Capacity of a Contract

Chapter 4 Capacity of a Contract

Here we are concerned with contractual disabilities imposed upon certain classes of persons by reason of their status.

I.Minors

A minor becomes an adult at the first instance of his eighteenth birthday. Minor’s contracts are roughly divided into two classes; valid or voidable.

1.Valid Contracts for Necessaries

Section 4 of the Sale of Goods Ordinance states:" Where necessaries are sole and delivered to an infant or minor, or to a person who, by reason of mental incapacity or drunkenness, is in­competent to contract,he must pay a reasonable price therefore. "

Necessaries are defined as" goods suitable to the condition in life of such infant and to his actual requirements at the time of sale and delivery. " But the term includes services as well as goods, and, if a minor is married, necessaries for his family are also included.

The onus of proof is upon the seller, i. e. it is for him to prove that any goods supplied were necessaries. If he proves that the goods are necessaries, the minor will be liable to pay a reason­able price but not the contract price for them.

2.Voidable Contracts

There are some contracts under which a minor will have interest of a continuous nature in a subject - matter,such as land,stock or shares. Such contracts are binding on a minor but they may be repudiated by the minor before he becomes of age (or within a reasonable time thereaft­er) . By doing so,he will escape any future liabilities under the contract,but not those which have already accrued. He cannot recover money paid unless there has been a" total failure of consideration. "

3.Other Contracts

There are contracts for non - necessary goods or contracts for loans which are not binding on the minors unless they ratify them after reaching the age of 18. No fresh consideration is nee­ded on ratification.

Age of Majority(Related Provisions) Ordinance

Apart from declaring that the legal capacity of a natural person at 18, it has the following important provisions applicable to the rules of contract;

(1)Guarantees of minors’ contracts; any guarantee in relation to an obligation of a minor under a contract shall not for the reason of infancy alone be unenforceable against the guaran­tor.

(2)When a person makes a contract with a minor and the contract' is unenforceable a- gainst that minor,that person can apply to the court on just and equitable grounds for an order to return to that person any property acquired by the minor under the contract, or any property representing it.

This creates a new remedy against the infant. It is similar to the equitable remedy of resti­tution which may arise in the limited circumstances where an infant,by fraudulently misrepre­senting his age, obtains non - necessary goods or money. In such a case, equity will compel that infant to restore the actual goods or money so obtained. If the subject - matter is in fact neces­sary goods, an equitable right of subrogation will then arise and the infant will be made liable to pay a reasonable price for the necessary goods.

However,this section would not apply where the minor had dissipated the property ac­quired under the contract or its proceeds, e. g. where he had bought a bottle of wine and con­sumed it, or where he had sole property acquired under the contract for cash and had used the money to pay for a holiday.

II. Persons of Unsound Mind

Contracts made by persons of unsound mind are valid unless at the time when the contract was made:

1.Such person did not know what he was doing; and

2.The other party was or should have been aware of this.

Therefore, if the party does not know of the patient’s disability, the contract is valid.

A person under the influence of drink is considered being in exactly the same position as a person of unsound mind.

However,Section 4 provides that where necessaries are sold to a person of mental incapac­ity or in a state of drunkenness, he must pay a reasonable price.

III. Corporations

Corporations can make any contracts within the power granted to them as from the time of their incorporation or thereafter.