capacity

Capacity

  • Legal Requirement of Capacity:

    • Capacity is a legal doctrine protecting parties unable to understand contract terms.

    • A party must possess capacity to understand and appreciate contract terms before being legally bound.

Categories Lacking Capacity

  • Minors:

    • Contracts of minors (under 18) are voidable at their option.

    • Minors do not need to perform any act to benefit from this rule.

    • Must ratify contract upon reaching the age of majority to be bound.

    • Ratification:

      • Can be expressed (oral or written) or implied (performing the contract after reaching majority).

    • Disaffirmance:

      • If a minor has performed a contract, they must actively avoid the obligation by returning consideration.

      • Minor's inability to return consideration does not hinder their right to disaffirm.

    • Exception:

      • Minors can be held liable for "necessaries" (items for health/welfare) used up.

Case Study: C.M.D. v. Facebook, Inc.

  • Facts:

    • C.M.D. joined Facebook as a minor and sued for unauthorized use of likeness in ads.

    • Facebook argued that C.M.D. agreed to terms permitting use of likeness when joining.

    • District court dismissed the lawsuit.

  • Decision Overview:

    • Ninth Circuit ruled minors can consent to contracts under California law.

    • C.M.D. did not disaffirm the agreement as he continued to use Facebook after filing the lawsuit.

    • Legal Ruling:

      • Contract provisions may not be repudiated selectively; cannot benefit from one part while disavowing another.

Mental Competency

  • Legal Framework:

    • Mental incompetents have limited capacity to contract.

    • This includes obvious cases (mental disorders) and temporary conditions (intoxication, depression).

  • Legal Definition:

    • A person lacks capacity if they:

      1. Cannot understand the nature and consequences of the contract.

      2. Cannot act reasonably regarding the transaction and the other party is aware of this condition.

    • Example:

      • Oliver with Alzheimer’s can avoid a contract even if terms are fair.

    • Majority of states find such contracts voidable.

Case Study: Sparrow v. Demonico

  • Facts:

    • Dispute over family home ended in mediation settlement, challenged for lack of capacity.

    • Trial court ruled contract void due to emotional state.

    • Appellate court reversed, enforcing the settlement.

  • Decision Overview:

    • Court ruled incapacity must be supported by medical evidence.

    • Focus on the understanding at the time of the contract is crucial.

Intoxicated Persons

  • Impact of Intoxication:

    • Intoxication can affect capacity to contract (drugs or alcohol).

    • Example:

      • Wendell's excessive drinking made his agreement voidable.

    • Court's Standard:

      • Objective standard determines if intoxicated individual had sufficient capacity.

Takeaway Concepts

  • Summary of Capacity Principles:

    • Contracts by minors are typically voidable.

    • Minors can ratify or disaffirm contracts within a reasonable timeframe.

    • Persons lacking capacity due to mental illness or defect must be unable to understand or act reasonably.

    • Intoxication affects capacity, determined by an objective standard.