Deck 7: Capacity to Contract

Question 1

If Gordon, a minor, lies about his age to induce an adult to enter a contract, is he guilty of a tort? Can any resulting contract be enforced?

Answer 1

Information extracted :
If a minor lies regarding his age so as to induce an adult for entering in to a contract, he is judged as guilty of tort.
Outcome regarding the enforceability of the contract :
Yes , he is guilty of tort.
The resulting contract is enforced. When a minor lies about his or her age to an adult with whom he or she is entering into the agreement, it is known as a tort. However, there exists no uniformity in the law as to whether the minors would be bound on such contracts or not.

Question 2

To settle a lawsuit concerning ownership of their childhood home, sisters Frances Sparrow and Susan Demonico engaged in voluntary mediation. During mediation, Demonico slurred her words and cried much of the day. Before leaving the mediation, she authorized her attorney to execute a settlement agreement. The agreement required sale of the property, and Demonico to pay Sparrow $100,000. When Sparrow asked the court to enforce the agreement, Demonico claimed she had lacked the capacity to contract at the time of the agreement. However, she testified that she had known she was participating in mediation to negotiate settlement of the lawsuit and that the subject of the mediation had been the childhood home. She had participated in the mediation and listened to the lawyers' arguments, and "couldn't believe how things [were] turning out." Did Demonico lack capacity to contract?

Answer 2

The question is whether SD lacked the capacity to enter a settlement agreement with her sister FS.
For a valid contract, all parties must have
• the ability to comprehend that a contract is being made,
• the ability to realize the overall nature of the contract, and
• the legal competence to contract.
In deciding a party's capacity, a court will look at the intensity and the duration of any alleged incompetency.
During the mediation, SD slurred her speech and frequently cried. This indicated that SD was very upset.
On the other hand, SD testified that, during mediation,
• she understood she was engaged in settlement discussions,
• she was aware that the subject was her childhood home,
• she actively participated,
• she listened to the attorney arguments, and
• she stated she could not believe how the mediation was turning out.
Also, there was no evidence that SD had suffered slurred speech or crying bouts for an extended duration or with an unreasonable intensity.
Overall, the above facts show that SD understood she was entering a settlement contract and realized the nature of the contract. SD did not lack the capacity to contract.

Question 3

Does an intoxicated person have the capacity to contract? Why or why not?

Answer 3

Under the Contract Law minors, intoxicated people, convicts and mentally convict people are incapable to contract.
Under Contract Laws intoxicated people are considered incompetent to contract. Thus, any contract with the intoxicate person is considered voidable because under intoxication individual is not in the state to understand the terms of contract.
Intoxicate individual has the option to affirm or disaffirm the contract on becoming sober.

Question 4

Generally, what presumption does the law make regarding parties' legal and mental capacity to contract?

Question 5

Can a person who has not been judicially declared insane and has only intervals of insanity or delusions make a binding contract?

Question 6

Kristina Bishop was charged with a third offense of driving under the influence (DUI), a felony. She had twice previously entered into diversion agreements when charged with DUI. A diversion agreement is a contract with the state providing conditions the defendant must fulfill. When entered to avoid criminal prosecution for DUI, a diversion agreement is considered a prior conviction. Bishop had signed the first diversion agreement a year and a half before she became 18. She argued that it was voidable, that she was disaffirming, and therefore the first diversion agreement could not count as a prior conviction. Was she correct?

Question 7

When a contract is made between an adult and a minor how enforceable is it against each or the parties?

Question 8

Tina Muller applied for a loan with CES Credit Union so that she could buy a car from her brother, Joseph Muller. They both signed the loan contract, with Joseph signing as a cosigner. It was two months before Joseph's eighteenth birthday. The loan was approved, so Joseph transferred the car to Tina. When she defaulted on the loan, CES repossessed the car and sold it for less than the loan amount. More than ten years after Joseph cosigned the note, CES sued him for the deficiency. He tried to disaffirm the contract. Could he?

Question 9

What types of contracts cannot be avoided by a minor?

Question 10

J.T., Jr., a minor and competitive motocross rider, traveled to Monster Mountain MX park with his coach and friends to ride around the track. J.T.'s parents authorized the coach to sign a release and waiver of liability agreement at Monster Mountain, which released the track operator and owner from liability caused by their negligence. Prior to entering the parkway, J.T.'s coach executed the release on J.T.'s behalf. While riding around the track, J.T. became airborne and crashed into a tractor. He sued Monster Mountain, alleging the racetrack was liable to him on the basis of negligence. Monster Mountain claimed that J.T. was bound by the release agreement and barred from bringing a negligence claim against the parkway. Was the release binding on J.T.?

Question 11

If a minor contracts for necessaries, to what extent is the minor liable?

Question 12

When fifteen, Hilda Villalobos suffered cuts to her head and face when the car in which she was riding collided with another vehicle. The vehicles were insured, but a year after the accident, Shirley Smith, an insurance adjuster, discovered that Hilda's claims had not been finally resolved. Smith phoned Hilda's father, Antonio, and told him that Hilda was entitled to compensation. Antonio described Hilda's scars but was in a hurry to leave for Mexico. Hilda was already there for the next year. Smith explained that without seeing Hilda's scars, her estimate of the value of Hilda's claim could be inaccurate, but offered $3,000. Antonio wanted the money for Hilda right away. Smith paid him $3,000, and he and Hilda's mother, as Hilda's parents, signed releases for Hilda's injuries. Eight months later, when Hilda was seventeen, Antonio sued on behalf of Hilda. Did the suit constitute disaffirmance by Hilda?

Question 13

How much of a voidable contract may a minor ratify?

Question 14

Robert Thomas entered into an agreement with License Realty Corp. to lease a building for 20 years. The lease also included an option to purchase the property. Richard DeSouza, an alcoholic undergoing treatment, signed the lease on behalf of License Realty. Eleven years later, Thomas exercised his option to purchase the property. The owner refused to sell and stated that DeSouza lacked the capacity to sign the contract due to his alcoholism. Was the contract voidable?

Question 15

What is the obligation of a minor on disaffirming a contract?

Question 16

Howard Wilcox was the president of Superior Automation Co. On behalf of Superior, Wilcox signed a lease with Marketing Services of Indiana Inc., which included a personal guarantee from Wilcox. Superior made payments for about two and a half years after executing the lease. Six months before executing the lease, Wilcox complained that he had problems with concentration and functioning at work. His psychiatrist said he had lithium toxicity, which lasted at most ten months after execution of the lease. During this time, he had impaired cognitive function that limited his ability to appreciate and understand the nature and quality of his actions and judgments. Superior stopped making payments, and MSI sued. Is the lease enforceable?

Question 17

What is the safest way for an adult to be protected when contracting with minors?

Question 18

S.L. began working at a fast-food restaurant when she was 16 years old. At the beginning of her employment, she signed a mandatory arbitration agreement, promising to resolve any and all claims with her employer through an arbitration process. S.L. was injured on the job, and her mother filed suit against the restaurant to recover medical expenses related to the injury. The mother argued that S.L. disaffirmed the arbitration agreement by terminating her employment and filing suit against the company while still a minor. The restaurant company argued that S.L.'s minority did not prohibit enforcement of the arbitration agreement, because the lawsuit was for necessaries. Which party was correct?