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Void(able) Contracts - notes on seminar
Contract Law (LAWS10021)
University of Manchester
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Void(able) Contracts: Subject Matter and Incapacity of Parties Certain contracts are incapacitated and unenforceable due to the subject matter and nature of the contract, in the same way that certain individuals, organisations and institutions are limited in the capacity by which they can bind themselves under a contract. As a result, such contracts are held to be either: ‘void’ or ‘voidable’ Void, these are contracts that might as well have never existed, the parties may believe that they have made a contract, however, the courts, upon examination of the terms will later find that they have not in fact entered into a contract.
Voidable, these are legitimate contracts unless one party decides to elect to disclaim the contract, this is only achievable through the courts and can occur in a variety of circumstances, the most common of which being, where the party does not have the capacity to enter into legal relations with the other party in the first plave.
Incapacity of Parties The law limits the capacity of certain party to bind themselves by contract, these parties can take the form of a sole individual, organisation or institution.
The Crown Under the law, and the constitutional position of the Crown, is that it, as an institution, is capable of making any contract that it wants, provided that that contract does not involve ceding the discretionary powers granted to it by statute or by the Royal Prerogative. This can be seen to directly contradict the principle of sanctity of contract. Rederiaktiebolaget Amphitrite v The King [1921] 3 KB 500 Held: ‘it is not competent for the Government [or the Crown] to fetter its future executive action, which must necessarily be determined by the needs of the community when the question arises. It cannot by contract hamper its freedom of action in matters which concern the welfare of the state’. Rowlatt LJ, in The Amphitrite, acknowledged that the Crown can bind itself by commercial contracts
Where a Crown contract has been validly entered into, the Crown’s freedom to exercise its discretionary powers (whether statutory or prerogative) will not, as a matter of construction, be impliedly excluded by the contract. The Crown must be free to exercise the discretionary powers conferred upon it for the public good, despite this principle being described in Robertson v Minister of Pensions [1949] as being ‘expressed too generally’ the principle appeared to be largely confirmed in the following: Commissioner of Crown Lands v Page [1960] 2 QB 274 Held: ‘No one can imagine, for example, that when the Crown makes a contract which could not be fulfilled in time of war, it is pledging itself not to declare war for so long as the contract exists’.
Corporations Corporations are classified as an artificial person recognised by law and therefore have a legal capacity. They can consist of a single individual, making them a ‘corporation sole’, or as
a larger organisation, known as a ‘corporation aggregate’. Corporations can be formed only by a charter from the Crown under the Royal Prerogative or by statute.
At common law the capacity of a corporation to enter into a contract depends on how the corporation was formed. Those that are created through a Royal Charter has the same unlimited capacity to enter into contracts as a private individual.
However, those that are formed through statute, and if the corporation that was incorporated by that statute performs an act outside its statutory powers, it is found to have behaved ultra vires and is therefore void. The corporation has no existence outside of the statute therefore its capacity is to be deduced from the language of the statute. In common law a company is bound by the objects, listed in its constitutional documents, for the purposes of which it is incorporated. If the company performs an act that is contrary or inconsistent with those objects, then, at common law, it becomes void and is unenforceable.
Other Unincorporated Parties Partnerships Partners can normally sue and be sued in the firm’s name and contracts entered into by one of the partners will, as a general rule, bind the firm since each partner has authority to act for the others in the ordinary course of the partnership business
Unincorporated Associations These are organisations that have no independent existence, however, officers and members can be sued as ‘representatives’ of the organisation.
Trade Unions Similar to unincorporated associations they have no independent existence, despite this they can make contract, sue and be sued in the unions name.
Individuals Minors (Infants) The term ‘minor’ for the purposes of the law, is an umbrella term that applies to all individuals under the age of 18, once they turn 18, they legally become adults and assume the same contracting capacity as all other adults. In. the interests of their own protection, the ability for a minor to enter into a contract is extremely limited, though it would be incorrect to state that they cannot enter into contracts at all.
Minors are capable of making a contract that has no futurity to it, (buying an item from a store), this is because these are mere obligations to pay or to do something. Under the age of 18 a minor cannot buy land, though at common law it is possible to acquire an enduring interest in land. Under the Law of Property Act 1925, no land can be in the name of a minor, they can be a beneficiary but not a trustee.
The infant can make a contract for necessities. What is classified as ‘necessaries’ has changed over time.
Cowern v Nield [1912] 2 KB 419 Held: As the contract was a trading one, it could not therefore be held as being a contract for necessities, the term cannot be expanded to include contracts that would be seen as necessary as to benefit the minor’s business.
Chaplin v Leslie Frewin (Publishers) Ltd [1966] Ch 71 Held: The exception to this principle however, from this case would appear that the contract would be binding and could be held to be a necessary if it gave the defendant a pathway into a career.
Even though these two cases are conflicting in their nature it shows how the courts have a tendency to enlarge the definition of what can be defined as a contract for necessaries. The standard principle being if it is not a contract for a necessary then it is not binding, to determine what can be classified as necessary, it is necessary to look at the minor’s station in life or particular circumstances at the time the contract was formed, as per Peters v Flemming [1840].
Drunken Parties The law that governs drunken parties is identical to that of those who ‘lack mental capacity’, for the purposes of the law the concept of being a ‘drunken’ person not applies to situations that involve alcohol, but also those that involve the party being incapacitated by the administering of a drug, as per Irvani v Irvani [2000].
Mentally Disordered Parties/ Mental Capacity Under the Mental Capacity Act 2005, the notion of capacity is directly addressed in relation to specific individuals and their ability to enter into contracts and execute contracts.
Under Section 1 of the Mental Capacity Act 2005, it states: 1. The following principles apply for the purposes of this Act. 2. A person must be assumed to have capacity unless it is established that he lacks capacity. 3. A person is not to be treated as unable to make a decision unless all practicable steps to him help him to do so have been taken without success 4. A person is not to be treated as being unable to make a decision merely because he makes an unwise decision. 5. An act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done, or made, in his best interests. 6. ...
Under Section 2 of the Mental Capacity Act 2005, it states: 1. For the purposes of this Act, a person lacks capacity to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of the mind or brain. 2. It does not matter whether the impairment or disturbance is permanent or temporary.
- A lack of capacity cannot be established merely by reference to- a. A person’s age or appearance, or b. A condition of his, or an aspect of his behaviour, which might lead other to make unjustified assumptions about his capacity.
- In proceedings under this Act or any other enactment, any question whether a person lacks capacity within the meaning of this Act must be decided on the balance of probabilities.
Under Section 3 of the Mental Capacity Act 2005, it states: 1. For the purposes of section 2, a person is unable to make a decision for himself if he is unable- a. To understand the information relevant to the decision, b. To retain that information, c. To use or weigh that information as part of the process of making the decision, or d. To communicate his decision (whether by talking, using sign language or any other means).
In addition to this, the contract of a person who is lacking mental capacity or a drunken person is not binding if it can be shown that at the time of making the contract he or she was incapable of understanding the general nature of what was being done, and that the other party was aware of this incapacity. Imperial Loan Co v Stone [1892] 1 QB 599 Held: Where a defendant in an action of contract sets up the defence that he was insane when the contract was made, he must, in order to succeed in this defence, show that at the time of the contract his insanity was known to the plaintiff.
In cases where the other party was unaware of the mental incapacity, the original position as per Molton v Camroux [1848], was that the contract would be voidable by the incapacitated party if the terms were found to be ‘unfair’ and ‘unconscionable’. This principle was revoked in the case of Hart v O’Connor [1985], in which it was determined that: ‘the validity of a contract entered into by a lunatic who is ostensibly sane is to be judged by the same standards as a contract by a person of sound mind, and is not to be voidable by the lunatic or his representatives by reason of ‘unfairness’, unless such unfairness amounts to fraud’ In such a situation the contract would be held to be void anyway due to the presence of illegality amongst the terms, the contract would not be enforceable in the courts.
The standing principle now is that, a party dealing with a person who lacks mental capacity (and drunkenness and a person under the influence of drugs, as per Irvani v Irvani [2000]) is protected if they were unaware of the lack of capacity.
The only event in which a contract of this nature could be made voidable, is in an event whereby one party has improperly taken advantage of the weaker party. A contract which
The same standpoint cannot be said to still exist to this day however, due to the shift in society’s attitudes to extra-marital cohabitation. Due to this, the courts often try to find a way to not make the contract void despite the general principle remaining, in cases of prostitution however, it is unlikely that the courts will enforce an agreement made. The act of prostitution in itself is not illegal, however, anything that can lead to the act of prostitution being solicited, is illegal. Pearce v Brooks [1866] L. 1 Ex. 213 Facts: The defendant was a prostitute who hired a carriage from the plaintiff, who was a coachbuilder, on hire purchase terms to be paid for in instalments. She wanted the carriage to attract customers. The defendant did not pay the second instalment on the carriage and returned it in a damaged condition, in breach of the agreement. At first instance the jury found on the evidence that the coachbuilder knew that she was a prostitute at the time the contract was made. The coachbuilder sued for non- payment and for the damage. Held: The court found for the defendant. It was immaterial that the immoral purpose was not part of the contract or whether the claimant was to be paid out of the proceeds. Bramwell B distinguished between a contract to supply a prostitute with a carriage to be used to attract customers and a contract to supply her a pair of shoes, as shoes were one of the necessities of life. It was part of the principle ex turpi causa non oritur actio that anyone who supplies something for the performance an illegal act with knowledge that it was to be used for that purpose cannot sue for the price of it. An immoral purpose was the same thing as an illegal purpose. Therefore, the plaintiff could not recover. Knowledge that the other party is a prostitute is required, when that knowledge is acquired, presuming the innocent party was unaware at the time of the contract’s inception, the contract will become void, as per the ruling in Jennings v Throgmorton [1866], in which the defendant was no longer in a position to recover unpaid rent once he acquired the knowledge that the premises was being used for the purposes of prostitution.
If the property is being used for moral reasons in that a prostitute is using a premises for habitation and for no other purposes relating to their work then the plaintiff will be entitled to recover unpaid rent, if the premises is being used for sexual purposes, then he cannot recover actions relating to the property, as the contract is void, this was the principle outlined in Appleton v Campbell [1826].
Contradictory to Public Policy Contracts that are fundamentally contradictory to public policy will be void as the come into conflict with the day to day operation of the state and its institutions. One such area of public policy which frequently sees contracts declared void is those in relation to the sanctity of marriage.
Public policy is keen to promote marriage within society, with the government not allowing for contracts to restrain the ability or capacity of marriage, due to the way in which society has evolved today, it is unlikely that these sorts of cases will be found in English courts today. Lowe v Peers [1768] 4 Burr 2225
Facts: This was an action of covenant, upon a marriage-contract; being a promise under the defendant's hand and seal, and in his own hand-writing, to the effect following—“I do hereby promise Mrs. Catherine Lowe, that I will not marry with any person besides herself: if I do, I agree to pay to the said Catherine Lowe £1000 within three months next after I shall marry anybody else. Witness my hand Newsham Peers, 1 and seal, &c.” This deed was executed in 1757. And in 1767 Peers married another woman. Whereupon, this action was brought. Held: The contract was held to be void as the basis of this agreement was purely to restrict the capacity of marriage, there was no promise within the agreement of marriage on either side. Agreements which restrain the freedom to marry are contrary to policy as injurious to the moral welfare of the citizen.
Separation Agreements Agreements that provide for the separation of husband and wife are valid if made in prospect of an immediate separation; but it is otherwise if they contemplate possible separation in the future, because they have given inducements to the parties not to perform their matrimonial duties, in their fulfilment of which society has an interest, as per Cartwright v Cartwright [1853].
Marriage Brocage Promises made upon the consideration of procuring a marriage between two persons are held illegal, ‘not for the sake of the particular instance or the person, but of the public, and that marriages may be on a proper foundation’, as per Cole v Gibson [1750].
Contrary to an Act of Parliament A contract can be made void based off of the premise that is fundamentally contradicts the wording of a particular piece of legislation. Lipkin Gorman v Karpnale [1991] 2 AC 548 Held: The contract was made as it was contrary to the Gambling Act 1945, aside from this valid consideration was also not given therefore the contract could not be enforced.
Void(able) Contracts - notes on seminar
Module: Contract Law (LAWS10021)
University: University of Manchester
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