Contracts are legally binding agreements that define the roles and responsibilities of the parties involved. It is essential to include precise language in a contract to ensure that both parties understand their obligations. Two essential terms that are commonly used in contracts are competency and capacity. In this article, we will discuss what these terms mean and how they are different from each other.
Competency refers to a person`s ability to enter into a contract. It ensures that the person understands the terms of the agreement and the consequences of not fulfilling their obligations. A person is considered competent if they are of legal age, not under the influence of drugs or alcohol, and not mentally impaired. In short, a person should be of sound mind and body to be competent to sign a contract.
Capacity, on the other hand, refers to a person`s legal ability to enter into a contract. It means that they have the power and authority to act on behalf of themselves or their organization. For example, a person who is authorized to represent a company can sign a contract on behalf of that organization.
It is essential to differentiate between a person`s competency and capacity when drafting a contract. A person may be competent to understand the terms of the contract but may not have the legal capacity to enter into the agreement. For instance, a minor may be competent enough to understand a contract, but they lack the legal capacity to enter into a binding agreement.
In conclusion, competency and capacity are two critical terms used in contracts. Competency ensures that a person has the mental capacity and understanding of the terms in a contract, while capacity confirms that they have the legal power and authority to enter into an agreement. When drafting a contract, it is crucial to include precise language to ensure that both parties understand these terms to avoid any potential legal issues down the line.