Capacity

Nature and Purpose of Capacity

The law ultimately is concerned with promoting freedom of contract. In this way, the logic of rules on capacity is aimed at protecting certain types of person who may enter a contract either for their own protection or for the protection of the party who contracts with them. It will do so to avoid any unfair advantage being taken by a party in a superior position. The law does not necessarily prevent such people from entering contracts, but the consequences both for the party who lacks full capacity and the party with who they deal may be different. The law distinguishes between natural persons and artificial persons, the latter being corporations of whatever type. In the case of natural persons, there are 3 classes who may be affected by capacity: Minors (those under the age of 18 when the contract is formed) People who are drunk (when the contract is formed) Mental patients (those suffering from a mental illness when the contract is formed.)

Minors
s.1 (1) Family Law Reform Act 1969 Prior to the act minors were referred to as infants rather than minors The act changed the age from 21 and under to 18 and under The law on capacity is in no way seeking to prevent young people from making contracts or even to restrict or limit their ability to enter into contracts. The law may seem somewhat patronising or paternalistic but what it is essentially trying to achieve is the protection of the minor from unscrupulous businessmen and others seeking to enforce a contract against the minor. These persons might otherwise take advantage of the minor or exploit them to his own advantage by tying him to contractual arrangements that are really against the minors better interests. Minors contracts are divided into 3 categories. The different categories in essence represent different consequences for the parties to the contract in each case. Contracts that are VALID and therefore ENFORCEABLE against the minor Contracts that the minor may enter but can also back out of it required and which are therefore VOIDABLE Contracts that are UNENFORCEABLE against the minor and which in practical terms therefore may be difficult for him or her to make.

Contracts valid or enforceable against minors

Those contracts that a party may feel secure in making with minors themselves divide into two further categories. This is so because, provided the contract is validly formed, it can be enforced against the minor in the event of a breach of contract by the minor.

Contracts for necessaries

The common law, then, traditionally accepted that minors should pay for those goods and services that are actually supplied to them and that are classed as necessaries. Chapple v Cooper 1844 A minor whose husband had recently died contracted with the undertakers for his funeral. She later refused to pay the cost of the funeral, claiming her incapacity to contract The court held that she was liable to pay the bill The funeral was for her private benefit and was necessary as she had an obvious obligation to bury her dead husband

The purpose of such a rule is clear; it will allow minors to enter into contracts that are beneficial to them. However at the same time, it prevents unscrupulous businesses from taking advantage of their youth and inexperience. Necessary in this context is a very specific legal term; it does not have to mean the same as necessity. The courts have established a two-part test for determining what a necessary is and therefore what will be enforceable again the minor in the individual case The goods or services must be necessary according to the station in life of the particular minor The goods or services must also suit the actual requirements of the minor at the time when the contract is formed. Nash v Inman 1908 Cambridge undergraduate bought 122 clothes including 11 fancy waistcoats The court was prepared to accept that the supply of such clothing could be appropriate to the station in life of the undergraduate The contract was still held to be enforceable because facts showed that the minor was already adequately supplied with clothes Therefore these new ones could not be classed as necessaries.

Peters v Fleming 1840 Rings, pins and a watch chain were held to be necessaries for an undergraduate with a rich father, as it was customary at the time for such possessions to be had by the rich.

Law Commission (Working Paper no, 81) Concept of necessaries should be abandoned and replaced with a more narrowly defined concept of necessaries Not pursued though.

Beneficial contracts of service

Common law sensibly concludes that the minor may need to support himself financially and therefore must have the capacity to enter contracts of employment. School-leaving age is 16 and this is 2 years below the age of majority. To hold otherwise would not be sensible and would be unfair on the minor. Such a contract would be prima facie valid and therefore enforceable. However from an early time the courts accepted that the contract would be binding on the minor only if, on balance, the terms of the contract were substantially to the benefit of the minor. The court will have to look at the whole contract. The fact that some of the terms act to the minors detriment will not automatically invalidate the contract of service providing that it still operates mostly for the minors benefit. De Francesco v Barnum 1890 14 year old girl entered in 7 year apprenticeship with De Francesco, to be taught stage dancing By the apprenticeship deed, the girl agreed that she would be at De Francescos total disposal during the 7 years, and that she would accept no professional engagements except with his express approval. He was under no obligation to maintain or employ her. In the event that he did employ her, the scales of pay were set extremely low. She was also obliged not to marry except with his permission Finally, De Francesco was able to terminate their arrangement without notice whenever he wished. When the girl was set to accept other work, De Francescos action to prevent it failed. The provisions of the apprenticeship deed were held to be unfair by the court And therefore unenforceable against her They were not substantially for her benefit.

Doyle v White City Stadium 1935 Here the principle was extended to cover a contract between a minor who was a professional boxer and the British Boxing board of control. Under the agreement the minor would lose his purse (payment for the fight) if he were disqualified. The agreement was held to be binding on the minor since it was to encourage not only clean fighting but also proficiency in boxing, and was therefore for the benefit of the minor. The principle can be applied to a contract for services as well as to a contract of service.

Chaplin v Leslie Frewin 1966 In this case the principle was extended to a contract to write an autobiography. This was held to be similar to a contract for services and was beneficial to the minor, and so was binding upon him. It follows that, since contracts or necessaries and beneficial contracts of service are enforceable against the minor, if the goods or service are not necessaries or if the contract of service is not beneficial then these contracts are voidable by the minor. Proform Sports Management v proactive Sports Management and Another 2006 (The WAYNE ROONEY CASE) Wayne Rooney had signed a management and agency agreement with the claimant when he was 15, lasting for 2 years. He did so without any legal advice. Rooney was already contracted to Everton at this point. Rooney was approached by another agent and 6 months before the agreement was due to end, he wrote to the claimant giving notice of his intention not to renew the agreement when it expired. After taking legal advice Rooney then terminated the arrangement. The claimant argued that the other agent had induced a breach of its contract with Rooney. D argued that it was not illegal to induce termination of a contract that was voidable by a minor. The agreement between Rooney and the claimant was so that the claimant could represent him in future transfer deals. The court held that the contract with the claimant was not a contract of apprenticeship, education and service substantially to Rooneys benefit and therefore he was entitled to avoid it. Therefore the defendant was not liable.

Contracts Voidable by minors

This refers to those contracts which, though the minor might enter with perfect validity, he may nevertheless avoid by repudiating his obligations under the contract while still a minor or within a reasonable time after reaching the age of 18. The common feature of such contracts is that they involve subject-matter of some permanency. So they are otherwise known as contracts of continuous or recurring obligations. They involve long term interests and the law sensibly considers that, while a minor should be able to enter such contracts, he should also be in a position to repudiate all obligations and avoid further liability if that is more appropriate, providing that the repudiation occurs sufficiently early. There are 4 principal classes of contracts falling within this category Contracts to lease property Contracts to purchase shares in a company Contracts to enter a partnership

 Contracts of marriage settlement Such contracts are voidable by the minor because of their potentially onerous nature Nevertheless if the minor choose not to repudiate the contract then he will obviously be bound by all of the obligations falling under the contract. Whether the minor has repudiated in sufficient time to avoid the contract is a question of fact to be determined by the court in each case. Edwards v Carter 1893 A minor sought to repudiate an agreement under a marriage settlement by which he agreed to transfer the money he would inherit from his fathers will to the trustees under the settlement He tried to repudiate more than a year after his fathers death and four and a half years after actually reaching the age of majority. His argument that he was incapable of repudiating until he knew the full extent of his interest under his fathers estate failed. The court held that his repudiation was too late in time to be reasonable. LORD WATSON- if he chooses to be inactive, his opportunity passes away, if he chooses to be active the law comes to his assistance.

Where the minor repudiates the contract before any obligations under it have arisen, then no particular problems arise and the contract is simply at an end. The minor cannot be sued on any obligation that would have arisen after this point. However where obligations have already arisen before this point then the position is not so clear cut. Academic opinion seems to favour the view that the minor is bound by debts arising from the contract prior to the date of repudiation. Where the minor has transferred money under the contract then it would appear that this is not recoverable unless there is a complete failure of consideration. Steinberg v Scala 1923 A minor was allotted company shares for which she had made the payment due for the allotment and for the first call. Since she was unable to meet the payments for the further calls she sought to repudiate the contract and also to recover the money which she had already paid over to the company. The court was happy to accept the repudiation The meant that he name could be removed from the register of shareholders and she would bear no further liability for the company. However the court was not prepared to grant return of her money There was no failure of consideration Even though she had received no dividends or attended any meetings of shareholders, she had received everything she was bound to under the contract She had been registered as a shareholder.

Guarantees of minors contracts

s.2 Minors Contracts Act 1987 A guarantee can be enforced and minors therefore have perhaps gained greater access to credit facilities.

Misrepresentation of age
R Leslie Ltd v Sheill 1914 Minor fraudulently misrepresented his age in order to get a load from the claimant. The court held that at common law the claimant could not recover the amount of the loan since this would have the effect of enforcing an unenforceable contract However the court also identified that had the contract involved goods then the minor would have been obliged in equity to return them. Restitution would not apply in the same way to the money lent unless the very coins or notes lent were still identifiable in the hands of the minor.

Restitution
s.3 (1) Minors Contracts Act 1987 Supersedes the role of equityWhere a person has after the commencement of this Act entered into a contract with another and The contract is unenforceable against the defendant (or he repudiates it) because he was a minor when the contract was made, the court may, if it is just and equitable to do so, require the defendant to transfer to the claimant any property acquired by the defendant under the contract, or any property representing it.