Capacity To Contract

capacity-to-contract

PARTIES UNABLE TO ENTER INTO A CONTRACT

  • Minor
  • A person of unsound mind
  • A person disqualified by law
  1. Who is competent to make a 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, who is of sound mind and not is disqualified from contracting by any law to which he is subject.

Age of majority: According to section 3 of Indian majority act -1875 every person domiciled in Indian attains a majority on the completion of 18 years of age.

Exception: 21 year – in the following cases.

  1. Where a guardian of a minor’s person or property is appointed under the guardian and ward act, 1890.
  2. Where minor’s property has passed under the superintendence of court of words.

Position of agreements by minor:

  1. Validity: an agreement with a minor is void-ab-initio (Mohoribibee vs. Dharmodas Ghose)

Example:

Mr. D, a minor, mortgaged his house Rs. 20000 to a money – lender, but the mortgagee, i.e, the money- lender, paid him a sum of Rs. 8000. Subsequently, the minor sued for setting aside the mortgage. Held that the contract was void, as Mr. D. Was minor and therefore he is not liable to pay anything to the lender.




  1. A minor has received any benefit under a void contract, he cannot be asked to return the same.
  2. If a minor has received any benefit under a void contract, he cannot be asked to return the same.
  3. Fraudulent representation by a minor- no difference in the status of the agreement. The contract remains void.
  4. A minor with the consent of all the partners, be admitted to the benefits of an existing partnership.
  5. Contracts entered into by minors are void – ab – initio. Hence no specific performance can be enforced for such contracts.
  6. Minor ‘s parent/guardians are not liable to a minor’s creditor for the breach of contract by the minor.
  7. A minor can act as an agent but not personally liable. But he cannot be principal.
  8. A minor cannot become a shareholder of the company except when the shares are fully paid up and transfer by share.
  9. A minor cannot be adjudicated as insolvent.
  10. Can enter into contracts of Apprenticeship, Services, Education, etc:
  • A minor can enter into the contract of apprenticeship, or for training or instruction in a special art, education, etc.
  • These are allowed because it generates benefits to the minor.
  1. Guarantee for and by minor

A contract of guarantee. This is because the surety is ultimately liable under a contract of guarantee whereas a minor can never be held personally liable.

  1. Minor as a trade union member

Any person who has attained the age of fifteen years may be a member for the registered trade union, provided the rules of the trade union allow so. Such a member will enjoy all the rights of a member.

EXCEPTION

  • The contract for the benefit of a minor
  • Contract by Guardian

The benefit of a minor by his guardian or manager of his estate.

  1. Within the scope of the authority of the guardian.
  2. Is for the benefit of the minor.
  • A contract for the supply of Necessaries.

Minor being incapable of entering into the contract if is supplied by another person with necessaries suited to his life, the person who has furnished such supplies is entitled to be reimbursed from the property of this minor but the minor himself is not liable to the supplier.

Example-

Food , clothes, bed, shelter, shoes, medicines and similar other things required for the maintenance of his life or for the life of his dependents, expenses for instruction in grade or arts; expenses for moral religions or intellectual education, funeral expenses of his deceased family members, ,marriage expenses of a dependent female member in the family; expenses incurred in the protection of life. However, things like earring for a male, spectacles for a blind person or a wild animal cannot be considered as necessaries.

Liability for tort: A minor is liable for a tort, i.e, civil wrong committed by him.

  • A ‘tort’ is a civil wrong for which the ordinary remedy is damage. A minor is liable for his tort, unless the tort is, in reality, a breach of contract. In a case, thus, were a minor hired a horse for riding and injured it by overriding, he was not held liable. The court observed in that case, “if an infant in the course of doing what he is entitled to do under the contract is guilty of negligence, he cannot be made liable in tort if he is not liable on the contract”.
  • But if the wrongful action is of a kind not contemplated by the contract, the minor may be held liable for the tort. Thus, where a minor hired a horse for riding under express instruction not to jump, he was held liable when he lent the horse to one of his friends who jumped it, whereby it was injured and ultimately died.
  • The court observed, it was a bare trespass, not within the object and purpose of the hiring, for which the defendant was liable.

Example:

14 –year—old boy drives a car carelessly and injuries B. He is liable for the accident i.e, tort.

  1. A person of unsound mind

  • Lunatic
  • Idiot
  • Drunken and Intoxicated 

Person of Unsound Mind

A person who usually minds, but occasionally of sound mind can make a contract when he is of sound mind. Similarly, a Person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind. ( According to sec. 12)

  • At the time of entering into a contract, a person must be a sound mind. Law presumes that every person is of sound mind unless otherwise it is proved before the court. An agreement by a person of unsound mind is void. The following are categories of a person considered a person of an unsound mind.
  • An idiot

An idiot is a person who is congenital ( by birth ) unsound mind. His incapacity is permanent and therefore he can never understand the contract and make a rational judgment as to its effects upon his interest. Consequently, the agreement of an idiot is absolutely void ab initio. He is not personally liable even for the payment of necessaries of life supplied to him.

  • Delirious persons

A person delirious from fever is also not capable of understanding the nature and implications of an agreement. Therefore, he cannot enter into a contract so long as delirium lasts.

  • Hypnotized persons

Hypnotized produces temporary incapacity until a person is under the effect of artificially induced sleep.

  • Mental decay

There may be mental decay or senile mind the to old age or poor health. When such a person is not capable of understanding the contract and its effect upon his interest, he cannot enter into a contract.

  • Drunken person

An agreement made by an intoxicated person is void.

  1. Person Disqualified by law

  • Alien enemy
  • An ‘alien’ is a person who is a foreigner to the land. He may be either an ‘ alien friend’ or an ‘ alien enemy. If the sovereign or state of the alien is at peace with the country of his stay, he is an alien friend. And if a war is declared between the two countries he is termed as an alien enemy.
  • During the war, a contract can be entered into with alien enemy with the permission of the central government.
  • Foreign sovereigns, diplomatic staff, and representative of foreign staff can enter into a valid contract. However, a suit cannot be filed against them, in the Indian counts without the prior sanction of the central government.
  • Convict can’t enter into a contract while he is undergoing imprisonment. But he can enter into a contract with permission of the central government while undergoing imprisonment. After the imprisonment is over, he becomes capable of entering into the contract. Thus the incapacity is only during the period of sentence.
  • Body corporate or company or corporation

The contractual capacity of a company is determined by the object clause of its memorandum of association. Any act done in excess of power given is ultra- vires and hence void.

  • Insolvent

When any person is declared as an insolvent, his property vests in the receiver and therefore, he can ‘t enter into a contract relating to his property. Again he becomes capable to enter into contract when he is discharged by the court.

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