Capacity Flashcards
If a person (Person A) does not have capacity to enter into a contract…
…then a contract with Person A is unlikely to bind them.
Persons over the age of 18 have full contractual capacity, if…
… they are of sound mind and not suffering from a factor ruling out capacity such as drunkenness.
Minors: Generally, a person is not bound by a contract entered into under the age…
… of 18 even if the other party contracting does not know of this fact or the minor has lied about their age.
There are two main exceptions, relating to…
… ‘necessaries’ and to contracts of employment, apprenticeship or education.
Firstly, a minor is bound by a contract to supply necessaries to them if the contract is for their benefit. A minor must pay a ‘reasonable price’ for these rather than the actual cost of the ‘necessaries’ supplied.
Under the…
… Sale of Goods Act 1979 s 3(3), ‘necessaries’ means goods suitable to the condition in life of the minor or other person concerned and to their actual requirements at the time of the sale and delivery. So, in Nash v Inman (1908) 2 KB 1, 11 waistcoats supplied to a minor who was an undergraduate at Cambridge University at the time were suitable according to the minor’s station in life (!) but not necessary as he already had sufficient clothing. Accordingly, the contract was not enforceable.
Contracts of employment, apprenticeship or education:
Secondly, a minor is also bound by a contract of employment, apprenticeship or education (or analogous contract), but only if…
… is for their benefit. So, in Aylesbury Football Club v Watford Association Football Club (QB 12 June 2000) a young footballer’s contract with the club was not beneficial and could not be enforced because the player received no extra training or experience, the terms were onerous for him, they restricted his freedom to pursue a football career and the payment of wages depended on the will of his employer.
The effect of entering into a contract with a minor:
Unless one of the exceptions applies…
… the contract cannot be enforced against the minor, although the minor can enforce it against the other party. By way of exception, there are a small number of contracts of exceptional types which are enforceable against the minor unless the minor specifically repudiates them.
If a minor ratifies a contract once they reach the age of 18, then the contract will be binding on them
Process relating to children :
Does the contract concern necessaries? If yes, the minor must pay a reasonable price. If not…
Is it a contract of employment, apprenticeship or education? If no, then the child is not bound. If yes…
Is the contract for the minor’s benefit? If no, then the child is not bound. If yes…
The contract is binding.
Mental incapacity and intoxication:
A person lacks capacity under s 2 of The Mental Capacity Act 2005 if…
… ‘he is unable to make a decision for himself in relation to the matter’ at the time the contract is made, whether the impairment is permanent or temporary. It is important to understand that capacity is not something which a person has or has not for all purposes – whether or not someone has capacity is a question to be asked in relation to a particular decision. For example, someone with a brain injury might have the capacity to decide where they prefer to live, but not have the capacity to manage and invest a large sum of money to provide for future expenses.
Under s 3(1) the impairment is described in terms of being unable to:
Understand the relevant information;
Retain the relevant information;
Use the relevant information; and/or
Communicate a decision.
According to s 3(4) the relevant information relates to the reasonably foreseeable consequences of:
a) Deciding one way or another; or
b) Failing to make a decision.
The Act also gives the Court of Protection the power to make declarations as to a person’s capacity and ability to contract in specified situations (s 15).
The statutory definition of capacity set out above is expressed (in the Act) to be for the purposes of the Act only, but it is in practical terms very similar / the same as the approach to be taken when determining capacity for the purposes of contract law issues.
The effect of entering into a contract with a person lacking capacity:
Under s 7, a person without capacity still remains liable to pay a reasonable price for ‘necessaries’. These are defined as goods or services ‘suitable to a person’s condition of life and to his actual requirements at the time when the goods or services are supplied’ (s 7(2)).
In any other case of incapacity…
the position is that the contract is binding unless the person claiming incapacity can establish, first, that they did not understand what they were doing and, secondly, that the other party knew that to be the case: Imperial Loan Co v Stone [1892] 1 QB 599. If this can be established, the contract will be voidable.
Similar rules apply to contracts entered into by drunken persons. The individual who becomes so intoxicated that they do not understand what they are doing will have to pay a reasonable price for necessaries but will not be bound by any other contract they make: Matthews v Baxter (1873) LR 8 Ex 132. This position should logically extend to those incapacitated by other intoxicating substances.
There are rules on capacity to contract for those who are weak and less capable of looking after themselves such as…
… children, those who are mentally ill and others temporarily lacking mental capacity.
Persons over the age of 18 have full contractual capacity, if they are…
… of sound mind and not suffering from a factor ruling out capacity such as drunkenness.
A person under the age of 18 is not generally bound by a contract unless…
… relates to ‘necessaries’ or to a contract of employment, apprenticeship or education.
