Intention, Capacity, Consideration and Privity

Intention
1. In order for an agreement to be legally binding, the parties must intend that the agreement should impose legal rights and obligations on them.
2. Social, Domestic and Family Arrangements
  1. When the agreement is made between family members or friends, the courts generally do not tend to intervene.
  2. The court presumes that the parties did not intend to create legally binding agreements.
    1. Can be rebutted with clear evidence of the contrary intention.
    2. 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.
3. Commercial or Business Agreements
  1. It is presumed that when entering a business or commercial agreement that the parties intend to create legal relations.
  2. 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.
  3. The presumption can be rebutted from the facts of the case or by the parties including an honour clause within the contract.
4. Comfort Letters
  1. 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.
    1. Presumed not to be legally binding, although sometimes it can be.
5. Amibiguity
  1. If a business agreement is unclear to whether there is an intention to create legal relations, the court will assume there was.
    1. 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.
      1. If they cannot prove this, the agreement may be enforced against them.
Contractual Capacity
1. People that do not havethe legal power to make contracts or their power to contract is limited.
2. Minors
  1. A person who is under the age of 18.
  2. 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.
    1. All contracts are not binding on a minor unless it is a contract for necessaries or education.
    2. The other party is bound to the contract unless the minor has it set aside.
  3. Beneficial Service Contracts
    1. A contract for training, education, an apprenticeship or employment will be binding on the minor provided it is on the whole for his benefit.
  4. Neccesaries
    1. 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.
    2. Include the goods and services that are regarded as appropriate to the minors social standing at the time the contract is made.
      1. 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.
  5. Contracts the are Voidable
    1. The minor can have the contract set aside before, or a reasonable time after he is 18.
    2. Partnership agreements, leases of property and contract to buy shares.
      1. A minor will be liable for any obligations that arose under the contract whilst it was subsisting e.g rent.
3. Intoxication
  1. People who know what they are doing under the influence of drugs and alcohol = bound by the contract.
    1. A contract = valid if one party is intoxicated however the other person does not know this.
    2. 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.
      1. Unless the contract is for necessary goods.
4. Mental Capacity
  1. Under control of the court but has some form of mental incapacity = valid.
    1. 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.
Consideration
1. Essentoal element of a binding contract.
2. A promise to give, do or refrain from doing without anything in return (gratious promise) will not be lagally binding.
  1. For a contract to be legally binding, there must be consideration by both parties.
  2. Giving of the benefit or suffering of the loss.
3. Past Consideration
  1. Where a promise is made after an act has been done.

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Intention, Capacity, Consideration and Privity

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