Introductory & Contract Law Capacity to Contract Week 6

1. Introductory & Contract Law Capacity to Contract Week 6

2. Capacity to Contract • Diminished capacity • Children (Minors) • Mental Disability • Community Protection • Bankrupts • Criminals • Outlaws

3. Contracts with Minors • Minor – Anyone under 18 years of age • Contracts with minors can be • Valid – legally enforceable by both parties • Voidable – legally enforceable until repudiated by the minor • Void – no legal effect

4. Valid Contracts • Contracts enforceable against a minor • Supply of Necessaries • Contract of Beneficial Service • All other contracts are “voidable” unless: • Obtained under duress • Obtained by Undue influence • Obtained by misleading and\or deceptive conduct • Unconscionable bargains • Etc. (as for all contracts)

5. Supply of Necessaries • Contract for the supply of goods and services that are suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery • Includes: • Food • Clothing • Education • Medical care • Shelter

6. Supply of Necessaries • Two part test • Is the thing capable of being a necessary? • Chapple v Cooper (Outline p6-11) • Is it necessary for this particular person? • Onus is one person seeking to enforce contract against minor • Nash v Inman (Outline p6-11) • Reasonable price not contract price

7. Beneficial Contracts of Service • E.g. apprenticeships • Must be for the overall benefit of the minor • Leng & Co v Andrews (Outline p 6-12) • Roberst v Gray (Outline p 6-12)

8. Ratification • Repudiation • Voidable contracts must be repudiated within a reasonable time of child attaining majority – otherwise enforcable against person • Davies v Beynon-Harris (Outline p 6-12) • Nicholson v Nicholson (Outline p 6-12) • Ratification by Minor after turning 18 prevents repudiation and contract becomes valid and enforceable • Statutory modification • NSW - Minors (Property and Contracts) Act 1970

9. Aliens • Same contractual capacity as Australian citizens • Cannot take a majority shareholding in certain public companies • In wartime • Cannot make a contract with an Australian citizen • Cannot take action in Australian courts to enforce a contract

10. Mental Disability • Valid contract unless it can be shown that: • Person was wholly incapable of understanding the nature of the contract • Other party was aware of the mental condition • See Imperial Loan Co v Stone (Outline p 6-12) • Also applies to drunks • See Matthews v Baxter (Outline p 6-13)

11. Community Protection • BankruptsCannot enter into contracts involving more than $500 without Trustee in Bankruptcy’s permission • Diplomatic RepresentativesContracts are binding but cannot be sued in Australian court unless they submit to the jurisdiction • OutlawsA person sentenced to death is a non-person and cannot sue (Dugan v Mirror Newspapers (Outline p 6-13)

12. Community Protection • CriminalsIf sentenced to more than 3 years gaol, need Public Trustees permission to enter into contracts

13. Intention

14. Intention to Contract • Parties must intend their agreement to be legally binding i.e. enforceable by a court • An intention to be morally binding is not enough • Objective test • Distinction between • Social/domestic agreements • Commercial agreements

15. Intention • Subjective intention The person’s actual state of mind • Objective intention Concludes, on the basis of what a person said and did, what a reasonable person in the same circumstances would have intended • Contract law uses objective tests • See Smith v Hughes (Outline p 6-4) • Clarke v Dunraven (Outline p 6-4)

16. Domestic Agreements • Court presumes that parties did not intend to contract • Presumption may be rebutted • Balfour v Balfour (Outline p 6-3) • Riches v Hogben (Outline p 6-3)

17. Domestic Agreements • Court will look at • Terms of agreement • Circumstances surrounding the agreement • Effect of the agreement on the parties • Parties conduct subsequent to agreement

18. Commercial Agreements • Courts presume that the parties intended to contract • Clear words are needed to rebut the presumption • Onus is on party seeking to disprove the contract • Rose & Frank v J R Crompton (S&O p95) • Edwards v Skyways (S&O p95)

19. Fundamentals of Law Consideration

20. Two Types of Enforceable Agreement • Deeds • Contracts that comply with special rules • Do not require consideration • Simple contracts • Do require consideration

21. Deed • In writing • Maker of deed must sign, seal and deliver the document • Independent witness • Special attestation clauseSIGNED SEALED AND DELIVERED )by the said JOE BLOGGS )in the presence of: )

22. Consideration • Every simple contract must be supported by consideration • The law will not enforce a gratuitous or bare promise • Lack of consideration may be overcome by the equitable doctrine of estoppel

23. What is Consideration • Consideration must flow from both sides of the contract • Can be: • A promise to do something • A promise not to do something • A benefit for the promisee • A benefit for a third person at the promisee’s direction • A detriment to the promisor • Anything of real value to the promisee

24. Consideration Cannot Be Past • A promise can be executed (i.e. present execution) or executory (i.e. future execution) but cannot be past • A promise must be paid for but if consideration has already been given then there is nothing being paid for the new promise • Roscorla v Thomas (Outline p 6-5) • Anderson v Glass (outline p 6-5) • Settling unsettled aspects of a past transaction may be consideration • Re Casey’s Patents: Stewart v Casey (S&OR p104)

25. Dunlop Contract Wholesaler (bought tyres from Dunlop, sold to retailers) Contract Selfridges (broke promise to wholesaler not to discount) Consideration Must Move From Promisor • Only the person who has “paid” for the promise can enforce it • Dunlop v Selfridge (S&OR p101) • Called “Privity of Contract”

26. Consideration Need Not Move to Promisor • It is not imperative that the consideration move to the promisee • Official Trustee in Bankruptcy v Arcadiou (Outline p 6-6)

27. Consideration Need Not Be Adequate • Consideration must be sufficient i.e. have some value in the eyes of the law • Chappell & Co v Nestle (Outline p 6-6) • Need not be equal in value to the promisor’s promise • The very nature of contract law is to let the parties make their own bargain • However, doctrine of unconscionable conduct has developed to overcome resulting injustices

28. Consideration Must Be Sufficient The following will not be sufficient consideration: • Moral obligations • Illusory consideration • Performance of a public duty imposed by law • Performance of an existing contractual duty owed to the promisor

29. Illusory Consideration • The consideration must be definite • It cannot be so nebulous as to be illusory • White v Bluett (Outline p 6-7)

30. Moral Obligations • A moral obligation is not sufficient • Eastward v Kenyon (Outline p 6-7)

31. Promises Not to Sue • Forbearance to sue (i.e. an offer not to sue) is good consideration provided • The claim (defence) was reasonable • The promisee had an honest belief that the claim had a reasonable chance of success • The promisee has not concealed any facts that might affect the validity of the claim • Hercules Motors v Schubert (Outline p 6-8)

32. Performance of a Public Duty • Where a person is obliged by law to perform a public duty • The promise to perform the duty cannot be sufficient consideration • Collins v Godefroy (Outline p 6-8)

33. Existing Contractual Obligation • Promising to perform an existing contract is not consideration • To be binding, there must be a promise to do something additional to contracted duty • Stilk v Myrick (Outline p 6-8) • Hartley v Ponsonby (Outline p 6-8) • Promise to perform an existing contractual duty to a third party is sufficient consideration • Shadwell v Shadwell (Outline p 6-10)

34. Renegotiating a Debt • Renegotiating a debt will not be consideration as • the debtor is already obliged to pay the full amount • Doing something less cannot be consideration • Pinnel’s Case (Outline p 6-9) • Approved by House of Lords in Foakes v Beer (Outline p 6-9)) • Exceptions • Composition with creditors • Payment by third party • Ways around • Deed • Payment in kind

35. Exceptions to Pinnels Case • Promissory estoppel • Fraud on a third party • Shadwell v Shadwell (Outline p 6-10)

36. Promissory Estoppel Elements • AssumptionThe promisee, on reasonable grounds, believes that a particular legal relationship exists or will exist • InducementThe promisor created the assumption • ReliancePromisee acts in reliance on promise • DetrimentPromisee alters its position to its detriment

37. Promissory Estoppel • Applies where • No consideration exists • Formalities of making a contract have not been satisfied • Walton Stores v Maher (textbook)

38. Consideration Must Be Sufficient • $1 for a Rolls Royce • “I promise to be an honest public servant” • “I’ll give up my legal claim against you” • “I will pay you less than I owe you if you forget the rest” • “In love and affection” • “I promise to carry out my contractual obligations”