INTRODUCTION

In order to understand the law in relation to capacity to contract, one must define capacity to contract as
the legal competence of a party to enter into a valid contract. The term ‘legal competence’ hence
describes a person who is sane (normal), can make reasonable choices and can take part in legal
proceedings such as acquiring enough mental training to understand the nature and ramification of an act 1.
English law stipulates that any person is competent to bind himself to any contract he decides to make, so
long as it is not illegal or void on grounds of public policy. Contract agreements require critical analysis
for parties. However, not every person is able to qualify to be of sound mind; minors, mentally
incapacitated people and companies (corporations) are separated from people that are said to be of sound
mind.

MINORS

English Common defines a minor as a person under the age of 18. This means persons under the age of 18
are incapable to enter into a contract because they are believed to not have attained the age where they are
able to make mature decisions. It would be impossible for a 16 year old boy to buy a house from an adult
because he wouldn’t be able to understand the terms of agreement he is getting into.

The legal principle is that when a contract is made between a minor and an adult, it may not be binding on
the minor but is binding on the adult. However, if the minor becomes of age and is mature enough to
approve of the contract by confirming the promise made before he became of age, the contract can then
be said to be binding. Minors may be involved in; contracts that are valid and enforceable against the
minor, voidable contracts that the minor can enter but also back out if required and contracts that are
completely unenforceable against the minor. The legal rule applied in contracts that are valid against
minors is that contracts are not binding on a minor who enters an agreement at his young age. A contract
is binding against a minor when it is for necessaries and beneficial service.

NECESSARIES

These are goods that suit the condition of life of minors to satisfy his actual requirements at the time of
sale. Simply put, necessaries are essential elements a minor cannot live without, for example, food and
clothes. This type of contract may be legally binding where it is for the benefit of the minor. The Sale of
Goods Act2 provides that where necessaries are sold to an infant, he must pay a reasonable price
therefore. This means that a minor may not be able to pay the full price as agreed in the contract but a

1
Legally competent, the law dictionary: https://dictionary.thelaw.com/legally-competent/
2
Section 2 of 1893
reasonable pay is deemed acceptable. Necessaries differ in terms of a minor’s particular status in life and
the requirements suitable of the minor at the time when the contract is formed. It can be mentioned that
some minors, due to their positions in life, and the backgrounds they come from, may provide them with
an advantage of what they can acquire from a contract, a minor who is coming from a wealthy
background would value a contract with higher benefits, minors who seek to survive would only want to
get what is important to them at that particular time. The case of Nash v Inman 3is mainly applied in this
rule. The court had accepted that the supply of waist coats would be appropriate in the position of life of
the Nash but the contract was still held unenforceable because the facts showed that the minor was
already adequately supplied with clothes from his family. Therefore, the waistcoats that the tailor
supplied could not qualify as necessaries.

In Another case, Ryder v Wombwell4, the court held that jewellery and an antique goblet could not be
rendered as necessaries, even for a minor who didn’t earn a large income. Secondly if the court decided
that the goods were actually necessaries in the particular situation of the minor, in terms of the goods
consideration of whether the defendant had already been sufficiently supplied with goods of that kind at
the time of their sale and delivery. This entails that for a necessary to be determined in a contract enforced
against the minor, the goods and services must be of importance according to the minors position in life,
and the goods and services must suit the requirements of the minor at the time when the contract is
formed.

Section 3 of the Sale of goods act5 also outlines liability of a minor to pay for goods that are actually
supplied. It mentions that a reasonable price must be paid by incapable people for necessaries that have
been sold and delivered to them. In this context it may be that executory contracts are not enforced i.e in
terms of one which has not yet been performed. If a minor’s obligation to pay comes from the fact of him
having acquired necessaries, without completing his task as agreed in the contract, he cannot be liable. A
minor also, is only liable to pay a reasonable price and not the contracted price if the court finds that the
contract is in fact enforceable6.

e.g a 17 year old boy told to slash a football pitch for money inequivalent to a basic gardeners pay. It must
be one that should be beneficial to the minor. In the case of Fawcett v Smethurst7, the contract was
harsh and unenforceable against the minor. It can be mentioned, also, that the definition for necessaries
outlines goods that have only been supplied to the child. Goods which have not been supplied are not said
3
(1908) 2 KB 1, CA
4
(1868) LR 4 EXCH 32
5
1893
6
Capacity to contract: https://slideplayer.com/slide/6224464/
7
(1914) 84 LJKB 473
to be necessaries. The minor’s responsibility to pay for the necessaries may not be contractual at all, but it
is one imposed on the minors by the rule of law. This concept is important where only goods and services
have been supplied on credit. Where goods and services have been delivered and payment is made for
them, the minor would have then performed his task as underlined in the contract and the questions of
enforcing these obligations will not arise.

A. Contracts of beneficial service

It is desirable, by law that a child should be able to be employed and get paid or that he should be
involved in apprenticeship. Accordingly, a minor is bound by a contract of beneficial service provided
that it is completely benefitting them. The courts, in Clements v North western railway co8, held that the
contract was entirely benefitting the child, the claimant was bound by it and could not claim under the
1880 act.

However, there are other contracts that can be a disadvantage to the minor but he/she will still be bound if
the terms are usual for the type of contract and the contract is otherwise fair. In this situation, the courts
invalidate the contract as a whole. On the other hand, a term may be so damaging to the minor that it is
rendered unfair that there should be a binding contract containing it. The case of De Francesco v
Barnum 9 teaches us that the court cannot accept a contract subjecting the minor to only those terms that
are beneficial while cancelling those that are not. The principle for this is to give the minor the general
advantage of securing a way of acquiring a livelihood. In Doyle v White city stadium10, a minor who was
a professional boxer was not to be paid by the regulators if he got disqualified. This was a binding
contract because the boxer was encouraged to fight cleanly and enhance his skill in boxing. One must
mention, as well, that since contracts for necessaries and beneficial contracts of services are enforceable
against a minor, if the goods or services are not necessaries or if the contract of service is not beneficial
then they are voidable by the minor.

Contracts voidable by a minor are those contracts which a minor might enter with perfect validity, but
may avoid the contract by denying obligations under the contract while still a minor. In short, voidable
contracts bind the minor until he decides to reject it, at least before reaching the age of 18. The main
effect of this is to free the minor from all future liabilities and obligations. Therefore, contracts voidable
by minors fall in four kinds; contracts to lease property purchase of shares in a company, marriage
settlements and to enter a partnership. The courts may need to determine, however if the minor has been

8
[1894] 2 QB 482, CA
9
(1890) 45 CH D
10
(1935) 1 KB 110
able to deny the contract in sufficient time. In Edwards v Carter11 , The court had held that the claimants
denial of the contract was too late in time for him to be responsible. Contracts that are void and
unenforceable against minors are ‘All contracts, either by specialty or by simple contract, entered into by
minors for the repayment of money lent or to be lent or for goods supplied or to be supplied, other than
necessaries, and all accounts stated with minors shall be absolutely void’ 12. This is a law that simply
outlines that all loans made to an infant, and any mortgage of land executed by the minor as security for
the repayment of money is rendered completely void.

MENTALLY INCAPACITATED PERSONS

Mentally incapacitated persons are of two types, persons suffering from mental disability (insanity) and
drunk persons. For mentally disabled people, the law seeks to understand whether a party, at the time of
contracting, actually suffered from a mental disability to the point where he/she was unable to understand
the nature of his/ her act when forming the contract. The contract is rendered voidable by a party with the
mental disorder rather than void if the other party is also aware of the disability at the time at which the
contract is formed. The case of Imperial Loan Co. v Stone13 shows us that even when a person enters into
a contract and afterwards claims of being mentally incapable and proves of it, the contract (whether
executor or executed) is binding in every aspect, unless if proven further that the person with whom
he/she contracted knew of his insanity to the point of not being capable of understanding what it was
about. A failure to prove that a person is of unsound mind means that the contract is rendered valid.
Hence, the contract cannot be void. For a drunk party in a contract, the law provides certain protections
only if the party does not know the extent of his behaviour at the time the contract is formed and only if
the drunkenness is evident to the other party, then the contract can be rendered voidable by the drunk
person as he returns to a sober state. ‘A contract made by an intoxicated person without knowing the
effect of his act is not binding on him if the other party is aware of his condition. On the other hand, if the
drunken party becomes sober and approves of the contract, then he is bound ’ 14.

CAPACITY OF CORPORATIONS

11
[1893] AC 360
12
Infants Relief Act. 1874
13
[1892] 1 QB 599
14
Gore v Gibson [1845] 13 M & W621; 153 E.R. 260
A corporation is described as a separate legal entity from its owners, or an artificial person created by a
process of law. Companies are formed under the Companies Act15. Such types of companies are limited
in making contracts in that the law stipulates that companies must only make contracts that are well
within the scope of objectives set out in the memorandum of association. Anything beyond that is
rendered ultra vires and void. Ultra vires connotes acts beyond or outside the powers of the company. this
is a doctrine that prevents the company from performing acts that are not empowered by their objectives
clause. An ultra vires act is rendered void and therefore unenforceable by either party to the transaction.

A company consists of a board of directors and shareholders and their powers and limitations are created
under its articles of association. This is a document that sets down objectives, functions and purposes of
the company. It is by law that the role of a director is to observe any limitations on their powers flowing
from the company’s memorandum and a member of a company may bring proceedings to restrain the
doing of an act in excess of those powers16. The law is applied in the Ashbury Railway Carriage and iron
Co. Ltd v Richie17 case. The directors committed a breach of contract by making a contract where they
purchased a concession for making a railway in Belgium and claimed to have contracted with the
defendant that he should have the construction line. Where the directors objected of the fact that they had
no power to make the contract, the Companies act states that a person acting in good faith with a
company who is bound by a decision made by directors has no limitations under the companies
constitution.

From the information stated above, it is clear to see that law plays an important role with regards to
morality. Certain parties like these need to be protected from entering contracts that are not for their
benefit and must understand those that are valid against them and those that cannot be enforced on them.

REFERENCES

15
1985
16
Companies Act 2013
17
(1875) LR 7 HL 653
STATUTES

The Companies Act of 1985

The Companies Act of 2013

The Infants Relief Act of 1874

The Sale of Goods Act, Section 3 of 1893

The Sale of Goods Act, Section 2 of 1893

CASES

Ashbury Railway carriage and iron co. ltd v Ritchie (1875) LR 7 HL 653

Clements v Northwestern Railway Co. (1894) 2 QB 482, CA

De Francesco v Barnum (1890) 45 CH D

Doyle v White City Stadium (1935) 1 KB 110

Edwards v Carter (1893) AC 360

Fawcett v Smethurst (1914) 84 LJKB 473

Gore v Gibson [1845] 13 M & W621; 153. E. R 260

Imperial Loans Co. v Stone (1892) 1 QB 599

Nash v Inman (1908) 2 KB 1, CA

Ryder v Wombwell (1868) LR 4 EXCH 32

INTERNET SOURCES

Legally competent, the law dictionary: https://dictionary.thelaw.com/legally-competent/

Contract law, Capacity to contract: https://slideplayer.com/slide/6224464/

 SCHOOL OF LAW

STUDENT NAME: BANDA TREMOR ABRAHAM

CLASS ID: LLB19217802

SCHOOL: LAW

COURSE NAME: LAW OF CONTRACTS 1

COURSE CODE: L113

LECTURER’S NAME: MRS. SIMBOTWE

ASSIGNMENT QUESTION: ‘Adults of sound mind have full contractual capacity.

On the other hand, minors, the mentally incapacitated and companies have limited
contractual capacity. In the case of minors and mentally incapacitated, contract law seeks
to protect such persons from the consequences of their own inexperience or inability. The
limitations placed upon the contractual capacity of companies’ raises rather different
issues’ E, Mckendrick contract law (12th ed, Palgrave, 2017)

Explain the law relating to capacity of the parties to a contract giving suitable examples