FLB 107: CONTRACTS II

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 OVERVIEW
 Vitiating factors
 Termination of Contract
 Remedies for breach of contract
 VITIATING FACTORS
 Imperfections may exist at the time an agreement is
formed.
 Such defects can invalidate the agreement.
 Examples:
i. The agreement was not voluntary (Duress, Undue
Influence, Unconscionability)
ii. The agreement was based on misinformation
(Misrepresentation)
iii. The contract is of a type frowned on by law
(Illegality)
iv. Factor unknown to one of the parties at the time of
contract formation (Mistake)
 VOID & VOIDABLE CONTRACTS
VOID  VOIDABLE
 Does not exist (ab initio)  Injured party can opt to

 Not binding in law continue

 Creates no rights  Can also opt to set aside

 No obligations Examples:
 No compensation i. Lack of capacity
 Example: Mistake ii. Absence of free will
(duress, undue
influence)
iii. Misinformation
(misrepresentation)
CAPACITY TO CONTRACT
(legal ability to contract)
 Note
 Contractual capacity refers to a person’s legal
competence to form a valid contract.
 In the context of an organization, capacity may
refer to the authority granted to an individual
to bind an organization.
 This area of contract law tries to balance the
rights of a person who lacks capacity to contract
AND the person who deals with such a person
by extending protection to them.
 The law also appreciates that such persons may
need to procure certain essentials
 INDIVIDUALS
AGE
 General Rule: If a contract is formed between a
minor and an adult, the minor is not bound but
the person contracting with him will be bound.
Age of Majority Act, Cap 33
S.2: Age of majority is 18 years
Children Act, No.8 of 2001
S.2 “Child” : human being under the age of 18
years
 Minors lack the capacity to contract.

 Read: Infants’ Relief Act 1874

 Effect of dealing with a minor

 Minor

 VOIDAB
 VOID  VALID
LE
Void: Underage drinking….
 VOID CONTRACTS
 Some contracts involving minors are expressly
prohibited
 For instance, S. 28(1) of the Alcoholic Drinks
Control Act provides that ‘No person shall sell,
supply or provide knowingly an alcoholic drink
to a person under the age of eighteen years’
 The offence is punishable by a fine not
exceeding one hundred and fifty thousand
shillings, or to imprisonment for a term not
exceeding one year, or to both
 Example
 S.18(1)(b), Industrial Training Act
 Contracts which require apprentices or
indentured learners under the age of 18 to work
overtime are VOID.
 Sale of Goods Act
 4. (Capacity to buy and sell)
(1) Capacity to buy and sell is regulated by the general
law concerning capacity to contract, and to transfer
and acquire property: Provided that, where
necessaries are sold and delivered to an infant or
minor, or to a person who by reason of mental
incapacity or drunkenness is incompetent to contract,
he must pay a reasonable price therefor.
(2) Necessaries in this section mean goods suitable to the
condition in life of the infant or minor or other
person, and to his actual requirements at the time of
the sale and delivery
 Minors: Valid Contracts
i. Contracts for Necessaries

 defines necessaries as goods suitable:

“ to the condition in life of a person”
“to his actual requirements”
 The minor is bound to pay a reasonable price if
necessaries are supplied.
 There may be a variance between the “contract
price” and the “reasonable price”.
 Nash v Inman
A tailor sued a minor whom he had supplied with
clothes (including 11 fancy waistcoats) The
minor was an undergraduate student at
Cambridge University. His father had supplied
him with sufficient clothes.
Held: The clothes were suitable for his station in
life but were not necessary since he had enough
clothes
NB: two fold test:
1. Suitability for station in life

2. Must be necessary at the time of supply

 Chappel v Cooper (1844)

*Contracts for necessaries (services)

 A seventeen (17) year old whose husband had

died contracted the services of an undertaker.

Later, she refused to pay for the funeral
expenses arguing that she was a minor.
Held: she was liable to pay the bill. The funeral
was for her benefit and was a “necessary” since
she had a legal obligation to bury her husband.
 Note:
Lesson:
1. court has to determine what is approprite for a
particular minor’s “condition in life”.
2. Seller assumes risk with respect to whether the
goods supplied are “necessary” at the time of
supply
3. The burden of proof rests with the person
claiming that the goods were necessaries
S.4 does not cover situations where the contract is
executory; it has to be executed
ii. Contracts for the minor’s benefit
 Contracts of service, apprenticeship or education
Roberts v Gray
 The defendant wished to become a professional

billiards player. He entered into an agreement with

the plaintiff who was a professional to go on a joint
tour with him. The plaintiff organized the tour. The
defendant refused to go after a disagreement. The
plaintiff sued for damages for breach of contract
 Held: the contract was for the minor’s benefit. He

could recover.
 De Francesco v Barnum (1890) 45 ChD 430

* Contract must be for the minor’s benefit

 A fourteen (14) year old girl contracted to be taught how
to dance.
 The contract bound her to her tutor for seven (7) years.
She was not allowed to look for work herself, or to get
married without her tutors consent.
 Her tutor was under no obligation to maintain or pay her
unless he obtained engagements for her. Even then, the
pay was low.
 He could also terminate the contract at his discretion.
Held: the contract was not binding on the minor because it
was unreasonable and was not for her benefit.
Proform Sports Management Ltd v Proactive
Sports Management Ltd & Stretford [2006] All ER D 38
 The case:
 In 2000, the plaintiff was a football agent who entered into a
representation agreement with Wayne Rooney. He was 15.
 In 2002, the player and his parents wrote to the plaintiff stating that
they would not renew the agreement when it expired.
 They entered into another agreement with the defendants.
 The plaintiff agent sued the defendant for the tort of unlawful
interference with and / or procuring a breach of contract.
 To determine whether a tort had been committed, the court had to
decide whether the agreement made in 2000 was enforceable.
 Held: The contract was not one for necessary services.
 It did not involve finding Rooney work since he was already registered
with Everton Football Club.
 It was therefore VOIDABLE. Consequently, there was no liability for
the tort(s) of interference with or inducing a breach of the contract
which was voidable on the ground that a party to it was a minor.
 Doyle v White City Stadium (1935)

 The minor was a professional boxer who had a

contract with the British Boxing Board of
Control
 Under their agreement, he would lose his purse

(payment for a fight) if he was disqualified.

Held: The agreement was binding on the minor
since it encouraged clean fighting and
proficiency in boxing which was to the minor’s
benefit.
 Minors: Invalid Contracts
i. Non necessaries
ii. Trading Contracts
Mercantile Union Guarantee Corporation Ltd v Bell
 A minor bought a lorry for his business.

 Held: this was not a contract for necessaries or for the

minor’s benefit. It was a trading contract which was
not binding on the minor.
 Rationale: Trading involves speculation which puts
the minor’s capital at risk.
 Education in contrast presents no possibility of loss.
 INDIVIDUALS:
MENTAL CAPACITY
 Drunk, Mentally incompetent
 Effect: Voidable
 s. 4 of the SOG caters for both minors and
mentally incompetent people.
 Cap 248 – Mental Health Act – can only say you
have mental issues after a determination.
 Burden of proof: rests on the person who claims
that sanity is lacking
 Ratification can be done once the incapacity
stops.
 Other Persons “Disqualified” from
Contracting
 Undischarged Bankrupts
 Enemy aliens
 Intoxicated Persons
 Mentally unsound persons
 ARTIFICIAL PERSONS:
THE COMPANY
 Memorandum of Association: Objects of the
Company – s.5 Companies Act
 The objects determine the Company’s
contractual capacity
 Articles of Association: powers of the directors
to contract as the agents of the company.
 Ultra vires rule
 prevented a director from engaging in activities not
spelt out in the company’s Memorandum. The rule
determined the company’s legal capacity to enter into
that particular transaction.
Ashbury Railway Carriage Co Ltd vs. Riche
 If it was ultra vires: contract was void ab initio.
Neither party could enforce the transaction.
 Harsh: Outsiders were disadvantaged. The
assumption was that they had read the objects clause.
Risk fell on the person dealing with the company.
 Law Reform: The Companies Act. Objects are
unrestricted
 Read
 Mondoh v Juma Court of Appeal Civil Appeal
No. 138 of 2001
Directors’ authority to bind Mumias Sugar
Company