Also known as:mental capacities to contract · contractual capacity · capacity to contract · mental competency
Written by attorneys · grounded in primary & secondary sources — see below
The legal ability of a natural person to incur at least voidable contractual duties. Capacity may be partial and its existence for a particular transaction may depend on the nature of the transaction or other circumstances.
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How it applies
Common Examples
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Conservatorship Limits Financial Authority
Matthew Martinez, recently placed under a limited financial conservatorship after bipolar episodes, attends an investment seminar and signs a margin trading agreement while exhibiting slurred speech from cocktails. The representative had received prior emails about Martinez's hospitalization and erratic patterns but proceeds without inquiry. Martinez's conservator later seeks to avoid the agreement. The conservatorship prevents Martinez from incurring even voidable duties on this financial transaction, rendering the agreement voidable.
Adjudicated Incapacity Ends Offer Acceptance
Marcus McCarthy sends Dana Morales a signed offer to sell his law practice with a ten-day acceptance window. On day seven a court adjudicates McCarthy legally incapacitated due to dementia and appoints a guardian. Morales signs and mails the agreement unaware on day nine. The guardian refuses to honor it. McCarthy's incapacity terminated Morales's power to accept before her signature, so no contract formed.
Coma Terminates Power of Acceptance
Miranda Morales receives an email offer for a visiting faculty position requiring acceptance by clicking a link within five days. On day three Morales enters a coma. Her colleague Rivera clicks the link on day four without authority. The university refuses to hire. Morales's loss of capacity ended her power to accept before the click, preventing contract formation.
Cipollone v. Liggett Group, Inc.893 F.2d 541 (3d Cir.1990), affirmed in part and reversed in part, 505 U.S. 504 (1992)
Common questions
Frequently Asked
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Does placement under a limited conservatorship automatically render a financial contract voidable?+
Yes. The rule states that no one can be bound by contract who lacks legal capacity to incur at least voidable contractual duties and that capacity may be partial depending on the transaction. A court-ordered conservatorship limiting financial authority supplies that limitation even if the other party lacks notice.
Supporting sources
When does mental illness render a contract voidable even without guardianship?+
A person lacks capacity if unable to understand in a reasonable manner the nature and consequences of the transaction or unable to act reasonably in relation to it when the other party has reason to know of the condition. Documented history, flat affect, and explicit statements of inability to trust one's decisions can establish the impairment.
Supporting sources
Does intoxication alone make a contract voidable?+
Intoxication renders a contract voidable when it prevents reasonable understanding of the transaction's nature and consequences or reasonable action in relation to it and the other party has reason to know of the condition. Visible signs such as slurred speech combined with the other party's continued dealings can satisfy the reason-to-know element.
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Does loss of capacity terminate an offeree's power of acceptance?+
Yes. An offer creates a power of acceptance that ends by operation of law when the offeree loses legal capacity to contract. Subsequent attempted acceptance by anyone, including an unauthorized colleague, cannot form a contract once incapacity has occurred.
Supporting sources
Can an agent's authority survive the principal's loss of capacity to the proposed contract?+
No. When an agent is authorized to enter a transaction with a particular person, that authority terminates by operation of law if the person is later adjudicated incompetent and can no longer become a party. The agent's lack of knowledge does not preserve the authority.
Supporting sources
, and the guardian, recognizing such fact, surrenders to him his estate, and thereby becomes entitled to an order of discharge, but neglects to obtain the same," but a case "of an…
of a person is governed by the law of the domicile, is not a satisfactory solution." Currie, Married Women's
Contract
s: A Study in Conflict-of-Laws Methods, 25 U.Chi.L. Rev. 227, 248…
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