Chapter 15.2Chapter 15.2

The Capacity to The Capacity to ContractContract

Chapter 15.2Chapter 15.2

The Capacity to The Capacity to ContractContract

Persons who lack contractual capacity

Minors

The mentally infirm

The intoxicated

Bankrupts

Aliens

Sovereign states and diplomats

Companies

Incorporated societies

The Minors The Minors Contracts Act Contracts Act

19691969

A minor is a person who is under A minor is a person who is under the age of 20 yearsthe age of 20 yearsA minor is a person who is under A minor is a person who is under the age of 20 yearsthe age of 20 years

The Age of Majority Act 1969

Contracts that enforceable as if the minor were of full age

Contracts by a minor who is or who has been married.

Section 4

Contracts of Apprenticeship.

Section 5(4)

Contracts with minors that have been approved by the District Court.

Section 9

the consideration was so inadequate as to be unconscionable, or

one or more provisions are harsh or oppressive.

Section 5

Contracts that are enforceable unless the minor can show

Any contract by a minor over the age of 18.

Contracts by a minor under s75 Life Insurance Act.

Employment agreements.

National Bank of New Zealand v. Ram & Anor (1992) 4 NZBLC 102,618

Contracts that are unenforceable against the minor unless they can be shown to be fair and reasonable in all the circumstances

Contracts by minors under 18 years of age.

Section 6

The criteria under s6

The contract must be

fair and

reasonable.

Morrow & Benjamin Ltd v. Whittington (1989) 2 NZBLC 103,600

The Court shall consider:

• the circumstances under which the contract was made;• the subject matter and nature of the contract;• in the case of a contract about property, the nature and

value of the property;• the age of the minor and their personal wealth (if any);

and• all other relevant circumstances.

Section 10

The effect of guarantees of a minor’s obligations

Where a person who is over 20 guarantees the obligations of a minor, then the guarantee is enforceable, irrespective of any order the court might make with respect to the obligations of the minor themselves.

The capacity of the mentally infirm

At common law, contractual capacity depends on understanding the nature of what you are doing.

A contract by a person who lacks capacity by reason of mental infirmity is voidable if:

the other party was aware of their disability; and

the other party took unfair advantage, amounting to equitable fraud of the mentally infirm person.

Hart v. O’Connor [1985] 1 NZLR 159

Contracts by intoxicated persons

These are voidable once sobriety is regained if:

• the person was so intoxicated that they did not know what they were doing; and

• the other party was aware of that fact; and

• took unfair advantage.

Specific performance of a contract with an intoxicated person may not be awarded even if the above criteria are not completely met.

Peeters v. Schimanski [1975] 2 NZLR 328

Contractual capacity of bodies corporate

A company registered under the Companies Act 1993 has full contractual capacity.

Section 16 Companies Act 1993

The capacity of an incorporated society to make contracts

When contracting with an incorporated society it is important to check that:

the contract is for a purpose, that is, within the objects of the society as stated in the rules; and

the contract is made on behalf of the society in the manner prescribed by its rules.

Cabaret Holdings Ltd v. Meeanee Sports & Rodeo Club Inc. [1982] 1 NZLR 673 Broadlands Finance Ltd v. Gisborne Aero Club Inc. [1975] 2 NZLR 496

Incorporated Societies Act 1908 ss6 , 15