Capacity to Contract

In order for there to be a valid contract, the parties must have capacity to contract.

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 the
mentally incapacitated, contract law seeks to protect such persons from the consequences of
their own inexperience or inability
If a party does not have capacity then the contract shall be unenforceable.

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 Capacity to Contract: Minors
A minor is a person under the age of 18. The law adopts a particularly protective attitude towards minors, often at the expense of
those who deal with them in all good faith. The general rule is that a minor is not bound by a contract which he enters into during
his minority. But this general rule is subject to exceptions.
Minors (children) under the age of 18 do not have the capacity to enter into contracts.
An exception to this is a contract for necessaries, which includes food, housing, clothing, training and education.
Nash v Inman [1908]
FACTS: a student purchased waistcoats from a tailor. However, the student later refused to pay for the waistcoats.
The tailor’s claim for breach of contract failed because this was not a contract of necessaries because the student
had no need of the waistcoats.
In Proform Sports Management Ltd v Proactive Sports Management Ltd [2006] EWHC 2903, a football managing
company sued Wayne Rooney for breaching their contract, when he entered into another contract with a third
party. The court ruled that Mr Rooney was not liable for breach of contract because he was a minor when he
entered into the contract, and therefore he lacked capacity. This meant that the contract was voidable and
unenforceable against Rooney, because the contract was not one of necessaries.

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 Capacity to Contract: Mental incapacity and drunkenness

People who lack mental capacity or who are drunk when they enter into a contract also lack capacity to contract (i.e.
the contract is voidable).

Company
A company has a separate legal personality, which means that it is distinct from those who run and own the
company. The company’s capacity to contract can be limited in its memorandum of association.
A company is a legal person which is separate and distinct from its shareholders. But the capacity of the company is
limited by the objects for which the company is set up and which are contained in the company’s memorandum of
association. If the company acts beyond its objects then it has acted ultra vires, that is to say, it has acted beyond its
capacity.

In Ashbury Railway Carriage and Iron Co v Riche (1875) LR 7 HL 653, it was held that a contract which was ultra vires
the company was void. One of the principal justifications for the ultra vires rule is that it gives protection for
shareholders who can learn from the objects clause ‘the purposes to which their money can be applied’
 Privity of Contract

As a general rule, contracts can only be enforced by a party to the contract. Third parties are
unable to enforce a contract unless they themselves have acquired a right to enforce it by
providing consideration.
Key Case: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915]
In this case Dunlop had sold tyres to Dew and the parties had agreed in their contract that the tyres should not be sold for less
than the minimum list price previously specified by Dunlop. Dunlop then sought to enforce this term against Selfridge & Co. The
issue was whether Dunlop could sue Selfridge & Co for breach of contract.
Principle established
The House of Lords refused to allow Dunlop to enforce a contract against Selfridge & Co, as there was no privity of contract
between them. Lord Haldane LC stated: My Lords, in the law of England certain principles are fundamental. One is that only a
person who is a party to a contract can sue on it.
 Privity of Contract
In Beswick v Beswick [1968]
The issue was whether a widow could enforce a contract made between her late
husband and her nephew. Her husband had sold his business to his nephew. Their
contract provided for the payment of £5 a week to his wife upon his death. Upon
the death of her husband, the nephew paid one instalment of £5, but then ceased
all payments. The wife sued but the House of Lords held that in her personal
capacity she was unable to enforce the contract, as she had not been privy to the
contract. However, she could enforce the contract in the capacity of the
administrator of her late husband’s estate.