business law: ch 9
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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 - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Business Law: Ch 9](https://reader036.vdocuments.mx/reader036/viewer/2022070500/568168f7550346895de0086f/html5/thumbnails/1.jpg)
Business Law: Ch 9
Legal Capacity to Contract
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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
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Lack Some Capacity
• Three groups lacking some capacity1. Minors2. Intoxicated3. Mentally Impaired
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Minors
• Minors – Under the age of majority– In Ohio the age of majority is 18– Ends the day before the birthday of the age
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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
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Disaffirm
• 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
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Necessities
• 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
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Minors
• 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
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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
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Emancipated
• Formal emancipation– Court decrees the minor emancipated
• Informal emancipated– Arises from the conduct of the parent and minor
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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
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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
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Intoxicated
• 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
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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
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9-1 Assessment
• Turn to page 161 and complete the 9-1 Assessment Questions
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When can disaffirmance occur
• Disaffirmance – can happen:1. Any time still under the incapacity2. 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
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Ratification
• For a minor, ratification must occur after achieving majority.
• Ratification may consist of:1. Giving a new promise to perform as agreed2. Any act (such as making a payment) that clearly
indicates the party’s intention to be bound
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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.
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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
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Misrepresenting Age
• Minors who lie about their age may disaffirm contracts
• However, they are liable for the tort of false representation
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9-2 Assessment
• Turn to page 165 and complete the 8 questions