February 19, 2021

The Importance of Capacity to Contract Law

Every day individuals and businesses enter into contractual agreements with the assistance of a business litigation lawyer in Irvine CA. However, there are instances where the validity of a contract may be called into question. Once such instance deals with the capacity to enter into a contract. Legal capacity is simply the ability to enter into a valid-contractual agreement. Incapacity is the opposite. If a person or corporation lacks capacity, any contract formed with such a person or entity will be held voidable or void. If you find yourself in this scenario you should immediately have a business litigation attorney in Irvine CA assist you. An Irvine CA business litigation attorney is specially trained to handle this type of issue. 

California law delineates three occasions where lack of capacity will be found: 

  • Contracts negotiated with individuals under 18 (minors) – absent parental or judicial permission; 
  • Contracts negotiated with companies that are not in good standing with the state; and
  • Contracts negotiated with persons of “unsound mind” (i.e., individuals with diminished mental abilities). 

Minors 

In California, any contracts entered into with a minor are considered voidable by the minor. A minor may void a contract with the other party, but the other party may not void a contract against a minor. Furthermore, minors are able to ratify a contract upon reaching the age of majority. 

Corporations Not in Good Standing 

Businesses that are not in good standing with the state are considered incapacitated for the purposes of entering into contracts. The most common circumstance where a business will not be in good standing is due to its failure to pay the California Franchise Tax. 

Individuals of “Unsound Mind” 

California Civil Code § 39 defines “unsound mind” as persons, “substantially unable to manage his or her own financial resources or resist fraud or undue influence.” Common examples would be certain elderly people and individuals with mental disabilities. Persons under the influence of drugs or alcohol are also considered incapacitated. However, courts sometimes look unpropitiously upon incapacity due to inebriation. 

Any questions about capacity or any other contractual issues may be properly addressed by your local Irvine business litigation lawyer at the Brockmeier Law Group.