Contractual Capacity: Definition & Cases

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  • 0:01 Definition
  • 0:53 Minors & Contractual Capacity
  • 1:29 Mentally Disabled &…
  • 2:09 Intoxicated…
  • 2:28 Examples
  • 3:28 Lesson Summary
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Lesson Transcript
Instructor: Jessica Schubert

Jessica is a practicing attorney and has taught law and has a J.D. and LL.M.

After you complete this lesson, you should understand what constitutes contractual capacity. In addition, you will learn about the specific categories of people who lack contractual capacity and review examples of these categories.

Definition

Imagine that you see an ad online for a used computer. You respond to the advertisement and after a few emails back and forth about the computer, you decide you want to buy it. You want to enter into a contract with the seller for the purchase of their computer. You are 30 years old, and the other person is just 17 years old. So the question is, can this person enter the contract at age 17? In other words, does the 17-year-old have the capacity to enter into the contract as a minor?

These questions relate to what is known as contractual capacity. Contractual capacity is the ability of a person to enter into a contract. There are certain classes of people that are typically incapable of entering a contract, or lacking contractual capacity. We will take a closer look at these categories.

Minors and Contractual Capacity

In the majority of states in the U.S., individuals under the age of 18 years are typically considered to be minors. Minors are automatically deemed as lacking the capacity to enter into most contracts. There are some limited exceptions to this general rule.

One limitation relates to things that are seen as necessary, such as food and clothes. If a minor enters a contract for these items, the contract may still be deemed as valid. In addition, where one signs a contract at an age before 18 years old, the contract will usually be deemed as valid when the minor becomes 18.

Mentally Disabled and Contractual Capacity

When an individual is mentally disabled or otherwise lacks mental capacity, a contract will be treated as voidable because of the lack of contractual capacity. There are two tests utilized by states to determine if one lacks mental capacity: the cognitive test and the affective test.

Under the cognitive test, a contract will be treated as void if the mentally disabled person fails to understand the meaning of the words in the contract. If so, the contract must be invalid. Alternatively, under the affective test, if one of the parties cannot act in a reasonable fashion, and the other party is aware of this fact, the contract will be void.

Intoxicated Individual and Contractual Capacity

When a party to a contract is intoxicated by alcohol or other substances, that party lacks the ability to enter into a contract. Generally, when the intoxicated party is unable to understand the nature and consequence of the contract, and the other party is aware of the matter, the contract will be deemed void.

Examples

Contractual capacity can best be understood when reviewing examples. Let's look at a few instances.

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