CHAPTER-6

of
Parties
DEFINITION OF CAPACITY

For a valid Contract the parties to a contract must have capacity

that is competence to enter into a contract.

In Contract Act “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 .” Sec 11
IT FOLLOWS THAT THE FOLLOWING
PERSONS ARE INCOMPETENT TO
CONTRACT :

1. MINOR
2. PERSON OF UNSOUND MIND, AND
3. PERSONS DISQUALIFIED BY ANY
LAW TO WHICH THEY ARE SUBJECT .
CONTRACTS ENTER INTO BY
PERSONS MENTIONED ABOVE ARE
VOID .
MINOR
According to Act, a minor is one who has not completed his or her
18th year of age .

WHY SHOULD MINORS BE PROTECTED ?

A minor has a immature mind and cannot think what is good or bad for him
.minors are often exploited. So he must be protected by law from any
exploitation but at the same time, the law must not cause unnecessary
hardship to the persons who deal with minors.
EFFECTS OF MINOR’S AGREEMENT
1. An agreement with or by a minor is void :

MOHORI BIBI V. DHARMO DAS GHOSE [1903]

“A a minor borrowed rs.20000 from B and as a security for the same
executed a mortgaged in his favor. He became a major a few months
later and filed a 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 a minor was void and B was not entitled to
repayment of money.”
2. No ratification:
A minor cannot ratify the agreement even on attaining majority , because a void
agreement cannot be ratified .

ARUMUGAN V. DURAISINGA [1914]

“A minor borrowed a sum of money executing a simple bond for it, and after attaining
majority executed a second bond in respect of the original loan and interest .It was held that
suit upon the second bond was not maintainable .”

3. Minor can be a promisee or beneficiary :

An agreement under which a minor has received a benefit can be enforced as
against the other party.
The General American Insurance Co. Ltd. V. Madan Lal Sonu Lal [1935]59 Bom 656
X, a minor insured his goods with an insurance co. The goods were damaged .X filed a suit
for claim .The insurance co. Took the plea that the person on whose behalf the goods were
insured was the minor . The court rejected the plea and allowed the minor to recover the
insurance money.
4.NO ESTOPPEL AGAINST A MINOR:
Where a minor by misrepresenting his age has induced the other party
to enter into a contract with him , he cannot be made liable on the
contract .There can be no estoppels against a minor. It means he is not
estopped from pleading his infancy in order to avoid a contract .
The court may direct minor to restore property . No doubt, minor has
got protection but he has no liberty to cheat others .
5. Partnership :
A minor being incompetent to contract cannot be a
partner in a partnership firm , but he can be admitted
to the benefits of partnership.

6.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 .
7. No insolvency:
A minor cannot be declared in solvent as he is incapable of
contracting debts and dues are payable from the personal
properties of minor and he is not personally liable .

8. Minor As Shareholder
A minor, being incompetent to contract cannot be a shareholder
of the company . If by mistake he becomes a member the co. can
rescind the transaction and remove his name from register .

9. Liability For Necessaries

A claim for necessaries supplied to a minor is enforceable by law
. But a minor is not liable for any price that he may promise and
never for more than the value of the necessaries . There is no
personal liability of the minor but only his property is liable .
Example:
 a trader supplies a minor with rice needed for his consumption. He
can recover the price from the minor’s property.
When a minor is engaged in trade, contracts entered into by him for
trading purposes are not for necessaries and are not binding on him.

10. Joint contract by minor and adult :

In such a case, the adult will be liable on the contract and not the minor .
PERSONS
PERSONS OF
OFUNSOUND
UNSOUND MIND
MIND
As per section 11 of Contract Act , for a valid contract
each party to the contract must have a sound mind .
Contracts made by persons of unsound mind are void .
The reason is that a contract requires assent of two minds
but a person of unsound mind has nothing which the law
recognizes as a mind . Unsoundness of mind does not
mean weakness of mind or loss of memory . It means not
only lack of capacity to understand the terms of the
contract but also lack of understanding to realize the
effect of the terms of the contract.
According to Section 12, “ 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 of
forming a rational judgment as to its effect upon his
interests.
EXAMPLE
 A patient in lunatic asylum, who is at intervals of sound
mind , may make a contract during these intervals.
the test of soundness of mind is
i) Capacity to understand the business concerned and
ii) Ability to form a rational judgment as to its effect on a
person’s interest.
UNSOUNDNESS OF MIND MAY ARISE FROM :

1. Idiocy : A person whose mental powers of understanding even

ordinary matters are absent because of lack of development of brain .
The agreement with an idiot is void .

INDERSINGH V. PARMESHWARDHARI SINGH [1957]

A property worth about Rs.25000 was agreed to be sold by a person for
Rs. 7000 only . His mother proved that he was a congenital idiot ,
incapable of understanding the transaction . The sale was held to be
void .
 2. Lunacy or insanity
It is a disease of the brain. A lunatic loses the use of his reason
due to some mental strain or disease . He may have lucid
intervals of sanity . He can enter into contract during that
period when he is of sound mind .

3.Drunkenness
It produces temporary incapacity till the man is under the effect
of intoxication creating impotence of mind . He stands on the
same footing as a lunatic .
EFFECTS OF AGREEMENT
 Agreements by persons of unsound mind are void.
 Agreement entered into by a person of unsound mind for
the supply of necessaries for himself or for persons
whom he is bound to support is valid, but no personal
liability.
DISQUALIFIED PERSONS
Alien enemies :
An alien means a citizen of a foreign state. Contract with aliens are
valid. But the state may impose restriction; for e.g. if a war is
declared , an alien enemy cannot enter into any contract with a
Bangladeshi citizen .

Foreign sovereigns :
These persons are immune from the jurisdiction of local courts , unless
they voluntarily submit to its jurisdiction . These persons have a right
to contract but can claim the privilege of not being sued.
 Professional persons
Doctors and advocates are included in this class . In England barristers
are prohibited by the etiquettes of their profession from suing for their
fees.
According to the Bar Council Act , an advocate of the High Court can
enter into a contract with his client and can also bring a suit against
him for his fees .

Contractual capacity of married women

A woman is competent to enter into a contract . A woman married or
single can enter into contracts & deal with her properties in any way
she likes. She can even bind her husband in cases of pressing
necessity . A married women may sue or be sued in her own name in
respect of her separate property .
 Insolvents
An insolvent cannot enter into a contract as his property vests in the official
receiver or official assignee . This disqualification of an insolvent is
removed after he is discharged .

Corporations
A corporation is an artificial person recognized by law . It exists only in the
eyes of the law . It is competent to enter into a contract only through its
agents .
EXAMPLE
 A, trader, supplies B a minor with rice needed for his
consumption. B refuses to pay the price. Can A recover
the price?