When may a contract be invalid because of incapacity?

• If a person or organisation has doubts about another person’s capacity the safest thing to do is:
  • to go through the contract with the person; or
  • offer them the opportunity to bring a support person to do this; or
  • require them to get independent legal advice before they sign anything. This is particularly important if the transaction is for a large amount of money or otherwise concerns their financial affairs.
• In some circumstances a transaction or contract with a person may be set aside if:
  • the person lacked capacity at the time they signed it;
  • the other person knew or ought to have known the person lacked capacity;
  • the person can give back all or most of the benefits received; and
  • any property the person lacking capacity wants back has not be sold on to a third person where the third party was not aware of the capacity issue.
• There is also support under general consumer law. See our Consumer Law topic for more information.
• If you have any concerns you can use our free and anonymous Ask a Lawyer service to get information specific to your situation.