Legal entities, as detailed in Section 2.4, can be either natural or legal persons and are holders of rights and obligations in legal relationships. However, legal capacity must be distinguished from contractual capacity, which refers to the specific ability of a subject to acquire rights and obligations through their own actions. Both capacities are crucial for operating within the legal and business environment, enabling individuals and legal entities to participate appropriately in legal transactions in accordance with to their abilities and authorisations.
Contractual capacity refers to the ability of a subject to independently form the intention necessary for concluding legal transactions. This includes the capacity to enter into contracts, assume obligations, and acquire rights based on these contracts. Contractual capacity is essential for legal and business transactions.100
Natural persons lack contractual capacity until the age of 15, meaning they cannot independently enter into legal transactions, and their will does not produce legal effects. Between 15 and 18 years of age, individuals have partial contractual capacity, allowing them to enter into certain types of contracts, but for some transactions, they still require parental or legal guardian approval.101 From 18 years onward, individuals gain full contractual capacity, meaning they can independently conclude all types of contracts and assume legal obligations. In such cases, contractual capacity arises automatically by law. Exceptionally, a minor may acquire contractual capacity before the age of 18 if they enter into marriage or by court decision, for example, if they become a parent.102
Contractual capacity can be revoked by a court decision in non-contentious proceedings if a person, due to mental illness or another reason, is unable to understand the nature of their actions or make independent decisions regarding them.
A legal entity is a legal subject recognised by law as an entity separate from its founders. It has its own legal capacity to participate in legal transactions and conclude contracts. The contractual capacity of legal entities is specifically regulated in the OZ, particularly in the section regarding contract conclusion and representation (e.g., Articles 38–49 of the OZ).
A legal entity103 can act as a holder of all legal transactions, except for those that, by their nature, are reserved for natural persons only. Its legal capacity is functionally defined based on the purpose for which it was established or its field of operation. Generally, a legal entity acquires legal personality upon registration in the appropriate public register.
A legal entity cannot express will on its own. Instead, its organs, as defined by its internal structure (e.g., board of directors, CEO), act on its behalf. These organs express the will of the legal entity and conclude and execute transactions in its name.104
The contractual capacity of a legal entity is evaluated based on the contractual capacity of the individuals authorised to represent and manage it. Legal entity organs can be structured as individual or collective bodies. An individual organ consists of a single person, while a collective organ has multiple members. In some cases, each member has full and unrestricted authority to act independently on behalf of the legal entity. However, in most cases, collective decision-making is required, meaning the members must vote on proposals and act jointly in legal transactions with third parties.105 Because of how legal entities operate, their contractual capacity is determined by the contractual capacity of the individuals who represent them. Thus, in legal transactions, a legal entity is represented by an individual, and its contractual capacity is assessed through that representative.106
An example of a legal entity’s contractual capacity is the conclusion of a real estate purchase contract or a long-term business agreement with a supplier. In both cases, the legal entity’s organs (e.g., the CEO) sign contracts on behalf of the company, with the obligations and rights being attributed solely to the legal entity, not to individual members or founders.
Legal transactions concluded by natural or legal persons without contractual capacity are null and void. Transactions concluded by partially contractually capable persons (e.g., minors) are voidable if their legal representative was not involved or did not subsequently approve the transaction, and if the transaction is significant enough to affect the minor’s life or may continue to impact them beyond adulthood.107
Exercise:
1. 17-year-old George was intensely preparing for his driving test a month before reaching adulthood, as he wanted to take the exam as soon as he turned 18. At a car dealership, he saw an offer for an expensive car. He believed that such a purchase was favourable and reasonable, as he would then have a personal vehicle immediately upon becoming an adult. He entered into a leasing contract with the dealer, committing to pay €600 per month for the next seven years. He did not inform his parents about the contract, believing that he would earn enough through occasional student work to cover the monthly instalments.
- Did George conclude a valid legal transaction?
- What can the seller do to protect their legal position when they realise the next day that George is a minor?
- George’s parents considered the purchase favourable and therefore approved it. Did the approved sale become valid?
2. Nina married/had a child at the age of 17.
Can she now validly enter into a leasing contract for a personal vehicle with payments of monthly instalments of €600?
3. Company A, Ltd., has a five-member management board. Each member can independently and fully represent the company.
Who can validly authorise a lawyer:
- All five together,
- Each board member independently?108
