Photo AI
Explain the legal term ‘capacity to contract’ - Leaving Cert Business - Question 1 - 2005
Question 1
Explain the legal term ‘capacity to contract’. Give TWO examples of situations where an individual or legal entity does not have capacity to contract. (i) (ii)
Worked Solution & Example Answer:Explain the legal term ‘capacity to contract’ - Leaving Cert Business - Question 1 - 2005
Step 1
Explain the legal term ‘capacity to contract’
Answer
The term ‘capacity to contract’ refers to the legal ability of parties to enter into a binding agreement. For a contract to be valid, all parties must possess the legal capacity needed to understand the nature and consequences of the contract they are entering. Generally, this includes being of a certain age, having sound mental ability, and not being under the influence of substances that impair judgment. Furthermore, both natural persons, such as individuals, and legal persons, like corporations, must adhere to specific legal capacities to effectively engage in contractual agreements.
Step 2
Give TWO examples of situations where an individual or legal entity does not have capacity to contract.
Answer
(i) Individuals under the age of 18 do not have the capacity to contract. Contracts entered into by minors are generally considered voidable at their discretion.
(ii) Persons who are insane or incapacitated due to mental illness lack the capacity to understand the implications of their actions in a contract. Contracts signed under these circumstances are typically deemed void.