63
Law Reform Commission of British Columbia, Report on Minors’ Contracts, p. 51 (LRC 26–1976). See also McCamus, Restitution of Benefits Conferred under Minors’ Contracts, U. of New Brunswick L. Rev. 90, at 116–117 (1970).
64
Cf. the Law Reform Commission of British Columbia, Report on Minors’ Contracts, p. 49 (LRC 26–1976).
provided, of course, the independent commercial incentives are sufficient.
As against this it can be argued that it would be too narrow to regard contracts between adults and minors as necessarily isolated events. Commercial realities dictate otherwise. In many cases the adult (or business company) will not be contemplating making a contract with a minor, but will instead have to make a decision as to whether to contract with minors as a class. Whereas an adult contemplating a single contract with a minor might well be satisfied with the prospect of a restitutionary principle being applied if the minor seeks to resile from the contract, a large-scale business concern might well be less enthusiastic where the risks are multiplied by the large number of possible contracts involved.
The second advantage to the restitutionary approach is that it goes a good way to ensuring that a minor may not, as he may under the present law, use the defence of minority as a means of wrongfully profiting at the expense of the adult.65
The third advantage of the restitutionary approach is that to some degree it resolves the problem where (under present law) a minor who repudiates a contract may be unable to recover money he has paid or the value of services he has rendered.66
Of course, support for the introduction of the restitutionary principle as a general rule does not exclude the possibility of exceptions being made in the proposed legislation for specific categories of contract, where different rules may apply. We will examine this possibility later in the Report.67
The restitutionary approach has not attracted universal support. The English Law Commission in its Working Paper
65
Cf. id.
66
Cf. supra, p. 22.
67
Infra, pp. 115ff.
No. 81, Minors’ Contracts, published in 1982, criticised68 the recommendations of the Latey Committee that had favoured the restitutionary approach.
One objection was that the Latey Committee had not put forward any detailed proposals or guidelines to be followed by the courts in determining the question of restitution. This of course is not, in itself, a fundamental objection to the restitutionary principle since it is possible for the legislation to include specific guidelines for the court – indeed the English Law Commission itself envisages and spells out possible detailed guidelines.
Another objection to the restitutionary principle is its uncertainty of application. The English Law Commission, in its examination of the Latey Committee’s proposals, expressed this objection in the following terms:
“The need for a relative degree of certainty in the law is, in our view, of very great importance. The law serves not only to solve disputes when they arise but also regulate conduct so as to avoid them. In order to avoid disputes the law must be reasonably certain in its application. If contracts are unenforceable against minors, that is, in most cases, the end of it. While such a rule may in some cases lead to unjust enrichment it also avoids much fruitless litigation. Those who know the law can take precautions against its abuse by unscrupulous minors. Potential abuse of the law or its procedures is not limited to minors; many adults avoid paying their just debts by refusing to pay and leaving the creditors to the expense of trying to trace them and of getting and enforcing a judgment. The best protection, as is widely known, is not to give credit to the untrustworthy.
Under the Latey Committee’s proposals of a general duty to account, coupled with a relieving power in the court, the outcome of any case would be uncertain and this uncertainty would exist on several levels: on the valuation of the benefit conferred; on the question of whether the minor should be relieved of his liability to account; and, if so, on the extent to which such relief should go. These uncertainties would make out of court settlement less likely. The scheme might well cause some increase in litigation: and, in a
68
W.P. No. 81, paras. 4.6–4.15.
large number of cases, there would be a need for legal aid on one or both sides.”69
We appreciate the force of this argument but we consider that it overstates the problem. Obviously a rule of absolute enforceability “avoids much fruitless litigation” but if the rule is not itself an entirely fair one70 it seems to us that this factor should not be given much weight. So far as the likely volume of litigation is concerned, we do not consider that the existence of a judicial discretion would necessarily increase the incidence of litigation. It is of course, quite possible that, under the restitutionary principle, litigation would be threatened or commenced; we do not see this as necessarily a bad thing, and we do not consider that what the English Law Commission stigmatise as the “uncertainties” of the restitutionary principle would make an out-of-court settlement significantly less likely than in the normal run of litigation.
Whether the restitutionary approach would leave the law in a more or less “uncertain” condition is a matter of prediction on which there may be differing views71 but we do not consider that a discretionary principle is to be dismissed on account of its very flexibility.
On balance we consider that the restitutionary principle affords the most satisfactory general approach for the proposed legislation to take. We consider that it best resolves the divergent policies of protecting minors against unscrupulous adults and the risks that their youthfulness and lack of experience involve, on the one hand, and of
69
id., paras. 4.12 – 4.13.
70
As the English Law Commission (para. 4.12) appeared willing to concede.
71
It is worthy of note that one commentator has commended the Latey Report as follows:
“The principal virtue of the recommendations is their simplicity and the relative certainty which they would provide in the law”: Evans, The Need for Reform in the Law of Infants’ Contracts – Some Comments on the Latey Report, Auckland U.L. Rev. 65. at 75 (1970) (emphasis added).
protecting the interests of adults who contract with minors in good faith, on the other.
On the basis that the legislation should introduce the restitutionary principle we must now consider the criteria to which the Court should have regard in making its decision. Of course, ultimately the Court will have to determine what weight it is to give, respectively, to each of these criteria but we believe it desirable for the legislation to give such guidance as it can in assisting the Court in its task.
We have examined in detail the criteria proposed by the Law Reform Commission of Alberta on this question, and we have taken into account the analyses of other law reform agencies and committees, in particular the English Law Commission in its Working Paper No. 81. We take the view that the legislation should be drafted so as to enable the Court, in proceedings for restitution,72to grant to any party such relief by way of compensation or restitution of property or both as is proper, and, upon doing so, to discharge the parties from further obligations specified by the contract if it considers it proper to do so. In making any order under these powers the Court should have regard to:
(a)
the subject-matter and nature of the contract;
(b)
where the contract relates (in part or entirely) to property, the nature and value of the property;
(c)
the age, mental capacity and general experience of the minor at the time of making the contract, and at the time of the hearing, respectively;
(d)
the specific experience and knowledge of the minor relative to the particular circumstances of the contract;
(e)
the respective economic circumstances of the parties at the time of the making of the contract and at the time of the hearing, respectively;
(f)
the circumstances surrounding the making of the contract, and in particular the reasonableness and
72
As to the circumstances in which proceedings for restitution may be taken and to the limitations in respect thereof, see infra, p. 113.
fairness, or otherwise, of the conduct of each party relative thereto;
(g)
the extent and value of any actual benefit obtained by each party as a result of making the contract;
(h)
the amount, if any, of any benefit still retained by each party at the time of the hearing;
(i)
the expenses or losses sustained and likely to be sustained by each party in the making and discharge of the contract;
(j)
all other circumstances that appear to the Court to be relevant.73
We consider that the best approach is for the legislation to spell out these factors but not to attempt to give any one of them greater weight than the others. This balancing process can only be done by the Court having regard to the individual circumstances of each case; as judicial experience every day confirms, a factor that is of great importance in one case may be of relatively small importance in the next, in the light of the other factors in each case.
Executed Contracts
Under present law it appears that74 where a contract with a minor has been performed on both sides, the minor is not permitted subsequently to resile from it, whether, before it was performed it was void, voidable or unenforceable. This rule applies however disadvantageous to the minor the contract may have been.75
The legislature and law reform agencies that have examined
73
We will be recommending the inclusion of other specific factors later in the Report.
74
Cf. the English Law Commission’s Working Paper No. 81, Minors’ Contracts, para. 8.1 (1982).
75
Cf. id.
this rule are divided76 as to what the correct policy should be. The case in favour of making no distinction between executed and executory contracts was well stated by the Law Reform Commission of British Columbia in 1976:
“We agree that there is a superficial attraction in the notion that once a contract is over and done with, even if it involves a minor, it should remain undisturbed in the interest of bringing certainty and finality into affairs. Yet reflection reveals that an unwise or unfair transaction does not lose its character simply because it is concluded. When a young person agrees to pay too high a price for a car or a piece of land, and then makes payment and takes possession of the car or the land, there is nothing about the conclusion of the transaction which would justify logically a withdrawal of protection which the law would give if payment had not been made or possession had not been taken.”77
As against this argument, the English Law Commission in their Working Paper in 1982, forcibly present the opposite view:
“It is arguable that, if a contract could have been repudiated by a minor at any time before it was performed, it ought logically to be open to review at any time afterwards. But it is one thing to frustrate people’s expectations; it is another to disturb the basis of concluded transactions. We think it does not follow that just because a particular transaction is not legally enforceable before it is performed it may therefore be undone after performance. If executed transactions are to be reopened it must accordingly be
76
The legislation in New South Wales and New Zealand makes no distinction between executed and executory contracts. The Alberta Institute of Law Research and Reform and the Law Reform Commission of British Columbia have made a recommendation to similar effect. The English Law Commission has proposed that executed contracts should not be disturbed save in limited specified circumstances.
77
Law Reform Commission of British Columbia’s Report on Minors’ Contracts, p. 54 (LRC 26–1976). See also Kindred, Basic Problems of Minors’ Contractual Capacity: Reform in England, France, Ethiopia and the United States of America, Festschrift Rheinstein, p. 523, at p. 541, and the Alberta Institute of Law Research and Reform’s Report No. 4, Minors’ Contracts, p. 34 (1975).
on some basis other than their mere unenforceability in their executory state.”78
The English Law Commission were willing to concede a power to re-open executed contracts in only limited and specified circumstances:
“We think, first, that the court must be satisfied that the adult party induced the minor to make the contract. Secondly, the inducement, while not fraudulent, must have consisted in some way in the adult’s taking advantage of the minor’s immaturity, his lack of years, experience and knowledge of the world, though it should not matter that the inducement might equally have persuaded an undiscerning adult. Finally, the bargain must have resulted in hardship to the minor. It should be for the minor to establish that all these conditions have been met. In making any order, the court should have power to adjust the rights of the parties, having regard to the minor’s ability to restore the subject matter of the contract.”79
The Commission were haunted by the spectre of significant commercial disruption if the law were to permit the reopening of concluded transactions on the basis of the minor’s improvidence, in the absence of evidence that the adult had taken advantage of the minor:
“Any minor could, after repenting of a bargain, or growing bored with his acquisition, threaten the supplier with proceedings if the bargain were not rescinded or varied. No shopkeeper could be certain
78
English Law Commission’s Working Paper No. 81, Minors’ Contracts, para. 8.5 (1982).
79
Id., para. 8.14. The English Law Commission, in its Report published in June 1984, did not proceed with this proposal as it considered it to be a minor amendment effecting marginal improvement in the law. Since the Commission in its Report rejected the more comprehensive approach it had adopted in the Working Paper, this specific recommendation relating to the reopening of executed contracts (as well as several other recommendations made in the Working Paper) were effectively abandoned: cf. Law of Contract: Minors’ Contracts, para. 5.2 (Law Com. No. 134, 1984).
that an apparently concluded transaction with a minor was in fact final, and there would be nothing he could effectively do to ensure that it was. We think that the law ought not to foster a state of uncertainty of this kind. Should it do so, one possible effect might be to make some shopkeepers unwilling to deal with minors at all, except perhaps for small transactions. We do not think that this would be in minors’ own best interests.”80
We do not perceive the risks as quite so alarming. We consider that the restitutionary principle can work as sensitively with regard to concluded transactions as with regard to those that have not yet been concluded and accordingly we recommend that it should apply to both types of transaction. We would not see any benefit in including specific limitations to the right to re-open concluded contracts on the lines proposed by the English Law Commission. Nevertheless, to take account of the type of apprehensions indicated by the English Law Commission, we recommend that the legislation should include a provision that, in exercising its discretion when applying the restitutionary principle in cases where the contract has been concluded, the Court should have regard to the extent of the difficulties likely to result for the party who contracted with the minor from re-opening the contract. We feel that this general guideline will be sufficient to ensure that minors do not take or threaten actions based on specious assertions of improvidence.
Dispositions of Property
We must now consider the important question of dispositions of property. We would not wish to bring about a position in which conveyancing practices were unduly interfered with, or commercial life was unduly inhibited, as a result of our proposals regarding minors’ contracts.
The general question has been considered by other law reform agencies. The Alberta Institute of Law Research and Reform, in its Report on Minors’ Contracts in 1975 took the view that the legislation:
80
Para. 8.10 of the English Law Commission’s Working Paper No. 81.
“should place beyond dispute the effect of a disposition of property by a minor under a contract which is unenforceable against him. It would be unsatisfactory to leave title to property in limbo until the contract becomes binding or the court deals with the matters (sic). We believe that the best way to deal with the problem is to use the analogy of a voidable contract and to provide that title passes to the other party until the court or the parties decide otherwise. We believe also that third parties who in the meantime acquire property or an interest in it in good faith and for value should be protected.”81
The Institute accordingly recommended that:
(1)
A disposition of property or a grant of a security or other interest therein made under a contract which is unenforceable against a minor should be effective to transfer the property or interest unless and until the court makes an order [for compensation or restitution of property, or both].82
(2)
A disposition of property or a grant of a security or other interest therein to a bona fide transferee is not invalid for the reason only that the transferor or grantor acquired the property under a contract which is unenforceable against a minor.”83
The Law Reform Commission of British Columbia84 expressed “complete agreement with both the reasoning of, and recommendations advanced by”, the Alberta Institute.
The Law Reform Commission of Western Australia addressed the question briefly. It considered that:
“To avoid confusion as to the ownership of property passing pursuant to a contract with a minor, and to
81
- 40 of the Report.
82
Cf. Recommendation 3(2) of the Report (id., p. 29).
83
Id., p. 41.
84
In its Report on Minors’ Contracts, p. 74 (LRC 26–1976).
provide that any disposition of property pursuant to a contract whether binding or non-binding on the minor should pass good title. In the case of a non-binding contract, however, this should be subject to any powers exercisable by a court to order restitution or compensation.”85
Our Recommendations
We have come to the conclusion that the best approach for the legislation would be to provide that property passes in an unenforceable contract. We do not consider it proper or sensible that a person who receives any property from another person should have to concern himself or herself as to whether the donor, grantor, vendor or lessor, as the case may be, derived the article from a minor. Nor do we consider that only bona fide purchasers for value should be entitled not to concern themselves as to this question: we recommend that property should pass in all such cases. However, we consider that so far as the parties to the contract – the minor and adult (or other minor, as the case may be) – are concerned, the Court should be free to make any order affecting title to the property (to the extent that either of them retains title) as it may consider proper, in its application of the restitutionary principle.
Should Certain Categories of Contract be Binding?
It will be recalled that, although we rejected the possibility of creating a general principle of qualified enforceability of contracts, we left for later discussion the question whether certain specific categories of contract should be binding.86 Having recommended87 the establishment of a general restitutionary principle, we must now consider whether, by way of exception to the restitutionary principle, certain specific categories of contract should be binding.
85
In its Working Paper No. 2, Project No. 25: Legal Capacity of Minors, para. 3.34 (1978).
86
Supra, p. 100.
87
Supra, pp. 109–110.
We will begin our analysis of this question by considering whether it would be desirable to retain a concept of necessaries as a specific category of enforceable contracts. It seems clear to us that the real issue is not whether the present law as to necessaries should be retained in its exact form: the important question is whether a reformed category of binding contracts for necessaries should be included in the legislation as an exception to the restitutionary principle.
We have already documented88 the deficiencies of the present law relating to necessaries. These include the following:89 the ambit of the category of necessaries is imprecise; it is not clear whether a minor is liable under an executory contract for the supply of necessaries; a minor will not be liable for necessaries where he already has an adequate supply, even in cases where the supplier could not have been aware of this fact; it appears that the goods must be necessaries both at the time of the making of the contract and at the time of delivery.
It would, of course, be possible to remove some, if not all, of these deficiencies by statutory provisions drafted in fairly narrow terms; but we must consider whether a more extensive change would be desirable.
The English Law Commission in its Working Paper90 proposed the replacement of the concept of contracts for necessaries by the concept of contracts for necessities, which would be enforceable against minors. “Necessities” would be “goods or services of a kind which, if bought by minors, would normally be bought by them in order to meet basic needs”.91 The concept would not cover items of luxury or even luxurious items of utility, but only those things that are
88
Supra, pp. 3ff.
89
Cf. the English Law Commission’s Working Paper No. 81, Minors’ Contracts, paras. 2.28, 7.12.
90
Supra, fn. 89, para. 7.17. In its subsequent Report, however, published in June 1984, the English Law Commission abandoned all its proposals for change in regard to the law relating to necessaries: Law of Contract: Minors’ Contracts, para. 5.6 (Law Com. No. 134, 1984).
91
Para. 7.17 of Working Paper No. 81.