Capacity Limitations

Contract Type:
Generic Contract

Each party warrants that it has full power and authority to enter into and perform this Agreement.


Here is a plain English explanation of the Capacity Limitations clause:

This clause states that each party confirms they have the proper power and authority to enter into the contract.

It means the parties have the legal competency and rights to bind themselves to the agreement. They have any necessary internal permissions from their organization or governance structure.

The clause also warrants each party has the full capability to complete its duties under the contract. They have the resources and capabilities to fulfill their contractual obligations.

In simple terms, this clause has each party declaring they are permitted to sign the agreement and able to meet its conditions.

They have both the internal authority and functional capacity to execute the contract.

History of the clause (for the geeks)

Capacity limitations clauses emerged as a key contract concept in English common law and were further refined over centuries of legal precedent.

Some key aspects of their historical development include:

- In early English courts, disputes over contract validity often centered on whether parties possessed legal authority to bind themselves. This ushered capacity clauses into contracts.

- By the 1700s, capacity clause use was common in documenting parties' internal permissions and powers. This provided more certainty in enforcement.

- Industrialization increased complexity of business structures, contributing to capacity clause prevalence. Corporations required greater care in authority.

- Court rulings like Ashbury Railway Carriage v Riche emphasized the constricted powers of companies compared to natural persons. Clauses clarified scope.

- Twentieth century contract principles further embedded capacity clause importance for verifying agency and governance consent.

- Modern clauses balance versatile business needs with legal safeguards around authority. Customization for organizational realities is emphasized.

So in summary, capacity clauses evolved with English common law and business complexity to confirm parties' competency in transacting.

They underpin the bargained-for exchange.