Question

CAPACITY
1. In 1936 Palmer was adjudicated incompetent. In 1942 he was adjudicated competent. In 1952 he purchased policies of fire insurance from the Lititz Mutual Insurance Co. The property insured was destroyed by fire. The company refused to pay on the policies on the ground that Palmer was insane when he applied for and obtained the insurance. Was this a valid defense?

2. Saccavino made a contract with Carl Gambardella, then 15 years of age, and Carl's parents, that he would train Carl to be a horse rider and that he would receive in return a share of Carl's earnings from exhibitions and racing. When Saccavino sued on the contract years later, Carl claimed that it was void. Was he correct?

3. Gary Muniz, a minor, purchased a dune buggy from Jones. When Gary's father learned of the purchase, he ordered Gary to take the dune buggy back to Jones or dispose of it. While taking the buggy back to Jones, Gary was involved in an accident. The father's insurer denied liability on the basis that Gary was not the owner of the dune buggy at the time of the collision because he had avoided the contract. Was the insurer correct?

Answer 1

Capacity of parties in terms of contract law refers to each party who is entering a contract having the legal capacity to enter it. Each is required by law to have the mental and intellectual capacity to understand the terms of the contract and to make the choice whether to enter it. Thus people such as minors, those of reduced mental intelligence, and people under the influence of drugs or alcohol would not legally meet the capacity required to enter into a contract.

1.The defense by  Lititz Mutual Insurance Co. is not valid as Palmer had been adjudicated competent by law in 1942 after which he had purchase the insurance in 1952 , while he was competent to enter a contract so the insurance company is liable to pay him.

2.The contact was made when Carl was minor and did not have the capacity to enter a contract thus the contract is void.Reason being the rules of agreement with minors which specifically state that:

• A contract with a minor is void and, hence, no obligations can ever arise on him thereunder.
• No court can allow specific performance of a contract with minors because it is void altogether.
• Parents / guardians of minors can name them in contracts only if it benefits them. But even in this case, the minor cannot be personally liable.

3) The father's insurer was correct in denying liability as the buggy was purchased by Gary who did not have the capacity to contract , it did not belong to the father who had not made any contract with the seller so the insurance does not arise.