Thus, courts allow any contract made by a minor to be voidable at the minor’s discretion in order to protect them from being held accountable for entering into unwise contracts. The law presumes that minors are too immature, inexperienced, and lack the legal capacity to make a contract. In general, a person who enters a contract presumably possesses complete legal capacity to be held liable for the duties they agree to undertake, unless that person is a minor, mentally incapacitated, or intoxicated.Ī minor is defined in most states as a person under the age of 18. When Does a Person Lack Contractual Capacity? Should I Hire an Attorney for a Dispute Involving Contractual Capacity?.What Happens to Contracts If One Person Lacks Capacity?.When Does a Person Lack Contractual Capacity?.

For example, most people that enter into a phone plan contract have no ability to negotiate and surely do not understand (or even read) every detail and provision in the contract however, they are still entering into a binding contract, as they do understand that they are entering a contract in order to have a phone plan. In short, it is enough if the person understands that they are entering into a contract, and that they understand the general nature of the contract. Thus, just because a person does not understand every detail and provision in a contract does not mean that they lack the competence or capacity to form the contract. It is important to note that contractual competency and capacity have nothing to do with a person’s skill in bargaining or negotiating a contract. In short, when a party does not understand the nature and consequences of an agreement that they have entered, the law treats that party as lacking the capacity to form a legally binding contract. Further, the parties must also be able to understand the basic nature of the contract. In short, both parties to a contract must have contractual capacity or competency in order for the agreement to be legally binding.Ĭontractual capacity means that the parties are able to understand that a contract is being formed. What Does Competency and Capacity Mean When Signing a Contract?Ĭontractual capacity when forming a contract is often referred to as either “competency” or “capacity.” When it comes to entering into a legally binding contract, certain people may be considered to lack the capacity or competency to contract.

Pterm for person entering a contract