AD Banker Property and Casualty Practice Exam 2025 – Your All-in-One Guide to Exam Success!

In contract law, competency refers to the legal ability of a party to enter into a binding agreement. Certain groups are considered not competent to contract because they cannot fully understand the implications of the agreement or are unable to make rational decisions regarding their contractual obligations.

Minors are typically those under the age of 18 in many jurisdictions, and they are considered not competent to enter into contracts because they do not have the maturity or experience to understand the consequences of their agreements. Contracts with minors are generally voidable, which means the minor has the right to disaffirm the contract at any time before reaching the age of majority or shortly thereafter.

Individuals impaired by substances, whether through drugs, alcohol, or other means, also lack the requisite capacity to enter into contracts. If a person is unable to comprehend the nature and effects of the transaction due to their impairment, then they are considered not competent. Hence, agreements made under such conditions may be deemed voidable as well, protecting individuals who cannot fully understand what they are agreeing to.

Recognizing these conditions helps ensure that individuals who might be taken advantage of due to their age or impaired state have legal safeguards in place. This reinforces the importance of capacity in the formation of valid contracts.