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Lecture Dynamic business law - Chapter 16: Capacity and legality

After reading this chapter, you will be able to answer the following questions: What is the legal effect of a lack of capacity on a person’s ability to enter into a contract? Under what circumstances would a party have limited capacity to enter into a contract? What is the legal effect of entering into a contract for an illegal purpose? | Chapter 16 Capacity and Legality Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 16: Capacity and Legality Contractual Capacity (Definition): Mental ability to understand rights and obligations established by contract, with the presumptive ability to understand how to comply with terms of agreement 16- Contractual capacity is defined as the mental ability to understand rights and obligations established by contract, with the presumptive ability to understand how to comply with the terms of the agreement. Contractual Capacity General Rule of Law: Natural persons over the age of majority (18 in most states) are presumed to have the full legal capacity to enter into binding legal contracts 16- As a general rule of law, natural persons over the age of majority (eighteen in most states) are presumed to have the full legal capacity to enter into binding legal contracts. 16- Individuals Who Have Only Limited Capacity to Contract Minors Those suffering from mental deficiency that renders them incapable of understanding the nature and obligations of contracts Those who are intoxicated Individuals who have only limited capacity to contract include minors, those suffering from a mental deficiency that renders them incapable of understanding the nature and obligations of contracts, and those who are intoxicated. 16- Rules Regarding Minor’s “Contractual Power of Avoidance” Disaffirmance (“Power of Avoidance”): Minors’ right, until reasonable time after reaching age of majority, to disaffirm/avoid their contracts To exercise right, minor need only demonstrate, through words and/or actions, intent to rescind contract Minor must return any consideration received (if still in minor’s possession/control), regardless of condition Even if consideration damaged/destroyed, other party has no recourse against minor Rules designed to discourage | Chapter 16 Capacity and Legality Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 16: Capacity and Legality Contractual Capacity (Definition): Mental ability to understand rights and obligations established by contract, with the presumptive ability to understand how to comply with terms of agreement 16- Contractual capacity is defined as the mental ability to understand rights and obligations established by contract, with the presumptive ability to understand how to comply with the terms of the agreement. Contractual Capacity General Rule of Law: Natural persons over the age of majority (18 in most states) are presumed to have the full legal capacity to enter into binding legal contracts 16- As a general rule of law, natural persons over the age of majority (eighteen in most states) are presumed to have the full legal capacity to enter into binding legal