9 CHAPTER Legal Capacity to Contract 9 -1

9 CHAPTER Legal Capacity to Contract 9 -1 Contractual Capacity of Individuals and Organizations 9 -2 Limits on the Rights of Those Without Capacity Law for Business and Personal Use © Thomson South-Western

9 -1 Contractual Capacity of Individuals and Organizations GOALS n Identify parties who lack contractual capacity n Explain the role of capacity in organizations Chapter 9 Slide 2 Law for Business and Personal Use © Thomson South-Western

FOCUS n Have you ever tried to get out of a contract because you were young and inexperienced in the matter? n Did you know that you had a legal right to disaffirm contracts made while you were still in your minority? Chapter 9 Slide 3 Law for Business and Personal Use © Thomson South-Western

WHAT IS CAPACITY? n n Protections for those who lack capacity Minors Those mentally incapacitated The intoxicated Chapter 9 Slide 4 Law for Business and Personal Use © Thomson South-Western

What three classifications of individuals lack contractual capacity? Chapter 9 Slide 5 Law for Business and Personal Use © Thomson South-Western

WHO HAS CONTRACTUAL CAPACITY IN ORGANIZATIONS? Scope of authority n Employer grants authority to employee n Assumption of authority based on job title Chapter 9 Slide 6 Law for Business and Personal Use © Thomson South-Western

In what two ways is capacity to contract on behalf of an organization created? Chapter 9 Slide 7 Law for Business and Personal Use © Thomson South-Western

9 -2 Limits on the Rights of Those Without Capacity GOALS n Recognize the time frame during which a contract can be disaffirmed n Identify contracts that cannot be disaffirmed n Discuss the effects of misrepresentation of age on contractual responsibilities Chapter 9 Slide 8 Law for Business and Personal Use © Thomson South-Western

FOCUS n Explain the following quote from Benjamin Cardozo, Associate Justice of the U. S. Supreme Court, 1932– 1938. Liberty of contract is not an absolute concept. It is relative to many conditions of time and place and circumstance. Chapter 9 Slide 9 Law for Business and Personal Use © Thomson South-Western

WHEN CAN DISAFFIRMANCE OCCUR? n Any time while still under the incapacity n Within a reasonable time after attaining capacity Chapter 9 Slide 10 Law for Business and Personal Use © Thomson South-Western

WHAT MUST BE DONE UPON DISAFFIRMANCE? n Loss of value n Obligations of party with capacity Chapter 9 Slide 11 Law for Business and Personal Use © Thomson South-Western

DISAFFIRMANCE TIMELINE Chapter 9 Slide 12 Law for Business and Personal Use © Thomson South-Western

When can a person who lacks contractual capacity disaffirm a contract? Chapter 9 Slide 13 Law for Business and Personal Use © Thomson South-Western

CONTRACTS THAT CANNOT BE DISAFFIRMED n n n n Court-approved contracts Major commitments Banking contracts Insurance contracts Work-related contracts Sale of realty Apartment rental Chapter 9 Slide 14 Law for Business and Personal Use © Thomson South-Western

Which contracts that cannot be disaffirmed apply in all 50 states? Chapter 9 Slide 15 Law for Business and Personal Use © Thomson South-Western

CONTRACTUAL EFFECT OF MISREPRESENTING AGE n Other party to the contract may collect damages n Minor still may be able to disaffirm contract Chapter 9 Slide 16 Law for Business and Personal Use © Thomson South-Western

If minors lie about their age, what happens in most states with regard to their ability to disaffirm contracts for goods and services that are not necessaries? Chapter 9 Slide 17 Law for Business and Personal Use © Thomson South-Western