CAPACITY TO CONTRACT NOTES

In this lecture we shall consider those rules of the law of contract which say that although a contract apparently validly made between the parties, in specified circumstances courts will not give effect it. The reason being that a party to the contract does not have full capacity to contract.

The general rule is that in order for a contract to be a valid contract both parties must have full capacity to contract. Minors, drunkard persons, mentally disordered persons and corporations lack capacity to enter into contract.

The law intends to protect a minor who does not understand the nature of the contract because of his age and inexperience. At the same time the law should not cause unnecessary hardship to those who deal with minors, hence certain contracts with minors are valid whereas others are either void or voidable. Similarly, mentally disordered and drunken persons are incapable of giving real consents to the contract because of the impairment of their mental capacity. Also, corporations do not have full capacity to contract. They cannot enter into contracts which are ultra vires (beyond the powers), because of the statute creating them or the objects clause contained in the memorandum of association.

8.2 Objectives

8.2 Objectives

  This lecture will enable you to:

1.     Explain why the law attempts to protect certain persons while entering into a contract and how the balance is stuck so as not to cause hardship to those who deal with such persons.

2.     Discuss different types of contract made with minors and their effects.

3.     Explain how far persons of unsound mind and drunken persons are capable of making contracts.

4.     Describe the limitations on corporations to enter into contracts

 

8.3 Minors

A minor is a person under eighteen years of age. The law relating to minors is driven from a combination of the common law and English Infants’ Relief Act 1874. It should be noted that under the reception clause in section 3 of the Judicature Act of Kenya, the Infants’ Relief Act was a statute of general application in England on 12th August 1897 and therefore applicable in Kenya, despite the fact that the Act is now repealed in England by the Minors’ Contract Act 1987. The law governing minors may conveniently be discussed under the following heads:

8.3.1 Valid Contract with Minors

It has been recognized from the earliest time that the contracts for necessaries and beneficial contracts of services with minors are valid and therefore binding on them.

8.3.1.1 Contract for Necessaries

Contracts for necessary remain subject to the common law rules. The term necessaries is defined by the Sale of Goods Act, section 4(2) to mean “goods” suitable to the condition in life of such infant or minor or other person and to his actual requirement at the time of the sale and delivery”. This definition of necessaries is open one and is not confined to articles necessary to the support of life, such as food, clothes and lodging, but includes articles and services fit to maintain the particular minor in the station of life in which he moves. Thus the term “necessaries” is not confined to goods only but also includes necessary services; However articles of mere luxury are always excluded though luxurious articles of utility are in some cases allowed.

In Wharton v. Mackenzie (1844), it was held that fruits, ices and confectionary supplied to an Oxford undergraduate for private dinner parties could not without further explanation be treated as necessaries. But in Peters v Fleming (1840), it was decided that luxurious article of utility such as a watch and gold watch-chain may be necessary.

In order to render a minor liable for necessaries, the supplier must prove not only that the goods are suitable to the life style of the particular minor, but also to his actual requirements at the time of sale and delivery. In Nash v Inman (1908) D, an undergraduate Cambridge minor purchased clothings, including eleven fancy waistcoats from the plaintiff, a tailor. It was established that DP, could not recover the price for the waistcoats since D already had sufficiently been provided with clothing of the kind in question. This rule applies even though this fact is not known to the supplier. Also, a minor is required to pay a reasonable price for necessary supplies to him and not necessarily the contract price. was already supplied with clothing sufficient for his condition in life. Held

A minor’s contract for necessaries is a valid contract in the sense that not only the minor himself can sue on it but the other party can also sue on it when he has performed his part. But there is some doubt whether the other party, that is, the supplier can sue on a contract when it is executory, that is, where the supplier has not yet performed his part of the contract. On balance of authorities it can be said that the executory contracts for necessary goods are not enforceable against the minor. Thus, if minor orders some necessary goods but later refuse to take delivery of them, he is not liable for the breach of contract because the contract was executory.

8.3.1.2 Beneficial Contracts of Service

Necessary services have not been defined, but the tests are same as far as necessary goods.

Necessary services include education, apprenticeship, instructions and medical and legal advices. A contract of service is binding on a minor, if viewed as a whole it is for his benefit. A contract is beneficial to him if it enables him to earn his living, or to improve his skills, occupation or profession. In Clement v London and North Western Railway Co (1894), C, a minor was employed by a railway company as a porter. He agreed to join the company’s own insurance scheme and to give up any right to claim for personal injury under a statute. The scheme was more advantageous to him than a statute since it covered a wide range of injuries than the statute, though the scale of compensation was lower. Held, the agreement was binding on C since looked as a whole insurance scheme was more beneficial to him than the statute. The same principles have been extended by a analogy to contract which are similar to the employment contracts. In Doyle v White City Stadium (1935), it was held that a contract under which a minor professional boxer received a licence to box was on whole beneficial to the minor and was binding on him for it was closely connected with a contract of services in that it would enable to earn living. This was so, even through in particular case it operated against the minor.

In Chaplin v Leslie Frewin (Publisher) Ltd (1966), P, a minor son of a wealthy and famous comedian entered into a contract with D, a publishing company under which the latter agreed to publish the life story of P, He later repudiated the contract on the ground that it contained libellous matter and gave inaccurate pictures of his approach to life . Held, the contract was analogous to a service contract and was beneficial to the minor for it would enable him to make a start in life as an author and therefore binding on P.

Take note

  Contract for necessaries and beneficial contract of service are binding on a minor and are therefore enforceable against him.

 

However if a contract is detrimental to the interest of the minor it is not binding on him. In De Frances v Barnum (1890), G, a minor girl entered into a contract under seal with P for apprenticeship as a stage dancer. The contract provided that she would not be paid unless actually employed by P, that she should not accept professional engagements without P’s consent, that she should not marry during the apprenticeship, and that P could terminate the contract if she was found unfit for stage dancing. G took employment with D. P sued D in tort for inducement to breach contract. Held, the provisions of the contract were unreasonably harsh and unduly burdensome to G. The contract was therefore invalid.

The beneficial contracts of services are binding on the minor even when they are executory.

In Roberts v Gray (1913), P was a famous billiard player who agreed with D, a minor to take him to a world tour and play matches together. P also agreed to pay for D‘s boarding, lodging and traveling expenses. P incurred certain liabilities in the course of making necessary preparations. Before the tour began, a dispute arose between the parties and D repudiated the contract. P sued D for breach of contract. Held, D was liable to pay damages. The Court of appeal treated the contract as being one for necessaries.

Although a minor is bound by the contract substantially beneficial to him, a trading contract is not binding upon him however much it may be for his benefit. In Mercantile Union Guarantee Corporation Ltd v Ball (1937), D, a minor was a haulage contractor, who obtained a lorry on hire-purchase term from P. He fell in arrears with his instalments on the lorry and P sued him contending that the contract was binding on him since it was as whole for D’s benefit. Held, D was not liable for instalments due under the hire-purchase agreement since the agreement being a trading contract, whether beneficial or not, was not binding on him.

Take note

  A trading contract with a minor is not binding upon him even if it is beneficial to him.

 

Similarly, a minor is not liable for the price of goods supplied to him for the purpose of trade or for non delivery of goods which he has sold as a trade. So also he is not liable on warranty of goods sold by him. In Cowern v Nield(1912), it was held that a trader minor, who received the payment for goods under an agreement to sell, could not be compelled to refund money or to deliver the goods in absence of fraud.

Activity 8.1

  Describe whether a trading contract is enforceable against minor.

 

8.3.2 Voidable Contracts with Minors

Certain contracts entered into by minors are voidable. Such contracts are valid and binding upon the minor unless he repudiates them during the infancy or within a reasonable time after attaining the majority. What is reasonable time is a question of fact in each case. In Edwards v CarterH, an intended husband, who was a minor at the time of the marriage settlement, executed a deed binding him to vest in the trustees all the property that he might acquire under the will of his father. Under the will the father of H agreed to pay ₤1500 a year to the trustees, who were to pay it to H for life and then to the wife and issue of the marriage. About four and a half years after attaining the majority he repudiated this agreement. Held, the repudiation was ineffective because there was an unreasonable delay. (1893),

Although the minor can repudiate a voidable contract, the other party cannot repudiate it.

Voidable contract are confined to contracts by which a minor acquires an interest in a subject matter of a permanent nature, which imposes a continuous or recurring liability on him. The most obvious contracts of this sort are contracts for lease of premises, contracts to acquire shares in a company and contracts of partnerships.

8.3.2.1 Contracts for Lease

Contracts for lease give a minor equitable interest in the land for the agreed period. Such lease are voidable at the minor’s option, but while in possession he is subject to the liabilities imposed by the contract and may successfully be sued for the non payment of rent. In Davies v BeynonHarriesM, a minor took lease of a flat a fortnight ago before attaining the age of majority. After three years he was sued for the due rent. Held, M, was liable to pay the rent as the lease being voidable was not avoided by him after attaining the majority. However, a minor is precluded from acquiring a legal estate in land and thus cannot become an estate owner. (1821),

8.3.2.2 Contract to Acquire Shares in a Company

The above principles also apply to the acquisition of shares in a company. In North West Railway Co v McMichael (1850), M, a minor purchased certain shares in a railway company. He was sued by the company to recover a call, that is, the amount outstanding on his shares, while he was still a minor. He pleaded that he had never ratified the purchase and had not received any benefit from it. Held, M was liable to pay call on shares, equally also because he had never repudiated the contract.

8.3.2.3 Contract of Partnerships

Contract of partnerships with a minor are also governed by the same principles. A minor partner in a partnership firm is not liable for partnership debts contracted during his infancy, though he has no right to prevent their discharge out of the partnership property. If however, the minor continues in partnership after attaining full age he will be liable for the firm’s debts thereafter. The contract is voidable at the minor’s option. It remains binding upon him unless he repudiates it within reasonable time after attaining the majority. In Goode v Harrison (1821), M, a minor was a partner in a partnership firm, after attaining the age majority he took no steps to repudiate the contract of partnership. Held, M was liable for the debts of partnership contracted since he came of age, because he held himself out as a continuing partner by not repudiating the contract.  Take Note

                                                                    

Contract by which the minor acquires an interest in a subject matter to which continuous or recurring obligations are incident is voidable at his option. Contracts in this category are contracts for lease, to acquire shares in a company and of partnership.

 

In all contracts of this class, the effect of avoidance by the minor is that he is relieved of all liabilities to perform obligations which have not accrued at the time of avoidance. He has, however, to meet obligations which have already accrued at the time. In Steinberg v Scala (Leeds) LtdP, a minor purchased some shares in a company; she paid the amount due on allotment and on the first call. She neither received any dividend nor attended any meetings of the company. While still a minor, she rescinded the contract and claimed, (1) to recover the money she paid, and (2) for a declaration that she was not liable for future calls. Held, (1) she could not recover money she had already paid because she had obtained the very consideration for which she had bargained, that is, the allotment of shares and (2) she was not liable to future calls. (1923)

Repudiation of a contract will not entitle to recover money paid by him unless he can show that there has been a total failure of consideration. In Corpe v Overton (1983),M, an infant agreed to enter into a partnership with D to be formed in future. He agreed to pay D ₤ 1,000 when the partnership deed was executed, but paid ₤100 in advance. He rescinded the contract and sued DM was entitled to recover the advance since there was a total failure of consideration. On the other hand, in Holmes v Blogg (1818), M a minor paid a sum of money for a lease of premises in which he and his partner were to carry on a business. He occupied the premises for about three months and then repudiated the lease and left the premises. He sued to recover the amount he had paid for the lease. Held, there had not been a failure of consideration since he had received the very thing he had been promised and for which he had made the payment. for the recovery the advance. Held,

Intext Question

Discuss how far a minor is liable on a voidable contract which he has not set   aside.

 

8.3.3 Absolutely Void Contracts with Minors

The Infants Relief Act 187, section 1 provides that all contracts whether by speciality or by simple contract, entered into by infants –

(a) For the payment of money lent or to be lent, or (b) for goods supplied or to be supplied (other than necessaries), and (c) all account stated with minors shall be absolutely void.

Also, the Betting and Loans (Infants) Act 1892, makes void any agreement made by a person after be comes of age to pay a loan contracted during minority.

8.3.3.1 Contract of Loan

Contract to loan money made to a minor is not binding on him and therefore irrecoverable. InCoutts & Co v Browne-Lecky (1947), a bank made a loan to an infant by the way overdraft, which A and B guaranteed. The bank sued A and B for payment. Held, since loan by way of overdraft to an infant was void, a guarantee of the loan must also be void. Accordingly it could not be recovered from A and B, the guarantors.

Similarly, any mortgage of land or goods executed by a minor as security for the repayment of the money lent is absolutely void. In Nottingham Permanent Benefit Building Society v ThurstanM, a minor became a member of a building society and obtained advances of which part was paid by the society to the vendor of a piece of land which M had agreed to purchase. The remainder was expended on improvement of the land. M gave mortgage of land to secure advances and interest. She brought an action for a declaration that the mortgage was void and she was entitled to have it delivered to her and cancelled. Held, the mortgage was void but the society had a lien on the land for that portion of the advances which had been paid to her. (1903)

Even money lent to an infant to enable him to purchase necessaries is irrecoverable. However, where an infant borrows money for this purpose, the lender may step into the shoes of the seller and recover in equity from the infant the reasonable price which seller could have recovered. Further, a minor is not liable upon a negotiable instrument in any circumstances.

8.3.3.2 Contract for Non-necessaries

Contracts for goods, other than necessaries are also absolutely void. Contract for goods includes not only the sale, but also the exchange of goods.

8.3.3.3 Accounts Stated

An account stated is an admission by a minor that a sum certain is due to another. Such an admission by a minor is absolutely void and therefore is not binding on him.

8.3.3.4 Actions By and Against the Minor

All the kinds of contracts mentioned above are absolutely void. The expression “void contract” in its strict sense signify that neither party can enforce the contract. Void contracts entered into with a minor, however, are unenforceable against him but the other contracting party is bound, because the rule exists to protect a minor. This means that such contracts are enforceable at the suit of the minor.

Secondly the minor cannot bring an action for specific performance since this remedy is not available against him. Finally money or goods delivered by a minor to the other party to a void contract is recoverable only if there has been a total failure of consideration. In Valentini v

CanaliM, a minor took lease of a house and agreed to buy the furniture for ₤102. He paid ₤68 for that purpose. After occupying the house and using the furniture for sometime, M repudiated the contract and sued to recover the money he had paid for the furniture. Held, M was precluded from recovering the money since he had received part of the consideration; though he was not bound to pay the balance of the sum due because it was an executory promise. Similarly, in Peace v BrainM, a minor exchanged his motorcycle for a second-hand car belonging to D. Soon after the purchase the car broke down and M sued D for the recovery of the motorcycle on the ground that the contract was for non-necessary goods and therefore void. Held, M, could not recover back the motorcycle since he could not show a complete failure of consideration. (1989), (1929)

 

8.3.3.5 Ratification of Void Contracts

By virtue of the Infants Relief Act, section 2, there can be no ratification by a minor after full age of any void contract made during infancy, even through there is a fresh consideration for such promises. Also, because of the same section and section 5 of the Betting and Loans (Infants) Act, 1892, a fresh promise made after full age by a minor shall not render actionable debt contracted during infancy. In Smith v King (1892) M, a minor contracted a loan from P, stockbrokers.

When MP sued him on the debt. M compromised the action by accepting two bills for ₤500 each. P sued on the bills. Held, M was not liable since acceptance of the bills amounted to ratification by M after full age to pay a debt contracted during minority. attained full age

8.3.4 Misrepresentation of Age

If a minor has induced the other party to enter into a contract with him by fraudulently representing that he is of full age, he cannot be sued either in contract or in tort. It is because to allow the injured party to sue in such a case would be to make the minor indirectly liable on a void contract.

Equity has however developed the restitution remedy against minors. Remedy of restitution is available only in relation to property in possession of the minor, but it does not apply to loan of money obtained by fraud. In R. Leslie Ltd v Shell(1914) M, a minor had obtained a loan of ₤400 from L, by fraudulent false statement as to his age. He refused to pay it and L sued him. Held, the contract to lend money was absolutely void under the Infants Relief Act, section 1 and therefore M could not be compelled to restore the loan of ₤400, for to do so would constitute in effect an enforcement of a void contract and not application of doctrine of restitution.

Where the minor is still in possession of the property transferred to him under the contract, there is no doubt that an order for restitution can and will be made. However, the doctrine of restitution cannot be invoked in cases where goods are obtained by fraud but the minor ceases to possess them.

8.3.5 Minors’ Liability in Tort

A minor is not liable in a tort directly connection with any contract upon which no action will lie against him. The reason being that a minor cannot be indirectly liable on a void contract through being sued in tort. In Jennings v Rundall (1799), M, a minor hired a horse for riding and injured it by excessive and improper riding. Held, M was not liable in tort for negligence since all he did was an act contemplated by the contract that is riding.

A minor may, however, be made liable in tort if act is of a kind not contemplated by the contract.

 

Activity 8.2

  A minor is not liable in contract or tort where he has induced the other party to enter into a contract by fraudulently misrepresenting his age.

Critically examine this statement

 

8.3.6 Minors Liability in Quasi-Contract

 

A minors’ liability in quasi-contract is governed by the same principles that governs a minors’ liability in torts. An action cannot be brought against minor in quasi-contract if it would be an indirect way of enforcing a contract against him, However for an act not contemplated by a contract, a minor may be made liable in quasi-contract.

It should be noted that the doctrine of quasi-contract provided a remedy where one person become unjustly enriched at the expense of another.

8.4 Mentally Disordered Persons

Mentally disordered persons are those suffering from such disease of the mind as likely to impair their judgement. They are considered as unfit to deal with their own affairs.

If a person a person is under a treatment and care at a mental hospital under the provisions of the Mental Treatments Act, Cap. 248 and the court has made an order for the management of estate or property of such a mentally disabled person, it seems likely that such a person is absolutely incapable of entering into contracts.

In other circumstances mentally disordered person is treated as having contractual capacity, but the contract is voidable at his option if he can show that at the time of contracting he was suffering from such a degree of mental disability that he was incapable of understanding the nature of contract. In order to set aside the contract, the mentally disordered person should further demonstrate that his mental disability was known or ought to have been known by the other contracting party at the time of making the contract. If however, the contract was made or confirmed by him during a lucid interval it is binding upon him notwithstanding that his mental status was known to the other party.

But by virtue of the Sale of Goods Act, section 4(1), a contract for necessaries made by a mentally disabled person is binding upon him. In such a case he is required to pay a reasonable price for the necessaries,

8.5 Drunken Persons

If a person, when enters into a contract is in such a state of drunkenness as not to understand what he is doing, the contract is voidable at the option of that person provided the other party knew of his condition. It is for the drunken person to show that the other party had the knowledge of his condition at the time of making the contract. A drunken person may ratify the contract when he is sober.

By the Sale of Goods Act, section 4 (1) where necessaries are sold and delivered to a drunken person, he must pay a reasonable price.

8.5 Drunken Persons

If a person, when enters into a contract is in such a state of drunkenness as not to understand what he is doing, the contract is voidable at the option of that person provided the other party knew of his condition. It is for the drunken person to show that the other party had the knowledge of his condition at the time of making the contract. A drunken person may ratify the contract when he is sober.

By the Sale of Goods Act, section 4 (1) where necessaries are sold and delivered to a drunken person, he must pay a reasonable price.

8.6 Corporations

Corporations are persons in law. They have a legal personality distinct from that of their members. Corporations are classified according to their mode of creation as:

 

8.6.1 Chartered Corporations.

Chartered corporation are created by the charter granted by the President. Such corporations are not many in Kenya. Most of the private Universities are created by a charter. The charter sets out the powers to do whatever an individual can do. If, however, it makes a contract outside its powers granted by the charter, the contract is valid but the charter may be forfeited, or a member of the corporation may obtain an injunction restraining the corporation from doing the act which will be a ground for forfeiture of the charter.

8.6.2 Statutory Corporations

These corporations are created by special Acts of Parliament. Their powers and functions are set out in the creating statute. The contractual capacity of a statutory corporation is subject to the doctrine of ultra vires(beyond the powers). Any activity of such a corporations outside the powers conferred upon them by the creating statute is beyond their powers and therefore void.

8.6.3 Registered Companies

Registered companies are the most successful and widely used form of business organisation in modern times. They are incorporated under the Companies Act, Cap 486. While registering a company several documents must be filled with the Registrar of the Companies. One of those documents is the Memorandum of Association, which contain company’s objects clause. The powers of the company are limited by the objects clause set forth in the Memorandum of Association. The company could only contract for the objects set out in the memorandum of the company. Any activity of the company outside its objects is ultra vires (beyond its powers) and therefore void, so that if, for instance, a company is authorised by his objects to manufacture television sets, it is not entitled to enter into a manufacturing of refrigerators. A company may, however, enter into contracts that are reasonably incidental to or consequential upon the operations that it is authorized by the objects clause to perform. Thus, a company may validly make contracts to buy stationery for its office, or to employ persons, because such contracts are incidental to its business. In Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) the objects of the appellant railway company were to make and sell, or lend on hire, railway carriages, wagons and all kinds of railway plants, fitting machinery plants and rolling stock; to carry business of mechanical engineers, etc. The director entered into a contract to buy concession for the construction of a railway in Belgium which they assigned to R. The company’s shareholders disapproved the deal and the company repudiated the assignment of contract with R. R brought an action against the company to recover damages for breach of contract. The House of Lords held that construction of a railway was not within the objects clause of the company and that the company did not have capacity to enter into contract to construct a railway. The contract was held to be ultra vires and void. Accordingly, R was not entitled to damages.

It was further held that the company could not ratify such a void contract even by the unanimous vote of all its members. In such cases, the company itself could plead that it had acted ultra viresultra vires. and thus avoid the contract, through the other party to the contract was unaware of the fact that it was

The rigours of the doctrine of ultra vires is much diluted by the decision of the Court of Appeal in Bell House Ltd v City Wall Properties Ltd (1966) where the objects authorized the company to carry on any other trade or business which in opinion of the directors might be carried on advantageously in connection with or ancillary to its main business of developing housing estate. Held, to make the opinion of the directors the criteria of whether the new business would be advantageous was legitimate and therefore intra vires (within the powers), provided such opinion was reached in good faith.

The doctrine of ultra vires had long been criticized. It was thought the doctrine protects shareholders against use of company’s funds for unauthorized purposes but in view of the drafting of the objects clause in a very broadway, as in the case of Bell House Ltd, has made such protection largely illusory. Also, the doctrine is unfair to persons contracting with companies since they cannot enforce an ultra vires contract against the company. The doctrine now no longer apllies to a third party dealing with companies in U.K see the Companies Act 1989 which substituted a new section 35 (1), in the Companies Act, 1985. In Kenya, however, the doctrine is still applicable.

Take note

  A company may exercise and only exercise the powers set out in its memorandum of association and such powers as are reasonably incidental to the operations that it is authorised to perform.

 

Activity 8.3

  1.               Discuss how far the law attempts to protect a minor while entering into  contracts.

2.               A contract entered by a corporation could be deemed void if it is ultra vires.

Explain

3.               Mentally disordered persons cannot enter into contracts because they are  incapable of giving any real consent.

Discuss

4.A person is not liable on a contract if at the time of making the contract he  was so drunk that he was incapable of understanding the nature of the  transaction.

Critically examine this statement.

5. Discuss the legal position in the following cases:

(a)             David, a boy aged sixteen borrows Shs. 1,000 from his neighbour  Richard.

(b)             Kenauto Ltd enters into a contract to buy ten computers for their  offices from Africomputers Ltd.

(c)             Jane wish to participate in under eighteen athletic championship  competition in Uganda. She asked William, an athlete to coach her for  three months promising him Ksh. 5,000 for the job. William coached  her for the agreed period of time but Jane refuses to pay him.

(d)             Maina was admitted to a mental hospital as a mental patient for some  mental problems. One day he sneaked out the hospital and sold his  watch worth shs.3,000 for Shs.100 to Wainana.

 

8.7 Summary Summary

  In this lecture we discussed the question of capacity of the parties to enter into a valid contract. An adult person of sound mind has a full capacity to contract. However, the law of contract limits in varying degree the contractual capacity of certain persons. A minor’s capacity to contract is limited. There are three situations that describe the possible contractual position of a minor. First, contracts for necessaries and benefits are valid and therefore binding on him. Necessaries are those goods that are suitable to the condition of life of the minor and to his actual requirement at the time of sale and delivery. A minor is required to pay reasonable price and not necessarily the contract price for the necessaries supplied to him.

Beneficial contracts of employment or of apprenticeship or for instructions are enforceable against the minor. However, trading contracts are not at all binding on him even if they are beneficial to him.

Secondly, contracts of permanent natures which impose continuous obligations on a minor are voidable at his option. Such contracts include contracts for lease, to acquire shares in a company and contracts of partnerships. A minor may set aside such contracts either during his minority or within a reasonable time after attaining the full age. When a minor repudiates this class of contracts he is relieved of all liabilities that accrued after the repudiation, but he cannot recover money paid unless there is a total failure of consideration.

Third, certain contracts are absolutely void if entered into with a minor. Contracts in this category are: contract of loan, of non-necessaries and account stated. Such contracts are absolutely void and therefore unenforceable against the minor but are binding on the other contracting party. Such contracts cannot be ratified by the minor after full age. This rule applies even where a minor has obtained a loan by fraudulently representing that he is of full age.  The creditor, therefore, cannot recover the loan. However, in case of non-necessaries  equitable remedy of restution may be available to the supplier if the goods are still in minor’s possession.

Also, money or goods delivered by a minor to the other party to a void contract is recoverable only if there is a total failure of consideration.

A mentally disordered person cannot enter into a binding contract if he is admitted into a mental hospital under a court order. In other circumstances such  a person is treated as having contractual capacity, but may escape his liability on a contract by proving that:

  a)               At the time of making contract he was incapable of understanding the nature of the transaction, and

b)               The other contracting party knew or ought to have known of this fact.

If a person, when he enters into a contract, is in such a state of drunkenness as not know what he is doing, and if this fact is known to the other party, the contract is voidable at the instance of the drunken person. However, a drunken person may ratify a contract when he is sober.

A drunken person and a mentally disordered person must pay a reasonable price for necessaries sold to them.

The contractual capacity of a statutory corporation or a registered company is subject to the doctrine of ultra vires, A statutory corporation cannot go beyond its powers conferred on it by the statute creating it. Similarly, a registered company cannot enter into a contract outside the objects clause in its Memorandum of Association. Any contract made by these corporations beyond their powers is ultra vires and void. However, they can enter into contracts which are reasonably incidental to the main intra vires contract.

 

 

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