Capacity to Contract

Note on Capacity to Contract by Legum

Capacity to Contract:

In contract law, not everyone can enter a contract with another party because they are deemed to have limited capacity to contract.

Capacity to contract is the capacity of a party to enter a valid contract legally. Certain categories of people such as infants or minors, mentally disabled persons, drunkards, and drug addicts, amongst others, are usually not deemed to have the capacity to contract.

Beyond offer, acceptance, consideration, intention to create legal relations, and legality, the capacity to contract is one of the main elements of a valid contract.

Capacity to Contract and Minor/Child:

Who is a Child?

In common law, a child is any person below the age of 21 years.

In Ghana, the Children’s Act, 1998 defines a child in part 1 sub-part 1 as “For purposes of this Act, a child is a person below the age of eighteen years.”

In defining who can form a company in Ghana, the Companies Act, 2019 in section 12 states: “Subject to this Act, a person of the age of eighteen years and above may apply for the incorporation of a company under this Act.”

These ages may differ based on a country’s legislation.

General Rule: Contracts between minors and adults are binding on adults but not on minors.

In terms of the capacity to contract as far as minors/children are concerned, the general common law rule is that contracts between a child and an adult are not binding on the child but are binding on the adult.

Exceptions to the general rule above:

Certain types of contracts can be binding on the child or minor as well. These are contracts for necessaries, contracts of services such as apprenticeship contracts, and contracts where the minor can earn a living.

1. The first exception to the general rule is Contract for Necessaries:

There is a recognition that if all contracts between children/minors and adults are not binding on the child/minor but are binding on the adults, some adults may refuse to enter contracts with children/minors to the detriment of the child/minor. This is especially true in the case of necessaries where a child needs a particular product or service for their immediate well-being. For instance, food, water, health, shelter, clothing, and education amongst others are considered necessaries, and children/minors can enter into binding agreements for such.

In Ghana, the Sale of Goods Act, 1962 (Act 137) in section 2(3) defines necessaries as “… goods suitable to the condition in life of the person to whom they are delivered and to his actual requirements at the time of the delivery". Essentially, section 2(3) of the Sale of Goods Act captures the idea that what constitutes necessaries must be suitable for the person at the receiving end (in this case the minor) and whether the good or service is suitable to them as at the time of their reception of the good or service. For a child who is well sheltered, shelter is no longer a necessity.

Cases for the Exception of Necessaries:

In the case of Nash v Inman, it was established that an action to recover the costs of fancy waistcoats from a minor defendant, must fail because the minor defendant was sufficiently supplied with clothes at the time of the delivery, and those fancy waistcoats were not considered necessaries. In the case of Ryder v. Wombwell (1868), it was also established that an action against a minor defendant who caused to be delivered to him some crystals, rubies, and diamonds must fail because those items were not constitute necessaries.

Necessaries Extended:

Note that necessaries can also be defined to include products or services not needed directly by the minor, but by the minor’s close family. In the case of Chapple v Cooper, a married minor entered a contract to purchase a coffin to enable her to bury her husband. The Courts held that the minor was liable to pay for the coffin because it was a necessary.

Exception to the exception of contract for necessaries: Contract for Necessaries with Harsh Conditions:

Although contracts for necessaries are binding on a child, when a minor enters a contract for necessaries, the court will not enforce the contract against the minor if the terms of the contract are harsh. In the case of Fawcett v. Smethurst, the court in the ruling of Justice Atkins held that the term which stipulated that a minor is liable for paying damages to a hired car whether such damages were due to the minor’s negligence or not, was harsh and that the contract could not be enforced against the minor.

2. The second exception to the general rule is Apprenticeship Contracts:

Apprenticeship contracts are an extension of necessaries. Apprenticeship provides vital training and skills to people, including minors. These skills and training may be essential for the survival of a minor, and are therefore considered necessaries (depending on what the skill or training is about).

See the cases of Clements v. London & North Western Ry. Co. and Robert v Gray.

Exception for Apprenticeship Contracts:

When a minor enters a contract for an apprenticeship, the courts will not enforce the contract if the contract contains terms that are considered harsh to the minor. In the case of De Francesco v Barnum (1890), the court ruled that the terms of the contract were harsh for the minor and therefore void.

3. Third exception to the general rule Contracts where the Minor can Earn a Living:

In contracts where the minor can earn a living, the courts will hold the contracts binding on the minor if the terms are not too harsh or if they benefit the minor as a whole. In the case of Doyle v White City Stadium, the court held that the minor is not entitled to the reward of 3,000 euros because he violated a fight rule which was designed for his protection or benefit.

Note: The Principles of Beneficial Contract do not Apply to Trading:

Children are not supposed to engage in trading. Consequently, trading contracts that are even beneficial to children/minors are unenforceable. See the case of Cowern v Nield.

Fraudulent Misrepresentation of Age by Infant:

Sometimes, a minor may represent his age to induce an adult to enter into a contract the adult would not ordinarily enter with a minor.

The rule is that if the contract is unenforceable against the minor without the misrepresentation, the contract remains unenforceable against the minor irrespective of the misrepresentation of age.

See the case of Leslie v Shiell where the defendant obtained a loan from the plaintiff by fraudulently misrepresenting his age. The Court held that the contract was unenforceable against the minor.

Note, however, that if the property is still in the possession of the minor, the courts will order a return of the property following the doctrine of equitable restitution.

How Does a Child Enforce a Contract Against an Adult?

When a minor enters into a contract with an adult, and performs his part of the contract, but the adult defaults , the minor can sue for specific performance through a guardian. Note that the minor can only demand specific performance if he has performed his part of the contract.

See the case of Lartey v Bannerman where the court allowed a minor plaintiff to sue by her next of friend for specific performance.

Voidable Contracts:

A voidable contract is one where a party to the contract can cancel or revoke the contract. It means the contract can be declared invalid if one party chooses to do so. It is the equivalent of “I no dey do again oga”.

For minors, the general rule is that voidable contracts are binding on the minor unless he repudiates or terminates the contract during his minority or within a reasonable time after attaining majority. Note that terminating a voidable contract only absolves the minor from future liability and not from liabilities which have already arisen prior to termination. For example, a minor rents an apartment, and terminates the contract. He must pay for the accrued rent.

According to Hammond (2011), “The general principle, therefore, is that where a minor enters into a contract by which he acquires an interest in a subject matter of a permanent nature with recurrent obligations attached to it, he is bound by the obligations as long as he retains the contract

It is quite common for the minor to acquire some interest in a subject matter which has recurring liabilities. The minor would be bound by the contract if he does not take steps to rid himself of the liability by terminating the contract during the period he is still a minor or shortly after becoming an adult.

Voidable Contracts in Ghana:

For minors, the following contracts are voidable: contracts involving lease, contracts for acquiring shares in a company.

Capacity to Contract for Mentally Incompetent Persons:

A mentally incompetent person is a person of an unsound mind or an insane person.

The general common law rule is that a contract with a person of unsound mind is void if the person claiming to be mentally unsound proves such a state and shows that the other party was aware of his unsoundness of mind at the time of the contract.

See the case of Imperial Loan Co. Ltd. v. Stone