Capacity

Question 1

contractual capacity

Answer 1

party’s ability to make binding contract that is enforceable against them

Question 2

what is the presumption regarding capacity at CL

Answer 2

at CL the presumption is that everyone has capacity
HOWEVER various classes of parties that may lack capacity and so are excused from performance of contract so contract will exist just won’t be enforceable

Question 3

parties that lack capacity

Answer 3

—> mental incapacity
—> intoxicated
—> minors
→ law deems these groups as unable to assess contracts properly so vulnerable and susceptible to being taken advantage of

—> the Crown
—> companies
→ exceptions applies because of party’s special status

Question 4

what does it mean if parties that lack capacity make a contract

Answer 4

• contract with these party’s is therefore voidable for incapacity
  —> either party can set contract aside if they wish and they will return to position they were in before they entered agreement

Question 5

Mental incapacity

Answer 5

• contract may be voidable if a party proves they suffered from a mental incapacity→ lacked ‘such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation’, ‘the capacity to understand the nature of the transaction when it is explained’ (usually the nature of the transaction means ‘the broad operation, the “general purport” of the instrument; but in some cases it may mean the effect of a wider transaction which the instrument is a means of carrying out’)
• AND the other party knew or ought to have know of incapacity

Question 6

Intoxication

Answer 6

• party seeking to withdraw from an agreement on the basis they were intoxicated when they entered it must prove
  1. They could not understand the nature of the contract AND
  2. The other party knew of their incapacity AND
  3. If they are seeking more than a refusal to order specific performance against them, the other party took advantage of and concluded a contract that was unfair to them
  —> party seeking to withdraw from contract has burden these elements
  —> court must consider specific circumstances→ alcohol and drugs affect ppl diff so there’s not set amount that equals intoxication
  —> absence of adequate consideration is relevant to decision abt whether contract is voidable

Question 7

Minors key info

Answer 7

• capacity to make contract depends on subject matter and terms of agreement they have entered
• CL→ underlying assumption minors lack capacity
• general rule= contract made by a minor is voidable
  —> rationale for GR is that minors may lack judgement to act in their own best interest
  —> exception to GR= contracts for the supply of necessities to a minor which is binding on both parties

Question 8

necessities def

Answer 8

• necessaries= goods or services that are ‘reasonably necessary’ to ‘support’ the minor’s ‘station in life’ and required because the minor does ‘not have already a sufficient supply’ of them e.g food
• Goods Act 1958 (Vic) defines necessaries as ‘goods suitable to the condition in life of such minor or other person and to his actual requirements at the time of the sale and delivery’

Question 9

what contracts are binding on minors

Answer 9

• contract which supply services to minor that are of benefit to them (contracts to supply medical services) are considered contracts for necessaries so binding
• contracts of employment or apprenticeships with minors similarly binding IF they are for minors’ benefit and NOT harsh/oppressive
• some contracts are also binding UNLESS minor repudiates them during their minority or within a reasonable time of turning 18
  —> contracts in which minor acquires ppty of a permanent nature to which ongoing obligations attach (e.g. lease)
  —> contracts to buy shares from company
  —> contracts to buy goodwill of a business
  —> contracts for minor to join a partnership
  → if elects to repudiate the contract will be ended in futuro so minor will still be bound by obligations that accrued before termination

Question 10

Minors: Life Insurance Act 1995 (Cth) s 199

Answer 10

minors can enter life insurance contracts, but those aged between 10 and 15 years must have their parents’ or guardians’ written consent to do so—> leg also makes some contracts on minors binding on them

Question 11

how about other contracts minors make

Answer 11

• at CL most other contracts not binding unless minor ratifies them on becoming an adult
  —> ratification involves minor taking positive steps to affirm contract retrospectively→ can be inferred from minor continuing to perform contract after turning 18
  HOWEVER to ensure ppl are pressured into ratifying contracts
  —> supreme court act 1996 (vic) has modified this and made ratification in this circumstance ineffective
  —> adult cannot enforce contract against minor, but minor can enforce contract against adult
  —> excludes contract to buy land and to provide services or employment

Question 12

the Crown

Answer 12

• Crown has contractual capacity and can sue + be sued for breach of contract
• however due to special position its powers are more limited than those of natural ppl
• the Crown requires statutory authorisation to make contracts other than those necessary for ordinary conduct of gov
• the Crown also can’t enter contract that will prevent it from performing statutory duty or exercising discretionary power
  —> also not permitted to limit or disable future exercise of discretionary power
• plaintiff’s ability to recover damages from the Crown could be restricted
  —> parl appropriates only certain amount of public money to be expended on meeting monetary judgements awarded against Crown for breach of contract

Question 13

Companies

Answer 13

• capacity of companies governed by Corporations Act 2001 Cmth
• s 124: company has the same legal capacity as an individual
  —> including power to form a contract
• s 125: a company’s exercise of a power is not invalid merely because it is contrary to an express restriction on or prohibition of it in the company’s constitution, or contrary to or beyond any objects in the company’s constitution
• s 126: ‘a company’s power to make … a contract may be exercised by an individual acting with the company’s express or implied authority and on behalf of the company’
• s 131: contract entered into by a person on behalf of a company before it is incorporated/ registered can be binding if the company, or a company reasonably identifiable with it, is registered and ratifies the contract within the time agreed to or, if no time is agreed upon, within a reasonable time after the contract is entered
  —> company may want to enter such a contract if its not practical to wait until its incorporated/ registered