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Law of Capacity

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CHAPTER 10 Law of Capacity Lessons 10-1 Capacity Rights 10-2 Limitations on Capacity Rights Capacity Rights Identify parties who have contractual capacity Identify ... – PowerPoint PPT presentation

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Date added: 12 July 2019
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Title: Law of Capacity


1
Law of Capacity
CHAPTER 10
  • 10-1 Capacity Rights
  • 10-2 Limitations on Capacity Rights

2
Capacity Rights
LESSON 10-1
  • Identify parties who have contractual capacity
  • Identify what contracts can be disaffirmed
  • Explain the role of capacity in organizations

3
WHAT IS CAPACITY?
  • Contractual capacity is the ability to understand
    that a contract is being made and its general
    meaning.
  • You possess the
  • A-B-I-L-I-T-Y to understand

4
WHAT IS CAPACITY?
  • Person doesnt have to understand the actual
    terms (written in technical legal terminology)
  • Person does not need to merely understand the
    terms

5
Parties with special contractual rights
  • All of these parties are incapacitated
  • Minors / intoxicated / mentally incapacitated

6
Protections for those who lack capacity
  • Contracts of most parties who lack capacity are
    considered voidable.
  • D I S A F F I R M A N C E refusal to be bound
    by a previous legal commitment

7
Disaffirmance
  • Protected party disaffirms contract ? receives
    back whatever they have put into the contract
  • Other party may or may not get back their
    consideration

8
Disaffirmance
  • i.e. minor buys an ATV from a dealership and then
    wrecks it.
  • Minor could disaffirm contract and recover any
    payments made.
  • Dealership could only recover the damaged ATV

9
Problems with contracting
  • Legal ability to disaffirm a contract
  • Ability to get back whatever had been given to
    the other party
  • Reluctance to enter into contracts with
    incapacitated persons

10
Another protection --
  • Applies when protected parties purchase things
    classified as necessaries
  • Things needed to maintain life typically food,
    clothing, and shelter
  • Must pay a reasonable value even if contract is
    disaffirmed

11
Necessaries
  • Minor buys a 5,000. fur coat
  • Disaffirms contract
  • Required to pay ???
  • Good cloth coat 200-300 for fur coat if she
    chose to keep it
  • Punishment to seller for taking advantage of
    minors in contractual dealings

12
MINORS
  • In most states, people under the age of 18
  • In a few states, age of majority is 19 or 21
  • Also referred to as being in their minority or
    under the age of majority
  • Ends the day before the birthday of the age set
    as the age of majority

13
Minors
  • Contracts are considered voidable
  • May disaffirm contracts during their minority
  • May also disaffirm for a reasonable length of
    time after achieving their majority

14
Age of Majority
  • After the age of majority, the power to disaffirm
    is immediately cut off if the person ratifies the
    contract
  • Ratification acting toward the contract as
    though one intends to be bound by it
  • ? Can never occur before the age of majority

15
EMANCIPATION
  • Emancipation is the severing of the child-parent
    relationship.
  • Early emancipation
  • Formal emancipation occurs when a court decrees
    the minor emancipated.
  • Informal emancipation arises from the conduct of
    the minor and the parent.

16
EVIDENCE OF INFORMAL EMANCIPATION
  • The parent and minor agree that the parent will
    cease support
  • The minor marries
  • The minor moves out of the family home
  • The minor joins the armed forces
  • The minor gives birth
  • The minor undertakes full-time employment

17
New Jersey
  • Termination of support at age of majority or as
    determined by court Newburgh v. Newburgh, 88 N.J.
    529, 443 A.2d 1031 (1982) held that the court has
    jurisdiction to award a payment of support and
    expenses of a child attending college even though
    the child has reached the age of majority.

18
MENTAL INCAPACITY
  • Mental incapacity is much less precisely defined
    than minority.
  • The test is whether the party understands the
    consequences of his or her contractual acts.

19
INTOXICATION
  • Intoxication can arise from using alcohol, from
    using drugs, or inhaling products such as glue or
    aerosols.
  • Many courts are reluctant to allow disaffirmance
    for intoxication when it may injure another.
  • Stricter standard because intoxication is a
    voluntary act

20
Temporarily Intoxicated
  • Being so under the influence of alcohol or drugs
    that you do not even know that you are entering a
    contract

21
Permanently Intoxicated
  • Being unable to turn down a drink or drug
    whenever offered
  • Often referred to as habitual drunkard in
    several states
  • Contracts are considered void

22
WHICH CONTRACTS CAN BE DISAFFIRMED?
  • Necessaries are goods and services that are
    reasonably required to maintain a persons
    lifestyle.
  • Non-necessaries are all other goods and services
    or relative luxuries.

23
CAPACITY RIGHTS
  • Necessaries
  • Non-necessaries
  • Disaffirmance
  • Ratification

24
CAPACITY IN ORGANIZATIONS
  • Some people who work for organizations have the
    capacity to bind the organizations to contracts.
  • Capacity to contract can be created when the
    employer tells an employee that he or she is
    authorized to bind the organization.
  • Capacity to contract can be created when an
    organization leads others to believe that a
    person has certain authority.

25
CAPACITY IN ORGANIZATIONS
  • If someone has this capacity, it is said to be
    within his or her scope of authority

26
Limitations on Capacity Rights
LESSON 10-2
  • Identify the time when a contract cannot be
    disaffirmed
  • Identify contracts that cannot be disaffirmed
  • Explain the consequences of misrepresenting age

27
TIME OF DISAFFIRMANCE
  • Any time while still under the incapacity
    (necessaries goods or services that are not
    necessaries)
  • Within a reasonable time after attaining capacity

28
RATIFICATION
  • Ratification may consist of either of the
    following
  • Giving a new promise to perform as agreed
  • Any act (such as making payments to the seller)
    that clearly indicates the partys intention to
    be bound

29
Whats your verdict?
  • Beach (minor) bought stereo system on credit from
    McReams Electronic Cloud for 500
  • Beach paid 100 down - 50/mo. payments
    afterwards
  • After making 4 payments (2 while minor, 2 while
    majority) wants to disaffirm
  • Can he do so?

30
Whats your verdict?
  • No -- Beach ratified the contract by making
    payments after reaching majority
  • Once ratification occurs, it cannot be withdrawn

31
  • Rights of Minors in Contracts for Goods and
    Services that are Not Necessaries

Time Majority or Capacity Attained
TIME
TIME
Period of Minority
Period of Majority
Right to disaffirm
Right to disaffirm lasts For a reasonable length
of time after majority is ottained
Ratification cuts off the right to disaffirm
32
What must be done upon disaffirmance
  • Minor disaffirms
  • ? anything of value minor received and still has,
    must be returned
  • ? can return used or damaged goods
  • Minor then entitled to get back everything that
    was given to the other party

33
RETURN OF GOODSOR SERVICES
  • Loss of value
  • Minor can return nothing because goods have been
    lost, consumed or destroyed
  • In some states, minor must return everything in a
    condition as good as it was when received
  • If this cannot be done, must pay the difference
    in value, or deduct the difference from the
    amount to be refunded

34
  • Lamon (minor) buys diamond engagement ring
    necklace for finacee, Morgan
  • Weekly installments ? 10
  • 18 quarreled and Morgan returns ring but not
    necklace
  • Can Lamon return ring necklace and receive a
    full refund?

35
In some states --
  • Morgan legally keep necklace
  • Lamon could return the ring and demand refund
    for monies paid for necklace ring
  • most certainly entitled to money paid on ring (
    and in some states necklace)
  • Why? Necklace is no longer in his possession

36
RETURN OF GOODSOR SERVICES
  • Obligations of party with capacity
  • Cannot enforce nor avoid all or any part of a
    contract for goods or services that are not
    necessaries

37
WHAT CONTRACTS CANNOT BE DISAFFIRMED?
  • Court-approved contracts minors working as
    actors/actresses, professional sports
  • Major commitments enlisting in armed services /
    educational loans / marriage
  • Banking contracts make deposits withdrawals
  • Insurance contracts over ½ states do not allow
    minors to disaffirm

38
  • Work-related contracts minors who engage in
    business or trade
  • Sale of realty cannot disaffirm until after
    achieving majority
  • Apartment rental a few states will not allow
    the minor to disaffirm, even if its not a
    necessary

39
MISREPRESENTING YOUR AGE
  • In most states minors who lie about their age may
    disaffirm their contracts.
  • In these states, a minor who gives a false age
    may be held liable for the tort of false
    identification
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