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Chapter 15.2 The Capacity to Contract

Chapter 15.2 The Capacity to Contract. Persons who lack contractual capacity. Minors The mentally infirm The intoxicated Bankrupts Aliens Sovereign states and diplomats Companies Incorporated societies. The Minors Contracts Act 1969.

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Chapter 15.2 The Capacity to Contract

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  1. Chapter 15.2 The Capacity to Contract

  2. Persons who lack contractual capacity • Minors • The mentally infirm • The intoxicated • Bankrupts • Aliens • Sovereign states and diplomats • Companies • Incorporated societies

  3. The Minors Contracts Act 1969

  4. A minor is a person who is under the age of 20 years The Age of Majority Act 1969

  5. Contracts that enforceable as if the minor were of full age • Contracts by a minor who is or who has been married. Section 4 • Contracts of Apprenticeship. Section 5(4) • Contracts with minors that have been approved by the District Court. • Section 9

  6. Contracts that are enforceable unless the minor can show • the consideration was so inadequate as to be unconscionable, or • one or more provisions are harsh or oppressive. Section 5

  7. Any contract by a minor over the age of 18. • Contracts by a minor under s75 Life Insurance Act. • Employment agreements. National Bank of New Zealand v. Ram & Anor (1992) 4 NZBLC 102,618

  8. Contracts that are unenforceable against the minor unless they can be shown to be fair and reasonable in all the circumstances • Contracts by minors under 18 years of age. Section 6

  9. The criteria under s6 • The contract must be • fair and • reasonable. Morrow & Benjamin Ltd v. Whittington (1989) 2 NZBLC 103,600 • The Court shall consider: • the circumstances under which the contract was made; • the subject matter and nature of the contract; • in the case of a contract about property, the nature and value of the property; • the age of the minor and their personal wealth (if any); and • all other relevant circumstances.

  10. The effect of guarantees of a minor’s obligations Where a person who is over 20 guarantees the obligations of a minor, then the guarantee is enforceable, irrespective of any order the court might make with respect to the obligations of the minor themselves. Section 10

  11. The capacity of the mentally infirm

  12. At common law, contractual capacity depends on understanding the nature of what you are doing.

  13. A contract by a person who lacks capacity by reason of mental infirmity is voidable if: • the other party was aware of their disability; and • the other party took unfair advantage, amounting to equitable fraud of the mentally infirm person. Hart v. O’Connor [1985] 1 NZLR 159

  14. Contracts by intoxicated persons • These are voidable once sobriety is regained if: • the person was so intoxicated that they did not know what they were doing; and • the other party was aware of that fact; and • took unfair advantage. Specific performance of a contract with an intoxicated person may not be awarded even if the above criteria are not completely met. Peeters v. Schimanski [1975] 2 NZLR 328

  15. Contractual capacity of bodies corporate

  16. A company registered under the Companies Act 1993 has full contractual capacity. Section 16 Companies Act 1993

  17. The capacity of an incorporated society to make contracts • When contracting with an incorporated society it is important to check that: • the contract is for a purpose, that is, within the objects of the society as stated in the rules; and • the contract is made on behalf of the society in the manner prescribed by its rules. Incorporated Societies Act 1908 ss6 , 15 Cabaret Holdings Ltd v. Meeanee Sports & Rodeo Club Inc. [1982] 1 NZLR 673Broadlands Finance Ltd v. Gisborne Aero Club Inc. [1975] 2 NZLR 496

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