Capacity to Contract
Capacity to contract, simply put and given a stringent elucidation, is the competence or ability that a person has to enter into a contract. It looks beyond the purpose of the contact.
Capacity to contract is the legal competence or legal ability of a person to validly enter into a contract under the existing legal framework.
The rationale for disqualifying certain categories of person from validly entering into a contract flows for the essential principle of contract which requires that the parties to a contract must have consensus ad idem.
Certain categories of persons are deserving of protection in contractual transactions.
This is especially because these category of persons can be easily exploited or taken advantage of at the course of negotiating contract. Although the general rule is that parties have freedom of contract, the lack of competence based on the person’s states as imposed by the law is an exception to this general rule.
Read also: Consideration in contract
Flowing from the above, a contract can be declared invalid not because of the purpose of the contact in itself but because of the status of the persons entering into the contract.
Categories of Persons that lacks the Requisite legal capacity:
- Infants or Minors
- Unincorporated entities
In some jurisdiction, the capacity of some other persons may also be denied justly or unjustly by the state. e.g. The 2011 Hammon-Beason Act in the state of Alabama which restricts immigrants from entering into certain categories of contract.
The issue of capacity will arise only where the contract is in a written form. This solely because illiteracy does not necessarily suggest some invalidity or infirmity. The basis for considering the states of an individual arises where their ability to read and comprehend terms as contained in the contractual document need to be ascertained to validate such contract.
For the purpose of the law, illiterate does not mean the dictionary meaning of illiteracy.
Who is an illiterate?
There is no definition for an illiterate person under the extant provision of the law governing contract.
However, the court have at different times tried to give an insight into the concept of illiteracy.
1. A person may be deemed illiterate based on the language used in the contractual document.
In Pz and Co V Gusau and Kantoma (1961) 2NRNLR Pg.1, The court in that widely criticized case adopted a narrow definition of the word illiterate.
But happily in Otitoju v Governor of Ondo State (1994) NWLR part 340 pg 510, the supreme court have held that the determination of illiteracy is based on a person’s knowledge of the language that was used in the course of negotiation of the contractual document. See also, Ntiachagwo v Amodu (1959) WRNLR pg 1
In summary, illiteracy is relative depending on the language of the transaction in question. Osefor v Uwania (1971) 1 ALR pg. 421
2. The test of illiteracy is determined by functionality and is never to be assumed.
In Scoa Zarta v Okon (1960) NRNLR Pg 34, the court held that the fact that a person could sign a document does not suffice to assume that he could read and childe stand the content of the document signed see Also Lawal V Gb Olivant (1970) 2ALR pg. 208.
3 The burden is on the party that is objecting to the enforceability of a contact to prove illiteracy. Otitoju v Governor of Ondo State.
In Anaeze v Ayanso (1993) 5 NWLR Pt 291, the respondents claim of illiteracy failed woefully as he was unable to prove same, rather the appellant was able to establish the Respondent’s literacy by leading evidence to show that he respondent had a letter headed paper and that he has previously signed so many other similar document.
For the purpose of determining literacy or illiteracy, the content of the contractual document must have been properly and fully explained to the person in question. In Salami v Savanna Bank (1990) 2 NWLR Pt 130, the court upheld the claim of illiteracy by the appellant as it was shown that the condition of the guarantee which he gave was not fully explained to him.
Legal Provisions for the Protection of Illiterates:
1. Illiterate protection laws
2. Land instrument Registration Laws
The illiterate protection laws requires the fulfillment of certain conditions in transactions involving illiterate
1 The law requires the writer of the document in question to include his name and address. This requirement will suggest the following:
i. That he was to write the document
ii. That the document contained and represent the instructions given to the writer
iii. That the document was read over and explained before it was either signed or thumb printed by the illiterate person.
2. Under the land Instrument Registration Law. Section B requires that any document that is to be signed or thumb printed by an illiterate person must be executed before the magistrate or the justice of peace. Failure to do this will make it impossible to register such document or to admit such document in evidence for the purpose of establishing title to land.
The definition of the writer of a document have been the subject of controversies. In UAC V Edems & Ajayi (1958)NRLW pg 33. The decision reached in this case emphasizes that the requirement and provisions of the law are sacrosanct and meant to be obeyed.
In Igbadume v Bentworth Finance Ltd, the court held that the requirement of the law is an integral part of the document preparation process and as such, it cannot be satisfied subsequently.
There are two views.
The first view is that which emphasizes purpose. The contrary view is that the law requiring the writer to put his name and address must be seen to have been complied with even before the illiterate person signs the document. Doing otherwise may aid fraud. The exception to the requirement in the illiterate protection law as in respect of document prepared on behalf of the client by a legal practitioner.
Illiterate protection laws are meant to be used as a shield for the protection of the illiterate and not as a sword and as such, the court will carefully consider the fact and circumstances of each case before allowing an illiterate person to rely in compliance with the law as an excuse to evade his contractual obligation.
Read also: Promissory estoppel in contract
In Lawal v UBA, the supreme court favoured the strict and rigid interpretation of the provision of the law. Again, in another decision, the supreme court in the case of Anaeze v Ayanso held that technical non compliance will not avail an illiterate person to escapes liability unless he can establish that he lacks understanding of the content of the document signed by him.
The Rationale for the decision in Lawal’s case can be assumed to be based solely on the requirement for registration, whereas in the latter case, registration was not the issue before the court.
Note that where there have been non compliance by the writer of the document, such a person cannot see to enforce the document against an illiterate person see Agbara v Amara (1995) 2NWLR Pt 40 Pg 712.
Strict compliance is therefore obligatory on the writer.
The only exception to this may be when he have been able to successfully establish that the content of such document was sufficiently explained and understood by the illiterate person.
As regards third party, an executed document can be used by a third party against an illiterate person if he can establish that the document is the true intent of the illiterate person and that the illiterate person derives some benefits from such document. See Anaeze v Ayanso
Lastly, an illiterate person will ordinarily be allowed to enforce a document which does not comply with the provisions of the law. The rationale for this as stated in Edokpolor v Edokpolor (1994)7 NWLR pt 358 pg 311 is that the illiterate person has no fault attributable to him in the series of event that brought about the non compliance.
The age of minority varies in Nigeria depending on the specific purpose in question. For contractual purposes, 21 years is the age of maturity and as such, persons below the age of 21 are considered infants for the purpose of entering into contractual transactions.
The general rule under the common law is that contracts made by an infant are not binding on the infants but will however be binding on the other party in certain circumstance.
The common law position was modified in 1874 by the provision of the Infant Reliefs Act. The following are the position of the law under the 1874 Act:
1. Just as it is under the common law, the 1874 Act also recognizes the validity of any contract that is entered into by infant for necessary goods and services
2. Under the 1874 Act, contract for loans, non necessary goods and services and account stated are void.
3. With respect to number 2 above, such a void contract cannot be ratified upon attainment of the age of majority.
Under the common law, the fact that the contract can be ratified upon attainment of the age of majority by an infant cannot be denied and as such an infant under the common law principles can ratify a contract even where such a contract has been deemed voidable.
Concerning ratification of such contract, such ratification to be valid must be done within a reasonable time upon attainment of age of majority.
Under the common law and 1874 Act an infant who does not repudiate a contract during infancy or within a reasonable time thereafter will be bound by such a contract.
What are necessary Goods?
Section 2 of the sales of goods Act 1878 provide that:
“Necessary goods are goods that are suitable to the condition of life and the actual agreement of an infant or any other person at the time of sale and delivery of such goods”
Such a goods must be necessary
Section 2 further provides that an infant, minor, drunken person or a person with mental incapability to pay a reasonable price for necessary goods sold and delivered to him.
In Chapple v Cooper (1944) 13 M&W Pg 253, necessary goods was defined as things without which an individual cannot reasonably exist and which are essential to the existence reasonable advantage and comfort of the infant.
The position of life of a person may be considered in determining what is necessary and what is luxury.
5 Under the provisions of the 1878 sales of goods Act, an infant is expected to pay not necessarily the contractual prices but a reasonable price.
In the case of contract for necessary services, the time of delivery may not be easily ascertainable. In such contract, the requirement for delivery may be modified depending on the circumstances of each case. Necessaries for an infant wife and children are deemed to be necessaries for the infant. The question that arises is “what happens where such wife is not an infant?”
From the foregoing, it appears that an infant may as well go ahead to deliberately purchase non necessary items with the intention of avoiding liabilities.
Where an infant misrepresents his age, the plea of infancy will still be open to the dishonest infant especially since it appears as though the burden of ascertaining the age of the person is on the seller or the other party.
In cases of fraud, the principles of equity particularly restitution will demand that the infant is not allowed to use the protection afforded by the law as an instrument of fraud. As such, equity will demand that whatever goods or sum that had been paid or given to the infant be returned to the seller.
Note however, that restitution here should not result in seeking to enforce the void contract. In Leshe v Shell (1914) Lord Sumna was of the firm view that restitution ends where repayment begins. Some authors have argued that repayment may be allowed to the extent that what is being paid back is exactly what was collected and nothing more, i.e. the exact monies that were received should be what is being given back. If this is not the case, it will no longer amount to restitution.
Contract for necessaries entered into by lunatics will be valid by virtue of the provision of section 2 of the sale of goods Act. The definition of a lunatic or a person of an unsound mind is not so controversial and as such once there is a medical report evidencing mental imbalance or unsoundness of mind or any mental condition by whatever name called, such a person will qualify as lacking legal capacity to enter into contract.
In addition, evidence of unstable behaviour may also be admissible where this has been exhibited notoriously over a period of time.
For a contract to be enforceable against a lunatic, the following must be established.
1. There must have been some forms of consent, though not necessarily express consent, on the part of the lunatic
2. There must be evidence that the contract was not forced on the lunatic
3. The other party to the contract must not have presented himself as a benefactor or as someone rendering assistance to be the lunatic.
4. For the contract to be enforceable, the lunatic must not have entered into the contract during his lead interval.
A contract that is entered into by a lunatic would be voidable at the instance or at his option. To render such contract voidable, he must show:
1. That he had no understanding of what he was doing
2. That the other party was aware of his mental incapacity
Section 2 of the sales of goods Act also applies to drunkards and as such contract for necessaries would be valid and enforceable against the drunkards. The contract will be voidable at the option of a drunk person where he can establish that the other person was aware of his state of intoxication.
See Core v Gibson (1853) 13 M & W P. 623
Ordinarily, unincorporated associations should not have the legal capacity to enter into contractual transactions in their unincorporated names.
Under the relevant provisions of the company and allied Matters Act (CAMA), incorporations of a company is what clothes an organization with the requisite legal personality to contract in its name, to sue in its name, and to be sued in its names.
An organization that is registered as a business name under CAMA cannot sue and cannot be sued in such name. The owners of such organization would be the proper parties to sue or the proper parties that can be sued. This suggests that any contract that is to be entered into by such an organization should rightly be entered into the owners of such association. The same will also apply to organizations that re not registered at all under CAMA.
Contributed by: Adedokun Samuel
Inioluwa Olaposi is a Law student at Obafemi Awolowo Universities, Ile-Ife, Nigeria. Before LawHub NG, he started publishing law-related posts on his former multi-niche website.