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Competence is the cornerstone of a valid contract

On Behalf of | Jan 25, 2024 | Business Law |

When you enter the business world, contracts become a part of your daily landscape. They are the backbone of your interactions with partners, employees, employers and clients. They are more than just promises you make to each other. A contract solidifies a deal between two or more parties. For the agreement to work, everyone must know what they are agreeing to. If one of the parties lacks competence or capacity, the contract becomes voidable. It might not hold up in court should one party decide to seek legal remedies.

Understanding contractual competence

Before you go into the finer details of any agreement, you must grasp what it means to be a competent party. Competence in legal terms means that the parties agreeing to and signing a contract have the legal capacity to do so. To determine if someone has the legal capacity to enter into a contract, you need to consider the following:

  • Age: In New York, as in most places, you must be at least 18 years old to enter into a legally binding contract. Contracts with minors are generally voidable at the discretion of the minor, subject to certain exceptions.
  • Mental capacity: You must have the mental ability to understand the terms, nature and consequences of the agreement. Individuals who are mentally incapacitated due to illness, disability or intoxication at the time of signing may not be bound by the terms of the contract.
  • Authority: If you are acting on behalf of a company or another individual, they must explicitly authorize you first. Corporate officers, fiduciaries, agents and employees must have the appropriate power vested in them to enter into binding agreements.
  • Willingness: You must not be under duress or undue influence because these factors could affect your sound judgment. Contracts should be a product of free will, not coercion or manipulation.

The law recognizes that not everyone has the same ability to understand the implications of a contract. By ensuring all parties are competent, the legal system aims to protect people from those who might take advantage of them.

Understanding the terms and conditions of a contact is so much more than just good practice. It is essential for safeguarding your interests and ensuring that every agreement you enter is valid and enforceable. It is key to make sure that every contract you sign is clear, understood by all and will hold up if ever tested in court.