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CHAPTER 7
CAPACITY TO CONTRACT
Answers to Learning Objectives
1. Persons who are minors, mentally incompetent, intoxicated, or convicts may not have the
capacity to contract.
Lesson Outline
1. In order that an agreement may be enforceable at law, all parties must have the legal and
mental capacity to contract.
2. Those whom the law considers at least in some degree incompetent to contract are (a)
minors, (b) mentally incompetent persons, (c) intoxicated persons, and (d) convicts.
7. Disaffirmance means the repudiation of a contract.
a. A minor has the legal right to disaffirm a voidable contract at any time during minority or
within a reasonable time after becoming of age.
b. If the contract is wholly executory, a disaffirmance completely nullifies the contract.
c. A minor, upon electing to disaffirm the contract, must return whatever was received,
provided it is still in the minor’s possession.
10. As a general rule, a minor (other than a very young child) is fully liable for torts.
11. a. A contract made by a person who is incompetent but who has not been so declared by a
court is voidable unless it is for a necessary.
b. Contracts made by mentally incompetent persons during lucid intervals are binding.
Chapter 7 Capacity to Contract
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Comments on Cases
(p. 70) The court stated that disaffirmance of a contract by a minor does not terminate the
contractual obligations of the parent who signed it. While Craig was not bound on the
contract, his mother was an adult when she executed it, so she was bound on it. Berg v.
Traylor, 56 Cal.Rptr.3d 140 (Cal.App.)
(p. 72) The court in this case was very careful to point out a minor’s obligation to return any
property received under a contract when there is disaffirmance. In this case the property
was $2,500. Mitchell By and Through Fee v. Mitchell, 963 SW2d 222 (Ky. App.)
(p. 73) In this state, the court essentially held that because of Mayer’s misrepresentation, she was
bound on her contract as if she were an adult. The misrepresentation of minority
completely barred the minor from rescinding the contract. Manasquan Savings & Loan
Ass’n v. Mayer, 236 A.2d 407 (Sup. Ct. of NJ)
Answers to Questions
(Page 76)
1. The requirement that all parties have the legal and mental capacity to contract means that the
parties must have the ability to understand that a contract is being made, have the ability to
understand its general nature, and have the legal competence to contract.
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3. Contracts that cannot be avoided by a minor include contracts for necessaries, business
contracts, and other specially enforced contracts such as student loan agreements.
7. The safest way for an adult to be protected when contracting with minors is to have an adult
join in the contract as a cosigner with the minor.
8. Yes. If a minor misrepresents his or her age and the adult with whom he or she contracts
relies on this misrepresentation to the adult’s detriment, this is a tort. The law is not uniform
as to whether minors are bound on contracts induced by misrepresenting their age.
Answers to Case Problems
(Page 76)
1. The court pointed out that from her testimony, Demonico understood the nature of the transaction
and was aware of its consequences. She was emotional, but was able to participate in the mediation
and therefore had contractual capacity. Sparrow v. Demonico, 960 N.E.2d 296 (Mass.)
2. No. The court held that Bishop’s attempt to disaffirm the first diversion agreement
almost six years after she attained majority was not within a reasonable time after
6. No. The court pointed out that there is no presumption that a person suffering from dementia
is wholly incompetent. To be incompetent to sign the documents Mildred would have had to
be unable to comprehend and understand the nature of the transaction. Mildred was not. In
re Mildred M. J., 844 N.Y.S.2d 539 (N.Y.A.D.)
