Chapter 13

Chapter 13 - Chapter 13 Capacity & Legality Basic...

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Chapter 13 Capacity & Legality
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Basic Requirements of a Contract Agreement Consideration Contractual Capacity Legality
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Capacity In order for a person to enter into a binding contract, they must have the capacity to do so. Capacity means that they must be of legal age (18) and understand the nature of their actions. Capacity is assumed, absent evidence to the contrary.
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Capacity If either party lacks capacity to enter into a contract, the contract will be void or voidable . A contract is void if either party has been adjudged to be mentally incompetent . A contract is voidable if either party is a) mentally incompetent but not so adjudged b) intoxicated, or c) a minor.
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If a contract is void, then no contract exists, and either party may avoid the contract obligations. If a contract is voidable, then only the party lacking capacity may avoid the contract obligations and cancel the contract. Voidable contracts are are not always cancelled; it depends upon whether the incapacitated party ratifies or disaffirms the contract
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Ratification Any action taken after an incapacitating condition is removed (drunk sobers up, minor turns 18, mental condition cured or stabilized) that is consistent with the contractual obligations, or failure to disaffirm within a reasonable time of capacity restoration. Ratification permanently gives the contract full legal force. Disaffirmation Any action that is inconsistent with the contractual obligations, either before or after the incapacitating condition is removed. Disaffirmation effectively cancels the contract.
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Timeline K Capacity Restored Disaffirmation Ratification A contract can be disaffirmed until capacity is restored and for a short time thereafter. A contract can be ratified only after capacity has been restored.
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Case Example Problem 13-1 Kira is extremely drunk one night and offers to sell Charlotte a necklace worth several thousand dollars for $100. Charlotte accepts, pays Kira the money, and takes possession of
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This note was uploaded on 04/10/2008 for the course BUS 340 taught by Professor Langenderfer during the Spring '08 term at Meredith.

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Chapter 13 - Chapter 13 Capacity & Legality Basic...

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