Entering into a contract requires intention and thoughtfulness. There are basic rules that need to be followed in order for a contract to be legitimate and enforceable.
Key Takeaways
Basics of Contract Law
In order to form a legitimate and enforceable contract, there must be an agreement between the parties, evidenced by an offer and an acceptance, and there must also be consideration for the value received, such as a payment for goods or services. The parties must enter into the agreement purposely and actively. They must exchange a benefit, often with one side selling and the other buying.
Affirmative Defense of Mental Incapacity
When a breach of contract claim is filed, the defending party can offer an affirmative defense if there is one. There are several affirmative defenses to a breach of contract claim. An affirmative defense basically means that you are admitting that a contract did indeed exist and that a breach of the contract did occur but that you have a solid legal reason for why you breached the contract.
For example, if one party to a contract believes there has been lying on the part of the other party to the contract, they can raise the affirmative defense of fraud. Or, if one party exercises a considerable amount of power over the other party, this may be the affirmative defense of undue influence.
Breakdown of Why Mental Incapacity is Incompatible with Contract Law Principles
Another affirmative defense to a breach of contract claim is that of mental incapacity. This means that you did not understand what you were doing when you entered into the contract and were unable to objectively agree to the contract demands. This can happen if a party to a contract is a minor who lacks the sufficient mental capacity to purposely and actively enter into a contract and understand its provisions. This can also happen if a party has a mental disability that prevents them from fully grasping the contract into which they have entered.
These instances are incompatible with basic contract law principles because the whole point of contracts is a mutual agreement, and if you lack the mental capacity to actually agree, then you can’t possibly have entered into the contract with the requisite intention and understanding.
Examples
Let’s take, for example, a situation in which a person who has been placed under legal medical guardianship must approve the construction that needs to be done to their home in order to accommodate them more functionally. If this person is the sole legal owner of their home but they have been legally determined to require the aid of a guardian, will they be able to sign off on the work plans? It is very unlikely that a person who’s been placed under a guardianship would be deemed capable of knowingly entering into a contract for services. This is a fairly simple and obvious one, but let’s think through some more complicated situations.
Imagine a scenario in which a person is suffering from a mental illness such as bipolar disorder, and legal contracts have been signed during what the person describes as a severe manic episode. They had not been able to take their necessary medication, had experienced a difficult time, and engaged in some ill-advised financially harmful activities, ultimately signing a contract to have a small guest house, such as a tiny house, built in their yard. They had a spur-of-the-moment idea to start an Airbnb on their property, hoping for a nice profit. They entered into the construction contract before it was discovered that not only was a large part of their property located in a flood plain, but their local zoning board also did not allow for structures less than a certain size to be built within the boundaries of their neighborhood. Petitioning for a variance was out of the question for whatever reason, and the person realized, to their dismay, that their plan was not feasible and they had already put down a deposit of several thousand dollars. To make matters worse, they had marked the wrong date on their calendar and the builders had already shown up and got most of the guest house foundation and structure built.
There are several legal theories that can be applied to this scenario, but sticking with the theme of mental incapacity, it is possible for the person to argue that due to the fact that they were experiencing a manic episode during the several-day period when they hired and paid the builders, they were lacking the mental capacity to have entered into a legitimate and enforceable contract.
Another type of mental incapacity, besides medical and mental health reasons, has to do with age. Minors are legally said to be lacking the capacity to enter into a legitimate and enforceable contract. Let’s say a group of adolescent kids formed a singing group that became locally popular and invited them to perform at birthday parties and local events. They entered into a contract with a venue in town to perform at a fundraiser but forgot and failed to show up. Since these are children and are not yet fully cognitively mature, they cannot be held to the terms of the contract because, legally speaking, they lack the mental capacity to enter into a contract that can be enforced by law.
Can the venue owners or fundraiser promoters file suit against their parents or legal guardians? They might very well be able to do so if the parents and guardians had signed the contract on the children’s behalf. But if the venue owners or fundraiser promoters were, frankly, silly enough to enter into a contract with literal children, then it is on them for having made such a rookie mistake.
Contracts of Adhesion
Contracts of Adhesion occur when there is a serious power imbalance between the parties to a contract at the time of entering into it. It becomes a legal issue if one party to a contract holds so much leverage over the other side that they, in effect, are fully calling the shots. There has to be some parity between the parties in terms of the benefit that they stand to receive from a contract. In service contracts, one side gets the money while the other gets the service performed for them. In contracts for the sale of goods, one side gets the money while the other side gets the goods.
When a Contract is Unconscionable
Similar to contracts of adhesion, there are also situations where a contract is so offensive to the standards of ethics and justice that it would be unconscionable to enforce. This may sometimes be related to the mental incapacity of one party and the willingness to take advantage of them by the other.
Take, for instance, a case in which a person with a diagnosed developmental disability has a wealthy family from whom they have received numerous, pricey, and highly coveted gifts. If someone entered a contract with that person wherein they will take those gifts from them and that person receives something completely devoid of value in return, or they simply sign over the gifts for nothing in return and have no reason to have done so, this arrangement would likely be unconscionable to uphold in any court of law.
This affirmative defense exists for the purpose of preventing people from being taken advantage of. It is meant to maintain the fairness and justice of the legal system and to protect the vulnerable.
In Conclusion
Contracts are meant to provide each party with a benefit. They are also meant to be legally binding. If someone is incapable of understanding what they are getting into, they cannot be held responsible for it. It would not be just or equitable otherwise.
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