LAW OF CONTRACTLAW OF CONTRACT

CAPACITY TO CAPACITY TO CONTRACTCONTRACT

Capacity to ContractCapacity to Contract

There are some categories of people whose power There are some categories of people whose power

to make contracts is to make contracts is limited by lawlimited by law. e.g.. e.g.

1.1. MinorsMinors

2.2. People suffering mental disordersPeople suffering mental disorders

3.3. DrunksDrunks

4.4. Public authoritiesPublic authorities

5.5. The crownThe crown

Capacity to ContractCapacity to Contract

Purpose of the common law and statutes in Purpose of the common law and statutes in

limiting the powers of parties & balancing the limiting the powers of parties & balancing the

interests of parties, in this area of law : interests of parties, in this area of law :

1.1. To protect the parties from their own To protect the parties from their own inexperience and inabilityinexperience and inability

2.2. To ensure that people who deal with such To ensure that people who deal with such parties are not parties are not exposed to hardship, while they exposed to hardship, while they form a contract, dealing fairly and in good faithform a contract, dealing fairly and in good faith..

Minors contractsMinors contracts

Contracts that are made by minors are governed Contracts that are made by minors are governed

by the rules contained in :by the rules contained in :

1.1. Common lawCommon law

2.2. The Minors’ Contracts Act 1987The Minors’ Contracts Act 1987

3.3. S 3 Sale of Goods Act 1979S 3 Sale of Goods Act 1979

Minors contractsMinors contracts

Minor’s contracts fall into three categories :Minor’s contracts fall into three categories :

1) void contracts - 1) void contracts - that cannot be enforced against minorsthat cannot be enforced against minors

2) valid contracts - 2) valid contracts - can be enforced (as exception)can be enforced (as exception)

3) voidable contracts - 3) voidable contracts - contracts minors can enter into contracts minors can enter into and yet set aside if they wish to and yet set aside if they wish to

before, majoritybefore, majority

Minors contractsMinors contracts

A minor is a person under the A minor is a person under the age of 18age of 18

The general (common law) rule, is that a The general (common law) rule, is that a

minor is not bound by a contract which he minor is not bound by a contract which he

enters into during his minority.enters into during his minority.

There are There are three exceptionsthree exceptions to this rule. to this rule.

Minors capacity to contractMinors capacity to contractThe three exceptions to the general rule are :The three exceptions to the general rule are :1) A contract to supply a minor with 1) A contract to supply a minor with “necessaries“necessaries”, is ”, is

binding upon on the minor where the contract binding upon on the minor where the contract as a as a

whole is for the benefit of the minor, & where the terms are whole is for the benefit of the minor, & where the terms are

not harsh or onerous on the minor.not harsh or onerous on the minor.

2) A minor is bound by a contract of employment if that 2) A minor is bound by a contract of employment if that

contract is generally for his benefit.contract is generally for his benefit.

3) Certain contracts are not void per se, but voidable by the 3) Certain contracts are not void per se, but voidable by the

minor repudiating the contract before he attains majority or minor repudiating the contract before he attains majority or

within a reasonable time, thereafter.within a reasonable time, thereafter.

1) Contract to supply necessaries1) Contract to supply necessaries

A contract to supply a minor with A contract to supply a minor with “necessaries“necessaries”, is ”, is

binding upon on the minor where the contract binding upon on the minor where the contract as a as a

whole is for the benefit of the minor. whole is for the benefit of the minor.

S 3(2) & S 3(2) & 3(3) Sale of Goods Act 19793(3) Sale of Goods Act 1979, defines , defines

““necessaries” asnecessaries” as

““goods goods suitable to the condition in lifesuitable to the condition in life of the minor or of the minor or

other person concerned and to his other person concerned and to his actual requirementsactual requirements at at

the time of sale and delivery” the time of sale and delivery”

Necessaries includes both Necessaries includes both goods and services.goods and services.

1) Contract to supply necessaries1) Contract to supply necessariesIn deciding whether the contract was for the supply of In deciding whether the contract was for the supply of

necessaries, the court will decide :necessaries, the court will decide :

1.1. Whether the goods/services contracted were in fact Whether the goods/services contracted were in fact “necessaries”, under the definition of S3(2) SGA 1979“necessaries”, under the definition of S3(2) SGA 1979

2.2. Whether they were in fact “necessaries” as far as the Whether they were in fact “necessaries” as far as the minor in question was concerned. minor in question was concerned.

1) Contract to supply necessaries1) Contract to supply necessariesWhat are “necessaries” as regards goods supplied ?What are “necessaries” as regards goods supplied ?

Nash v Inman (1908) CANash v Inman (1908) CAFacts : A tailor supplied a cambridge undergraduate with Facts : A tailor supplied a cambridge undergraduate with

““eleven fancy waistcoats”. When the tailor sued for the eleven fancy waistcoats”. When the tailor sued for the

money, it was claimed by the father that the contract could not 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 be enforced, as he was a minor (at that time 21 yrs was the

age of majority)age of majority)

Held : Although the goods were suitable to the young man’s Held : Although the goods were suitable to the young man’s

condition in life (he was the son of an architect of good condition in life (he was the son of an architect of good

position), it did not satisfy the 2position), it did not satisfy the 2ndnd condition of “actual condition of “actual

requirements”, as the son already had sufficient waistcoats requirements”, as the son already had sufficient waistcoats

and there was no need for more.and there was no need for more.

The contract therefore could not be enforced.The contract therefore could not be enforced.

1) 1) Contract to supply necessariesContract to supply necessariesWhat are “necessaries” as regards goods supplied ?What are “necessaries” as regards goods supplied ?

Nash v Inman (1908) CANash v Inman (1908) CA

2 stage test to determine necessaries :2 stage test to determine necessaries :

1) necessary by the minor’s “station in life” - condition in life.1) necessary by the minor’s “station in life” - condition in life.

2) necessary for the minor’s actual current needs.2) necessary for the minor’s actual current needs.

1) Contract to supply necessaries1) Contract to supply necessariesWhat are “necessaries” as regards services provided?What are “necessaries” as regards services provided?

Chapple v Cooper (1844)Chapple v Cooper (1844)Facts : an undertaker sued a widow (who was a minor), for the Facts : an undertaker sued a widow (who was a minor), for the

cost of her husband’s funeral.cost of her husband’s funeral.

Held : The court held that the service, was a “necessary Held : The court held that the service, was a “necessary service”.service”.

The court mentioned, obiter that, when considering whether The court mentioned, obiter that, when considering whether

goods or services were necessaries,goods or services were necessaries,

““articles of mere luxury would always be excluded, though articles of mere luxury would always be excluded, though

luxurious articles of utilityluxurious articles of utility are in some cases allowed” are in some cases allowed”

1) Onerous or harsh term1) Onerous or harsh termThe court would not allow a contract containing The court would not allow a contract containing onerous or onerous or

harshharsh

terms, to bind a minor, even if the contract was for the benefit of terms, to bind a minor, even if the contract was for the benefit of

the minor and satisfies the “necessaries” requirements.the minor and satisfies the “necessaries” requirements.

Fawcett v Smethurst (1914)Fawcett v Smethurst (1914)Held :Held : a minor was held not to be bound, by a contract for a hire 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, of a car, even though it was a necessary service, in this case,

because the contract included a term making him liable for because the contract included a term making him liable for

damage to the car, “in any event’…ie. Whether or not the damage to the car, “in any event’…ie. Whether or not the

damage was his fault.damage was his fault.

Note: that a minor is also, only, liable to pay a reasonable price and 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 not the contracted price if the court finds that the contract is in

fact enforceable.fact enforceable.

Repudiate the contractRepudiate the contract

Under S3 of the Sale of Goods Act, Under S3 of the Sale of Goods Act,

a minor is entitled to refuse to accept or pay for necessaries,a minor is entitled to refuse to accept or pay for necessaries,

that he had contracted for, if the minor decides that he had contracted for, if the minor decides that they are no that they are no

longer wanted.longer wanted.

S3(2) SGA S3(2) SGA NoteNote: that a minor is also, only, liable to pay a reasonable: that a minor is also, only, liable to pay a reasonable

price and price and

not the contracted price if the court finds that the contract is in not the contracted price if the court finds that the contract is in

fact enforceable.fact enforceable.

2) Contracts of employment2) Contracts of employmentMinors are bound by contracts of employment, provided they are Minors are bound by contracts of employment, provided they are

on the whole, beneficial to them.on the whole, beneficial to them.

Examples, where minors, gain training, experience, or Examples, where minors, gain training, experience, or instruction instruction

for an occupation.for an occupation.

Clements v London & North Western Railway (1894)Clements v London & North Western Railway (1894)Facts : A minor (who was employed by NW Railway), made an Facts : A minor (who was employed by NW Railway), made an

agreement with his employers that he would give up his agreement with his employers that he would give up his statutory statutory

right to personal injury benefit in exchange for an insurance right to personal injury benefit in exchange for an insurance

scheme that his employers would pay for. scheme that his employers would pay for.

Held : The contract for service was enforceable as it was for the Held : The contract for service was enforceable as it was for the

benefit of the minor, as the benefit he derived was in balance benefit of the minor, as the benefit he derived was in balance

more beneficial then what he gave up.more beneficial then what he gave up.

2) Contracts of employment2) Contracts of employment

De Francesco v Barnum (1890)De Francesco v Barnum (1890)Facts : a minor, entered into a stage –dancing apprenticeship, Facts : a minor, entered into a stage –dancing apprenticeship,

under a contract that was more favourable to De Francesco as under a contract that was more favourable to De Francesco as

compared to her.compared to her.

She was not allowed to marry during the seven years of the She was not allowed to marry during the seven years of the

apprenticeship, could not take on professional engagements apprenticeship, could not take on professional engagements

without written consent..etc.without written consent..etc.

Held : The court held the terms to be not for the “benefit” of the Held : The court held the terms to be not for the “benefit” of the

minor, and thus could not be enforced against her.minor, and thus could not be enforced against her.

2) Contracts of employment2) Contracts of employment

Doyle v White City Stadium Ltd (1935)Doyle v White City Stadium Ltd (1935)Facts : A minor entered into a contract, with the British Boxing 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 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, licence was that if a boxer was disqualified for committing a foul,

he would not receive the “purse” for the fight, but only his he would not receive the “purse” for the fight, but only his

travelling expences.travelling expences.

Held : He was disqualified in one of his matches, for hitting Held : He was disqualified in one of his matches, for hitting

below the belt, under the British Boxing Board rules.below the belt, under the British Boxing Board rules.

The rules were to promote, and encourage clean boxing.The rules were to promote, and encourage clean boxing.

The minor had benefited from the “apprenticeship” as a whole.The minor had benefited from the “apprenticeship” as a whole.

He was thus bound by the contract and could not claim for his He was thus bound by the contract and could not claim for his

prize money, under the terms.prize money, under the terms.

3) Contracts voidable by a minor3) Contracts voidable by a minor

Certain contracts with minors are not void but are Certain contracts with minors are not void but are

only voidable ; that is to say, the contract is valid and only voidable ; that is to say, the contract is valid and

binding upon the minor unless he repudiates liability binding upon the minor unless he repudiates liability

before majority or within a reasonable time, before majority or within a reasonable time,

thereafter.thereafter.

Only the minor can repudiate ; the adult is on the Only the minor can repudiate ; the adult is on the

other hand bound by the contract, until repudiation.other hand bound by the contract, until repudiation.

Examples, are contracts, where minors have dealings with long Examples, are contracts, where minors have dealings with long

term interests like land, shares or partnerships.term interests like land, shares or partnerships.

3) Contracts voidable by a minor3) Contracts voidable by a minorCorpe v Overton (1833)Corpe v Overton (1833)

Facts : a minor agreed to enter into a partnership which was Facts : a minor agreed to enter into a partnership which was to be formed in the future. He paid a to be formed in the future. He paid a ££100 deposit, 100 deposit, knowing that he would lose it if he did not in fact go knowing that he would lose it if he did not in fact go through with the partnership. Before the partnership was through with the partnership. Before the partnership was put into operation, the minor repudiated the contract.put into operation, the minor repudiated the contract.

Held : The court held that the contract was voidable and thus Held : The court held that the contract was voidable and thus the minor could repudiate the contract, the minor could repudiate the contract, and the contract and the contract would be like as if it was void from the beginning.would be like as if it was void from the beginning.But he could have the But he could have the ££ 100 back as there was a total 100 back as there was a total lack of consideration for the amount as he had received lack of consideration for the amount as he had received nothing.nothing.

3) Contracts voidable by a minor3) Contracts voidable by a minorSteinberg v Scala (Leeds) Ltd (1923)Steinberg v Scala (Leeds) Ltd (1923)

Facts : The plaintiff a minor bought shares in Scala. These Facts : The plaintiff a minor bought shares in Scala. These shares were not fully paid up, which means that Scala could shares were not fully paid up, which means that Scala could demand payment up to the nominal value of the shares.demand payment up to the nominal value of the shares.A further payment of A further payment of ££250 was made by steinberg and later she 250 was made by steinberg and later she repudiated the contract and demanded the $250 back.repudiated the contract and demanded the $250 back.

Held : Although the contract could be repudiated, and thus she would Held : Although the contract could be repudiated, and thus she would owe no future obligation to Scala, she couldnt have owe no future obligation to Scala, she couldnt have the the ££ 250 back as it was valid for the period when the contract 250 back as it was valid for the period when the contract existed. She had something in return for the money, and thus there existed. She had something in return for the money, and thus there was no total failure of was no total failure of consideration.consideration.

Remedies under MCA 1987 Remedies under MCA 1987

The rules on minors clearly work against The rules on minors clearly work against innocent adults who would not know if they were innocent adults who would not know if they were dealing with minors.dealing with minors.

S3 Minors Contract Act 1987, provides :S3 Minors Contract Act 1987, provides :““Where an adult has entered into an unenforceable contract Where an adult has entered into an unenforceable contract with a minor, or a contract which a minor has terminated, the with a minor, or a contract which a minor has terminated, the courts may give any property acquired by the minor under the courts may give any property acquired by the minor under the contract, back to the adult, contract, back to the adult, provided it is,provided it is,““just and equitable”.just and equitable”.

Remedies under MCA 1987Remedies under MCA 1987

If an adult realises that they are making a contract If an adult realises that they are making a contract

with a minor he may ask for a guarantee from an with a minor he may ask for a guarantee from an

adult.adult.

S2 MCA 1987S2 MCA 1987 : where a contract is unenforceable : where a contract is unenforceable

because it was made with a minor, a guarantee of because it was made with a minor, a guarantee of

that contract will be enforceable against the adult that contract will be enforceable against the adult

guarantor.guarantor.