CAPACITY TO CONTRACT

KINI SAXENA
AMITY LAW SCHOOL, NOIDA
 According to Section 11 of the Indian Contract Act, 1872,
“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.”
THUS, an individual needs to meet certain guidelines to be
deemed competent enough to enter into a valid contract. These
guidelines are as follows:
 The individual cannot be a minor.

 The individual needs to be mentally sound.

 The individual is not disqualified to enter valid contracts by

law.
MINORITY
 Attaining the Age of Majority
 According to the Indian Majority Act, 1875, the age of majority in India is defined as
18 years. For the purpose of entering into a contract, even a day less than this age
disqualifies the person from being a party to the contract. Any person, domiciled in
India, who has not attained the age of 18 years is termed as a minor.
 Let’s look at certain laws governing a minor’s agreement:
 A Contract made with a Minor is Void
 Since any person less than 18 years of age does not have the capacity to contract, any
agreement made with a minor is void ab-initio (from the beginning).
 Also, if a minor enters into a contract, then he cannot ratify it even after he attains
majority since the contract is void ab-initio. And, a void agreement cannot be ratified.
 A Minor can be a Beneficiary of a Contract
 While a minor cannot enter a contract, he can be the beneficiary of one. Section 30 of
the Indian Partnership Act, 1932, also specifies that while a minor cannot become a
partner in the partnership firm, the benefits of the firm can be extended to him.
 EFFECTS OF MINOR’S AGREEMENT
 1. No estoppel against minor When a minor by misrepresenting his age induces another to
contract with him no estoppel is available against him – there cannot be estoppel against statute
– policy of law is to protect minor from contractual liability – doctrine of estoppel cannot be
applied to defeat the policy An infant is not estopped from setting up the defense of minority.
 2. No liability for tort based in contract - Johnson v. pye Minor’s agreement is devoid of all
consequences in law A contract cannot be converted in to tort to sue an infant Minor is not
liable for tort connected with contract, but an infant is not absolved from liability for
independent tort.
 3. Doctrine of equitable restitution - when an infant obtained property or goods by
misrepresenting his age, he can be compelled to restore it, but only so long as the same is
traceable in his possession. If the minor has resold those goods he cannot be made to repay the
value of goods and it is not applicable when the minor has received money instead of goods.
 Leslie v. Sheill - A minor misrepresenting his age obtained loan from the pt., who sued to
recover on the grounds- Minor is liable for damages for fraud  Minor shall be compelled in
equity to restore the money.
 4. Liability to restore benefits- Where a minor seeks the help of court for the cancellation of his
contract, the court may grant the relief subject to the condition that he shall restore all benefits
obtained by him under the contract, the court may grant relief subject to the condition that he
shall restore all benefits obtained by him under the contract or make suitable compensation to
the other party.
MOHORI BIBEE V. DHARMODAS GHOSE
 The respondent, Dharmodas Ghose, a minor, had mortgaged his property in favor of
the moneylender, Brahmo Dutt for securing a loan amounting to INR 20,000/-.
 Mr. Brahmo Dutt had authorized Kedar Nath to enter into the transaction through a
power of attorney. Mr. Kedar Nath was informed of the fact that Dharmodas Ghose
was a minor through a letter sent by his mother.
 However, the deed of mortgage contained a declaration that Dharmodas Ghose was
of the age of majority.
 The respondent’s mother brought a suit on the ground that the mortgage executed by
his son is void on the ground that her son is a minor.
 The relief sought by the respondent was granted and an appeal was preferred by the
executors of Brahmo Dutt before the Calcutta high court. The same was dismissed.
 An appeal was then made to the Privy council. The Privy council held that-
 A contract with a minor is void-ab-initio.
 Sec.7 of the Transfer of Property Act, 1882 states that a person competent to contract is
competent to transfer a property.
 Hence, the mortgage executed by the respondent is void.
 However, if a minor enters into a contract and performs his part of obligations, the
other party can be compelled to perform and fulfill its obligations, and, in such
instances, the contract becomes legally enforceable.
NECESSITIES TO THE MINOR
 SECTION 68. Claim for necessaries supplied to person incapable of
contracting, or on his account.—If a person, incapable of entering
into a contract, or any one whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in
life, the person who has furnished such supplies is entitled to be
reimbursed from the property of such incapable person.
 In the Indian Contract Act, section 68 provides that a minor falls within
the class of persons referred to in the section, and so, though he is not
liable even for necessaries and no demand in respect thereof is
enforceable against him by law, a statutory claim is created thereby
against his property. But though the property of the minor may be
liable for the necessaries under section 68 of the Contract Act, the
minor himself is not personally liable as in English Law. 8 Section 68
will not apply where necessaries are supplied to a person or to
someone whom that person is bound to support when such person is
competent to contract.
PERSON OF UNSOUND MIND

 According to Section 12 of the Indian Contract Act,

1872, for the purpose of entering into a contract, a
person is said to be of sound mind if he is capable of
understanding the contract and being able to assess its
effects upon his interests.
 It is important to note that a person who is usually of an
unsound mind, but occasionally of a sound mind, can
enter a contract when he is of sound mind. No person
can enter a contract when he is of unsound mind, even if
he is so temporarily. A contract made by a person of an
unsound mind is void.
 PERSON OF UNSOUND MIND
 Idiots- An idiot, in medical terms, is a condition of mental retardation where
a person has a mental age of less than a 3-year-old child. Hence, idiots are
incapable of understanding the nature of the contract and it will be void since
the very beginning.
 Lunatic- A person who is of sound mind for certain duration of time and
unsound for the remaining duration is known as a lunatic. When a lunatic
enters into a contract while he is of sound mind, i.e. capable of understanding
the nature of the contract, it is a valid contract. Otherwise, it is void.
 Drunkards– a person who is under the impression of alcohol or drugs stands
on the same footing as a lunatic person as above discussed. The fact that a
person was drunk affords no ground for resisting a suit for the contract. But
where the judgement of either party was affected because of the alcohol, then
following the principles of equity-specific performance of the contract will
generally be refused; this is the case for voluntary drunkenness. In the case of
involuntary drunkenness, then if the terms of the contract are
disproportionate, then it can be set aside.
DISQUALIFIED PERSONS

 Apart from minors and people with unsound minds, there

are other people who cannot enter into a contract. i.e. do
not have the capacity to contract. The reasons for
disqualification can include, political status, legal status,
etc. Some such persons are foreign sovereigns and
ambassadors, alien enemy, convicts, insolvents, etc.
PERSONS DISQUALIFIED BY LAW
 Alien enemy- An alien enemy is the citizen of a country India is at war with. Any contracts
made during the war period with an alien enemy are void. An Indian citizen residing in an
alien enemy’s territory shall be treated as an alien enemy under the contract law. Contracts
made before the war period either gets dissolved if they are against public policy or remain
suspended and are revived after the war is over, provided they are not barred by limitation.
 Illustration- A, of country X, orders goods from B, of country Y. The goods are shipped and
before they could reach Y, country X declares a war with country Y. The contract between
A and B becomes void.
 Convicts- A convict cannot enter into a contract while he is serving his sentence. However,
he regains his capacity to enter into a contract upon completion of his sentence.
 Illustration- A, is serving his sentence in jail. Any contract signed by him during this period
is void.
 Insolvent- An insolvent is a person who is declared bankrupt/ against whom insolvency
proceedings have been filed in court/resolution professional takes possession of his assets.
Since the person does not have any power over his assets, he cannot enter into contracts
concerning the property.
 Illustration- A enters into a contract for sale of goods with B. Before the sale takes place, an
insolvency suit is filed against A. A sell the goods to B during pendency of insolvency
proceedings. The contract is valid.
 Governments: – Contract with the government is required to comply with certain
formalities, if such formalities are not complied with, such contract would be void.