Copyright Guy Harley 2004 Introductory & Contract Law Capacity to Contract Week 6.

Copyright Guy Harley 2004

Introductory & Contract Law

Capacity to Contract

Week 6


Capacity to Contract

Diminished capacity Children (Minors) Mental Disability

Community Protection Bankrupts Criminals Outlaws


Contracts with Minors

Minor – Anyone under 18 years of age Contracts with minors can be

Valid – legally enforceable by both parties Voidable – legally enforceable until repudiated

by the minor Void – no legal effect


Valid Contracts

Contracts enforceable against a minor Supply of Necessaries Contract of Beneficial Service

All other contracts are “voidable” unless: Obtained under duress Obtained by Undue influence Obtained by misleading and\or deceptive conduct Unconscionable bargains Etc. (as for all contracts)


Supply of Necessaries

Contract for the supply of goods and services that are suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery

Includes: Food Clothing Education Medical care Shelter


Supply of Necessaries

Two part test Is the thing capable of being a necessary?

Chapple v Cooper (Outline p6-11) Is it necessary for this particular person?

Onus is one person seeking to enforce contract against minor Nash v Inman (Outline p6-11)

Reasonable price not contract price


Beneficial Contracts of Service

E.g. apprenticeships Must be for the overall benefit of the minor

Leng & Co v Andrews (Outline p 6-12) Roberst v Gray (Outline p 6-12)


Ratification

Repudiation Voidable contracts must be repudiated within a

reasonable time of child attaining majority – otherwise enforcable against person

Davies v Beynon-Harris (Outline p 6-12) Nicholson v Nicholson (Outline p 6-12)

Ratification by Minor after turning 18 prevents repudiation and contract becomes valid and enforceable

Statutory modification NSW - Minors (Property and Contracts) Act 1970


Aliens

Same contractual capacity as Australian citizens Cannot take a majority shareholding in certain

public companies In wartime

Cannot make a contract with an Australian citizen

Cannot take action in Australian courts to enforce a contract


Mental Disability

Valid contract unless it can be shown that: Person was wholly incapable of

understanding the nature of the contract Other party was aware of the mental condition

See Imperial Loan Co v Stone (Outline p 6-12) Also applies to drunks

See Matthews v Baxter (Outline p 6-13)


Community Protection

BankruptsCannot enter into contracts involving more than $500 without Trustee in Bankruptcy’s permission

Diplomatic RepresentativesContracts are binding but cannot be sued in Australian court unless they submit to the jurisdiction

OutlawsA person sentenced to death is a non-person and cannot sue (Dugan v Mirror Newspapers (Outline p 6-13)


Community Protection

CriminalsIf sentenced to more than 3 years gaol, need Public Trustees permission to enter into contracts


Intention


Intention to Contract

Parties must intend their agreement to be legally binding i.e. enforceable by a court

An intention to be morally binding is not enough Objective test Distinction between

Social/domestic agreements Commercial agreements


Intention

Subjective intention

The person’s actual state of mind Objective intention

Concludes, on the basis of what a person said and did, what a reasonable person in the same circumstances would have intended

Contract law uses objective tests See Smith v Hughes (Outline p 6-4) Clarke v Dunraven (Outline p 6-4)


Domestic Agreements

Court presumes that parties did not intend to contract

Presumption may be rebutted Balfour v Balfour (Outline p 6-3) Riches v Hogben (Outline p 6-3)


Domestic Agreements

Court will look at Terms of agreement Circumstances surrounding the agreement Effect of the agreement on the parties Parties conduct subsequent to agreement


Commercial Agreements

Courts presume that the parties intended to contract

Clear words are needed to rebut the presumption

Onus is on party seeking to disprove the contract

Rose & Frank v J R Crompton (S&O p95) Edwards v Skyways (S&O p95)


Fundamentals of Law

Consideration


Two Types of Enforceable Agreement Deeds

Contracts that comply with special rules Do not require consideration

Simple contracts Do require consideration


Deed In writing Maker of deed must sign, seal and deliver the

document Independent witness Special attestation clause

SIGNED SEALED AND DELIVERED )by the said JOE BLOGGS )in the presence of: )


Consideration

Every simple contract must be supported by consideration

The law will not enforce a gratuitous or bare promise

Lack of consideration may be overcome by the equitable doctrine of estoppel


What is Consideration

Consideration must flow from both sides of the contract

Can be: A promise to do something A promise not to do something A benefit for the promisee A benefit for a third person at the promisee’s direction A detriment to the promisor Anything of real value to the promisee


Consideration Cannot Be Past

A promise can be executed (i.e. present execution) or executory (i.e. future execution) but cannot be past

A promise must be paid for but if consideration has already been given then there is nothing being paid for the new promise Roscorla v Thomas (Outline p 6-5) Anderson v Glass (outline p 6-5)

Settling unsettled aspects of a past transaction may be consideration Re Casey’s Patents: Stewart v Casey (S&OR p104)


Consideration Must Move From Promisor

Only the person who has “paid” for the promise can enforce it

Dunlop v Selfridge (S&OR p101)

Called “Privity of Contract”

Dunlop Wholesaler(bought tyres from Dunlop, sold to retailers)

Selfridges(broke promise to wholesaler not to

discount)

Contract

Contract


Consideration Need Not Move to Promisor

It is not imperative that the consideration move to the promisee

Official Trustee in Bankruptcy v Arcadiou (Outline p 6-6)


Consideration Need Not Be Adequate

Consideration must be sufficient i.e. have some value in the eyes of the law Chappell & Co v Nestle (Outline p 6-6)

Need not be equal in value to the promisor’s promise

The very nature of contract law is to let the parties make their own bargain

However, doctrine of unconscionable conduct has developed to overcome resulting injustices


Consideration Must Be Sufficient

The following will not be sufficient consideration: Moral obligations Illusory consideration Performance of a public duty imposed by law Performance of an existing contractual duty

owed to the promisor


Illusory Consideration

The consideration must be definite It cannot be so nebulous as to be illusory

White v Bluett (Outline p 6-7)


Moral Obligations

A moral obligation is not sufficient Eastward v Kenyon (Outline p 6-7)


Promises Not to Sue

Forbearance to sue (i.e. an offer not to sue) is good consideration provided The claim (defence) was reasonable The promisee had an honest belief that the claim had

a reasonable chance of success The promisee has not concealed any facts that might

affect the validity of the claim

Hercules Motors v Schubert (Outline p 6-8)


Performance of a Public Duty

Where a person is obliged by law to perform a public duty

The promise to perform the duty cannot be sufficient consideration

Collins v Godefroy (Outline p 6-8)


Existing Contractual Obligation

Promising to perform an existing contract is not consideration

To be binding, there must be a promise to do something additional to contracted duty Stilk v Myrick (Outline p 6-8) Hartley v Ponsonby (Outline p 6-8)

Promise to perform an existing contractual duty to a third party is sufficient consideration Shadwell v Shadwell (Outline p 6-10)


Renegotiating a Debt Renegotiating a debt will not be consideration as

the debtor is already obliged to pay the full amount Doing something less cannot be consideration Pinnel’s Case (Outline p 6-9) Approved by House of Lords in Foakes v Beer

(Outline p 6-9)) Exceptions

Composition with creditors Payment by third party

Ways around Deed Payment in kind


Exceptions to Pinnels Case

Promissory estoppel Fraud on a third party

Shadwell v Shadwell (Outline p 6-10)


Promissory Estoppel

Elements1. Assumption

The promisee, on reasonable grounds, believes that a particular legal relationship exists or will exist

2. InducementThe promisor created the assumption

3. ReliancePromisee acts in reliance on promise

4. DetrimentPromisee alters its position to its detriment


Promissory Estoppel

Applies where No consideration exists Formalities of making a contract have not been

satisfied Walton Stores v Maher (textbook)


Consideration Must Be Sufficient

$1 for a Rolls Royce “I promise to be an honest public servant” “I’ll give up my legal claim against you” “I will pay you less than I owe you if you forget

the rest” “In love and affection” “I promise to carry out my contractual

obligations”

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Copyright Guy Harley 2004 Introductory & Contract Law Capacity to Contract Week 6.

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