CAPACITY TO CONTRACT
Meaning: Capacity refers to the competence of the parties to make a contract. It is one of the essential elements to form a valid contract.
Also, Read
Who is competent to contract (Section 11)
“Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject”.
Analysis of Section 11
This section deals with personal capacity of three types of individuals only.
Every person is competent to contract who-
(A) has attained the age of majority,
(B) is of sound mind and
(C) is not disqualified from contracting by any law to which he is subject.
(A) Age of Majority: In India, the age of majority is regulated by the Indian Majority Act, 1875.
Every person domiciled in India shall attain the age of majority on the completion of 18 years of age and not before. The age of majority being 18 years, a person less than that age even by a day would be
minor for the purpose of contracting.
Law relating to Minor’s agreement/Position of Minor
1. A contract made with or by a minor is void ab-initio: A minor is not competent to contract
and any agreement with or by a minor is void from the very beginning.
In the leading case of Mohori Bibi vs. Dharmo Das Ghose (1903), “A, a minor borrowed `
20,000 from B and as a security for the same executed a mortgage in his favour. He became a
major a few months later and filed a suit for the declaration that the mortgage executed by him
during his minority was void and should be cancelled. It was held that a mortgage by a minor
was void and B was not entitled to repayment of money. Further money lender’s request for repayment of amount advanced to the minor as part of consideration for the mortgage was also
not accepted.
It is especially provided in Section 10 that a person who is incompetent to contract cannot make
a contract within the meaning of the Act.
2. No ratification after attaining majority: A minor cannot ratify the agreement on attaining
majority as the original agreement is void ab initio and a void agreement can never be ratified.
Example 1: X, a minor makes a promissory note in the name of Y. On attaining majority, he
cannot ratify it and if he makes a new promissory note in place of old one, here the new
promissory note which he executed after attaining majority is also void being without
consideration.
3. Minor can be a beneficiary or can take benefit out of a contract: Though a minor is not
competent to contract, nothing in the Contract Act prevents the minor from making the other
party bound to him r. Thus, a promissory note duly executed in favour of a minor is not void and
can be sued upon by him, because he though incompetent to contract, may yet accept a benefit.
A minor cannot become partner in a partnership firm. However, he may with the consent of all
the partners, be admitted to the benefits of partnership (Section 30 of the Indian Partnership
Act, 1932).
Example 2: A mortgage was executed in favour of a minor. Held, he can get a decree for the
enforcement of the mortgage.
4. A minor can always plead minority: A minor can always plead minority and is not stopped to
do so even where he has taken any loan or entered into any contract by falsely representing
that he was major. Rule of estoppel cannot be applied against a minor. It means he can be
allowed to plea his minority in defence.
Example 3: A, a minor has falsely induced himself as major and contracted with Mr. X for loan
of `20,000. When Mr. X asked for the repayment A denied to pay. He pleaded that he was a
minor so cannot enter into any contract. Held, A cannot be held liable for repayment of amount.
However, if he has not spent the same, he may be asked to repay it but the minor shall not be
liable for any amount which he has already spent even though he received the same by fraud.
Thus, a minor can always plead minority and is not estopped from doing so even where he had
produced a loan or entered into some other contract by falsely representing that he was of full
age, when in reality he was a minor.
5. Liability for necessaries: The case of necessaries supplied to a minor or to any other person
whom such minor is legally bound to support is governed by section 68 of the Indian Contract
Act. 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.
To render minor’s estate liable for necessaries two conditions must be satisfied.
(i) The contract must be for the goods reasonably necessary for his support in the
station in life
(ii) The minor must not have already a sufficient supply of these necessaries.
Necessaries mean those things that are essentially needed by a minor. They cannot include
luxuries or costly or unnecessary articles. Necessaries extend to all such things as reasonable
persons would supply to an infant in that class of society to which the infant belongs. Expenses
on minor’s education, on funeral ceremonies come within the scope of the word ‘necessaries’.
The whole question turns upon the minor’s status in life. Utility rather than ornament is the
criterion.
Example 4: Shruti being a minor purchased a laptop for her online classes of `70,000 on credit
from a shop. But her assets could pay only `20,000. The shop keeper could not hold Shruti
personally liable and could recover only amount recoverable through her assets i.e. upto
` 20,000.
6. Contract by a guardian - how far enforceable: Though a minor’s agreement is void, his
guardian can, under certain circumstances enter into a valid contract on the minor’s behalf. Where
the guardian makes a contract for the minor, which is within his competence and which is for
the benefit of the minor, there will be a valid contract which the minor can enforce.
But all contracts made by a guardian on behalf of a minor are not valid. For instance, the guardian
of a minor has no power to bind the minor by a contract for the purchase of immovable property.
But a contract entered into by a certified guardian (appointed by the Court) of a minor, with the
sanction of the court for the sale of the minor’s property may be enforced by either party to the
contract.
7. No specific performance: A minor’s agreement being absolutely void, there can be no question
of the specific performance of such an agreement.
8. No insolvency: A minor cannot be declared insolvent as he is incapable of contracting debts
and dues are payable from the personal properties of minor and he shall never be held
personally liable.
9. Partnership: A minor being incompetent to contract cannot be a partner in a partnership firm,
but under Section 30 of the Indian Partnership Act, he can be admitted to the benefits of
partnership.
10. Minor can be an agent: A minor can act as an agent. But he will not be liable to his principal
for his acts. A minor can draw, deliver and endorse negotiable instruments without himself being
liable.
Example 5: A minor can have an account in the bank. He can draw a cheque for his purchases.
But he shall not be liable for cheque bounces nor can he be sued under court of law for any
fraud done from his account.
11. Minor cannot bind parent or guardian: In the absence of authority, express or implied, an
infant is not capable of binding his parent or guardian, even for necessaries. The parents will
be held liable only when the child is acting as an agent for the parents.
Example 6: Richa a minor entered into a contract of buying a scooter from the dealer and
mentioned that her parents will be liable for the payment of the scooter. The dealer sent a letter to her parents for money. The parents will not be liable for such payment as the contract was
entered by a minor in their absence and out of their knowledge.
12. Joint contract by minor and adult: In such a case, the adult will be liable on the contract and
not the minor. In Sain Das vs. Ram Chand, where there was a joint purchase by two
purchasers, one of them was a minor, it was held that the vendor could enforce the contract
against the major purchaser and not the minor.
13. Surety for a minor: In a contract of guarantee when an adult stands surety for a minor then he
(adult) is liable to third party as there is direct contract between the surety and the third party.
Example 7: Mr. X guaranteed for the purchase of a mobile phone by Krish, a minor. In case of
failure for payment by Krish, Mr. X will be liable to make the payment.
14. Minor as Shareholder: A minor, being incompetent to contract cannot be a shareholder of the
company. If by mistake he becomes a member, the company can rescind the transaction and
remove his name from register. But, a minor may, acting though his lawful guardian become a
shareholder by transfer or transmission of fully paid shares to him.
15. Liability for torts: A tort is a civil wrong. A minor is liable in tort unless the tort in reality is a
breach of contract. Thus, where a minor borrowed a horse for riding only he was held liable
when he lent the horse to one of his friends who jumped and killed the horse. Similarly, a minor
was held liable for his failure to return certain instruments which he had hired and then passed
on to a friend.
(B) Person of sound mind: According to section 12 of Indian Contract Act, “a person is said to be of sound mind for the purposes of making a contract if, at the time when he makes it is capable of understanding it and of forming a rational judgement 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.
Example 8: A patient in a lunatic asylum, who is at intervals, of sound mind, may contract during those
intervals.
Example 9: A sane man, who is delirious from fever, or who is so drunk that he cannot understand the
terms of a contract, or form a rational judgement as to its effect on his interests, cannot contract whilst
such delirium or drunkenness lasts.
Position of unsound mind person making a contract: A contract by a person who is not of sound
mind is void.
(C) Contract by disqualified persons: Besides minors and persons of unsound mind, there are also other persons who are disqualified from contracting, partially or wholly, so that the contracts by such person are void. Incompetency to contract may arise from political status, corporate status, legal status, etc. The following persons fall in this category: Foreign Sovereigns and Ambassadors, Alien enemy,
Corporations, Convicts, Insolvent etc.
 CAPACITY TO CONTRACT){kind=link}
0 Comments