A minor who enters into a contract for necessaries

Application: Reflection

The importance of a secure, structured, legal environment in which businesses can safely operate and in which they have clear guidance and processes, along with a system that can be used to address wrongs efficiently, was introduced at the beginning of this course. Through the U.S. legal system, case law, Congressional and state statutes, and administrative regulation, you explored the many ways that business is governed and regulated.

Think about all of the legal concepts that you have examined over the weeks that are part of business law in the United States. Consider the many, many rules and regulations that every business must follow. The textbook states, "Government regulation of business has become a way of life in the United States." Do you think that there could be a point at which the legal system can slow down and lessen the efficiency of business operation?

With this in mind, reflect on the theories, concepts, and strategies presented in this course as you respond to the following:

Explain whether you believe that there is too little regulation and protection for business in the United States or whether you think that there is too much regulation slowing down the efficiency and reducing the profitability of business in this country. Be sure to support your reflections with several examples from the text, class discussions, or any other source. Also, include a brief abstract in your paper.

Business Law

Principles and Practices

Goldman, A., & Sigismond, W. (2014). Business Law: Principles and Practices (9th ed.). South- Western Cengage Learning.

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PRINCIPLES AND PRACTICES

apacity

APTER PREVIEW

inor's Rights and Obligations erv1ew

ors' Right to Disaffirm a Contract - : eptions to a Minor's Right to Disaffirm a

Contract ors' Right to Ratify a Contract

-,..epresentation of Age by a Minor - ors' Liability for Necessaries -ems' Liability for Minors' Contract - rs' Liability for Torts

ons Under the Influence of cohol or Other Drugs

ally Incompetent Persons - -al Incompetence Determined by a .=ourt - 1 Incompetence Not Determined by a :ourt

169 '

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I]] 0 IN A BUSINESS SETTING

Capacity to Contract =---- LEARNING OBJECTIVE~

Define capacity to contract.

capacity to contract: legal and mental ability to understand the nature of an enforceable agreement

disaffirmance: refusal of incompetent party to carry out the terms of an agreement

This chapter explores the third required element of a legally enforceable

contract, namely, the capacity to contract. You will learn that certain classes o

persons have only limited or no power to contract. The remainder of the

chapter outlines in some detail the liabilities of these individuals on ordinary

contracts and for those contracts involving goods and services that the law

considers necessary to life and health. It will be interesting to learn how far the

law goes to protect minors, and even refer to them as "infants" in many of thei•

court decisions.

Andy, a 17%-year-old minor, purchased an expensive computer at Pace Computers for $2,500 and paid cash from his savings account. The purchase was for pleasure purposes . At the time of the sale, the salesperson was aware that Andy was a minor but made the sale anyway, thinking of the commission he would receive. Later on, Andy's girlfriend convinced him to take an overseas trip with her to several European countries. Since he needed all the money he could get {his savings account was depleted), he returned to Pace Computers to return the computer and to demand the return of the purchase price, claiming that he had a right to do so because of his protected status. The manager looked at Andy's driver's license and claimed that Andy was now an adult since he had turned 18 years of age and could no longer disaffirm the contract. Actually, Andy had passed his eighteenth birthday by two days.

Questions 1. Was it unethical (unfair) for Andy to return the computer and demand his

money back? 2. Could the manager refuse to take back the computer?

Capacity to contract is the legal and mental ability of a person to understand th at he or she is entering into an agreement that is enforceable by law. It is a defens e available to an otherwise valid contract. Each party to an agreement is consid- ered to have contractual capacity until proof is presented otherwise. The proof must come from the person alleged to lack the capacity to contract. Some persons have substantial protection by law. They are considered incompetent, but never- theless have a limited capacity to enter into contracts. You might say that they have the best of both worlds.

The most important of these classes with protection are infants (minors); per- sons whose mental abilities have been impaired by medicine, drugs, or alcohol; and those that are mentally ill. In most cases, these individuals can enforce their contracts against the other party, or if they wish, may escape liability from the contract. The contract is voidable at their option. This right of an incompetent t o set aside an agreement is called disaffirmance. Persons who are mentally ill and have been declared so by a court are completely incompetent and do not have the legal capacity to contract. Their contracts are void. Competent parties generally deal with incompetent parties, especially minors, at their own risk.

Minor's Rights and Obligations

LEARNING OBJECTIVE~ Define the term minor and explain

the circumstances under which minors may legally be

held responsible for their contracts and when

contracts they make with others are voidable or

even void .

or: a person under the age of -= rity

:::..ardian: court-appointed adult rtas custody and care of an

~ petent party

Overview A minor, also referred to as an infant, is a person (male and female) under the age of majority. The age of majority in all states is 18. At age 18, a person is legally an adult with full capacity to contract for goods and services. The age of majority may still be 21 for other purposes, such as the purchase of alcohol, for example. By law a person reaches majority at 12:01 A . M. on the day before his or her birth- day of the age of majority. For example, if your birthday is November 4, you legally become eighteen at 12:01 A.M. on November 3.

An agreement between a minor and an adult is voidable, but only by the minor. Unless and until the minor decides to set aside the contract, the agreement legally binds both parties.

Maranti, a minor, signed an agreement with a business school to take a fifteen-week accounting course. One week later and before starting classes, she changed her mind and notified the school that she would not be taking the course. The school, nevertheless, demanded that Maranti fulfill the terms of the agreement or else pay for the cost of the course. As a minor, Maranti had the right to avoid this agreement.

There are many situations in which a minor may mentally have as much abil- ity to make an agreement as an adult. It is difficult, however, for courts to analyze each agreement made by a minor to determine competence. As a result, the law grants the right of disaffirmance to all minors, regardless of whether the agree- ment is fair or unfair to the minor, whether it does or does not benefit the minor, or whether the minor is 10 or 17 years old.

The courts, however, will not allow a minor to use the right to disaffirm agreements as a "sword" to injure adults. The law permitting disaffirmance is intended only to protect the minor.

Hanna, a minor, purchased an airline ticket from New York City to Los Angeles so that he could visit some relatives. The airline was running a special fare of $450 round trip. When Hanna returned from his trip, he went to the airline office in New York City and demanded his $450 back, claiming that as a minor he could disaffirm his agreement with the airline. Because it appears that Hanna was trying to use his minority to take advantage of the airline, a court may not let him disaffirm the agreement.

Adults can avoid suffering losses by refusing to enter into agreements with minors. If an adult does deal with a minor, the adult may ask that a parent, guardian, or other adult sign the agreement along with the minor. A guardian is an adult appointed by the court to have custody and care of a minor in place of his or her own parents until the minor reaches the age of majority. The parent, guardian, or other adult is legally bound on the contract even though the minor disaffirm it.

Minors' Right to Disaffirm a Contract The law in all states grants minors the right to disaffirm agreements, and it does so for their protection. The law presumes that most minors are immature and therefore lack judgment and experience. A minor may avoid an agreement with an adult at any time, from the time the agreement is made until the time the minor reaches the age of majority and for a reasonable time after reaching majority. Some states, however, have passed laws establishing a maximum period after reaching majority (e.g., six months) instead of a reasonable time.

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Nathan, five days away from his eighteenth birthday, purchased a Gave; GPS Unit for $189.99 from Office Rex and secured it to the dashboard. Office Rex was aware that Nathan was a minor. Two days after reaching his eighteenth birthday, he returned the GPS, stating that he was dissatisfied with the performance of this particular unit, and he demande his money back. Office Rex refused, claiming that Nathan was now an adult and therefore could no longer disaffirm the contract. However, since Nathan disaffirmed the agreement within a reasonable time after reachi11. majority (two days) a11d retumed the GPS, he is e1ttitled to a return of his $189.99.

The minor may disaffirm by informing the adult orally, in writing, throug- a formal lawsuit, or by any conduct that shows an unwillingness to be bound the agreement. If the agreement is completely executed (if it has not been COJL- pletely enforced), the agreement ends and the minor has no further obligation

If the agreement between the minor and the adult is fully or partially exe- cuted , and the minor has transferred consideration-money, property, or oth~. valuables to the competent party- the minor may still disaffirm and recow~ from the adult any consideration given. If the consideration has been sold or has depreciated in value, the adult must pay the minor the cash equivalent. As a gen- eral rule , the minor must also return whatever consideration was received fr o the adult. In most states (majority view), however, the minor may disaffirm t he agreement even though the consideration received by the minor cannot be returned because it has been lost, damaged, or destroyed, even though the mi no:- might have been negligent; has deteriorated from lack of care; or has depreciate- in value. If, for example, the minor disaffirms the purchase of a car after the ca:- has been damaged in an accident, she or he need only return the damaged car. The courts reason that if immaturity leads a minor to make an unwise contracr this immaturity will also cause the minor to be careless in caring for th- property.

An increasing number of states, feeling that the majority view frequ ently re- sults in a severe financial loss to the nonminor, no longer permit disaffirm ance unless the minor returns the consideration (or its equivalent) or at least pays for any damage to or depreciation in the value of the consideration. In these states. if a minor, for example, buys and pays $500 for a pair of skis but decides six months later to return the skis (which now are worth only $200) , the minor ca:: recover only $200, not the $500 originally paid.

A minor may not recover personal property sold to an adult who in turn sells it to a third party. The Uniform Commercial Code provides that a person who obtains a voidable title-for example, the adult who buys property from a minor-has the power to transfer a valid title to a good-faith purchaser.

Nichols, a minor, sold gym equipment consisting of a Stairmaster, and a punching bag to Cox, an adult, for $800. Cox in return resold the equipment to Bernstein, a good-faith purchaser. Cox, with a voidable title, transferred a valid title to Bernstein. Nichols could disaffirm this agreement only if Cox still had possession of the gym equipment.

If two minors enter into an agreement, either or both may disaffirm and re- cover any consideration. The minor, if no longer in possession of the consider- ation, has no obligation to return it.

Exceptions to a Minor's Right to Disaffirm a Contract There are some exceptions to the general rule that gives a minor the right to avoid an agreement. Until reaching maj ority, a minor cannot disaffi rm an agree- ment for the sale of real estate to an adult. The minor may, however, legally re- take possession of the property and us e it or rent it to other people until he or

: to approve something

she reaches the age of majority. In some states, a minor who does not take pos- session of the real estate until reaching majority may recover rent or any other profit that the adult acquired from the property while it was in the adult's possesswn.

Laws in many states prevent minors from disaffirming certain agreements. They include marriage contracts; alimony contracts; student loan commitments; medical insurance contracts; a life or accident insurance contract; an education loan; a contract for transportation with a common carrier (e.g., an airline ticket); a contract with a college; a sale of stock; a bank account transaction; a contract involving the minor's business, such as one to perform services as an actor or musician; a court-sanctioned agreement; and enlistment in the armed forces .

Minors' Right to Ratify a Contract A minor may ratify a contract after reaching the age of majority, but not before. To ratify means to approve, in this case a previously voidable contract. Upon reaching the age of majority, the minor obtains complete legal capacity to act. Once ratified, agreements become legally binding, and the minor's privilege to dis- affirm them ends. The minor must ratify the agreement within a reasonable time after reaching majority. What is "reasonable" will depend on the circumstances in each case.

Ratification by the minor may be oral or written. Ratification may also be implied from the minor's conduct, which clearly indicates an intention to be bound by the agreement. For instance, a minor may ratify an agreement after reaching majority by accepting and cashing a dividend check on stock purchased as a minor. Ratification also takes place if, after reaching majority, the minor pays for the property he or she purchased while a minor or sells the property to someone else. If the minor fails to disaffirm an executed agreement within a rea- sonable period of time after reaching majority, ratification occurs and the right to disaffirm the contract has been lost.

Three weeks before reaching majority, Angora bought a car and agreed in writing to pay for it in monthly installments. One week after reaching majority, she made the first monthly payment. Two days later, Angora damaged the bumper and the fender in an accident. She then returned the car to the dealer and asked for a refund. By making the first payment and by using the car after reaching the age of majority, Angora ratified the agreement made as a minor and could no longer disaffirm. She will be held to the terms of the installment contract.

Ordinarily, if an agreement is completely executory, the minor's failure to act after reaching majority is considered disaffirmance.

Three days before reaching majority, Bannister agreed to purchase a car from a used-car dealer. Some mechanical work had to be done, and delivery and payment were postponed for one week. When notified that the car was ready for delivery, Bannister did nothing about it. Because she did not act, she disaffirmed the executory agreement, and the car dealer cannot require her to buy the car.

A minor cannot ratify part of an agreement and disaffirm another part. The entire agreement must be either ratified or disaffirmed.

The week before Apter reached majority, he purchased a tuxedo and its accessories from Varden's Tuxedo Shop to attend a formal dance. A few days after reaching majority, Apter returned the accessories and demanded the return of the purchase price for these items. Because he purchased the items together, Apter must either keep the tuxedo an_d accessories or return the whole outfit for a refund of the entire purchase price.

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necessaries: th ings a person needs to live, such as food, clothing, and shelter

station in life: person's economi c and social status in a commun ity

emancipated minor: minor who is no longer under the control and authority of his or her parents

Misrepresentation of Age by a Minor Occasionally, minors deliberately misrepresent themselves as being over the age a- majority so as to induce the other party to contract with them. Under the commoG law, a minor would still have the right to disaffirm the contract and recover an: consideration given. Most states, however, have changed this rule because of th law's unfairness to adults. As a result, there is a lack of uniformity among states as to the liability of the minor in such cases . In several states, when the contract is executory, a minor who misrepresents his or her age is prohibited from disaffirm- ing the contract. If the contract is fully performed (executed), some states will no- allow minors to disaffirm unless they can return the consideration received. In other states, courts allow a minor who misrepresented his or her age to disaffirm but then hold the minor liable in damage s for the tort of fraud. Given this lack oi uniformity in this matter, the laws of individual jurisdictions should be checked.

Minors' Liability for Necessaries Minors are generally responsible for payment for necessaries purchased from adults. If that were not the case, adults would be unwilling to supply minors wit h those things necessary for their existence . Therefore, this rule is for the protec- tion of the adult.

Necessaries are those things a person actually needs to maintain the minor 's standard of living. Traditionally, necessaries are food, clothing, and shelter. T he concept of necessaries, however, has been expanded by court decisions to include medicine and medical services, the services of an attorney in tort and criminal cases, a basic public school education, an education to learn a trade, the to ols necessary for that trade, and services reasonably necessary to enable the minor to earn money required to provide the necessities of life (e.g., paying an employ- ment agency for securing a job).

Genevese, age 16, decided to leave high school to seek employment to support herself. She contracted with the Manpower Employment Agency for a fee to locate a job for her. Manpower did find a job, but Genevese refused to pay the fee, claiming that she was a minor and therefore had no liability to the agency. In an action against Genevese, Manpower will most likely win because Genevese is liable for necessaries, including payment to an employment agency for securing a job.

Luxury items (items used for pleasure) such as CD players, boats, television sets, jewelry, cameras, and sporting goods are generally not considered necessa r- ies. Automobiles and trucks have caused considerable controversy, but many courts hold that such vehicles are considered necessaries when used by the minor for business purposes (e .g., going to and from work).

Courts usually consider changing community standards and hold that the decision about whether an item is a necessary actually depends on the minor 's station in life. A minor's station in life refers to the minor's social and economic status in the community. It takes into consideration such things as the minor's fi- nancial condition and marital status, whether the minor already has a supply of necessaries, whether the parents or guardians are presently furnishing the nece s- saries, and whether the minor is emancipated. An emancipated m inor is one who has left home before reaching majority, who is self-supporting, and who is no lon- ger subject to parental control and authority. A significant implication for parents is that they lose the right to the child and earnings. Emancipation is not presumed but rather must be proved in most cases. The burden of proof is on the one assert- ing emancipation. The usual ways in which a minor becomes emancipated are through marriage, by engaging in full -time employment, by court order, by con- sent of the parent, by establishing a re sidence independent from the custodial par- ent, or upon the death of the parent otherwise providing support. In addition , entering the armed forces is one other circumstance that generally constitutes

emancipation. A minor may request a court's permission to be considered an adult to start up a business. The emancipated minor exercises general control over his or her life. Some courts even consider minors who live at home emanci- pated if they pay living expenses to parents and use the remainder of their earn- ings as they see fit. Emancipation, however, as mentioned earlier, m ust be proved, and the burden of proof is on the person claiming emancipation.

Scott, an emancipated minor living away from home, was injured in a skiing accident. A physician called to the scene of the accident set Scott's broken leg. Later, the physician sent a bill for his services. Scott refused to pay, claiming that as a minor she was not responsible for the bill. Because Scott was a self-supporting minor, she was responsible for paying the physician's services, as necessary.

Applying the station-in-life rule sometimes makes it difficult to determine whether an item is or is not a necessary. When a minor and an adult disagree about whether an item is a necessary, the outcome may have to be decided in a court of law.

A minor must pay only for necessaries actually furnished, not for necessaries to be furnished in the future.

To learn a trade, Goodman, an emancipated minor, contracted with a correspondence school to take a twenty-week course in computer programming. After five weeks, Goodman lost interest and dropped out of the course. He did, however, pay the school for five weeks of instruction. The correspondence school claimed that Goodman was liable for the remaining fifteen weeks of instruction according to the agreement. Goodman may avoid the original contract made with the school and pay only for the five weeks of instruction he actually received.

The minor's obligation to pay for necessaries is based on a quasi contract (a contract implied in law). The minor is required to pay only the reasonable value of the item or service received, not the price stated in the agreement. Thus, although an adult is protected when selling necessaries to a minor, there may be a disagreement about the price, which may have to be settled in a court of law.

Kelly, an emancipated minor, obtained a job as a mechanic with a large car agency. Under the terms of the employment agreement, she was to complete a three-month training program with the company at her own expense. At the end of the training period, she would purchase from the company the tools she needed for the job. Kelly discovered that she had paid $900, but several of her friends taking the same training program had paid only $600. Kelly is entitled to a return of $300.

Parents' Liability for Minors' Contracts Unless parents agree to become liable, they generally have no legal liability for contracts made by their minor children acting on their own. For this reason, businesspeople often require parents to sign any contract made with a minor. The parents then become personally liable even if the minor backs out of the contract. Parents do, however, have the legal duty to support their minor children until they reach the age of majority or if they are emancipated prior to age 18 . So whether they have signed a contract or not, parents who neglect a minor child are liable for the reasonable value of any necessaries furnished to him or her. Consequently, if a minor child needs clothing that isn't being provided by the parents, the child may purchase the needed items, and the parents can be held liable for payment. This obligation to support generally continues until minors are emancipated. Normally there is no obligation on the part of parents to pay for a college education, but when parents separate, provisions may be

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included in a separation agreement by which parents voluntarily undertake this obligation.

Minors' Liability for Torts Minors can disaffirm most contracts they m ake, but they are generally liable for their torts. (Refer to Chapter 4 for a discussion of torts.) A minor's age is impor- tant in determining tne minor's tort fia6ifity. [ n tbe case of deliberate torts , a minor is generally liable regardless of age. For torts of negligence, the age varies from state to state. In many states, minors under the age of 14 are considered in- capable of committing an act of negligence. In those states, minors over the age of 14 who commit negligent acts are treated as adults .

While driving through town, Marks, age 17 and a minor, threw an empty soft drink can from the car window. Rossini was crossing the street and the can hit her in the eye, causing injury. Although Marks is a minor, she is liable for her tort of negligence.

Parents are not usually responsible for the torts of their children. They may, however, be held responsible if they tell a child to commit a tort or if they fail to take action to prevent a tort from being committed, for example, if they fail to take action to stop a child from repeating acts that the child has been warned about in the past. Parents are also liable if they place a dangerous instrument in the hands of a child, as would be the case if they gave their child a pellet gun and the child injured someone. The parents are held liable because, in the case of a lawsuit, the victim has a better chance of recovering damages from the parents than from the child.

Neighbors warned the Bakers that their son Todd had thrown rocks at other children on several occasions. The Bakers could be held liable for injuries caused by Todd to other children.

In many states, parents are automatically liable for the intentional damage caused by children under a certain age. These state laws were passed with the idea that parents who knew they were liable for their children's intentional acts would exercise more control over their children's behavior. State statutes vary in strictness and in the max imum parental liability.

Select the best answer from those given. 1. Two months before reaching the age of majority, Maracus bought a GPS. She

paid cash. Nine months later, she sought to avoid the agreement. Marcus's delay in avoiding the agreement: (a) made her liable to the merchant for fraud, (b) did not prevent her from avoiding the agreement, (c) most likely constituted a ratification of the agreement, (d) entitled her to only a partial refund of the purchase price.

2. Lewis, a minor, sold her indoor exercise equipment to Francis, an adult. Francis then resold the equipment to Beacon, a good-faith purchaser. Beacon's title is: (a) voidable, (b) valid, (c) void, (d) unenforceable.

3. Thompson , a minor, bought headphones from Electronics, Inc. This agreement is: (a) voidable by Electronics, Inc. only, (b) voidable by either party, (c) voidable by Thompson only, (d) binding on both parties .

4. An emancipated minor can avoid a contract to pay for: (a) having a tooth filled by a dentist, (b) jeans and shirts that are part of a school wardrobe, (c) room and board at a private rooming house near the private school she is attending , (d) archery equipment used in sports tournaments .

5. The best illustration of a legally competent party is: (a) a person under the influence of alcohol, (b) a 14-year old, (c) a 65-year-old, (d) a person who is legally insane.

ersons Under the Influence of Alcohol or Other Drugs - LEARNING OBJECTIVE~

Summarize the circumstances under which persons under

the influence of alcohol or other drugs and mentally ill

persons who enter into agreements with other

people may avoid these agreements.

Another category of incompetency applies to persons who are so intoxicated by al- cohol or other drugs that they do not realize what they are doing when they enter into agreements. Slight intoxication is not enough to destroy a person's ability to make contracts. Nevertheless, it is not necessary that a person be so intoxicated that she or he is completely helpless. The person must be so affected that she or he does not understand the seriousness or the consequences of the agreement. Obviously, then, if the person understood the legal consequences, the agreement is enforceable despite the person's intoxication. It may be extremely difficult for an individual deal- ing with a person suspected of being intoxicated to actually establish intoxication. Consequently, when in doubt, do not deal with a person you suspect is intoxicated.

Courts have little sympathy for individuals who want to disaffirm their con- tracts because of intoxication on the theory that intoxication is a voluntary act. In fact, a few states do not recognize the intoxication defense at all. Therefore, avoid- ance due to intoxication is rather uncommon. As a result, a person who enters into a contract while intoxicated may avoid it on becoming sober only if the other party purposely caused the person to become drunk or had reason to know that the per- son was drunk and unable to understand the consequences of the transaction.

If the intoxicated person has the legal right to disaffirm, she or he must do so within a reasonable time after becoming sober. Otherwise, the person loses that right to disaffirm, and the agreement is considered ratified. Most courts will not permit disaffirmance unless the intoxicated person returns any consideration received from the other party.

While intoxicated, Babitz sold a valuable coin collection worth several hundred dollars to Lyness for $50. Lyness knew that Babitz was intoxicated and unable to understand the consequences of the deal. When Babitz became sober and discovered her mistake, she immediately offered to return the $50 to Lyness in exchange for the coin collection. Lyness refused, claiming that an agreement had been formed.

In this example, a court would probably determine that because Lyness knew that Babitz was intoxicated and unable to understand what she was doing, Babitz may disaffirm the agreement. But take this example:

Martin, who was completely intoxicated, wrote a letter to his friend Chris, offering to sell his house for $150,000. The house had been recently built and was actually worth more than the offering price. Chris was completely unaware of Martin's intoxication at the time that he (Martin) wrote the letter. If Chris agreed to purchase the house, Martin would have no legal recourse but to sell it, even though he was intoxicated when the letter was written. This is because Chris had no way of knowing that Martin was intoxicated.

Like minors, intoxicated persons are liable in quasi contract for the reason- able value of necessaries actually furnished to them.

entally Incompetent Persons

EARNING OBJECTIVE~ Summarize the circumstances

.mder which persons under the influence of alcohol or other

drugs and mentally ill persons who enter into agreements

with other people may avoid these agreements.

Persons with mental illness are considered incompetent because, unlike men- tally healthy persons, they are unable to comprehend both that they are mak- ing a contract and the effect of the contract on them. Their ability to comprehend their intended purpose when dealing with others has been lost, and their mind becomes clouded or confused. A distinction must be made, however, between a person with mental illness who has been adjudged incompetent by a court and one who has not been so adjudged. The next two sections will make this distinction.

RYou t eac

Gibson, age 50, was invited to attend a formal social activity at a local organization i:- his hometown. Since formal attire was required, he decided to rent a tuxedo. On his way to the tux shop the evening before the social event, he decided to stop off at a lo- cal bar for a few drinks. By the time he arrived at the tux shop he was "feeling n pain ." The salesperson who fitted Gibson for the tux could smell liquor on his brea and saw that he was a bit unsteady, but nevertheless fitted him for the tux. Gibso was then told that he could pick the tux up the next day at around 4 P.M. Gibson was required to sign the rental agreement, which contained the following statements: (1) the tux rental fee must be paid in advance; (2) the tux must be returned the day fol- lowing the occasion for which the tux was rented; (3) there would be a late fee if the tux was not returned on time; and (4) there would be a charge for the rental of the tux even though it was returned unused. Gibson paid for the tux and left the store. He ac- tually did not attend the social event and did not return the tux until three days later, but demanded the return of his rental fee claiming that he did not need or use the tux. The salesperson reminded Gibson that, according to the terms of the rental agreement, he was required to pay a late fee since the tux was not returned the next day and th a the rental fee was not refundable even though he did not use the tux. Gibson claimed that he did not remember signing any such agreement, and besides, he could not fi nd the rental agreement slip.

Questions 1. Was Gibson correct in saying that he did not need to pay either the late fee for

the tux or the rental fee because he did not attend the formal social activity and did not use the tux?

2. Could Gibson claim intoxication and not pay any fees, claiming that he did not know that he was signing a legal agreement?

3. Should the salesperson have suspected that Gibson may haven intoxicated (liquor smell on his breath and was a bit unsteady) and not rented him the tux, which required the signing of the sales slip (a contract)?

Mental Incompetence Determined by a Court A family member may petition the court to have another family member officially adjudicated (judged by a court to be) mentally incompetent before the time of en- tering into a contractual situation. Mental incompetence in this case is being mentally ill, senile, insane, retarded, or suffering from some other debility that prevents someone from managing his or her own affairs, including the inability to comprehend the nature and consequences of a contract that may be under con- sideration. A person so declared by a court with mental illness may be placed un- der court-appointed guardianship. Such a determination is usually made only after legal hearings and examinations by psychologists or psychiatrists. After the formal declaration of incompetence, any agreement made by the person declared incompetent is void and of no legal effect, even though the other party to the contract was unaware of the court order. The court will usually appoint a guard- ian to take care of the business affairs of the person declared incompetent and, if necessary, to enter into agreements on her or his behalf. The appointment of a guardian serves as public notice that the person declared incompetent (called a ward) cannot make contracts. If the person declared incompetent does make a contract, the guardian may disaffirm it. The guardian must first return any consideration that the ward received, unless it has been damaged or destroyed or has deteriorated. A party dealing with an individual under guardianship may recover the fair value of any necessaries provided to the person declared incom- petent. The money for these necessaries usually comes from the savings or other property of the person declared incompetent. When guardianship ends, the per- son declared incompetent regains the capacity to make a contract.

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Mental Incompetence Not Determined by a Court There are many people who suffer from mental illness, but do not lack capacity. The reason is that the nature of their mental illness is not so severe as to destroy their ability to understand the nature and effect of a contractual obligation. Some forms of mental illness are "on and off." That is, sometimes the person is fine and sometimes not. Sometimes medication controls it, and sometimes it will not. Some examples are serious depression, multiple personality disorder, loss of a sense of reality brought on by a traumatic experience (e.g., a war experience), or brain damage. Under these circumstances, when a person enters into a con- tract and claims mental illness, their contracts are voidable unless proven other - wise. The court will, if required, evaluate a person's state of mind at the time that a contract is initiated by the mentally ill person, barring a prior adjudication of incompetence. The burden of proof is on the mentally ill person claiming the in- competency. Another point can be made: If this mentally ill person can prove that at the time the contract is made, he or she is having a lucid interval (period of normalcy), he or she can ratify or disaffirm the contract. Once the contract is ratified, he or she can no longer disaffirm it. Keep in mind that an incompetent person may also ratify or disaffirm his voidable contract when he or she becomes competent. Innocent parties who are unaware of the other person's mental illness and who could not reasonably be expected to know about it are protected when they deal with these individuals. To disaffirm a contract under these circum- stances, the person with mental illness must be able to return to the innocent party the consideration (or its equivalent in money) received under the contract.

Garrison suffered brain damage in an automobile accident and had periods of confusion. During one of his confused periods, he sold a set of used golf clubs to Atkinson for $40. Atkinson was unaware of Garrison's mental illness. Garrison then wished to get his clubs back but was unable to return the $40 because he had spent the money foolishly. Because Garrison could not return the money and Atkinson was unaware of Garrison's condition, the courts generally would not permit Garrison to disaffirm the contract.

Like minors, this class of persons with mental illness is liable in quasi con- tract for the fair value of necessaries actually furnished to them.

In cases involving intoxication and mental illness (except those cases involv- ing people judged incompetent by a court), incapacity of the individual is not the only basis used by the courts to make a decision. The fairness of the agreement to the parties involved is very important. Thus, if the contract seems fair and reasonable , and the other party with whom the incompetent is dealing has no reason to suspect that anything is wrong, the court most likely will declare that the party is competent and not allow a disaffirmance.

Answer True (T) or False (F) . 1. A person legally declared incompetent by a court can be

liable for necessaries. T F 2. A person only slightly intoxicated is not considered to be

an incompetent party. T F 3 . The contracts of mentally ill persons not adjudged

incompetent by a court are voidable. T F 4. A person not adjudged by a court as being incompetent

and a person who has been adjudged by a court as being incompetent are both treated legally the same way. T F

5. If an intoxicated person understands the consequences of a contract she made, the agreement is enforceable despite the person's intoxication. T F

Key Points in Chapter • • • Capacity to contract involves those persons legally and mentally capable of entering into agreements that are en- forceable by law. In virtually all states, a person is con- sidered an adult at age 18 for the purpose of making a contract. It is a defense available to an otherwise valid contract. Incompetent persons with a limited capacity to contract may back out of a contract. This includes minors, persons under the influence of alcohol and other drugs, and mentally ill persons not declared incompetent by a court.

This legal right to back out is called disaffirmance. Others are so completely incompetent that they have no legal capacity at all to contract. Persons with mental illness declared incompetent by a court are in this cate- gory. Competent parties generally deal with incompetent parties, especially minors, at their own risk. Minors (18 years of age and older) may usually disaffirm (avoid) ordinary contracts they make any time before reaching majority and for a reasonable time thereafter. Adults who make contracts with minors, however, do not have this right to disaffirm and are bound by agreements they make. A minor absolutely cannot back out of certain contracts as enumerated in the chapter. A minor, how- ever, may back out of the sale of real estate (real prop- erty) to an adult upon reaching majority.

When a minor lies to an adult about his or her age, the various state courts handle the matter differently, us- ing fairness to the adult as a guide. In several states, when the contract is executory, a minor who misrepresents his or her age is prohibited from disaffirming the contract. If the contract is executed, the minor in some states may disaffirm but must return the consideration received. Other states allow the minor to disaffirm but then hold the minor liable for fraud.

Minors may ratify (approve) agreements they make with adults only after reaching the age of majority. Once ratified, these agreements become legally binding, and

lmporta~t Legal Terms __

capacity to contract

disaffirmance

emancipated minor

guardian

the privilege to disaffirm ends. Minors, however, cannot ratify only a part of an agreement and disaffirm another part. The entire agreement must be either ratified or dis- affirmed.

Minors have a quasi-contractual liability for the rea- sonable value of necessaries (items a person needs to live ) actually received. A minor's station in life determine s whether an item is a necessary. Parents generally have no legal liability for contracts made by their minor children unless they agree to become liable. Parents do, however, have the legal duty to support their minor children until the minors are emancipated.

A minor is generally liable for deliberate torts regard- less of age. For torts of negligence, age is a factor, and the age varies from state to state.

Some agreements made by persons under the influ- ence of alcohol or other drugs are voidable. Upon becom- ing sober, these persons may disaffirm an agreement made while intoxicated only if the other party purposely caused the person to become drunk or knew that the per- son was drunk and unable to understand the conse- quences of the transaction. An intoxicated person who has the right to disaffirm must do so within a reasonable time after becoming sober or lose that right. He or she is, however, liable for the reasonable value of necessaries actually furnished to him or her.

Agreements made by persons with mental illness who have been declared legally incompetent by a court are void. Agreements made by persons with mental ill- ness not declared incompetent by a court are voidable if these persons can prove their disability. When they un - derstand what they did, they may disaffirm or ratify the contract, provided they return to the innocent party the consideration received under the contract. All persons with mental illness (whether legally declared incompe- tent or not) are liable for the reasonable value of neces- saries furnished to them.

mmor ratify

necessanes station in life

Questions and Problems for Discussion

Unless otherwise stated, assume that the age of majority is 18 in all problems in this section.

1. Libby, age 15, bought an iPad on a payment plan from Computers, Inc. By the time she reached age 17, she completed the payments due on the iPad. When she attempted to return the computer a few weeks after making the final payment, claiming that she was a minor, the owner of Computers, Inc.

refused to deal with her request. He claimed that making all payments amounted to ratification of the contract. Is the owner of Computers, Inc. correct?

2. W hy does the law protect minors in their dealings w ith adults?

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- Reno entered into a cont ract with his 17-year -old son by which the son agreed to support the father in consideration of the father's tra nsfer of certain property to the son immediately. The son supported the father under the agreement for ten years and then quit. The father then sued for breach of contract. The son challenged the father's lawsuit on the ground that he was a minor when the contract was made. Is the son correct?

- M ance, one week before his eighteenth birthday, purchased a DVD player from the Computer Outlet store and paid $150 cash for the item. A week after his birthday, he purchased a handheld police scanner for $95 from Radio Shack and also paid cash. A week after he purchased the police scanner, Mance wished to disaffirm both contracts and recover $150 fr om the Computer Outlet store and $95 from Radio Shack. Will Mance be allowed to disaffirm one, both, or neither of these contracts, assuming that both purchases were within the guidelines of selling to minors?

- Kimble, a 17-year -old minor, sold his new iPod to Taymes, an adult, for $150 because he needed money. Taymes, in turn, sold the iPod to Dressler, also an adult, for $17 5. A month after the sale of t he iPod to Taymes, Kimble demanded to re -buy it fr om Taymes. Having learned of the sale to Dressler, Kimble then demanded the return of the iPod from him (Dressler), offering to pay $175. Is Dressler obligated to sell the iPod back to Kimble?

- Schaber, a minor, paid $950 for a used motorcycle. Two months later, while driving around town, she ran into a fire hydrant and wrecked the motorcycle. Schaber, still a minor, returned the wrecked motorcycle to the dealer and demanded the return of her $950. Is she entitled to recover the entire $950?

- Week, a band leader, hired Taylor on a one-year contract to work as a soloist, not knowing that she

ses for Review ---- Je sset, who had been committed to a mental institution, was later released as having shown signs of increased mental stability. When her husband died several years later, Jesser's son had her recommitted because he felt that the shock of her husband's death caused a relapse into mental instability. Prior to her readmittance, she had signed a contract with the undertaker for her hu sband's funeral expenses but failed to pay. The undertaker sued, but ] esset, through her son, claimed that she was not liable because of her mental incompetency. Court records show that Je sset was never legally declared insane. Further, w hile dealing with the undertaker, there was no reason for him (the undertaker) to believe that

was only 17 years old. Taylor had said nothing about her age. When Week discovered that Taylor was only 17, he discharged her. Did Week have a legal right to break the contract?

8. Moses, a self-supporting minor, purchased a van to carry on his business activities and to commute from his home to the college he attended part-time. Before reaching majority, he tried to disaffirm the purchase of the van, but the dealer refused to accept return of the van or to refund the purchase price. Can Moses require the dealer to take back the van and return the purchase price?

9. Connor, age 17, moved away from home. She rented a room in a nearby town and orally agreed to pay the landlady $160 a month for six months. Connor paid rent for three months and then moved out without paying the remaining three months' rent. The landlady claims that Connor is liable on her agreement to pay rent for the remaining three months even though she moved out. Is the landlady correct?

10. Attilio, a wealthy 17-year -old who had inherited money from her grandparents, was planning to become a professional violinist. She agreed with a local music establishment to purchase a Lagetto violin worth $3,000, advancing the store a $1,000 deposit toward the purchase price. Attilio then wished to rescind the contract with the music store. The music store contended that this expensive violin was a necess ity because of her career plans to become a professional violinist. Attilio contended that since she already owned one other violin, a Storiani worth $3,000, which technically was suitable for her needs, this second violin was not a necessity. Her only reason for the second purchase was the fact that it was once owned by a nationally acclaimed violinist. Is she correct?

]esset was incompetent in any way, and the son made no mention of her illness. Is Jesset legally bound to pay the funeral expenses? (Melbourne v. Jesset, 110 Ohio App 502, 163 NE 2d 773)

2. Williamson, an alcoholic who was threatened with foreclosure on her house, entered into a contract to sell it for $17,000. Smith, an attorney who had read about the foreclosure in the newspaper and who knew about Williamson's drinking problem, contacted Williamson and assured her that he could resolve her problem. Smith did have the sale of the house overturned. The court found that Williamson was intoxicated at the time of the sale and was paid only $1,700, thinking she had received $17,000. To ensure payment of the legal fees, Williamson again

signed a mortgage contract, giving Smith temporary ownership of her house. Because Williamson refused to pay the mortgage, Smith had to bring a foreclosure action (sell the property to get his money) on the mortgage. Williamson objected to the foreclosure proceedings on the grounds that she was severely intoxicated (and that she had a history of alcoholism) and that she did not understand what she was signing. She claimed that this lack of understanding made the mortgage she gave to Smith void. Was Williamson's intoxication sufficient to void the mortgage? (Smith v. Williamson, 429 So.2d 598)

3. Marshall, age 17, was ejected from his parents' home shortly after his graduation from high school. He then rented an apartment with Fletcher, a girlfriend. They signed a lease together, and Marshall paid part of the security deposit and the rent. One month after they moved into the apartment, Marshall turned 18 (age of majority) and continued to pay the rent for about one and one-half months. Then, because he and Fletcher were not getting along, he moved out and discontinued paying his share of the rent. Fletcher continued to make rental payments but sued Marshall for his share because his name was also on the lease. Marshall claimed that because he signed the lease while a minor he was not responsible for any rental payments after he moved out. Is he correct? (Fletcher v. Marshall, 632 N.E.2d 1105)

4. Power, age 17, purchased an automobile insurance policy from Allstate Insurance Company but rejected the underinsured motorist clause . Shortly after the policy was issued, Power, now an adult , was injured in an automobile accident. He then sought to reinstate the underinsured clause that he had initially rejected as a minor and claim money for his injuries under this clause in the contract . Allstate refused to permit Power to collect under this clause. Was Allstate correct? (Power v. Allstate Insurance Co., 440 S.E .2d 406)

5. Husband, who was suffering from schizophrenia and manic depression, had been in and out of a mental hospital, but at no time had he been declared insane by a court. In fact, he continued to work at his job as a design engineer during the day, returning to the hospital at night. His wife initiated a separation agreement because of the husband's

mental condition, although her husband did not really want a separation. At a time when he was depressed and did not fully understand the impact of the agreement, he did sign it. The agreement wa s signed by both parties in the presence of the wife's attorney, although the husband did not receive any lega l advice from an attorney and did not really know the exact contents of the agreement. Later, when the husband realized what he had done, he requested that the separation agreement be canceled. The wife refused. Is the husband entitled to have this agreement canceled? (G.A.S. v. S.I.S., 407 A.2d 253, Del. Fam. Ct.)

6. Goldberg, a minor, hired an attorney to sue Perlmuter fo r personal injuries. When the case was settled, the attorney asked for his fee. Goldberg, however, asked the court to hold that the contract with the lawyer was void because Goldberg was a minor when the contract was made. Is this request valid? (Goldberg v. Perlmutter, 308 Ill. App . 84)

7. Bethea, a minor who needed a car for her work, purchased one and financed it through Bancredit. Bethea could not make the payments, and Bancredir sued for the balance due on the car. Bethea claimed she was not liable because she was a minor when she signed the contract. Is Bethea liable for the balance due? (Bancredit, Inc. v. Bethea, 65 N.J. Super. Ct. 538, 168 A.2d 250)

8. Watters was 19 when he entered into a contract to buy a car. He stated that he was 21 (the age of majority in his state) and that he was in business. A short time later, the car was destroyed in an accident. Watters then sued the seller to recover his payments on the grounds that he was a minor. Will he succeed? (Watters v. Arrington, 39 Ga. App. 275