STEP 4: CAPACITY OF THE PARTIES
- Except in New South Wales, contracts with infants may be classified under one of three headings:
- Valid contracts
- only for necessaries and beneficial contracts of service.
- Necessaries will be determined by the station in life of the infant. The plaintiff (the supplier of the goods or services) must establish that:
-- the goods or services could be necessaries. This is a question of law for the plaintiff to establish (Bojczuk v. Gregorcewicz );
-- the goods or services were necessaries at the time of sale or delivery. This is a question of fact (Scarborough v. Sturzaker (1905)); and
-- the infant only has to pay a reasonable price for necessaries and this depends upon all the facts. Harsh or onerous terms will invalidate the contract.
- Beneficial contracts of service require that the beneficial terms outweigh the onerous terms (De Francesco v. Barnum (1890)). Benefit to the infant is the key (Mercantile Union Guarantee Corp Ltd v. Ball ).
- Voidable contracts
- Those which are binding unless repudiated are limited to:
-- purchase and lease of land;
-- purchase of shares in a company; and
- These contracts are valid and binding upon both parties unless and until the infant repudiates them either during infancy, or within a reasonable time of attaining adulthood.
- Rescission only ends future liability; any obligations already accrued must be satisfied (Steinberg v. Scala (Leeds) Ltd ).
- Any money paid by the infant cannot be recovered unless a total failure of consideration can be shown (Corpe v. Overton (1833)).
- At common law, contracts which are not binding unless ratified include purchases of non-necessaries and trading contracts, though this position has been modified in the states and territories.
- Void contracts
- In all states and the territories, at common law an infant is not liable on a contract to repay a loan, even if the loan has been given for the purchase of necessaries. Nor can an infant be made liable on a cheque or bill of exchange.
- The common law position has been modified by statute in all jurisdictions.
An infant is not liable for a tort connected with a contract (Jennings v. Rundall (1799)), though there may be liability where the act done is not something contemplated by the parties when they entered into the contract.
No action can be brought in tort against an infant for deceit, but if the infant still possesses the goods obtained by fraud, the equitable doctrine of restitution can be applied.
- Infants' contracts in New South Wales
- In New South Wales the law relating to the contractual capacity of infants is regulated by the Minors (Property and Contracts) Act 1970, which made two changes to the common law:
- it reduced the age of adulthood to 18; and
- it introduced the concept of 'presumptively binding' civil acts.
- The onus is on the person who wishes to establish that the contract is binding. The court considers:
-- the type of transaction;
-- the station in life of the infant; and
-- the fairness of the bargain.
- Contracts which benefit the infant are 'presumptively binding'. The courts presume that they are valid, though the onus is on the party wishing to enforce the contract to prove it falls within one of the specific categories under the Act.
Civil act = a contract
Presumptively binding presumed = if the civil act is for the minor's benefit, the minor is presumed to be as bound as an adult would be.
- Contracts which BENEFIT the infant are 'presumptively binding'.
Not for minor's benefit if:
- consideration is grossly inadequate; or
- the infant is too immature to understand fully.
The courts presume that they are valid, though the onus is on the party wishing to enforce the contract to prove it falls within one of the specific categories under the Act.
- Infants' contracts in South Australia
The South Australian Minors Contracts (Miscellaneous Provisions) Act 1979 basically leaves the common law untouched.
Where a contract is unenforceable against a person because they were an infant at the time of entering into the contract, such a contract remains unenforceable unless the infant ratifies it in writing within a reasonable time of attaining their majority.
Corporations have virtually the same legal capacity as natural persons. Generally, contracts that go beyond the powers granted in the 'replaceable rules' will still be valid and enforceable under the Corporations Act 2001 (Cth).
Bankrupts have a restricted contractual capacity. If they wish to obtain goods or services of more than $3000 in value, they must disclose to the lender that they are an undischarged bankrupt under the Bankruptcy Act 1966 (Cwlth). They cannot be directors or play a management role in a company and can only acquire property for the benefit of creditors.
4 Mentally unsound and intoxicated persons
- If, at the time of making a contract, a person is suffering from mental instability or drunkenness to the extent that they are incapable of understanding its nature, and the other party knew (or ought to have known) this, the contract is voidable (O'Connor v. Hart ).
- If the contract is made during a lucid period, or is affirmed after a period of mental instability or drunkenness, the contract will be valid.
- If the contract is for the supply of necessaries, the person who is mentally unsound or the drunken person will have to pay a reasonable amount for them.