Capacity Study Outline

Legal capacity refers to the ability of a party to enter into a binding contract. To have legal capacity, parties must possess the mental ability to understand the nature and consequences of their actions. Generally, individuals who are minors (under the age of 18), mentally incapacitated persons, and intoxicated individuals are either fully or partially lacking in capacity. Contracts entered into by these parties may be voided or void, depending on the circumstances. The underlying principle is that individuals should be protected from their inability to fully understand agreements they enter into.

There are different classifications of capacity: the capacity of minors, mentally ill persons, and intoxicated persons. Minors generally have the right to disaffirm contracts they entered into until they reach the age of majority, though exceptions exist for contracts for necessities. For mentally incapacitated persons, the ability to disaffirm depends on the level of capacity at the time of the contract formation. Intoxication may affect contractual capacity only if the intoxicated person is unable to comprehend the nature and consequences of the transaction. Courts may impose a higher threshold when intoxication is involuntary.

Disaffirmance is the legal right of a party lacking capacity to void a contract. For minors, any representations made about capabilities do not estop them from disaffirming. The disaffirming party must communicate the intent to void before ratifying the contract either by acts or express declaration. States may offer various protections for parties who rely on the contractual ability of others. For instance, a minor must return any consideration received, although restitution may not always be sought. Additionally, once a party reaches the age of majority, they may choose to ratify the contract, confirming the agreement despite any previous incapacity.