Contracts are understood and enforced as voluntary agreements between parties. So when one party lacks volition the basis for enforcing a contract does not exist. In today's lecture we talk about a party must have legal capacity in order to enter into a contract. Under the Common Law minors which are often called infants by the court do not have legal capacity to contract. In 1950, Ohio Court of Appeals case David vs. Clelland provides a stark example of this doctrine. In Davis the defendant sold a car to a minor after crashing the car into a telephone pole. The minor sought to rescind the transaction and get his money back. The court ruling for the minor reason that "Those who deal with a minor must do so charged with the knowledge of the controlling principle of law which, as here, may work some injustice in individual cases but affords, in general, the protection of minors against their own improvidence at a time when they are presumed to be incapable of protecting themselves." In recent years courts and legislatures have diminished the protection from minors somewhat. Even so minors still lack the full legal capacity to contract. The rule that minors lack capacity to enter a contract is captured by Section 14 of the restatement of contracts which reads unless the 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 birthday. In general, a minor's contracts are voidable as opposed to void. This means a minor can avoid his or her contractual obligations by timely and appropriate disaffirmance. But the other party, if an adult is bound, the rule makes contracting with minor is risky. However once a minor reaches the age of majority the minor can ratify or affirm the contract. Even adults may lack the capacity to contract if they're mentally incompetent. Section 15 of the restatement provides: 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 (b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition. Subsection two tells us where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under subsection one terminates to the extent that the contract has been so performed in whole or in part where the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires. As evinced by the relative lengths of the restatement sections, the defense of mental incompetence for an adult is more complicated than the defense of lack of capacity for a minor. The defense of infancy may be available even though the other party has no reason to suspect he was contracting with a minor. But the defense of mental incompetence focuses upon both the condition of the party seeking to avoid the contract and what the other party had reason to know. Subsection one (b) says that a contract is voidable if a person is unable to act in a reasonable manner in a relationship to the transaction and the other person has reason to know of his condition. But, the reason to know condition is absent from subsection one (a) with regard to when a person is unable to understand in a reasonable manner, the nature, and consequences of the transaction. Subsection two is then triggered when the other party is without actual knowledge, but might include circumstances when there is reason to know. Are these varying standards concerning what the other party knew or ought to have known? Do they make sense? The restatements treatment of impairment by intoxication closely mirrors its treatment of incapacity because of mental illness but limits voidability to circumstances where the other party had reason to know of the intoxication. So, let's see if we can answer this quiz. Ashley sells Boris a car for the Kelley Bluebook price. Boris suffers from a mental illness and is legally incompetent to contract. Ashley does not know nor does she have any reason to know, that Boris lacks a capacity to contract. Boris later crashes the car into a telephone pole and seeks to return the damaged car and get his money back. Boris's attorney argues that since Boris is mentally incompetent, the contract is voidable and Boris may rescind the transaction. Is Boris's attorney correct? Probably not. Under section 15 (2) when the contract is made on fair terms and the other party does not know that she is dealing with a mentally incompetent person, the contract may not be terminated. Under section 15 (1). If the circumstances have so changed that avoidance would be unjust. Here Ashley sold Boris the car at a fair price, did not know that Boris was mentally ill and circumstances have certainly changed. The car is now severely damaged after being driven into a telephone pole. It would probably be unjust to allow Boris to rescind the contract under these change circumstances. So let's recap. A person must have legal capacity to contract. Minors and individuals with certain mental health or drug induced issues lack capacity to contract and their contracts may be voidable.
