The mental capacity to contract is one of the most crucial elements of a contract. All parties to a contract have to be mentally capable of entering into a contract, otherwise, the contract can be considered void and canceled. It is important that all parties to a contract be mentally capable.

Mental Capacity and Contracts

One may wonder if just anyone can get into a contract. There are two basic principles for those entering contracts. They have to have:

  • Metal capacity
  • Maturity

There are tests that determine mental capacity for those over age 18. They are complex and will vary in all states. Some states opt for the “appreciate effects” test. It asks if a person is capable of understanding what they are involved in and if they appreciate the effects. The “control test” asks if someone can control themselves whether or not they understand.

These requirements are necessary so that one party does not try to take advantage of another. Contracts are a major commitment and some people will not have the legal ability or the capacity to enter into them.

The law provides who can and cannot enter into a contract when it comes to capacity. This includes legal minors, the mentally ill, or the elderly with symptoms of dementia.

The contract is considered voidable if anyone in this category enters into an agreement with another party. Voidable refers to the person lacking capacity to enter the contract and may end the contract or allow it to move forward. It protects those who lack capacity from forcefully going through with a contract that could potentially take advantage of them.

Business contract law states that people who have been declared mentally incompetent in court can find any contract they enter void, voidable, or enforceable.

Mental Incompetence: Overview

Mental incompetence with regard to contracts is in effect only if the person has been officially declared incompetent by a court. This incompetence has to be so severe that a guardian has to be assigned. The guardian is the only one who may go into a contract on that person’s behalf.

If someone that has been declared mentally incompetent tries to go into a contract on his or her own, the contract is considered void. If a person was not aware that they were entering into a contract and he or she is mentally incapacitated, the law provides that it is a voidable case.

It is possible for a person who was declared mentally incompetent before to have times where they are lucid. If a contract is entered into during a lucid time, they may be fully liable for the contract if it can be proven that he or she was cognizant of the deal, the consequences, and the reason the contract was created.

Mental Incompetence: Minors

Minors do not have the capacity to make contracts. In general, no one under age 18 can enter a contract. Any contract signed by a minor is void.

From a business point of view, there are some exceptions to the law. A minor can enter a contract to purchase items for necessities, like food, housing, and clothing. Some states also let minors get credit cards and bank accounts. The minors are responsible for these contracts because they are legally binding. A minor may also void a contract for no capacity while they are underage. If the minor turns 18 and has not voided the contract, it may no longer be voided.

Mental Incompetence: Mental Incapacity

Mental incapacitation is legalease for those who are unable to enter a contract because of their psychological disability. In most jurisdictions, mental capacity is the level of ability to fully understand the meaning and effects of a contract. If a person is not able to fully understand and comprehend his or her legal rights and responsibilities in a contract, he or she is not legally capable of entering into a contract. Courts in some states will measure capacity using the person’s ability to judge if they should or should not enter the agreement.

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