3. Intention to Create Legal Relations; Capacity

Question 1

For a contract to be binding, what do both parties need to intend?

Answer 1

To be legally bound by it

Question 2

How must intention to be legally bound be communicated?

Answer 2

Mutually, either expressly or impliedly

Question 3

What is the presumption regarding intention to be legally bound in domestic situations (married couple, family member)?

Answer 3

That the parties do not intend to be legally bound

Question 4

What is required to rebut the presumption against intention to be legally bound in domestic situations?

Answer 4

Objective evidence to the contrary

Question 5

Even where objective evidence to the contrary is used to rebut presumption against intention to be legally bound in domestic situations, what will prevent it from being rebutted?

Answer 5

If either party has actual knowledge that the other does not intend to be legally bound

Question 6

What is the presumption regarding intention to be legally bound in social situations?

Answer 6

Same as domestic

Question 7

What is a situation in which the courts have found the presumption against intention to be legally bound in social situations to be rebutted?

Answer 7

Where friends or family members join together to enter a race or competition

Question 8

What trap on the exam concerning a social situation should we look out for?

Answer 8

Social parties, e.g. friends or family, acting within a commercial context

Question 9

What is the presumption regarding intention to be legally bound in commercial situations?

Answer 9

Strong presumption that the parties intend to be legally bound

Question 10

What is required to rebut the presumption against intention to be legally bound in commercial situations?

Answer 10

Clear and unambiguous evidence to the contrary

Question 11

If a commercial party does not intend to be legally bound, what should they do to rebut the presumption?

Answer 11

State that their agreement is “subject to contract” or “binding in honour only”

Question 12

What is the implication in a commercial situation where an agreement is subject to contract?

Answer 12

That a legally binding agreement will follow

Question 13

What is the effect of a contract entered into by a minor?

Answer 13

Voidable by the minor, with some exceptions

Question 14

When is a minor bound by a contract?

Answer 14

When they ratify the contract

Question 15

How does a minor ratify a contract?

Answer 15

By adopting it after they turn 18

Question 16

What are three exceptions to the general rule that a contract cannot be binding on a minor?

Answer 16

1. Contracts for necessaries
2. Employment contracts that benefit them
3. Contracts for the acquisition of a permanent interest in property

Question 17

What contracts for necessaries are binding on a minor?

Answer 17

Any contract for necessary goods or services at a reasonable price

Question 18

In the context of a contract for necessaries with a minor, what is deemed “necessary”?

Answer 18

This is subjective, based on the minor in question

Question 19

When is a contract for the acquisition of a permanent interest in property not binding on a minor?

Answer 19

When the minor expressly repudiates the contract

Question 20

Why is a contract for the acquisition of a permanent interest in property binding on a minor, unless expressly repudiated?

Answer 20

Because under the contract, an ownership interest passes to the minor

Question 21

Under the Minors’ Contracts Act 1987, what will the court do in a situation where under a contract, the other party has transferred property to the minor under a voidable contract?

Answer 21

Require the minor the send the property back, if it is just and equitable to do so

Question 22

What is the effect of a contract entered into by an individual lacking mental capacity?

Answer 22

Voidable, if the other party knew that they lacked capacity

Question 23

What are four factors to consider when judging if a person lacks capacity?

Answer 23

1. Unable to understand information relevant to the decision
2. Unable to retain such information
3. Unable to weigh up such information
4. Unable to communicate their decision

Question 24

If a person lacking mental capacity enters into a contract, can they ratify the contract?

Answer 24

When they recover

Question 25

Does the necessaries exception apply to mental incapacity?

Answer 25

Yes

Question 26

Is intoxication considered a mental incapacity?

Answer 26

Yes

Question 27

What does the Companies Act 2006 say about corporate capacity?

Answer 27

The validity of an act done by a company cannot be called into question by reason of anything in the company’s constitution

Question 28

How do courts analyse the question of certainty when determining whether a contract exists?

Answer 28

term must be ‘too uncertain and vague’ to be enforceable.
- rebut any presumption of an intention to enter into legally binding agreement.

Factors courts will consider:
1) Look at past transactions performed under the agreement;
2) Clause provides for the appointment of a third-party if the parties are in disagreement (ie. arbitrator).
3) Whether the agreement is missing essential terms (ie. time, quantity)

Question 29

What is the outcome of a contracting with a minor?

Answer 29

contract is voidable

Question 30

What is the outcome of an uncertain contract?

Answer 30

void

Question 31

In the context of contracts with minors/incapacitated persons, what are necessaries?

Answer 31

Essentials individual cannot live without, including include food, clothing, lodging, education, essential services.

Assessed by taking into account their condition in life (ie. minor living on council estate versus stately home).

• Note - where relevant person already has enough an abundance of the good in question, then more cannot be necessary (Nash v Inam)