Q.
6 Capacities of Parties and Minor’s Agreement
Introduction
To create a legally enforceable contract the contracting parties should have
capacity to contract.
One of essential elements of valid contract is competent to parties.
A contract signed by a person lacking capacity may be void or voidable.
1. Relevant Provisions:-
Ss. 10,11,12 the contract Act, S.3 of Majority Act,1875
2. Meaning of Capacity or competence
Capacity or competence to contract means legal capacity of parties to enter
into a contract.
In other words, it is the capacity of parties to enter into a legally binding
contract.
3. Some common usages of the term “capacity” in a legal sense
include:
i. In the context of criminal law.
The term “capacity” means that the defendant must have the ability to
understand the wrongfulness of their actions.
ii. In the context of contract law.
The term “capacity” denotes a person's ability to satisfy
the elements required for someone to enter binding contracts.
For example, capacity rules often require a person to have reached a
minimum age and to be of sound mind.
4. Who are Competent to Contract (Section 11 of the Contract Act, 1872)
According to Section 11 of the Contract Act, 1872 every person is
Legally competent to contract if he fulfills the following three conditions:
1). He has attained the age of majority;
2). He is of sound mind; and.
3). He is not disqualified from contracting by any other law to which he
is subject.
5. Agreement with Minor parties
Section 11 states that only persons who have attained majority according
to the law are competent to contract.
Therefore, there must be a law that defines the age of majority.
1) AGE OF MAJORITY & MINORS
Any person, who has not attained the age of majority prescribed by
law, is known as minor.
Section 3 of the Majority Act,1875 prescribes the age limit for
majority and says a minor is a person who has not completed
eighteen years of age.
But the same Act also mentions that in the following two cases a
person attains majority only after he completes his age of twenty
one years.
i. Where a Court has appointed guardian of a minor’s person or
property or both (under the Guardians and Wards Act, 1890) or
ii. Where the minor’s property has been placed under the
superintendence of a Court of Wards.
Hence, minors cannot enter into agreements unless some legal provisions
allow them.
For example, a minor cannot transfer property as per the Transfer of
Property Act. He can, however, receive property from other persons under
a legal contract.
5. Rules relating to Agreement with Minor Parties
Although, as a general rule, a contract with minors is void, we must keep in
mind the following rules as well:
i. A contract with a minor is void and, hence, no obligations can ever arise
on him thereunder.
ii. The minor party cannot ractify the contract upon attaining majority unless
a law specifically allows this.
iii. No court can allow specific performance of a contract with minors
because it is void altogether.
iv. The Partnership Act also prohibits minors from becoming partners in a
firm. They can, however, receive the benefits of partnership and ratify the
same upon attaining majority.
v. The rule of estoppel under evidence law does not apply to minors under
contractual obligations. In other words, even if a minor forms a contract
claiming majority age, legal obligations cannot arise against him.
vi. Parents or guardians of minors can name them in contracts only if it
benefits them. But even in this case, the minor cannot be personally
liable.
6. Rules /effects as to or Nature of Minor’s Agreements:
i. Void ab-initio:-
Minor’s agreement is absolutely void from very beginning, i.e. void ab-
initio.
It is nullity in the eye of law. An agreement with minor, therefore, can never
be enforced by law.
ii. Minor can be a promise or beneficiary: -
A minor can enforce such agreements in which he is a beneficiary and
does not create any obligation on his part.
iii. No ratification:-
A minor cannot be ratify even after attaining the age majority because void
agreement cannot be ratified.
4. Restitution/ Compensation possible:-
If a minor has received benefits under an agreement from the other party,
the Court may require the minor to restore the benefit (so far as may be), to
the other party at the time of rescission of the agreement.
The minor may be asked to restore the benefit to the extent he or his estate
has been benefited.
5. Contract by parent/ guardian/ manager:-
A minor’s parent/ guardian/ manager can enter into contract on behalf of
the minor provided:
i. The parent/ guardian/ manager acts within the scope of his authority
ii. The contract is for the benefit of the minor.
6. No liability of parents:-
The parents (guardian) of a minor are not liable for agreements made by
their minor ward.
However, they can be held liable if the minor makes agreement as their
authorized.
7. Minor as an agent:-
A minor is not entitled to employ an agent;
he can be an agent himself for someone else.
As an agent he can represent the principal, and bind him
for his acts done in the course of agency. But the minor is not responsible
to the principal for his acts.
8. Minor and insolvency:-
A minor cannot be declared insolvent because he is not competent to
contract.
9. Minor as joint Promisor:-
A minor can be a joint promisor with a major,
but the minor cannot be held liable under the promise to the promises as
well as to his co-promisor. But
the major promise cannot escape liability. The major joint promisor can be
forced to perform the promise.
10. Minor shareholder:-
A minor can become a shareholder or member of a company if
(a) the shares are fully paid up and
(b) the articles of association do not prohibit so.
11. Liability for necessaries of life:-
A minor is incompetent to contract.
A minor, therefore, is not personally liable for the payment of price of
necessaries of life supplied to him or to his legal dependents. However, the
person who has furnished such supplies is entitled to be reimbursed from
the property of the minor.
12. Minor Partner:-
According to the Partnership Act, 1932, a minor cannot make a contract
of partnership though he may be admitted to its benefits with the consent
of all the partners.
A minor partner cannot be made personally liable for any obligation of the
firm, but his share in the firm’s property can be made liable.
13. No estoppels against minor:-
The term ‘estoppels’ means prevention of a claim.
When a minor enter into contract, representing that he is a major, but in
reality he is not, then later on he can plead his minority as a defence and
cannot be estopped (prevent) from doing so.
2) PERSONS OF SOUND MIND (S.12)
As per Sec. 12 of the Contract Act, a person is said to be of sound mind
for the purpose of making a contract
i. if he is capable of understanding the contract at the time of making it, and
ii. if he is capable of making a rational judgment as to the effect upon his
interests. i.e understand his actions and realize the consequences of
obligations imposed on him at the time of entering into a contract.
I. Types of Persons of Unsound Mind and their Contracts:
i. Idiot
ii. Lunatic
iii. Drunken or intoxicated persons
i. Idiot
An idiot, in medical terms, is a condition of mental retardation
where a person has a mental age of less than a 3-year-old child.
Hence, idiots are incapable of understanding the nature of the contract and
it will be void since the very beginning.
ii. Lunatic
A person who is of sound mind for certain duration of time and unsound
for the remaining duration is known as a lunatic.
When a lunatic enters into a contract while he is of sound mind, i.e. capable
of understanding the nature of the contract, it is a valid contract. Otherwise,
it is void.
Illustration-
A enters into a contract with B for sale of goods when he is of
sound mind. A later becomes of unsound mind. The contract is valid.
iii. Drunken or intoxicated persons
A contract signed under the influence of alcohol/drug may or may not be
valid.
If a person is so drunk at the time of entering into a contract so that
he is not in a position to understand the nature and consequences, the
contract is void. However, if he is capable of understanding the nature of
the contract, it will be enforceable.
Illustration-
A enters into a contract with B under the influence of alcohol. The burden
of proof is on A to show that he was incapable of understanding the
consequence at the time of entering the contract and B was aware of his
condition.
3) PERSONS DISQUALIFIED BY OTHER LAWS
There are certain persons who are disqualified from contracting by the
other laws of our country. They are as under:
I. Alien enemy
An alien enemy is the citizen of a country Pakistan is at war with.
Any contracts made during the war period with an alien enemy are void.
A Pakistani citizen residing in an alien enemy’s territory shall be treated as
an alien enemy under the contract law.
Contracts made before the war period either gets dissolved if they are
against public policy or remain suspended and are revived after the war is
over,
Illustration-
A, of country X, orders goods from B, of country Y. The goods are shipped
and before they could reach Y, country X declares a war with country Y.
The contract between A and B becomes void.
II. Foreign sovereigns, diplomatic staff etc.
Foreign sovereign Diplomats and ambassadors of foreign countries enjoy
contractual immunity .
One cannot sue them in courts unless they submit themselves to the
jurisdiction of courts.
Additionally, sanction from the central government is also required in such
cases.
However, the foreign sovereign has the authority to enforce contracts
against the third person in courts.
III. Corporations and companies
Body corporate: A company is an artificial person.
The capacity of a company to enter into a contract is determined by its
memorandum and articles of association.
IV. Insolvents
An insolvent is a person who is declared bankrupt/ against whom
insolvency proceedings have been filed in court.
Since the person does not have any power over his assets,
He cannot enter into contracts concerning the property.
V. Convicts
A convict cannot enter into a contract while he is serving his sentence.
However, he regains his capacity to enter into a contract upon completion
of his sentence.
