Contractual Capacity

The law recognizes the need for a minimum mental capacity, or ability to understand the ramifications of a contract or legal agreement in order for such an agreement to be legal and binding. While several classes of people considered to lack sufficient mental capacity to make legally binding agreements, argument may be successfully made to the court for other circumstances in which a signor to an agreement should be deemed unable to sign. To explore this concept, consider the following contractual capacity definition.

Definition of Mental Capacity

Noun

  1. The degree of understanding and ability to comprehend and remember a situation in which one finds oneself; understanding the purpose and consequences of an act or transaction to which one agrees or enters into.
  2. The minimum degree of understanding required by law to for an individual to be charged with responsibility for an act or transaction.

Assessment of Contractual Capacity

The law typically recognizes three classes of individuals who are, in general, not regarded as having a great enough understanding or mental capacity to be bound by a legal contract or agreement. These individuals without contractual capacity include:

  1. Mentally impaired or incompetent person – any individual in a state of arrested or incomplete mental development, which may include impairment of intelligence and social functioning.
  2. Minors – any individual under the legal age of 18 years
  3. Intoxicated persons, or persons under the influence of any substance – any individual who has ingested, or is otherwise subject to the influences of, alcohol, drugs, medications, or other substances, whose judgment may be impaired.

Invalidating a Contract Lacking Contractual Capacity

Contracts entered into by a party who lacks contractual capacity are voidable, and a void contract cannot be enforced. Contracts entered into by minors are never binding, allowing the minor to cancel the contract, or fail to fulfill his obligations under the contract, without consequence.

Generally speaking, invalidating a contract lacking contractual capacity may occur when (1) a party to the contract completely lacked an understanding of the contract, or (2) the party lacked a clear understanding of the consequences of entering into the contract. Not all mental and psychological impairments signify a lack of capacity to enter into legally binding agreements. The burden of proof that a party to a contract actually lacked contractual capacity falls on that party or his legal representative.

Understanding When a Contract is Voidable

With the exception of minors, a party to a contract later deemed to lack contractual capacity is not automatically relieved of his duties under the contract. The court will often take into consideration all of the circumstances under which the contract was entered into. For example, a contract is potentially voidable if one party was intoxicated or under the influence of drugs at the time the agreement was made and the document signed. The intoxicated party may, at a later time, have the right to void the contract, especially if the other party knew he was impaired at the time of the agreement, or had the intent to take advantage of the intoxicated party.

Drugs, Alcohol, and Mental Capacity

An individual under the influence of alcohol, street drugs, or certain prescription medications cannot legally enter into a contract or give their consent for any action. Even if it is not obvious to others that a person is intoxicated or impaired, they are often unable to think clearly or reasonably, communicate their intentions clearly, or recognize problematic or dangerous situations. In addition to contributing to a lack of contractual capacity, drugs, alcohol, and prescriptions are also considered to render an individual unable to give consent for medical care or sexual acts.

Developmental Disabilities

While many individuals considered to have developmental or intellectual disabilities, sometimes referred to as “mental retardation,” live on their own and hold jobs, a great deal of effort goes into adapting to an independent lifestyle. Whether or not such an individual has the mental capacity to enter into a legally binding contract is a matter taken seriously, and considered on a case-by-case basis by the courts. Some individuals with developmental disabilities have a guardian or conservator who is allowed to make legal decisions and sign legally binding documents on behalf of the disabled person.

Related Legal Terms and Issues

  • Intoxicated – A state in which an individual’s normal ability to act or make reasonable decisions is inhibited by drugs or alcohol.
  • Consent – To agree, approve, permit, comply, or yield
  • Obligation – A promise or contract that is legally binding; the act of binding or obliging oneself, as in a contract.

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