CAPACITY TO CONTRACT

ANIL KSHATRIYA 14 DECEMBER 2011

COMPETENCE OF PARTIES
y

The parties who enter into a contract must have capacity to do so. Capacity means competence of the parties to enter into valid contract. According to Sec. 10, an agreement becomes a contract if it is entered between parties who are competent to contract. Sec.11 declares the following persons to be incompetent to contract: 1. Minors 2. Persons of unsound mind. 3. Persons disqualified by any law.

Minors

MINORS
y

According to Sec.3 of the Indian Majority Act, 1875, a minor is a person who has not completed 18 years of age. The first rule is that, the law protects minors against their own inexperience and preserves their rights and The second rule is that, the law should not cause unnecessary hardship to persons who deal with minors.

Rules of Minors Agreement

(1) An agreement with minor is void ab initio.

Cp: A minor mortgaged his house in favour of money-lender to secure a loan of Rs. 20,000. Subsequently the minor sued for setting aside the mortgage stating that he was underage when he executed the mortgage. Held, the mortgage was void and, therefore it was cancelled. (Mohiri Bibi v. Dharamdas Bose, 1903)

(2)Minors agreement cannot be ratified by him on attending the age of majority. Consideration given during minority is no consideration. Ex: Lokesh Jhunjhunwala, an infant, speculated on stock exchange and became liable to pay Rs. 5,000 to the broker, Motilal Jaiswal. Subsequently on attaining majority he gave Rs. 3,000 in satisfaction of the original debt. Lokesh cannot be held liable for the remaining payment.

(3) He can be a promisee or a beneficiary.

Incapacity of a minor to enter into a contract means incapacity to bind himself by a contract. But nothing stops him from becoming a beneficiary. Ex: Hrithik, aged 17, agreed to purchase a secondhand scooter for Rs. 3,000 from a shop Koi Milega & Sons. He paid Rs. 200 advance and agreed to pay balance on next day. When he came with money the next day, the owner, Rakesh, told him that he has changed his mind and offered to return the advance. R cannot avoid the contract, though H may, if he likes.

(4) If he has received any benefit under a void

agreement, he cannot be asked to compensate or pay for it. Ex: Sonam, aged 16, an upcoming artist, entered into an agreement to work for a film director, Mahesh Bhattad in his next film. Mahesh paid her Rs. 1 lakh for quickly accepting the terms of employment. Later, Sonam having heard of the complexities involved in the role denied to work for Mahesh. M cannot subsequently ask S to refund Rs. 1 lakh.

(5)Whenever the infant is in possession of property which he has obtained by fraudulent representation of his age, he will be made to restore it to its former owner (principle of restitution). But he cannot be sued for fraud. Ex: Lalu, a minor, by fraudulently representing himself to be of full age, induced Gorge to lend him $4000. He refused to pay it and G sued him for the money. The contract is void but L must restore the loan amount to G as the law protects minors but it does not give them liberty to cheat men.

(6) He cannot enter into a contract of partnership. (7) He cannot be declared insolvent. (8) He can be an agent. A minor binds the principal by his acts without incurring any personal liability. (9) His parents are not liable for the contract entered by him. Ex: Vinita entered into an agreement with a beautician to pay her Rs. 5,000 every month for one year to work for her. After couple of months she goes out of town for higher studies. Beautician approaches her parents for payment of her services. The contract is void and her parents are not liable to pay. (10) He is liable for necessary services supplied to him or anyone whom he is legally bound to support.

Minors Liability for Necessaries

y

Sec. 63 states that a minor is liable to pay out of his properties for necessaries supplied to him or to anyone whom he is legally bound to support. Necessaries are goods suitable to the condition in the life of such infant or other person, and to his actual requirement at the time of sale and delivery (Sec. 2 of Sale of Goods Act) The two conditions are thus (i) Suitable to position and financial status and (ii) necessary at the time of sale and delivery.

y y

Necessary Goods Articles required to maintain bare existence, such as bread and clothes. Necessary Services Certain services rendered to a minor have been held necessary like education, training and medical advice and legal advice. In all such cases it is only the property of the minor which is liable for meeting the liability arising out of such contracts. He is not personally liable.

PERSONS OF UNSOUND MIND

y

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 forming rational judgment of its effects (Sec. 12) Contracts with following persons are void 1. Lunatics person who suffers from intermittent intervals of sanity and insanity. 2. Idiots person who has permanently lost his mental powers. And .

3.Intoxicated or Drunken a person who suffers from temporary incapacity to contract i.e. he is incapable of forming rational judgment.

Whether a party to a contract is of sound mind or not is a question of fact to be decided by the court. y There is presumption in the favor of sanity. y If a person relies on unsoundness of mind, he must prove it sufficiently to satisfy the court. y Persons of unsound mind are liable for necessaries supplied to them.
y

Other Persons
1. Alien Enemies:

An Alien is a person who is not a subject of the Republic of India. He may be (i) Alien Friend (whose state is at peace with Republic of India) or (ii) Alien Enemy (whose state is at war with Republic of India).  Contracts with Alien Enemies are void.  They will be dissolved if they are against public policy or their performance would benefit the enemy.


2. Insolvents When a debtor is adjudged insolvent he is deprived of his power to deal in that property. 3. Convicts A convict when undergoing imprisonment cannot enter into a contract.

Be Quizzed
1) A. B. C. D.

An agreement with or by a minor is Void Voidable at the option of the minor Voidable at the option of the other party Both A and B

Answer - A

2) On attending the age of majority the agreement of a minor A) Can be ratified by him B) Cannot be ratified by him C) Becomes Void D) Becomes Valid. Answer - B

3) A minor, by misrepresenting his age borrows some money A) He can be sued for fraud B) He cannot be sued for fraud C) He is not liable to return the money D) None of the above Answer - B

4) A minor enters into a contract for the purchase of necessaries A) He is not personally liable to pay B) He is liable to pay C) His estate is liable to pay D) His guardian is liable to pay. Answer - C

5) A person is usually of unsound mind but occasionally of sound mind A) He may enter into contract when he is of sound mind. B) He cannot take a contract even when he is of sound mind. C) He cannot enter into a contract at all. D) All contracts entered by him are void. Answer - A

6) A contract by an idiot is A) Voidable B) Enforceable C) Invalid D) Void ab initio Answer - D

7) Contracts made before war with alien enemy which are opposed to public policy are A) Suspended and are revived after the war is over B) Dissolved C) Not affected at all D) Void ab initio Answer - B

8) Flaw in the capacity to contract arises from A) Want of consideration B) Unsoundness of mind C) Illegality of object D) Uncertainty of object Answer - B

9) A minor can be A) A Partner B) An agent C) An employer D) All of the above Answer - B

10) A convict can enter into a contract A) He is on bail B) He is released from imprisonment C) Both A and B D) None of these. Answer - B