Capacity to Contract-Law of Contract

A contract is an agreement made with the free consent of parties with capacity to contract, for a lawful consideration and with a lawful object with the intention to be legally bound.[1] Contractual Capacity means that the individual entering into contractual obligations must be of age and legally competent. The Contract will not be held valid if one or both parties are found to be insane or intoxicated or a corporation operating outside the scope of its authority as defined in its charter, by laws, or outside of incorporation. [2]

A person has a capacity to contract where that person eighteen years or above, of sound mind; and not disqualified from contracting by any law to which to which he or she is a subject[3]. A minor or infant under Ugandan law is a person who has not reached the age of majority - that is eighteen years[4] or sixteen for the United Kingdom.

The logic of rule of capacity to contract protects the minor against his inexperience and disenables an adult to take unfair advantage of him or her to enter the contract which through in itself is unfair[5] . It also protects adults that deal fairly with minors thus avoiding unnecessary hardship to the adults. Contracts made by a minor maybe binding during minority, voidable, void or unenforceable against the minor both during and after minority.

Valid contracts consist of necessaries for an infant.Under The Sale of Goods Act, ‘‘necessaries’’ means those goods suitable to the condition in life of the infant or minor.[6]

In Nash vs. Inman, Fletcher Moulton said that;

 “An Infant ….is in capable of making a contract ….in the strict sense of the word but is a man satisfied the need of the infant by supplying to him the necessaries the law will imply an obligation to repay him for the services so rendered and will enforce that obligation against the state of the infant or lunatic …..”[7]. The minor was liable because he had been supplied and not because he had contracted. Necessaries rendered to a minor may be services like education like in Chapple V Cooper, medical and legal advice[8]. In Uganda, a child is entitled to education.[9]

Voidable contracts bind parties but the infant can escape liability by repudiating before majority or with in a reasonable time thereafter[10] when a minor repudiates a contract before any obligations arisen under the contract, then no problems arise and the contract simply. However, incase where the minor has transferred money under the contract, this money is not recoverable unless there is a complete failure of consideration. In Steinberg V Scala (Leeds) Ltd[11] a minor was allotted stores in a company and she made part payment when she was called upon to balance of the purchase price she sought to repudiate the contract and recover the money which she already paid. Court held that her name would be removed from register of shareholders but could not recover what she had already paid.[12]

Void contract are those which do not bind a minor and are thus unenforceable. According to Courts and Co V Brownlecky[13] B, an infant had an over draft with the bank X and Y for payment. It was held that as the loan by the bank to B was void, X and Y could not be held liable. Therefore order void contracts even if a minor was induced a void contract by misrepresenting that he was of full age, he cannot be sued on that contract.[14]

A corporation is a district entity set apart from members of shareholders of the company although it is an artificial person created by law.[15] Like natural persons corporations can enter into valid contracts and sue or be sued in its name

A company is restricted in two ways when a company has no capacity to enter into a contract which is ultravires[16] that is one that falls outside the scope of the objects for which it was formed which are in its Memorandum of Association and it has no capacity to enter into a contract before it is incorporated and registered as a company at companies registry. This was exemplified in the case of Kelner V Baxters[17] However; a company can novate a contract by entering into a fresh and new contract after incorporation which may be on the same terms as pre-incoporation contract.

Capacity and insane persons of unsound mind. A person of unsound mind means an idiot or person suffering from mental derangement [18] The sane are the ones supposed to get involved in a contract. However, there is no question of law punishing a person that makes a contract while mentally ill [19] A contract with a mental patient is valid except where the disability is known to the other party and where his or her property is subject to the courts control like in Balwyn V smith[20]

Contracts made by Drunkards who at the time did not understand what they were doing are voidable at the person who was drunk provided that the other person knew his condition[21]  however; it’s possible for a drunkard to verify the contracts when sober like in Mathews V Baxter[22]

However, much capacity to contract is main ingredient of a contract there are other contents of a contract in Green Boot entertainment Ltd VKCC[23] it was held interia that “for a contract to be valid and legally enforceable the must be capacity intention to contract, consesus ad idem, valuable consideration, legality of purpose and sufficient certainty of terms.”

An offer is an expression of readiness to contract on terms specified by the offeror or which if accepted will give rise to a binding contract[24]. In Carrill V Carbolic smoke Ball Co (1893), the defendants advertised an offer of one hundred pounds to any user of their Carbolic smoke ball who caught influenza after using it in accordance with certain conditions[25] They deposited a sum of one thousand pound with the Bank to show there sincerity in the matter. Plaintiff bought it and used as directed in the advertisement. She caught flue and sued the Defendants for one hundred pounds. It was firstly held from the language of the advertisement that there was a definite offer[26] .

Acceptance means an assent to an offer made by a person absolutely to whom the offer is made[27]unless the acceptance is so communicated, No contract comes into existance. In  Currie V Misa, Lush said that a valuable consideration in the sense of law means a right interest, profit or benefit accruing to one party forbearance detriment, loss or responsibility suffered or undertaken by the other party.[28]   In other words consideration is taken to be the price for which a promise is bought[29].This clearly defines consideration as “Must not miss part” for contract to be valid.

The third major element of formation of contracts after agreement and consideration is intention to create legal relations[30]. The basic presumption is that if the purpose of the contract has some “business” or “commercial” aim then the parties intends to create legal relationship. However, there are some exceptions.  In Rose and Frank Co. V J.R- Crompton and Bros. Ltd[31]  an agency agreement provided ; This arrangement and nor is this memorandum written as a formal legal  agreement and shall not be subject legal jurisdiction in the law of courts but if only a definite expression and record of the purpose and intention of the parties concerned to which they each honourably pledge themselves…..”

It was held that the agreement was not a legally binding contract if it was not intended to have this effect. In the case of domestic agreements, there is no intention to create legal relations .In Balfour V Balfour (1919), Mr. Balfour agreed to pay his wife a sum of money for maintenance while he was posted to Ceylon. After separation Mrs. Balfour took action to hold him to his payments. Action failed because there was no indication that the agreement was intended to be a contract[32] In Printing and Numerical Registering Co V Simpson Sir George Jessel M.R. Observed, “If there is one thing more than the other which public policy required is that men of full age and competent understanding should have the almost liberty of contracting and their contracts when entered into freely and voluntarily should be held sacred and enforced by the courts of Justice[33] 

In a nutshell, capacity to contract is one of the basic ingredients of a contract but can not operate effectively without (offer, acceptance, consideration, intention to create legal intention). The fore going must be satisfied fully for a contract to be enforced by court as valid. This is an era of freedom of contract and laissez-faire.

 

BIBILIOGRAPHY

STATUTES

CONSTITUTION OF THE REPUBLIC OF UGANDA, 1995

CONTRACTS ACT 2010

SALE OF GOODS ACT, CAP.82

TEXT BOOKS

Ceshire Fifoot and Firmston’s Law of Contract 15th edition (Oxford University Press Inc. New York)

Chris Turner, Jacqueline Martin; Unlocking Contract Law, 2^nd ed (London Publishers)

D.J. Bakibinga; Law of Contract in Uganda (2001 Fountain publishers.)

R. W. Hodgin, Law of Contract in East Africa (Nairobi E.A LB, 1991)

Trietel, Law of Contract 8^th Edition (sweet and Maxwell 1991)

 OTHER SOURCES

 Case Law

INTERNET SOURCES

http://www.bntamica .com/E Bchecked Hopic 193515/ capacity to contract

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[1] Contracts Act  2010 Section 10  (1)

[2] http://www.bntamica .com/E Bchecked Hopic 193515/ capacity to contract

[3] Supra, n.1 sec. 11

[4]  D.J. Bakibinga, Law of Contract in Uganda Pg 25

[5] Trietel, Law of Contract 8^th Edition Pg 539

[6] Sec 3(2) Sale of Goods Act, Cap.82 Laws of Uganda

[7] (1908) 2 KB 1

[8] Chapple V Cooper

[9] Constitution of the Republic of Uganda 1995 Article 34 (2)

[10] D.J Bakibinga, Law of Contract in Uganda Pg 27

[11] [1923] 2 Ch 452

[12] (1923)2 Ch 452

[13] Coutts and Co. V Brownlecky in Uganda

[14] D.J. Bakibinga, Law of Contract in Uganda Pg. 28

[15] Ibid

[16] R. W  Hodgin, Law of Contract in East Africa, Pg 71

[17] Kelner V Baxter

[19] D.J. Bakibinga, Law of contract in Uganda, Pg 29

[20] (1900)

[21] Baldwyn V Smith (1900) 1 Ch. 588

[22] D.J. Bakibinga, law of contract in Uganda  Pg.30

[23] Mathews V Baxter (1873) L.R8 Ex  132

[24] D.J. Bakibinga, law of contract in Uganda Pg 7

[25] (1892)2 2.B 484; (1893) 12B 256

[26] (1955) 2qB 327

[27] Contracts Act 2010 Section 2

[28] D.J Bakibinga Law of Contract in Uganda Pg 14

[29]Unlocking contract Pg 95

[30] (1925) A.C. 445

[31] (1919) 2 K B. 571

[32] Un locking Contract Pg 6

[33] Printing and Numerical Registering Co V  Simpson