Contractual Capacity of Individuals and Organizations

Bartek, Thompson, Bond, Meanix

What is Capacity, you ask?Contractual Capacity- defined by the law to

mean the ability to understand the consequences of a contract.

Some people have special contractual rights due to lack of capacity; for example-MinorsThe intoxicated The mentally incapacitated

MinorityFor contract law purposes minors are defined

as anyone under the age of majority.The age of majority, meaning someone is

permitted to handle his own affairs, is 18 in most states.

Anyone younger is considered a minor.Minority ends the day before the birthday of

the age set for majority.

Protection for those who Lack CapacityDisaffirmance- It is the primary protection for those

who lack contractual capacity. It is the refusal to be bound by a previous legal

commitment, and the one who lacked capacity is legally able to get back what he put in to the contract.

Another protection given to those who lack capacity such as minors is the right to purchase necessaries- the things need to maintain life.

When the protected make contracts for necessaries they must at least pay a reasonable value for them if they disaffirm the actual purchase contract.

MinorsThe contracts made by minors are considered

voidableMinors may disaffirm contracts during their

minorityor for a reasonable length of time after

becoming part of majority (18 in most states)Ratification- the acting toward the contract

as though one intends to be bound by itMinors can be bound to contracts if they are

emancipated.

EmancipationEmancipation-is the severing of parent-child

relationship and state may require loss of capacity protection

Formal emancipation is when the court decrees the minor is emancipated

Informal emancipation occurs whenThe parent and minor agree that their will be no more

parental support.The minor gets married.The minor moves out.The minor joins the army.The minor gives birth.The minor undertakes full time employment.

The Mentally IncapacitatedMental Incapacity- under contract law,

meaning someone lacks the ability to understand the consequences of his contractual acts. These people include, those with mental

illness, mental retardation, severe senility, or if they are ruled permanently insane

All contracts executed by this person are void. However, rules surrounding necessaries apply to the insane person.

CASEEmily was 88 years old when she contracted

to sell her family home to her daughter Gail for about 15 percent of its value. At the time, she was suffering from advanced 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. The children sued to have the deed set aside. Is the contract voidable?

ANSWERYes, because Emily lacked the mental

capacity when she deeded the home to Gail.

The IntoxicatedCan arise from using alcohol or drugs such as

marijuana or crack cocaine or inhaling glue.Most courts are reluctant to consider an intoxicated

person’s contracts voidable because this would allow disaffirmance for intoxication even though it may injure an innocent person.

If the judge sees that a person is an alcoholic those persons contracts are considered voidable.

http://www.youtube.com/watch?v=5dBM4o6AXXs&feature=related LES 306 Business Law- Contractual Capacity

Contractual capacity in organizationsScope of authority- the capacity one has within the

range of acts the organization has authorized him or her to do.

Capacity is also created when the organization leads others to believe that someone has a certain authority.

Capacity to contract can be created when the employer tells an employee that they are authorized to bind the organization

When doing business with organizations it is important to ensure that the person signing the contract has the scope of authority to bind the organization.

What your verdict?Alicia was a wholesaler of flowers. Her friend

Caryn worked at a grocery store as a checker. One day Alicia stopped by during Caryn’s break and asked if she could sell her flowers through that store. Caryn said yes and signed a contract to purchase ten dozen roses for the store. When Alicia tried to deliver the roses they were refused by the store and Alicia sued. Is the store bound by Caryn’s contract?

ANSWERThe store is not bound by the contract but

Caryn may be liable to Alicia for the lost profit on the sale of roses.