Chapter 14 – Incapacity

Answers to Problem Solving and Analysis

Questions
For use with Contracts: A Modern Coursebook by Ben Templin. (c) 2019 Ben
Templin
The file may be copied and distributed only by professors and their assistants to
students who are enrolled in a course where the book is assigned as a text.
Otherwise, do not distribute or copy these materials in whole or in part without
express written permission.
Below are the answers for the questions in Problem Solving and Analysis section for this chapter.
For your convenience, the original question is replicated with the answer.

Answers to Questions
1. Minor, a 15-year-old, enters into a contract with a boat dealer to purchase a Jet Ski, which is a type of personal
watercraft. Minor and Dealer sign a contract for the sale and purchase of a specific Jet Ski model for $11,000—money
to be paid upon delivery in two weeks. When the Jet Ski arrives, Dealer refuses to deliver it to Minor unless Minor
either provides proof that Minor is of the age of majority or Minor provides an adult co-purchaser. Minor cannot
comply with either of these two requests; however, Minor still wants to purchase the Jet Ski and has the money to do
so. Dealer refuses because Minor is under the age of majority and claims the contract is void. Under the classic
common law, can the 15-year-old successfully sue the dealer for breach of contract? Explain your reasoning.

EXPLANATION:
The key to this problem is the call of the question. Minor wants to enforce the contract; whereas, the
Dealer wants to rescind it. Another way to frame the question is to ask, Can Dealer void the contract
because of minor’s incapacity?
The right to rescind only lies with the minor. Seller is unable to void the contract. Consequently,
Minor can enforce the agreement by suing for breach of contract.
Recall the rule for the incapacity defense for minors: A minor's contracts are voidable but not void at
the election of the minor. This means that a minor's contracts are valid, but that the minor - and only
the minor - may elect to void the contract because of his or her minority. While sellers of certain
goods might be required by law to verify the age of purchasers for certain products (e.g. cigarettes
and alcohol), nothing in the fact pattern requires such a result here.

2. On September 1, 16-year-old Minor enters into a written contract with Seller to purchase 1,000 gallons of gasoline
at $3 per gallon with delivery set for November 1. On September 1, gasoline sells for $2 a gallon. On October 15,
gasoline is selling for $4 a gallon. Seller persuades Minor to rescind the September 1 contract. Minor and Seller enter

Contracts: A Modern Coursebook 14-1

into a Mutual Rescission Agreement — i.e., a contract where each party agrees to rescind the September 1 contract.
Minor later realizes that it was not in his economic self-interest to rescind the contract and wants to hold Seller to the
original contract with the $3 price. May Minor use the incapacity defense to cancel his October 15 rescission?
Consider the policy goals of the incapacity defense in formulating your answer.

EXPLANATION:
Minor entered into a contract that ended up being very favorable to him since the gas of price rose.
The rescission of that contract was – in essence – a contract modification. As we learned in Chapter 5
Section B.2., the parties may enter into a “mutual rescission” – a type of modification. That
modification is in itself a contract between two parties – the contract being an agreement to rescind.
Since the rescission was a contract and the Minor is under the age of majority, the minor has a right to
disaffirm the rescission; thereby, bringing the original contract back into force.
This result aligns with the policy goals of the incapacity defense, which are to protect minors against
their own rash decision-making and against adults who would take advantage of them. Here, the
Seller wanted to get out of a contract that put him at a disadvantage, so he convinced the minor to
rescind the deal, which was against the minor’s economic interest. Allowing disaffirmance of the
mutual rescission protects the minor from his error in judgment.

3. Minor is 14 years old. Minor’s parents go on vacation for a week, leaving Minor at home with $100 to purchase
food while they are gone. On the first day, Minor spends the $100 on games. By the third day, Minor has eaten
whatever food was in the house, but he has no money to purchase more. Minor enters into a contract with Lender to
borrow $100 at 10% interest for the purpose of purchasing food. Repayment of the loan is to be made one year later.
Minor uses the $100 to purchase food from Store. When Lender tries to enforce the loan agreement one year later
Minor seeks to void the contract based on incapacity. Will Minor be successful in his asserting his defense? Explain
your reasoning.

EXPLANATION:
Food is a necessity and Minor had no money to pay for it; therefore, it was a necessity to borrow
money to pay for the food. Contracts that provide for necessities are an exception to the general rule
that a minor can disaffirm his contracts. Minor will be unsuccessful in his defense.
See Price v. Sanders, 60 Ind. 310 (1878).

4. You recently graduated law school and have opened a solo practice. At this point, you are taking on any client who
walks in the door. A friend of your parents has called you and asked if there is anything that can be done about a
contract her daughter entered. On November 1, the parent’s 17-year-old daughter went to a cell phone store and
signed a two-year contract for cell service at the price of $19.95 per month. The terms required that the user prepay
each month’s use by the first of each month. As part of the contract, the daughter received a cell phone at no extra
charge and one month of service. The daughter paid for the month of November when she signed the agreement on
November 1 and used the phone during the month of November. However, the daughter did not pay afterward and
the cell phone company suspended the daughter’s service.

The cell phone company has repeatedly contacted the parents demanding that the two-year contract be honored.
Advise the parents and daughter on their rights and duties. Based on your analysis, what actions, if any, should your

Contracts: A Modern Coursebook 14-2

clients take? Explain your reasoning.

EXPLANATION
COUNSELING A CLIENT:
The hypothetical puts you into the role of an attorney counseling a client.
Counseling a client requires that you understand the law and how it might affect certain legal
strategies. This exercise provides you with an opportunity to practice that skill by applying the
concepts that you learned in this chapter to counsel the client on the different risks and outcomes that
may result based on a strategy. In other words, you are not only objectively analyzing the rights and
duties of the various parties but also advising them on which actions, if any, to take.
The ABA Model Rules of Professional Responsibility Rule 2.1 provide the following guidance when
an attorney is acting in the capacity of an advisor: “In representing a client, a lawyer shall exercise
independent professional judgment and render candid advice. In rendering advice, a lawyer may refer
not only to law but to other considerations such as moral, economic, social, and political factors that
may be relevant to the client's situation.”

EXPLANATION:
The issue is whether the minor, or in the alternative, the parents, are liable for the two year cell phone
contract.
Here, the contract is between the minor and the phone company. Since the parents are not a party to
the agreement, the parents have no liability.
The law is clear that the daughter may disaffirm the contract prior to the age or majority of shortly
thereafter.
You should have advised the parents and daughter that neither they nor their daughter are not liable
for their daughter’s actions in this case.
None of these facts suggests that this contract fits into one of the exceptions such as misrepresenting
her age or willful destruction of property. Although a teenager may think a cell phone is a necessity, it
does not fit into the traditional exceptions of food, shelter, clothing, or medical care.
You should have advised the daughter to actively disaffirm the contract and return the cell phone to
the phone company. Since it is a two-year contract, daughter will turn 18 while there is still one year
left on the agreement. If she is deemed at that time as affirming the contract by not actively
disaffirming it, then phone company should then be able to recover all of the missed payments.
Therefore, the daughter should disaffirm the agreement based on minor incapacity.

5. Frances and Kyle are both 14 years old and ready to go out on their first date. Both are extremely hungry and they
decide to go to the fanciest restaurant in town. After being seated, they order a seven-course meal without noticing
the cost on the menu. After dining on the elegantly served food, they are presented with a $400 bill. Between them,
the children have $60, which they give to the restaurant. The restaurant owner agrees to let them go if they promise to
return and either (1) pay the remainder or (2) work to pay down the rest of the bill. Frances and Kyle agree to these
terms. Later, the children try to use the incapacity defense to disaffirm the contract for the meal and the subsequent
agreement to work off the unpaid balance. They also seek a return of the $60.

Contracts: A Modern Coursebook 14-3

Can the minors use the classic common law incapacity defense to void the contract and get their $60 back? Explain
your reasoning. Consider the policy goals of the incapacity defense in formulating your answer.

EXPLANATION:
The minors can disaffirm the contract.
This is a problem where students are likely to have a wide variety of opinions. The problem is written
in a way to create a bias against the two 14-year-old children. Upon reading it, many students
conclude that the teenagers acted irresponsibly. Many parents might suggest that the teenagers should
be taught a lesson about decision-making and make the kids use their own savings or arrange a
payment plan. From a parenting perspective, that sounds like a good character-building lesson.
However, the problem asks you to apply the common law while considering the policy goals of the
minority defense.

If you thought that the restaurant should be able to enforce the contract, then it is likely because you
made inferences -- i.e., assumptions -- about the intent of these children that are not based in the facts.

ANALYZING THE PROBLEM:

This problem is designed to teach students to apply the rules objectively using only the facts as given
– i.e., not to assume facts that are not in evidence.
To get to the right answer, students could ask a series of questions.
1. Are the teenagers below the age of majority? If Yes, then they can disaffirm but an exception
might apply.
2. Can the consideration be restored? No.
3. Is this meal a necessity?
It is unlikely that a court would find that the meal was a necessity given the facts. An elegant meal is
not a necessity.
Moreover, nothing in the facts show that the teenagers could not have eaten at home or that they
would have starved but for the meal. If the meal is not a necessity, then the minors will be able to
disaffirm the contract unless another exception applies.
You may recall that in the Case Illustration: Webster Street Partnership, Ltd. v. Sheridan, two minors
were able to prove that renting an apartment did not fall under the necessity exception because they
had homes that they could return to – i.e., their parents would welcome them back.

4. Is there anything in the facts that state the teenagers were acting in a tortious manner?
Some students will want to hold the children liable because they refused to pay the $400 bill. From
this fact, students infer that the children engaged in the tort of conversion. However, conversion is an
intentional tort, and nothing in the facts states that the children had planned to steal food from the
restaurant. Consequently, there is not enough evidence present to prove that tort. It would be equally

Contracts: A Modern Coursebook 14-4

 credible to say that the children just made a mistake – i.e., made a lousy decision. Remember that one
of the important policy goals of the infancy doctrine is to protect children from their improvident
decisions.
Therefore, the teenagers can disaffirm and do not have to pay for the meal since no exception applies.

Conclusion & Policy Analysis

An objective application of the incapacity rule reveals that the minor may rescind the contract. The
teenagers are under the age of majority since they are 14 years old, and most states consider becoming
an adult to be 18 years old. Since they are infants, they can rescind the contract unless one of the
exceptions applies. Upon rescission, the minor has to return the consideration. However, these two
minors cannot restore the consideration because the meal has been eaten. Unfortunately for the
restaurant, these facts do not implicate any of the exceptions.
Does this leave the restaurant in a worse position? Yes. However, from a policy perspective, the
restaurant took on the risk of the minors disaffirming the contract. The restaurant should not have
entered into the agreement with the minors in the first place. See Case Illustration: I. B. ex rel. Fife v.
Facebook, Inc.(pp. 290-291) for a another statement of this policy.
At the end of the day, students need to realize that the public policy to protect minors is very strong –
even if it does result in some injustice to adults at times. The lesson is that the adult business owners
need to protect themselves by not taking on the risk of the transaction.

6. Homer was in an accident and suffered brain damage. He appears normal and is as intelligent as he has always
been. However, he now suffers from a mental illness that causes him to make compulsive purchases of expensive
luxury items. Homer understands that he cannot afford the items; however, he cannot stop himself from making the
purchases. Homer would like to rescind some of the purchases under a theory of mental incapacity. How will a court
rule as to Homer’s competence in a state that follows the traditional rule? Explain your reasoning.

EXPLANATION:
Homer would be judged competent in a majority rule state.
The majority rule is whether the person involved had sufficient mental ability to understand the nature
and consequences of the transaction. Here, the facts state that Homer did understand the
consequences; therefore, he is competent.

7. Michele was in an accident and suffered brain damage. Although she appears normal, her cognitive abilities have
been affected, and she now has no ability to handle her money. Michele purchases an expensive diamond necklace that
she cannot afford from a jeweler. During the transaction, Michele acts normally and the jeweler has no reason to
suspect that Michele is incompetent. When Michele leaves the store, she accidentally breaks the diamond necklace,
and a few of the diamonds fall off and are lost. Assume for the purposes of this question that a court in a traditional
jurisdiction found that Michele was mentally incompetent under the cognitive test. Can Michele disaffirm the
contract? If disaffirmed, is Michelle responsible for the cost of repairing the broken necklace and the lost diamonds?
Explain your reasoning.

EXPLANATION:

Contracts: A Modern Coursebook 14-5

Since the facts state that you should assume Michelle is mentally incompetent under the cognitive
test, then she can disaffirm the agreement.
However, an issue arises about restitution. Because Michelle acts normally, the jeweler had no reason
to know of her incompetence. Nothing in the facts suggests that the contract is not on fair terms.
Consequently, Michelle will be responsible for the cost of repairing the broken necklace and the lost
diamonds.

Contracts: A Modern Coursebook 14-6