Capacity

Overview

  • Generally, parties are assumed to have capacity.

  • Capacity becomes an issue in situations where it does not exist.

  • Implications on the contract and the parties involved should be considered.

  • Definition: Capacity refers to the legal ability to enter into valid, legally binding contracts.

Aspects of Capacity

  • Capacity is analyzed in four main areas:

    1. Contracts concerning Minors

    2. Contracts made by Companies/Corporations

    3. Contracts made by Persons of Unsound Mind

    4. Contracts made by Intoxicated Persons

Contracts Concerning Minors

  • Legal Age: The age of a minor in England is 18 years (changed from 21 years by the Family Law Reform Act 1969).

  • Types of Contracts:

    1. Valid and enforceable contracts

    2. Contracts that minors can choose to continue or void

    3. Unenforceable contracts against minors

  • Necessaries: Defined as goods suitable to the minor's life condition and actual requirements.

Key Cases Regarding Necessaries

  • Chapple v Cooper (1844)

    • Facts: A minor hired an undertaker for her husband's funeral and later claimed she was not bound by the contract.

    • Judgment: The contract was necessary.

    • Reason: A funeral is classified as a necessary.

  • Nash v Inman (1908)

    • Facts: A minor ordered 11 waistcoats and refused to pay.

    • Judgment: The waistcoats were not necessities.

    • Reason: He already had enough clothing.

Employment Contracts

  • Minors may enter into employment or training contracts considered necessary if they benefit the minor.

    • Case Example: Clements v London and North Western Railway Co (1894), where a minor was bound by a beneficial employment scheme.

Contracts Made by Companies/Corporations

  • A company becomes a separate legal entity upon obtaining its Certificate of Incorporation.

  • The Companies Act 2006 reduced the risk of companies exceeding their powers (ultra vires).

Contracts Made by Persons of Unsound Mind

  • Courts assess if the individual:

    1. Suffered from a recognized mental disability at the time of contracting.

    2. Was incapable of understanding the nature of the contract.

  • If incapable, the contract is voidable (can be affirmed or avoided).

Contracts Made by Intoxicated Persons

  • Contracts made while intoxicated are voidable if:

    • The individual didn't understand what they were doing.

    • The other party knew the person was intoxicated.

Minors' Contracts Act 1987

  • Contracts outside the aforementioned categories are void and unenforceable against minors.

  • Section 2: Guarantees given by an adult for minor's contracts—adult may pay if the minor defaults.

  • Section 3: Courts can require the minor to return goods acquired if it is just and equitable.

Reform Proposals and Critique

  • The 1982 Law Commission proposal: ALL contracts should be binding for those 16 and older.

  • Advantages:

    • Protection for minors from exploitative contracts.

    • Opportunities for fair employment and necessary goods.

  • Disadvantages:

    • Perceived class divide among minors.

    • Adults often unprotected in these situations.

Summary

  • Minors are bound only by contracts for necessaries; voidable upon reaching the age of majority.

  • Corporations have independent legal capacity defined by their registration documentation.

  • Contracts made by those