Dealing with individuals in a finance transaction—investigating capacity and authority
Dealing with individuals in a finance transaction—investigating capacity and authority

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Dealing with individuals in a finance transaction—investigating capacity and authority
  • Why is it important to understand the acts an individual will perform in a finance transaction?
  • Acts of an individual in a finance transaction
  • What is meant by 'capacity and authority'?
  • Investigating the capacity of an individual
  • Minors
  • Supporting guarantee
  • Individuals who are of unsound mind or drunk
  • Investigating the authority of an individual
  • Other issues to consider when lending to an individual

This Practice Note considers the issues which can arise when dealing with individuals in the context of a finance transaction. It looks at the types of actions an individual may perform in a finance transaction and the processes lawyers should go through in investigating whether the individual has the requisite capacity and authority to carry out these acts. It also looks at the categories of individuals with limited or no capacity and other issues to consider at common law and pursuant to the Family Law Reform Act 1969, the Consumer Credit Act 1974, the Minors’ Contracts Act 1987, the Mental Capacity Act 2005, the Insolvency Act 1986, the Mortgage Market Review and the Standards of Lending Practice.

Why is it important to understand the acts an individual will perform in a finance transaction?

Lender's perspective

A lender will want to be clear that an individual has capacity to transact.

In English law, there is an assumption that an individual who has reached the age of majority, at the age of 18, has capacity to contract. An individual may lose capacity on the grounds of being of unsound mind, drunk or in relation to some acts following bankruptcy.

Borrower's perspective

A borrower will want to be clear about the acts they will be performing in a finance transaction because they will make a