Capacity to Contract

AuthorFranklin G. Snyder, Mark Edwin Burge
Unit 13
Part One
Capacity to Contract
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 voidablethat 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 consequenceslargely negative ones, as history
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,
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 moneyand 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.
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,
[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.]

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