lecture 3

Question 1

Definition of a Contract

Answer 1

“An agreement between two or more persons having the capacity to make it, in the form demanded by law, to perform acts which are not trifling, impossible or illegal.”
— MacQueen and Thomson, para 1.10

Question 2

What is Capacity?

Answer 2

Capacity = Mental ability to enter into legally binding obligations.
➔ Must intend to bind oneself and understand the significance of obligations.

Question 3

Starting Point for Capacity

Answer 3

Everyone has capacity unless shown otherwise:
“All natural persons have active capacity until death, except as restricted by childhood or mental illness.”
— MacQueen and Thomson, para 2.64

Question 4

Capacity of Children

Answer 4

(Under Age of Legal Capacity (Scotland) Act 1991)

Under 16: No capacity, unless exception under s2.
16 and over: Full capacity to enter any transaction.
Transaction: Includes contracts and promises (s9).

Question 5

Exceptions for Children (<16)

Answer 5

A child can contract if:

(a) The transaction is commonly entered into by someone of that age/circumstance;
(b) Terms are not unreasonable. (s2(1)).

Question 6

Exceptions to Young Person’s Right to Set Aside

Answer 6

Restitutio in integrum must be possible.
Transaction can be ratified before 21 (s4).
Barred if lied about age or affirmed after 18 (s3(3)(g)(h)).

Question 7

Capacity of Young Persons (16-18)

Answer 7

They can apply to have a transaction set aside if it’s prejudicial before turning 21 (s3(1)).
Prejudicial if:
(a) A reasonable adult would not have entered into it, and
(b) It causes or likely causes substantial prejudice (s3(2)).

Question 8

Insanity and Contracts

Answer 8

If a person is insane and cannot understand the business at the time, the contract is void.
— John Loudon & Co v Elder’s Curator Bonis 1923

Question 9

Intoxication and Contracts

Answer 9

Only absolute drunkenness (deprivation of reason) makes contract void.
Partial drunkenness is not enough.
— Taylor v Provan (1864)

Question 10

Facility due to Intoxication

Answer 10

Intoxication may lead to facility and fraud → Contract reduced, not null.
— Taylor v Provan, Lord Neaves

Question 11

Effect of Lack of Capacity

Answer 11

➔ Contract = Void (no legal existence).
➔ No obligations or claims for breach.
➔ Remedy = Unjustified enrichment, not contract law.

Question 12

Intention to Create Legal Obligations

Answer 12

Lord Hodge’s 4 tests (Morgan Utilities v Scottish Water):

Immediate intention?
Objective view of reasonable parties?
Consider later behaviour.
Court neutrality.

Question 13

Presumptions of Intention

Question 14

Obligations Must Not Be Indeterminate

Answer 14

➔ Agreements must be reasonably definite to be enforceable.
➔ Vague understandings = Unenforceable.
➔ ‘Agreements to agree’ not binding unless obligations are determinable.

Question 15

Impossible or Illegal Obligations (Pacta Illicita)

Answer 15

Impossible = Cannot bind to do what’s naturally impossible.
Illegal = Unenforceable by law.
➔ A promise to do illegal acts is also unenforceable.

Question 16

General Rule on Contract Formalities

Answer 16

➔ No formalities needed for ordinary contracts.
➔ Contracts can be oral, texted, emailed, etc.
— Gretton (Missives by Fax or pdf)

Question 16

Impossibility and Frustration

Answer 16

➔ Impractical ≠ Impossible.
➔ Supervening events after contract = Frustration → ends obligation.

Question 17

Exceptions (Where Writing is Needed)

Answer 17

➔ Offer demands written acceptance.
➔ Contracts after 1 Aug 1995 for:
(a) Interests in land.
(b) Gratuitous unilateral obligations.
➔ Writing = Signed (wet ink or electronic).

Question 18

Promises and Need for Writing

Answer 18

➔ Gratuitous promises need writing unless made in course of business (RBS v Carlyle).
➔ Difficult to distinguish gratuitous promises clearly.

Question 19

Gratuitous Contracts and Writing

Answer 19

➔ Contracts = Always bilateral → No writing required for gratuitous contracts.
➔ Only gratuitous unilateral promises need writing (per Prof. Hogg’s argument).

Question 20

Summary of Obligations Caught by RoWSA

Answer 20

Gratuitous Unilateral Promises (no benefit to promissor) = YES
Gratuitous Unilateral Promises (with benefit) = Safer to assume YES
Bilateral Contracts (both perform) = NO
Gratuitous Contracts (only one performs) = NO

Question 21

Personal Bar under RoWSA 1995

Answer 21

Even if writing is required but missing, contract still valid if:

Reliance + Material effect (s1(3) + s1(4)(a))
Adverse effect if withdrawn (s1(4)(b))
Other party knows and acquiesces (s1(3)).
➔ Personal bar stops denial of validity despite formal defect.