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Chapter 14 – Capacity to Contract

14-1

CHAPTER 14

CAPACITY TO CONTRACT

I. OBJECTIVES

This chapter is designed to familiarize students with the circumstances under which a person may

avoid a contract because of lack of capacity. After reading the chapter and attending class, a

student should be able to:

A. Explain the concept of capacity to contract.

B. List and describe the classes of persons who lack capacity to contract.

C. Describe the effect of lack of capacity on a contract.

D. Explain the rights and duties of the parties to a contract when there has been disaffirmance

because of lack of capacity.

II. ANSWER TO INTRODUCTORY PROBLEM

the minor is not obligated to account for damage to the consideration. In others (as seen in

the case described in Ethics in Action on p. 424), minors who damage the consideration are

required to pay for it.

C. Yes, it could. In that case, the car could be considered a necessary, and a minor can be held

oppressive contract.

III. SUGGESTIONS FOR LECTURE PREPARATION

A. Introduction

1. Explain the concept of capacity. Note the relationship between capacity and the doctrines

to contract permits avoidance of contracts when the status or personal characteristics of a

2. Describe the classes of persons who are considered to lack capacity to contract.

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B. Capacity of Minors

1. Determining Minors’ Lack of Capacity

a. Note how the age of majority has been reduced in relatively recent years. You may

want to discuss why that trend occurred.

b. Point out that the reason minors are deemed to lack capacity is that they are likely to

determining maturity on an individual, case-by-case basis.

Example: Galloway v. Iowa, 790 N.W.2d 252 (Iowa Sup. Ct. 2010) (See also,

Problem Case #6). In this case, in July of 2005, a 14-year-old girl, Taneia Galloway,

release forms resulted in an enforceable waiver. The Supreme Court of Iowa issued

certiorari to review a rule that had been split among the circuits regarding the public

policy behind the enforcement of pre-injury waivers signed by parents on behalf of

their children.

[i.e., child support cases & receiving payments on behalf of children], those

limitations did not apply to preinjury waivers.

Furthermore, the court differentiated the facts of the case at bar from an adult’s

preinjury release of his claim for his own personal injury. Where a parent waives

minor children.

2. Minor’s Right to Avoid Contracts

a. Explain that a contract involving a minor is voidable, and that the minor has the right

to avoid the contract by disaffirming it. Note that even completely executed

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Examples: Problem Cases #2, 6, and 8.

Woodman v. Kera, LLC (Problem Case 6, p. 432): A five-year-old boy, Trent, had

his birthday party at an indoor play area containing inflatable play equipment.

Trent’s father signed a contract containing a liability waiver on his son’s behalf.

Trent was injured and sued Kera, the operator of the play area. The issue was

another’s legal rights.

Points for Discussion: What are the implications of this decision for businesses that

cater to recreation for children? If liability waivers cannot be enforced, how will the

businesses manage the risk of liability?

b. Note that in most states, persons under the legal age of majority (usually 18) are

the Galloway case, discussed above.

c. Note that there are some types of contracts that a minor cannot disaffirm, such as

contracts of marriage and contracts to support a child. Some states, by statute, permit

Example: Problem Case #9.

e. Ask the class how the minor’s right to avoid contracts operates to discourage adults

from dealing with minors.

f. Note that disaffirmance can be done in any way that communicates that the minor

wants to cancel the contract. (For example, asserting minority as a defense to a

contract action can be disaffirmance).

elapsed.

Examples: Problem Cases #1 [minor goes into hospital, assuming she is on mother’s

health insurance, mother fails to pay and hospital sues minor for full amount of $12,

144], 2 [minor borrows money from father for college and then fails to repay

afterwards], and 6 [similar to Galloway, and if/when Trent becomes of age, could

potentially confirm the waiver if he himself signed it].

3. Ratification

a. Explain the concept of ratification. It may be helpful for students to think of

of majority.

b. Discuss how ratification can be expressed in words or implied by the former minor’s

conduct. You may wish to discuss the ratification issue in the Introductory Problem.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Example: Problem Case #2 [repayment of loan for three years may have constituted

ratification].

4. Disposition of Consideration upon Disaffirmance

a. Note that disaffirmance of a partially or fully executed contract is likely to involve

to return consideration given by the minor.

GENERATES MANY STUDENT QUESTIONS AND COMMENTS. The

traditional answer, still followed by the majority of states, is no. For example, a

minor could buy a car on credit, wreck the car, disaffirm the contract, and fulfill his

duties by simply returning the car.

Additional Examples: Problem Case #5

5. Misrepresentation of Age

a. Discuss the kinds of conduct that would constitute misrepresentation of age. Note

contracts). Would a minor’s signature on a contract that contained one of these

clauses really be a misrepresentation of age? Ask students to analyze this by

such a situation.

b. Note that different states treat misrepresentation of age differently. Describe some of

the approaches and explain the policies furthered by the different approaches.

at the time of K.]

6. Liability for Necessaries

a. Explain the minor’s liability for necessaries. Discuss the concept of necessaries.

Examples: Problem Cases #1 and 3.

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

b. Note that to be a necessary, the item must be something that is not already being

supplied by the infant’s parents or guardian. The fact that the item is something that

people need for basic subsistence would not in itself make the item a necessary.

Problem Case #3: Young v. Weaver (p. 431): Young, age 18, and her friend (also a

minor) decided to move out of their parents’ homes and get an apartment together.

They signed a 9-month lease and paid a security deposit and rent for the time they

lived there. Young had a dog that damaged the apartment. After a month of living in

the apartment, Young moved back in with her parents and did not pay further rent.

What would the result have been if the court had determined that the apartment was

a necessary—how much would Young be required to pay? Apparently Young does

not even have to pay for the damage her dog caused. Is this a fair outcome? If not,

what is the overarching rationale?

Additional Example: Problem Case #1.

c. CASE: Zelnick v. Adams, 606 S.E.2d 843 (Virginia Sup. Ct. 2009)(p. 426–428).

i. Three prong inquiry into “necessary”?

1. (i) was the “thing” supplied to the infant a “necessary” and

compromised his position.

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C. Lack of Capacity Because of Mental Disability

1. Discuss incapacity by reason of mental disability. Note that a wide variety of mental

included in this category of incapacity.

2. Discuss the traditional cognitive test for mental incapacity.

also his ability to control his actions.

Example: Problem Case #7

3. Describe how the status of the contract will differ depending on whether the

incapacitated person was under guardianship (adjudicated “insane”) at the time the

contract was made.

been adjudicated to be incapacitated, so Rogers filled out the form accurately. HLIC

approved the application and Rogers paid the premium. Rogers’ father died from

proceedings are among the types of proceedings in which a finding of incapacity is made.

According to Idaho law, contracts that a person under guardianship makes cannot give

rise to enforceable agreements.

accurate without being truthful.

Additional Example: Problem Case #7.

4. Note that if a contract is voidable because of a party’s mental incapacity, the

party for damage or depreciation to the consideration if the contract is basically fair and

5. Note that if a mentally incapacitated person later recovers from his incapacity, he can

ratify a contract, just as can a person who reaches the age of majority. As with minors,

D. Lack of Capacity Because of Intoxication

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Note that intoxication can make a contract voidable on the ground of incapacity,

2. Discuss the Restatement Second standard for incapacity on the ground of intoxication,

3. Point out that the person who was intoxicated at the time of contracting runs the risk of

ratification if he does not promptly disaffirm when he regains sobriety.

IV. RECOMMENDED REFERENCES:

A. Larry A. DiMatteo, Deconstructing the Myth of the “Infancy Law Doctrine:” From

Incapacity to Accountability, 21 OHIO NORTHERN L. REV. 481 (1994).

B. E. ALLAN FARNSWORTH, FARNSWORTH ON CONTRACTS (3d ed. 2004).

V. ANSWERS TO PROBLEMS AND PROBLEM CASES:

duty, as in this case, a provider of medical services may properly seek to enforce the

secondary liability of the minor patient to pay a reasonable amount of money for the

necessary medical care that that patient has received.” Williams v. Baptist Heath Sys., 857

So.2d 149 (Ala. Ct. Civ. App. 2003).

App. 1969).

3. Appellate Court reversed, holding that the apartment was not a “necessary” for Young.

for the time they lived there. Young had a dog that damaged the apartment. After a month of

reasonable time of reaching majority. The court stated that “[h]ere, Bishop signed the 2002

she turned 18. “ Her first attempt to disaffirm the 2002 diversion agreement occurred in the

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manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

current case in February 2009. In sum, Bishop waited nearly 6 years after she attained

majority status to attempt to disaffirm the 2002 diversion agreement and did so only after

being charged with a third DUI. Bishop did not disaffirm the 2002 diversion agreement

within a reasonable time after she attained the age of majority.” State v. Bishop, 240 P.3d

614 (2010).

that the plaintiff was of age.” Haydocy Pontiac, Inc. v. Lee.

6. It Depends. If the court follows the majority rule, then as a matter of law and public policy,

the court should refuse to enforce the liability waiver against the child, as the parent cannot

The court stated that if Trent had signed the waiver, it clearly would have been voidable. So

could the parent bind a child who would not otherwise be bound? Trent did not have capacity

7. No. The Supreme Court of Alaska affirmed the summary judgment on the ground that a

v. Denison, 167 P.3d 1240 (Alaska Sup. Ct. 2007

release. Mitchell v. State Farm Mut. Automobile Ins. Co., 963 S.W.2d 222 (Ky. App. 1998).

VI. ONLINE RESEARCH: RESEARCHING THE AGE OF MAJORITY