Capacity of the parties: Parties must be legally and mentally able to enter into contract. Almost all natural persons have the ability to contract and the exceptions are children of a certain age, people who are mentally incapable and people who have been legally interdicted (generally or specific). When a non-natural person is involved, there are formalities behind that, regarding who is capable to contract for the non-natural person. It is not possible for a child under the age of 9 to enter into a contract. Between 9 and 14 years, a child is still not able to contract but if they do so, the contract is considered valid only if it is the child’s favour. Between 14 and 18, children can contract but if they want to, they can walk away and say that they did not want to do that. It is risky to contract with these minors. These minors do not yet have full capacity until they reach the age of 18. People who are interdicted are usually those that become bankrupt, where the Court orders their interdiction. A curator can contract on behalf of interdicted or incapacitated persons.
Consent – People contracting have to do so at their own free will. The person must agree that that is what they want to do. Three circumstances are set out in the law which if they arise would vitiate that contract: in error, under threat of violence, and fraud. For a court to consider that a contract is invalid, it has to be a serious matter.
The only way a court will find a contract invalid because of error, is where someone entered into a contract by mistake, in relation to an essential feature of the contract, and also inexcusable (buyer beware concept – buyer must ask questions and test item before entering into the contract). There are errors of facts, errors of law and errors of person. It is a strong test to invalidate a contract.
The second element is violence, threatened or perceived, both physical and moral. It doesn’t have to be the other party making the violence. The person only has to prove that there was violence that led him to enter into the contract. It is a less strong test than error.
If the other party is lying (fraudulent), a contract would be void. The other party is deliberately inducing the person into the contract. This is important particularly in Insurance contracts. There are specific rules on insurance contracts apart from these basic requisites.
There has to be certainty about the subject matter. The contract has to have a subject and that subject can be anything as long as people understand what it is. It can be tangible or intangible. As long as the subject can be defined, then it would exist. A person cannot contract on something that does not belong to them. For example, no one can contract on the air or on the sea.
Lawful consideration – Under Maltese law, this means the reason/purpose for the contract. An alternative word is ‘causa’. There has to be an intention to create an obligation. There are some contracts that the law says that they do not have a causa worth of contracting. The causa can’t be illegal, can’t be immoral and can’t be contrary to public policy (eg: illegal gambling, excluding liability for gross negligence). Otherwise, whatever the reason is, there is the general freedom to contract.
Under the UK legal definition, upon which most of the Maltese law is based, consideration means something different. It means payment under English law. A contract is not valid unless there is payment. It doesn’t have to be property or money, but it must be something as little as a peppercorn to form a contract of rent, but in its absence, the contract would not be valid.