New Law College

Name of the Student: Mahesh Bhambu Kutekar

Roll No: 227

Class and Division: F Y LLB / C

Subject: Contract I

Topic of Assignment: Parties who are competent to contract and

What is sound mind for the purpose of contracting?

Sir/Ma’am,

I have taken the above-mentioned topic for my F.Y.LLB Semester I

assignment.
INTRODUCTION

Indian Contract Act, 1872 is one the important Act in the Indian legal system. We
enter into lot of contracts on daily basis without even knowing. For example, while travelling by
public transport whether it is train or bus we unknowingly enter into contract with Indian
railways or local bus transport organization. By asking for ticket we accept all the terms and
conditions that Transport Company has made for passengers.

Not only in our professional life in personal life also we enter into contracts,
marriage is also considered as one of the contract (social contract) as it requires essential
elements of the contract like free consent of both the parties who are doing marriage.

Parents taking admission for their child in a school is also contract entered by parents
on behalf of their child and accepting all the terms and conditions as child cannot enter into
contract as he / she is minor.

Looking at all the above examples we can say that Contract Act is very much
important and we use it unknowingly in our day to day life while carrying out all our activities
by entering into contract with different people.

Let us now come to the topic of our assignment “Parties who are competent to contract
and what is sound mind for the purpose of contracting?” As we have earlier discussed that every
one of us enters into lot of contracts in our day to day life, sometimes knowingly and most of the
time unknowingly. Sometime it becomes important to understand some basic provisions while
entering into some big contracts like accepting a new job offer from a company , buying a new
Car or buying a new house property. There are some legal provisions in the Indian Contract Act,
1872 relating to Parties who are competent to Contract and what is sound mind for purpose of
contracting?

Let us see which are the legal provisions mentioned in Indian Contract Act, 1872
relating to our topic “Parties who are competent to contract and what is sound mind for the
purpose of contracting?”

PARTIES WHO ARE COMPETENT TO CONTRACT: (SECTION 11)

Every person is competent to contract who is the age of majority and who is of sound mind and
he is not disqualified by any other law to enter into contract.

Analysis of Section 11:

This section deals with personal capacity of three types of individuals only.

Every person is competent to contract who-

i) Has attained the age of majority,
ii) Is of sound mind and
iii) Is not disqualified from contracting by any law to which he is subject

i) Age of majority:

In India, the age of majority is regulated by Indian Majority Act, 1875. Every person
domiciled (born and brought up in India) in India shall attain the age of majority on
the completion of 18 years of age and not before. The age of majority being 18 years,
a person less than age even by a day would be minor for the purpose of contracting.

So looking at above provision we come to know that only a person residing in India
who has attained the age of 18 years can enter into valid contract.

1. A contract made with or by a minor is Void- Ab-initio. A minor is not

competent to contract and any agreement with or by minor is void from the very
beginning.

In the case of Mohori Bibi vs Dharmo Das Ghose, A minor borrowed Rs.20,000
from B and as a security for the same executed a mortgage in his favour. He became a
major in few months later and filed suit for the declaration that the mortgage executed
by him during his minority was void and should be cancelled. It was held that a
mortgage by minor was void and B was not entitled to repayment of money. Further
money lenders request for repayment of amount advanced to the minor as part of
consideration for the mortgage was also not accepted.

From the above case law it can be very well said that even if a minor entered into a
contract it cannot be considered as valid after attaining majority as the contract entered
by minor is Void – Ab – Initio (to be treated as invalid from the very beginning).

In nutshell, according to provisions of Contract Act, a minor cannot enter into valid
contract. But there are some contracts in which minor can enter with the support of his
guardian or any other major along with a minor.

It is especially provided in section 10 that a person who is incompetent to contract

cannot make a contract within the meaning of the act..

2. No ratification after attaining majority: A minor cannot ratify the agreement on

attaining majority as the original agreement is void ab anitio and a void agreement
can never be ratified.
3. Minor can be a beneficiary or can take benefit out of a contract: Though a
minor is not competent to contract, nothing in the Contract Act prevents the minor
from making the other party bound to him. Thus, a promissory note duly executed
in favour of a minor is not void and can be sued upon by him, because he though
incompetent to contract, may yet accept a benefit.

Minor can become a beneficiary to a contract but he cannot be liable for any
payment or liability at the same time he will not be sharing losses in partnership
firm but he will always share the profits.

4. A minor can always plead minority: A minor can always plead minority and is
not stopped to do so even where he has taken any loan or entered into any contract
by falsely representing that he was major. Rule of estoppel cannot be applied
against a minor. It means he can plea his minority in defence.

5. Contract by guardian – how far enforceable: Though a minor’s agreement is

void, his guardian can, under certain circumstances enter into a valid contract on
minor’s behalf. Where the guardian makes a contract for the minor, which is
within his competence and which is for the benefit of the minor, there will be valid
contract which minor can enforce.

For example, parents of a child can take admission in school on behalf of minor as
they are the guardians of the children and entering into contract for the benefit of
the child.

6. No specific Performance: A minor’s agreement being absolutely void, there can

be no question of the specific performance of such an agreement.

7. No Insolvency : A minor cannot be declared insolvent as he is incapable of

contracting debts and dues are payable from the personal properties of minor and
he shall never be held personally liable.

8. Partnership :A minor being incompetent to contract cannot be a partner in a

partnership firm, but under Section 30 of the Indian Partnership Act, he can be
admitted to the benefits of partnership.
9. Minor can be an agent : A minor can act as an agent. But he will not be liable to
his principal for his acts. A minor can draw, deliver and endorse negotiable
instruments without himself being liable.

10. Minor cannot bind parent or guardian: In the absence of authority, express or
implied, an infant is not capable of binding his parent or guardian, even for
necessaries. The parents will be held liable only when the child is acting as an
agent for parents. For example Amit a minor entered into contract of buying a
scooty from the dealer and mentioned that her parents will be liable for the
payment of scooty. The dealer sent a letter to her parents for money. The parents
will not be liable for such payment as the contract was entered by a minor in their
absence and out of their knowledge.

11. Joint Contract by minor and adult : In such a case, the adult will be liable on
the contract and not the minor. In Sain Das vs. Ram Chand, where there was a
joint purchase by two purchasers, one of them was a minor, it was held that the
vendor could enforce the contract against the major purchaser and not the minor.

12. Surety for a minor : In a contract of guarantee when an adult stands surety for a
minor then he (adult) is liable to third party as there is direct contract between the
surety and the third party.

13. Minor as Shareholder : A minor, being incompetent to contract cannot be a

shareholder of the company. If by mistake he becomes a member, the company
can rescind the transaction and remove his name from register. But, a minor may,
acting though his lawful guardian become a shareholder by transfer or
transmission of fully paid shares to him.
 14. Liability for torts: A tort is a civil wrong. A minor is liable in tort unless the tort
in reality is a breach of contract. Thus, where a minor borrowed a horse for riding
only he was held liable when he lent the horse to one of his friends who jumped
and killed the horse. Similarly, a minor was held liable for his failure to return
certain instruments which he had hired and then passed on to a friend.

ii) Person of sound mind:

According to section 12 of Indian contract Act,1872 “ A person is said to be of

sound mind for the purposes of making a contract if, at the time when he makes it is capable of
understanding it and of forming a rational judgement as to its effect upon his interest”.

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.
A person of sound mind is nothing but a person who is able to
understand in common parlance what he is doing, for example If a person is drunk
and that time he enters into a contract then that will not be considered as valid
contract as the person entering into contract has not entered into the contract with
sound mind. He was not in capacity to understand anything when he entered into
the contract and hence the contract cannot be enforceable in court of law.

iii) Contract by disqualified persons:

Besides minors and persons of unsound mind, there are also other persons who are
disqualified from contracting, partially or wholly, so that the contracts by such
person are void. Incompetency to contract may arise from political status, corporate
status, legal status, etc. The following persons fall in this category: Foreign
Sovereigns and Ambassadors, Alien enemy, Corporations, Convicts, Insolvent etc.

Conclusion:
From the study of section 11 of Indian Contract Act 1872 we can get to
know who is competent to enter into a valid contract. Minor cannot enter into a
valid contract as written in Indian Contract Act but a minor can be a beneficiary to
the contract. The legal guardian or any other person can enter into a contract on
behalf of minor if the contract is beneficial to the minor. Minor can never be
declared as insolvent and his property cannot be used to pay off the debts of any
major person. A minor can be admitted in partnership firm to share the profits but
he is not required to share any of the losses of partnership firm.
Bibliography:

1. Corporate and Allied Laws study material issued by The Institute of

Chartered Accountants of India for CA Intermediate Course
2. Business Laws book issued by Mumbai University for Second year B com
course