Capacity

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Capacity

  1. 1. Capacity to Contract
  2. 2. <ul><li>Section 1, Family Law Reform Act 1969 : </li></ul><ul><li>People below the age of 18 (previously 21) </li></ul><ul><li>Called minor (previously “infant”) </li></ul><ul><li>to reduce the significance of the rules relating to minors since they now applied to a much smaller group of young people. </li></ul>Contract with Minors
  3. 3. <ul><li>(A) Enforceable contracts </li></ul><ul><li>Contracts which are valid and enforceable against the minor </li></ul><ul><li>i) Contracts for necessaries </li></ul><ul><li>ii) Beneficial contracts of Service </li></ul><ul><li>(B) Voidable contracts </li></ul><ul><li>Contracts which the minor may enter or withdraw if required. </li></ul><ul><li>(C) Unenforceable contracts </li></ul><ul><li>Contracts that a minor is unable to make. </li></ul>3 Categories of Minors’ Contracts
  4. 4. (A) Enforceable Contracts
  5. 5. <ul><li>Necessary goods – defined in Sec.3(3), SOGA 1979 as </li></ul><ul><li>‘ goods suitable for his condition in life, and to his actual </li></ul><ul><li>requirements at the time of sale and delivery’. </li></ul><ul><li>Minors should pay for those goods and services actually supplied to them that are necessaries according to their station in life. </li></ul><ul><li>Purpose of this rule </li></ul><ul><li>To allow minors to enter into contracts beneficial to them </li></ul><ul><li>To prevent unscrupulous businesses from taking advantage of their youth and inexperience. </li></ul>(i) Contracts for Necessaries
  6. 6. Chapple v Cooper (1844) <ul><li>A minor whose husband had recently died contracted with undertakers for his funeral. She later refused to pay the cost of the funeral, claiming her incapacity to contract. The court held her liable to pay the bill. </li></ul><ul><li>The funeral was for her private benefit and was a necessary as she had an obvious obligation to bury her dead husband. </li></ul>
  7. 7. <ul><li>‘ the proper cultivation of the mind is as expedient as the support of the body’. </li></ul><ul><li>Baron Alderson in Chapple v Cooper </li></ul><ul><li>“ Necessary” can be more than just food and clothing. </li></ul><ul><li>what is deem necessary may differ according to the particular minor. </li></ul><ul><li>Example : </li></ul><ul><li>Latest Apple laptop – for a Business student or Graphic Design student. </li></ul>‘ Necessary ’ does not mean ‘ necessity ’
  8. 8. <ul><li>2-part test : </li></ul><ul><li>(1) The goods must be necessary according to the ‘ station in life ’ of the minor. </li></ul><ul><li>The goods or services must suit the actual requirements of the minor at the time of the contract. </li></ul><ul><li>The onus is on the supplier to satisfy the Court. </li></ul>How the Court determine what is “necessary”?
  9. 9. Nash v Inman (1908) <ul><li>A Cambridge undergraduate, the son of an architect, was supplied with clothes, including 11 ‘fancy waistcoats’, to the value of $122. </li></ul><ul><li>The cloth could be appropriate to the station in life of the undergraduate, but the contract was not enforceable because the minor was already adequately supplied with clothes. </li></ul><ul><li>Therefore clothes supplied by the tailor could not be classified as necessaries. </li></ul>
  10. 10. Girton College - Cambridge University
  11. 11. Cambridge Students during the 1900s
  12. 12. Even if the 2-Part tests are fulfilled, the contract may still be UNENFORCEABLE against the minor, if the terms of the contract are prejudicial to minor’s interest <ul><li>Fawcett v Smethurst (1914) </li></ul><ul><li>Minor hired a car to transport his luggage. </li></ul><ul><li>This is prima facie a ‘necessary’. </li></ul><ul><li>But a term in the contract states that the minor was to be held absolutely liable for any damage to the car regardless of how it was caused. </li></ul><ul><li>The court felt that the contract is too onerous and therefore unenforceable against the minor. </li></ul>
  13. 13. <ul><li>Sec.3, Sale of Goods Act 1979 </li></ul><ul><li>‘ Where necessaries are sold and delivered to a minor, or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price ’ </li></ul>How much the minor have to pay? What is a reasonable price ? <ul><li>The price of the goods that are actually supplied </li></ul><ul><li>Executory contracts not enforceable. </li></ul>
  14. 14. <ul><li>Common law sensibly concludes that minor may need to support himself financially. Therefore must have the capacity to enter into contracts of employment. </li></ul><ul><li>School leaving age is 16. This is 2 years below the age of majority </li></ul><ul><li>Such contracts will be prima facie valid and therefore enforceable. </li></ul><ul><li>However, the contract would be binding only if, </li></ul><ul><li>on the balance the terms of the contract were substantially to the benefit of the minor </li></ul>(ii) Beneficial contracts of Service
  15. 15. <ul><li>The court examine the contract as a whole </li></ul><ul><li>If some of the contract terms act to the minor’s detriment, it will not automatically invalidate the contract of service, provided that it still operates mostly for the minor’s benefit. </li></ul><ul><li>Clements v London & North Western Railway Co (1894) </li></ul>
  16. 16. Clements v London & North Western Railway Co (1894) <ul><li>Minor – taken up employment as a porter with the railway company. </li></ul><ul><li>He agreed to join company’s insurance scheme </li></ul><ul><li>The insurance give him greater benefit because it covered a wider range of accidents – but in a lesser amount </li></ul><ul><li>As a result, it would relinquish any rights he might have under the Employer’ Liability Act 1880. </li></ul><ul><li>When minor tried to claim that he was not bound by the employer’s scheme, he failed. </li></ul><ul><li>Viewing the whole contract on balance, it was generally to his benefit. </li></ul>
  17. 17. <ul><li>De Francesco v Barnum (1890) </li></ul><ul><li>A 14 year old girl entered into a 7 year apprenticeship with DeFrancesco to be taught stage dancing. </li></ul><ul><li>By the apprenticeship deed the girl agreed that she would be at DeF’s total disposal during the 7 years </li></ul>If the contract is made up predominantly detrimental to the minor, the Court will invalidate the contract as a whole
  18. 18. <ul><li>Onerous conditions </li></ul><ul><li>1) She would accept no professional engagements except with DeF’s express approval. </li></ul><ul><li>He was under no obligation to maintain her or to employ her. </li></ul><ul><li>Payment scale were extremely low. </li></ul><ul><li>She cannot marry without with his permission. </li></ul><ul><li>DeF may terminate their arrangement whenever he wished. </li></ul><ul><li>The girl accepted other work but DeF’s action failed to prevent it. </li></ul><ul><li>The Court held that the apprenticeship deed were unfair and unenforceable against her. </li></ul><ul><li>They were not substantially to her benefit. </li></ul>
  19. 19. <ul><li>Doyle v White City Stadium Ltd (1935) </li></ul><ul><li>The minor is a professional boxer </li></ul><ul><li>Have a contract with the British Boxing Board of Control. </li></ul><ul><li>By the agreement, the minor would lose his ‘purse’ (payment for the fight) if he were disqualified. </li></ul><ul><li>The agreement was held to be binding on the minor since it was not only to encourage clean fighting, but also proficiency in boxing and therefore of benefit to minor. </li></ul>Contract of Service also include contracts of apprenticeship, education and training.
  20. 20. <ul><li>Chaplin v Leslie Frewin (Publishers) (1966 ) </li></ul><ul><li>Held to be similar to a contract for services and was beneficial to the minor and so was binding to him. </li></ul>Contract of Service also include contracts to write autobiography
  21. 21. Conclusion <ul><li>Contracts for necessaries and beneficial contracts of service are enforceable against the minor </li></ul><ul><li>If goods or services are not necessaries or detrimental to the minor  contracts will be voidable </li></ul>
  22. 22. (B) Voidable Contracts
  23. 23. <ul><li>The minor enter into the contract with perfect validity , may avoid the contract by repudiating his obligations under the contract </li></ul><ul><li>while he is still a minor or </li></ul><ul><li>within a reasonable time after reaching the age of 18 </li></ul>Why are such contracts voidable by the minor? <ul><li>if the contract is potentially onerous in nature. </li></ul>
  24. 24. <ul><li>Involve subject matter of some permanency - contracts of continuous or recurring obligations. </li></ul><ul><li>Involve long term interest </li></ul><ul><li>Law sensibly considers : </li></ul><ul><li>Minors should be able to enter such contracts , he should also be in a position to repudiate all obligations and avoid further liability if so desired, providing repudiation occurs sufficiently early. </li></ul>Features of such contracts
  25. 25. Examples : <ul><li>Contracts to lease property </li></ul><ul><li>Contracts to purchase shares in a company </li></ul><ul><li>Contracts to enter a partnership </li></ul><ul><li>Contracts of marriage settlement </li></ul><ul><li>Trading contracts are never binding on a minor even if it is for the minor’s benefit. </li></ul><ul><li>Cowern v Nield </li></ul>
  26. 26. <ul><li>He will be bound by ALL the obligations falling under the contract. </li></ul><ul><li>Bound by the usual covenants in a lease . </li></ul><ul><li>Bound by outstanding amounts owed on shares. </li></ul>What if minor chooses not to repudiate the contract?
  27. 27. <ul><li>Edwards v Carter (1893) </li></ul><ul><li>A minor sought to repudiate an agreement under a marriage settlement by which he agreed to transfer the money he would inherit from his father’s will to the trustees under the settlement. </li></ul><ul><li>He tried to repudiate more than a year after his father’s death and 4½ years after reaching the age of majority. </li></ul><ul><li>His argument is that he was incapable of repudiating until he knew the full extent of his interest. </li></ul><ul><li>Held : The repudiation was too late - unreasonable </li></ul>Whether the minor has repudiated the contract in reasonable time is a question of fact
  28. 28. <ul><li>Repudiation BEFORE obligation arise </li></ul><ul><li>no problem </li></ul><ul><li>The minor cannot be sued on any obligation that have not arise. </li></ul><ul><li>Repudiation AFTER obligation has arise </li></ul><ul><li>legal position not really established. </li></ul><ul><li>Academic opinion seems to favour the view that the minor is bound by debts arising from the contract prior to the date of repudiation. </li></ul>
  29. 29. <ul><li>Where the minor has transferred money under the contract, the money is NOT recoverable unless there is a complete failure of consideration . </li></ul><ul><li>Steinberg v Scala (Leeds) Ltd (1923) </li></ul><ul><li>minor cannot get refund </li></ul><ul><li>Corpe v Overton (1833) </li></ul><ul><li>minor could get refund due to total failure of consideration </li></ul>
  30. 30. (C) Void / Unenforceable Contracts
  31. 31. <ul><li>Even though minor- not bound by the contract, the other party will still be if such a contract is entered into. </li></ul><ul><li>If minor has paid money under the contract, he may recover that money if there is total failure of consideration. </li></ul><ul><li>If minor ratifies such a contract upon reaching the age of 18, then the ratification will bind the minor. </li></ul><ul><li>Not necessary to ratify expressly. Sufficient for ratification if continue with the contract (implied). </li></ul>
  32. 32. <ul><li>(1) The minor to return any property acquired by the minor under the contract to the adult provided it is ‘just and equitable’ to do so – Sec. 3 Minors’ Contracts Act 1987 </li></ul><ul><li>(2) If the minor has already sold or exchanged the property </li></ul><ul><li>minor may have to pay the cost of the goods or </li></ul><ul><li>give up any property received in exchange for them. </li></ul>Remedies against the minor
  33. 33. <ul><li>3. If the minor no longer has the goods ( sold or exchanged ), the minor cannot be forced to pay anything. </li></ul><ul><li>4. Specific performance ( equitable remedy ) </li></ul><ul><li>- can never be used against a minor </li></ul><ul><li>- nor can it be used by the minor against the adult </li></ul><ul><li> because it requires mutuality between the parties. </li></ul><ul><li>5. Loans made to a minor </li></ul><ul><li>- where an adult gives a guarantee, if the minor </li></ul><ul><li> fails to pay then the adult is liable to compensate </li></ul><ul><li>the other contracting party – Sec.2 Minors’ Contracts </li></ul><ul><li> Act 1987 </li></ul>
  34. 34. <ul><li>Minors are liable under tort law if they are old enough to know the nature of what they are doing. </li></ul><ul><li>But this cannot be used as a mean to enforce a contract which would otherwise not be binding on a minor. </li></ul><ul><li>Leslie Ltd v Sheill (1914) </li></ul><ul><li>A minor borrowed money, having lied about his age. </li></ul><ul><li>The loan contract was an unenforceable. </li></ul><ul><li>But by deliberately misrepresenting his age, the minor committed the tort of deceit </li></ul><ul><li>Knowing that he could not sue the minor for breach of contract to recover the money, the moneylender brought an action for damages in tort. </li></ul><ul><li>Held : The action was unsuccessful because it was merely an attempt to enforce a contract on which the minor was not liable. </li></ul>Minors and Tort
  35. 35. <ul><li>Equity (previously) </li></ul><ul><li>remedy of restitution to prevent the minor’s ‘unjust enrichment’ </li></ul><ul><li>R. Leslie Ltd v Sheill (1914) </li></ul><ul><li>(2) Sec. 3 Minors Contracts Act 1987 (present) </li></ul><ul><li>Adult no longer need to prove fraud against the minor, as long as there is unjust enrichment , and it is equitable for property to be recovered. </li></ul>Protection for the adult
  36. 36. <ul><ul><li>Courts assume they lack the mental capacity to enter into a contract. Therefore the rules on mental incapacity applies </li></ul></ul><ul><ul><li>R v Oldham Metropolitan Borough Council, ex parte Garlick (1993) </li></ul></ul><ul><ul><li>contracts made by minors will only apply to very young children if they were old enough to understand the nature of the transaction and the nature of any continuing obligations incurred. </li></ul></ul>Contract involving very young children
  37. 37. <ul><li>The End </li></ul>
  38. 38. <ul><li>Incapacity to contract </li></ul><ul><li>Minor </li></ul><ul><li>Persons of unsound mind </li></ul><ul><li>Drunken person </li></ul><ul><li>Corporation (in a restricted event) </li></ul>
  39. 39. <ul><li>A person is of unsound mind if it is certified by doctors as being incapable of dealing with his property </li></ul><ul><li>Mental Health Act 1983, any contract to dispose of property by such person will be set aside. </li></ul><ul><li>Their affairs will be delegated to a representative who will be accountable to the court for any contract made. </li></ul><ul><li>Rules applicable to minor will (ie : contracts of necessaries) will be binding on them. </li></ul><ul><li>Other contracts may be repudiated by the disorder person if : </li></ul><ul><li>a) the other party knew of the disorder </li></ul><ul><li>b) the disorder person was unaware of the effect of the contract. </li></ul>Persons of unsound mind
  40. 40. <ul><li>If a person is so drunk that he was incapable of understanding the contract and the other party knew this, he may, on regaining sobriety, apply to have the contract set aside. </li></ul><ul><li>If he ratify the contract when sober, he will then be bound by it and will be liable to pay a reasonable price on all contracts for necessaries. </li></ul>Persons who are drunken
  41. 41. <ul><li>When incorporated, the purpose and objective of the company will be stated in its Memorandum of Association </li></ul><ul><li>A corporation which acts beyond its stated objective is acting in ultra vires. </li></ul><ul><li>Ultra vires contracts are invalid </li></ul><ul><li>It is governed by the Companies Act 2006. </li></ul>Corporations
  42. 42. Activity From the following choices, select the statement which most accurately describes a contract which is enforceable against a minor. <ul><li>a) Brian agrees to lend Sam, aged 17, £5 000 with which Sam is to buy a car. </li></ul><ul><li>b) James, an unemployed 17 year old has agreed to buy an ocean-going yacht, price £20 000. </li></ul><ul><li>c) Terry aged17, is hoping to become a chef. He has agreed to sign up for a catering course at his local college that will cost him £300 a term. </li></ul><ul><li>d) Sally, who is 17, has signed an agreement to lease a flat from George. </li></ul>
  43. 43. ACTIVITY From the following choices, select the statement most accurately describes a contract which is void and unenforceable against a minor. <ul><li>Tim, who is aged 17, has ordered a suit from Best man Tailors. His new job in a sales department requires that he wear a suit and a tie. </li></ul><ul><li>Helen has agreed to become a partner in a business run by her friends, Sarah and Melanie. </li></ul>
  44. 44. <ul><li>c) Vanessa is 17 and she got married to tom when she was only 16. Tom recently died in a car crash and Vanessa has contracted with Boxem, a local funeral directors, for Tom’s funeral arrangements. </li></ul><ul><li>d) Simon, aged 16, recently took out a mortgage for a flat. He did so by stating his age as 19 on the application form. </li></ul>

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