Business Law I BA 303-01 June 2010
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Capacity & Legality - Review

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1. Capacity is an element of a legally binding contract.

2. A person who has legal capacity to contract is one who has the mental ability to understand his or her rights and obligations under a contract and, therefore, will presumably be able to understand how to comply with the terms of the agreement.

3. Incapacity is some sort of mental or physical defect that prevents a person from being able to enter into a legally binding contract.

4. Historically, minors, insane persons, and women were considered people with limited or no capacity.

5. Today in all but three states, a minor is someone under the age of 18.

6. In most states a person is given full legal capacity to enter into contracts when he or she becomes emancipated before reaching the age of majority.

7. Emacipation occurs when a minor's parents or legal guardians give up their right to exercise legal control over the minor, typically when the minor moves out of the parents' house and begins supporting himself or herself.

8. In most cases, when a minor marries, she or he is considered emancipated.

9. Because their contracts are voidable, minors have the right, until a reasonable time after reaching the age of majority, todisaffirmor avoid their contracts.

10. Regarding the obligation of a minor on disaffirmance, the obligations of a minor on disaffirmance vary from state to state.

11. A disaffirmance of a contract based on minority must occur before or within a reasonable time of the minor's reaching the age of majority.

12. As a general rule, most sates will not allow a minor to disaffirm contracts for life insurance, health insurance, or psychological counseling.

13. The majority rule regarding a minor's misrepresentation of his or her does not affect the minor's right to disaffirm the contract.

14. Regarding contracts for necessaries entered into by minors, a minor can disaffirm a contract for necessaries, but the minor will still be held liable for the reasonable value of the necessary, a contract for a necessary is a contract that supplies the minor with the basic necessities of life, the purpose of the limitation on the minor's right to disaffirm contracts for necessaries is to ensure that minors are able to obtain the basic necessities of life when their parents will not provide them, and whether something is considered a necessary is related to whether the minor's parents are willing to provide the item in question for the minor.

15. Express ratification occurs when a person reaches the age of majority and states, either orally or in writing, that he or she intends to be bound by the contact entered into as a minor.

16. An implied ratification occurs when a former minor does not specifically state that he affirms a contract entered into as a minor but takes some action that is consistent with intent to ratify the contract.

17. Regarding the ability of persons suffering from a mental illness to enter into a binding contract? Persons suffering from a mental illness never have capacity to enter into a binding contract, persons suffering from a mental illness may have full, limited, or no legal capacity to enter into a binding contract depending on the nature and extent of their mental deficiency.

18. Guardians may be appointed for those who are adjudicated insane, those whose judgment has been impaired because of a condition such as Alzheimer's, and also those who are adjudicated habitual drunkards.

19. If a contract is disaffirmed on the basis of intoxication, each party to the contract must return the other to the condition he or she was in at the time the contract was entered into.

20. Because public policy does not favor intoxication, the courts tend to be unsympathetic to intoxicated parties and will fairly liberally interpret as ratification of a contract behavior that appears as ratification.

21. Regarding an agreement to commit a crime or a tort, an agreement to commit a crime is unenforceable, and an agreement to commit a tort is unenforceable.

22. If a legal contract is formed and the subject of the contract then becomes illegal under a new statute, the contract is discharged.

23. (Twenty-five states have statutes requiring that people working in certain professions obtain a license before practicing their craft.

24. A purpose of licensing statutes is to encourage proper performance; to give the government an avenue by which to regulate specific industries; and to protect the public's health, safety, and welfare.

25. If a licensing statute is intended to protect the public's health, safety, and welfare, an agreement with an unlicensed professional is typically deemed enforceable but with a fine.

26. Usary occurs when a party gives a loan at an interest rate exceeding the legal maximum.

27. The maximum interest rate varies depending on the state involved.. (p. 172)

28. Fifty states engage in at least some regulation of gambling. 30. Bob is hired to do computer sales for an electronics store. He agrees that if he leaves his employment, he will not work for another computer store within 25 miles for a period of two years. That type

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