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Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 11 Competent Parties
LESSON OVERVIEW
Chapter 11 discusses the parameters to be borne in mind while parties enter into contracts. One of the
prime requisites for this purpose is the competency of the contracting parties. The chapter also
elucidates the legal status of contracts made by incompetent persons and how majority impacts the
legality of contracts which were previously entered into by a minor. We also learn of the imposition of
liability for a minor’s torts and crimes. Finally, students’ understanding of the topic is evaluated
through objective-type questions, discussion questions, and case scenarios. Students are encouraged to
conduct their own research through the use of the Internet and other sources.
CHAPTER OUTLINE
A. THE CAPACITY TO CONTRACT (p. 170)
B. MINORS’ CONTRACTS (p. 170)
1. Avoidance of Minors’ Contracts (p. 170)
2. Ratification of Minors’ Contracts (p. 171)
3. Disaffirmance of Minors’ Contracts (pp. 171-172)
4. Minors’ Enforceable Contracts (pp. 172-173)
C. LIABILITY FOR MINORS’ TORTS AND CRIMES (pp. 173-174)
D. CONTRACTS OF THE MENTALLY INCOMPETENT (p. 175)
1. Contracts of Persons Affected by Drugs or Alcohol (pp. 175-176)
E. CHAPTER SUMMARY (p. 176)
F. CHAPTER ASSESSMENT (pp. 176-181)
1. Matching Key Terms (pp. 176-177)
2. True/False Quiz (p. 177)
3. Discussion Questions (p. 178)
4. Thinking Critically About the Law (pp. 178-179)
5. Case Questions (pp. 179-180)
6. Case Analysis (pp. 180-181)
7. Legal Research (p. 181)
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed
in bold in the copy. They are listed here for your quick reference.
§ competent party (p. 170)
§ contractual capacity (p. 170)
§ minor (p. 170)
§ age of majority (p. 170)
§ coming of age rule (p. 170)
§ birthday rule (p. 170)
§ disaffirmance (p. 170)
§ necessaries (p. 170)
§ ratified (p. 171)
§ emancipation (p. 172)
§ abandonment (p. 172)
§ incompetent (p. 175)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 11 when you begin the study of the chapter and discuss each Learning
Outcome. Each Learning Outcome will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 11. The corresponding
text page numbers and PPT slides are listed next to each objective. These slides should be used to
reinforce the main points of the lecture.
After completing this chapter, the students will be able to:
1. Explain what is meant by contractual capacity and define competent parties. (p. 170, PPT slides
2-3)
2. Discuss minors’ contracts and how the age of majority impacts the legality of contracts. (pp.
170-173, PPT slides 4-10)
3. Describe the operation of the law as it relates to liability for a minor’s torts and crimes. (pp.
173-174, PPT slides 11-12)
4. Assess the legal status of contracts made by persons who are incompetent. (pp. 175-176, PPT
slides 13-16)
LECTURE OUTLINE
A. THE CAPACITY TO CONTRACT
A competent party is a person of legal age and at least normal mentality who is considered by law to be
capable of understanding the meaning of a contract. A competent party is said to have contractual
capacity, that is, the ability to make a valid contract. Minors, insane persons, and mentally impaired
persons are usually considered incompetent and lacking in contractual capacity.
B. MINORS’ CONTRACTS
Until individuals reach what is known as legal age, or the age of majority, they are not legally required
to carry out most of their contracts. According to the interesting coming of age rule in common law, a
person’s legal birthday is 12:01 a.m. of the day before his or her actual birthday. Under the modern
birthday rule, a person attains a given age on the anniversary date of his or her birth.
1. Avoidance of Minors’ Contracts
In contracts between a minor and a competent person, only the minor has the privilege
of disaffirmance, or avoidance of the contract; the competent party is bound. However,
in contracts for necessaries, such as food, shelter, clothing, employment, and medical
care, in many states the minor is bound as well.
2. Ratification of Minors’ Contracts
In most cases, whether the contract has not yet been performed or fully performed, the
minor may disaffirm the contract if he or she wishes. However, once the minor reaches
the legal age of majority, the contract must be either ratified or disaffirmed within a
reasonable time.
3. Disaffirmance of Minors’ Contracts
An individual may disaffirm a contract, that is, state his or her intention either orally or
in writing not to honor a contract that had been made before reaching legal age.
Disaffirmance may be done before reaching the legal age or within a reasonable time
after reaching adulthood.
4. Minor’s Enforceable Contracts
As a result of a minor’s emancipation, he or she assumes many of the rights and
obligations of a person of legal age. Emancipation could result from marriage or from
voluntary separation of a minor from his or her parents or guardians in order to assume
adult responsibilities, such as financial independence. Emancipated minors are generally
liable for necessaries purchased for them or supplied to a spouse, just as if they were
adults. The law regards actions on the part of the minor that result in emancipation as
abandonment, that is, a surrender of the special protection given to minors by the law.
C. LIABILITY FOR MINORS’ TORTS AND CRIMES
The law does not protect anyone, even a minor, who has committed a tort or a crime. Minors are
protected against their own inexperience but not against their own wrongdoing.
D. CONTRACTS OF THE MENTALLY INCOMPETENT
Persons of unsound mind are considered incompetent to make binding contracts. A mentally ill person
may sometimes have lucid periods during which he or she can exercise sound judgment. If the person
entered into a contract during a lucid interval and the other party can prove it, such mentally ill person
will be held to the contract. A contract with a person who has been declared insane by the courts is void
even if the other party who contracted with the incompetent individual did not know that he or she had
been declared insane by the courts.
1. Contracts of Persons Affected by Drugs or Alcohol
If a person makes a contract while so intoxicated by alcohol or affected by drug use that
he or she is unable to understand the nature and effect of the contract, it is voidable at
his or her option.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcome in Chapter 11. Every
objective is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. Explain what is meant by contractual capacity and define competent parties.
Contractual capacity is the ability to make a valid contract. A competent party is a person of legal age
and at least normal mentality who is considered by law to be capable of understanding the meaning of a
contract.
Text Pages: 170
PowerPoint: Slides 2-3
Discussion Questions: 26
LO2. Discuss minors’ contracts and how the age of majority impacts the legality of contracts.
Until individuals reach what is known as legal age, or the age of majority, they are not legally required
to carry out most of their contracts. The age of majority is the age at which a person can make binding
contracts. Until a person reaches the age of majority, he or she is not legally required to carry out most
of his or her contracts because such contracts are voidable. Once the minor reaches the legal age of
majority, the contract must be either ratified or disaffirmed within a reasonable time.
Text Pages: 170-173
PowerPoint: Slides 4-10
Discussion Questions: 26, 27, 29
Thinking Critically About the Law: 33-34
Case Questions: 37-38
Case Analysis: 41
LO3. Describe the operation of the law as it relates to liability for a minor’s torts and crimes.
The law does not protect minors who have committed a tort or crime. A minor is held responsible for
injury to other persons, damaged property, and damaging statements. In many states, even if a minor
disaffirms a contract and returns the goods, he or she can be held liable for any damages to the goods.
Text Pages: 173-174
PowerPoint: Slides 11-12
True/False Quiz: 15
Discussion Questions: 28
LO4. Assess the legal status of contracts made by persons who are incompetent.
If a person enters into a contract while so impaired that he or she is unable to understand the nature and
effect of the contract, then the contract is voidable at his or her option.
Text Pages: 175-176
PowerPoint: Slides 13-16
Discussion Questions: 31
Thinking Critically About the Law: 35
Case Questions: 39
Case Analysis: 40, 42
