Capacity of Contract

CAPACITY OF CONTRACT
WHO ARE COMPETENT TO CONTRACT?
• Section 11 provides that “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.”
WHO ARE COMPETENT TO CONTRACT?
• Thus, incapacity to contract may

arise from:
• (i) minority,
• (ii) mental incompetence,
• (iii) status.
MINORITY
• According to Section 3 of the Indian Majority Act,
1875, a minor is a person who has not
completed 18 years of age. However, in the
following two cases, a minor attains majority
after 21 years of age:
– Where a guardian of minor’s person or
property has been appointed under the
Guardians and Wards Act, 1890, or
– Where the superintendence of minor’s
property is assumed by a Court of Wards.
MINORS’ CONTRACTS
• A contract with or by a minor is void and a
minor, therefore, cannot, bind himself by a
contract. A minor is not competent to
contract. In English Law, a minor’s contract,
subject to certain exceptions, is only voidable
at the option of the minor. In 1903 the Privy
Council in the leading case of Mohiri Bibi v.
Dharmodas Ghose (190, 30 Ca. 539).
• Held : That in India minor’s contracts are
absolutely void and not merely voidable
MINORS’ CONTRACTS
• A minor can be a promisee or a beneficiary.
During his minority, a minor cannot bind himself
by a contract, but there is nothing in the Contract
Act which prevents him from making the other
party to the contract to be bound to the minor.
• Thus, a minor is incapable of making a mortgage,
or a promissory note, but he is not incapable of
becoming a mortgagee, a payee or endorsee. He
can derive benefit under the contract.
MINORS’ CONTRACTS
• A minor’s agreement cannot be ratified by
the minor on his attaining majority.
A minor cannot ratify the agreement on
attaining the age of majority as the original
agreement is void ab-initio and, therefore,
validity cannot be given to it later on.
MINORS’ CONTRACTS
• If a minor has received any benefit under a
void contract, he cannot be asked to refund
the same. We have mentioned the facts of
Mohiri Bibi’s case. Under that case, the lender
could not recover the money paid to the
minor.
• Also the property mortgaged by the minor in
favour of the lender could not be sold by the
latter for the realization of his loan.
• A minor is always allowed to plead minority,
and is not estopped to do so even where he
had procured a loan or entered into some
other contract by falsely representing, that he
was of full age.
• Thus, a minor who has deceived the other
party to the agreement by representing
himself as of full age is not prevented, from
later asserting that he was a minor at the time
he entered into agreement.
MINORS’ CONTRACTS
• A minor cannot be a partner in a partnership
firm.
• However, a minor may, with the consent
of all the partners for the time being, be
admitted to the benefits of partnership
(Section 30, the Indian Partnership Act,
1932).
MINORS’ CONTRACTS
• A minor’s estate is liable to a person who
supplies necessaries of life to a minor, or to
one whom the minor is legally bound to
support according to his station in life.
• This obligation is cast on the minor not on the
basis of any contract but on the basis of an
obligation resembling a contract (Section 68).
However, there is no personal liability on a
minor for the necessaries of life supplied.
MINORS’ CONTRACTS
• Minor’s parents/guardians are not liable
to a minor’s creditor for the breach of
contract by the minor
• whether the contract is for necessaries or
not. However, the parents are liable
where the minor is acting as an agent of
the parents or the guardian.
MENTAL INCOMPETENCE
• A minor can act as an agent and

bind his principal by his acts without
incurring any personal liability.
MENTAL INCOMPETENCE
• We have seen earlier that one of the
essential elements of a valid contract is
that the parties to the contract must be
competent to contract, and a person
must be of sound mind so as to be
competent to contract (Section 10–11).
Section 12 lays down a test of soundness
of mind. It reads as follows:
MENTAL INCOMPETENCE
• “A person is said to be of unsound mind for the purpose
of making a contract, if at the time when he makes it, he
is incapable 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.”
MENTAL INCOMPETENCE
Examples
• A patient, in a lunatic asylum, who is at
intervals, of sound mind, may contract during
those intervals.
• 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 interest, cannot contract whilst
such delirium or drunkenness lasts.
MENTAL INCOMPETENCE
• From the above examples given, it is obvious
that Soundness of mind of a person depends
on two facts:
• (i) his capacity to understand the terms of the
contract, and
• (ii) his ability to form a rational judgement as
to its effect upon his interests.
Lunatics
• A lunatic is a person who is mentally deranged due
to some, mental strain or other personal
experience.
• However, he has some intervals of sound mind. He
is not liable for contracts entered into while he is of
unsound mind.
• However, as regards contracts entered into during
lucid intervals, he is bound.
• His position in this regard is identical with minor,
i.e., in general the contract is void but the same
exceptions as discussed above (under minor’s
contracts) are relevant.
Idiots
• An idiot is a person who is permanently of
unsound mind.
• He does not have lucid intervals. He is
incapable of entering into a contract and,
therefore, a contract with an idiot is void.
• However, like a minor, his properties, if any,
shall be liable for recoveries on account of
necessaries of life supplied.
• Also he can be a beneficiary.
Drunken or Intoxicated Persons
• A person who is drunk, intoxicated or delirious
from fever so as to be incapable of
understanding the nature and effect of an
agreement or to form a rational judgment as
to its effect on his interests cannot enter into
valid contracts whilst such drunkenness or
delirium lasts.

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CAPACITY OF CONTRACT

WHO ARE COMPETENT TO CONTRACT?

• Section 11 provides that “Every person is

• Thus, incapacity to contract may

• A minor can act as an agent and

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