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What business owners should understand about contract law - III

In a series of ongoing posts, our blog has been outlining some of the basics of contract law. Indeed, last time, we carefully dissected the first of four elements that must be present in order for an agreement to be considered legally binding -- a "meeting of the minds."   

Our purpose in doing this has not only been to provide business owners with some much-needed information, but also to impress upon them the importance of taking the time to read any contract they are considering signing, as it could make all the difference as far as their long-term interests are concerned.

What's the second element that must be present in any contract?

The second requirement for any valid contract is that both parties must be capable of entering a contract.

What exactly does this mean?

Last time, we discussed how any contract must have a "meeting of the minds," meaning a mutual agreement regarding performance. In order for this to happen, however, both sides must be able to fully understand the matter at hand, meaning there can be no contract if one side is unable to comprehend the contract and its attendant obligations.

Who is generally considered incapable of entering a contract?

Georgia courts have long held that those individuals considered mentally incompetent and minors (i.e., those under the age of 18) may not legally enter into binding contracts.

It's worth noting that those classified as emancipated minors, meaning those children under 18 who are not supported by either parent, can legally enter into binding contracts for basic necessities, including shelter, food, clothing and education.

What happens if an otherwise disqualified party enters a contract?

In general, if a disqualified party attempts to enter into a contract, it will not be considered valid and the benefits/consideration returned to the other party.

For instance, consider a 16-year-old who falsely holds himself out as being 18-years-old, and subsequently enters into a contract to buy a used ATV paid only to default immediately. Here, even though the court will not find the contract valid, it doesn't mean that the minor can simply keep the benefits, and the likelihood is that the ATV will be returned to the seller.   

We will continue examining this important topic in future posts.

Please remember to consider speaking with a proven legal professional if you are a business owner in need of assistance with the drafting, review or enforcement of a contract.

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Robert Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the May issue of The American Lawyer & Corporate Counsel magazine.Alex Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the December issue of The American Lawyer & Corporate Counsel magazine.

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