Legal Capacity, Minors' Contracts, and Incapacity Laws in Contract Law

Capacity to contract

The legal ability to enter a binding contract.

Presumption of capacity

The law starts by assuming a person has capacity.

Which groups receive protection under capacity rules?

Minors, people who lack mental capacity, and, in some circumstances, intoxicated people.

Void contract

An agreement with no legal effect from the beginning.

Voidable contract

A contract that the protected person can choose to cancel or keep.

Minor / age of majority

A minor is someone who has not reached legal adulthood.

Disaffirmance

Using the legal right to cancel a voidable contract.

Who can disaffirm a minor's contract?

Generally, the minor or the minor's legal representative.

When can a minor disaffirm?

Generally, while still a minor or within a reasonable time after reaching adulthood.

Reasonable time to disaffirm

A period that depends on the circumstances.

Real estate exception to disaffirmance

A minor must wait until reaching adulthood to disaffirm a contract involving title to real estate.

Ratification

Accepting a previously voidable contract and agreeing to remain bound by it.

Express versus implied ratification

Express: Clearly stating that you accept the contract. Implied: Showing acceptance through actions.

Can someone ratify while still a minor?

No. A minor cannot make the contract binding through ratification while still underage.

Effect of ratification

Ratification removes the right to cancel based on the earlier lack of capacity.

What must be returned after a minor disaffirms?

Generally, the minor can recover what they gave the adult and must return whatever they received.

Status quo

The position a person was in before the contract.

Traditional versus modern rules on damaged goods

Traditional rule: A minor generally need not fully compensate the adult for damage.

Disaffirmance and innocent third-party buyers

A minor may recover property they transferred even after it reaches a third party.

Misrepresentation of age

Lying about being old enough to contract.

Limits on a minor's right to disaffirm

Minors cannot always cancel every agreement.

Arbogast v. Sky Zone

The mother's signature did not make the release and arbitration clause enforceable against her daughter.

Emancipation

Ending a parent's general legal right to control their minor child.

Necessaries

Goods or services essential to a minor's life or well-being, such as food, clothing, shelter, medical care, and basic education or job training.

How do courts decide whether something is a necessary?

They consider the minor's age, circumstances, needs, and existing support.

Effect of parental support on necessaries

An item generally is not a necessary if a parent or guardian already provides or is willing to provide a suitable equivalent.

Reasonable market value versus contract price

For necessaries, a minor generally owes their reasonable value, not automatically the agreed price.

Quasi-contract liability for necessaries

A payment obligation imposed by law to prevent someone from unfairly keeping essential benefits without paying.

Necessaries received versus future necessaries

A minor generally owes for necessaries actually received, not future benefits canceled through disaffirmance.

Who must prove that an item was a necessary?

The adult seeking payment must show it was necessary in that minor's circumstances.

Mental incapacity

A lack of mental ability sufficient to prevent someone from understanding the contract's nature and effect.

Test for mental incapacity

At the time the agreement was made, could the person understand what the transaction was and what it would do?

Does mental illness automatically prevent someone from contracting?

No. A person can have a mental-health condition or disability and still understand a transaction well enough to make a binding contract.

Lucid interval

A period of clear understanding during which someone who is sometimes impaired can understand a transaction.

Contract made without mental capacity, but without a prior court declaration

Generally voidable by the person or an authorized representative.

Adjudicated mentally incompetent

Formally declared mentally incompetent by a court; contracts made after that declaration are generally void.

Intoxication and capacity

Drinking alcohol or taking drugs does not automatically allow someone to cancel.

Returning property after disaffirming for mental incapacity

The person must return consideration they received and still have.

Other party's knowledge and restoration to the status quo

If the other party had no reason to know of the incapacity, disaffirmance requires restoring that party's original position.

Ratification after regaining capacity

A person can accept a previously voidable contract after regaining capacity.

Necessaries and mental incapacity

Someone who lacked mental capacity may still owe the reasonable market value of necessaries actually received.