Capacity defenses compared
Defenses · Nov 16
Floor. ~40 min: R2d §§ 12, 14 + Webster Street (infancy). The capstone assumes you have covered this.
Target. ~75 min: Floor + mental illness (R2d § 15 + Estate of McGovern) + intoxication (R2d § 16 + LaBarbera) + synthesis.
(1) No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.
(2) A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is
(a) under guardianship, or
(b) an infant, or
(c) mentally ill or defective, or
(d) intoxicated.
Unless a 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 eighteenth birthday.
(1) 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.
(2) 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 (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.
220 Neb. 9, 368 N.W.2d 439 (1985)
Supreme Court of Nebraska
Rule. A contract entered into by a minor is voidable. The minor may disaffirm within a reasonable time after reaching majority. Necessaries are an exception, but housing is not a necessary where the minor could live with parents able and willing to provide for him.
A seventeen-year-old buys a used car from a dealer for $4,000. He pays in cash from a part-time job. The car breaks down two weeks later; the repair would cost $3,000. He returns the car and demands his money back.
Q. Walk through R2d § 14 plus the necessaries exception. Result?
R2d § 15 makes a contract voidable for mental illness or defect on either of two prongs:
512 Pa. 377, 517 A.2d 523 (1986)
Supreme Court of Pennsylvania
Facts. Days before retiring, McGovern — an alcoholic in denial about his terminally ill wife — chose a pension option paying a life annuity that left his estate far less than a survivor option would have ($27K vs. $151K). Both he and his wife died within weeks. His estate sought to void the election for mental incapacity.
Holding. McGovern was competent under Pennsylvania's standard. The dispositive fact is the party's condition at the very time of the transaction; he understood the terms when he signed.
Rule. Pennsylvania REJECTS R2d § 15's broader, after-the-fact reasonableness inquiry. Mere mental weakness short of inability to comprehend, unaccompanied by imposition or undue influence, does not void a contract; capacity is judged at the moment of contracting.
R2d § 16: a person incurs only voidable duties if the other party has reason to know that, by reason of intoxication, the person cannot understand the nature and consequences of the transaction, or cannot act reasonably in relation to it.
The structure mirrors § 15 — but with a thumb on the scale against relief:
TM Chapter 13 lesson-plan illustration
Facts. A gambler claimed he was too intoxicated to be bound by a $1 million casino debt (markers he signed while drinking).
Holding. Relief denied. He could not prove the extent of his intoxication or that the casino had reason to know it defeated his capacity.
Rule. Intoxication voids a contract under R2d § 16 only on proof of extreme impairment AND the other party's reason to know. The claimant bears a heavy burden, and unproven or moderate intoxication is no defense.
Vary one fact. In Webster Street, the infant tenants have NO home to return to — they have been thrown out by their parents and are otherwise on the street. They disaffirm the lease after staying ten days. Same result?
Stretch problems from the chapter.
Rules. R2d § 12 (capacity) · R2d § 14 (infancy) · R2d § 15 (mental illness) · R2d § 16 (intoxication).
Cases. Webster Street Partnership v. Sheridan · Estate of McGovern · LaBarbera v. Wynn Las Vegas.
Open question. The capacity defenses produce voidable contracts; physical compulsion produces void. What unites the defenses that produce voidability? And what should the third party who dealt in good faith do when the minor walks? The Module IV capstone returns to this.
Next class: Module IV Capstone: Defenses
_Defenses_ · Nov 12
Module quiz, debrief, and Negotiation Simulation skills assessment. The capstone tests the voidability matrix across SoF, mistake, misrepresentation, duress, and incapacity. Bring a one-line answer: when the law refuses to enforce, who bears the loss the parties had already started to absorb? Come ready to answer. You may be called.