Key Concepts of Capacity to Contract

Why This Matters

Capacity to contract sits at the foundation of contract law—without it, you don't have a valid agreement. You're being tested on your ability to identify when a party lacks capacity, what legal consequences flow from that incapacity, and how courts balance protection of vulnerable parties against freedom of contract principles. These concepts appear constantly in essay questions asking you to analyze whether a contract is enforceable.

The key insight here is that contract law assumes parties can protect their own interests through negotiation. When that assumption fails—because someone is too young, mentally impaired, or coerced—the law steps in with protective doctrines. Don't just memorize categories of incapacity; understand why each type renders consent defective and what remedies are available. Know the difference between void and voidable contracts, and recognize when a party can ratify or disaffirm.

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Age-Based Incapacity

Minors receive special protection because the law presumes they lack the judgment and experience to evaluate contractual obligations fully. The policy goal is protection, not punishment of the other party.

Age of Majority and Minors' Contracts

• The age of majority is 18 in most jurisdictions—at this point, individuals gain full contractual capacity
• Minors' contracts are voidable at the minor's option—the adult party remains bound, but the minor can disaffirm
• Disaffirmance must occur during minority or within a reasonable time after—delay may constitute ratification

Ratification of Contracts by Minors

• Ratification occurs when a minor reaches majority and affirms the contract—this eliminates the right to disaffirm
• Ratification can be express or implied—continuing to use goods, making payments, or remaining silent may suffice
• Once ratified, the contract becomes fully enforceable—the former minor is bound just like any adult party

Emancipation of Minors

• Emancipation grants minors adult-level contractual capacity—they can enter binding agreements without parental consent
• Common grounds include marriage, military service, or court order—requirements vary significantly by jurisdiction
• Emancipated minors lose the protection of disaffirmance—they're treated as adults for contract purposes

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Mental Capacity Defects

Mental incapacity renders consent defective because the party cannot understand the nature and consequences of the transaction. Courts balance protecting the incapacitated against the reasonable expectations of the other party.

Mental Capacity and Incompetence

• The cognitive test asks whether the party understood the nature and consequences of the transaction—mere foolishness isn't enough
• Contracts may be void (if adjudicated incompetent) or voidable (if not adjudicated)—the distinction affects third-party rights
• The other party's knowledge matters—courts more readily void contracts when the competent party knew or should have known of the incapacity

Intoxication and Its Effect on Contracts

• Intoxication makes contracts voidable only if it prevented understanding the transaction—the standard is high
• The intoxicated party must act promptly to disaffirm upon becoming sober—delay suggests ratification
• Voluntary intoxication receives less protection than involuntary—courts are skeptical of parties who chose to impair themselves

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Protective Legal Structures

When incapacity is ongoing, the law provides mechanisms for others to act on behalf of incapacitated persons while protecting them from exploitation.

Guardianship and Conservatorship

• Guardianship typically covers personal decisions—a guardian makes healthcare, living arrangement, and daily life choices
• Conservatorship focuses on financial and property matters—the conservator manages assets and contractual dealings
• Contracts by protected persons may require court approval—unauthorized contracts are often void, not merely voidable

Power of Attorney

• A power of attorney authorizes an agent to act for the principal—it's a voluntary delegation, unlike court-appointed guardianship
• The principal must have capacity when granting the power—an incapacitated person cannot create a valid POA
• Durable powers of attorney survive the principal's later incapacity—this is crucial for estate planning purposes

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Contract Status and Remedies

Understanding the legal status of defective contracts determines what remedies are available and who can assert them.

Voidable Contracts vs. Void Contracts

• Void contracts have no legal effect from the start—neither party can enforce them, and they cannot be ratified
• Voidable contracts are valid until the protected party elects to disaffirm—the other party cannot void
• Third-party rights may differ—bona fide purchasers may be protected in voidable but not void situations

Necessaries Doctrine

• Minors and incompetents remain liable for necessaries—essential goods like food, clothing, shelter, and medical care
• Recovery is in quasi-contract for reasonable value, not contract price—this prevents exploitation while ensuring access
• What qualifies as a necessary depends on the individual's station in life—context matters in determining necessity

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Defects in the Bargaining Process

Even parties with full capacity may lack meaningful consent if their free will was overcome through improper pressure.

Contracts Made Under Duress or Undue Influence

• Duress involves wrongful threats that overcome free will—physical threats, economic coercion, or threats to loved ones qualify
• Undue influence arises from abuse of a confidential relationship—attorneys, doctors, family members, and caregivers are common defendants
• Both make contracts voidable, not void—the victim can choose to affirm or disaffirm

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Quick Reference Table

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Self-Check Questions

1. A 17-year-old buys a car, drives it for six months, then turns 18 and continues making payments for three more months before trying to disaffirm. What's the likely result and why?

2. Compare the contract status when someone adjudicated incompetent signs an agreement versus when someone with undiagnosed dementia signs the same agreement. How does the distinction affect the other party's rights?

3. Both intoxication and mental illness can impair judgment. Why does the law generally treat intoxicated parties less favorably than mentally ill parties when determining contract enforceability?

4. A minor purchases groceries, clothing, and a gaming console. Which items fall under the necessaries doctrine, and what theory of recovery applies to them?

5. Explain why duress and undue influence are grouped with capacity concepts even though the affected party may have full mental capacity. What do these doctrines share with traditional incapacity rules?