DEFENSES TO FORMATION
CHAPTER 6: CAPACITY OF PARTIES
– The PHYSICAL & LEGAL ABILITY of a party to enter into a contractual agreement where they understand the consequences of their actions
Pettit v. Liston (kid buys motorcycle)
– If a contract with a minor is fair and reasonable & the minor has paid the price and taken the good he is not permitted to recover the amount actually paid but rather a reasonable amount taking into account the minors use, as well as the depreciation of the goods
EXCEPTIONà Necessities (food, lodging etc.) – minor must pay reasonable mkt value
§ 12. Capacity To Contract (UMII)
(1) No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.
(2) A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is
(a) under guardianship, or
(b) an infant, or
(c) mentally ill or defective, or
§ 14. Infants
Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s 18th b-day.
Ortelere v. Teachers’ Retirement Board(crazy lady retires)
– A contract is VOIDABLE if one party is mentally ill &
o 1) They are unable to reasonably understand the consequences of actions & other party knows or has reason to know (cognitive test)
o 2) They are unable to act reasonably in relation to the transaction and the other party knows or has reason to know.
OLD STANDARDà Must be completely incompetent
Dissent – She could control herself b/c she wrote a very detailed letter hence she knew exactly what she was doing (She was in control of her actions)àvolitional test
§ 15. Mental Illness Or Defect (Ortelere case)
(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
(a) He is unable to understand in a reasonable manner the nature and consequences of the transaction, or
of the incompetence but the status quo ante can be restored, the incompetent may avoid the contract but must provide restitution. (The incompetent must pay in quasi-contract for necessities.) See Ortelere v. Teachers’ Retirement Board
– Contract is voidable if made by a minor (under 18) within a reasonable time of reaching majority; however, benefits received must be returned; the minor must pay the reasonable value for necessities.
– May negate Intent to contract if party lacks capacity to understand nature and consequences of transaction, but only if the other party has reason to know (and only if a reasonable third person would so determine. See Lucy v. Zehmer.
Using Capacity as a SWORD and as a SHEILD
VOID– NO legal contract from the start
VODIABLE– person under the disability has the option to end K
As a basic premise a minor may disaffirm or avoid a contacts