Contract - Capacity To Contract

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Capacity

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In order for a contract to be considered legally enforceable, not only is it imperative that the basic formalities of the contract are present (i.e. offer, acceptance, consideration, intention to create legal relations) but it is equally important that the parties to the contract have capacity to contract. Thus, capacity refers to the ability of the parties to enter into a legally binding contract.

The general presumption under the common law is that everyone has capacity to
enter into a legally binding contract with full free and informed consent. However, exceptions exist where it is necessary to protect certain groups of vulnerable persons by either restricting their capacity to contract entirely or by providing extra protection for them once they have entered into the contract. There are a number of categories of person who have traditionally fallen outside the scope of the general rule and into this particular category of vulnerable persons, including minors, companies, convicts, the mentally ill and intoxicated persons-- all of which merit special consideration.

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Minors

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One of the most common examples of incapacity in contract law arises from lacking the age
of majority. The courts, and society in general, have traditionally sought to protect those who may be incapable of giving a full, free and informed consent by virtue of their age. Indeed, Treitel asserts that the law relating to minors' contractual rights involves balancing two main objectives: the need to protect minors from their own inexperience in commercial matters and the need to protect commercial businessmen from the consequences of entering into contracts with minors, particularly where those minors have misrepresented their age.

In Ireland, in accordance with the Age of Majority Act 1985, all persons under the age of 18
years shall be regarded as minors in the eyes of the law unless they are married.

Thus, all contracts formed with minors under the age of 18 years (if unmarried) are either unenforceable or subject to additional protections as provided by law.

Common law and statute restrict the ability of minors to contract. At common law, the general rule was that a contract made with an infant was voidable at the behest of the minor.

However, since the Infants Relief Act 1874, under s 2 certain contracts with minors are deemed to be void ab initio (no legal effect from the very beginning). These included contracts for the repayment of money lent or to be lent to a minor and contracts for goods supplied or goods to be supplied to an infant. However, two major exceptions to these provisions include where the subject-matter of the contract is deemed to be a "necessary" or where the contract is for a ''beneficial contract of service".

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Necessaries

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A necessary is a
common law concept that has since been enshrined in legislation under the Sale of Goods Act
1893. Section 2 of that Act provides that necessaries are " ... goods suitable to the condition
of life of such infant or minor or other person, and to his actual requirements at the time of
sale and delivery". This would encapsulate sustenance, clothing and shelter. The person who
is trying to enforce the contract, i.e. the supplier of the goods, bears the onus of proving that
the goods in question are necessary.

The decision as regards what exactly constitutes a necessary falls to be decided on a case-bycase
basis. However, it is important to note that there are two limbs to the test: (I) the goods
must be suitable to the condition in life of the minor and (2) to his/her actual requirements.

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Chapple v Cooper (1844) 13 M. & W 252

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The following definition of necessaries was provided:
"those without which a person cannot reasonably exist. In the first place food, raiment,
lodging and the like. proper cultivation of the mind is as expedient as support of the body instruction in an art or trade or intellectual moral and religious information may be a necessary also".

The decision as regards what exactly constitutes a necessary falls to be decided on a case-by case basis. However, it is important to note that there are two limbs to the test:

(I) the goods must be suitable to the condition in life of the minor and
(2) to his/her actual requirements.

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Skrine v Gordon [1875] IR 9 CL
479

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The defendant had represented himself to be a member of the Surrey stag hunt. He agreed to purchase a hunting horse from the plaintiff for £600. When he failed to pay for the horse, the defendant sued.

Lawson J. held that a hunting horse could never be considered to be a necessary. Indeed , he pointed out that

" ... luxuries or amusement are quite distinct from necessaries"

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Ryder v Wombwell (1868) LR 4 Ex. 32

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Cufflinks decorated with jewels were held to be incapable of being classified as a necessary.

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Nash v Inman [1908] 2 KB 1

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Here, an Oxford student who was still a minor (under 21 years of age - Age of Majority at the time) purchased 11 fancy waistcoats from a Saville Row tailor. Despite the fact that these waistcoats were generally deemed to be necessaries, the court found that they were not necessary under the circumstances. The father of the infant was clearly able to demonstrate that his son was adequately supplied with clothes.

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Chaplin v Leslie Frewin (Publishers) Ltd [1966] Ch. 71

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The plaintiff, the son of Charlie Chaplin, entered into an agreement to sell his memoirs, but subsequently attempted to have the contract declared unenforceable as being a contract of service that was not to his benefit because it was potentially libellous. However, whilst the Court of Appeal agreed that it was a beneficial contract of service, it was of the opinion that the advantages that accrued to the plaintiff far outweighed the negative aspects of the agreement.

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Doyle v White City Stadium [1935] 1 KB 110

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The court concluded that the agreement in question was overall to the benefit of the boxer, despite the inclusion of a clause that allowed his purse to be forfeited where he breached the rules of the British Boxing Board of Control.

Doyle had challenged a decision to forfeit his purse in a fight where he was disqualified for an illegal punch.

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Keays v Great Southern Railway [1941]

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Where it was held that an exclusion clause on a railway ticket was unenforceable as it depnved the plamtlff of significant rights against the railway company.

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Shears v Mendeloff (1914) 30 TLR 342

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A contract between a boxer and manager was held to be voidable because it was to the benefit of the manager only.

The boxer had to pay any expenses that arose, while the manager was entitled to. a quarter of the boxer's winnings even though he was not obliged to secure any fights for him.

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Other Voidable Contracts

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Any contract that requires a minor to make periodic payments may be deemed voidable at the behest of the minor. However, if the minor has already made payments in accordance with this contract, any monies already paid are not recoverable. Some examples of such types of
contract include contracts of insurance, contracts to buy or lease land, contracts to buy
shares in a company and contracts to enter into a partnership. These contracts are valid unless or until the minor repudiates it-not the adult. The adult is bound by this contract. Upon reaching the age of majority, the minor should repudiate the contract if he/she wishes to do so as soon as possible.

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Convicts

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According to Section 8 of the Forfeiture Act 1870 a convict is incapable of entering into a contract, either expressly or by implication. This statute has since since been repealed in its entirety by Schedule 3 of the Criminal Law Act 1997.

Thus as argued by McDermott, "... It would appear that in theory a prisoner has an unfettered right to enter into a contract. This right would only be exercisable ... in so far as the prison authorities permit an inmate to conduct such transactions from his cell".

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Mental Incapacity

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Generally, contracts with the mentally ill are considered valid unless the nature of the illness was such as to prevent the person from knowing what he/she was doing and the other contracting party was aware of the mental illness.

The onus of proving that the mental illness avoided rests on the person alleging it. Indeed, where incapacity has been established but it is a contract for a necessary, in accordance with S. 2 of the Sale of Goods Act, 1893, the mentally incapacitated person is only required to pay a reasonable price for the goods.

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Companies

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It is noteworthy that companies are limited in their ability to enter in to contracts. This will ultimately depend on whether or not the relevant contract is within the memorandum and articles of association. If the company acts outside of the latter, it will be acting ultra vires and the action will be considered null and void.

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Intoxication

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The position in relation to a party contracting while intoxicated is the same as that regarding mental incapacity and may be voidable. The party must have been so intoxicated that he/she did not know the nature of his/her actions, and the other party must have known of this intoxication. It is important that the intoxicated party repudiates the contract as soon as he/she regains sobriety. Contracts for necessaries will be binding, although the intoxicated party need only pay a reasonable price for the goods.

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White -v- McCooley

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Intoxication - onus on Plaintiff to prove unconscionable bargain.