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 Competence to Contract

In order for a contract to be binding, both parties must be competent to contract.  What does that mean? Basically that a person is capable of understanding the contract and its effect on his or her interest. Under the law, adults are automatically presumed to be competent to contract.

What happens if one of the parties to a contract was not competent?

If one of the parties was incompetent at the time the contract was made, the other cannot enforce the contract. A person claiming that a party to a contract was not competent to contract must prove  that, at the time of the contract, the person was not capable of understanding the nature of the contract and its effect on that person’s interest.

Example:         A and B enter into a contract, and A later sues B in court for breach of contract. However, at the time the contract was made, B was suffering from severe dementia and confusion. B could challenge the validity of the contract he made with A by arguing that he was incompetent at the time the contract was made. B will have to prove, by clear and convincing evidence, that at the time the parties made the contract, B wasn’t capable to understanding the nature of the contract and the effect it would have on him.  To prove this, B might present expert testimony from his physician confirming the medical diagnosis and its effect on B’s ability to understand and reason. If B successfully proves his incompetence, then A may not enforce the contract against B.

The suggestion that a person is old, forgetful, depressed, or has general dementia isn’t enough to prove a lack of mental capacity. To prove incapacity, it must be shown that the cognitive impairment of the particular condition or diagnosis rendered the contracting party incompetent to engage in the transaction at issue.  This is why, if you have a case involving potential incompetency,  it is important that you contact the contract attorney Memphis, TN routinely trusts with its contract cases so that we can help you gather and present the appropriate evidence to prove or overcome an incompetency defense.

Thanks to our friends and contributors at Patterson Bray who have significant experience in contract formation and litigation.