Capacity to contract

• Generally, the law uses the word " capacity" to

describe the ability of a person to do legally
valid act.
• In other word, contractual capacity is the
ability to understand its general meaning.
• Certain classes of persons traditionally have
been treated as having a limited capacity to
contract because the law sought to protect
them in their contractual relations with
others.
• They are minors, people who are mentally
impaired and intoxicated persons.
• Any person other than those mentioned below
may be competent for concluding a contract;
• (a) Those who have not attained 16 years of age.
• (b) Those who are of unsound mind.
• (c) Any person not qualified to enter into a
specific contract under the prevailing law
• shall be deemed to be incompetent to conclude
that contract. ,
• Consequences of Contract entered with the
person not capable to enter into contract is void.
• Though the freedom of contract is there but still
law fixes the capability because Parties may not
be able to understand the terms and motive of
contract.
• They may not have reasonable capacity or cannot
make rational judegment to calculate the
consequences of contract.
• They may not have capability to perform legal
obligation created by contract, so law determines
the capacity.
 Contract with Minor
• Who is minor?
• Simply a person who has not attend the age of
majority or prescribed by law for certain purpose.
• So. the age of minority may differ from country to
country.
• For example:
• In England the age of majority to enter into the
contract is 18 years earlier there was21.
• In India the age of majority to enter into the
contract is 18 years.
Why minor is protected from the
contractual liability?

– Minors are mentally incompetent/ immature

– The don’t know the consequences so they my be
exploited
– They may not fulfill contractual obligation
• Minors may make contracts.
• However, to protect minors, the laws always
treated them as a class as lacking contractual
capacity.
• The idea behind minor's incapacity is that a
minor may not be able to bargain effectively
with older and experience persons.
• However minor can enforce the contract if he
is the beneficiary
 What happens when they enter into
agreement?
• Simply if minors enter into contract the
contract will have no legal effect. They are
void.
• So minor cannot be bind by any obligations
though he enters into an agreement.
• But in practice they enter into an agreement
sometime.
• So that there are certain rules regarding
minors agreement
 Rules regarding minors agreements:

• Agreement entered by minor is void against minor:

He is incapable of making reasonable judgment of the
consequence of contract. So that any agreement
entered by him/her is not enforceable at law. Then no
contractual relations arise thereof. So any agreement
entered into by minor is void.
•
• Sec 13(j) of NCA expressly provides that any contract
made by incompetent party is void. So that no
contractual obligations arises against the minor from
the agreement.
 Mohiribibi vs. Dharmadas Ghose
(1903)30 Cal319,
• minor executed a mortgage for Rs.20, 000 and
received Rs.8, 000from the mortgagee. The
mortgagee filed a suit for the recovery of his
mortgage money and for the sale of property
in case of default. The Privy Council held that
and agreement by a minor was void ab initio
against him and therefore the mortgagee
couldn't recover money not could he have
minors property sold under his mortgage.
 Contract beneficial to minor is not
void:
• Law of contract protects the interest of minor.
Where the contract is for the benefit of a minor
law does not prohibit it from being enforced.
Where the contract is made for his benefit and
other party fails to perform the contract a minor
can bring a suit against the defaulter.
• In other words a minor cannot be compelled to
perform an agreement but he can take benefit
from contract.
• In the case of Raghava Chariah v. Srinivas
(1917), a mortgage was executed in favor of
minor who has paid whole money. The other
party failed to perform and refused on the
ground that the contract is not enforceable
because the agreement was made by a minor.
The court could held enforceable because the
contract is beneficial (To make the other party
aware of the age).
• The General American Insurance Co. v.
Madan Lal Sonu Lal, The minor insured goods
in this GMIC. Goods were destroyed. The
minor asked for compensation. The GAIC
reject saying that he was a minor. The court
saysthat though that wasentered by minor but
wasbeneficiary to the minor so it was held as
valid.
Contract by guardian for minor is valid
• Though minor is not capable to enter in to the
contract but in day to day life a minor also needs
to enter into contractual relations.
• Justification: If minor is not liable for contract no
one will sell him the goods, open bank account,
buy his land or other property. But it is not so.
Law recognizes a guardian to enter into the
contract for the interest of minor.
• Section 3(3) of NCA provides the guardian of a
person incompetent to contract can enter into
contract for minor for the interest of the minor.
 Contract to supply necessaries to
minor is valid
• Sec11(a) of NCA states that," if a person
incapable of entering into contract, or
anybody whom he is bound to support, in
supplied by another person necessaries suited
to the condition of life, the person who has
furnished such supplies is entitled to be
reimbursed from the property of such
incapable person.
•
• The term ‘necessaries’ is not restricted to things
which are required to maintain a bare existence,
such as bread, clothes but includes articles which
are reasonably necessary to the minor having
regard to his station life.

• Nash v. Inman; Inman who was an

undergraduate at Cambridge, bought eleven
fancy waistcoats from Nash. He was at the time
adequately provided with clothes. Held: the
waistcoats were not necessaries and Inman was
not liable to pay for any of them.
 Minor is not stopped from denying
that he is minor (Estoppel doesnot
apply to minor)
• Even if he has entered into the contract by falsely.
• Evidence Act, 2031 Section 34(a) defines
estoppels as " where a person has by his
declaration, act or omission intentionally caused
or permitted another person to believe a thing to
be true and to act upon such belief he shall not
be allowed to deny the truth of thing in any suit
proceeding between such person and himself".
 Minor cannot ratify contract upon
attaining majority
• Contract concluded by persons who are
disqualified or incompetent to conclude
contracts is void [13(j)] and cannot be ratified.