Capacity in Contract Law

Capacity in The Law of Contract

You can ask our solicitors online for advice on capacity in the law of contract using the question box on the front of our website or the following free legal advice guide may answer your questions.

Mental disability should always be taken into consideration when contracts are being considered whether they relate to the sale of goods or something else. There are quite specific guidelines in the law of contract which offer safeguards for those who make contracts who are classed as having a mental disability. Unlike capacity with minors, capacity with mental disability is complex because there are varying levels of mental disability depending on the nature of the disability and the individual.

the law of contract

The Mental Capacity Act 2005

In English Law and the law of contract, there are three categories that recognise capacity; The Mental Capacity Act 2005, Incapacity but not under control and capable of understanding. Let’s take a look at each of these in a little more detail.

The Mental Capacity Act 2005 is used when the affairs of an individual are under the control of the court. This will mean that the individual cannot enter into any contract alone because the court have the power to make decisions on their behalf about any contracts they enter into. Any contracts that the individual has entered into on their own is effectively unenforceable.

The incapacity but not under control category is used for people whose affairs are not under the control of the court, but they cannot make decisions about contracts because they are unable to recognise the nature or the relevance of the contract that they are entering into. Whenever an individual is recognised in this category, if they were to enter into a contract, it can still be enforced even if the contract is deemed to be unfair.

The only exception to this rule is if the other party were aware in any way of their incapacity. If a contract is to be set aside based on mental disability, it must be clearly established that the disability was apparent to the other party at the time the contract became binding. This could be difficult to prove.

The final category relates to the individual’s capability to understand the contract. This would refer to someone who could understand the nature of the transaction, but they are perhaps vulnerable or susceptible to entering into contracts that would not be beneficial to them. Unless undue influence rules are applicable, this type of contract would be binding.

The only exception to this rule would be a contract that is made for necessaries. It follows the same rules for minors which are defined under the Sale of Goods Act 1979. A necessary item would be something required for everyday living.

Mental Incapacitation

Mental incapacitation is a term used to describe any individual who cannot enter a contract because they have a psychological disability. In most areas, mental capacity refers to a person’s ability to fully understand the nature of a contract and the implications of entering the contract. If someone cannot fully understand the law of contract terms that they are agreeing to or understand their legal rights and duties required to fulfil the contract, they are not capable of entering into the contract. In law, mental capacity is defined as being able to make decisions for yourself. Individuals who are unable to do this are considered to lack capacity.

The Law of Contract – Capacity

This could be for a variety of reasons such as a learning disability, illness, injury or mental health problem which can affect the way that the brain processes information. The law recognises that to have adequate capacity you must be able to:

  • Recognise and understand important information that you need to reach an informed decision
  • Retain the information they have been given for a sufficient period of time to make a decision
  • Review and evaluate the information to reach a decision
  • Accurately and coherently communicate their decision through speech, sign language or even muscle movements such as blinking

It should generally follow that everyone is deemed to have capacity unless there is some obvious evidence that would indicate otherwise. When issues of capacity are in doubt, it is important that an assessment is made by a suitably qualified professional who is able to make this decision.

Furthermore, the mental capacity of an individual can vary where some periods they can make decisions with skill and accuracy while other times their thinking may be impaired. It is in times such as these that the individual should be assisted as much as possible to reach a decision.

The legislation that exists to protect people who lack capacity is there to ensure that contracts or any other issues are dealt with in their best interests.

Decision makers must work through a series of factors to determine whether something is in the individual’s best interests. The wishes and feelings of the individual should be integral to the decision making process and they should be consulted as far as possible.

If you need any assistance with mental capacity and contract law, it is recommended that you seek legal advice from someone qualified in this area who will be able to answer any questions you may have or offer further advice if this is needed.

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