LAW OF CONTRACT CAPACITY TO CONTRACT

Capacity to Contract There are some categories of people whose power to make contracts is limited by law. e.g. 1. Minors 2. People suffering mental disorders 3. Drunks 4. Public authorities 5. The crown

Capacity to Contract Purpose of the common law and statutes in limiting the powers of parties & balancing the interests of parties, in this area of law : 1. To protect the parties from their own inexperience and inability 2. To ensure that people who deal with such parties are not exposed to hardship, while they form a contract, dealing fairly and in good faith.

Minors contracts Contracts that are made by minors are governed by the rules contained in : 1. Common law 2. The Minors’ Contracts Act 1987 3. S 3 Sale of Goods Act 1979

Minors contracts Minor’s contracts fall into three categories : 1) void contracts - that cannot be enforced against minors 2) valid contracts - can be enforced (as exception) 3) voidable contracts - contracts minors can enter into and yet set aside if they wish to before, majority

Minors contracts A minor is a person under the age of 18 The general (common law) rule, is that a minor is not bound by a contract which he enters into during his minority. There are three exceptions to this rule.

Minors capacity to contract The three exceptions to the general rule are : 1) A contract to supply a minor with “necessaries”, is binding upon on the minor where the contract as a whole is for the benefit of the minor, & where the terms are not harsh or onerous on the minor. 2) A minor is bound by a contract of employment if that contract is generally for his benefit. 3) Certain contracts are not void per se, but voidable by the minor repudiating the contract before he attains majority or within a reasonable time, thereafter.

1) Contract to supply necessaries A contract to supply a minor with “necessaries”, is binding upon on the minor where the contract as a whole is for the benefit of the minor. S 3(2) & 3(3) Sale of Goods Act 1979, defines “necessaries” as “goods suitable to the condition in life of the minor or other person concerned and to his actual requirements at the time of sale and delivery” Necessaries includes both goods and services.

1) Contract to supply necessaries In deciding whether the contract was for the supply of necessaries, the court will decide : 1. Whether the goods/services contracted were in fact “necessaries”, under the definition of S3(2) SGA 1979 2. Whether they were in fact “necessaries” as far as the minor in question was concerned.

1) Contract to supply necessaries What are “necessaries” as regards goods supplied ? Nash v Inman (1908) CA Facts : A tailor supplied a cambridge undergraduate with “eleven fancy waistcoats”. When the tailor sued for the money, it was claimed by the father that the contract could not be enforced, as he was a minor (at that time 21 yrs was the age of majority) Held : Although the goods were suitable to the young man’s condition in life (he was the son of an architect of good position), it did not satisfy the 2nd condition of “actual requirements”, as the son already had sufficient waistcoats and there was no need for more. The contract therefore could not be enforced.

1) Contract to supply necessaries What are “necessaries” as regards goods supplied ? Nash v Inman (1908) CA 2 stage test to determine necessaries : 1) necessary by the minor’s “station in life” - condition in life. 2) necessary for the minor’s actual current needs.

1) Contract to supply necessaries What are “necessaries” as regards services provided? Chapple v Cooper (1844) Facts : an undertaker sued a widow (who was a minor), for the cost of her husband’s funeral. Held : The court held that the service, was a “necessary service”. The court mentioned, obiter that, when considering whether goods or services were necessaries, “articles of mere luxury would always be excluded, though luxurious articles of utility are in some cases allowed”

1) Onerous or harsh term Fawcett v Smethurst (1914) The court would not allow a contract containing onerous or harsh terms, to bind a minor, even if the contract was for the benefit of the minor and satisfies the “necessaries” requirements. Fawcett v Smethurst (1914) Held : a minor was held not to be bound, by a contract for a hire of a car, even though it was a necessary service, in this case, because the contract included a term making him liable for damage to the car, “in any event’…ie. Whether or not the damage was his fault. Note: that a minor is also, only, liable to pay a reasonable price and not the contracted price if the court finds that the contract is in fact enforceable.

Repudiate the contract Under S3 of the Sale of Goods Act, a minor is entitled to refuse to accept or pay for necessaries, that he had contracted for, if the minor decides that they are no longer wanted. S3(2) SGA Note: that a minor is also, only, liable to pay a reasonable price and not the contracted price if the court finds that the contract is in fact enforceable.

2) Contracts of employment Minors are bound by contracts of employment, provided they are on the whole, beneficial to them. Examples, where minors, gain training, experience, or instruction for an occupation. Clements v London & North Western Railway (1894) Facts : A minor (who was employed by NW Railway), made an agreement with his employers that he would give up his statutory right to personal injury benefit in exchange for an insurance scheme that his employers would pay for. Held : The contract for service was enforceable as it was for the benefit of the minor, as the benefit he derived was in balance more beneficial then what he gave up.

2) Contracts of employment De Francesco v Barnum (1890) Facts : a minor, entered into a stage –dancing apprenticeship, under a contract that was more favourable to De Francesco as compared to her. She was not allowed to marry during the seven years of the apprenticeship, could not take on professional engagements without written consent..etc. Held : The court held the terms to be not for the “benefit” of the minor, and thus could not be enforced against her.

2) Contracts of employment Doyle v White City Stadium Ltd (1935) Facts : A minor entered into a contract, with the British Boxing Board, to secure a fighter’s licence. One of the terms of such a licence was that if a boxer was disqualified for committing a foul, he would not receive the “purse” for the fight, but only his travelling expences. Held : He was disqualified in one of his matches, for hitting below the belt, under the British Boxing Board rules. The rules were to promote, and encourage clean boxing. The minor had benefited from the “apprenticeship” as a whole. He was thus bound by the contract and could not claim for his prize money, under the terms.

3) Contracts voidable by a minor Certain contracts with minors are not void but are only voidable ; that is to say, the contract is valid and binding upon the minor unless he repudiates liability before majority or within a reasonable time, thereafter. Only the minor can repudiate ; the adult is on the other hand bound by the contract, until repudiation. Examples, are contracts, where minors have dealings with long term interests like land, shares or partnerships.

3) Contracts voidable by a minor Corpe v Overton (1833) Facts : a minor agreed to enter into a partnership which was to be formed in the future. He paid a £100 deposit, knowing that he would lose it if he did not in fact go through with the partnership. Before the partnership was put into operation, the minor repudiated the contract. Held : The court held that the contract was voidable and thus the minor could repudiate the contract, and the contract would be like as if it was void from the beginning. But he could have the £ 100 back as there was a total lack of consideration for the amount as he had received nothing.

3) Contracts voidable by a minor Steinberg v Scala (Leeds) Ltd (1923) Facts : The plaintiff a minor bought shares in Scala. These shares were not fully paid up, which means that Scala could demand payment up to the nominal value of the shares. A further payment of £250 was made by steinberg and later she repudiated the contract and demanded the $250 back. Held : Although the contract could be repudiated, and thus she would owe no future obligation to Scala, she couldnt have the £ 250 back as it was valid for the period when the contract existed. She had something in return for the money, and thus there was no total failure of consideration.

Remedies under MCA 1987 The rules on minors clearly work against innocent adults who would not know if they were dealing with minors. S3 Minors Contract Act 1987, provides : “Where an adult has entered into an unenforceable contract with a minor, or a contract which a minor has terminated, the courts may give any property acquired by the minor under the contract, back to the adult, provided it is, “just and equitable”.

Remedies under MCA 1987 If an adult realises that they are making a contract with a minor he may ask for a guarantee from an adult. S2 MCA 1987 : where a contract is unenforceable because it was made with a minor, a guarantee of that contract will be enforceable against the adult guarantor.