Capacity others

Question 1

Mental incapacity

Answer 1

This category covers people suffering from mental disability (which appears to include both mental
illness and mental handicap), and those who are drunk when the contract is made. In general, contracts made with someone in either state will be valid, unless, at the time when the contract is made, that person is incapable of understanding the nature of the transaction and the other party knows this. In such circumstances the contract is voidable: the party suffering from mental disability or drunkenness can choose whether or not to terminate it. Where one party is incapable, through drunkenness or mental disability, of understanding the nature of the transaction, but the other party does not realise this, the courts will ignore the incapacity.

Question 2

Hart v O’Connor (1985)

Answer 2

the Privy Council held that a person of unsound mind was bound by his agreement to sell some land because, when the contract was made, the buyer did
not realise that the seller had any mental incapacity.

Question 3

Barclays Bank v Schwartz (1995)

Answer 3

the defendant was Romanian and had signed contracts rendering him liable for his company’s debts of over £500,000. In an attempt to resist paying the money he argued that his poor English and illiteracy meant he lacked the capacity to make the contracts. This argument was rejected by the Court of Appeal, being described by the court as ‘straight from the book of feeble excuses’.