Weeks 2 & 3: Capacity & Intention
I’m doing a combined post for weeks two and three of Contract A for two reasons. The first reason is the catch up, as I am week behind in my reflections, and also because this subject appears to be very straight forward and just “makes sense”. This is in part due to the easy to follow flowcharts provided for each week of material, and also due to the very literal nature of contracts. With contract law it appears to be simply a matter of applying the rules of contract theory.
Understandably factors that contribute to contract include mental capacity and intoxication, but the rules surrounding minors/age can be challenging at times. Partly this is due to the subjective test of “what is a necessity”. Unlike the more understandable necessities such as food, shelter and clothing, necessity is in relation to contracts also include what is necessary for the individuals station in life. However want you can get your head around this concept, the remainder of contract theory related to capacity is very straightforward. The party is a minor you simply have to consider if the contract is for a good or service, or is the contract for employment or education. Answering yes to the majority of the questions related to these two broad areas results in a binding contract. If the party is not minor but is instead intoxicated and the other party knows this or should know is this, then the contract is voidable. And if the person is a bankrupt or prisoner than some special rules apply, mainly related to delegation of authority. The word voidable is used to refer to a state were the individual in question, once they have regained their mental faculties or have become of legal age to make a contract, has the option of ratifying (agreeing to be bound by) or repudiating (declining to be bound by) the contract.
The next consideration when determining if a contract exists is if the agreement is a social, commercial or a so-called “special” agreement. A social agreement is usually made between friends family, and the presumption is there is no intent to create legal relations. A commercial agreement is typically made between business entities, and the presumption is that that is intent to create legal relations between the parties. However these are not absolutes, there are many instances in which a situation that would normally be considered a social contract is in fact a commercial contract, and vice versa. This is when the circumstances of the agreement rebut the presumption that is normally made. For example in a commercial contract the use of a “honour clause” can rebut the presumption that there was intent to create legal relations. Finally the so-called “special” agreements. This class of agreements refers to those made with a government or government agency, or agreement that is actually a preliminary agreement for a later contract. For these agreements a special set of questions are asked to identify if legal relations have or have not been created between the parties.