Contractual capacity is required for both parties entering into a contract. Specifically, both parties must be mentally capable in order for the contract to be legally binding. If either party doesn’t have the capacity, then the contract will not be enforceable.

Mental Capacity Defined

Mental capacity is the degree of understanding and ability to enter into a contract; whether or not the party can actually understand the purpose of the agreement, what is expected of him, and the consequences for failing to act under the contract. The degree of understanding is determined by law. Courts will usually look to the level of education, age, and other mental impairments of the individual.

Contractual capacity is required for both parties entering into a contract. Specifically, both parties must be mentally capable in order for the contract to be legally binding. If either party doesn’t have the capacity, then the contract will not be enforceable.

Mental Capacity Defined

Mental capacity is the degree of understanding and ability to enter into a contract; whether or not the party can actually understand the purpose of the agreement, what is expected of him, and the consequences for failing to act under the contract. The degree of understanding is determined by law. Courts will usually look to the level of education, age, and other mental impairments of the individual.

People without Contractual Capacity

There are several classes of people who don’t lack contractual capacity, including:

  1. Those under the age of eighteen
  2. Mentally challenged people, i.e., impairment in intelligence and social functioning
  3. Those under the influence of drugs or alcohol
  4. Those who are currently incarcerated

While the above-mentioned are the most common types of people who can’t enter into contracts, there are additional arguments that can be made to hold someone mentally incompetent.

Drugs & Alcohol: Mental Capacity

Anyone who is under the influence of drugs or alcohol, whether it is a prescription or non-prescription drug, might be incapable of giving consent when entering into a contract. Therefore, if a person is being sued for breach of contract, and that person believes that he was under the influence of drugs or alcohol when signing the agreement, then he will want to bring the defense of contractual capacity by arguing that he wasn’t capable of entering into the contract due to such incapacity.

Keep in mind that even if the other party doesn’t know that the other person is intoxicated, the court could still deem that the contract is unenforceable due to the drugs or alcohol. However, if one party can clearly see that the other party is intoxicated, then the party trying to enter into the contract with the intoxicated person might actually be held liable for essentially using such intoxication as a means to have the other party sign the contract.

While some courts might find a contract unenforceable under these circumstances, other courts could provide that those who are voluntarily intoxicated shouldn’t be allowed to avoid their contractual responsibilities, but should instead be required to act under the contract since they did in fact consent to it at the time of signing, even if they were intoxicated.

What Happens If a Person Is Found to Be Mentally Incompetent?

There are three different outcomes if a court determines that one of the parties was in fact incapacitated, including the following:

  1. Void contract
  2. Voidable contract
  3. Valid contract

If the court deems the contract void, then the parties will walk away freely as if the contract didn’t exist in the first place. With a voidable contract, the court is stating that only the incapacitated party can disaffirm his contractual duties under the contract; however, if he doesn’t, the parties will be bound to the terms of the contract. If the court deems the contract valid, it is stating that both parties are bound by the terms and provisions in the contract and must satisfy the contract.

An example of when a court might determine a contract to be void is if one of the parties has some sort of mental impairment. Furthermore, an example of a voidable contract might be if one of the parties is under the age of 18, i.e., a 17-year-old entering into a contract with an adult wherein the 17-year-old wants to purchase the other person’s car. If the minor wants to perform under the contract by purchasing the car, then the other party is bound by the contract. If, however, the minor decides not to purchase the car, then the other party need not satisfy the terms in the contract.

An example of when a court might deem a contract valid is if a plaintiff brings a breach of contract against the defendant, and the defendant makes a defense of incapacity claiming that he was intoxicated when having signed the agreement. The court might determine that even though the defendant was intoxicated at that time, he voluntarily chose to become intoxicated and enter into the agreement. Therefore, he should be bound by the terms of the agreement.

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