2.7 Capacity to Contract

Capacity to Contract

Content map item 115 sits inside Formation of Contracts — Mutual Assent for a reason. Capacity is not a side issue about sympathetic parties; it is a formation question. Even where offer, acceptance, and consideration are flawless, a contract made by a party who lacked legal capacity is voidable at that party's election. FYLSX fact patterns exploit this by burying an age or a mental condition in the second sentence of an otherwise clean commercial transaction and then asking who prevails.

Three classes of persons lack full contractual capacity at common law: minors, persons under a mental incapacity, and persons who are intoxicated to a degree the other party knows about. Each produces a voidable contract, not a void one — the protected party may disaffirm, but the party with capacity is bound and cannot escape.

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1. Infancy: The Minor's Power to Disaffirm

At common law a person is a minor until the eighteenth birthday. A minor's contract is voidable by the minor, and this is the single most heavily tested capacity rule.

• The power to disaffirm. A minor may disaffirm at any time during minority and for a reasonable time after reaching majority. Disaffirmance may be express or implied from conduct inconsistent with the contract.
• The adult is bound. The adult party has no reciprocal escape. The classic trap answer says "the contract is void" or "neither party is bound." Both are wrong: the contract is voidable at the minor's option only.
• Restoration. The majority common-law rule lets a minor disaffirm and recover what was paid even if the minor cannot return the goods in their original condition. A minor who wrecks a purchased car may still generally recover the price, returning the wreck. A substantial minority of states now offset for depreciation or use.
• Ratification. Once the minor reaches majority, the contract may be ratified expressly, by conduct manifesting intent to be bound, or by failure to disaffirm within a reasonable time. Ratification cannot occur before majority, and once made it is irrevocable.

The Necessaries Exception

A minor who contracts for necessaries — food, shelter, clothing, basic medical care, and in some circumstances tools of a trade — cannot escape payment altogether. The minor may still disaffirm the express contract, but remains liable in quasi-contract for the reasonable value of what was actually furnished, not the contract price. Note the mechanics: the recovery is restitutionary, so an inflated contract price does not control.

Exam pattern: A seventeen-year-old signs a twenty-four-month gym membership at $80 per month, uses it for five months, then disaffirms. A gym membership is not a necessary, so the minor disaffirms entirely and recovers the payments. Change the facts to an apartment lease for a minor living independently and the necessaries doctrine produces liability for the reasonable rental value of the months actually occupied.

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2. Mental Incapacity

Two tests coexist, and a well-drafted question tells you which one is in play.

The volitional branch carries a notice requirement that the cognitive branch does not. A party who genuinely could not comprehend the deal may disaffirm even against an innocent counterparty; a party who merely could not control their conduct may disaffirm only if the other side had reason to know.

• Adjudicated incompetents. Where a court has already declared a person incompetent and appointed a guardian, contracts made by that person are void, not merely voidable. This is the one capacity situation producing a void agreement, and examiners test the distinction directly.
• Lucid intervals. Mental illness is assessed at the moment of contracting. A person with a fluctuating condition who contracts during a lucid interval has capacity.
• Necessaries and restitution. As with minors, quasi-contractual liability for the reasonable value of necessaries survives disaffirmance. Where the contract was fair and the other party had no knowledge of the incapacity, courts may condition avoidance on restoring the other party to the status quo.

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3. Intoxication

Intoxication is the narrowest of the three doctrines, and the bar is deliberately high. A contract is voidable for intoxication only where the party was so impaired as to be unable to understand the nature and consequences of the transaction and the other party had reason to know of that condition. Voluntary intoxication is not an excuse for a merely improvident bargain; the classic wrong answer treats "the defendant had been drinking" as sufficient.

An intoxicated party who later learns of the transaction must act promptly. Continued acceptance of benefits, or delay after sobering up, ratifies the contract.

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4. Comparison Matrix

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5. Where Capacity Shows Up on the FYLSX

Capacity rarely arrives as the headline issue. It appears as a hidden defect inside a question that otherwise tests offer and acceptance or remedies:

• A minor signs, performs, turns eighteen, and keeps performing for months. The call asks whether the contract is enforceable — ratification by conduct defeats disaffirmance.
• A party with dementia signs a fair-market contract with a buyer who had no idea. Under the cognitive test the contract is still voidable, but the court is likely to require restoration of the consideration received.
• An intoxicated seller signs a deed at a bar while the buyer pours the drinks. Counterparty knowledge is established, so the deed is voidable.
• A distractor recites "the contract is void ab initio." Reserve that language for the adjudicated incompetent; everywhere else in this topic the correct word is voidable.