The whole Law on Capacity to Contract in India

1. UNIT - II
CAPACITY AND VALIDITY
OF CONTRACT
-SHIVANI SHARMA
-ASSISTANT PROFESSOR
-SARDAR PATEL SUBHARTI INSTITUTE OF LAW

2. CAPACITY TO CONTRACT•One of the most essential elements of a valid contract
is the competence of the parties to make a contract.
•According to section 11,
“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.”

3. •Section 11 of the Indian Contract Act, 1872,
defines the capacity to contract of a person to
be dependent on three aspects;
1.Attaining the age of majority,
2.Being of sound mind,
3.And not disqualified from entering into a
contract by any law that he is subject to (e.g.
Insolvency)

5. ATTAINING 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.

6. EFFECT OF MINOR’S AGREEMENT
•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.

7. •Example, peter is 17 years and 6 months old.
He needs some money to go on vacation with
his friends. He approached a moneylender and
borrows Rs 25,000. As security, he signs some
papers mortgaging his laptop and motorcycle.
Six months later, when he attains the age of
majority, he files a suit declaring that the
mortgage executed by him when he was a
minor is void and should be cancelled. The
court agrees and relieves peter of all liability to
repay the loan.

8. •A very important case that had explained this
issue is Mohiri Bibi v. Dharmodas Ghose.
•In this case, a minor had borrowed some
money from a money-lender by mortgaging his
house. The money-lender moved to take
possession of the minor’s house when he
defaulted payment. The court, however, said
since an agreement with minor parties is void,
the money-lender could not enforce this
contract.

9. RULES RELATING TO AGREEMENT WITH
MINOR PARTIES
Although, as a general rule, a contract with minors is
void, we must keep in mind the following rules as well:
•A contract with a minor is void and, hence, no
obligations can ever arise on him thereunder.
•The minor party cannot ratify the contract upon
attaining majority unless a law specifically allows this. –
Kundan Bibi v Shri Narayan

10. •The partnership act also prohibits minors from
becoming partners in a firm. They can, however,
receive the benefits of partnership and ratify the same
upon attaining majority.
•No court can allow specific performance of a contract
with minors because it is void altogether.
•The rule of estoppel under evidence law does not
apply to minors under contractual obligations. In other
words, even if a minor forms a contract
claiming majority age, legal obligations cannot arise
against him.

11. •A minor is incapable of contracting debts and
hence he cannot be adjudged insolvent.
• A minor can become an agent, and by his acts
he binds his principal; however a minor is not
personally liable for his principal.
•A minor cannot be member of a Registered
Company
•No liability of torts – Burnard v Haggis, Jennings
v Rundall

12. benefits under Section - 65? – No.
‐Lahore HC – Khan Gul v Lakhan Singh, Shadi Lal – ‘Minor
should be made to pay back’
‐Allahabad HC – Ajudhia Pd. V Chandan Lal – ‘Minor can’t
be made to pay’
‐Law Commission – ‘Minor should pay back’ – Accordingly
Section 33 was included in the Specific Relief Act, 1877:
“That the agreement sought to be enforced against him in
the suit is void by reason of his not having been competent
to contract under section 11 of the Indian Contract Act,
1872, the court may, if the defendant has received any
benefit under the agreement from the other party, require
him to restore, so far as may be, such benefit to that party,
to the extent to which he or his estate has benefited
thereby.”

13. •Minor’s liability for necessaries:
‐Under Section 68 of the Indian Contract Act, if a person
incapable of entering into a contract, or anyone whom he
is 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 person.
‐What comprises ‘necessary’ is a relative thing – Chappel
v Cooper
‐It is to be noted that only minor’s property is liable,
minor is not personally liable for necessaries supplied to
him.

14. •A minor cannot be bound by contract but he can be a lawful
beneficiary. Thus a promissory note executed in favor of a
minor can be enforced.
‐The following are the contracts that are beneficial for the minor:
1.Contract of Service and Apprenticeship – Raj Pani v Prem Adib
– In India only Contract of internship is binding and not
contract of Service
2.Contract of Marriage
3.Minor vis-à-vis Partnership – Can’t be a partner – Section 4
Indian Partnership Act, 1932
4.Minor vis-à-vis Negotiable Instrument

16. WHO IS UNSOUND?•Section 12 of the Indian Contract Act, 1872:
“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. 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”

17. •Illustrations:
(A) A patient in a lunatic asylum, who is, at
intervals, of sound mind, may contract during
those intervals.
(B) 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 judgment
as to its effect on his interests, cannot contract
whilst such delirium or drunkenness lasts.
‐Lingaraj v Parvathi – Difference between mere weakness of
intellect and lunacy