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Legal Capacity

DEFINITION

Having the mental capacity to enter into a contract and being of legal age.

EXPLANATION

An enforceable contract requires all parties entering into a contract to be competent and have the legal capacity to do so. Contracts are enforceable unless a party can prove that he or she was incompetent at the time of the contract’s execution.

The legal capacity of a party is the right of that party to enter into a contract or make decisions regarding a specific subject. Without the legal capacity to do something, a party does not have the ability to execute a contract and their rights, responsibilities, and duties in a contract are nonexistent. Legal capacity refers to a party’s status and capacity.

A party that for example is not a lawyer does not have the legal capacity to act as one. If they for some reason agree to a contract whereby they are being paid to represent someone in the court of law, the contract is invalid. Even if they successfully represented a client, they do not need to be paid because they did not have the capacity to enter the contract in the first place.

With few exceptions, adults are considered competent parties that have legal capacity. This includes:

Currently incarcerated individuals

Formerly incarcerated individuals

Alien citizens

Currently and formerly incarcerated individuals maintain real property rights. Those who are incarcerated can even acquire or convey property while in jail.

Examples of legally incompetent parties include:

Minors

Mentally incapacitated

Under the influence

California law assumes that a minor does not have the legal capacity or experience to engage in real estate transactions. In the event that a minor does enter into such a contract, his or her minor status make it unenforceable.

The exception to this rule is an emancipated minor. An emancipated minor is an individual under the age of eighteen who is no longer a dependent of a parent or legal guardian, and thus, has the legal authority to make decisions for themselves.

In the event that a mentally incapacitated person needs to refinance their mortgage or buy or sell property, he or she must do so under the discretion of the courts. A person who executes a contract while under the influence of substances can void that contract.

Parties Capable of Contracting

A valid contract requires at least two parties that have the legal capacity to enter into an agreement. All parties can enter a contract, unless they are:

Minor

Mentally incompetent individuals

Aliens

Convicts

Minor

Any party below the age of 18 is a minor. A minor is considered incapable of buying or selling a home because of his or her legal status. This includes hiring an agent. Additionally, the law prevents any delegation of power from a minor to another party, including transferring authority from a minor to another party using a power of attorney. While a broker can work with an adult who is representing the minor, an agent can negotiate with a minor’s court appointed guardian regarding real property matters.

Mentally Incompetent Individuals

In California, a mentally incompetent party does not have the legal right to enter into a contract. If the case goes to court and the state determines the party incompetent, the contract will become invalidated until the party’s mental capacity is restored or terminated altogether. If the mentally incompetent party does not become capable at a future time, the contract will be voided indefinitely. If one party is involved in a transaction with an incompetent party regarding real property, the incapable party will be required to have a guardian to act on its behalf. Decisions made by the guardian must be court approved.

Aliens

While California law ensures the same property rights for aliens as other citizens, federal law has a few restrictions on the property rights of illegal immigrants. California’s civil code states that “any person, whether citizen or alien, may take, hold, and dispose of property, real or personal, within the state.”

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