Capacity to contract The parties who enter into a contract must have the capacity to do so.

Capacity here means competence of the parties to enter into a contract. Section 10 of the Indian Contract Act 1872 An agreement becomes a contract if it is entered into between the parties who are competent to contract. Section 11 of the Indian Contract Act 1872 A minor, a person of unsound mind and a person incompetent to contract by the law to which he is subject to are incompetent to enter into a contract. Minor According to Section 3 of the Indian Majority Act 1875, a minor is a person who has not completed 18 years of age. In the following cases he attains majority after 21 years a) Where a guardian of a minors person or property has been appointed under the Guardians and Wards Act 1890 or b) Where the superintendence of a minors property is assumed by a Court of Wards. Rules governing minors agreement are based on two fundamental rules Firstly the law protects minors against their own inexperience and against the possible improper designs of those more experienced.

The judges are their councilors, the jury their servant and the law is their guardian. Secondly the law should not cause unnecessary hardship to persons who deal with minors. Minors agreement 1. An agreement with a minor is void and inoperative abi nitio Mohiri Bibi Vs Dharmodas Ghosh A minor mortgaged his house to secure a loan of Rs20000/- from a moneylender. The moneylender advanced a sum of Rs.8000/- out of Rs.20000/- to he minor. The minor sued for setting aside the mortgage on the ground of his minority. Held the mortgage was void and therefore it was cancelled. The money lender could not recover Rs.8000/- paid as part of the consideration to the minor. 2. He can be a promisee or a beneficiary The law does not debar him from accepting a benefit on the contract. Such a contract can be enforced only at the option of the minor and not at the option of the other party. Example: A mortgage was executed in favor of a minor. Held he could get a decree for enforcement of the mortgage. M, a minor delivered goods to the buyer. Held he could recover the amount from the buyer.

3. His agreement cannot be ratified by him on attaining the age of majority Consideration given during minority is no consideration. The minor has to enter into a fresh contract with fresh consideration on attaining majority. Consideration which passed in the earlier contract cannot be implied into the contract which he minor enters on attaining majority. Example: M a minor borrows Rs.5000/- from L and executes a promissory note in favor of L. On attaining majority he executes another promissory note in settlement of the first note. The second note is void for consideration. However services rendered at the desire of the minor and expressed during the minority and continued at the same request after majority forms good consideration for a subsequent contract between the minor who has attained majority and the person who has rendered the service. 4. If he has received any benefit on a void agreement, he cannot be asked to compensate or pay for it Section 65 which provides for Restitution does not apply to a minor. Example: M a minor received a loan by mortgaging his property. He is not liable to refund the loan. Not only this, his mortgaged property cannot be made liable to pay the debt.

20 5. He can always plead minority Even if he has by misrepresentation induced the other party to contract with him, he cannot be sued either in contract or for fraud because if the injured party were allowed to sue for fraud, it would be giving him an indirect means of enforcing a void agreement. Example: S a minor by fraudulently representing himself to be of full age, induced L to lend him 400. He refused to pay it and L sued him for the amount. Held the contract was void and S was not liable to pay he amount. However the court may, where a loan or some property is obtained by the minor by some fraudulent misrepresentation and the agreement is set aside; direct him on equitable consideration to restore the money or property to the other party. Where the law gives protection to the minors, it does not give them liberty to cheat men. 6. There can be no specific performance of the agreements entered into by the minor as they are void abi nitio. However a contract entered into on his behalf by his parents/ guardian or the manager of his estate can be specifically enforced by or against the minor provided the contract is

a) Within the scope of authority of parent/guardian/manager and b) Is for the benefit of the minor. 7. He cannot enter into a contract of partnership but he can be admitted to the benefits of an already existing partnership with the consent of the other partners. It is based on the rule that a minor cannot be a promisor but can be a promisee or beneficiary. 8. He cannot be adjudged an insolvent as he is incapable of contracting debts. 9. He is liable for necessaries or necessary services rendered to him or anyone whom he is legally bound o support. However he is not personally liable. His estate is liable. 10. He can be an agent and thereby bind the principal by his acts without incurring any personal liability. 11. His parents/guardian are/is not liable for the contracts entered into by him even though it may be for the supply of necessaries. But if he acts as an agent of his parents/guardian, they will be liable. 12. A minor is liable on a tort but if the tort arises out of a contract, a minor is not liable. Minors liability for necessaries Section 68 of the Indian Contract Act 1872 A minor is liable to pay out of his property for necessaries supplied to him or to anyone whom he is legally bound to support. He is not personally liable but his estate is liable.

The term necessaries is not defined by the Indian Contract Act 1872 but it is defined by the English Sale of Goods Act 1893. Section 2 defines necessaries as goods suitable to the conditions in life (financial status) of such minor or other person and to his actual requirement at the time of sale and delivery Necessaries include a) Necessary goods need not be restricted to goods required to maintain a bare existence such as bread and water but also includes articles which are reasonably necessary for the minor having regard to his station in life. Example: A watch, a bicycle or an engagement ring may be a necessary but a vanity bag for the minors fianc is not necessary. Eleven fancy waistcoats purchased by a minor when he had sufficient clothing were not necessaries. b) Services rendered include education, training for a trade, medical and legal advice, provision for funeral of a minors deceased husband and a house given on rent to a minor for living and continuing his studies. Some contracts may not be necessaries but are undoubtedly beneficial to the minor, are also considered as necessaries. Example: G a minor entered into a contract with B, a noted billiards player, to pay him a certain amount to learn the game and play matches with him during the world tour. Held G was liable as the agreement was for a necessary as it was in effect for teaching, instruction,

employment and was reasonable and also for the benefit of the minor. c) Loans incurred by a minor to obtain necessaries are binding on the minors estate. He is not personally liable. 21 Persons of unsound mind One of the essential conditions for competency of the parties to a contract is that they should be of sound mind. Section 12 of the Indian Contract Act 1872 lays down the test of soundness of mind. A person is of sound mind for the purpose of making a contract if a) At the time of making the contract, he is able to understand it and b) Can form a rational judgment as to its effects 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.

Example: A patient in a lunatic asylum who is at intervals of sound mind may contract during those intervals. Whether a party to a contract is of sound mind or not is a question of fact to be decided by the court. There is a presumption in favor of sanity. If a person relies on unsoundness of mind, he must prove it sufficiently to satisfy the court. Lunatic is a person who is mentally deranged due to some mental strain or other personal experience. He suffers from intermittent intervals of sanity and insanity. He can enter into contracts during the periods when he is of sound mind. Idiot is a person who has completely lost his mental powers. Idiocy is permanent whereas lunacy denotes periodic insanity with lucid intervals. An agreement with an idiot is void. (Like a minors agreement) Drunken or intoxicated person suffers from temporary incapacity that is at the time when he is drunk or intoxicated. His position is the same as that of a lunatic. Agreements entered into by persons of unsound minds are void. However they are liable for necessaries supplied to them or to anyone whom they are legally

bound to support. But only their estate is liable. They are not personally liable. Alien Alien is a person who is not a subject of the Republic of India. He may be an: Alien friend an alien whos State is at peace with the Republic of India. Contracts with an alien friend subject to certain restrictions are valid. Alien enemy an alien whos State is at war with the Republic of India. Contracts with an alien enemy can be studied under: a) Contracts during war An alien enemy can neither contract with an Indian subject nor can he sue in an Indian court except with a license from the central government. b) Contracts made before war May either be suspended or dissolved. They will be dissolved if they are against public policy or are benefiting the enemy. Even an Indian residing voluntarily in a hostile country will be treated as an alien enemy.

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Foreign sovereigns, their diplomatic staff and accredited representatives of foreign states They have special privileges and generally cannot be sued unless they on their own submit to the jurisdiction of our law courts. They can enter into contracts and enforce those contracts in our courts. But an Indian will have to obtain prior sanction of the central government in order to sue them in our courts. An ex-king can be sued against in our courts without any such sanction. The central government will grant permission to sue a foreign sovereign when: a) He (foreign sovereign) has instituted a suit in a court against the person desiring to sue him b) Where he (foreign sovereign) himself or through his agent carries on trade within the jurisdiction of the court. c) Where he (foreign sovereign) is in possession of immovable property in the jurisdiction of the court and is sued with reference to such property. d) Where he (foreign sovereign) has expressly waived he privilege accorded to him. Corporations A corporation is a separate legal entity apart from its members.

A corporation may come into existence by a Special Act of the Parliament called as Statutory Company. The contractual capacity of such a company is limited by the statute governing it. A company formed under the Companies Act is called as a joint stock company. The contractual capacity of such a company is regulated by its memorandum of association. A company cannot enter into contracts of personal in nature as it is an artificial person. Insolvents When a debtor is adjudged an insolvent his property vests in the Official Receiver or Official Assignee. An insolvent is deprived of his power to deal with his property. It is the Official Receiver or Assignee who can deal with his property and sue or be sued. The insolvent also suffers from other disqualifications which are removed when he is discharged as an insolvent. Convict A convict when he is undergoing imprisonment is incapable of entering into a contract. However he can sue or enter into contract when he is under a license called Ticket of leave. This incapacity to contract comes to an end after his sentence is over or he is pardoned.

A convict does not suffer from the rigors of the Law of Limitation. Limitation is held in abeyance during the period of his sentence.

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