CAPACITY TO CONTRACT

1. CAPACITY TO CONTRACT UNIT - I

2. CAPACITY TO CONTRACT • An agreement becomes a contract if it is entered into between the parties who are competent to contract (Sec. 10). • The term “capacity to contract” is defined in Sec 11 of the Indian Contract Act which “Everyone is competent to contract (i) who is of the age of majority; (ii) who is of sound mind; and (iii) who is not disqualified from contracting by any law.

3. Contractsby a Minor A ‘minor’ is a person who has not attained the age of majority. For the purpose of entering into contract, ”the age of majority” is eighteen years. In the following two cases, a person becomes major on completion of 21 years: Where a guardian of a minor’s person or property has been appointed under the Guardians and Wards Act 1890 and Where the superintendence of minor’s property is assumed by court of wards. Case Law: MohriBibee Vs. DharmdasGhose (1903) - Mortgage

4. Minor’s agreement 1. A minor’s contract is absolutely void ab- initio: In other words, a minor is neither liable to perform what he has promised under an agreement, nor liable to repay money received under it. • Principle behind this ruling is that a minor is incapable of judging what is good for him.

5. The Rule of Estoppels does not apply to a Minor The rule of estoppels (Legal Principles) does not apply to a Minor i.e., minor is not estopped from pleading his infancy in order to avoid a contract, even if he has entered into an agreement by falsely representing that he was of full age.

6. No Restitution (recompense for injury or loss) in certain cases A minor cannot be ordered to make compensation for a benefit obtained under a void agreement because Sections 64 and 65 of the Contract Act, which deal with restitution, apply only to contracts between competent parties and are not applicable to a case where there is not and could not have been any contract at all. Case Law : Leslie Vs. Sheill (1914) – Infants Relief Act 1874 – Doctrine of Restitutions - Loan

7. Minor’s Liability for Necessaries (Food, Shelter, Cloth) • Minor is liable for ‘necessaries’ supplied or ‘necessary services’ rendered to him or his minor dependents. • If a person supplies necessaries to a person who is incapable of entering into a contract or to anyone whom such incapable person is legally bound to support, then he can claim reimbursement from the property of such incapable person. • For such contract he cannot be held liable personally. His property or estate alone will be liable. Eg: Rental House

8. Minor’s Liability in tort (WRONG) The infant is liable for his tort, i.e., wrong, unless the tort is in reality a breach of contract. The tort must be separate from and independent of contract otherwise many contracts would be enforced on minors in an indirect manner. For example, an infant hired a horse for riding and injured it by over riding. Here the Infant had committed a tort, i.e., negligence in the performance of the contract.

9. No specific performance • Since an agreement by a minor is absolutely void, the contract will never direct “specific performance” of such an agreement by him. • But a contract is enter into on behalf of minor, by his guardian or by a manager of his estate, is binding on the minor and can be specifically enforced by or against the minor provided: (a) the contract is within the authority of the guardian or manager, and (b) it is for the benefit of the Minor.

10. A minor can be a beneficiary • Incompetency of a minor to enter into contract means incompetency to bind himself by a contract. There is nothing which debars him from becoming a beneficiary. • The law does not regard him as incompetent for accepting a benefit.

11. A minor can be an agent • An Agent is merely a connecting link between his principal and third person. Therefore, a minor can be appointed as an agent. But he will not be personally liable for any of his acts.

12. A minor can be a shareholder • A minor can hold fully paid up shares of a company. He cannot hold partly paid – up shares as he cannot be held liable for calls. Since membership of a company arises on the basis of contract a minor cannot be a member of a company. • A minor, being incompetent to contract, cannot be a shareholder of the company. • A company can also refuse to register transfer or transmission of shares in favour of a minor unless the shares are fully paid.

13. Partnership by minor • The partnership of partners results from their agreement. A minor, being incompetent to enter into a contract, cannot be a partner of the firm. • However, he may be admitted only to the benefits of the firm

14. Minor cannot be declared insolvent • A minor cannot be adjudicated an insolvent, for, he is incapable of contracting debts. Even for necessaries supplied to him, he is not personally liable, only his property is liable.

15. Minor cannot be a surety • A minor cannot be a surety as he is not liable to pay or compensate anything under a contract.

16. Position of minor’s parents • Minor’s contracts do not impose any liability on his parents even if the contract are for necessaries. The parents or the guardians of the minor may pay money borrowed by him just out of moral obligations. But the parents or guardians can be held liable when the minor child is acting as an agent of his parents or guardians

17. Contracts by Persons of Unsound Mind Contracts by Lunatics( a person whose mental faculties of thinking, disordered due to some mental strain or some other reasons) Example: A patient in a lunatic asylum who is at intervals of sound mind, may contract during those times. Contracts by Drunkards. Contract by such a person is absolutely void and cannot be ratified.

18. Persons disqualified by law • Alien Enemies • Convicts • Insolvents • Married women • Professional Persons • Corporations and Companies