Chapter 4: Capacity

Question 1

1 Introduction

Lack of Capacity = Lack of Binding

Answer 1

If a person (Person A) does not have capacity to enter into a contract, then a contract with Person
A is unlikely to bind them. There are rules on capacity to contract for those who are less capable of looking after themselves such as children, those who are mentally ill and others temporarily lacking mental capacity. The rules are there to protect the vulnerable and also to protect others who make contracts with those of limited capacity.

Question 2

Determining Contractual Capacity

Answer 2

Persons over the age of 18 have full contractual capacity, if they are of sound mind and not
suffering from a factor ruling out capacity such as drunkenness

We will look at these categories of rules in turn:
(a) Children (minors)
(b) Those lacking mental capacity

Question 3

Minors

Answer 3

Generally, a person is not bound by a contract entered into under the age of 18 even if the other
party contracting does not know of this fact or the minor has lied about their age. There are two main exceptions, relating to ‘necessaries’ and to contracts of employment, apprenticeship or education.

Question 4

2.1 Necessaries

Answer 4

Firstly, a minor is bound by a contract to supply necessaries to them if the contract is for their
benefit. A minor must pay a ‘reasonable price’ for these rather than the actual cost of the
‘necessaries’ supplied. Under the Sale of Goods Act 1979 s 3(3), ‘necessaries’ means goods suitable to the condition in life of the minor or other person concerned and to their actual requirements at the time of the sale and delivery

Question 5

Nash v Inman (1908) 2 KB 1, 11

Answer 5

Waistcoats supplied to a minor who was an undergraduate at Cambridge University at the time were suitable according to the minor’s station in life (!) but not necessary as he already had sufficient clothing. Accordingly, the contract was not enforceable

Question 6

2.2 Contracts of employment, apprenticeship or education

Answer 6

Secondly, a minor is also bound by a contract of employment, apprenticeship or education (or
analogous contract), but only if it is for their benefit

Question 7

Aylesbury Football Club v Watford
Association Football Club (QB 12 June 2000)

Answer 7

A young footballer’s contract with the club was not
beneficial and could not be enforced because the player received no extra training or experience,
the terms were onerous for him, they restricted his freedom to pursue a football career and the
payment of wages depended on the will of his employer.

Question 8

2.3 The effect of entering into a contract with a minor

Answer 8

Unless one of the exceptions applies, the contract cannot be enforced against the minor, although
the minor can enforce it against the other party. By way of exception, there are a small number of
contracts of exceptional types which are enforceable against the minor unless the minor
specifically repudiates them. If a minor ratifies a contract once they reach the age of 18, then the contract will be binding on
them.

Question 9

3 Mental incapacity and intoxication: The Mental Capacity Act 2005

Answer 9

A person lacks capacity under s 2 of The Mental Capacity Act 2005 if ‘he is unable to make a
decision for himself in relation to the matter’ at the time the contract is made, whether the
impairment is permanent or temporary

Question 10

Describing impairment: The inability to..

Answer 10

1. Understand the Relevant Information
2. Retain the Relevant Information
3. Use the Relevant Information
4. Communicate a Decision

Question 11

According to s 3(4) the relevant information relates to the reasonably foreseeable consequences
of

Answer 11

(a) Deciding one way or another; or
(b) Failing to make a decision.

Question 12

The effect of entering into a contract with a person
lacking capacity

Answer 12

Under s 7, a person without capacity still remains liable to pay a reasonable price for ‘necessaries’. These are defined as goods or services ‘suitable to a person’s condition of life and to his actual requirements at the time when the goods or services are supplied’ (s 7(2)).

Question 13

In cases of capacity, the contract is binding unless ..

Answer 13

1) Unless the person claiming incapacity can establish, first, that they did not understand what they were doing and,

2) secondly, that the other party knew that to be the case: Imperial Loan Co v Stone [1892] 1 QB 599.
If this can be established, the contract will be voidable.

Question 14

Drunken Person and Intoxication

Answer 14

Similar rules apply to contracts entered into by drunken persons. The individual who becomes so intoxicated that they do not understand what they are doing will have to pay a reasonable price for necessaries but will not be bound by any other contract they make: Matthews v Baxter (1873) LR 8 Ex 132. This position should logically extend to those incapacitated by other intoxicating substances.

Question 15

Summary

Answer 15

• There are rules on capacity to contract for those who are less capable of looking after
  themselves such as children, those who are mentally ill and others temporarily lacking mental capacity.
• Persons over the age of 18 have full contractual capacity, if they are of sound mind and not suffering from a factor ruling out capacity such as drunkenness.
• A person under the age of 18 is not generally bound by a contract unless it relates to
  ‘necessaries’ or to a contract of employment, apprenticeship or education.
• A person also lacks capacity under s 2 of The Mental Capacity Act 2005 if they are ‘unable to make a decision for [themselves] in relation to the matter’ at the time the contract is made.
• A person without capacity still remains liable to pay a reasonable price for ‘necessaries’. In any
  other cases, the contract is binding unless the person claiming incapacity can establish that
  they did not understand what they were doing and that the other party knew that to be the
  case.
• Similar rules apply to contracts entered into by drunken persons.