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Elements in a Contract XXXII - Capacity

Updated on August 1, 2017

When a dispute arising from a breach of contract is brought before the court, the court when deciding on the appropriate type of remedy to award will look into various factors including the capacity of the parties to contract.

Minors

Contracts entered into by minors are normally regarded as voidable contracts i.e. the terms of the contract continue to exist but the innocent party or the aggrieved party has a choice of whether to continue with the contract or otherwise. It may also depend on factors like if the minor has received something in return for the consideration that he or she has provided under the contract.

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.

In Nash v Inman (1908) the plaintiff supplied the defendant a student at Cambridge eleven waistcoats which he felt were suitable for the defendant’s station in life. The defendant failed to pay for the waistcoats and the plaintiff sued. The court held that the waistcoats were not a necessity because the defendant had an ample wardrobe and therefore his claim failed.

It stands to reason, from the above decision, that the only contracts that minors are allowed to enter into are contracts of necessity and this view has been reaffirmed by s3 (2) of the Sale of Goods Act 1979 - 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 for them.

In Chapple v Cooper (1844) for example, an undertaker sued a window, who was a minor, for the outstanding payment that was due for her husband’s funeral services and the court found in favor of the plaintiff. Funeral services were deemed a necessity and though the widow was a minor she was still liable for the outstanding amount.

It’s easy to see that the reasoning behind s3 (2) has been around for some time and it is reasonable especially taking into consideration the fact that necessities include items like food and medical supplies and to insist otherwise might result in a situation where a minor might be turned away from obtaining essentials like food and medicines because he or she does not have the capacity, legally anyway, to enter into a contract. With the exception of the basics, what is considered a necessity is often a question of perception and it today’s world, education is also considered or regarded as a necessity.

Mental Disability

When it comes to contracts involving mentally disable persons the contract would generally be rendered void because the court seeks to protect the interests of such persons as per the Mental Health Act 1983. S 3(2) of the Sale of Goods Act 1979 makes some allowance for items of necessity but the later act or the Mental Health Act 1983 would normally prevail over the earlier act i.e. the Sale of Goods Act 1979.

Corporations

The rules with regards to corporations are fairly straightforward and companies cannot go beyond the scope of the powers granted to them under their memorandum of association (ultra vires).

In Ashbury Railway Carriage and Iron Company Ltd v Riche (1875) the company gave the plaintiff a loan to build a railway in Belgium. Subsequently the company refused the loan and the plaintiff sued. The company, in its defense pleaded that it was beyond its powers to grant the loan. The courts held that if a company pursues objectives that are beyond its articles of association than such contracts are void.

However, if the company directors decide to go beyond their powers in furtherance of acts that may be beneficial to the society and the community than that decision may not be deemed ultra vires. In Evans v Brunner Mond & Company (1921) the court held that the company’s decision to donate £100,000 for research and study purposes would be conducive for the company’s long term success in the chemical industry. It also enhances the company’s standing in the community and society and such donations or contributions may also be tax deductible, so at the end of the day the company may gain more than it contributes.

Intoxication

In instances where someone who is intoxicated enters into a contract S 3 (2) of the Sale of Goods Act 1979 will most likely apply.

© 2017 Kathiresan Ramachanderam and Dyarne Jessica Ward

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