The value and success of a business often rests on the ability of the principals involved to make and enforce contracts with third-parties. However, if the person who entered into a particular agreement did not have the “capacity to contract” in the first place, then those contracts may be “voidable.” A contract is “voidable” if it permits the person without legal capacity to either terminate or enforce the agreement. This is meant to ensure that the weaker party does not get taken advantage of due to unequal bargaining power.
Again, contracts become “voidable” at the discretion of the party who does not have the ability to execute an agreement. The “capacity to contract” is an individual’s lawful competence “to enter into a binding contract.” In other words, there is a presumption that certain individuals cannot understand what they are agreeing to. This category typically includes mentally incompetent individuals or minors.
Minors (typically those under the age of 18), do not have the legal power to form a contract. However, if a minor does enter into a contract, he or she usually has the option to cancel while still under the age of 18. If the individual is no longer a minor and has not yet exercised the right to void the contract, the contract may be enforceable after the person has turned 18.
Similarly, a person who is mentally incompetent can either have his or her guardian void the agreement or personally cancel it. Tests for mental fitness at the time a contract is signed vary from state to state. Nevertheless, minors and the mentally disabled may not be permitted to void contracts intended to provide them with necessities, such as clothing, shelter and food.
Persons under the influence of alcohol or drugs do not usually have the same power to void contracts as do minors and the mentally disabled. Typically, intoxication is deemed a “voluntary” act and courts encourage intoxicated individuals to assume accountability for their actions. If an individual was so inebriated as to be unable to appreciate “the nature and consequences of the agreement,” however, the intoxicated party may be able to void the contract. If another person used the intoxicated party’s condition as a means to take advantage of the situation, this can also be used as a loophole for the intoxicated party to void the contract. Anyone attempting to void a contract should consult with a savvy business attorney in order to explore the possibilities of viable options in his or her particular case.