CAPACITY TO CONTRACT

Submitted by-KULDEEP
Roll No-19mba009
Submitted to- Dr Preeti Chawla
 MEANING AND DEFINITION

According to section 11 of Indian contract act

“every person is competent to contract (i) who is of age of
majority according to contract which he is subject (ii) who is
of sound mind , and (iii) who is not disqualified from
contracting by any law to which he is subject to”
 CONTRACT BY MINOR
According to section 3 of Indian majority act , 1875, a minor is a
person who has not attained the age of 18 years. A minor is
not competent to contract.
Laws regarding minor’s agreement may be summed up as under:
1.Minors contact is absolutely void:
CASE- Mohori Bibee vs Dhurmodas Ghost-
Dhurmodas, a minor executed a mortgage for Rs 20000
declaring himself a major and received Rs 8000 from Mohori
Bibee, a mortgagee. The minor wanted to set aside the
mortgage. The mortgagee wanted the refund of Rs 8000. It
was held that the agreement with minor was void ab initio
and question of refunding money does not arise.
2. Specific performance of a minor’s contract-
Specific performance means the actual carrying out of the
contract as agreed. Since an agreement by a minor is
absolutely void, the court will never direct specific
performance of such an agreement by him. But a contract
entered into, on behalf of minor, by his guardian or by the
manager of his estate, is binding on the minor and can be
specifically enforced by or against the minor, provided:
(a) the contract is within the authority of the guardian or
manager
(b) it is for the benefits of the minor.
3. Ratification of a minor’s contract-
Consideration which passed under the earlier contract cannot be
implied in to the contract which the minor enters on attaining
majority.
Thus consideration given during minority is no consideration.
If it is necessary a fresh contract may be entered in to by the minor
on attaining majority provided it is supported by fresh consideration.
4. No Estoppel against a minor-
Where a minor by misrepresenting his age has induced the other
party to enter into a contract with him , he cannot be made liable on
the contract .There can be no estoppels against a minor. It means he
is not estopped from pleading his infancy in order to avoid a contract
. The court may direct minor to restore property . No doubt, minor
has got protection but he has no liberty to cheat others .
5. Liability of a third person- surety for a minor-
An agreement by a minor is void, but an agreement by a guardian on
his behalf is valid. Where a guardian enters into a contract in respect
of his property on behalf of the minor, it is valid, provided it is for his
benefit or for legal necessity.
6. Insolvency-
A minor cannot be adjudged insolvent as he is incapable of
contracting.
7. Minor can be an agent –
A minor can act as an agent. But he will not be liable to his principal for
his acts .
8.Partnership-
A minor cannot be enter into a contract of partnership as a full-fledged
partner though he may be admitted to the benefits of partnership by
the guardian with the consent of the other partners, provided it is
supported by necessity or benefits .Minor’s share alone in the
property of the firm is liable but personally he is not liable. He may
accept those obligations if he thinks fit to do so.
9. Liability for necessaries-
A claim for necessaries supplied to a minor is enforceable by law . But a
minor is not liable for any price that he may promise and never for
more than the value of the necessaries. There is no personal liability of
the minor but only his property is liable .
10. Contract by minor and adult jointly-
where a minor and an adult jointly enter into an agreement with
another person, the minor has no liability but the contract as a whole
can be enforced against the adult
Case- Sain Das vs Ram Chand
where there was a joint purchase by two vendees, one of whom is
minor , it was held that the vendor could enforce the contract against
the major vendee
11. Minor shareholder-
A minor, being incompetent to contract, cannot be shareholder of the
company. A company can also refuse to register transfer or
transmission of shares in favour of a minor unless the shares are fully
paid . It follows from it that a minor, acting through his lawful guardian,
may become a shareholder of the company, in case of transfer or
transmission of fully paid shares to him.
12. Position of Minor’s parents-
The parent of a minor are not liable for agreements made by a
minor, whether the agreement is for the purchase of necessaries or
not. The parents can be held liable only when the child is
contracting as an agent for the parents.
Contracts By Persons Of Unsound Mind
1. Contracts by Lunatics-
One of the essential conditions of competency of parties to a
contract is that they should be of sound mind.
Sec.12 lays down a test of soundness of mind. It reads as follows:
“ A person is said to be of sound mind, for the purpose of making a
contract if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its
effect upon his interests.
A person who is usually of unsound mind but occasionally of
sound mind, may make a contract when he is of sound mind. A
person who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound mind.”
Case- Indersingh vs parmeshwar singh
Here a person who was an idiot and incapable of understanding
the transactions, agreed to sell property worth about Rs
25000 for Rs 7000 only, it was held that the agreement was
void as the person was incapable of exercising his own
judgement.
2.Contracts by drunkards-
Contract by a drunken person is absolutely void and cannot
be ratified. In order that a contract by a drunkard should be
void, the drunkenness must be so effective and absolute that
no rational judgement can be formed by the contracting party.
He should be incapable of understanding the nature of the
contract and its legal consequences.
 Disqualified persons
1. Alien enemies-
An alien (citizen if foreign country) living in India can enter into
contracts with citizens of India during peace time only. On declaration
of a war between his country and India, he becomes an alien enemy
and cannot enter into contracts. Contracts enter into before the
declaration of the war stand suspended and cannot be performed
during the course of war, course, they can be revived after the war
over provided they have not already becomes time-barred.
2. Foreign sovereigns and ambassadors-
One has to be cautious while entering into a contract with foreign
sovereigns and ambassadors, because whereas they can sue others to
enforce the contracts they entered upon with them, they cannot be
sued without obtaining the prior sanction of the central government .
Thus they are in a privileged position and are ordinarily considered
incompetent to contract.
3. Convict-
A convict is one who is found guilty and is imprisoned. During the
period if imprisonment, a convict is incompetent (a) to enter into
contract , and (b) to sue on contracts made before conviction
4. Married Women-
Married women are competent to enter into contracts with respect to
their separate properties provided they are major and are of sound
mind. They cannot enter into contracts with respect to their husband’s
properties.
5. Insolvent-
An adjudged insolvent is competent to enter into certain types of
contracts i.e., he can incur debts, purchase of property or be an
employee but he cannot sell his property which vests in the Official
Receiver. Before ‘discharge’ he also suffers from certain
disqualifications e.g., can’t be a magistrate or a director of a company
or a member of local body but he has the contractual capacity except
with respect to his property. After the ‘order of discharge’ he is just like
an ordinary citizen.
6. Joint stock company and corporation incorporated under special act-
A company/Corporation in an artificial person created by law. It
cannot enter into contracts outside the powers conferred upon it by its
Memorandum of Association or by the provisions of its special act, as
the case may be. Again, being an artificial person it cannot enter into
contracts of a strictly personal nature e.g., marriage.