Capacity in contract law

What is ‘capacity’ in Contract Law?

The law states that individuals who enter into a contract must have the capacity to enter into a contract, otherwise it is voidable. Adults who have full capacity are able to enter into contracts and enforce them at law (unless they are illegal contracts).

The law sets out those who do not have legal capacity to contract, particularly providing special legal protection to those who are minors, or under a mental disability.

Minors and capacity in contract law

Individuals who are under the age of 18 are known as ‘minors’ under the Family Reform Act 1969. A minor can enter into a contract at law, however, such a contract is ‘voidable’ by the minor before they reach 18 (and for a time thereafter). This means that the minor can enforce the contract, but they can also terminate it if they wish. Once the minor reaches the age of 18, the contract becomes legally binding on both parties.

However, there are exceptions to the general rule: a minor may need to enter into a contract to buy necessities, such as food, clothing, medicine and other things necessary for them and their lifestyle. Minors may also need to enter into legally binding contracts for their education, such as apprenticeships. These types of contract are enforceable against the minor, however, such contracts must be fair to be enforceable against the minor. So if a minor pays a reasonable price for items required in the circumstances, the minor is legally required to fulfil the contract (ie. pay for the goods or service).

A case where such a contract has been enforced is that of Doyle v White City Stadium (1935), where there was an agreement to train a boxer. There was no money paid, but the contract was enforceable as it was considered that the contract was beneficial because of the training provided. Another case where the contract was held enforceable is Clements v London & NW Rail Co (1894) where certain benefits were removed following a contract of employment, but the contract was considered to be beneficial and was upheld.

When can a contract with minors be voided?

The courts may not uphold a contract if it is considered not to be to the benefit of the minor. For example, in the case of De Francesco v Barnum (1889), a minor aged 14 years old, entered into an agreement to train as a dancer on stage. However, the contract had conditions which were considered not beneficial to the minor and, therefore, the minor was not bound by the contact. More recently, in the 2006 case of Proform Sports Management Ltd v Proactive Sports Management Ltd the court had to consider a contract entered into by footballer Wayne Rooney (who was 17 at the time) with his agent. The High Court ruled that the contract was voidable because it was not an agreement equivalent to contracts of apprenticeship, education and service.

A ‘voidable contract’ is a contract that can be ended. The contract is still valid, but it can be avoided by the minor who can legally terminate the agreement – before reaching the age of 18 years, or within a reasonable time of coming of age. What is a reasonable time period will depend on the facts of the case. In the case of Steinberg v Scala (Leeds) Ltd (1923), the contract was voided because the minor was unable to keep up with payments. However, in the case of Edwards v Carter (1892) the court decided that the contract could not be rejected and the agreement was enforceable.

What happens if money has already been paid by a minor?

If money is paid by a minor under a contract, then usually this cannot be recovered unless it can be proved that the contract has not been beneficial to the minor. So if a minor enjoys goods or services, then seeks to terminate the contract and recover money already paid – he cannot be reimbursed.

In the case of Pearce v Brain (1929), a minor exchanged a motor cycle for a car, but found that the car had defects. The court decided that the contract must stand as he had used the car and, therefore, had enjoyed the benefit of it.

The Minors’ Contracts Act 1987

This Act was introduced to protect minors alongside the common law (ie. rulings of the courts). This Act also provides guarantees for minors contracting with adults. A contract is binding on the adult but not on the minor; however, if the minor ratifies the contract after having reaching the age of 18 by, for instance, an act confirming a promise made when a minor – he is legally bound.
Furthermore, the contact is not void while still a minor – and any money paid under the contract terms cannot be repaid unless there has been no benefit received.

However, there are exceptions, the most likely of which to arise is that of a contract for ‘necessities’ (see above).