prerequisites to contract Flashcards
What is the meaning of capacity in contract law?
Capacity refers to the mental ability to understand and enter into legally binding obligations. A person must be capable of intending to bind themselves and understanding the significance of their actions.
Who generally has the capacity to enter into a contract?
Generally, everyone has the capacity to enter into a contract, unless there is evidence suggesting otherwise. The assumption is that a person has capacity unless they are a child, have a mental illness, or suffer from infirmity.
Are there any exceptions to the assumption that all persons have the capacity to contract?
Yes, the exceptions are childhood, mental illness, and infirmity. These conditions may restrict or eliminate a person’s capacity to enter into legal agreements.
What is the starting point for assessing capacity in contract law?
The starting point is that all natural persons have active capacity to contract unless there is a reason to believe otherwise, such as being a child or having a mental illness or infirmity.
What does the Age of Legal Capacity (Scotland) Act 1991 say about the legal capacity of individuals under 16?
Under section 1(a) of the Age of Legal Capacity (Scotland) Act 1991, persons under the age of 16 have no legal capacity to enter into any transaction, with exceptions provided under section 2.
What does section 1(b) of the Age of Legal Capacity (Scotland) Act 1991 say about the legal capacity of individuals aged 16 or over?
Section 1(b) of the Act states that a person aged 16 or over has full legal capacity to enter into any transaction.
What is the definition of a “transaction” according to the Age of Legal Capacity (Scotland) Act 1991?
Section 9 of the Act defines a transaction as a transaction that has legal effect, including unilateral obligations (such as promises) as well as contracts.
What exceptions are there to the general rule regarding children under 16 and their capacity to enter into transactions?
Section 2(1) of the Act provides that a person under 16 can enter into a transaction if it is of a kind commonly entered into by persons of their age and circumstances and if the terms of the transaction are not unreasonable.
What is the legal status of a “young person” aged between 16 and 18 in relation to contracts and transactions?
The Act recognizes young persons aged between 16 and 18 as having legal capacity to enter into transactions, subject to specific rules. However, additional legal considerations might apply based on the nature of the transaction.
What can a young person (aged 16 or 17) do if they believe a transaction they entered into is prejudicial?
Under section 3(1) of the Age of Legal Capacity (Scotland) Act 1991, a young person can apply to the court to set aside a transaction if they consider it to be a prejudicial transaction before they reach the age of 21.
How does the court determine if a transaction is prejudicial for a young person?
According to section 3(2) of the Act, the court will determine that a transaction is prejudicial if:
- An adult, exercising reasonable prudence, would not have entered into the transaction in the circumstances at the time.
2.The transaction has caused or is likely to cause substantial prejudice to the young person.
Are there any exceptions to setting aside a prejudicial transaction for a young person?
Yes, section 3(3) of the Act outlines exceptions. A transaction cannot be set aside if restitutio in integrum (restoration to the original position) is not possible. This means if it is impossible to return both parties to their original position, the court may not allow the transaction to be set aside.
Can a transaction be ratified by a young person before they turn 21?
Yes, under section 4 of the Act, any of the parties to a transaction can apply to the court to have the transaction ratified before the young person turns 21.
What happens if a young person lies about their age or affirms the transaction after turning 18?
If a young person lies about their age or affirms the transaction after reaching the age of 18, they will be barred from applying to the court to set the transaction aside, as per sections 3(3)(g) and (h) of the Act.
What is the effect of a contract entered into by an insane person?
According to John Loudon & Co v Elder’s Curator Bonis (1923), the validity of a contract entered into by an insane person depends on whether they had the capacity to understand the business they were entering into. If the person was capable of understanding the contract, it is binding; if not, it is null and void.
How does intoxication affect a person’s ability to enter into a binding contract?
In Taylor v Provan (1864), it was held that a person who is absolutely drunk and deprived of reason cannot be bound by a contract. However, partial intoxication (where reason is somewhat impaired but not completely lost) does not automatically annul the contract. For a contract to be annulled due to intoxication, the person must be in a state of incapacity to understand the nature of the transaction.
Can a contract be annulled due to partial intoxication?
According to Lord Justice Clerk in Taylor v Provan, partial intoxication (where the person is not completely incapacitated by drink) does not annul the contract. The person must have been in a state where they lacked the capacity to understand the transaction for the contract to be set aside. The mere impairment of reason is insufficient to annul the contract.
What does intoxication cause in terms of contract validity?
In Taylor v Provan (1864), it was noted that intoxication may have two effects:
- Inability to consent: The person is incapable of understanding the transaction.
- Facility: The person has impaired judgment but is not fully incapable. This may lead to a reduced capacity to make decisions, especially when fraud is involved.
Can a contract be reduced due to intoxication?
Yes, according to Taylor v Provan, intoxication that leads to facility can result in a reduced contract (rather than it being void). This is particularly true if fraud is involved and the person suffers lesion (harm or disadvantage).
What happens if one party lacks capacity to enter into a contract?
If at least one party lacks capacity, the contract will be void. This means the contract is treated as if it never existed and no contractual obligations are created.
What remedy is available if a party has already spent money or delivered something under a void contract?
If something has been spent or delivered under a void contract, the remedy would be through unjustified enrichment, not breach of contract. The party can seek recovery based on the unjust enrichment principle, as the contract itself is considered non-existent.
How are void contracts different from voidable contracts?
Void contracts are treated as if they never existed and have no legal effect, while voidable contracts can be valid but are subject to being annulled or rescinded by one of the parties. The distinction between void and voidable contracts will be discussed in detail in week 4.
What approach does the court take when determining if the parties intended to be bound?
The court uses an objective approach, considering what reasonable and honest people, in the same position, would have understood from the parties’ actions and the surrounding circumstances. This includes considering the expectations of sensible businesspeople in commercial transactions.
What must the parties intend before a contract or promise can be formed?
The parties must intend to create legally binding obligations before a contract or promise can be formed and enforceable.
