Born to run

Every once and a while, I come across a claim where a precocious minor, whose modest motor vehicle (usually a motor scooter) is written off in an accident hires a replacement on a credit hire basis.

Usually the destroyed vehicle was bought at great sacrifice: purchased with years of hoarded earnings from Saturday jobs, Christmas presents and birthday money. Needed not so much for the mechanics of getting to college, but for the freedom and independence a set of wheels conveys: the “Born to run” scenario.

As night follows day, a claim for hire usually results in a plea by the defence, that the credit hire agreement is void and unenforceable as the minor lacked capacity to make a valid hire agreement.

Such a stance is misconceived, but requires a detailed consideration of the law relating to the making of contracts by minors, and consideration as to how this has developed over the centuries.

A summary of this historical development of the law is to be found in the Law Commission Working Paper No.81, the Law Commission Report No 134, and Chitty on Contracts (32nd edition).

Hire contracts are not “akin” to a loan, but rather are properly to be characterised as contracts for the hire of a motor scooter, with the payment of the charges to deferred to a later date.  The reality of the matter is that the contracts are for a service: the supply of motor scooters for agreed sums, with the obligation to pay those sums deferred for a period of time.

As the Law Commission Working Paper makes clear (see paragraph 2.7) all of the contracts which trouble the courts concerning when a contract of necessaries arise, are those where goods or services are supplied on credit: self evidently if payment has already been made for the goods or services, then the minor has perfomed his obligations, and questions of enforcing the obligations cannot arise. Thus all the caselaw concerns the provision of “credit” to a minor.

Hire contracts can be argued to be contracts for necessaries and so enforceable by the hire company. The Law Commission Working Paper notes a two stage test, for determining whether a contract is a contract for necessaries or not. Chitty on Contract provides further guidance and helpful examples.

Taking the two stage test, the first question is are the services capable of being necessaries? Secondly, if they are, are they necessaries in the particular circumstances of the minor? Included within this are consideration of the minor’s age, social position and means.

In this respect the following points should be noted:

  1. A motor vehicle such as a scooter is plainly capable of being a necessary.
  2. The minor already had a vehicle: which was destroyed in the accident. He was replacing one chattel with another.
  3. The use he made of the chattel was to undertake his daily activities: college, domestic and social.
  4. The minor did not have the money to pay for hire charges “up front”: but he does have a valuable cause of action against the tortfeasor, out of which the credit hire charges will be sought to be recovered.
  5. The motor vehicles would plainly per the Sale of Goods legislation be suitable to the minor’s condition in life and to his actual requirements at the time of delivery and this is a powerful analogy, suggesting that if he had bought the vehicle on credit, rather than hired it, per the statute he would have been liable to pay in respect of it.

Even if the hire contract is not a contract for necessaries, they are at best voidable, not void ab initio and absent an election from the hirer to avoid them, the contracts would be enforceable against the hirer.

There is a helpful discussion on capacity contained in Chitty on Contracts (32nd  Edition) where the law is summarised from paragraph 8-005 as follows:

Apart from contracts for necessaries and contracts of apprenticeship, education and service, the general rule at common law is that a minor’s contracts are voidable at his option, i.e. not binding on the minor but binding on the other party. Of these voidable contracts there are two classes:

contracts which are binding on the minor unless he repudiates them during minority, or within a reasonable time of attaining his majority;

contracts which are not binding on him unless and until he ratifies them after attaining his majority.

Prior to the passing of the Minors’ Contracts Act 1987, the second of these classes was partially governed by the Infants Relief Act 1874, which also introduced a fourth category of minors’ contracts, namely those declared by s.1 to be “absolutely void”. By s.1 of the 1987 Act, however, both these changes were abolished and the position returned to the common law.

There are authorities to the contrary but it should be noted, that the old cases used the terms “void” and “voidable” interchangeably, a submission accepted by the Court of Exchequer Chamber in 1843 in the case of Williams.v.Moor (1843) 11 M & W: what the courts termed void, they meant as voidable.

In short, the modern law, has resiled from a concept of absolute voidness and the true analysis, is that in the twenty first century, a contract made by a minor may be voidable, but not void.

A statement of modern authority, illustrates the point that a voidable contract, is not to be equated with a void contract. The case of the Special Trustees for Great Ormond Street .v. Rushin and Others (High Court Transcript Mr. Justice Rimer 19th April 2000) provides as follows at paragraph 24:

… incapacity to make a contract can, as was made clear in Beaney found a claim by the incapable contracting party(or his Estate) to set the contract aside, but there are two material differences as compared with a like challenge to avoid a gift.  First, a contract entered into by someone lacking the requisite capacity is at most voidable, not void.  Secondly it will only be voidable if (being a contract other than for necessaries) it can be shown that the other contracting party was aware of the incapacity: see the Imperial Loan Co Ltd .v. Stone (1892) 1 QB 599 at 601 per Lord Esher MR.

What the general law of contract establishes, is that in general terms and subject to the exceptions noted above, such a contract may be voidable, but it is not void. This then begs the question, whether a paying party can argue that the contract should be treated as void.

Assuming that the  minor, lacked capacity to make a hire agreement in the first place, the contract is still binding upon the hirer though voidable at his election.  In analogous circumstances, the status of a potentially voidable retainer (for alleged undue influence) was considered by Mr. Justice Clarke in an appellant decision that of Forde .v. Birmingham City Council (2009) 1 WLR 2732 where he noted the following at paragraph 111.

But an agreement obtained by the exercise of undue influence is voidable, not void.  It remains in effect unless the person influenced seeks to set aside the contract and the Court allows her to do so; such relief may be given on terms e.g. as to payment of a reasonable sum for services actually rendered: Johnson .v. EBS Pensioner Trustees Ltd [2002] Lloyds Rep PN 309, paras 76 – 80 and O’Sullivan .v. Management Agency & Music Ltd [1985] QB 429. There is no evidence that Miss  Forde has done anything to avoid CFA 2. On the contrary she has consented to these proceedings being brought by McGrath on her behalf. What the Council cannot do is to purport to avoid CFA 2, to which it is not a party, on her behalf and in defiance of her wishes; nor is the Court required to proceed on the basis that she has avoided it when she has not.

He continued at paragraph 114:

I decline to hold that a failure by a solicitor to put his client’s interests first has the effect that any contract which results from such failure is to be regarded as a prohibited contract. Such a conclusion is not justified by the rule which says nothing about agreements. It would have an effect of which Draco would have approved, since, save perhaps where the failure was trifling, the whole contract would be unlawful regardless of the seriousness of the breach, even though a contract procured by undue influence is not unlawful, nor, until avoided, unenforceable; and it would give rise to a myriad of disputes. …

Accordingly it can be submitted that the in the ordinary case, a credit hire agreement made with a minor that has not been avoided by him remains enforceable and good against the paying party, which  lacks standing to void the contract on his behalf.

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