Capacity to Contract

The capacity to contract has been said to be one of the five elements of a valid contract, the other four being offer, acceptance, consideration and an intention to enter legal relations. A contract in which one of the parties lacks the capacity to contract would make such a contract unenforceable against that party. This is done to protect some members of the society. Some members of the society who may lack the capacity to contract are illiterates, infants, drunks and lunatics.

Contracts made by illiterate persons

Oral contracts made by illiterate persons are just as binding on them as literate persons. An illiterate person would be liable for all his obligations which he makes under an oral contract. The position is different when the contract is written, whether it is under seal or not, as certain stipulations must be followed before such contracts can be binding. There are laws which lay down these stipulations for the protection of illiterates.

The Illiterates Protection Law and the Land Instrument Registration Law are two examples of laws in place to protect illiterates. Section 2 of the Illiterates Protection Law provides as follows:

Any person who shall write any letter or document at the request, on behalf, or in the name of any illiterate person shall also write on such letter or other document his own name as the writer thereof and his address; and his so doing shall be equivalent to a statement –

(a) That he was instructed to write such letter or document by the person for whom it purports to have been written and that the letter or document fully and correctly represents his instructions; and

(b) If the letter or document purports to be signed with the signature or mark of the illiterate person, that prior to its being so signed it was read over and explained to the illiterate person, and that the signature or mark was made by such person.

Section 8 of the Land Instruments Registration Law provides that:

No instrument executed in Nigeria after the commencement of this Law, the grantor, or one of the grantors, whereof is illiterate, shall be registered unless it has been executed by such illiterate grantor or grantors in the presence of a magistrate or Justice of the Peace and is subscribed by such a magistrate or justice of the peace as a witness thereto.

There are duties which have been created by the Illiterates Protection Act to be fulfilled by the writer of the contract. The writer of the contract is to include his name and address on the document and to ensure prior to the document being signed by the illiterate person, it was read over and explained to him, and that the signature was in fact made by the illiterate person. The first problem that might arise is who the writer is. In P.Z. & Co. Ltd. v. Gusau and Kantoma, the second defendant was the guarantor in a contract of guarantee and tried to rely on the failure to comply with the Illiterates Protection Act to be free from his contractual obligations. The document had been typed by a typist in the plaintiff company’s employment while the blank spaces for the name and address of the second defendant had been filled by the manager. The court held that the manager was the writer. There was a similar decision in UAC v. Edems & Ajayi. From these, it seems to be that the writer is not whoever negotiates the agreement, or even types the document, but whoever fills in the name and address of the defendant on the document.

There has also been dispute over whether or not the name and address may be imputed after the contract has been created. In P.Z. & Co. Ltd. v. Gusau and Kantoma, the court found no problem with the writer writing his name and address on the morning of the trial since in its view, it satisfied the purpose of finding the writer. However, the court did not accept the insertion of the name and address of the writer of the contract after the contract had been executed and the case had commenced in Igbadume v. Benworth Finance (Nig.) Ltd. According to the court, accepting such would come with the risk of fraud and it would give rise to ridiculous situations. This is the better position of the two, and the writer should include his name and address in the document while it is still being drafted. It does not necessarily have to be his name and address in the strict sense, but may also be anything through which he can be identified. In Djukpan v. Orovuyovbe, the writer of a contract between two illiterate persons was the clerk of the native court of their village and simply wrote “C.N.C.” The court held that it was sufficient.

It has been wondered which kind of people come under the definition of “illiterate” to seek protection under the Illiterates Protection Act. The high court in P.Z. & Co. Ltd. v. Gusau and Kantoma took the view that an illiterate is someone who is illiterate in the language used in the document. Similarly, it was the view of Oputa J, as he then was, in Osefor v. Uwania that an illiterate person is someone incapable of reading the contractual document and understanding. The Supreme court, upon appeal of P.Z. & Co. Ltd. v. Gusau and Kantoma, stated that an illiterate is someone who was incapable of reading and writing in any language. This is unfair as a person’s knowledge of French is useless in a contract written in English. Fortunately, the Supreme court modified this in the later case of Otitoju v. Governor of Ondo State and the court stated that an illiterate person is someone who is unable to read with understanding, the language used in the contract.

The onus of proving illiteracy is on the party claiming to be an illiterate. Also, where there is a factual situation which raises the presumption of literacy, the presumption is to be rebutted by the party claiming to be illiterate. On the other hand, when the situation creates a presumption of illiteracy, the burden is on the other party to prove the literacy. Thus, there is the presumption that the maker of a signature is literate while the maker of a thumb impression is an illiterate person. These are however only rebuttable presumptions. In Otitoju v. Governor of Ondo State, the court held that the party relying on illiteracy had failed to discharge the burden of proving his illiteracy.

Oftentimes, illiterate persons have tried to use the law made to protect them as an instrument of fraud. In Osefor v. Uwania, the illiterate blatantly refused to pay a debt he owed, In Lawal v. G.B. Olivant (Nigeria) Ltd. and U.A.C. v. Edems & Ajayi, illiterate persons were allowed to escape their contractual obligations even though they understood the contract before entering into it. The courts have tried to prevent this more in recent times. In Anaeze v. Anyaso, Karibi-Whyte, JSC, stated that mere non-compliance would not avail an illiterate person who has signed or thumb-printed a document. It must additionally be shown that he did not understand the contents.

Contracts made without compliance with the laws to protect illiterates makes the contract unenforceable at the instance of the writer. The contracts may still be enforceable at the instance of the illiterate or a third party. In Edokpolo v. Edokpolo, the court stated that it is certainly not the intention of the law to penalize illiterate persons for the non-compliance of writers. When a writer does not comply with the stipulations of the laws, a contract which creates rights and obligations between an illiterate and a third party shall still be enforceable by the third party if he can submit evidence to show that the illiterate understood the contract before entering. In Djukpan v. Orovuyovbe, both parties to a contract were illiterates and one was transferring an interest in land. When one of the parties tried to avoid his contractual obligations on the claim of the writer not including his name and address on the document, the court held that the contract was still binding if it could be ascertained through evidence.

Infant contracts

The age of 21 is the age at which absolute and unlimited legal capacity to contract shall commence according to common law. People below that age are therefore infants for the purpose of contractual transactions. The age has been modified in the United Kingdom by the Family Law Reform Act 1969 to 18. The age of majority in Nigeria is still 21 as part of the common law adopted from England. It was argued by some that the age of majority has to do with personal law and so should be governed by customary law which is the age of puberty. This has been settled by the court in Labinjoh v. Abake where the court held that customary law would govern customary transactions and English law would govern non-customary transactions. However, customary transactions are now practically non-existent and so the age of majority for contracts is 21.

The position at common law was that contracts made by infants were voidable at his option, i.e. they were not binding on the infant but they were binding on the other party. The contracts were classified into two groups for this purpose: contracts which were binding on the infant unless he repudiated it during infancy or within a reasonable time after attaining majority age and contracts which were not binding on him until and unless he ratified them after the attainment of majority. Also, contracts for necessaries and beneficial contracts of services were absolutely binding on infants at common law. The position at common law was modified by the Infants Relief Act of 1874.

Under the Infants Relief Act of 1874, contracts for loans, contracts for goods other than necessaries and accounts stated became absolutely void. Also, infants could no longer ratify upon majority contracts which were formally not binding until ratified upon majority. The consequence was that such contracts became void. Contracts for necessary goods and beneficial contracts of services remained absolutely binding under the statute and contracts that were binding until repudiated during infancy or a within a reasonable time after attaining majority.

Section 2 of the Sale of Goods Act defines necessaries as goods suitable to the condition in life of such an infant or minor or other person, and to his actual requirement at the time of sale and delivery. The section also states that where necessaries are sold and delivered to an infant, or minor or to a person who by reason of mental incapability or drunkenness is incompetent to contract, he must pay a reasonable price. Two problems may arise with this. One is that infants only have to pay for necessaries when they are delivered to them, and not just when they are sold to them. Secondly, the infants are only required to pay reasonable prices for the purchase of necessaries and not the consensual price mutually agreed upon in the contract. In Roberts v. Gray, an infant was held liable on an executory contract for education and training as they were seen as necessaries. On the other hand, the infant was not liable for clothes supplied to him in Nash v. Inman since he already had enough to wear and the court did not believe they were necessaries. Necessaries have been said to be those things without which an individual can reasonably exist. Services required for the cultivation of mind like instruction in art or trade may be necessary. Clothes may be necessary, although the quality of such would depend on his status. Necessaries are items purchased for real use and not just for luxury. In Peters v. Fleming, a watch was regarded by the court as being necessary. In Cowern v. Nield, it was held that an infant hay and straw supplier who had been paid in advance for his goods was not liable to refund the money when he failed to supply the goods.

Necessaries for an infant’s wife and children are necessaries for him, although he is not liable on contracts made by his wife if she lacks the authority to pledge his credit. Where the necessaries are household goods, she has authority to pledge his credit. This also applies to purchases made by the wife for the infant’s children.

An infant cannot be liable for a loan given to him to enable him purchase necessaries. If, however, the loan or any part of it is actually spent on the purchase of necessaries, then the lender may recover the money spent under the equitable doctrine of subrogation. Subrogation is the substitution of one thing for another, and so the rights and duties of the original thing would be retained by the substitution. The seller would be substituted with the lender so that the lender is in the position of the seller of necessaries and so able to recover the loan or the part of it so spent on necessaries.

Contracts that are made for the benefit of an infant to prepare him for his future or to obtain a livelihood like contracts of apprenticeship, service, education and instruction are binding once they are entered into by the infant. It does not matter that one or two terms are prejudicial to the infant as long as the advantages outweigh the disadvantages. The contract must be substantially for the benefit of the infant or he would be free to repudiate it.

Contracts valid unless repudiated are contracts in which an infant acquires interest in property of a permanent nature with continuing obligations. Examples of such are a contract to lease or purchase land, marriage settlement, shares in a company, partnership agreement, etc. These contracts are binding until repudiated either during infancy or within a reasonable time upon the attainment of majority. It was held in Edward v. Carter that an infant who was party to a marriage settlement could no longer repudiate it at the age of twenty-four. Three years after attaining the majority age was held too long to repudiate the agreement. Until the agreement is repudiated, an infant is bound to fulfill his obligations under such contracts. This was the holding of the court in North Western Ry. V. M’Michael. The effect of repudiation is that the infant escapes all obligations that have not accrued, but whatever obligations have accrued must still be fulfilled upon repudiation. Money paid or property transferred under such contracts may not be recovered except it is for total failure of consideration. Steinberg v. Scala (Leeds) Ltd.

Contracts which were formerly valid only when ratified had the widest range of contracts. These kinds of contracts were not binding on the infants but binding on the other party. This group of contracts contains all contracts made by infants except contracts for necessaries, beneficial contracts of services and contracts involving an interest in property of a permanent nature. This group of contracts can no longer be ratified after majority. However, a fresh promise (not a mere ratification) made after a majority will be enforceable.

A contract of loan, a contract for goods other than necessaries and accounts stated with infants are all void. Infants can retrieve money paid under void contracts while any money given to an infant under a void contract cannot be recovered from the infant. In R. v. Wilson, an infant was acquitted after leaving England and taking with him money which was to be shared amongst his creditors. The court held that there was no fraud since the contract was void. The court held in Re Jones that an infant could not be made bankrupt in repayment of a debt incurred through the supply of goods on credit for trade purposes. The court held that the debt was void as it was based on an absolutely void contract. If the plaintiff fraudulently misrepresents his age to be over twenty-one, the infant may still escape the contract through the plea of infancy and enjoy all the privileges even after his dishonesty. Sometimes equity will grant relief against the infant and this is done through restitution. If the goods fraudulently gotten by the infant is still in his position, then he may be made to return them to the owner. However, he cannot be made to repay the cost if he has parted with the goods. If it is a loan fraudulently gotten, then it can only be returned if the exact notes of the currency can still be gotten. If it has been payed into an account, it makes it impossible to find the exact notes.

Lunatics and drunks

Based on section 2 of the Sale of Goods Act, both lunatics and drunk are to pay a reasonable price for necessaries delivered to them. What will be termed necessaries are the same as what will be termed necessaries for infants. For every other contract, they are binding unless the lunatic can prove that he did not understand what he was doing owing to his mental condition and the other party knew of his mental condition. For a drunk in every other contract, he only has to prove that he was drunk and not that the other party was aware of his intoxication as it is hardly possible that the other party was not aware of his intoxication.