Persons Lacking Capacity
Not every person has the capacity to bind himself to a contract. Certain categories of vulnerable persons have privileges and immunities from contractual liability. The purpose in each case is to protect persons who are presumed to be unable to look after their affairs, because of age, mental condition or other vulnerability.
Historically, married women were subject to significant disabilities and lacked the legal capacity in several respects. The last of the old common law disabilities of women were abolished by the Married Women’s Status Act 1957. The disabilities applied principally, in relation to the capacity to enter certain contracts and the capacity to hold property.
Formerly, prisoners were subject to substantial disabilities. They were prohibited from bringing cases for debt, damage or for the recovery of property while a convict. The legislation was repealed in 1997.
The contractual and other capacity of minors is discussed in a separate section. Many of the remedies and issues relevant generally to capacity in the context of a minor apply generally to the categories of person mentioned below. The concept and principles of necessaries applies in some contexts
The Infants relief Act has no equivalent in this context. Common law principles apply. In common with the law on minors contracts the law in relation to the above categories is outdated and is in need of reform. As of early 2017 the bulk of Assisted Decision-Making (Capacity) Act 2015, some provisions of which reform the law on the capacity of person who lack mental capacity, had not yet been commenced in force.
Unsound Mind I
A person of “unsound mind” is somebody who lacks the capacity to understand the consequences of what he is doing. He may be bound by a contract unless the other person knew that he was of unsound mind and took advantage of his infirmity.
A person lacks mental capacity if he lacks the ability to understand and consent to the transaction.
An apparent contract may be avoided if it was procedurally unfair or substantively unfair
Substantive unfairness may exist by the manifestly unfair terms of the contract. Sharp practice, inappropriate pressure, and victimisation may constitute procedural unfairness. The manner in which the contract was entered may make its enforcement unconscionable.
Unsound Mind II
A contract entered with a person who is of apparently sound mind, by another who acts in good faith without knowledge of his actual incapacity is valid. Knowledge includes not only actual knowledge of incapacity but also knowledge such that a reasonable person would conclude that the person with whom he is are dealing, lacked the requisite mental capacity.
Wards of the court have been formally found to be of unsound mind. They lack legal capacity. Their assets and affairs are dealt with by representatives. The legislation has been recently modernised. However, as of early 2017 the bulk of Assisted Decision-Making (Capacity) Act 2015 had not yet been commenced in force.
A person of unsound mind must pay a reasonable price for necessaries. Broadly similar principles to those applicable to minors, apply.
Mental Capacity / Undue Influence/ Unconscionable Bargain
If the contract is made with a person who is apparently of sound mind, general principles of undue influence and unconscionability apply. A person of unsound mind may be able to avoid the contract if there is a breach of fiduciary duty or so-called equitable fraud. General fair dealing requirements apply.
Where a person who is vulnerable, is taken advantage of, by a person relative to whom he is vulnerable, there may be undue influence. In this case, any transaction between them may be upheld, only if it is shown to be actually fair and reasonable. Where a person has actual or implied knowledge that the other party to a bargain is of a weak mind or vulnerable, there is greater risk that a transaction between them may be set aside on the basis of undue influence or unconscionable behaviour.
Assisted Decision-Making (Capacity) Act I
The Assisted Decision-Making (Capacity) Act 2015 intorduces an modern difinaiton of mental incapacity for the purpose of that Act. It is likely to be applied more genrally to legal capacity
A person’s capacity shall be assessed on the basis of his or her ability to understand, at the time that a decision is to be made, the nature and consequences of the decision to be made by him or her in the context of the available choices at that time. A person lacks the capacity to make a decision if he or she is unable—
- to understand the information relevant to the decision,
- to retain that information long enough to make a voluntary choice,
- to use or weigh that information as part of the process of making the decision, or
- to communicate his or her decision (whether by talking, writing, using sign language, assistive technology, or any other means) or, if the implementation of the decision requires the act of a third party, to communicate by any means with that third party.
A person is not to be regarded as unable to understand the information relevant to a decision if he or she is able to understand an explanation of it given to him or her in a way that is appropriate to his or her circumstances (whether using clear language, visual aids or any other means).
Assisted Decision-Making (Capacity) Act II
The fact that a person is able to retain the information relevant to a decision for a short period only does not prevent him or her from being regarded as having the capacity to make the decision.
The fact that a person lacks capacity in respect of a decision on a particular matter at a particular time does not prevent him or her from being regarded as having capacity to make decisions on the same matter at another time.
The fact that a person lacks capacity in respect of a decision on a particular matter does not prevent him or her from being regarded as having capacity to make decisions on other matters.
Information relevant to a decision is construed as including information about the reasonably foreseeable consequences of each of the available choices at the time the decision is made, or failing to make the decision.
Under the 2015 Act once commenced, a person who lacks capacity to enter into a contract for the sale of goods or services shall pay the supplier a reasonable sum for goods or services supplied at his or her request only if the goods or services are suitable to the person’s condition in life, and actual requirements, at the time when the goods or services, as the case may be, are so supplied.
Consent and capacity in specific matters
Unless otherwise expressly provided, nothing in the Act shall be construed as altering or amending the law in force relating to the capacity or consent required as respects a person in relation to any of the following:
- civil partnership;
- judicial separation, divorce or a non-judicial separation agreement;
- the dissolution of a civil partnership;
- the placing of a child for adoption;
- the making of an adoption order;
- sexual relations;
- serving as a member of a jury.
Where a person is so intoxicated as to be incapable of understanding what he is doing, he may avoid a contract apparently entered, if the other party knew of his condition.
It would appear that in the case of a contract which is void because it is knowingly entered with a person incapable of understanding the bargain, because of intoxication it must be repudiated within a reasonable time of sobriety. A short delay may be fatal and he may be held to have adopted the contract in the absence of taking steps to repudiate it.
If a person is intoxicated, but not to such an extent as to be incapable of understanding the contract, the principles of undue influence and unconscionable contracts may apply. There may be an element of an unconscionable bargain with a person who is intoxicated but does not lack the basic incapacity to contract.
The onus lies with the person who challenges the contract to prove that the transaction was void on account of the other party’s intoxication and was unconscionable.
Corporations and companies are legal persons. The principle of “vires” or powers formerly applied to all bodies corporate. The most commonly encountered entity is a limited company formed under the Companies Acts. Until 1st December 2016 all companies were required to have objects clauses. Since that date, the requirement no longer applied to ordinary limited companies.
Some companies remain subject to this requirement. Designated activity companies (DAC)s and public limited companies remain subject to the principal. Such Companies may not validly enter contracts which are outside of their statutory powers. There are, however, very strong protections for outsiders when they deal with these companies. They are protected when dealing in good faith with a company without actual knowledge of the limitation on their powers.
The principle of limited powers applies to local authorities and bodies formed by statute. In this case, the powers will usually be laid down in the relevant legislation. Legislation may either establish the corporation or provide specifically for which objects apply, but contemplate that it be established as a company.
References and Sources
Irish Textbooks and Casebooks
Clark, R. Contract Law in Ireland 8th Ed. (2016) Ch.16
Friel, R. The Law of Contract 2nd Ed, (2000)
McDermott, P. Contract Law (2001) 2nd Ed (2017) Ch.17
Enright, M. Principles of Irish Contract Law (2007)
Clark and Clarke Contract Cases and Materials 4th Ed (2008)
English Textbooks and Casebooks
Poole, J. Casebook on contract law. (2014) 12th edition
Stone and Devenney, The Modern Law of Contract 10th Ed (2015)
McKendrick, Contract Law 10th Ed (2013)
Chen-Wishart, Contract Law 5th Ed (2015)
Anson, Reynell, Beatson, J., Burrows, Cartwright, Anson’s law of contract. 29th Ed (2010)
Atiyah and Smith, Atiyah’s introduction to the law of contract. 6th Ed.
Chen-Wishart, M. (2015) Contract law. 5th Ed.
Cheshire, Fifoot and Furmstons, Furmstons and Fifoot Cheshire, Fifoot and Furmston’s law of contract. OUP.
Duxbury, Robert (2011) Contract law. 2nd Ed.
Halson, Roger (2012) Contract law. 2nd Ed.
Koffman & Macdonald’s Law of Contract. 8th Ed. (2014)
O’Sullivan, Hilliard, The law of contract. 6th Ed. (2014)
Peel, and Treitel, The law of contract. 13th Ed. (2011).
Poole, J.Casebook on contract law. 12th Ed. (2014).
Poole, J. Textbook on contract law. 12th Ed. (2014)
Richards, P Law of contract. 10th Ed. (2011)
Stone, R. The Modern law of Contract. 10th Ed. (2013)
Treitel, G. H. An outline of the law of contract. 6th Ed (2014).
Turner, C Unlocking contract law. 4th Ed. (2014).
Upex, R. V., Bennett, G Chuah, J, Davies, F. R. Davies on contract. 10th Ed. (2008).
Stone,Devenney, Text, Cases and Materials on Contract Law 3rd Ed (2014)
McKendrick, Contract Law Text, Cases and Materials 6th Ed (2014)
Stone, R, Devenney, J Cunnington, R Text, cases and materials on contract law. 3rd Ed (2014)
Burrows, A. S. A Casebook on Contract. 4th Ed.
Beale, H. G., Bishop, W. D. and Furmston, M. P. Contract: cases and materials. 5th ed. (2008)
Blackstone’s Statutes on Contract, Tort & Restitution 2017 (Blackstone’s Statute Series)
UK Practitioners Texts
Chitty on Contracts 32nd Edition, 2 Volumes & Supplement (2016)
The above are not necessarily the latest edition.