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2021 - contract > incapacity > Flashcards

incapacity Flashcards

1
Q

what does capacity (to contract) mean

A

that a person is legally competent to enter into a contract in terms of age and mental capacity

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2
Q

for a contract to be valid, both parties must be of full legal capacity - what is this term in latin

A

sui juris

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3
Q

contracts formed with what types of people may not be enforceable due to lack of capacity

A

minors, persons of unsound mind, drunken persons

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4
Q

what is the general principle of incapacity

A

protecting individuals - minors, persons of unsound mind and drunken persons and protecting society from people - bankrupts, corporations

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5
Q

what is the issue for the court in cases of potential incapacity

A

whether the contract entered into by the minor/person of unsound mind/drunken person is enforceable?

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6
Q

how is a ‘minor’ defined under S85 CCLA 2017

A

means a person who has not attained the age of 18 years. A person is of full age if he/she has attained the age of 18 years

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7
Q

what happened in Morrow & Benjamin Ltd v Whittington

A

MB stockbrockers opened an account for 15 year old Whittington to play with shares. His original $3,000 credit limit was increased to $12,000 and they let his shares get up to $36,000 before they crashed down to being worth $4,000.

MB claimed over $30,000 but the now 17 year old had no money.

The HC held minors should be protected, there was some discretion because it was close to his 18th birthday. they said the plaintiff should be careful because they were dealing with a minor and shouldn’t have ignored their own credit procedures and should’ve followed up when he went over the credit limit. it was unreasonable for them to let him play freely so MB action was dismissed and the court refused to make an order for the defendant to repay the debt

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8
Q

what are the 3 categories of minors’ contracts

A
  1. court approved minors’ contract
  2. minors’ contracts presumptively enforceable
  3. minors’ contracts presumptively unenforceable
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9
Q

minors’ contracts pre-approved by the district court have full effect under which section of the CCLA

A

S98 CCLA 2017

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10
Q

what is the condition of a contract for a minor being pre-approved by the district court and who can make such application

A

the application must be made before the contract is entered into. application may be made by the minor, guardian of the minor or any other person which will have an interest in that contract

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11
Q

what two kinds of contracts are presumptively enforceable against minors’ under sections 92-94 CCLA 2017

A
  • life insurance contract on the minor’s own life entered into by a minor who has attained the age of 16 years
  • contract of service entered into by a minor
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12
Q

the court may intervene in contracts presumptively enforceable against minors when?

A

if the consideration given for the minor’s promise was so inadequate as to be unconscionable, or where any provision of the contract imposed a harsh or oppressive obligation on the minor

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13
Q

where the court finds a contract, presumptively enforceable with a minor, to be harsh/oppressive/inadequate consideration, what may the court do

A

cancel the contract, decline to enforce the contract, make a declaration of unenforceability or make any order for compensation or restitution of property it considers just

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14
Q

who can make an application that the presumptively enforceable contract with a minor is harsh/unconscionable

A

a party to the contract or a person who claims they have an interest in that contract

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15
Q

a courts power of intervention where contracts presumptively enforceable against minors are harsh/unconscionable does not apply when (under S94(1))

A

does not apply to contracts that have been pre-approved by the DC

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16
Q

what happened in National Bank of NZ v Ram

A

Ram became a nominal shareholder in his brother business because he needed 2 shareholders to get the loan. He did not contribute in any way and only had 1 share.

Ram’s company fell through. All shareholders guaranteed the debt under the terms of the loan so the bank sued both shareholders individually for reimbursement.

Martin Ram claimed provision of the guarantee was oppressive and the bank did not explain the nature and effect of the guarantee at the time he signed the contract.

court said - not a minor but still looked at it because he was 18 so around that age.

defence failed - improbable the bank offer didn’t explain the terms and conditions in full and nothing particularly harsh or oppressive about the standard loan terms (high standard once over 18). Ram had legal advice at the time.

He was liable to pay the debt.

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17
Q

is a contract presumptively unenforceable against a minor still enforceable against the other party who is of full age

A

yes

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18
Q

does the court have any discretion under sections 86-91 CCLA 2017 - contracts which are presumptively unenforceable against minors

A

yes - can look into the fairness and reasonableness of the contract at the time it was entered into. if they find the contract was fair and reasonable they may enforce it against the minor or make other orders under S88. if they find it not fair and reasonable they may cancel the contract or make other orders under S89

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19
Q

what is an example of a contract of service

A

employment

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20
Q

in which section of the CCLA are factors to be considered by a court when deciding whether a contract made with a minor can be considered fair and reasonable found?

A

s90

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21
Q

what are the factors, under s90 CCLA 2017, the court can take into account when looking whether a contract made with a minor can be considered fair and reasonable

A
  • circumstances surrounding the making of the contract
  • subject matter and nature of the contract
  • in the case of a contract relating to property, the nature and the value of the property
  • the age and the means (if any) of the minor
  • all other relevant circumstances
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22
Q

what two stages did the court exercise their discretion in in Morrow & Benjamin Ltd v Whittington

A

stage 1 - threshold test - the court determines whether the contract was fair and reasonable at the time the contract was entered into. To do this, the court takes into account of the factors listed in s90

stage 2 - after having determined the question of the fairness and reasonableness of the contract, the court exercises its discretion in making orders under s88 or s89

23
Q

the court has more discretion when the contract is presumed ____ under s86 as the test is only whether the contract is fair and reasonable. Where contracts are presumed to be _____ against the minor under s92 the test involves unconscionableness, oppressiveness and harshness

A

unenforceable

enforceable

24
Q

what happened in Wine Country Credit Union v Rayner

A

two 17 year old boys buy a car using a loan. the credit company miscalculated their age as being 18 rather than 17.

agreement was unenforceable. circumstances surrounding the making of the contract and the mistake were relevant

25
Q

who may seek relief to the court under s92 and s86

A
  • any party to the contract
  • a guarantor or indemnifier under a contract of guarantee or indemnity
  • any person claiming through or under or on behalf of any such party, guarantor or indemnifier
26
Q

what is the general rule relating to capacity with people of unsound mind

A

under the common law, contracts entered into by a person of unsound mind during a period of incapacity will be voidable by the person subject to two requirements:

  • the person must have been incapable of understanding the general nature of what he/she was agreeing to at the time of the contract
  • the other party must have known of or have had the greatest reason to believe that the person was of unsound mind

during a period of lucidity when a mentally incapacitated person regains enough mental capacity to understand the general nature of the document he/she is signing, a contract made by him/her can be valid

27
Q

what is the issue with contracts relating to incapacity relating to persons of unsound mind

A

whether people are able to provide full and informed consent

28
Q

what are exceptions where contracts entered into by mentally incapacitated persons are binding

A
  • the contract is a contract of necessaries
  • the contract is affected by an order under the Protection of Personal and Property Rights Act 1988
  • the person is subject to a property order
29
Q

under the Protection of Personal and Property Rights Act 1988, for smaller amount of property not more than $5000 or an income or benefit not exceeding $20,000 a year, the Family Court can make what kind of orders?

A

a personal order appointing a person to manage that property

30
Q

under the Protection of Personal and Property Rights Act 1988, if the court thinks a person cannot manage their own property, the Family Court can make what kind of orders?

A

property order appointing someone to manage the property (a property manager) up to any value

31
Q

the Family Court has discretion to appoint a suitable person as manager of a person’s property where the applicant lacks what

A

wholly or partly the competence to manage his or her own affairs in relation to his or her property

32
Q

under s53, every contract entered into by a person of unsound mind, except for contract of necessaries, are ?

A

voidable by the manager of the property

33
Q

if the party discovers the person of unsound mind has a property manager, what can that person do?

A

it is possible for that person to apply to the manager to have the contract continued. if the manager does not respond within 28 days then the contract will be confirmed and will have full legal force

34
Q

where the contract with a person of unsound mind has been avoided under s53, either party can apply to the court for what?

A

an order that they think if just for both parties e.g. adjust the contract, provide transfer of property or restitution

35
Q

if no property order is made, what will apply for a person of unsound mind

A

the common law and equity

36
Q

what is the difference between void and voidable contracts

A

voidable = a contract that is valid and enforceable unless and until it is avoided or cancelled at the option of one of the parties to the contract

void = a contract which is not enforceable. a contract may be void at the formation or becomes void subsequent to the formation

37
Q

what happened in archer v cutler

A

a 72 year old lady for dementia sold her land well below the true value of the land and didn’t take any legal advice in this process.

in this case, it was unfair that the land had sold well below the value and no independent legal advice was made available.

law: a contract made with person of unsound mind avoidable if one of 2 factors shown/considered:
- other person knew of unsoundness
- whether the contract is unfair

38
Q

what happened in O’Connor v Hart - the leading contract relating to persons of unsound mind

A

84 year old man suffering from dementia sold his property and when he dies his family realised what happened and tried to have the contract avoided.

PC rejected the second limb of the ‘Archer’ law (unfairness).

Here the contract could not be set aside because Hart did not know O’Conner was of unsound mind and Hart conducted himself in a way above reproach.

law: contract entered into by person of unsound mind is avoidable if person knew or ought to have known of unsoundness

BUT:
- if entered into by person ‘ostensibly sane’ (other person believes to be sane), contract to be adjudged as to whether fair/unfair on same grounds as person of sound mind

UNLESS:
- general equitable doctrine of undue influence and unconscionability apply

39
Q

what is the law from Nichols v Jessup

A

a contracting party can be treated as having constructive knowledge of the disadvantageous position of the other by reason of serious contractual imbalance or unfairness (beyond a good deal). In such a case the contract can be set aside and unconscionable.

  • unfairness can reveal the other person ought to have known who they were dealing with, despite not being a part of the criteria
40
Q

what does Scott v Wise consider unsound mind

A

whether the party concerned can understand the general nature as opposed to specific details when explained to them?

41
Q

what happened in Scott v Wise

A

scott, in his 70’s, entered into a transaction involving sale to a trust made at government valuation and financed 100% under that scheme and including an option for his grandson to repurchase at a later date.

after the contract was concluded, it was found Scott was suffering from semi-dementia and his guardian under the arrangement sought an order to set aside the transaction on incapacity grounds.

two relevant issues: degree of knowledge/lack of understanding and whether we are talking about a contract where there is an exchange of consideration or whether we are talking about a gift

42
Q

are gifts voidable

A

gifts or voluntary transactions made by a person who lacks mental capacity are voidable at the instance of the person or his/her representative - Scott v Wise, Dark v Boock

43
Q

What happened in Dark v Boock

A

87 year old signed a document granting the defendant the right to live in the plaintiffs property until Dark’s death, who had dementia and a public trustee managing his affairs.

The public trustee applied to have the contract set aside.

the court held this was a gift, not a contract as Dark lacked the capacity to properly understand the document and transaction

44
Q

what is a contract of necessaries

A

a contract for the supply of necessaries (“goods suitable to the condition in life of the person, and to his actual requirements at the time of the sale and delivery”) to a person who lacks contractual capacity (due to unsound mind or drunkenness) is binding on that person. The person is obliged to pay for the goods supplied even though he/she lacks contractual capacity: s124(2) CCLA

45
Q

what are necessaries

A

any thing, service or good that is necessary in order to maintain a persons station/state of life

46
Q

what happened in Peters v Fleming

A

one party was the son of an MP and hence needed to have a gold ring and a watch chain - necessities for his station. He was liable to pay for these things having contracted for them.

47
Q

who is the onus of proof on in the case of contracts of necessaries

A

on the plaintiff to show that it’s necessarily suitable for that person, for their station in life, to have those goods/services, and that those particular goods or articles are necessary for that particular person in those circumstances

48
Q

what is one statutory right relating to contracts of necessaries found in s124 CCLA

A

if necessaries are being sold to a person of unsound mind, in order for the contract to be binding, those goods must be priced at a reasonable price

49
Q

goods given in what context cannot be considered to be necessaries under the Re Rhodes approach

A

charity

50
Q

what principle of incapacity applies to drunken persons

A

the same as unsound mind - enforceable unless it can be shown at the time of making the contract that he/she was incapacitated and incapable of understanding the general nature of the contract and that the other party was not aware of the incapacity

51
Q

what is the distinction when dealing with different types of drunk people and whether contracts are void or voidable

A

extreme intoxication = void

not completely intoxicated = contract is at most voidable because they are still able to make decisions, but have just lost their business sense

52
Q

what happened in peeters v schimanski

A
  • entered into ASAP - necessary consent had to be obtained by a certain date
  • vendor had alcohol problem and claimed contract was voidable because his signature was obtained while drunk so even though he had given consent by the date, he was drunk so the date had really come and gone
  • held: vendor was affected to some extent, but not completely and had a general idea of what the contract was about so the court didn’t set aside the contract
53
Q

what happened in kurth v mcgavin

A
  • entered into ASAP, vendor was drunk on the day of the offer but the next day seemed more sober and concluded the sale after some negotiations
  • regretted it and asked for the sale to be set aside. purchaser sued for specific performance
  • held: multiple people (agent and purchaser) had communicated with the vendor and didn’t realise there was an alcohol issue
  • wasn’t sufficiently drunk to be completely incapacitated and it wasn’t proven the other party knew about the drunkenness
54
Q

who is the onus of proof on for incapacity in drunkenness cases

A

the onus of proving the existence of both incapacity and knowledge of that incapacity rests with the person seeking to rely on it to avoid the contract - the person who claims that the contract is void because of incapacity due to unsound mind or intoxication and that the other party knew of that incapacity

2021 - contract (20 decks)

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