Corporations
Corporations, themselves are protected by the incorporation procedure in
company law, which gives them limited liability to others. However, there
is a need to protect the shareholders and investors from the improper use of
their money, and third parties who deal with corporations. The capacity of
a corporation is limited by the instrument (usually a document) which
creates it, so in the case of a chartered corporation, the limitation will be
found within the charter. Similarly, with a statutory corporation, the
limitation will be found in the statute, and a registered company is limited
by the registration procedure (although the effect of this has been lessened
by the Companies Act 1989, when a person contracts in good faith with a
company director).
Mental disability and intoxication
The law also protects those of unsound mind and those who are drunk at
the time of making a contract. Under the Sale of Goods Act a drunken
person or one of unsound mind will be liable for the reasonable cost of
necessaries (see below), and would also be liable if the contract was ratified
(confirmed), later, when in a more rational state of mind. Generally if a
person is suffering from mental disability or is drunk at the time of making
a contract, the contract is voidable, if he can prove that:
- he did not understand the nature of the transaction, and
- the other party was aware of this.
It could be argued that in the case of intoxication, the second condition is
almost always likely to be satisfied if the first one has been established,
because if a person is so drunk that they do not know what they are doing,
it is likely to be apparent to the other party. This may seem to be an easy
way out of an unwanted contract for a person who is drunk, but remember
that the evidence must support both of the conditions above, and that the
law is then designed to protect a person who has been taken advantage of
by the other party while in such a state. More sympathy may be felt toward
those who suffer from mental disability or involuntarily intoxication, such
as a ‘spiked’ drink, but the law does not seem to distinguish between this
and voluntary intoxication. Regarding the knowledge of the other party, the
Privy Council said in Hart v O’Connor (1985) that where one party is
78 Contract law
Do you think that the law should give those who are drunk the same
protection as those who suffer from mental disability?