Capacity to Contract

• Author: Franklin G. Snyder, Mark Edwin Burge
• Pages: 239-258

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UNIT 13: CAPACITY TO CONTRACT 239

Unit 13

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CONTRACT DEFENSES

Part One

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Capacity to Contract

FOCUS OF THIS UNIT

You may recall from the introduction to the course that one of the requirements

of a valid contract is “competent parties.” A competent party, in legal parlance, is one

who has capacity to contract. The contracts of competent parties are valid, those of

incompetent parties are voidable—that is, they can be undone at the request of the

incompetent party (or, in some cases, that party’s representative). The capacity

requirement is the subject of this unit.

Voluntary and Involuntary Obligation. In general, tort law and criminal law

involuntarily impose legal duties on the persons subject to those laws. As an

individual member of society you do not, for instance, have the right to commit a

battery or rob a bank. Contract law, in contrast, usually involves taking on legal

duties that would not exist but for the voluntary entry into a contractual relationship.

A person has more legal obligations after entering into a contract than she has before

doing so. Is the ability to take on new duties, incur potential liability, and to limit

one’s future legally really a valuable power? Perhaps counterintuitively (as least

when we frame the question that way), the answer is an emphatic yes. The ability of

parties to legally bind themselves has far-reaching economic and social consequences.

If you cannot legally bind yourself to repay a loan, for example, no one is going to give

you one, which means your future options (getting a car or a home or starting a

business) are limited. Similarly, the inability to enter into enforceable agreements

also has economic and social consequences—largely negative ones, as history

demonstrates.

The Consequential Power to Contract. In many societies in history, the power

to contract has often been limited to a narrow class of people who use it to help

consolidate their political power. In early Rome, for example, only the head of a

family, known as the paterfamilias, had the power to make binding contracts. This

arrangement allowed the heads of the families to maintain their power and authority,

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240 CHAPTER V: CONTRACT DEFENSES

which extended even to being able to sell or purchase family members (in a society

where debt-slavery was a widespread practice). In more recent eras, limiting the

rights of citizens to contract has been a feature of communist societies whose goal

was to keep people from accumulating money and (as a result) power. Historically,

the question whether particular classes of persons should be free to enter into

contracts has been a matter of profound political importance. The ability to enter into

contracts, and to have those contracts impartially enforced by state authorities,

means the ability to make money—and accumulating wealth has always been a good

way to increase one’s political power.

Capacity as an Oppressive Doctrine. Sadly, from the earliest history of the

common-law system until relatively recent times, the doctrine of capacity has been

used to exclude whole classes of persons from the ability to enter into legally binding

agreements. This exclusionary role was sometimes been justified by an explicit intent

to restrict certain people from the means to obtain power. Medieval European Jews

often were denied legal capacity to contract, for instance. Other justifications for

denying contractual capacity centered around the necessity to “protect” various

groups from their supposed “natural” inability to compete on equal terms. Nineteenth

century American cases are full of statements that, for example, women and African-

Americans should not be permitted to enter contracts because they would simply be

taken advantage of by “superior” white males.

1

Not surprisingly, people legally

protected in such a way have disputed the need for such protection. Gaining freedom

to contract was accordingly an important goal of early civil rights movements.

Married (and white) women in the United States only acquired the legal right to

control their own property and enter into contracts without their husbands’

permission with the passage of Married Women’s Property Acts, beginning in 1848.

African-Americans theoretically gained the right to contract with the adoption of the

14th Amendment to the United States Constitution in 1868. Still, neither women nor

African-Americans obtained full power to contract until well into the 20th century in

many instances, as vestigial rules, special legislation, and “Jim Crow” laws restricted

access to economic power that arises from the ability to contract.

Capacity Today. Despite this history of abuses of the concept of capacity, you

should know that many of its uses are well-intentioned. Today, certain rules of

contract law take into account special categories of people (e.g., consumers and

employees) and restrict their ability to freely contract as to certain terms. By far,

however, the two most important categories of what the law calls “incapacity to

contract” are (1) minors, and (2) persons who are suffering from serious mental

disabilities. Yet even these categories are not without controversy. Minors, after all,

1

[In one infamous Georgia case, Bryan v. Walton, 14 Ga. 185 (1853), the court held that a free

black slave owner was incompetent to sell the slaves he owned (which he had received by inheritance),

and that it was counterproductive to give him the right to contract because such freedom simply is

“impossible for him to exercise wisely for himself.” As a result, he could only be permitted to enter into

contracts if a white “guardian” who was appointed for him approved .—Eds.]