contract

  • Insurance Contracts

  • Work Related Contracts

  • Sales of Realty

  • Apartment rental

Misrepresenting age
Misrepresenting Age

  • Minors who lie about their age may disaffirm contracts

  • However, they are liable for the tort of false representation

9 2 assessment
9-2 Assessment

  • Turn to page 165 and complete the 8 questions