What does ‘Capacity’ to contract mean?
‘Capacity to contract means a party has the legal ability to enter into a contract. Capacity also means a person has to be competent as defined by law. Someone’s capacity is determined by whether or not they have reached the age of majority and if they are mentally capable of understanding the applicable contract terms. https://www.upcounsel.com/
In law, the term ‘capacity’ relates to the ability of a person to understand the details of what they are about to enter into. It is the competence (skill/ability) of a person to enter into a valid contract. The parties entering into a contractual agreement must be of a ‘sound mind’ and able to understand what they are agreeing to.
If either party does not have the ‘capacity’ to contract then the contract may be void or voidable.
Who does not have the capacity to contract?
The law treats certain classes of people as having limited capacity (limited ability) to contract. These are:
- Mental incapacity
- People under the influence of drugs.
Minors are generally classed as anyone under 18 years old. A minor lacks the ‘capacity’ (understanding) to enter a legally binding contract. If they enter a contract whilst they are a minor, they usually have the option to cancel the contract before they reach the age of 18. This is known as a ‘voidable’ contract. The contract is valid but the minor has the option to withdraw from it due to their lack of ‘capacity’ as a minor.
Note: Minors are able to enter into contracts for necessities such as food, clothing etc.
Mental capacity refers to the ability to understand the terms of the contract. If a contracting party is unable to understand details of the contract they are said to lack the mental capacity to enter into a valid contract. If the mental incapacity is temporary, the person must end the contract within a reasonable time of regaining their mental ‘capacity’. For a person who is permanently incapacitated, the contract may be void or voidable.
It is the judge who decides whether the party had the mental capacity to enter into the contract.
People under the influence of drugs or alcohol
An intoxicated person (through the use of drugs or alcohol) may lack the mental capacity to make a valid contract. They must void (cancel) the contract as soon as possible after recovering their mental capacity and learning of the contract. If they fail to do this in a ‘reasonable time’, they are said to have ratified (confirmed or agreed to) the contract and will be bound by it.
If someone voluntarily intoxicated themselves, the court may order the party to uphold the obligation.
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