Deck 13: Capacity to Contract

Question 1

In most states, the agreements of persons who have been adjudicated insane are void.

Answer 1

True

Question 2

A person could be medically insane but still have the legal capacity to contract.

Answer 2

True

Question 3

The idea behind _____ is that adults who indicate an intent to be bound by contracts entered while still minors should be bound to those contracts and denied the right to disaffirm thereafter.

A) ratification
B) disaffirmance
C) emancipation
D) forbearance

Answer 3

A
Explanation: The idea behind ratification is that adults who indicate an intent to be bound by contracts entered while still minors should be bound to those contracts and denied the right to disaffirm thereafter. As adults, they are assumed to have sufficient knowledge and experience to judge the wisdom of those contracts.

Question 4

A person could be periodically insane but enter a binding contract during a lucid moment.

Question 5

In a contract made by a minor, _____.

A) adult parties bound to the contract cannot disaffirm the contract
B) the minor does not have the right to disaffirm the contract
C) his/her siblings who are also minors can disaffirm the contract on his/her behalf
D) the minor can disaffirm the contract at any time, even after attaining majority

Question 6

Minors are generally held liable on a quasi contract basis for the reasonable value of necessaries furnished to them.

Question 7

The law uses the word veracity to describe the ability of a person to do a legally valid act.

Question 8

People lacking mental capacity are liable for the reasonable value of necessaries on the same basis and for the same reasons as minors.

Question 9

The minor who does not disaffirm within a reasonable time after attaining majority is held to have rescinded the contract.

Question 10

The idea behind minors' incapacity is that a minor may not be able to bargain effectively with older, more experienced persons. The courts responded to this idea by making minors' contracts void.

Question 11

Adults who contract with minors are bound to the agreement unless the minor chooses to disaffirm.

Question 12

Chuck Olson, age 16, buys a used car from Bobby Duncan Used Cars Center on September 15, 2006. Olson agrees to pay $200 a month for 12 months. A month after the purchase, Olson is involved in an accident that wrecks the car. He immediately calls Duncan Cars and informs them that he is disaffirming the contract. According to traditional common laws, which of the following is most likely to be true?

A) Olson does not have a duty to place Duncan in status quo ante.
B) Olson can ask Duncan to pay for the damages as he hasn't made the full payment for the car.
C) Olson has to pay for the damages and then return the car to Duncan.
D) Olson can successfully press charges and force Duncan to take care of the damages caused to the car.

Question 13

Minors are liable for the value of necessaries they have purchased under a contract but have not received at the time they disaffirm.

Question 14

If either party entering a contract lacks the capacity to contract, the contract is void or voidable, depending on the kind of incapacity involved.

Question 15

Generally, a minor may disaffirm by doing anything that clearly indicates to the other party an intent not to be bound by the terms of the contract.

Question 16

As a general rule, minors may disaffirm their contracts at any time during their minority and for up to one year after attaining majority.

Question 17

If a person is adjudicated insane after entering into a contract, his or her personal representative cannot ratify the contract.

Question 18

Which of the following is true of a contract made by a minor?

A) A minor is given the right to disaffirm his or her contract.
B) If a minor's contract involves title to real estate, the minor can disaffirm before reaching majority.
C) Adults who contract with minors are bound to the agreement unless the adult chooses to disaffirm.
D) A minor's capacity to contract is never presumed.

Question 19

Emancipation can occur when a minor marries or gets a job and moves away from home and the parent does not object.

Question 20

Which of the following is true of minors' ability to disaffirm?

A) Minors may disaffirm their contract for a reasonable time before attaining majority.
B) Minors may disaffirm their contracts at any time during their minority.
C) Minors may disaffirm by doing anything that clearly indicates to the other party an intent to be bound by the terms of the contract.
D) Minors may disaffirm before reaching majority if their contracts involve title to real estate.

Question 21

Which of the following is relevant in determining whether an item is a necessary?

A) The minor's age
B) The fair market value of the item
C) The contract price of the item
D) Whether the item is provided by a commercial or non-commercial party

Question 22

Which of the following is a correct statement regarding minors and necessaries?

A) Whether a given item is considered a necessary depends on the facts of the particular case.
B) Items sold to a minor are considered necessaries of life even if the minor's parent or guardian has supplied or is willing to supply similar items.
C) Minors are generally held liable on a quasi contract basis for the contract price of necessaries furnished to them.
D) As a general rule, the definition of necessary is narrowing to exclude things commonly considered important by today's standards.

Question 23

People who regain their mental capacity:

A) cannot ratify their contracts if the contract involves real estate.
B) can ratify their contracts.
C) can ratify their contracts only if a guardian signs up along with the person.
D) cannot ratify their contracts.

Question 24

Jessica, a minor, rented an apartment in Greenwich Village for $500 a month. She signed a one-year lease. After living there for three months, Jessica decided to move to another apartment complex. She is liable for the reasonable value of three months' rent at Greenwich Village, but not for the remaining nine months' rent. This is in accordance with the _____ provision of capacity to contract by minors.

A) disaffirmation
B) necessaries
C) emancipation
D) adjudication

Question 25

A person suffering from mental impairment can have the legal capacity to contract if:

A) the contract is for necessaries provided by the parents.
B) the person is married.
C) the person can possibly be cured sometime in the future.
D) the person entered a binding contract during a lucid moment.

Question 26

Which of the following is true of emancipation?

A) Emancipation is the term used to describe the termination of a parent's right to receive services and wages from a child and to generally control him.
B) Emancipation occurs when a minor does not disaffirm within a reasonable time after attaining majority and thereafter loses the right to disaffirm.
C) Emancipation occurs when a minor moves away from home and the parents object to his or her actions.
D) Emancipation always gives a minor the capacity to contract.

Question 27

When a person has been adjudicated insane, _____.

A) the contract is considered voidable if he or she entered a binding contract during a lucid moment
B) most states hold that the contracts of such persons are not voidable
C) the court appoints a guardian or conservator for the person's estate
D) the court says that such a person is not liable for any value of necessaries

Question 28

If a court later finds that a person lacked mental capacity at the time the contract was entered into, the contract is _____.

A) voidable at the election of that person (or his or her guardian or administrator)
B) voidable at the election of the other contracting party (or his or her agent)
C) void ab initio
D) void

Question 29

A minor can typically disaffirm a contract made for _____.

A) stereo equipment
B) life insurance
C) medical care
D) bank accounts

Question 30

Which of the following terms is used to describe the termination of a parent's right to receive services and wages from a child and to generally control him?

A) Emancipation
B) Disaffirmation
C) Ratification
D) Incapacity

Question 31

In most states, the agreement of a person who has been adjudicated insane is _____.

A) void
B) conditionally enforceable
C) voidable at the election of that person (or his or her guardian or administrator)
D) voidable at the election of the other contracting party (or his or her agent)

Question 32

In a contract involving a minor, whether an item can be considered "necessary":

A) depends on what the adult signed for.
B) depends on the minor's station in life.
C) doesn't depend on personal circumstances.
D) doesn't depend on the minor's age.

Question 33

Under the Uniform Commercial Code, minors who disaffirm their contracts involving goods:

A) can reclaim the goods from third parties.
B) can no longer reclaim those goods from innocent third parties.
C) have to return consideration even if the goods have been consumed.
D) have to return consideration even if the goods have been stolen from them.

Question 34

With respect to contracts, status quo ante refers to:

A) minors losing the right to disaffirm if they fraudulently misrepresent their age.
B) the position one would be in if a given contract had never come into existence.
C) the basic risks of entering into contracts.
D) a minor being protected by law on all counts of misbehavior.

Question 35

A person lacking mental capacity must return the other party to status quo when:

A) the other party becomes aware of the person's lack of mental capacity.
B) the person lacking mental capacity has already enjoyed the product of the agreement.
C) the other party was unaware of the person's lack of mental capacity.
D) the person lacking mental capacity has passed on the product of the agreement to someone else.

Question 36

Which of the following is the most likely indicator of contractual incapacity?

A) old age
B) dementia
C) a lucid interval
D) ratification

Question 37

Which of the following is a correct statement regarding the test of contractual incapacity?

A) The test usually applied in contract law is whether a party, at the time the case is litigated, had sufficient mental capacity to understand the nature and effect of the contract.
B) A person could be medically insane but still have the legal capacity to contract.
C) A person who is senile cannot enter into a binding agreement.
D) A person with less-than-ordinary intelligence cannot enter into a binding agreement.

Question 38

With respect to property, under the common law, minors:

A) are entitled to the return of their property given as consideration only upon attaining majority.
B) are entitled to the return of their property given as consideration even if they have been ratified.
C) are entitled to the return of their property given as consideration, even if that property is possessed by a third party at the time of disaffirmance.
D) are entitled to the return of their property given as consideration, except in cases where the property is possessed by a third party.

Question 39

_____ are generally defined as those things that are essential to a minor's continued existence and general welfare.

A) Considerations
B) Emancipations
C) Forbearances
D) Necessaries

Question 40

_____ means that a general hearing was held on the person's mental competency, and the court determined that the person was of unsound mind and appointed a guardian or conservator of the person's estate.

A) Emancipation
B) Adjudication
C) Incapacitation
D) Ratification

Question 41

Why are minors held liable on a quasi contract basis for the reasonable value of necessaries furnished to them?

Question 42

Which of the following is true of the right to disaffirm?

A) If there was no reason to know of the other party's lack of capacity, the contract can be disaffirmed without placing him or her in status quo.
B) If the plaintiff knew or should have known of the other party's incapacity, the person lacking such capacity is not allowed to disaffirm without restoring the status quo.
C) On disaffirmance, people lacking mental capacity must return any consideration that they had received.
D) People lacking mental capacity cannot disaffirm their contracts.

Question 43

After staying home and raising four children, Mary got a job at a museum. Ten years later, she realized her marriage was in trouble and went for psychological counseling. She later separated from her husband but continued therapy. During a session at which her husband was present, he asked her, "What do you want?" She wrote on a piece of paper that she wanted the house, the car, the joint bank accounts, and a computer. The husband took the note to his attorney, who drafted a property settlement on its basis. Mary, ignoring the advice of her psychologist to hire her own attorney, signed the agreement. She later challenged the agreement on the grounds of incapacity. Will she succeed?

Question 44

What are the exceptions, created by the courts, to the general rule that minors can disaffirm their contracts?

Question 45

Daniel, age 15, bought a diamond ring from a local jewelry store. The jeweler was aware of his age. He made a partial payment on the ring of $100. Ten months later, Daniel's girlfriend broke off the engagement but refused to return the ring. Daniel sought to disaffirm the contract for the ring, but the jeweler argued that he could not do so without returning the ring. Can Daniel disaffirm in this case?

Question 46

Which of the following is true of the test of incapacity?

A) A medically insane person does not have the legal capacity to contract.
B) Emancipated in this context means a general hearing was held on the person's mental competency, and the court determined that the person was of unsound mind.
C) A person could be periodically insane but can enter a binding contract during a lucid moment.
D) In most states, the agreements of persons who have been adjudicated insane are not void.

Question 47

In which of the following situations is a contract considered voidable?

A) When the contract is for necessaries
B) When the minor lied about his or her age
C) When the contract is ratified on reaching majority
D) When there is a lack of capacity because of minority

Question 48

On the same basis and for the same reasons as minors, people lacking mental capacity:

A) cannot disaffirm their contracts.
B) should always place the other person in status quo.
C) are liable for the reasonable value of necessaries.
D) do not need to return any consideration they have received.

Question 49

Which of the following statements is true of contract ratification?

A) Minors who have lied about their age can ratify their contracts.
B) A contract is voidable if it is ratified on reaching majority.
C) For a person adjudicated insane, his or her personal representatives cannot ratify the contract.
D) People who regain their mental capacity can ratify their contracts.

Question 50

Explain the test for mental incapacity in contract law.