Chapter 7 – Capacity

Right to Avoid

• Some people are given special protection from contract mistakes in the form of the right to avoid (make void) the contract.
• Those individuals include minors, the mentally incompetent, and some people under the influence of intoxicating substances.

Minor

• A person who has not reached adult status, typically the day before his or her 18^th birthday.

Agent

• One who is authorized to act for or in the pace of another; representative
• If a minor acts as an agent, for the benefit of and under the direction of an adult, the adult is the real party to the contract.

Restitution

• return of, restoration of, or compensation for

Fraud

• False statement regarding a material fact, intended to deceive an individual who reasonably relies on the statement

Ratification

• Ratify:  to acknowledge or validate a contract after its execution
• Express ratification:  to state or write intent to honor a contract or, if the contract has been executed, to acknowledge the contract
• Implied ratification:  intent to honor contract or acknowledgement of contract can be inferred from behavior or words

Mental Incompetence

• Mental incompetence is the inability to understand the nature and consequences of the transaction (cognitive test) or
• the inability to act reasonably with respect to the transaction (the volitional test).

Intoxication

• Intoxicated individuals, under the influence of alcohol or drugs at the time of making a contract, are often classified with the mentally incompetent.
• While the law does not generally protect voluntary drunks from the consequences of their actions, it does allow others to take advantage of intoxication.

Review Materials for Chapter 7

• Special protection given to minors – Right to avoid a contract
• Minors, mental incompetent; intoxicated
• Presumption of competency; burden of proving incompetency on the part of the minor
• Power to avoid a contract with the minor or his guardian/administrator
• Until 21 years old – minor
• Only the minor can avoid the contract; not the adult person who contracted with the minor
• Exceptions to the protection given to minors
  • 1. if minor acts as agent
  • 2. necessities including banking contracts; student loans; and military enlistment
• courts may ask the minor to return;
• protection given to minor cannot be used to profit from it
• In some states, a minor can still disaffirm even despite the presence of fraud
• A minor cannot ratify before reaching the age of majority.
• Implied ratification; failure to disaffirm the contract within a reasonable time after reaching the age of majority
• Mental incompetence – not synonymous with old age or physical disability; senility, mental retardation, delirium, and mental illness ; manic depressive psychosis not mental incompetence
• Incompetence that happens after the contract is not voidable
• Competence not synonymous with good judgment
• In states that make no distinction between adjudicated and non adjudicated incompetency, the contract is void. 
• Intoxication – courts will not allow others to take advantage of their conditions;
• Courts will look into various factor such as failure to disaffirm when sober, whether it is allergic reaction to drugs, or its illegal drugs
• Volitional Test – mental incompetence shown by inability to act reasonably with respect to a transaction
• Administrator – One who carries on the business of an estate; see Executor
• Infant – A minor 
• Intoxicated – Under the influence of alcohol or drugs
• Necessities – Things indispensable to life; reasonably needed for subsistence, health, comfort, and education, considering the person’s age, station in life, and medical condition
• Guardian – Individual with legal responsibility for the minor
• LAPs – Lawyers Assistance Programs
• Avoid – Make a contract void; see Disaffirm
• Implied Ratification – Intent to honor contract or acknowledgment of contract can be inferred from behavior or words
• Majority – The age of adult status (typically 18)
• Express Ratification – To state or write intent to honor a contract or, if the contract has been executed, to acknowledge the contract
• Fraud = False statement of material fact, made with intent to deceive, on which another reasonably relies, to his detriment
• Emancipation – Minor is no longer under care/control of an adult
• Attorney for the Child – Attorney whose role is to advocate the child’s position
• Minor – A person who has not reached adult status, typically the day before his/her 18th birthday
• Ratify – To acknowledge or validate a contract after its execution
• Cognitive Test – Mental incompetence determined by inability to understand the nature and consequences of a transaction
• Disaffirm – Make a contract void; see Avoid
• Non-Adjudicated Incompetent – Incompetence has not been determined by court
• Agent – One who is authorized to act for or in place of another; representative
• Adjudicated  Incompetent – Court has declared person incompetent
• Void – An agreement with no legal effect