Capacity

Question 1

What are some examples of types of individual who may lack the capacity to enter into a binding contract?

Answer 1

There are rules on capacity to contract for those who are weak and less capable of looking after themselves such as children, those who are mentally ill and others temporarily lacking mental capacity. The rules are there to protect the vulnerable and also to protect others who make contracts with those of limited capacity.

Question 2

What are the two exceptions to the general rules on capacity with minors?

Answer 2

1. Relating to ‘necessaries’
2. Contracts of employment, apprenticeship or education.

Question 3

What are ‘necessaries’ contracts?

Answer 3

• Minors are bound by a contract to supply necessaries to them if the contract is for their benefit.
• A minor must pay a ‘reasonable price’ for these rather than the actual cost of the ‘necessaries’ supplied.

Question 4

What type of things are necessaries?

Answer 4

Food, Medicines, accomodations, and clothing (but are not limited to those things).

Question 5

What do necessaries also include?

Answer 5

Items purchased for the minor’s real use provided they are not products and services for comfort or pleasure only.

Question 6

How is what is necessary decided?

Answer 6

What will be deemed a necessary needs to be construed with regard to the minor’s age and their actual requirements, so, in Nash v Inman (1908), 11 waistcoats supplied to a minor who was an undergraduate at Cambridge University at the time were suitable according to the minor’s station in life but not necessary as he already had sufficient clothing. Accordingly, the contract was not enforceable.

Question 7

What is the general rule for contracts of employment with minors (with case law)?

Answer 7

The minor is bound by the contract, but only if it is for their benefit.
So, in Aylesbury Football Club v Watford Association Football Club (QB 12 June 2000) a young footballer’s contract with the club was not beneficial and could not be enforced because the player received no extra training or experience, the terms were onerous for him, they restricted his freedom to pursue a football career and the payment of wages depended on the will of his employer.

Question 8

What are the general rules for enforcability with minors and contracts?

Answer 8

• Unless one of the exceptions applies, the contract cannot be enforced against the minor, BUT the minor can enforce it against the other party.
• By way of exception, there are a small number of contracts of exceptional types which are enforceable against the minor unless the minor specifically repudiates them.
• If a minor ratifies a contract once they reach the age of 18, then the contract wil be binding on them.

Question 9

Flow chart for minors and contracts

Answer 9

Does the contract concern necessaries? If yes, the minor must pay a reasonable price. If not…
Is it a contract of employment, apprenticeship or education? If no, then the child is not bound. If yes…
Is the contract for the minor’s benefit? If no, then the child is not bound. If yes…
The contract is binding.

Question 10

Under what law does someone lack mental capacity?

Answer 10

A person lacks capacity under s 2 of The Mental Capacity Act 2005 if ‘he is unable to make a decision for himself in relation to the matter’ at the time the contract is made, whether the impairment is permanent or temporary.

Question 11

What is important to understand about capacity?

Answer 11

Capacity is not something which a person has or has not for all purposes - whether or not someone has capacity is a question to be asked in relation to a particular decision.

Question 12

Under s 3(1) of the Mental Capacity Act 2005, the impairment is described in terms of being unable to:

Answer 12

1. Understand the relevant information;
2. Retain the relevant information;
3. Use the relevant information; and/or
4. Communicate a decision.

Question 13

According to s 3(4) of the Mental Capacity Act 2005 the relevant information relates to the reasonably foreseeable consequences of:

Answer 13

1. Deciding one way or another; or
2. Failing to make a decision.

Question 14

What does the Mental Capacity Act 2005 give power to?

Answer 14

The Act also gives the Court of Protection the power to make declarations as to a person’s capacity and ability to contract in specified situations (s 15).

The statutory definition of capacity set out above is expressed (in the Act) to be for the purposes of the Act only, but it is in practical terms very similar / the same as the approach to be taken when determining capacity for the purposes of contract law issues.

Question 15

Under s 7, what does a person without capacity still remain liable to pay?

Answer 15

A person without capacity still remains liable to pay a reasonable price for ‘necessaries’. These are defined as goods or services ‘suitable to a person’s condition of life and to his actual requirements at the time when the goods or services are supplied’ (s 7(2)).

Question 16

What is the general rule in cases of incapacity?

Answer 16

The position is that the contract is binding unless the person claiming incapacity can establish, first, that they did not understand what they were doing and, secondly, that the other party knew that to be the case: Imperial Loan Co v Stone [1892].

Question 17

What will the contract be, if incapacity can be established?

Answer 17

Voidable

Question 18

What general rules apply to contracts entered into by drunken persons?

Answer 18

The individual who becomes so intoxicated that they do not understand what they are doing will have to pay a reasonable price for necessaries but will not be bound by any other contract they make, provided the other party knew or ought to have known about their intoxication: **Matthews v Baxter (1873) **; Aspinall’s Club Ltd v Hui [2023].

This position should logically extend to those incapacitated by other intoxicating substances.