When Will a Party to a Contract Lack Legal Capacity?

What Situations Involve a Potential Lack of Contractual Capacity?

For a contract to be binding and enforceable, the parties to that contract must both have what is known as “contractual capacity.” What does that mean? When might a person fail to have the requisite contractual capacity?

What Is Contractual Capacity?

One of the fundamental requirements of contract law is that the parties willingly enter into an agreement. To do that, they must understand first that they are entering into a binding legal contract, and, additionally, what the terms of that contract will be. Contractual capacity therefore refers to the ability of all parties to an agreement to have the necessary mental acuity to know what a contract is, know that they are entering into a contract, and know what their rights and responsibilities will be.

What Factors Suggest a Lack of Capacity?

Under the laws of Texas, as in all states, there are three instances where a party to a contract may lack legal capacity:

• The party was legally a minor at the time the contract was executed
• The party was mentally ill or had mental deficiencies that prevented them from understanding the contract
• The party was intoxicated or under the influence of drugs and could not understand what was happening

With a party who was allegedly intoxicated or mentally disabled, it must be shown that the impact of that was such that they could not reasonably understand that they were committing to a contract, nor understand the terms of the agreement.

The Rules Governing Contracts with Minors

A minor (anyone under the age of 18) in Texas can typically choose to either honor or void a contract entered into before reaching the age of majority. The legal term for choosing to void such an agreement is “disaffirming” a contract. As a general rule, a minor may disaffirm a contract while still a minor or for a reasonable period of time after becoming an adult. A minor may not, however, disaffirm a contract for certain types of goods or services, such as food, clothing or lodging, which are legally referred to as “necessaries.”

Contact MCIS Law

At MCIS Law, PLLC, in Stafford, we provide comprehensive counsel to businesses in southeast Texas. For a confidential consultation with an experienced and knowledgeable lawyer, email us or call our office at (346) 297-0121. We accept all major credit cards.