introductory & contract law capacity to contract week 6
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Introductory & Contract Law Capacity to Contract Week 6. Capacity to Contract. Diminished capacity Children (Minors) Mental Disability Community Protection Bankrupts Criminals Outlaws. Contracts with Minors. Minor – Anyone under 18 years of age Contracts with minors can be - PowerPoint PPT PresentationTRANSCRIPT
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Introductory & Contract Law
Capacity to Contract
Week 6
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Capacity to Contract
Diminished capacity Children (Minors) Mental Disability
Community Protection Bankrupts Criminals Outlaws
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Contracts with Minors
Minor – Anyone under 18 years of age Contracts with minors can be
Valid – legally enforceable by both parties Voidable – legally enforceable until repudiated
by the minor Void – no legal effect
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Valid Contracts
Contracts enforceable against a minor Supply of Necessaries Contract of Beneficial Service
All other contracts are “voidable” unless: Obtained under duress Obtained by Undue influence Obtained by misleading and\or deceptive conduct Unconscionable bargains Etc. (as for all contracts)
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Supply of Necessaries
Contract for the supply of goods and services that are suitable to the condition in life of the minor and to his actual requirements at the time of sale and delivery
Includes: Food Clothing Education Medical care Shelter
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Supply of Necessaries
Two part test Is the thing capable of being a necessary?
Chapple v Cooper (Outline p6-11) Is it necessary for this particular person?
Onus is one person seeking to enforce contract against minor Nash v Inman (Outline p6-11)
Reasonable price not contract price
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Beneficial Contracts of Service
E.g. apprenticeships Must be for the overall benefit of the minor
Leng & Co v Andrews (Outline p 6-12) Roberst v Gray (Outline p 6-12)
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Ratification
Repudiation Voidable contracts must be repudiated within a
reasonable time of child attaining majority – otherwise enforcable against person
Davies v Beynon-Harris (Outline p 6-12) Nicholson v Nicholson (Outline p 6-12)
Ratification by Minor after turning 18 prevents repudiation and contract becomes valid and enforceable
Statutory modification NSW - Minors (Property and Contracts) Act 1970
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Aliens
Same contractual capacity as Australian citizens Cannot take a majority shareholding in certain
public companies In wartime
Cannot make a contract with an Australian citizen
Cannot take action in Australian courts to enforce a contract
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Mental Disability
Valid contract unless it can be shown that: Person was wholly incapable of
understanding the nature of the contract Other party was aware of the mental condition
See Imperial Loan Co v Stone (Outline p 6-12) Also applies to drunks
See Matthews v Baxter (Outline p 6-13)
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Community Protection
BankruptsCannot enter into contracts involving more than $500 without Trustee in Bankruptcy’s permission
Diplomatic RepresentativesContracts are binding but cannot be sued in Australian court unless they submit to the jurisdiction
OutlawsA person sentenced to death is a non-person and cannot sue (Dugan v Mirror Newspapers (Outline p 6-13)
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Community Protection
CriminalsIf sentenced to more than 3 years gaol, need Public Trustees permission to enter into contracts
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Intention
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Intention to Contract
Parties must intend their agreement to be legally binding i.e. enforceable by a court
An intention to be morally binding is not enough Objective test Distinction between
Social/domestic agreements Commercial agreements
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Intention
Subjective intention
The person’s actual state of mind Objective intention
Concludes, on the basis of what a person said and did, what a reasonable person in the same circumstances would have intended
Contract law uses objective tests See Smith v Hughes (Outline p 6-4) Clarke v Dunraven (Outline p 6-4)
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Domestic Agreements
Court presumes that parties did not intend to contract
Presumption may be rebutted Balfour v Balfour (Outline p 6-3) Riches v Hogben (Outline p 6-3)
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Domestic Agreements
Court will look at Terms of agreement Circumstances surrounding the agreement Effect of the agreement on the parties Parties conduct subsequent to agreement
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Commercial Agreements
Courts presume that the parties intended to contract
Clear words are needed to rebut the presumption
Onus is on party seeking to disprove the contract
Rose & Frank v J R Crompton (S&O p95) Edwards v Skyways (S&O p95)
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Fundamentals of Law
Consideration
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Two Types of Enforceable Agreement Deeds
Contracts that comply with special rules Do not require consideration
Simple contracts Do require consideration
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Deed In writing Maker of deed must sign, seal and deliver the
document Independent witness Special attestation clause
SIGNED SEALED AND DELIVERED )by the said JOE BLOGGS )in the presence of: )
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Consideration
Every simple contract must be supported by consideration
The law will not enforce a gratuitous or bare promise
Lack of consideration may be overcome by the equitable doctrine of estoppel
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What is Consideration
Consideration must flow from both sides of the contract
Can be: A promise to do something A promise not to do something A benefit for the promisee A benefit for a third person at the promisee’s direction A detriment to the promisor Anything of real value to the promisee
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Consideration Cannot Be Past
A promise can be executed (i.e. present execution) or executory (i.e. future execution) but cannot be past
A promise must be paid for but if consideration has already been given then there is nothing being paid for the new promise Roscorla v Thomas (Outline p 6-5) Anderson v Glass (outline p 6-5)
Settling unsettled aspects of a past transaction may be consideration Re Casey’s Patents: Stewart v Casey (S&OR p104)
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Consideration Must Move From Promisor
Only the person who has “paid” for the promise can enforce it
Dunlop v Selfridge (S&OR p101)
Called “Privity of Contract”
Dunlop Wholesaler(bought tyres from Dunlop, sold to retailers)
Selfridges(broke promise to wholesaler not to
discount)
Contract
Contract
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Consideration Need Not Move to Promisor
It is not imperative that the consideration move to the promisee
Official Trustee in Bankruptcy v Arcadiou (Outline p 6-6)
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Consideration Need Not Be Adequate
Consideration must be sufficient i.e. have some value in the eyes of the law Chappell & Co v Nestle (Outline p 6-6)
Need not be equal in value to the promisor’s promise
The very nature of contract law is to let the parties make their own bargain
However, doctrine of unconscionable conduct has developed to overcome resulting injustices
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Consideration Must Be Sufficient
The following will not be sufficient consideration: Moral obligations Illusory consideration Performance of a public duty imposed by law Performance of an existing contractual duty
owed to the promisor
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Illusory Consideration
The consideration must be definite It cannot be so nebulous as to be illusory
White v Bluett (Outline p 6-7)
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Moral Obligations
A moral obligation is not sufficient Eastward v Kenyon (Outline p 6-7)
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Promises Not to Sue
Forbearance to sue (i.e. an offer not to sue) is good consideration provided The claim (defence) was reasonable The promisee had an honest belief that the claim had
a reasonable chance of success The promisee has not concealed any facts that might
affect the validity of the claim
Hercules Motors v Schubert (Outline p 6-8)
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Performance of a Public Duty
Where a person is obliged by law to perform a public duty
The promise to perform the duty cannot be sufficient consideration
Collins v Godefroy (Outline p 6-8)
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Existing Contractual Obligation
Promising to perform an existing contract is not consideration
To be binding, there must be a promise to do something additional to contracted duty Stilk v Myrick (Outline p 6-8) Hartley v Ponsonby (Outline p 6-8)
Promise to perform an existing contractual duty to a third party is sufficient consideration Shadwell v Shadwell (Outline p 6-10)
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Renegotiating a Debt Renegotiating a debt will not be consideration as
the debtor is already obliged to pay the full amount Doing something less cannot be consideration Pinnel’s Case (Outline p 6-9) Approved by House of Lords in Foakes v Beer
(Outline p 6-9)) Exceptions
Composition with creditors Payment by third party
Ways around Deed Payment in kind
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Exceptions to Pinnels Case
Promissory estoppel Fraud on a third party
Shadwell v Shadwell (Outline p 6-10)
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Promissory Estoppel
Elements1. Assumption
The promisee, on reasonable grounds, believes that a particular legal relationship exists or will exist
2. InducementThe promisor created the assumption
3. ReliancePromisee acts in reliance on promise
4. DetrimentPromisee alters its position to its detriment
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Promissory Estoppel
Applies where No consideration exists Formalities of making a contract have not been
satisfied Walton Stores v Maher (textbook)
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Consideration Must Be Sufficient
$1 for a Rolls Royce “I promise to be an honest public servant” “I’ll give up my legal claim against you” “I will pay you less than I owe you if you forget
the rest” “In love and affection” “I promise to carry out my contractual
obligations”