Ppt lw202 topic 1 incapacity to contract-sem 2 2017

LW202 Contract Law II-
Week 2
Learning Objectives(LO) of this lecture:
At the end this topic you should be
able to:
 determine who is a minor;

Cont’d
Explain what contract for necessaries are;
Explain what contracts for beneficial services
are;
Explain the legal implications of a person
entering into a contract while drunk or
mentally ill person;
Discuss the idea of ultra vires relating to the
capacity of corporations to contract; &
Explain the circumstances when government
contracts will not be binding.

Outline of the Lecture
 look at expected outcome of the
lecture, & readings, ;
Delivery of lecture;
Summary
Ask a few questions to ascertain
whether the LO have been achieved.

Topic 1 – Incapacity to Contract
A) In order for a contract to exist-apart
from other requirements-(offer, acceptance, consideration,
intention to legal bind parties, competence )parties must
have capacity legally recognized by law to enter
into any form of contract.
B) There is another side to this view-which
involves certain individuals who lack
capacity to contract.
Who lacks capacity to contract?
• Children (minors – below 18/21)
• Drunk People or Mentally ill people
• Companies (ultra vires)
• Government (instances of non-compliance with
statutory requirement)

Natural Persons who lack Capacity
• First is Minor- who is a minor? A minor
according to common law is someone
below the age of majority. The common
law age of majority is 21 years, although it
varies from one country to another.

Cont’d
In England the Family Law Reform
Act(1969) UK has reduced the age of
majority to 18 years.
Some countries in the SP, Vanuatu,
Marshall & Nauru have adopted the
similar approach-reduced majority years
to 18 years.
The rest of the countries like Fiji, Niue,
Samoa and Cook Islands the age of
majority remains to be 21 years.

Cont’d
•Incapacity of Minor
We know a minor generally does not
have the capacity to enter into a
contract-but what is at issue- what
happens when someone enters into a
contract with a minor?

Cont’d
• At common law there are generally three
types of contracts concerning minors:
• Unless a domestic legislation says
otherwise contracts with minors are
classified under three headings:
• valid—that is, absolutely binding;
• voidable—disclaimable at the option of
the minor or the minor denies the contract;
or
• void—that is, no legal effect from the start.

Cont’d
•Contracts which are binding on
Minors:
Contracts for necessaries; and
Contracts for beneficial
services(employment)

Cont’d
• I) Contracts for necessaries
 Under contract law a minor is only liable for a
contract for supply of necessaries.
a) Necessaries are not only such
things as food, clothing, education
and so on, which are vital to that
person’s existence, but also those
suitable to the minor.
b) A minor is liable under a contract for
necessaries provided the price is
reasonable. The onus of showing that
the goods are necessaries lies with the
supplier of the goods.

Cont’d
To identify whether something is a
necessary one has to ask two
questions:
1) Is the subject matter of the contract
necessary in eyes of the law; and
2) Is the subject matter necessary for
the minor.
•The first question is important for the
second question to follow.

Cont’d
• In Ryder vs. Wombwell (1868) LR 4 Exch 32, a minor who
moved in high society was supplied with a pair of diamond
and ruby cufflinks and a silver goblet ware. It was observed
that there were exceptional cases wherein even things
merely ornamental in nature could be deemed necessary.
However, the court held that the goods in the particular case
could not be necessaries as the supplier could not prove that
the ornamental goods were especially necessary for the
minor in question.
• Necessity is a relative fact. Once certain goods or particular
services are put in the general category of necessaries, it is
also important to see if they are appropriate to the
particular minor – depending on the minor’s normal
standard of living and whether the minor already has an
adequate supply of such goods or services. Whether the
minor really needs them?

Cont’d
• In the case of Chapple v Cooper (1844)
153 ER 105 a widow(minor) was held to
be liable for the funeral expenses of her
husband. It was classed as a contract for
necessaries. In that case, the Judge
indicated that necessaries were not only
restricted to things needed to survive,
rather, it could include goods and services
required to maintain a reasonable living.

Cont’d
•What does the Fiji Sales of Goods Act
(Cap 230) says about ‘Necessaries’-
•Section defines ‘necessaries as goods
suitable to the condition in life of such
infant or minor or other person and to
his actual requirements at the time of
the sale and delivery.

Cont’d
•Further section 4 provides that, where
necessaries are sold and delivered to
an infant or minor or to a person who
by reason of mental incapacity or
drunkenness is incompetent to
contract, he must pay a reasonable
price therefore. This position has been
affirmed in the case of Nash v Inman
[1908] 2KB 1.

Cont’d
• II) Contracts for Beneficial
Services(employment)
-In the case of De Francesco v Barnum
(1890) 45 Ch D 430 A minor of 14 years,
joined the plaintiff as an apprentice in order
that she might be taught stage dancing. The
apprenticeship was to an agreed sum per
night, that she would not marry and that she
would not accept any other professional
engagement without the plaintiff’s
permission.

Cont’d
• The plaintiff was not bound to engage minor
or to maintain her while unemployed; the
amount payable for minor’s services was a
trifling sum and moreover, the plaintiff was
at liberty to terminate the contract in the
event of minor being found unfit for stage
dancing. Held: The agreement as a whole
was unreasonable and completely put minor
at the mercy of the plaintiff; it was not
beneficial to minor and was therefore not
binding on her.

Cont’d
•In order to determine whether a
contract is for beneficial services the
contract must be examined as a whole.
If the contract when looked at as a
whole is for the benefit of the minor
then it is a contract of beneficial
service.

Cont’d
•In the case of Doyle V White City
Stadium [1935] 1 KB 110 a contract
between a minor and White City
Stadium for boxing was upheld as
valid and binding on the minor
because the contract as a whole was
for the benefit of the minor.

Cont’d
Voidable—disclaimable at the option of the minor
or the minor denies the contract or in other words,
the contracts are binding on minors if the minors
do not disclaim, deny or repudiate the contract.
At common law, contracts which confer an interest
in property on the minor, which involves
continuous or recurring obligations, are valid
unless denied or repudiated by the minor.

Cont’d
•Examples include contracts to lease or
purchase land, contracts for the
purchase of shares, partnerships. In
these types of transactions the minor
is bound by the contract and the
contract is valid as long as the minor
does not disclaim or repudiate the
contract. As soon as the minor
repudiates the contract he or she is no

Cont’d
• Void—that is, contract with no legal effect
from the start if it is not ratified by the
minor.
• Apart from contracts for necessaries and
contracts which are binding however not
being repudiated/denied by the minor ALL
contracts by minor are VOID at common
law. However they can be validated if the
minor ratifies/affirms them upon reaching
majority.

Other matters concerning Minor
• Where a minor through deceit or fraud
obtains non necessary goods (for example
by fraudulently misrepresenting his or her
age) then the minor can be required to
restore the goods or pay over the proceeds
of any sale of them(Stocks v Wilson).
However if the minor obtains money by
deceit or fraud then he or she can only be
compelled to restore the exact cash.(R
Leslie Limited v Sheill).

Cont’d
• A Minor’s Tortious Liability
• Although a minor is liable for all torts
committed such as negligence, defamation etc.,
he or she will not be liable for any tort
committed which is connected with a contract
that is not binding on the minor. The reason
being that if the minor was liable for the tort
then the law would be enforcing an
unenforceable contract-R Leslie Ltd v Shell
[1914] 3KB 607.
• BREAK- 5 minutes

Other natural persons who lack
Capacity
I) Mentally ill; and
II) Drunkard
They are liable for contracts of
necessaries-but are not liable for other
contracts (for non-necessaries) they
enter into while they do not have
capacity. These contracts are
voidable.

Cont’d
• The mentally ill people and drunkards
have to satisfy two tests in order to have
the contract set aside:
• i) They must have been incapable of
understanding the nature of what they
were agreeing to at the time the contract
was being made; and
• ii) The other party to the contract
must have been or should have been aware
of their condition and their incapacity.

Cont’d
•In the case of Mathews v Baxter
(1873) LR 8 Exch 132 the defendant
went to an auction while he was drunk
and successfully bid for certain
property. After he had sorbed up, the
defendant ratified the contract. He
then refused to proceed with the
transaction.

Cont’d
The court held that the defendant was
liable because he ratified the contract
after his period of drunkenness had
passed. He ratified the contract when
his capacity was regained, then he was
bound by the contract.

Corporations & Government
Contracts
The artificial persons:
i) Corporations; and
ii) Government Contract.
The Memorandum of Association(MOA) and Articles of
Association(AOA) regulate the actions of the officers of the
corporation. It generally contains clauses which dictate the
types of contract that the corporation can enter into. Unless
legislation provides otherwise, if a corporation enters into a
contract in respect of something that is not provided for in
the MOA & AOA then that contract is unenforceable against
the corporation. That contract is said to be ultra vires
(beyond power) and invalid.

• Government contracts
• -where the agreement between a
government and another party is to carry
out some aspect of government projects,
but the agreement is not in compliance
with statutory requirements. Government
cannot be bound by such contract. Eg,
awarding of $1,000,000 to build a public
road, the project was awarded to a
company without a tendering process.

Review Questions
1. Who is a minor?
2. what is a contract for necessaries?
3. what is a contract for beneficial services ;
4. Explain the legal implications of a person entering into
a contract while drunk or mentally ill person;
5. Discuss the idea of ultra vires relating to the capacity of
corporations to contract;
6. Explain the circumstances when government contracts
will not be binding.

Next Week
• Next week, we will begin with Topic 2 –
Misrepresentation
• Misrepresentation is a situation whereby one party was
encouraged to enter into the contract by a false
statement made by another party.
• In this topic we will look at the types of statements that
amount to misrepresentations and the consequences of
misrepresentations.
• Reading list as listed in your Topic Guide
• Read this case for next week’s lecture: Spice Girls Ltd v.
Aprilia World Service BV [2002] EWCA Civ 15(Poole, Case
book on Contract Law, p.598

Reminder
• Regularly check Moodle for updates,
where new notices will be posted, make
attempt to attend lectures and tutorials.

End
•End of Lecture
Week 2
Thursday 20 July, 2017
Dr Golman

Ppt lw202 topic 1 incapacity to contract-sem 2 2017

Ppt lw202 topic 1 incapacity to contract-sem 2 2017

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Ppt lw202 topic 1 incapacity to contract-sem 2 2017