Business

Legal Capacity

As we know that legal capacity is what a human being can do within the framework of the legal system. Also, for a contract to exist the parties must have contractual capacity. There are certain persons that lack the capacity to enter into a contract with the consequence that resulting contracts will not be enforceable against them.  Lack of capacity now often stems form a fear of vulnerability to exploitation. This area has become more complex as a result of statutory developments at a state level which result in a variety of different rules:

• Mental disorder and intoxication

• Bankrupts

• Minors

• Companies

Mental disorder and intoxication

A contract is voidable at the option of a party who, as a result of mental disorder or intoxication, is unable to understand the nature of the contract being made - provided that the other party knew, or ought to have known, of that person’s disability.  The party seeking to withdraw from the contract has the onus of proving both these requirements - that is (a) that they were suffering from such a disability and (b) that the other party was - or ought to have been - aware of it. Such Gibbons v Wright. It is not essential that the resulting contract be 'unfair'

Bankrupts

A bankrupt person may make a contract but unprofitable contracts made prior to bankruptcy may be disclaimed by the trustee. Legislation may also restrict the nature of contracts a bankrupt person may enter into (for example, the extent of credit they may obtain) and makes entering into some types of contract without disclosure of bankruptcy an offence.

Minors

Minors (those under the age of 18) lack the capacity to make a contract. So a minor who signs a contract can either honor the deal or void the contract. There are a few exceptions. For examples, a minor cannot void a contract for necessities like food, clothing, and lodging. Also, a minor can void a contract for lack of capacity only while still under...