1. Capacity (to enter into the contract) Legal ability to make a binding contract Individuals vs entieties (legal persons, corporations) Capacity = age + mental state Lack of capacity as a „vitiating factor” dr R. Strugała WPAiE

2. Lack of capacity as a „vitiating factor” Generally a contract entered into by a person with no capacity is invalid (voidable, unenforceable) Legal systems refer to such invalidity using different terminology and approaches (the civil law systems: invalidity as a rule; common law – an exception) Common feature: no effect (limited effect) of the contract Common aim: protection of the person lacking capacity dr R. Strugała WPAiE

3. English law The matter is almost entirely covered by case law:  Walker (1904)  Imperial Loan Company Ltd v Stone (1892) A contract entered into by a person suffering from mental incapacity (lack of understanding of the transaction) is voidable if the other party was aware of this at the moment of the conclusion of that contract (any reasonable person would have realized that the person was incapable) The burden of proof; the „necessaries” exception  Hart v O’Connor (1985)3 Unfairness of the bargain is not needed Relevant statutory provision: section 7 of the Mental Capacity Act 2005 dr R. Strugała WPAiE

4. English law Contracts entered into by minors (under the age of 18) are either unenforceable (by the adult party) or voidable (depending on the type of the contract) Where unenforceable, can be ratified at the age of 18 Voidable (where imposing continuing obligations) – can be avoided during minority or later (within a reasonable time) Unenforceability or avoidance do not depend on the other party’s knowledge of their age The „necessaries” exception – contracts for necessaries are directly binding if executed (reasonable price): „small transactions” employment, education (servieces) dr R. Strugała WPAiE

5. Italy – formal (legal) incapacity art. 1425 CC (1) Il contratto è annullabile se una delle parti era legalmente incapace di contrattare  voidable contract (annullabilità) 1) Il minore (art. 2 CC  la capacità d’agire: age of 18) 2) l’interdizione, amministrazione di sostegno or inabilitazione the guardianship court appoints a person who is deemed capable of suitably looking after the person and his/her interests. deals or agreements made by a person subject to judicial disability or disqualification (l’interdetto, inabilitazione) can be annulled at the request of the guardian or the person him/herself. dr R. Strugała WPAiE

6. Formal (legal) incapacity and mental state Interdizione  total loss of legal capacity (optional authorisation + e.g. l’interruzione della gravidanza ) A person who is entirely unable to manage their affairs (beacause of insanity) Legal representative: tutore Inabilitazione  loss of legal capacity (does not cover acts of regular, every-day activity and „personal acts”) A person who is not fully capable to manage their affairs (e.g. mental state, addiction) Legal assistance: curatore (who gives consent to contracts made by inabilitato) amministrazione di sostegno A person who is needs assistance to properly manage their affairs (e.g. an old or handicapped person) A flexible, mixed tool of protection dr R. Strugała WPAiE

7. Italy – formal (legal) incapacity Italian statutory law does not provide any special rule, however it is claimed that the person subject to legal incapacity enjoys freedom of contracting in relation to everyday life necessities Such contracts are valid, provided that they are not prejudicial (as the general rule provided by article 428 codice civile still applies) dr R. Strugała WPAiE

8. Formal incapacity: the rule and its exceptions No relevance of factual capacity! Contracts made by a person subject to judicial disability are voidable and there is no obligation to prove additional elements; knowledge of the reason of incapacity (there is a freely accessible register in which judicial disability is recorded, also the lack of a proper age is easy to notice) Art. 1426 (raggiri usati dal minore): the contract is not voidable if the other party was induced to belive that they deal wita an adult dr R. Strugała WPAiE

9. Italy – factual incapacity art. 1425 CC (2) E' parimenti annullabile, quando ricorrono le condizioni stabilite dall'articolo 428, il contratto stipulato da persona incapace d'intendere o di volere  voidable contract (annullabilità) deals or agreements made by a person who is not officially subject to judicial disability but who was suffering (even temporarily) from incapacity at the time of the action may be annulled at the request of the person concerned or his/her heirs. this is covered by article 428CC. For acts not involving the disposal of assets, it is sufficient to demonstrate incapacity, whereas for acts involving the disposal of assets, annulment is only possible if the act entails serious prejudice to the incapable person. If not, the act remains entirely valid. dr R. Strugała WPAiE

10. Italy – factual incapacity Contracts concluded by people who lack the capacity for understanding and intention, but who are not subject to judicial disability or disqualification or “amministrazione di sostegno” – cancellation of the contract depends on whether it has been proven that: The individual was incapable at the time of concluding the contract S/he therefore suffered as prejudice; The other contracting party acted in bad faith There is a legal presumption of the good faith of the parties. dr R. Strugała WPAiE

11. Germany Section 104 (BGB) Incapacity to contract A person is incapable of contracting if 1. is not yet seven years old, 2. is in a state of pathological mental disturbance, which prevents the free exercise of will, unless the state by its nature is a temporary one. Section 105 Voidness of declaration of intent (1)The declaration of intent of a person incapable of contracting is void. (2)Also void is a declaration of intent that is made in a state of unconsciousness or temporary mental disturbance dr R. Strugała WPAiE

12. Germany – general remarks A general part of the BGB (a broad scope of the rules) A juridical act  a declaration of intention A contract  at least two declarations of intention (offer and acceptance) A unilateral juridical act  one declaration of intention Lack of capacity – affects a declaration of intention, thus affects a contract that this declaration is a part of Italian law – a different techinique (no general part of the code; atto giuridico, art. 1324 CC the scope of appliction of the rules on contracts) dr R. Strugała WPAiE

13. Germany ( age ) Persons up to 7: incapable of contracting  their declarations of intention are void  legal representation is entrusted to parents or a Vormund or guardian appointed by the guardianship court The guardian requires the approval of the family court: 1. for a disposition of a plot of land or of a right in a plot of land; (…); 5. for a contract which is directed at the nongratuitous acquisition of a plot of land, a registered ship or ship under construction or a right in a plot of land. Section 1643 (1)For legal transactions for the child, the parents need the approval of the family court in the cases in which under section 1821 and under section 1822 nos. 1, 3, 5 and 8 to 11 a guardian needs approval dr R. Strugała WPAiE

14. Germany ( age ) From the age of 7 (up to 18): patrial capacity to contract  parents or a Vormund or guardian appointed by the guardianship court as agents (representatives) – their consent is needed  declarations of intention are void unless legal transaction does not entail any legal disadvantage (??) Section 107 (Consent of legal representative) For a declaration of intent as a result of which he does not receive only a legal benefit, a minor requires the consent of his legal representative. Consent prior to the contract/ after the contract was concluded (suspended invalidity of the contract: shwebende unwirksamkeit) If the minor enters into a contract without the necessary consent of the legal representative, the effectiveness of the contract is subject to the ratification of the legal representative. dr R. Strugała WPAiE

15. Germany ( mental disturbance ) Section 104 (BGB)  incapacity to contract Former legal solution: A guardian, the so called Vormund (a representative) = a person was delared incopmetent Current legal solution (2002, non-discriminatory policy, flexibility): Betrauer (assistance) = consent or representative or only assistance (court order) Section 105 (2)  temporary mental disturbance Common effect: a declaration of intent is void dr R. Strugała WPAiE

16. Gues what the court held Nash, a tailor on Savile Row, entered into a contract to supply Inman (a Cambridge undergraduate student) with, amongst other things, 11 fancy waistcoats. Inman was a minor who was already adequately supplied with clothes by his father. Nash claimed the cost of these clothes, Inman sought to rely on lack of capacity. dr R. Strugała WPAiE

17. Gues what the court held Nash v Inman ([1908] 2 KB 1) ‘An infant, like a lunatic, is incapable of making a contract of purchase in the strict sense of the words; but if a man satisfies the needs of the infant or lunatic by supplying to him necessaries, the law will imply an obligation to repay him for the services so rendered, and will enforce that obligation against the estate of the infant or lunatic.’ dr R. Strugała WPAiE