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Elements in a Contract XXIX - Voidable Contracts
A contract is voidable when the terms of the contract continue to exist but the innocent party or the aggrieved party has a choice of either following through with the contract or otherwise. As a general rule contracts involving minors are voidable.
In Corpe v Overton (1833) a minor paid a certain amount of money towards a partnership that was to be formed in the future. He subsequently repudiated the contract and the court held that he was entitled to get his money back i.e. he was under no obligation to continue with the contract.
In Steinberg v Scala (Leeds) Ltd (1923) however, a minor paid some money towards acquiring some shares. She later made another payment and then decided to withdraw the payment and requested for the subsequent payment to be returned. The court rejected her request on the grounds that she received something in return for the sum that she had paid i.e. the shares.
Both the plaintiffs in Corpe v Overton (1833) and Steinberg v Scala (Leeds) Ltd (1923) at the time they entered into the contract were unaware of how things would pan out in the future. In the former however the plaintiff did not receive anything in return for the monies he had paid while in the latter the plaintiff did receive something in return for what she had paid.
When one of the parties in a contract has entered into a contract but suffers from a mental disability, is intoxicated, is illiterate or has little knowledge of the language the contract is in, the contract is voidable provided that the other party is aware of the condition of the party he or she is contracting with. If the other party is not aware than the general rule is that the parties would be bound by the terms of the contract.
In Thompson v London, Midland and Scottish Railway (1930), the plaintiff purchased a ticket from the railway company and thereafter boarded a train. On the ticket, which was obtained at the time of the purchase there was a clause (an exclusion clause) that stated that the Railway Co. will not be liable for any personal injury incurred during travel. The plaintiff was unable to read the clause because she was illiterate. The plaintiff was injured during her journey and brought an action against the Railway Co. who relied on the exclusion clause to escape liability. It was held that the clause was a valid term of the contract and the fact that the plaintiff could not read did not make a difference.
In L’Estrange v Graucob (1934) the plaintiff purchased a vending machine and signed a contract with the defendant company without reading the fine print on it which contained an exclusion clause. The vending machine proved defective and the plaintiff brought an action against the defendant company. It was held that regardless of the fact that the plaintiff had not read the fine print in the contract, as long as the party signs the contract then it will be deemed that the party has read the terms in the contract and is thereby bound by the said terms.
In Hart v O’Connor (1985) (Privy Council) a buyer entered into a contract with the seller for the sale of some land. At the time he entered into the contract the buyer was unaware that the seller suffered from a mental disability. The seller later tried to repudiate the contract but the court held that there was a valid contract in place.
In most instances and circumstances especially in contracts of sale and purchase the condition of the parties will become apparent at the time of negotiations for example if someone is drunk it would be fairly obvious and likewise if a person suffers from a mental illness it would be fairly apparent and therefore the rule that the contract is only voidable if one party is aware of the other party’s condition is one that is reasonable.
Admittedly the decision in Thompson v London, Midland and Scottish Railway (1930) may be deemed to be slightly unjust but it is an exception and it is difficult to make laws to cover all possibilities or eventualities. In most instances there is always going to be some exception that the law doesn’t cater for.
The rule also exists to prevent a plaintiff or a defendant from feigning that he or she lacked the capacity to enter into a contract. Say for example when a party to a contract has sufficient understanding of the language to comprehend the terms in the contract but later in an attempt to set aside the contract says that he or she does not understand the language.
In Barclays Bank v Schwartz (1995) the defendant tried to escape liability by arguing that he lacked the capacity to enter into contracts which left him owing £0.5 million by claiming that he did not have sufficient language skills to enter into the contracts. The court held that, if he had sufficient skills to realize he is entering into a contract then he is liable.
© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward