State law protects “minors” (unmarried persons under the age of eighteen) and “incompetents” (those declared by a court to be incapable of handling their own affairs) because they do not have the “capacity” to enter into contracts. Contracts with minors are said to be “voidable” by the minor at any time prior to reaching majority or within a reasonable time thereafter unless the contract is for a “necessity.” No Oregon court has ever ruled on whether real estate is a “necessity” for a minor. Much would depend on the circumstances of the purchase and the nature of the property (e.g., an emancipated minor renting an apartment near the college where they are enrolled).
Contracts with persons already declared incompetent are said to be “void.” Void is just another way of saying courts will not enforce contracts made by incompetents. Where a person is declared incompetent after formation of a contract, the contract, like that with a minor, is said to be voidable. Avoiding a contract altogether on capacity grounds requires proof of incompetence at the time of contract. Incompetence at the time of contract can be seen as another way to attack consent – and that’s where capacity can get messy.
Other than in cases dealing with minors or declared incompetents, capacity is about the ability to understand the nature and consequences of one’s actions. Take, for instance, a person who is falling down drunk or over medicated or suffering memory problems or delirious or just having trouble distinguishing reality. In any of these cases, capacity may become an issue because doubt is cast on the person’s ability to understand what they are doing. Without that understanding, it is hard to say there was “mutual assent” sufficient to form a contract.
Other than in the case of minors or incompetents, capacity is more a formation problem rather than some kind of required element. Thinking of capacity in this way will help you avoid problems. If anything (age, speech, mannerisms, memory, etc.) makes you question a party’s mental capacity, think about whether the contract could later be challenged. If there is doubt, it is time to seek help. At a minimum, close questioning of the person’s understanding of the nature and consequences of what they are doing is in order as is careful documentation of your discussion.
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