lecture three Flashcards
What is meant by capacity in the context of legally binding agreements, and who is assumed to have it?
A contract is a legally binding agreement that creates obligations for both parties, while a promise creates a unilateral obligation for the promisor. For these legal obligations to be valid, the parties must have the capacity to enter into them, meaning they need the mental ability to understand and intend the commitments. Generally, individuals are assumed to have capacity unless there is evidence suggesting otherwise, such as being a child or suffering from mental illness.
What does the Age of Legal Capacity (Scotland) Act 1991 state about the legal capacity of individuals under and over the age of 16?
According to the Age of Legal Capacity (Scotland) Act 1991, individuals under 16 years old lack legal capacity to engage in transactions, while those 16 and older have full legal capacity. A “transaction” refers to any legally effective action, including contracts and unilateral obligations. There are exceptions for individuals under 16, allowing them to engage in transactions that are typical for their age and circumstances, provided the terms are reasonable. The law also recognizes individuals aged 16 to 18 as “young persons.”
What are the conditions under which a young person aged 16 or 17 can set aside a transaction according to the Age of Legal Capacity (Scotland) Act 1991?
Under the Age of Legal Capacity (Scotland) Act 1991, a “young person” aged 16 or 17 can request the court to set aside a transaction they believe is prejudicial before turning 21. A transaction is considered prejudicial if a reasonable adult would not have agreed to it given the applicant’s circumstances and if it causes substantial prejudice. For example, selling a property worth £100,000 for £70,000 would be deemed prejudicial. However, a transaction cannot be set aside if full restoration is not possible, and any party can seek court ratification before the young person turns 21. If a young person lies about their age or affirms the transaction after turning 18, they cannot set it aside.
How do mental incapacity due to insanity or intoxication affect the validity of contracts?
The enforceability of contracts involving individuals with mental incapacity, such as those deemed insane or intoxicated, varies based on their ability to understand the nature of the agreement at the time of contracting. In John Loudon & Co v Elder’s Curator Bonis, it was established that a contract made by an insane person is binding if they possess the mental capacity to understand the transaction; otherwise, it is void. In cases of intoxication, as noted in Taylor v Provan, individuals who are completely drunk lack the capacity to contract, while those who are only partially intoxicated may still be bound by their agreements if they can comprehend the essential terms.
What are the implications of intoxication on consent and the validity of contracts as highlighted in Taylor v Provan?
In cases of intoxication, a lesser degree of drunkenness can lead to a state of “facility,” which affects the validity of contracts. In Taylor v Provan, it was noted that intoxication can result in an inability to consent or create a condition of facility. If a person’s intoxicated state is accompanied by fraud, the contract may not be declared void but can be reduced if it leads to a significant disadvantage for the intoxicated party.
What is the effect of a lack of capacity on the validity of a contract, and what remedies are available if a party has incurred losses under a void contract?
A contract is considered void if at least one party lacked the capacity to enter into it when the agreement was made, meaning it is treated as if it never existed. Consequently, no contractual obligations arise, and parties cannot sue each other for breach of contract. If one party has incurred expenses or delivered something under the void contract, they may seek recovery through the law of unjustified enrichment rather than contract law. It is important to distinguish between void contracts and voidable contracts, which will be discussed later.
What criteria does the court use to determine the intention of parties to create legally binding obligations in a contract?
For a contract or promise to be legally binding, the parties must intend to create legal obligations. The court assesses this intention using four criteria established by Lord Hodge in Morgan Utilities Limited v Scottish Water Solutions Limited:
Determine if the parties intended to be bound immediately.
Apply an objective standard, considering what reasonable and honest individuals would have understood from the parties’ actions and words, especially in commercial transactions.
Examine the parties’ behavior following the alleged completion of the agreement to gain context on their intentions.
Maintain a neutral approach throughout the assessment.
What presumptions does the court consider when assessing the intention of parties to create legally binding obligations in different types of arrangements?
In addition to the criteria from Morgan Utilities, the court uses certain presumptions to determine if parties intended to create legally binding obligations. These include:
Commercial arrangements: There is a presumption that parties intend to create binding obligations, applicable to both business-to-business and consumer contracts.
An express statement indicating the intention not to be legally binding (e.g., “binding in honour only”) can rebut this presumption.
The phrase “subject to contract” does not automatically negate the intention but a clear indication that parties do not wish to be bound until a written contract is established can rebut it.
Family arrangements: There is a presumption that parties do not intend to create binding obligations.
Social arrangements: Similar to family arrangements, parties are generally presumed not to intend legal obligations.
What must be established for a contract to create enforceable obligations, and what role does the definiteness of terms play?
To create a contractual obligation, an agreement must be reasonably definite, as vague understandings cannot be enforced. While the terms of a contract do not have to be completely certain, they must be determinable; vague language cannot establish obligations. Agreements to agree are typically not binding because they leave essential details unresolved, as illustrated in Courtney & Fairbairn v Tolaini. However, there are exceptions in cases like R&J Dempster Ltd. v Motherwell Bridge and Engineering Ltd. and Avintair v Ryder Airlines, where consensus was achieved. The key question is whether it is possible to determine the obligations that arise from the agreement.
What does the law of pacta illicita cover, and how are illegal agreements treated under the law?
The law of pacta illicita governs agreements that involve either impossible actions or illegal acts. According to Erskine, individuals cannot obligate themselves to perform actions that are naturally impossible or immoral and unlawful. Such illegal agreements are unenforceable by law; they are not classified as ‘void’ in the same way as in most Civilian legal systems. Additionally, promises to commit illegal acts are also unenforceable. The topic of illegality in contracts will be explored further in Week 8.
What distinguishes impossible acts from impractical obligations in contract law, and what happens if an obligation becomes impossible to fulfill after it has been created?
Parties cannot be required to perform impossible acts, but they can be obligated to fulfill impractical commitments. For example, while it may be factually impossible for someone to raise £1,000,000 to purchase a house, they are still bound by their agreement to attempt it. If supervening events make it impossible to fulfill an obligation after it has been established, this situation is known as “frustration,” which terminates the obligation. The concept of frustration will be discussed in more detail in Week 8.
What are the requirements for creating an ordinary contract in Scotland according to the Requirements of Writing (Scotland) Act 1995?
According to section 1(1) of the Requirements of Writing (Scotland) Act 1995, there are no specific formalities required for creating a contract. Ordinary contracts can be made orally, in person or over the phone, and even silently in everyday situations like at a supermarket checkout. They can also be formed through various modern means, such as fax, PDF, or text message. Creative methods, such as sky-writing or writing in snow, are also valid ways to propose a contract, emphasizing the flexibility in how agreements can be made.
What are the exceptions to the general rule regarding formalities in contract creation according to the Requirements of Writing (Scotland) Act 1995?
There are exceptions to the general rule that no particular formalities are needed for creating a contract. If an offer specifies that acceptance must be in a particular form, such as in writing, then that condition must be met for the acceptance to be valid. Additionally, certain contracts made on or after August 1, 1995, must be in writing and signed by the parties to be valid, including contracts related to land interests and gratuitous unilateral obligations made outside of business. Digital electronic signatures are also acceptable for fulfilling the writing requirement. If a contract fails to meet these writing requirements, it is not considered validly formed.
What challenges exist in defining “gratuitous unilateral obligations,” and what assumptions can be made regarding the need for writing in such promises?
The term “gratuitous unilateral obligations” is not defined in the Requirements of Writing (Scotland) Act 1995, and the courts have not provided clear guidance on what constitutes such promises. There is uncertainty over whether all promises are considered gratuitous because only one party is bound, or if a promise loses its gratuitous nature if the promisor gains some benefit from it. It is generally safer to assume that all promises are gratuitous and thus require written documentation unless they are made in the course of business, as illustrated in the case RBS v Carlyle.
What implications does Professor Martin Hogg’s argument about unilateral and bilateral contracts have for the interpretation of “gratuitous unilateral obligations” under the Requirements of Writing (Scotland) Act 1995?
The Requirements of Writing (Scotland) Act 1995 does not define “gratuitous unilateral obligations,” raising questions about whether contracts with only one party obligated to perform (often referred to as “gratuitous contracts” or “unilateral contracts”) need to be in writing. Professor Martin Hogg argues that all contracts are inherently bilateral, meaning the distinction between unilateral and bilateral contracts depends on whether the obligation arises from the actions of one party or both. If Hogg’s argument is accepted, then no contracts can be categorized as “gratuitous unilateral obligations” under section 1(2)(a)(ii) of RoWSA. Instead, it may be more appropriate to refer to contracts as “gratuitous” or “onerous.” This implies that the writing requirement in RoWSA applies only to promises, not to contracts, even if they are gratuitous.
What types of obligations are classified as “gratuitous unilateral obligations” requiring written documentation under the Requirements of Writing (Scotland) Act 1995?
Under section 1(2)(a)(ii) of the Requirements of Writing (Scotland) Act 1995, the following types of obligations are classified as “gratuitous unilateral obligations” requiring written documentation (unless made in the course of business):
Promises where the promisor obtains no benefit: These definitely qualify as gratuitous unilateral obligations since only one party is involved in creation and performance.
Promises where the promisor obtains a benefit: These probably qualify as well, though it’s safer to assume they do, as they still involve one party creating and performing the obligation, despite the argument that the benefit could make it onerous.
Contracts where both parties have to perform an onerous obligation: These definitely do not qualify, as both parties are involved in creation and performance, making it bilateral and onerous.
Contracts where only one party has to perform a substantive obligation: These do not qualify because, although only one party performs, both parties are involved in creating the obligation, making it bilateral.
What are the conditions under which personal bar can prevent a party from denying the validity of a contract that must be in writing under the Requirements of Writing (Scotland) Act 1995?
Under the Requirements of Writing (Scotland) Act 1995 (ROWSA), even if a contract or promise must be in writing and is not, personal bar can prevent a party from denying the contract’s validity if certain conditions are met. Party A must have relied on the contract by acting or refraining from acting, leading to material effects; they would suffer materially if Party B withdrew; and Party B must have known and accepted that Party A relied on the contract. The consequences of personal bar include that Party B cannot withdraw from the contract, and the contract will be deemed valid despite lacking compliance with ROWSA 1995. This principle only applies if the agreement is otherwise valid and the only issue is the absence of written formalities.
What do recent case law examples reveal about the application of personal bar under the Requirements of Writing (Scotland) Act 1995?
Case law regarding personal bar under the Requirements of Writing (Scotland) Act 1995 reveals several key points:
In The Advice Centre for Mortgages v McNicoll (2006), personal bar applies only to original parties of the contract, not their successors.
In Gray v MacNeil’s Executor (2017), personal bar was not applicable, but personal rights were granted.
In Aisling Developments Ltd v Persimmon Homes Ltd (2009), personal bar was not established because the key terms of the contract were not finalized, despite reliance on it.
In Dawson International v Coats Paton (1988), it was stated that there may be liability for reimbursement of expenses incurred by one party relying on representations made by another, even when there was no binding contract, only an agreement lacking the necessary elements for a contract.
What does the Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 state about the execution of documents in counterpart?
Execution in counterpart has long been recognized in Scots law, dating back to Smith v Duke of Gordon (1701), but the Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 has formalized this method of contracting. According to section 1(1) of the Act, documents may be executed in counterpart, and they only become effective once delivered to the other party and any necessary legal steps have been taken (s1(5)). Additionally, section 4 allows for the delivery of traditional documents via electronic means (such as email or USB), as long as the parties agree or it is deemed reasonable.
What are the key requirements for creating a legal obligation according to Scots law?
To create a legal obligation, a party must have the capacity to do so, meaning they must be of legal age and of sound mind at the time of entering into the obligation. The parties must also intend to be legally bound by the obligation for it to be effective. Additionally, the Requirements of Writing (Scotland) Act 1995 outlines the necessary formalities for certain obligations. While there are no formal requirements for most contracts, those related to ‘real rights’ in land and gratuitous unilateral obligations do require specific forms. Finally, an obligation becomes unenforceable if it is impossible or illegal to perform, though it is not considered void.
