Contracts Chapter 15 Capacity


The key points in this chapter include:

1. The rights of minors to disaffirm their contracts.

2. When a minor has ratified a voidable contract.

3. How intoxication affects contractual liability.

4. The effects of mental incompetency on contractual liability.

5. The rights of aliens to contract under U.S. law.

Capacity is what this chapter discusses. If a party to a contract lacks capacity, an essential element for a valid contract is missing, and the contract is void. Persons who are minors, intoxicated, or mentally incompetent but not yet adjudicated officially as such, have capacity to enter into a contract; but if they wish, they can normally avoid liability under the contract, which is said to be voidable.

I. MINORS
In most states, the age of majority for contractual purposes is eighteen. A minor can enter into any contract that an adult can enter into, as long as it is not prohibited by law for minors (for example, the sale of alcoholic beverages).

A. MINOR'S RIGHT TO DISAFFIRM
A minor can disaffirm (renounce) a contract and set aside all legal obligations arising from it. (An adult who enters into a contract with a minor, however, cannot avoid his or her contractual duties on the ground that the minor can do so.)

1. Disaffirmance in General
To avoid a contract, a minor need only manifest an intent not to be bound by it. This intent may be expressed by words or conduct.

a. Time of Disaffirmance
A contract can ordinarily be disaffirmed at any time during minority or for a reasonable time after a minor comes of age.

b. Contracts That Cannot Be Disaffirmed

1) Partial Contract
A minor must disaffirm an entire contract (not merely part).

2) Disaffirmance Prohibited by Statute
In most states, a minor can disaffirm a contract for a sale of land only after attaining majority. Other statutes prohibit minors from avoiding contracts for student loans, medical care, insurance, or made pursuant to running a business.

3) Contracts Enforced by Public Policy
Some promises may be enforced, especially when they involve something that the law would compel anyway, such as financial support of an illegitimate child.

4) Contracts That Have Been Ratified
A minor who fails to disaffirm a contract within a reasonable time after reaching majority is bound-the contract is ratified.

2. Minor's Obligations on Disaffirmance
A minor cannot disaffirm a fully executed contract without returning whatever goods have been received or paying their reasonable value.

a. What the Adult Recovers

1) In Most States
If the goods (or other consideration) are in the minor's control, the minor must return them (without added compensation).

2) In a Growing Number of States
If the goods have been used, damaged, or ruined, the adult must be restored to the position he or she held before the contract.

b. What the Minor Recovers
All property that a minor has transferred to an adult as consideration, even if it is in the hands of a third party. If the property cannot be returned, the adult must pay the minor its value.

3. Misrepresentation of Age

a. In Most States
A minor who misrepresents his or her age can still disaffirm a contract. In some states, he or she is not liable for fraud, because indirectly that might force the minor to perform the contract.

b. In Some States
Some states prohibit disaffirmance; some courts refuse to allow minors to disaffirm executed contracts unless they can return the consideration; some courts allow a minor to disaffirm but hold the minor liable for damages for fraud.

4. Emancipation
A parent's relinquishing the right to the minor's control, care, custody, and earnings. May be express or implied, absolute or conditional.

5. Liability for Necessaries
Necessaries are food, clothing, shelter, medicine, and hospital care-whatever a court believes is necessary to maintain a person's status.

a. Minor's Liability
A minor may disaffirm the contract but remains liable for the reasonable value (to avoid unjust enrichment).

b. Parents' Liability
If a minor's parent is able to provide the minor with necessaries but fails to do so, the parent will be liable to a seller or provider for the reasonable value of the necessaries.

6. Insurance and Loans

a. Insurance
Some jurisdictions prohibit a minor's right to disaffirm insurance contracts. Others allow it but limit recovery to the value of premiums paid, less the cost of protecting the minor under the policy.

b. Loans
A loan is seldom viewed as a necessary, but if the loan is for the express purpose of enabling the minor to buy necessaries and the lender makes sure the money is so spent, then the minor must repay.

B. RATIFICATION
An act or an expression in words by which a person, after reaching majority, indicates an intention to be bound by a contract made as a minor.

1. Express Ratification
Occurs when the individual, on reaching the age of majority, states orally or in writing that he or she intends to be bound by the contract.

2. Implied Ratification
Occurs when an individual, after reaching majority, continues to use and make payments on property bought as a minor, implicitly indicating an intent to be bound by the contract.

B. NONVOIDABLE CONTRACTS
Some states prohibit minors from disaffirming certain contracts (see above). Some impose duties with respect to bank accounts and transfers of stock. Some contracts are enforced on the grounds of public policy.

C. NONVOIDABLE CONTRACTS
Some states prohibit minors from disaffirming certain contracts (see above). Some impose duties with respect to bank accounts and transfers of stock. Some contracts are enforced on the grounds of public policy.

D. LIABILITY FOR TORTS
Generally, minors are liable for their torts. When a tort is more than the improper execution of some lawful act in the performance of a contract, and it is independent of the contract, a court may rule against the minor.

E. PARENTS' LIABILITY

1. Minors' Contracts
Generally, parents are not liable for contracts made by their minor children acting on their own.

2. Minors' Torts

a. Failing to Exercise Parental Control
In some states, a parent may be liable if he or she failed to exercise parental control, and knew or should have known that this posed an unreasonable risk of harm to others.

b. Statutory Liability
In some states, a parent is liable only for the willful, malicious, or wanton acts of minor children. In other states, a parent is liable for children's negligent acts that result from the parent's negligence.

II. INTOXICATED PERSONS
Intoxication is a condition in which a person's normal capacity to act or think is inhibited by alcohol or some other drug.

A. IF A PERSON UNDERSTANDS THE LEGAL CONSEQUENCES
Despite intoxication, the contract is usually enforceable.

B. IF A PESON IS INTOXICATED ENOUGH TO LACK MENTAL CAPACITY
Any contract he or she enters into is voidable at the option of the intoxicated person, even if the intoxication was voluntary.

1. Duty of Restitution
Most courts require that, to disaffirm, an intoxicated person fully return any consideration received, except in cases involving necessaries.

2. Ratification
An intoxicated person may ratify a voidable contract after becoming sober. Implied ratification occurs when a person fails to disaffirm a contract within a reasonable time after becoming sober.

III. MENTALLY INCOMPETENT PERSONS

A. PERSONS ADJUDGED MENTALLY INCOMPETENT BY A COURT
If a person has been adjudged mentally incompetent by a court of law and a guardian has been appointed, a contract by the person is void.

B. INCOMPETENT PERSONS NOT SO ADJUDGED BY A COURT

1. Those Who Do Not Understand Their Contracts
A contract is voidable (at the option of the person) if a person does not know he or she is entering into the contract or lacks the capacity to comprehend its nature, purpose, and consequences.

2. Those Who Understand Their Contracts
If a mentally incompetent person understands the nature and effect of entering into a certain contract, the contract will be valid.

IV. ALIENS
A citizen of another country who resides in this country legally generally has the same contractual rights as a U.S. citizen. Some states restrict the right of an alien to own real property. An enemy alien (a citizen of a country with which we are at war) will not be able to enforce a contract, although the contract can be temporarily set aside until the war is over.