This clause requires parties to represent that they have the legal capacity to enter into the restrictive covenant agreement—meaning they are legally competent to be bound by its terms. Legal capacity refers to a party's ability under law to enter contracts; it can be lacking due to age (being a minor), mental incapacity, being under guardianship, or in some cases, being a non-citizen or entity without legal standing. In the context of restrictive covenants (agreements that limit how a party can use property, conduct business, or compete), this representation is particularly important because these agreements are often long-term, affect valuable rights, and may be enforced against the party's heirs or successors. The clause ensures that the person or entity signing the restrictive covenant actually has the legal right to be bound by it and cannot later claim they lacked capacity to agree.
This matters significantly in restrictive covenant contexts because such agreements often run with the land (in real estate) or bind successors in interest. If a party later claims they lacked capacity when they signed, the entire covenant could be unenforceable, undermining the other party's ability to enforce the restrictions they bargained for. For example, if a business owner signs a non-compete agreement but was actually a minor at the time, the non-compete might be voidable. Similarly, if a property owner signs a restrictive covenant but was under a conservatorship, the covenant might be challengeable. This clause shifts the risk to the signing party—they are asserting they have capacity, and if that assertion is false, they may be liable for breach of the representation itself.
Include specific representations of legal capacity tailored to the type of party: for individuals, represent that they are of legal age and sound mind; for corporations, represent that the entity is duly organized and validly existing; for trusts or estates, represent that the signatory has authority to bind the trust or estate and that the trust or estate has capacity to be bound. Request documentation supporting capacity claims—for individuals, this might be a government-issued ID confirming age; for entities, a certificate of good standing from the Secretary of State. Be particularly cautious with non-compete and non-solicitation covenants, as courts scrutinize capacity issues in these agreements. If you are the party imposing the restrictive covenant, consider requiring a legal opinion letter from the other party's counsel confirming capacity. If you are the party agreeing to the covenant, ensure you actually have capacity before signing and consider having your own counsel review the capacity representation to avoid future liability.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause requires parties to represent that they have the legal capacity to enter into the restrictive covenant agreement—meaning they are legally competent to be bound by its terms. Legal capacity refers to a party's ability under law to enter contracts; it can be lacking due to age (being a minor), mental incapacity, being under guardianship, or in some cases, being a non-citizen or entity without legal standing.
Why should I care about this clause?
In the context of restrictive covenants (agreements that limit how a party can use property, conduct business, or compete), this representation is particularly important because these agreements are often long-term, affect valuable rights, and may be enforced against the party's heirs or successors. The clause ensures that the person or entity signing the restrictive covenant actually has the legal right to be bound by it and cannot later claim they lacked capacity to agree.
What are my options?
This matters significantly in restrictive covenant contexts because such agreements often run with the land (in real estate) or bind successors in interest. If a party later claims they lacked capacity when they signed, the entire covenant could be unenforceable, undermining the other party's ability to enforce the restrictions they bargained for.
How does this affect small businesses?
For example, if a business owner signs a non-compete agreement but was actually a minor at the time, the non-compete might be voidable. Similarly, if a property owner signs a restrictive covenant but was under a conservatorship, the covenant might be challengeable.