Intention, Capacity, Consideration and Privity

Intention, Capacity, Consideration and Privity

1. Intention

   • In order for an agreement to be legally binding, the parties must intend that the agreement should impose legal rights and obligations on them.
   • Social, Domestic and Family Arrangements
     • When the agreement is made between family members or friends, the courts generally do not tend to intervene.
     • The court presumes that the parties did not intend to create legally binding agreements.
       • Can be rebutted with clear evidence of the contrary intention.
       • Where an agreement puts a familys financial security at risk, the court will usually find that the parties did intend to create a legally binding agreement.
   • Commercial or Business Agreements
     • It is presumed that when entering a business or commercial agreement that the parties intend to create legal relations.
     • When free gifts are offered in a commercial setting to promote a business, or prizes are offered in return for entering a competition, in is presumed that the parties intended to enter into a legal relationship.
     • The presumption can be rebutted from the facts of the case or by the parties including an honour clause within the contract.
   • Comfort Letters
     • If a person or a company has an interest in a business, the may write a comfort letter to a lender, encouraging them to extend credit to the business by stating that the business has the ability to pay its debts.
       • Presumed not to be legally binding, although sometimes it can be.
   • Amibiguity
     • If a business agreement is unclear to whether there is an intention to create legal relations, the court will assume there was.
       • It is then up to the parties to prove on the balance of probabilities that this is not the case if that is not so.
         • If they cannot prove this, the agreement may be enforced against them.

2. Contractual Capacity

   • People that do not havethe legal power to make contracts or their power to contract is limited.
   • Minors
     • A person who is under the age of 18.
     • The laws relating to contracting with minors are primarily designed to protect the minor from entering into an unfavourable contract with a business or other persons.
       • All contracts are not binding on a minor unless it is a contract for necessaries or education.
       • The other party is bound to the contract unless the minor has it set aside.
     • Beneficial Service Contracts
       • A contract for training, education, an apprenticeship or employment will be binding on the minor provided it is on the whole for his benefit.
     • Neccesaries
       • Binding on the minor, provided the contract does not contain harsh terms that are detrimental to the minor. If it does, it is not enforceable against them.
       • Include the goods and services that are regarded as appropriate to the minors social standing at the time the contract is made.
         • SOG's Act: Section 3: If the minor accepts delivery of goods, he is bound to pay a reasonable price for them.
           • May not be the contract price if it is seen as unreasonable.
     • Contracts the are Voidable
       • The minor can have the contract set aside before, or a reasonable time after he is 18.
       • Partnership agreements, leases of property and contract to buy shares.
         • A minor will be liable for any obligations that arose under the contract whilst it was subsisting e.g rent.
   • Intoxication
     • People who know what they are doing under the influence of drugs and alcohol = bound by the contract.
       • A contract = valid if one party is intoxicated however the other person does not know this.
       • If a person is so intoxicated that he does not know the nature of the contract he is entering into and the other party realises this, then the contract will be unenforceable.
         • Unless the contract is for necessary goods.
   • Mental Capacity
     • Under control of the court but has some form of mental incapacity = valid.
       • The affairs of a person lacking mental capacity may be under control of the court - the court takes control of the persons power to make contracts.

3. Consideration

   • Essentoal element of a binding contract.
   • A promise to give, do or refrain from doing without anything in return (gratious promise) will not be lagally binding.
     • For a contract to be legally binding, there must be consideration by both parties.
     • Giving of the benefit or suffering of the loss.
   • Past Consideration
     • Where a promise is made after an act has been done.