Simply stated, a contract may be valid when made by parties recognized by law to be of legal personality be they natural or artificial persons. When the law forbids or limits a party from performing certain activities, any contractual relationships entered into by them to do so become either void or voidable on the basis of incapacity. In some cases, this incapacity is referred to as incompetence.
In some cases however, certain classes of persons are only able to engage in contract only to limited extents as noted by Gaylord and LeRoy (2003). Some persons that are considered in these classes include minors, alien enemies, people who are mentally unsound or insane, bankrupts, drunkards, companies, receivers of companies, and partnerships among others according to the United Kingdom’s law.
Such incompetence or incapacity in some cases may be regarded in terms of absence of good faith on the other party’s side. What this means is that all sober and sane adults can contract although their actions are controlled to protect other persons from being subject to exploitations. The intention of this measure is to protect those persons who may not be able to make decisions that are to their best interest according to Barnett (1986) and Barnett (2003).
The requirement for capacity however can be challenged in exceptional cases such as when the contact with a person who is not of legal capacity regards necessities of life which include shelter, clothing and food. The argument in this case is that certain goods or services are required for human survival and even those who are incompetent need them. In other cases an incompetent party may enter into a contract with a competent party out of social need (Austen-Baker, 2002) as in the case where a teenager purchases from a business person a tuxedo for their graduation.