COMPARATIVE CONTRACT LAW : CAPACITY AND CONSENT LLM - COMPARATIVE LEGAL SYSTEMS KILAW FALL 2013 1 DR MYRA WILLIAMSON THIS LECTURE… CAPACITY CONSENT ELEMENTS OF A CONTRACT As well as offer, acceptance, intention to create legal relations and consideration, there are some other elements that need to be present for a contract to be legally binding. They are: • Capacity • Consent 3 If these are missing, the contract might be void, voidable or unenforceable SOME USEFUL SOURCES Max Young’s Contract Law Lectures: http://www.legalmax.info/members2/conlec/ind ex.htm Wikipedia pages including this one: http://en.wikipedia.org/wiki/Capacity_(law) 4 http://law.jrank.org/pages/12504/ContractLaw.html (overview of US contract law) CAPACITY & CONSENT – DEFINITIONS Contractual capacity = means that each party must have the legal capacity (or the ability) to make a contract. Consent = means that each party must genuinely agree to be a party to the contract – they can’t be forced to enter into the contract 5 In other words, each party must be competent to enter into a legally binding contract VOID, VOIDABLE & UNENFORCEABLE: DEFINITIONS Void = means that the contract has no legal effect – the socalled agreement gives no legal rights to either party (it’s really a contradiction in terms to say a ‘void contract’) • ie – it is void “ab initio” which means from the beginning Voidable = means that the contract may be void by the choice of one of the parties – • a contract based on fraud can be considered voidable by the party who has been deceived • ie if the parties wish to perform it, they can, but the court will not force them to 6 Unenforceable = the contract is valid but it is unenforceable at law because of some defect (eg it is not in the form required by law) CAPACITY – OVERVIEW General rule: any person, of whatever nationality, gender, age etc may enter into a binding contract •“person” includes natural and corporate 7 BUT some persons need to be protected by the law because they might be taken advantage of so there are some laws that limit their capacity to enter into contracts CAPACITY – OVERVIEW 8 The law limits the capacity of certain ‘persons’ to bind themselves by a promise. These persons are: •Minors •Mentally disordered and drunken persons •Corporations •The Crown and public authorities CAPACITY: CONSEQUENCES & AIMS What if contractual capacity is missing: The consequences are different: • sometimes the contract will become void • in other cases it will be voidable or even unenforceable 9 Aims: • Minors, mental capacity: the aim is to protect those who do not have proper capacity • With public authorities = the aim seeks to protect public finances and taxpayers • Corporations = the aim is to protect investors and creditors CAPACITY – MINORS Different countries make different laws for minors Most countries set an age at which individuals have to attain to be able to enter into a contract UK: a “minor” is someone under the age of 18 This is called the age of majority Source: Births and Deaths Registration Amendment Act (No 1 of 2002): see this link: The rule at common law - a minor could not enter into a contract except for when it was for the “necessaries” of life and his “actual requirements” at the time of sale and delivery 10 http://www.legislation.gov.uk/ukpga/Eliz2/1-2/20 CAN MINORS ENTER INTO CONTRACTS? If under 7 – no If over 7 and under the age of majority – yes, BUT… • The law assumes that a minor cannot fully understand the implications of entering into a contract, so • Anyone who enters into a contract with a minor should be aware that the contract is VOIDABLE at the option of the minor, until they reach the age of majority • This means, the minor can cancel the contract at any time, even if it is to the disadvantage of the other party • Exceptions: contracts for service, apprenticeship and education • Why these exceptions: organizations that deal with minors need some degree of certainty when entering into these types of contracts that allow minors to make a living (or start to make a living); also, because they are for the minor’s benefit CAPACITY – MINORS So, even though minors can enter contracts, they can declare them void in all but two categories: 1. Contracts for “necessaries” of life 2. Contracts for the “minor’s benefit” 12 These questions then arise… What are “necessaries”? What are contracts for the “minor’s benefit”? 1. NECESSARIES Generally: contracts for food, clothes, medical attention, educational book etc Authority: Nash v Inman (1908) • (note: the age of capacity was 21 up until the law changed in 1970) Plaintiff – a Saville Row tailor Defendant – student at Cambridge University Defendant ordered clothes (including 11 fancy waistcoats at 2 guineas each) for a total cost of £145 Plaintiff sued for payment Defendant’s father proved that he already had enough clothes suitable to his condition in life before his son placed the order Held: because of the father’s evidence, the clothes were not “necessaries” and so the Plaintiff lost 13 Court of Appeal held that the tailor failed to prove that the clothing was suitable to the student’s actual requirements at the time of sale and delivery 2. CONTRACTS FOR THE MINOR’S BENEFIT Generally, minors can enter into contracts for training, apprenticeships etc so as to qualify for a suitable trade or profession Clements v London and North Western Railway 1894 • A minor entered into a contract of employment with a railway corporation • He promised to accept the terms of insurance against accidents (giving up his rights under the Employers Liability Act 1880) 14 • Held: When looked at as a whole, the contract was for his benefit and so he was bound by his promise 2. CONTRACTS FOR THE MINOR’S BENEFIT CON’T… Doyle v White City Stadium 1935 • Doyle – a boxer –made a contract with the British Boxing Board of Control • If D was disqualified, he wouldn’t get the prize money • D fought – was disqualified but then sued the BBBC • D argued: I was a minor, therefore, not bound by the agreement to forfeit money if disqualified 15 • Held: D failed because the agreement was similar to an employment contract; it was for his benefit so he was bound by it 2. CONTRACTS FOR THE MINOR’S BENEFIT CONTINUED… But, compare that case with the case of: De Francesco v Barnum 1890 B was 14, agreed to become the apprentice of De Francesco in “the art of choreography” (ie dancing) for 7 years During that time, B agreed not to take any other contract without De Francesco’s permission, not to marry, but she would receive certain payments Barnum was entirely at the disposal of De F The court will look at the whole contract to see if it is for the overall benefit of the minor: if it is, they’ll enforce it, if it isn’t, they won’t 16 Held: overall, the contract was not beneficial to B and therefore was unenforceable CAPACITY OF MINORS – SUMMARISED General rule: minors (usually under 18) have the capacity to enter into contracts but they can declare them void until they reach the age of majority – the law provides them with special protection Exception: 1. Contracts for the necessaries of life when they are an actual requirement at the time of the contract being made • Eg food, clothing, medical attention, educational books 2. Contracts which are for the minor’s benefit 17 • Eg training, employment, apprenticeships • The court will look at the overall effect of the contract to see if it is for the minor’s benefit. If it is, it will enforce it. Don’t forget the underling policy: to protect minors CAPACITY – THE BIG PICTURE There are four categories of persons which have limited capacity to enter into contracts (see slide 8 above) • Minors • Mentally disordered and drunken persons • Others: Corporations • The Crown and public authorities We will look only at the 1st and 2nd bullet points We already discussed minors 18 Now, mentally disordered and drunken persons MENTALLY DISORDERED OR DRUNK PERSONS General rule: contracts entered into by insane persons are voidable at the option of the person who is insane In UK: an insane person is a person who has an impairment or a disturbance in the functioning of their brain and is therefore incapable of managing their affairs: the Mental Capacity Act 2005 19 The contract will not be binding if this state existed at the time that contract was entered into AND the other party was aware of it MENTALLY DISORDERED OR DRUNK PERSONS Imperial Loan Co. v Stone 1892 Not only does the person have to prove that they were so insane that they did not know what they were doing BUT they also have to show that the person with whom they contracted knew him to be insane and incapable In such cases, the contract is voidable at the option of the insane person 20 Same rule applies for drunk persons: if they enter a contract whilst drunk, it is voidable at their option. But if they affirm it once they become sober, its binding: Matthews v Baxter 1873 SUMMARY OF CAPACITY A party to a contract must have the legal capacity to enter into it If they don’t the contract could be void, voidable or unenforceable We looked at the position of minors (young people), mentally impaired and drunk people They shouldn’t be held to the contracts they enter because they may not understand what they are signing up to Other categories exist for which special rules apply but we did not cover them (eg, companies, public agencies, “aliens”) 21 To read about those other categories, and much more, try this link: http://www.lawteacher.net/contract-law/lecture-notes/capacitylecture.php CONSENT A few brief words on the requirement of consent At common law, there is a rule which states that the parties must have freely entered into the contract for it to be valid Parties can’t be forced into a contract Rationale: there would be no ‘meeting of the minds’ if one of the parties did not freely enter into it The courts should not be used to enforce a contract where one party did not want to enter into it CONSENT General Rule: a valid agreement may only be made where the parties exercise their own free will when entering into it - no one can be forced to enter into a contract Two forms of pressure: 1. Duress – means violence or the threat of violence (and, more recently, also economic pressure) to a party to a contract or to a member of his family 23 2. Undue Influence – means a more subtle form of pressure placed upon a party to make them enter the contract DURESS When a contract is made using threat of violence or economic pressure or unlawful constraint. Contracts made under duress will be voidable – the party under duress can choose whether to remain bound Some examples of how the courts interpret ‘duress’: Cummings v Ince 1847 Threats to have somebody declared to be mentally unstable with a lunatic asylum as a destination to make somebody sign over their property is clearly extreme and the agreement will be set aside Welch v Cheeseman 24 • W transferred her house to the man she lived with because of the threat of violence from him • Effect: contract is voidable – transfer was set aside (cancelled) because she entered the contract under duress DURESS CONT’D… The courts include ‘economic pressure’ and not just physical pressure The position now is it is not what is threatened but whether the threat created a “coercion of the will, which vitiates consent”: In The Universal Sentinel, 1983, the trade union had said that if certain payments were not made they would induce the crew to break their contracts thus trapping the ship in port. This was economic duress that vitiated the agreement to make the payments. Scarman emphasizes that compulsion can be seen as leaving a party with ‘no practical choice open to him’. What makes a threat capable of being seen as duress is that it is: · Illegitimate – a legal wrong. · Wrongful - such as blackmail threat. · Contrary to public policy. UNDUE INFLUENCE • It is presumed to exist where there is a close relationship between the parties: • husband and wife • lawyer and client • doctor and patient • If there is no pre-existing relationship then the party alleging undue influence has to prove it DURESS AND UNDUE INFLUENCE There are some interesting sources on the internet – take a look to see more examples of how the courts have interpreted the requirement of ‘consent’: • http://aptum.co.uk/law/contract/vitiatingfactors/duress/duress • http://www.thestudentroom.co.uk/wiki/Revision:Contract_ Law_2#Economic_Duress • It seems that it is quite a fluid area – what is legitimate pressure v what is illegitimate pressure is hard to predict CONSENT SUMMARISED Each party to the contract must have genuinely wanted to enter into the contract. If there has been duress or undue influence then the contract will be voidable at the option of the party who has suffered the duress or undue influence They may want to affirm the contract, despite the duress, and continue. They can do that if they wish. 28 There are many cases and examples which show how the courts have interpreted this requirement of genuine consent COMPARISON… • What is the situation in the civil law? • What is the situation in Kuwait? • Is common law the same as civil law with regards to capacity and consent? • What are the similarities and differences?