Lesson 7: Capacity to Contract
In this lesson, we will explore the concept of capacity to contract, which is an essential element in the formation of contracts. Capacity refers to the legal ability of a party to enter into a contract. Here, we will examine who has the capacity to contract and what happens when a party lacks the necessary capacity.
Definition of Capacity
Capacity to contract refers to the legal ability of a person or entity to enter into a binding agreement. Typically, most adults have the capacity to contract, but there are several exceptions. Understanding these exceptions is crucial for determining whether a contract is enforceable.
Legal Framework for Capacity
The legal framework for capacity is governed by common law and statutory regulations. Here's a simple representation:
Categories of Individuals Lacking Capacity
Not everyone has the capacity to contract. The following categories typically lack capacity:
- Minors
- Mental incompetents
- Intoxicated persons
Minors
Generally, individuals under the age of 18 are considered minors and lack the capacity to contract. Contracts entered into by minors are voidable at their discretion. This means that minors can choose to either honor the contract or void it.
Mental Incompetents
Persons who are mentally incompetent lack the capacity to contract. A person may be deemed incompetent if they cannot understand the nature and consequences of the transaction. Contracts made by mentally incompetent individuals are either void or voidable, depending on the jurisdiction.
Intoxicated Persons
If a person is intoxicated to the extent that they cannot understand the nature and consequences of the transaction, they lack capacity to contract. Contracts made under such circumstances are generally voidable.
Legal Consequences of Lacking Capacity
When a party lacks the capacity to contract, the contract can be void or voidable:
- Void Contracts: A void contract is one that is not legally enforceable from the outset.
- Voidable Contracts: A voidable contract is a valid contract that can be affirmed or rejected at the discretion of one of the parties.
Void vs. Voidable Contracts
Here's a simple representation of the difference between void and voidable contracts:
Relevant Case Law
Understanding capacity to contract can be deepened through review of relevant case law. Here are a few landmark cases:
For additional comprehensive reading on contract law, consider these books available on Amazon:
- Contracts: Examples & Explanations by Brian A. Blum
- Contract Law: Selected Source Materials by Steven J. Burton
Minors and Contracts for Necessities
Although minors typically lack the capacity to contract, there are exceptions where a minor can be held liable under a contract. One of the primary exceptions is for contracts involving necessities. Necessities are items or services that are essential for the minor's survival and well-being, such as food, clothing, shelter, and medical services.
Disaffirmance and Ratification
Disaffirmance is the act of a minor voiding a contract. The minor must disaffirm the entire contract, not just parts of it. This can be done during their minority or within a reasonable time after reaching the age of majority.
Ratification, on the other hand, occurs when a minor decides to honor the contract upon reaching the age of majority. This can be done explicitly through a statement or implicitly through conduct, such as continuing to make payments under the contract.
Infographic: Disaffirmance vs. Ratification
Relevant Case Law
Understanding capacity to contract can be deepened through review of relevant case law. Here are a few landmark cases:
For additional comprehensive reading on contract law, consider these books available on Amazon:
- Contracts: Examples & Explanations by Brian A. Blum
- Contract Law: Selected Source Materials by Steven J. Burton
Key Takeaways
For further reading, you may find these lessons informative: