Intention to create legal relations and capacity Flashcards
Which of the following statements is correct in relation to intention to create legal relations (ICLR)?
(a) ICLR is presumed to exist in commercial situations but presumed not to exist in domestic or social situations.
(b)
ICLR is presumed to exist in commercial situations and it is impossible to rebut that presumption.
(c)
ICLR is presumed to exist in all situations unless one of the parties can show that there was no intention to be bound.
(d)
ICLR is determined by taking evidence from the parties as to what was in their minds when entering the contract
(a) ICLR is presumed to exist in commercial situations but presumed not to exist in domestic or social situations.
In which type of agreement is intention to create legal relations presumed to exist?
(a)
Domestic agreements
(b)
Commercial agreements
(c)
Unilateral agreements
(d)
Bilateral agreements
(b) Commercial agreements
Two companies agree the sale of a house ‘subject to contract’. What does the phrase ‘subject to contract’ imply?
(a)
The companies do not intend to be bound until they sign a formal contract.
(b) The companies are taking advice on the subject matter of the contract.
(c)
The companies have agreed a binding contract.
(d)
The companies have signed a contract and are bound.
(a) The companies do not intend to be bound until they sign a formal contract.
The phrase creates a strong inference that the companies do not intend to be bound until the execution of a formal contract.
Which of the following statements is correct regarding the contractual capacity of a minor?
(a)
A minor can enter into a contract for necessaries and they must pay the actual cost of the necessaries supplied.
(b)
A minor is bound by a contract of employment but only if it is for their benefit.
(c)
A minor is not bound by a contract which he enters into during their minority.
(d)
A minor who lies about their age is bound by a contract they entered into.
(b) A minor is bound by a contract of employment but only if it is for their benefit.
What does capacity to contract mean?
(a)
The number of contracts a person can enter at a given time.
(b)
A person’s ability to understand the terms of a contract.
(c)
A person’s ability to perform the requirements of a contract.
(d)
The ability of a person to enter a binding contract.
(d) The ability of a person to enter a binding contract.
Adults of sound mind have full contractual capacity. However, minors, the mentally incapacitated and those intoxicated have limited contractual capacity.
A 16 year old boy cycles to and from school every day. He no longer likes his bicycle as he thinks it is old. He tells his neighbour he is 19 years old and agrees to buy the neighbour’s motorbike for £199. After taking delivery of the motorbike, the boy refuses to pay for it. Which of the following statements is correct?
(a)
The neighbour can enforce the contract against the boy as the boy lied about his age.
(b)
The boy is bound by the contract as it is for necessaries and for his benefit.
(c)
The neighbour cannot enforce the contract against the boy as he is a minor.
(d) The contract is voidable because the boy lied about his age.
(c) The neighbour cannot enforce the contract against the boy as he is a minor.
The neighbour cannot enforce the contract against the boy as he is a minor and the motorbike is unlikely to fall under the exception of necessaries.
What does intention to create legal relations mean and what is its effect?
Intention to create legal relations is essential element in formation of contract - where no intention to be bound can be attributed to parties, there is no contract
ICLR = intention to enter into agreement that has legal ramifications
Test of intention is objective, by which intention of parties is to be determined more by what actions of parties in particular circumstances suggests, rather than by taking evidence form parties of what was actually in their minds
Do courts tend to give effect to parties’ intentions or do they seek to rule against them?
Courts seek to give effect to intentions of parties, whether express or implied
What is the ICLR position as regards to commercial contracts?
Ordinary presumption is that in commercial agreement, parties intend that it be legally binding - courts will readily imply this
Commercial agreements not limited to agreements between two businesses - include agreements between individuals and businesses and agreements between individuals eg if you bought car through online advert
If party to comm agreement wishes to assert legal relations where not intended when agreement entered, onus on them to rebut presumption and burden of doing so is heavy one
Open to parties to include wording within agreement that indicates that parties do not intend to create legal relations - however clear words will need to be used as language is likely to come under scrutiny
What does the phrase ‘subject to contract indicate’?
Expression creates strong inference that parties do not intend to be bound until formal execution of contract
Agreement ‘subject to contract’ prima facie is not binding
What is the ICLR position as regards to social and domestic agreements?
Usual presumption is that there is no intention to create legal relations - common sense that these types of agreements do not amount to legally enforceable agreements
Such conclusion derived from fact that none of parties would reasonably envisage right to sue other for failure to honour commitment
However presumption can be rebutted and creations social and domestic agreements may be legally enforceable - question of whether presumption is rebutted will be resolved by examining circumstances of each case and language used by parties
Situation where courts have shown willingness to rebut presumption is in relation to agreements between spouses who were in process of separating or are separated when agreement reached (Merritt v Merritt)
When is a person said to have capacity to enter into contract?
Persons over age of 18 have full contractual capacity, if they are of sound mind and not suffering from factors ruling out capacity eg drunkenness
What is the rule as regards to capacity for minors?
Generally, person is not bound by contract entered into under age of 18 even if other party contracting does not know of this fact or minor has lied about age
There are two main exceptions:
1. Necessaries and
- Minor is bound by contract to supply necessaries to them if contract is for their benefit
- Minor must pay reasonable price for these rather than actual cost of necessaries supplied
- Necessaries = goods suitable to condition in life of minor or other person concerned and to their actual requirements at time of sale and delivery
2. Contracts of employment, apprenticeship or education: Minor is also bound by contract of employment, apprenticeship or education (or analogous contract) but only if it is for their benefit
What is the effect of entering into contract with a minor?
Unless one of exceptions applies, contract cannot be forced against minor, although minor can enforce it against other party
Small number of contracts of exceptional types which are enforceable against minor unless minor specifically repudiates them
If minor ratifies contract once they reach 18, then contract will be binding on them
What is the position as regards to capacity for those who lack mental capacity?
Person lacks capacity under s. 2 MCA 2005 if ‘he is unable to make decision for himself in relation to matter’ at time contract is made, whether impairment is permanent or temporary
Impairment described in terms of being unable to communicate decision bc they cannot
1. Understand relevant info
2. Retain relevant info
3. Use relevant info
Act also gives Court of Protection power to make declarations as to person’s capacity and ability to contract in specified situations
