Legal Capacity

to Contract
Chapter 9
Contractual Capacity – the
ability to understand the
consequences of a contract
Does not require that a
person understand the actual
terms
Those parties who lack such
capacity include (1)minors,
(2)the intoxicated, and (3)the
mentally ill/handicapped

All of these parties are said to be

incapacitated or incapable
 The Age of Majority
 Minors (or the minority) are
defined as individuals under
the age of majority
 Most states majority is 18 –
Some 19 or 21
 The contracts of most
parties who lack capacity
are considered voidable
Disaffirmance – a refusal to
be bound by a previous
legal commitment
Protected party, generally, is
to receive back whatever they
have put in
What about Necessities?
 Minors could be held liable for
contracts made for necessities –
things needed to maintain life
(ie. food, clothing and shelter)
 Even if contract is disaffirmed, at
least some, if not all, of the cost
may still be required to be paid
 Emancipation
 Severing of the child-parent relationship

 Ends the duty of the parent to support a

child and the duty of a child to obey the
parent
** Minors may also find themselves bound
to contracts if they are emancipated
Formal Emancipation
Occurs when a court
decrees (declares) the
minor emancipated
Informal Emancipation
1. Parent and minor agree to
the ceasing of support
2. Minor marries
3. Minor moves out of the
family home
4. Minor becomes a member
of the armed forces

5. Minor gives birth

6. Minor undertakes full-
time employment
Mentally Incapacitated
Those people with severe
mental illness, severe
mental retardation, or
severe senility (mental
weakness from old age)
 The Intoxicated
 Those under the influence of
alcohol, drugs or inhalant products
 If a judge holds that a person is in
a permanent state of alcoholism,
that person’s contracts are
considered void
 Scope of Authority
 A range of acts an organization
has authorized an employee to
do (ie. bind a company/
organization to a contract)
 Capacity can come from a
delegation or an apparent
authority
Limits on the Rights
of Those Without
Capacity
When can Disaffirmance Occur?
 Generally a person lacking
capacity can disaffirm a contract…
 Any time while under the incapacity
or
 Within a reasonable time after
attaining capacity
UNLESS…
 New promise or action is
given after majority is
reached
In most cases, minors
must return everything
received in a condition
as good as it was when it
was received!
Contracts That Can’t be Disaffirmed
1. Court-approved Contracts (all
states)
 Actors/actresses, professional
athletes
2. Major Commitments (all states)
 Armed forces, student loans,
and marriage
3. Banking Contracts (most
states)
 Deposits/withdrawals

4. Insurance Contracts (most

states)
5. Work-related Contracts (most
states)

6. Sale of Realty (some states)

7. Apartment Rental (few states)

 Misrepresentation of Age
 In most states, a minor who
gives a false age may still
disaffirm their contract
BUT…may be held liable for the
tort of false misrepresentation