Capacity & Contract Case Law

In general, a valid contract may be made by any person recognised by law as having legal personality, that is natural persons, corporations and the Crown. It is now generally possible to sue the Crown as of right for breach of contract: see the Crown Proceedings Act 1947 s 1. But see Crown Lands Comrs v Page [1960] 2 QB 274, [1960] 2 All ER 726, CA; Cudgen Rutile (No 2) Pty Ltd v Chalk, Queensland Titanium Mines Pty Ltd v Chalk [1975] AC 520, PC, [1975] 2 WLR 1. However, the following classes of persons are in law incompetent to contract, or are only capable of contracting to a limited extent or in a particular manner: (1) bankrupts - A bankrupt's property vests on adjudication in the trustee in bankruptcy: see the Insolvency Act 1986. (2) minors - The age of majority is 18 years (see the Family Law Reform Act 1969 s 1); and the contractual incapacity of minors was much reduced by the Minors' Contracts Act 1987. (3) persons of unsound mind - the original rule of law was that a contract with a person of unsound mind was void, because there could be no consensus ad idem. This was later qualified by a rule that a person could not plead his own unsoundness of mind to avoid a contract he had made. This in turn gave way to a further rule that such a plea was permissible if it could be shown that the other contracting party knew of the insanity (Hart v O'Connor [1985] AC 1000 at 10181019, [1985] 2 All ER 880 at 888, PC; Irvani v Irvani [2000] 1 Lloyd's Rep 412, CA) (4) alien enemies - The rights and liabilities of an alien to sue and

be sued in respect of a contract generally depend on whether he is an alien friend or an alien enemy. An alien friend can sue and be sued in the same manner as a British citizen. (5) drunkards - the fact that a party was drunk when he purported to enter into a contract may be a defence to an action on the contract; and it has been said that drunkenness is in this respect on the same footing as unsoundness of mind. (6) corporations - there are specific rules which govern contracts made by registered companies with: (1) members; (2) third parties (including pre-incorporation contracts) (7) companies; (8) partnerships; and (9) receivers of companies. Provision is also made to exclude from the courts of the United Kingdom proceedings with regard to the pay or service of members of certain visiting forces.Such incapacity might be seen in some cases in terms of a lack of good faith on the part of the other party.