Legal Capacity to Legal Capacity to ContractContract

Let’s Review

A Legally binding contract requires 6 elements:1. Offer2. Acceptance3. Genuine Agreement4. Consideration5. Capacity6. LegalityBut, if a genuine agreement is disrupted by fraud,

misrepresentation, duress, or undue influence, then the contract may not be considered binding.

Today

• This chapter deals with MINORS rights and obligations concerning contracts & other contractual capacity rules

- Who is a minor?- What contracts are voidable when a minor

is a party?- Who else is considered without capacity

and can rescind a contract?

CapacityCapacity

… … ability to understand the ability to understand the consequences of a contractconsequences of a contract

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Protections for Those Who Lack Protections for Those Who Lack CapacityCapacity

• In the eyes of the law, minors lack “capacity”, In the eyes of the law, minors lack “capacity”, thus are not bound to the contracts they make… thus are not bound to the contracts they make… (I’ll explain more in a bit)(I’ll explain more in a bit)

• Minors defined:Minors defined:– 18 and younger (minority)18 and younger (minority)– minors have not yet reached the age of minors have not yet reached the age of majoritymajority (18) (18)– minority ends the day before the birthday of the age set minority ends the day before the birthday of the age set

as the age of majorityas the age of majority• Contracts of most parties who lack capacity are Contracts of most parties who lack capacity are

considered voidableconsidered voidable5

Exceptions to the “minor rule”

• Emancipation- a legal process where a child ages 16-18 becomes free from the control of his/her parents or legal guardian– Ends the rights of the parents or guardian to the custody,

control, services, and earnings of the child– Legally an adult

• In Michigan, you are automatically emancipated if you:– Get married– Turn 18 years old– Are on active duty with the U.S. military

Emancipation, cont.• How to get emancipated

– Go to www.Michigan.gov and fill out the emancipation petition form

– File the petition in court– Hearing is held– At the hearing the judge will consider ALL of the

following:1. Either your parents do not object to your petition for

emancipation or if they do object, they are not providing you with any support

2. You are at least 16 years old3. You are a Michigan resident4. You can support yourself financially5. You have a place to live6. You understand your rights and responsibilities as an

emancipated minor

Emancipation, cont.

If you are emancipated you are held fully responsible for all contracts made!

Misrepresentation of Age

• If you misrepresent your age, you have committed fraud

• Fraud is a wrongful act, and as such, minors ARE responsible for any wrongful acts committed

• The other party may sue you for misrepresenting your age IF the party suffered a financial loss from the contract made

Contracts of Minors

• Voidable contracts- Contracts made my minors are voidable by the minor

• As a result, minors can disaffirm, or avoid, their contracts if they so choose

• Disaffirm- show the intent not to live up to the contract by a statement or some other act (example: write a letter)

• The theory behind this law is to provide young people a second chance when they use poor judgment

Contracts of Minors, cont.• Returning the Merchandise- if a minor still has

the merchandise he or she received upon entering a contract, that merchandise should be returned when the contract is disaffirmed (in most cases your $ is paid back)

• Disaffirming the Whole Contract- a minor cannot affirm parts of a contract that are favorable and disaffirm the unfavorable parts

• Disaffirming Contracts Made With Other Minors- when two minors enter into a contract with each other, both parties have the right to disaffirm the contract

Contracts of Minor’s cont.• Ratification of Minors’ Contracts- after reaching the age

of majority (18), a person can ratify, or approve, contracts made during minority

• It can be done:– Orally– Written– By one’s actions - using or selling an item obtained by a contract

for a reasonable time after 18 • Example: After your 18th birthday, you continue to make

payments on a car you bought when you were 16. You now have entered into a contract by your actions and are now held accountable for paying for the car, even though you were 16 when you bought it.

Contracts for Minors, cont.

• A minor IS held responsible for the fair value of necessaries

• Necessaries (necessities)- include food, clothing, shelter, and medical care

• But if you can prove that it wasn’t necessary, then you can disaffirm the contract

• Example: You go to the store and purchase a winter coat, hat, and a pair of boots. If these items were things you actually needed, then you would be bound to keep them and pay the fair value for them.

Contracts for Minors, cont.

• There are some special circumstances in which minors do have the capacity to enter into contracts. In Michigan these include:– Health care– Car Insurance– Life Insurance– Change your name (after 14)– If you want to be adopted (after 14)

Other Contractual Capacity Rules

• Minors are not the only group that may disaffirm a contract. Other classes of persons are also able to avoid contracts. They are:– Mentally Impaired Persons– Intoxicated PersonsIn some cases:– convicts– Illegal aliens– In times of war, foreign-born persons who are

designated as enemy aliens

Mentally IncapacitatedMentally Incapacitated

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Intoxicated Lack CapacityIntoxicated Lack Capacity

• ……from using alcohol from using alcohol in forms such as beer in forms such as beer or vodkaor vodka

• ……from using drugs from using drugs such as marijuana or such as marijuana or crack cocaine, or crack cocaine, or inhaling products such inhaling products such as glue or aerosolsas glue or aerosols

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