Idaho Business Law do I Have a Contract? Part 3 - Who Can Make A Contract

By Lane V. Erickson, Idaho Business Attorney

The word “incompetent” is often floated around in the English language to mean somebody who is dumb and just doesn’t get it. It’s often used as an insult or put-down for people who make mistakes or don’t perform well. However, competence, or rather incompetence actually has an important legal meaning as well. Determining whether a person is competent is especially important when it comes to making a valid and enforceable contract.

The legal definition of competence is: When a person is mentally fit, can make rational decisions and is able to perform and participate in legal proceedings, such as possessing sufficient mental faculties to understand the nature and consequences of an act. It also means having the requisite or adequate ability to be legally qualified to act or do some specific thing or to be responsible for actions previously taken.

For purposes of this article we will be discussing whether or not the person you are dealing with has legal competency to enter into a valid contract. We will do this by discussing a few different types of persons that you should be concerned about when it comes to creating a contract. Specifically, we will talk about whether a minor person can enter into a contract. We will then talk about whether a handicapped person can enter into a contract. Finally we will discuss what a person can do if a contract was entered into by an incompetent person.

Keep in mind that this article is just a summary. If you have specific questions we encourage you to contact us for a free 30 minute consultation. We would be happy to review your situation, your actual or proposed written contract, and discuss with you any issues or concerns you should consider. By doing this we should be able to help you avoid any particular problems that could come up.

The first issue we will tackle is whether a minor person can enter into a contract. Under Idaho law a minor is someone who is under the age of 18 years. The ability of a minor to enter into a contract is controlled specifically by Idaho statutes. The relevant statutes read as follows:

Idaho Code § 32-103: In all cases other than those specified in the next two (2) sections the contract of a minor, if made whilst he is an unmarried minor may be disaffirmed by the minor himself, either before his majority or within a reasonable time afterwards; or, in case of his death within that period, by his heirs or personal representatives.

Idaho Code § 32-104: A minor can not disaffirm a contract otherwise valid, to pay the reasonable value of things necessary for his support, or that of his family, entered into by him when not under the care of a parent or guardian able to provide for him or them.

Idaho Code § 32-105: A minor can not disaffirm an obligation otherwise valid, entered into by him under the express authority or direction of a statute.

Additionally, relevant Idaho case law states: “After disaffirmance and return of consideration, the contract is ‘* * * avoided ab initio, and the rights of the parties in reference to the subject-matter of it are the same as if no contract had ever been made.’” Loomis v. Imperial Motors, Inc., 88 Idaho 74, 396 P.2d 467 (1964).

Putting this all together, sometimes a minor can enter into a contract and sometimes they can’t. If they enter into a contract for items that are not necessities, the contract can be disaffirmed, and when that happens the law treats it as if it was never made in the first place.

The next issue is whether a person with a handicap can make a valid contract. This is not necessarily an easy issue to decide. We will start by stating that a physical handicap, such as a missing limb, or deafness or blindness alone does not create incompetence. In other words, a person with a physical handicap can make a valid contract just the same as a person without such a handicap. Other handicaps are a little more difficult to determine.

According to Idaho case law, “as a general rule, all proceedings involving the competency of an individual to execute a valid contract start with the presumption of competency and that this presumption may be relied upon until the contrary is shown. 29 Am.Jur., Insane Persons, § 132, p. 253. Since the presumption is in favor of capacity to contract, he who asserts the incapacity of a person to contract has the burden of proof. 17A C.J.S. Contracts § 584b, p. 1124. A rule to be applied in cases of this kind is well stated in 17 C.J.S. Contracts § 133(1)e, p. 860, that:

‘The test of mental capacity to contract is whether the person in question possesses sufficient mind to understand, in a reasonable manner, the nature, extent, character, and effect of the act or transaction in which he is engaged; the law does not gauge contractual capacity by the standard of mental capacity possessed by reasonably prudent men. It is not necessary to show that a person was incompetent to transact any kind of business, but **465 to invalidate his contract it is sufficient to show that he was mentally incompetent to deal with the particular contract in issue, * * *.’”

Olsen v. Hawkins, 90 Idaho 28, 33, 408 P.2d 462, 464–65 (1965).

In summary, a person is presumed to be competent to contract. Incompetence has to be proven after the fact and is proved by showing that the person did not and could not understand “the nature, extent, character, and effect of the act or transaction” involved in the contract.

Additionally, it should be noted that if the person appears to the other party to be handicapped to a sufficient degree that they can’t enter into a contract, and they go forward anyway, it’s possible that fraud could be involved. For this reason, if there are any questions, no contract should be entered into with a person who may not be competent to contract.

Again, this article is not meant to be comprehensive. Rather, it is just a summary of the basic laws associated with whether a contract entered into by an incompetent person is actually valid or not. If you have any questions or concerns about the contract you entered into or or are thinking about entering into, we can help. We have assisted numerous clients in creating and entering into contracts, and we are confident we can help you too!

Our team of Idaho business lawyers can help you with any of your business structure or operation needs. Whether you are seeking to create a new business or review a current business, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho business problems.