CAPACITY TO CONTRACT

Written By :- Rajarshi Tripathi (Amity Law School )

Parties unable to Enter into a Contract

Who is competent to make a contract

Section 11. Every person is competent to contract who is of 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.

Exception: 21 years– in the following cases.

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

Position of Agreements by Minor

  • Validity: – An agreement with a minor is void-ab-initio

[ Mohoribibee v. Dharmodas Ghose]

Example : Mr. D, a minor, mortgaged his house for 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’s has received any benefit under a void contract, he cannot be asked to return the same.
  1. If a minor has received any benefit under a void contract, he cannot be asked to return the same.
  1. Fraudulent representation by a minor- no difference in the status of agreement. The contract remains void.
  1. A minor with the consent of all the partners, be admitted to the benefits of an existing partnership
  1. Contracts entered into by minors are void-ab-initio. Hence no specific performance can been forced for such contracts.
  1. Minor’s parent/guardians are not liable to a minor’s creditor for the breach of contract by the minor.
  1. A minor can act as an agent but not personally liable. But he cannot be principal.
  1. A minor cannot become shareholder of the company except when the shares are fully paid up and transfer by share.
  1. A minor cannot be adjudicated as insolvent.
  1. A minor cannot be adjudicated as insolvent.
  1. Can enter into contracts of Apprenticeship, Services, Education, etc. –
  • A minor can enter into 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 in favour of a minor is valid. However, a minor cannot be a surety in 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 registered trade union, provided the rules of the trade union allow so. Such a member will enjoy all the rights of a member.

EXCEPTION

  • Contract for the benefit of a minor.
  • Contract by Guardian

Benefit of a minor by his guardian or manager of his estate.

  1. Within the scope of the authority of the guardian.
  1. Is for the benefit of the minor.
  • Contract for supply of Necessaries.

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 his property or personal liberty, Diwali pooja expenses, etc. have been held by courts to be necessaries of life. However, the things like earrings 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.

Example : A, a 14 – year – old boy drives a car carelessly and injures B. He is liable for the accident i.e., tort.

Person of Unsound Mind

A person who is usually of unsound mind, 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.

  • At time of entering into a contract, a person must be sound mind

Law presumes that every person is of sound mind unless otherwise it is proved before court. An agreement by a person of unsound mind is void. The following are categories of a person considered as person of a 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 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

Hypnotism produces temporary incapacity till a person is under the effect of artificial induced sleep.

  • Mental decay

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

  • Lunatic is not permanently of unsound mind

He can enter into contract during lucid intervals i.e., during period when he is of sound mind.

  • Drunken person

An agreement made by intoxicated person is void.

Person Disqualified by Law

  • Body corporate or company or corporation

Contractual capacity of company is determined by object clause of its memorandum of association. Any act done in excess of power given is ultra – virus and hence void.

  • Alien enemy
  1. 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. An if a war is declared between the two countries he is termed as an alien enemy.
  1. During the war, contract can be entered into with alien enemy with the permission of central government.
  • Convict

Can’t enter into a contract while he is undergoing imprisonment. But he can enter into a contract with permission of central government while undergoing imprisonment. After the imprisonment is over, be becomes capable of entering into contract. Thus the incapacity is only during the period of sentence.

  • Insolvent

When any person is declared as an insolvent, his property vests in receiver and therefore, he can’t enter into contract relating to his property. Again he becomes capable to enter into contract when he is discharged by court.

  • Foreign sovereigns, diplomatic staff and representative of foreign staff

Can enter into valid contract. However, a suit cannot be filed against them, in the Indian counts without the prior sanction of the central Government.

Third party to a contract cannot sue or a stranger to a contract cannot sue.

Only those persons, who are parties to a contract, can sue and be sued upon the contract. This Rule is called “Doctrine of privities of contract.”

Exception

  • Trust

In case of trust a beneficiary can sue upon the contract.

Example

A transferred certain properties to B to be held by him in trust for the benefit of C. In this case, C although not a party to the trust, can sue for the benefits available to him under the trust. This exception to the rule of Privity of contract has been recognised in a well-known case of Khwaja Mohd. Khan v. Hussaini Begum (1910) 32 All 410.

  • Family settlement / Marriage contract

In case of family settlement members who were not originally party to the contract can also sue upon it. A female members cone force a provision for marriage expenses made on partition of HUF.

Example

      H sued her father – in – law K to recover Rs.15,000 being arrears of allowance called Pin money payable to her by K under an agreement between K and H’s father, consideration being H’s marriage to K’s son D. Both H and D were minors at the time of marriage. Held, the promise can be made enforceable by H.

Provision of marriage expenses of female members of a Joint Hindu Family, entitles the female member to sue for such expenses on a partition between male members.,

Two brothers, on partition of family joint properties, agreed to invest in equal shares for their mother’s maintenance. Held, the mother was entitled to require her sons to make the investment.

  • Acknowledgement of liability

Where a person admits his Liability thereafter if he refused be will be stopped from denying his liability.

Example

X receives money from Y for paying it to Z. X admits the receipt of that amount to Z. Z can recover the amount from X, even though the money is due from Y.

  • Assignment of contract

Assignee (the person to whom benefits of contract are assigned) can enforce upon the contract.

  • Contract entered into through an agent.
  • Covenants running with land.

Stranger to consideration : “Stranger to contract” must be distinguished from a stranger to consideration need not necessarily be provided by the promises if may flow from a third party also such a person is ‘ stranger to consideration,. ( Chinnaya Vs Ramayya).