Formation: Certainty, Capacity, and Intention to Create Legal Relations Flashcards
what is the requirement for certainty to form a valid contract?
all material terms must be sufficiently certain and complete to be enforceable
how does the court assess certainty in a contract?
the court applies an objective test to determine whether the parties have reached an agreement on all material terms
if terms under a contract are not sufficiently certain, what is the legal effect?
the contract will be void for uncertainty
but refusing to enforce a contract due to lack of certainty is a last resort - courts will first look to enforce the agreement and reflect parties’ intentions considering prior transactions and objective evidence
what is the requirement of intention to create legal relations to form a valid contract? how is this ascertained?
a reasonable person must regard the actions of the parties in the circumstances of the case as having shown an intention to enter into an agreement that has legal ramifications
(this is either presumed to exist or not to exist in commercial vs domestic contexts)
what are the presumptions as to intention to create legal relations in the commercial context?
how can this presumption be rebutted
presumption = parties intended to create legal relations
(commercial context = B2B, B2C, and commercial agreements between individuals)
rebutting presumption = heavy burden is on the party asserting no intention - e.g., by showing:
- clear words that the agreement shall not have legal effect (e.g., ‘subject to contract’, ‘binding in honour only’)
- uncertainty in terms of agreement so that it is not clear how parties are to perform their obligations
what are the presumptions as to intention to create legal relations in the domestic context?
how can this presumption be rebutted
presumption = no intention to create leal relations
rebutting presumption = e.g., if:
- agreement made between spouses in the process of separation
- terms are not sufficiently certain
- parties are not friendly when agreement is made
- a party relies on the agreement to their detriment
what is the requirement as to capacity to contract? how will lack of capacity affect the contract?
parties purporting to contract must have the capacity to contract
otherwise the contract is VOIDABLE at the instance of the party lacking capacity (not automatically void)
when will a party have capacity vs when will they not (2)?
a person has contractual capacity if they are over 18, are of sound mind, and are not suffering from a factor ruling out capacity such as intoxication
a person will not have contractual capacity (generally) if they are:
- a minor
- have mental incapacity
- are intoxicated
if a minor enters into a contract with a person and has lied about their age, is the contract valid or voidable for lack of capacity?
contract is still voidable - even if the minor lied about their age or if the other party does not know they are a minor
what is the legal effect of contracting with a minor?
the contract cannot be enforced against the minor BUT the minor can enforce it against the other party
the contract is voidable at the instance of the minor
what are the 2 exceptions to form a valid and enforceable contract with a minor?
(1) contract for necessaries
(2) contracts of employment, apprenticeship or education
when will a contract for necessaries with a minor or party lacking capacity be valid and enforceable against the them? (2)
a minor is bound by a contract to supply necessaries if:
(1) the contract is for their benefit, and
(2) the minor paid a reasonable price
‘necessaries’ = goods suitable to the condition of the life of the minor and to their actual requirements at the time of sale or delivery (not where the minor already has sufficient goods in question)
‘reasonable price’ = does not need to be the actual cost of the goods
when will a contract employment, apprenticeship or education with a minor be valid and enforceable against the minor? (1)
when it is for their benefit
when will a party lack mental capacity to enter into contracts?
a party lacks mental capacity if he is unable to make or communicate a decision for himself in relation to the matter at the time of formation (can be temporary or permanent)
this is when he is unable to:
- understand the relevant information,
- retain the relevant information, and
- use or weigh the relevant information
‘relevant information’ = the reasonably foreseeable consequences of deciding one way or another, or failing to make a decision
what is the legal effect of contracting with a party lacking mental capacity / intoxication?
the contract is voidable by the party lacking capacity if they can establish that:
(1) they lacked capacity at the time of agreement, and
(2) the other party knew or ought to have known this
(exception = contracts for necessaries - same as for minors)
