Capacity (Formation)- FS Flashcards
(17 cards)
What is meant by “capacity” in contract law?
Capacity refers to a party’s legal ability to enter into a binding contract.
Who is presumed to have full legal capacity in contract law?
Natural persons aged 18 or over, not lacking capacity due to mental illness or intoxication.
What statute governs mental incapacity for contractual purposes?
The Mental Capacity Act 2005.
What are the four indicators under Section 3(1) of the Mental Capacity Act 2005 that a person lacks capacity?
- Inability to understand relevant information
- Inability to retain that information
- Inability to use or weigh the information
- Inability to communicate a decision
What is the legal rule for contracts made by individuals lacking capacity?
They are voidable if the party did not understand what they were doing and the other party knew of their incapacity.
Necessaries (under Section 7, Mental Capacity Act 2005)
Goods or services suitable to the individual’s condition in life and actual requirements at the time of supply. Must be paid for at a reasonable price, even if the contract is otherwise voidable.
What is the rule on intoxication and contractual capacity?
If the person was too intoxicated to understand the contract and the other party was aware, the contract is voidable except for necessaries, which must be paid for at a reasonable price.
What is the general rule on minors and contractual capacity?
Minors (under 18) are not bound by contracts unless they fall into specific exceptions
Exceptions where contracts with minors are binding
- Contracts for necessaries
- Contracts of employment, apprenticeship, or education beneficial to the minor
Are minors liable for the full price of necessaries?
No, they are liable only for a reasonable price, not the market or contract price.
Can a minor’s false claim of being over 18 make a contract binding?
No. The contract remains voidable even if the minor misrepresents their age.
When is a contract of employment or apprenticeship enforceable against a minor?
If it is for the benefit of the minor (e.g. provides training or advancement)
What is the capacity of a registered company under the Companies Act 2006?
Registered companies have capacity to enter into contracts unless restricted by their Articles of Association.
What is the capacity of a statutory corporation?
Limited to the purposes set out in the statute creating the corporation; actions outside this are ultra vires and void.
Do Limited Liability Partnerships (LLPs) have capacity limitations?
No. LLPs have unlimited contractual capacity.
What is the capacity status of the Crown in contract law?
The Crown has capacity, subject to statutory and constitutional limitations.
If a 13-year-old orders school uniform himself, is the contract binding?
Yes, if the goods are necessaries (e.g., school uniform for mandatory education) and a reasonable price is charged.
