The Law Handbook 2024

676 Section 7: Consumers, contracts, the internet and copyright • bankrupts; • corporations (people acting on behalf of a company); and • prisoners, may have issues related to consent and legal capacity. People who have a mental impairment People with a mental impairment – or people who are temporarily impaired by drugs and/or alcohol – are protected by the rule that a contract is not valid and enforceable unless the person had the capacity to genuinely consent to its making. Capacity to give consent involves a general understanding of the nature of the contract but not necessarily its fine details. For example, a person with a mental impairment may have the capacity to understand some contracts (e.g. buying a loaf of bread) but not to understand other, more complicated contracts (e.g. buying a car on credit). Where a person did not understand, due to a mental impairment, the general nature of a contract they signed, a court can intervene to set aside the contract only if: • the other party knew (or ought to have known) of the person’s mental impairment or lack of capacity and it would be unfair for them to take advantage of that; and • the benefit received by the other person has not been sold to a third party who did not know the previous transaction might not be valid. To escape the consequences of a contract, the other party should be notified of the intention not to be bound by the contract within a reasonable time. Some people with a mental impairment (temporary or long-term) are assisted by an administrator appointed by the Guardianship List of the Victorian Civil and Administrative Tribunal ( VCAT ). For more infor­ mation about an administrator’s role, see Chapter 8.5: Guardianship and medical treatment. People with disabilities who have an administrator appointed to act on their behalf are generally not free to enter into contracts, unless this is approved in writing by their administrator or by a VCAT order. A person with an intellectual or psychiatric disability is only liable to pay a reasonable price for necessaries sold and delivered (s 7 Goods Act 1958 (Vic)). ‘Necessaries’, and the rules applicable here, are dealt with in ‘Young people’, below, because the definition is the same for both groups. Young people The term ‘young person’ refers to anyone under the age of 18 years (s 3 Age of Majority Act 1977 (Vic)). Young people are sometimes called minors or infants. The exact capacity of young people to bind themselves to, and be bound by, a contract is limited and unclear, because no Act of parliament completely covers this area of law. The Supreme Court Act 1986 (Vic) (ss 49–51) is a useful reference. Binding contracts and young people Contracts for the supply of goods that are ‘necessaries’ are generally binding. There are no hard and fast rules to identify what is ‘a necessary’, but necessaries include basics such as food, clothing, a place to live, medicine, and other things that a young person needs to live a reasonable lifestyle. Binding contracts for necessaries also include contracts relating to a young person’s education, apprenticeship or something very similar, if it can be shown to benefit the young person. While a court has not yet considered the issue specifically, mobile phones are probably necessaries if a young person requires one for educational or work purposes. A young person who is contracting for the supply of necessaries must pay a reasonable price (although that may not be the contract price) for any necessaries actually sold and delivered. (‘Delivery’ is a technical term. Generally, delivery takes place when the seller has given the buyer the power to take the goods away.) Where necessaries have been sold but there has been no delivery, the young person does not have to take delivery or pay for the goods. Non-binding contracts and young people Two classes of contract are deemed to be void and are therefore not binding on a young person: 1 contracts for goods that are not ‘necessaries’; and 2 contracts for the repayment of money lent or to be lent (that is, any form of credit contract). Where a young person has already paid money under a non-binding contract, that money is not recoverable unless no benefit has been received by the young person. However, the young person can refuse to make any further payments under the contract. It is not certain who then owns the goods that are not necessaries. It appears that they become the property of the young person unless the young person has fraudulently misrepresented their age.