What Is Contractual Capacity in Contract Law

For parties entering into a contract, contractual capacity is required, both parties must be mentally capable for the contract to be legally binding. Read 4 min As an example, Mr. Smalley committed to selling a product, but then claimed that it lacked capacity, so the contract that required him to sell was void. He had been in psychiatric hospitals several times and had been diagnosed by doctors as manic-depressive. His doctor claimed he was unable to accept trade deals in his manic state. The California Court of Appeals would not terminate the contract, saying Smalley could enter into contracts in its manic state. With the exception of minors, a contracting party that is subsequently classified as non-contractual is not automatically released from its contractual obligations. The court will often consider all the circumstances in which the contract was concluded. For example, a contract is potentially voidable if a party was drunk or under the influence of drugs at the time of entering into the contract and signing the document. The drunk party may have the right to cancel the contract at a later date, especially if the other party knew it was altered at the time of the agreement or intended to take advantage of the drunken party.

A person who does not have capable mental capacity may cancel a contract or have his guardian declared null and void, unless it is a matter of necessity. Most states use a standard they follow to test mental capacity that sees if the person understands the meaning and impact of all the words that make up the transaction or contract. This is done with a cognitive test, while some states use the affective test or motivation test. The courts measure the mental capacity of the person to decide whether they knew what they were doing when they signed the contract. Contractual capacity at the time of entering into a contract is often referred to as ”jurisdiction” or ”capacity”. When it comes to entering into a legally binding contract, it can be assumed that some persons are incapable or competent to enter into contracts. In short, both parties to a contract must have the contractual capacity or jurisdiction for the agreement to be legally binding. If someone tries to terminate a contract from which they have already gained a significant benefit, the courts will not allow them to confirm that contract. Since they have already benefited from the contract, the court considers this proof of acceptance and is bound by the contract. Definition: Contractual capacity is the ability of a person to sign binding contracts with other parties, either for himself or on behalf of a third party.

It is a legal competence to conclude an agreement. It is important to know what capacity means in a contract when entering into a legal contract. The ability to enter into a contract means that the person entering into the contract has legal jurisdiction. This means that they are competent to perform the action they accept in the contract. A person must have common sense to find himself in this situation. However, some people are not able to sign a contract because they are not. These include: A person who is under the influence of alcohol, street drugs or certain prescription drugs cannot enter into a contract or give consent to an action. Even if it is not obvious to others that a person is drunk or weakened, they are often unable to think clearly or reasonably, to communicate their intentions clearly, or to recognize problematic or dangerous situations.

In addition to contributing to a lack of contractual capacity, drugs, alcohol and prescriptions are also considered an inability of a person to give consent to medical care or sexual acts. They were both present when the contract clauses were drafted, but a few days later, the artist`s manager called Perry to tell him that the contract was ready to be signed, and he planned the signing date for tomorrow. Although Perry was present during the negotiations, he does not have the contractual capacity to sign the agreement. Marcus, the company`s CEO, is the only one with this ability. Perry politely clarified the situation to the officer and immediately called Marcus to inform him of the signing. The law generally recognizes three categories of persons who are generally not believed to have sufficient understanding or mental capacity to be bound by a contract or legal agreement. These people without contractual capacity include: Anyone under the influence of drugs or alcohol, whether a prescription or non-prescription drug, may not be able to give consent when entering into a contract. Thus, if a person is sued for breach of contract and believes that he was under the influence of drugs or alcohol when signing the agreement, then he will want to invoke the defense of contractual capacity by arguing that he was unable to conclude the contract because of this incapacity. The manic part of the illness is not a mental weakness that makes someone unable to sign a contract after court.

They claimed that this could alter his judgment, but not affect his understanding, so the contract was not void. Contractual capacity means that the parties are able to understand that a contract is being concluded. In addition, the parties must also be able to understand the fundamental nature of the contract. In short, if a party does not understand the nature and consequences of an agreement it has entered into, the law considers that party incapable of entering into a legally binding contract. If you are faced with a problem in an existing contract that may be questionable due to the nature of a party, you should immediately seek the assistance of a qualified contract attorney. Although this is not a contractual obligation, it is often advisable to consult a lawyer before entering into a contract. An experienced and qualified contract lawyer can advise and inform you in case of problems of jurisdiction and execution of a party who concludes the contractual agreement. Ken joined LegalMatch in January 2002.

Since his arrival, Ken has worked with a variety of talented lawyers, paralegals and law students to make LegalMatch`s law library a comprehensive source of legal information accessible to all. Prior to joining LegalMatch, Ken practiced law in San Francisco, California for four years, handling a variety of cases in areas as diverse as family law (divorces, custody and maintenance, injunctions, paternity), real estate (real estate, landlord/tenant litigation for residential and commercial real estate), criminal law (misdemeanors, crimes, minors, traffic violations), personal injury (car accidents, medical malpractice, Slips and traps), entertainment (hosting contracts, copyright and trademark registration, licensing agreements), labor law (wage claims, discrimination, sexual harassment), commercial law and contracts (breach of contract, drafting of contracts) and san Francisco bankruptcy (Chapter 7 of personal bankruptcies). Ken holds a J.D. from Golden Gate University School of Law and a B.S. in Business Administration at Pepperdine University. He is admitted to the California State Bar and the U.S. District Court for the Northern District of California. Ken is an active member of the American Bar Association, the San Francisco Bar Association and the California Lawyers for the Arts. In general, a person entering into a contract is likely to have full legal capacity to be held responsible for the duties he or she is willing to perform, unless that person is a minor, mentally handicapped or drunk. The ability to sign contracts is a very delicate responsibility, as it allows an individual to legally engage in many different situations that can have financial, political or personal consequences.

This is the reason why contractual capacity has its limits and can never be accepted when the nature of the contract is complex. While some courts might find a contract unenforceable in these circumstances, others might provide that those who are voluntarily drunk cannot evade their contractual obligations, but should rather be required to act under the contract, since they did consent to it at the time of signing, even if they were drunk […].