Capacity
Capacity is the fifth element of a valid contract. Capacity is the ability of certain people to be legally capable of entering into a contract or to properly understand their obligations under the contract. People who are not Australian citizens are subject to restrictions on what contracts they are allowed to enter into. People who are in jail or bankrupt are also subject to restrictions placed on them by the law that stops them entering contracts involving transfer of land, buying a car or getting a loan with the bank.
(Dosen, 2007)
Example:
Blomley v. Ryan (1956).
The defendant Ryan was the owner of a grazing property outside Goondiwindi. Rather late in life he acquired the habit of indulging in extended bouts of drinking and during one of these bouts, he was approached by the plaintiff’s father who offered to purchase his property. After some extended negotiations Ryan signed a contract on extremely generous terms and at a substantial undervaluation. When he eventually came off his “bender” he sought to repudiate it. The plaintiff demanded performance, arguing that Ryan’s intoxication had not been such as to prevent him understanding what he had agreed to.
The contract was set aside on the grounds that at the time it had been negotiated Ryan was, to the plaintiff’s knowledge, incapable of forming a rational judgment about the terms of the transaction. This was despite the fact that even in his intoxication, he was still capable of understanding its general nature.
(Greene, 2013)
York Glass Co Ltd. Vs. Jubb (1925)
Jubb contracted to purchase the plaintiff company’s business. On the date of contracting, he was technically insane and shortly thereafter he was placed in a lunatic asylum. The receiver of his estate, appointed under the Lunacy Acts, subsequently repudiated the contract. The company sued for damages for wrongful repudiation.
A contract entered into by someone of unsound mind is valid unless that person can show that the other party was aware, at the time of contracting, that he was so insane as to be incapable of understanding what he was doing. Here, there was no evidence to show that the company knew or suspected that Jubb had been insane at the point of contracting. The contract was therefore valid and Jubb’s estate was liable for the non-performance
(Greene, 2013)
(Dosen, 2007)
Example:
Blomley v. Ryan (1956).
The defendant Ryan was the owner of a grazing property outside Goondiwindi. Rather late in life he acquired the habit of indulging in extended bouts of drinking and during one of these bouts, he was approached by the plaintiff’s father who offered to purchase his property. After some extended negotiations Ryan signed a contract on extremely generous terms and at a substantial undervaluation. When he eventually came off his “bender” he sought to repudiate it. The plaintiff demanded performance, arguing that Ryan’s intoxication had not been such as to prevent him understanding what he had agreed to.
The contract was set aside on the grounds that at the time it had been negotiated Ryan was, to the plaintiff’s knowledge, incapable of forming a rational judgment about the terms of the transaction. This was despite the fact that even in his intoxication, he was still capable of understanding its general nature.
(Greene, 2013)
York Glass Co Ltd. Vs. Jubb (1925)
Jubb contracted to purchase the plaintiff company’s business. On the date of contracting, he was technically insane and shortly thereafter he was placed in a lunatic asylum. The receiver of his estate, appointed under the Lunacy Acts, subsequently repudiated the contract. The company sued for damages for wrongful repudiation.
A contract entered into by someone of unsound mind is valid unless that person can show that the other party was aware, at the time of contracting, that he was so insane as to be incapable of understanding what he was doing. Here, there was no evidence to show that the company knew or suspected that Jubb had been insane at the point of contracting. The contract was therefore valid and Jubb’s estate was liable for the non-performance
(Greene, 2013)