This document provides an overview of consideration and capacity to contract under commercial law. It defines consideration as something given in exchange for a promise. The essentials of valid consideration are discussed. Capacity to contract refers to the competence to enter a legally binding agreement and certain persons like minors, those of unsound mind, and those disqualified by law lack capacity. Specific groups lacking capacity such as minors, those of unsound mind, and those disqualified by law are then outlined.

1. Commercial law – Unit II
Karthikeyan R
Assistant Professor
Department of Commerce with Computer Applications
Dr. N.G.P. ARTS AND SCIENCE COLLEGE
(An Autonomous Institution, Affiliated to Bharathiar University, Coimbatore)
Approved by Government of Tamil Nadu and Accredited by NAAC with A++ Grade (3nd Cycle – 3.64 CGPA)
Dr. N.G.P.- Kalapatti Road, Coimbatore-641048, Tamil Nadu, India
Web: www.drngpasc.ac.in | Email: info@drngpasc.ac.in | Phone: +91-422-2369100

2. Consideration an Overview
Consideration is one of the important essential of the
valid contract. In simplest terms, consideration is what a
promisor demands as the price for his promise.
Consideration is which for what – something that person
gives for something receives.
Consideration is a price for a promise.
Dr. NGPASC
COIMBATORE | INDIA

3. Definition of Consideration
Dr. NGPASC
COIMBATORE | INDIA
When at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or
abstrains from doing or promises to do or to abtain from doing
something, such a act or abstinence or promise is called
consideration of the promise.
- Section 2d of the Indian contract Act

4. Essentials of Valid Consideration
The consideration must move at the desire of the Promisor
The consideration may move from the promisee or any other
person
The consideration may be past, present and future.
The consideration need not to be adequate.
The consideration must be real not illusory
The consideration must e lawful.
The consideration may be either Positive or Negative.
The consideration must be something which the Promisor is
not already bound to do.
Dr. NGPASC
COIMBATORE | INDIA

5. Capacity to Contract Introduction
Dr. NGPASC
COIMBATORE | INDIA
Capacity to contract means the competency to enter into
a valid contract legally. Which binds the contract with a promise
to oblige by it. But only certain persons have the competency or
the capacity to make a contract.

6. Capacity to Contract
Dr. NGPASC
COIMBATORE | INDIA
‘All agreements are contracts, if they are made by the free
consent of the parties competent to contract’.
-Section 10 of the Indian contract Act
The capacity to contract means the competence capability
of the parties to enter into a valid contract.

7. Capacity to Contract
Dr. NGPASC
COIMBATORE | INDIA
The term Capacity to Contract defined
‘Every person is competent to contract who is of the age of the
majority according to the law to which he is subject, and who is of
sound mind, and is not disqualified from contracting by and law
to which he is subject.’
-Section 11 of the Indian contract Act
In other words all persons are competent to make a contract
except the following
Minors
Persons of Unsound Mind
Persons are Disqualified by Law to which they are subject

8. Minor
Dr. NGPASC
COIMBATORE | INDIA
A minor is a person who has not attained the age of
the majority. For the purpose of entering into an contract,
the age of majority is eighteen years.
‘A minor is a person who has not completed eighteen years
of age.’
- Section 3 of the Indian Majority Act 1875

9. Minor
Dr. NGPASC
COIMBATORE | INDIA
In the following two cases, a person becomes major
on completion of 21 years.
1. where a guardian of a minor person or property
has been appointed under the Guardians and Wards Act
1890.
2. where the superintendence of minor’s property is
assumed by a court of wards.

10. Law relating to Minor
Dr. NGPASC
COIMBATORE | INDIA
As a general rule, a contract with minors is void, we must
keep in mind the following rules as well
An Agreement with a minor is Void Ab – initio (From
the beginning)
The rule of Estoppel does not apply to a minor
No restitution except in certain cases
Minor’s liability for Necessaries
Minor’s liability in Tort

11. Law relating to Minor
Dr. NGPASC
COIMBATORE | INDIA
No specific performance
No ratification
A minor can be a beneficiary
Partnership by Minor
A minor can be an Agent
A minor can be a Shareholder
A minor cannot be declared as insolvent

12. Law relating to Minor
Dr. NGPASC
COIMBATORE | INDIA
A Minor cannot be a surety
Position of Minor’s parents
Contracts of Apprenticeship and service

13. Persons of Unsound Mind
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 judgement as to its
effect upon his interests.
– Section 12 of the Indian Contract Act
Persons of unsound mind are incompetent to enter into an agreement. If any person
relies on the unsoundness of mind of the other person, he must prove it to the
satisfaction of the court.
- Section 11 of the Indian contract Act
Dr. NGPASC
COIMBATORE | INDIA

14. Persons of Unsound Mind
Dr. NGPASC
COIMBATORE | INDIA
Legal position of the persons of unsound mind, has been
discussed below
Idiots
Lunatics
Drunken or Delirious person

15. Persons Disqualified by law
Dr. NGPASC
COIMBATORE | INDIA
The persons, who are disqualified by the law to which they are
subject, are not competent enter into a contract.
Alien enemies
Foreign Sovereigns and Ambassadors
Convicts
Insolvents
Married women
Corporations and Companies