Element 2: Intention to create legal relations and capacity

Question 1

What is intention to be bound?

Answer 1

For a contract to be binding the parties need to intend to be legally bound through mutual communication (express or implied)

Question 2

What are the rebuttable presumptions based on relationship of parties?

Answer 2

1. Domestic situations
2. Social situations
3. Commercial Situations

Question 3

Explain the domestic situation rebuttable presumption?

Answer 3

Parties in domestic arrangements don’t intend to be legally bound by their agreements

Question 4

Explain the social situations rebuttable presumption?

Answer 4

There is no intention to be bound unless there is evidence to the contrary

Question 5

Explain the commercial situations rebuttable presumption?

Answer 5

Parties to a commercial agreement intend to be legally bound unless clear and unambiguous evidence that they did not intend to do so

Question 6

How does one rebut the commercial presumption to be bound?

Answer 6

Using words like “binding in honour only” or “subject to contract”

Question 7

What three things would imply that a party has no capacity?

Answer 7

1. Minor
2. Intoxication
3. Mental incapacity

Question 8

Who are minors and are contracts with minors void or voidable?

Answer 8

Under 18 - Voidable by minor

Question 9

What is the rule for minors capacity?

Answer 9

They are not bound unless they enforce the contract or ratify them when they turn 18

Question 10

What are the exceptions to minors’ lack of capacity?

Answer 10

1. Necessaries (goods or services) - for the condition in life of the person concerned and their actual requirements at the time of sale and delivery
2. Employment contracts with favorable terms
3. Contracts for acquisition of permanent interest in property

Question 11

Explain the exception to minors capacity for interest in property?

Answer 11

If a minor acquires a permanent interest in property (like shares) then they are bound unless they EXPRESSLY REPUDIATE becaus they acquire rights of ownership

Question 12

When will a court order under the Minors Contracts Act 1987 that the minor return a car he bought but did not pay for?

Answer 12

If it is just and equitable to do so

Question 13

If a mentally ill person enters into a contract, is that contract void or voidable?

Answer 13

Voidable by the individual IF the other party knew about the lack of capacity

Question 14

When does a person under the Mental Capacity Act, lack capacity to contract mentally?

Answer 14

Unable to make decision for themselves in relation to the subject matter (not understand information/retain information/weigh up information/communicate decision)

Question 15

Can a mentally incapacitated person ratify a contract?

Answer 15

Yes, upon recovery

Question 16

Does the necessaries rule also apply to lack of mental capacity?

Answer 16

Yes - the person must pay a REASONABLE PRICE for the necessaries

Question 17

Is an intoxicated person bound?

Answer 17

Yes, unless the other person was aware of the incapacity

Question 18

Can lack of capacity of a company be questioned on the grounds of something in its constitution?

Answer 18

Nope