A binding agreement requires the contractual capacity of the parties to the contract. Not every individual can enter into any contract and is limited to certain types of contracts. The limitation is due to the inability of the parties to understand nature as well as the quality of the act that is to be performed under the contract or the consequences of the terms. An individual to enter into a contract must reach the age of majority or mental capacity. Therefore, individuals are protected from being taken advantage of under the legal system. Minors do not have the legal capacity to enter into contracts. However, those contracts entered into by minors are enforceable agreements on being discharged. However, minors can enter enforceable agreements for necessities such as food, shelter, or medical services. Therefore, it is an exception where businesses can enter into contracts with the minor to provide them the services.
There are several reasons for mental incapacities, such as mental illness or temporary intoxication from alcohol or drugs. It is difficult to prove mental incapacity as a personal defense. Therefore, the cognitive test is carried out for determining mental incapacity. An individual can enter into a binding agreement if the individual understands and is aware of the nature and obligations of the contract. Ratification is required for an individual entering into a contract that is temporarily incapable or intoxicated. The capacity is resumed after the individual ratifies the contract, provided the agreement is disaffirmed within a reasonable period.
Incapacity and Illegality Under Contract
Based on the following three categories in certain cases, the individual may avoid obligations to the contract.
Minors- a contract enter into by a minor is voidable till he attains the age of majority. However, such a contract is enforceable if ratified by the minor after he reaches the age of majority. While ratifying the contract, the minor agrees to the obligations of the contract. Ratification can be implied or expressed by the minor. For instance, in Fletcher v Marshall, a lease was signed by a minor tenant, and the rent was paid for the same after the minor reached the age of eighteen years; therefore, it was held by the court that as the minor tenant paid the rent on reaching the age of majority, the original lease was ratified. As a result, the enforcement of the lease cannot be barred due to incapacity.
However, suppose a minor wants to dissent from a contract on reaching the age of majority. In that case, they must do so within a rational period of reaching the age of majority.
Vulnerable parties- if an individual fails or finds it difficult to understand the terms or the contents of a contract, then such individual is said to vulnerable party. Therefore, a contract may be unenforceable if the party is vulnerable and fails to understand the consequences of the terms of the contract. Thus, such a vulnerable or infirm party can render the contract voidable.
Intoxicated people- if one of the parties to the contract is aware of the intoxicated party, then he must know that the intoxicated party has the potential of negating the formation of the contract and cannot completely comprehend the contract.
Effects of Personal Defense Incapacity After Contract Execution
If the breach of the contract that occurred due to legal incapacity is defended properly, then the party involved can be removed from the liability or obligations of the contract. Contracts entered into by minors are voidable at the option of the minor, while the adults do not have the same option. After entering into the contract, the minor can ratify the contract on reaching the age of majority or disaffirm the contract after reaching the given age within a reasonable period. The following defenses are valid.
Repudiation: In repudiation, contractual obligations are not completed.
Revocation: Before accepting the offer, the contract is rescinded by the party.
Lack of capacity: Individual entering into the agreement does not have the legal capacity to do so.
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