Capacity

Question 1

What is the general position around minors and enforceability of contracts?

Answer 1

Those under 18 are not bound by contracts

The other party would be bound

The contract is voidable on the part of the minor

Question 2

What types of contracts will bind minors?

Answer 2

• Contracts for ‘necessaries’ bind minors
• These are goods suitable to the minor’s social status and actual requirements and isn’t limited to things essential for life

i) Going out to a restaurant to celebrate a birthday would be a necessary

ii) Trading contracts are not contracts for necessaries

iii) Contracts of service that are predominantly beneficial to them will be binding on them (an apprenticeship, contract of employment or instruction)

Question 3

What is the position around enforceability of contracts when there is an issue of mental capacity?

Answer 3

Contracts made with a person suffering from some form of mental incapacity (could be a mental disorder or temporary (drugs/alcohol)) are valid unless:

• At the time of contracting the person was incapable of understanding the nature of the deal
• And the other party knew that to be the case

If both apply, the contract will be ‘voidable.’ This means that they are capable of being set aside by the person who had the mental impairment at the time the contract was made

Question 4

Can unincorporated associations (like clubs) enter contracts?

Answer 4

No, they are not competent contracting parties

The individuals in the association would be bound, not the association as an entity itself

Question 5

What contracts can LLPs enter into?

Answer 5

They have unlimited capacity, so they can enter any contracts

Question 6

What contracts can statutory authorities (local authorities etc) enter into?

Answer 6

The relevant statute will set out the purposes for which they can enter contracts

An ‘ultra vires’ contract is void/invalid - so check the statute

Question 7

What contracts can registered companies enter into?

Answer 7

1) The general position is that you need to check its memorandum of association, which details the type of contracts the company might get involved in. Ultra vires = invalid/void

2) Following the Companies Act 2006, an ultra vires contract will bind if the other party acted in good faith

• It is best to check that the company is entitled to enter that type of contract
• So, if an employee intentionally does something they’re not supposed to do, but the supplier acts in good faith, contract binds