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Capacity

Parties who are not of capacity to form an intention to be bound by agreement, such as a party to an agreement who is under

18 years old or who is mentally ill, or under the influence of drugs/alcohol may not have the capacity to contract. 

Definition of a minor: 

•minor because he is below the age of majority of 18 years (Age of majority Act 1974 (ACT); Minors (Property and

Contracts) Act 1970 (NSW); Age of Majority Act 1974 (NT); Age of Majority Act 1974 (QLD); Age of Majority (Reduction)

Act 1970-1 (SA); Age of Majority Act 1973 (Tas); Age of Majority Act 1977 (Vic); Age of Majority Act 1972 (WA)). Minors

only have a limited capacity to contract. Only certain contracts are binding on the minor.

•Contracts for service generally binding on the minor if it is generally for their benefit: Hamilton v Lethbridge,

•Contracts for service may be considered overall as ‘beneficial’ even if they are obliged to do some work as part of it, as

long as it is generally for his or her benefit: Francesco V Barnum, De Francesco v Barnum 

•A beneficial contracts for service may be repudiated by the minor once he reaches majority., Hamilton v Lethbridge,

•in Victoria, beneficial contracts of service fall outside the minor contracts declared void by statute: Supreme Court Act

1986 (Vic) s 49

•necessary goods are determined by a two tier test , ie, the goods must be:

1) suitable to the station in life of the minor, and

2) suitable to the minor’s actual needs (alimenta) 

Nash v Inman; Sultman v Bond; …also these statutes-

Sale of Goods Act 1954 (ACT) s 7, Sale of Goods Act 1992 (NT) s 7, Sale of Goods Act 1896 (QLD) s 5, Sale of Goods Act 1895

(SA) s 2, Sale of Goods Act 1896 (TAS) s 7, Sale of Goods Act 1895 (WA) s 2, Sale of Goods Act 1958 (Vic) s 7. 

•Contracts for necessary goods are binding on the minor: Nash v Inman

•In Victoria, only contracts for non-necessary goods are void by statute: Supreme Court Act 1986 (Vic) s 49.

•An adult dealing with a minor may obtain restitution of goods provided the actual item may be returned: R Leslie Limited

v Sheill, but •A minor will not be held liable in tort if it amounts to holding him liable under an unenforceable contract:

Leslie Limited v Sheill

•A loan contract is a contract of a kind that is not binding on a minor: Cowern V Nield, therefore it is not necessary to pay

back the money or any interest on the loan.

Scarborough v Sturzaker : where the minor had traded in his old bike for a new one to ride to work; Bojczuk v Gregorcewicz:

minor had a good job by Polish standards, but asked Plaintiff to lend her money to emigrate to Australia where she got a

 job and then refused to repay the money. 

Voidable contracts are enforceable by and against the minor unless avoided by the minor, and enduring contracts (e.g.,

purchase of land, shares) may be avoided by repudiating the agreement while still a minor or within a reasonable time of 

attaining majority. Rescission only avoids future liability: Steinberg v Scala (Leeds) Ltd : minor applied for shares while an

infant but repudiated the contract on turning 21, seeking repayment of money she had paid. In this case it was held that

the minor had already received consideration from the contract and thus should only have rescission towards future

liability. The minor may rescind the agreement ab initio if no benefit was received under the contract. 

Mentally handicapped or intoxicated people- must be of Compos Mentis (sound mind)

Both mentally incapacitated and intoxicated persons must pay a reasonable price for necessaries . All other contracts are

voidable if they can establish: A) They were incapable of understanding the nature of agreement at the time contract was

made; and B) The other party was/should have been aware of their incapacity. A voidable contract can be ratified by the

affected person when they regain their sobriety or sanity. 

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Companies 

In general, a company has the legal capacity of a natural person (Corporations Act 2001 (Cth) (sec 124)). Historically, the

doctrine of ultra vires: sec 125 had invalidated actions performed by a company which were outside its constitution or

beyond its powers, and a company was required to only contract under its seal (sec 126). These sections are now abolished

and a company is now held accountable and may contract by using an authorised representative.