What is there to know about the capacity to contract?

In contrast to legal capacity, which all people have from birth, capacity to contract depends on the age and mental health of a person. This means that some people do not have capacity to contract, and are not deemed to have legal competence. This is to protect people who are not legally competent to protect themselves from harming themselves financially, or legally. This group primarily includes children and people who have psychological issues, who may not realize that they create lasting problems with an action or purchase.

The capacity to contract of the various age groups

Definition

Capacity to contract clarifies under which conditions a person may enter into binding legal transactions. For this purpose, a person must be able to make a legally-binding declaration of intent in writing – e.g. a notice of termination or a declaration of withdrawal.

Children and those under 18 have limited legal capacity – and to some extent they have none. This means that these persons can only conduct valid legal transactions under certain conditions, often requiring the presence of a parent or legal guardian.

Limited legal capacity for children and those under 18 years of age

Minors make usual, everyday purchases without having to ask their legal guardians for permission. What counts as an everyday purchase depends on the case. Children and adolescents can easily buy things such as stationery, food, cinema tickets etc. at any time – this is not considered to be dependent on capacity to contract.

Fact

All quotidian, legal transactions denote transactions of daily life and needs. This includes the purchase of food, luxury goods, textiles, cosmetics, and books, as well as the use of telephone, internet, and public transport, or visits to hairdressers and events. However, internet and phone contracts which incur monthly payments often require the presence of a parent or guardian.

Minors can enter informal employment contracts – for example for babysitting, gardening, or holiday jobs – and have to comply with agreed services. Depending on the state, minors can also enter formal contracts for part-time work. In some cases, the parent or legal guardian may need to give their consent.

Fact

A contract signed shortly before coming of age does not automatically enter into force just because the person in question is now of age. In order to make the contract legally effective, the contract must be recognized in writing. The contractual partner is permitted to set a deadline for this recognition, but the contractual partner must also point out that the written consent of the adult is required in order to maintain the business.

Legal representative for minors

In principle, either parent can be the legal representative, individually entitled to represent the child. In the case of joint custody, the parents jointly represent the interests of the child. In the case where a child does not have any parents, their legal guardian takes on this role.

If the parents do not agree on a matter of importance to the child, such as health issues like vaccinations or special examinations, the family court can grant one parent the sole right to decide to proceed with treatment, if it could help the child. Florida’s case law has a few examples of this.

Note

In the case of intellectual disability, the legal capacity of a person may continue to be regulated by legal guardians or parents.

Capacity to contract: limitations for adults

Legally speaking, every person who has reached the age of 18 is a major, with only some things such as drinking alcohol being restricted. However, a person's legal capacity may be wholly or partially withdrawn due to serious mental illness. Depending on the type and severity of the illness, a person who is not a minor, but perhaps unable to make some decisions will still be able to contract in other cases.

For example: If an adult incapable of legal capacity buys a few sweets at a kiosk this is legitimate, as it is a matter of usual, minor cash transactions. Whether the cash transactions can be judged as minor or customary depends on the situation – if someone enters a binding phone contract, although the tariff may not be high, it might be that the individual cannot actually commit to paying that monthly amount.

Capacity to contract limited due to mental health issues

In addition to minors, persons with disabilities, or mental health issues, may also be able to register as having limited capacity to contract, regardless of their age. This usually only passes if these persons are not only temporarily unable to decide for themselves.

Some examples which may lead to an exception in someone’s capacity to contract may be the following:

  • Intellectual disability: If someone is recognized as having an intellectual disability, an application can be made for an exception for capacity to contract on the part of this person. It depends on how severe the disability is.
  • Hallucinations and visions: People who perceive things without a verifiable external stimulus; these perceptions can be present at all sensory levels.
  • Advanced dementia: Those affected by dementia or Alzheimer’s disease may be exempted from contracts.
  • Affective disorders: In an affective disorder, such as manic depression or severe bi-polar disorder, the affected person may experience acute, often uncontrolled mood changes. This may mean that a person should not be held accountable for things they do whilst affected by their depression, for example, and so have a limited capacity to contract.

Since the protection of a person who is not or only to a limited extent of legal capacity takes precedence over the law, it can happen that contracts which are signed are subsequently declared null and void. Only a court can determine whether a contract was legally incapable. In order to verify this, the individual’s mental health is determined, which can be stressful and challenging on the person in question.

Affected persons can be divided into different types of legal incapacity.

  • Partial legal incapacity: This type of legal incapacity exists if a mental disorder relates only to a certain area – for example if the person concerned has hallucinations, but otherwise behaves "normally" in everyday life.
  • Relative legal incapacity: Relative legal incapacity is the opposite of partial incapacity and refers to the fact that activities are of different difficulty. Those affected can, however, do everyday business, such as buying groceries or cinema tickets. However, they are not able to conduct long-term business, such as signing a mobile phone contract or buying a car.

Legal representative for non-minors

If, as a result of illness or an accident, a person of full age is no longer in a position to decide for themselves, a legal guardian must be appointed. As a rule, these are the parents. It is also possible for an unrelated person to act as a representative for the affairs of an adult person who has a limited capacity to contract.

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