lecture three Flashcards
definition of a contract
“An agreement between two or more persons (the parties) having the capacity to make it, in the form demanded by law, to perform, on one side or both, acts which are not trifling, impossible or illegal.”
MacQueen and Thomson, para 1.10
A contract is legally binding; both parties have legal obligations.
A promise also binds the promisor to a unilateral legal obligation.
Capacity is a prerequisite for a contract.
capacity in contract law
Capacity means having the mental ability to enter legally binding obligations.
Assumption: Everyone has capacity unless proven otherwise.
“All natural persons have active capacity until death, except insofar as restricted or eliminated altogether by the status of childhood or by mental illness or infirmity.”
MacQueen and Thomson, para 2.64
capacity of children
Age of Legal Capacity (Scotland) Act 1991
s.1(a): Under 16s generally have no legal capacity to enter transactions.
s.1(b): 16+ individuals have legal capacity.
s.9: Defines “transaction” to include contracts and unilateral obligations.
s.2(1): Under 16s can enter transactions that are:
Common for their age and circumstances.
Not unreasonable.
Young persons (16-17 years old):
Can apply to the court before turning 21 to set aside a prejudicial transaction (s.3(1)).
A transaction is prejudicial if (s.3(2)):
An adult exercising reasonable prudence would not have entered into it.
It has caused or is likely to cause substantial prejudice.
If a young person misrepresented their age or affirmed the contract at 18, they cannot set it aside (s.3(3)(g) & (h)).
capacity and mental health
Insanity
“The effect to be given to a contract entered into by an insane person depends on whether at the time when the contract is entered into the insane person is of mind and capacity to understand the business in question. If so, the contract is binding, and if not, it is null and void.”
John Loudon & Co v Elder’s Curator Bonis 1923 S.L.T. 226, per Lord Blackburn at 227
capacity and intoxication
Taylor v Provan (1864) 2 M. 1226
Per Lord Cowan at 1232: Absolute drunkenness negates consent; lesser drunkenness does not.
Per Lord Justice Clerk at 1231: Partial intoxication alone is insufficient to annul a contract.
Per Lord Neaves at 1234: Intoxication may lead to facility and lesion, rather than nullity.
effect of lack of capacity
A contract entered into by a party lacking capacity is void (McBryde on Contract, Ch 3).
It is treated as if it never existed.
No contractual obligations arise.
Recovery of losses must be pursued under unjustified enrichment, not contract law.
intention to create legal relations
Morgan Utilities Limited v Scottish Water Solutions Limited [2011] CSOH 112, Lord Hodge at para 52:
Did the parties intend to be bound immediately?
What would reasonable and honest individuals have understood?
Consider post-agreement behavior to contextualize intent.
The court must take a neutral approach.
presumptions in intention to create legal relations
- Commercial Arrangements
Presumed legally binding.
Applies to business-to-business and consumer contracts (Carlyle v RBS [2015] UKSC 13).
Express statements like “binding in honour only” rebut this (Woods v Co-op Insurance Society 1924 SC 692).
“Subject to contract” does not automatically rebut, but clear intention to sign in writing does (Karioulias SA v The Drambuie Liqueur Co Ltd 2005 SLT 813).
- Family Arrangements
Presumed not legally binding (Balfour v Balfour [1919] 2 K.B. 571).
- Social Arrangements
Presumed not legally binding (Robertson v Anderson 2003 S.L.T. 235).
definiteness in contracts
📌 Rule: “In order to create a contractual obligation an agreement must be reasonably definite. Vague general understandings cannot be enforced.” (Gloag, Contract, p11)
📌 Key Point: Gloag later described such agreements as “void from uncertainty,” but a more accurate term is “unenforceable from uncertainty.”
📌 Takeaway: Contract terms don’t need to be certain, but they must be determinable.
agreements to agree
📌 Rule: ‘Agreements to agree’ are not generally binding.
📌 Case: Courtney & Fairbairn v Tolaini [1975] 1 W.L.R. 297 – No binding obligation as key obligations were not yet determined.
📌 Exception: Consensus cases like R&J Dempster Ltd. v Motherwell Bridge and Engineering Ltd. (1964 SC 308) and Avintair v Ryder Airlines (1994 SLT 613).
📌 Key Question: Can the obligations of the parties be determined?
contract formation - general rule
📌 Rule: No formalities required to create a contract.
📌 Statute: s1(1) of the Requirements of Writing (Scotland) Act 1995
📌 Quote: Contracts can be formed orally, in writing, by conduct, or even through creative means like “sky-writing” or tracing in the snow! (Gretton, Missives by Fax or pdf? [2010] Edin. L. R. 280)
illegality & impossibility
📌 Rule: Contracts to do something impossible or illegal are unenforceable.
📌 Quote: “No person can lay himself under an obligation to perform what is naturally impossible; or to do any immoral or unlawful action…” (Erskine, III, 3, 3)
📌 Key Point:
Illegal agreements (pacta illicita) are unenforceable but not ‘void’ in Scots law.
A promise to commit an illegal act is also unenforceable.
exceptions - when writing is required
📌 Rule: Some contracts must be in writing under s1(2) of the ROWSA 1995:
1️⃣ Contracts affecting interests in land
2️⃣ Gratuitous unilateral obligations (except in business)
📌 Key Point: Digital signatures are valid under s9A-G of ROWSA 1995.
impossibility vs frustration
📌 Rule:
Impractical obligations can still be binding.
Supervening impossibility (after contract formation) leads to frustration, terminating the obligation.
📌 Example: If I promise to pay £1,000,000 for your house but cannot raise the funds, I am still bound.
📌 Further Study: Frustration is covered in Week 8.
gratuitous unilateral obligations
📌 Key Issue: ROWSA 1995 does not define ‘gratuitous unilateral obligations.’
📌 Two Views:
1️⃣ All promises are gratuitous (most accepted view).
2️⃣ A promise is not gratuitous if the promisor benefits.
📌 Safer Approach: Assume all promises are gratuitous and require writing, unless made in business.
📌 Case: RBS v Carlyle – a key case on promises in business.
contract vs gratuitous unilateral obligations
📌 Key Distinction:
Contracts = Always bilateral, even if only one party has obligations.
Promises = Unilateral and require writing.
📌 Prof. Martin Hogg’s View: “All contracts must be bilateral… what matters is whether obligation arises from one party’s action or two.” (Obligations: Law and Language, 2017, p172)
📌 Takeaway: s1(2)(a)(ii) of ROWSA applies only to promises, not contracts, even if the contract is gratuitous.
execution in counterpart
📌 Rule: Execution in counterpart is valid under Legal Writings (Counterparts and Delivery) (Scotland) Act 2015.
📌 Key Provisions:
s1(1) – A document may be executed in counterpart.
s1(5) – Becomes effective when delivered to the other party.
s4 – Delivery (even for traditional documents) can be electronic (email, fax, USB, etc.), if agreed or reasonable.
📌 Historical Case: Smith v Duke of Gordon (1701) – Scots law has always recognized execution in counterpart.
personal bar - exceptions to writing requirement
📌 Rule: Even if writing is required under ROWSA 1995, personal bar may enforce the contract if:
✅ One party (A) relied on the contract and changed their position (s1(3)).
✅ A was materially affected by their reliance (s1(4)(a)).
✅ A would be adversely affected if the contract was denied (s1(4)(b)).
✅ The other party (B) knew and acquiesced to A’s reliance.
📌 Effect: The contract will be enforced despite not meeting writing formalities.
📌 Key Cases:
Advice Centre for Mortgages v McNicoll (2006 SLT 591) – applies only to original parties, not successors.
Aisling Developments Ltd v Persimmon Homes Ltd (2009 SLT 494) – no personal bar if key terms are missing.
capacity & intention in contract formation
📌 Rule: A valid contract requires:
1️⃣ Capacity – Parties must be of age and sound mind.
2️⃣ Intention – Parties must intend to be legally bound.
3️⃣ Formal Compliance – If required, formalities must be met (e.g., ROWSA 1995).
📌 Takeaway: Without these elements, a contract may be unenforceable.
