Indian Contract Act – Capacity to Contact

Indian Contract Act – Persons Competent to Contract

Parties entering into contract must have the capacity to do so (i.e., must have the legal ability to enter into a valid contract).

­A person shall be competent to contract, if he fulfils all the following three qualifications (s.11)

  • Age of Majority : He should be of the age of majority (i.e., he should not be a minor). Anyone who is of 18 years or more, is treated as Major and is competent to contract.

However, in following cases, age limit is 21 years

  • where minor’s property superintendence of minor has been assumed by Court of Wards
  • when the guardian of minor’s property is appointed under Guardian & Wards Act 1890.

Ex. X is of 16 years of age. He made a contract with C to buy a bicycle at Rs 1000. The contract is not enforceable. C cannot compel X to pay for the bicycle.

  • Sound mind : He should be of sound mind (i.e., he should be able to understand the contract and form a rational judgment).

Ex X made a contract to buy a jewellery from B at Rs 30,000. At that time, X was intoxicated. Held, the contract was not enforceable.

  • Not disqualified : He should not be disqualified from contracting by any law

Ex. X, an Indian, made contract with Y, a foreign trader, for  purchase of goods. Later on, war was declared with the country to which Y belongs. The contract is no more enforceable, as a person of alien enemy is not capable of entering into a contract with an Indian.

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Indian Contract Act – Agreement with Minor

  • Void ab initio : Any agreement with Minor is Void ab initio, and cannot be enforced against the minor.

Ex. A money lender paid Rs 20000 to B, a minor, on mortgage of the minor’s house. The minor may apply to cancel the mortgage.

  • Beneficiary : A minor can be a promisee or a beneficiary in an agreement and he can opt to enforce the agreement to his advantage.

Ex. A mortgage is executed in favour of a minor. The minor can get a decree for enforcement of mortgage.

  • No Ratification : Ratification is approval of any act done beyond authority. Minor’s agreement cannot be ratified on attaining majority. A fresh agreement to pay for goods supplied during minority is also void. However services rendered during minority and continued after majority may be enforced by the service provider. However, a fresh agreement  on attaining the age of majority, with additional consideration would however be valid.

Ex. A minor borrowed money signing a promissory note. On attaining majority, he signs another promissory note in settlement of earlier one. The second promissory note is void as no fresh consideration emerges.

  • Not bound to refund benefit : A minor is not bound to refund the benefit, even if received under a void contract.

Ex. A minor took loan against mortgage of his house. The minor may avoid repayment of loan. The mortgaged property can not be made liable for his debt.

  • Plead Minority : A Minor can always plead minority. Rule of estoppel cannot be applied to minor.

Ex. A minor borrowed money from a lender representing himself as Major. He did not repay the loan. The lender sued him. Held, the contract was void ab initio, and the lender cannot sue the minor for money for the tort of misrepresentation. However, if the money is still with minor, then he can recover the balance amount.

  • Not enter into Partnership : A Minor cannot enter into Partnership (as agreement with minor is void) , but the Minor may be admitted into benefits of Partnership by consent of all the Partners. Liability of minor is limited to his share of profit in the partnership.

Ex. X, Y & Z were partners in a partnership firm. P, X’s minor son was also admitted in the partnership with consent of X, Y & Z, to receive 5% profit of the business. The contract was valid and P would receive his share of profit.

  • Cannot incur Debt : A minor cannot incur debt. A Minor cannot be adjudged insolvent.

Ex. A sold some articles from his shop to B on credit, not knowing that B was a Minor. The time fixed for payment expired and no payment was made. Some time later, when B attained majority, A sued him for the price. Held, B was minor at the time of debt. A minor cannot incur Debt.

  • Partly paid shares : A minor cannot be shareholder of partly paid shares (however fully paid up shares can be transferred in the name of minor by the guardian of the minor) .
  • Apprentice : A minor attaining 14 years of age may be appointed as apprentice.
  • Pay for necessary supplies : Minor is liable to pay for necessary supplies (of goods and services) made to him. The supplier can recover out of minor’s property. The property is liable, but the minor is not personally liable (s. 68). Further, the supplier can recover for the supplies (of goods and services) to the extent of reasonable amount for goods & services provided. 
  • Agent : A Minor can be an Agent, without incurring any liability in the contract of agency (the Principal will be fully liable for all acts of minor). A minor cannot be a principal.
  • Hold property : A Minor can hold property.
  • Specific performance : Minor cannot be asked for specific performance of an agreement against minor.
  • Guardian : Guardian of Minor cannot be responsible for act of Minor. Guardian is not legally liable for act of Minor, agreement of minor, etc.
  • Contract entered into by guardian : A Contract entered into by guardian on behalf of a minor will be valid if the guardian has the authority to enter into such contract on behalf of minor, and it is for the benefit of minor.
  • Immovable property : A Guardian of Minor cannot enter into contract to purchase immovable property on behalf of minor (even if the guardian has authority to enter into contract on behalf of Minor), except with permission of court / government.
  • Personal service  : A Contract for personal service to be rendered by minor is not valid.
  • Guarantee for a debt : A person may give guarantee for a debt owned by minor. Such person would be held as surety for default by minor.
  • Negotiable instruments : Minor is competent to draw, negotiate or endorse negotiable instruments. However, he will not incur any personal liability under such instruments. The negotiable instruments executed in favour of minor can be enforced by him.
  • Guarantor : Minor cannot be a guarantor.
  • Restitution : If the other party to the agreement fails to perform his part of obligation, the minor can claim restitution.
  • Insolvency : Minor is not personally in any agreement, so he cannot be declared insolvent.

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Indian Contract Act – Necessaries of Minor

In the following cases, the cost of supply of necessary goods and services provided to Minor, are to be reimbursed by the property of Minor:

  • Necessaries : The goods must be ‘necessaries’, for the particular minor having regard to his status or standard of life. Necessaries include Goods, Services which are beneficial to a Minor.
  • Need of goods : Minor must be in need of those goods both at the time of sale and delivery.
  • Beneficial to Minor : Contracts should be beneficial to the minor, even if it is not for supply of necessaries.
  • Loans taken to obtain necessaries : Loans taken by the Minor to obtain necessaries is also recoverable by the Lender.

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Indian Contract Act – Rules of Estoppel for Minor

Estoppel is a rule of law that when person A, by act or words, gives person B reason to believe a certain set of facts upon which, person B takes action, person A cannot later, to his (or her) benefit, deny those facts or say that his (or her) earlier act was improper. Rules of Estoppel can be explained in the following way:

  • Makes representation : X makes a representation (expressly by words, or impliedly by his conduct) to Y.
  • Believes representation to be true : Y believes such representation to be true. He has no apparent reason to regard it as false.
  • Does some act : On the faith of such representation of X, Y does some act for which Y holds X as liable.
  • No denial : X cannot deny the validity of statement made by him, i.e., X will be liable for any action done by Y on the faith of such representation. In other words, X shall be estopped from saying that the representation was false.

Applicability of Rule of Estoppel to Minor

  • Minor can plead minority : A minor can always plead minority. The rule of estoppel does not apply to a minor, i.e., the minor may fraudulently make a representation to a person that he is of majority and competent to enter into a contract. On the faith of such misrepresentation by minor, a person may enter into an agreement with the minor. Afterwards, such other person cannot claim that the minor shall be bound by his false representation, since the rule of estoppel does not apply to a minor. Thus, the other person cannot enforce the agreement against the minor on the basis of false representation made by the minor. Thus, it is generally said, “A minor can always plead minority” and “Rule of estoppel cannot be pleaded against the minor” (even though he might have earlier misrepresented himself to be of age of majority).
  • Question of fact : The rule of estoppel applies only in case of a question of fact. The estoppel does not apply in case of a question of law.

Ex. P makes a false representation to Q about certain provision of a law, and on the faith of such representation Q enters into a contract with P, Q cannot afterwards claim that the false representation made by P shall be binding on P.

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Indian Contract Act – Person of unsound mind

A Person is said to be unsound mind for the purpose of making an agreement, if at the time of making the agreement, he is not in sound mind.

Soundness of mind means that:

  • Understand : He is in a state to understand what he is doing,
  • Rational Judgment : He is able to form a rational judgment about the effect of his acts to his interest.

A person of unsound mind cannot make rational judgment about the effect of his acts to his interest is called person of unsound mind. An agreement with person of unsound mind is void.

Types of Person of unsound mind

The following types of persons are said to be of unsound mind:

  • Lunatics:  Lunatic is a person who is mentally deranged for temporary period. Such person can make a valid contract when he is mentally stable (during lucid period).

Ex. A patient in a lunatic asylum who is at intervals of sound mind, may contract during those intervals.

  • Idiots: Idiot is a person who has completely lost his mental powers. Idiocy is permanent where as Lunacy is temporary. An agreement by an Idiot is void.
  • Drunken or Intoxicated persons: A person so drunk or intoxicated that he is not capable of forming a rational judgment cannot make a valid contract during the period of intoxication or drunkenness. Like a Lunatic, a drunken person can make a contract when his condition is stable.

Ex. K, a sane man was drunk and cannot understand the terms of the contract, entered into contract with L. Such contract is void.

Types of Person of unsound mind – सरल  हिंदी  में  समझे

Agreement with Person of unsound mind

  • Contracts made by persons of unsound mind : Contracts made by persons of unsound mind, at the time when they are unsound, are void, but contracts made during the time when he is of sound mind, are valid.
  • Estate liable for necessary supplies : Though the contracts of person of unsound mind is void, their estate is liable for necessary supplies made to support them.

Ex. A supplies some articles of food to B, the wife of C who is a lunatic. C has assets worth Rs. 5,000. On non-payment, A can recover from the assets of C for the necessary supplies.

Agreement with Person of unsound mind – English Video

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Persons Disqualified to enter into Contract

Apart from minors and persons of unsound mind, the following persons are not eligible to enter into a contract in certain circumstances.

  • Aliens: Alien means a person of a foreign country.
  • Alien friend : Contracts with alien friend (persons of a foreign country which is in peace with India) are valid subject to some restrictions.
  • Alien enemy : Contracts with alien enemy (persons of a country which is in war with India) are void subject to following rules :
    • Contracts made during war period: During war period (i.e., after the war is declared), an alien enemy can neither make a contract with an Indian, nor can sue in an Indian court, unless permitted by Central Government.
    • Contracts made before war:  Contracts made before war such may be suspended (or dissolved if against public policy or it would benefit the enemy country). After the war is over, such pending contracts may be enforced unless they lapsed (time barred), or when permitted (with modification if ordered so, by govt) by Central Govt.
  • Foreign Sovereigns: Foreign Diplomatic staff may enter into contract and can sue (they are not disqualified to enter into contract). However, they enjoy some special privilege and cannot be sued in Indian court unless they voluntarily submit to the court or when permitted by Central Government to be sued.
  • Insolvents: Insolvent (a person who is declared as Insolvent) cannot enter into a contract. When a debtor is adjudged insolvent, his property is vested with the official assignee, who only can then enter into contracts relating to the property of the insolvent. After discharge of Insolvency, he normal competent person to enter into contract.
  • Body Corporate: Corporations enacted by Parliament can make contract within the powers given to them. Company (Private or public limited) or Body Corporate may enter into contract as permitted by its Memorandum of Association & Articles of Association (otherwise the contract becomes ultra vires, meaning beyond power, and becomes void). Statutory Body (like Municipalities, Housing Bodies etc), can act within the powers given to them. Any contract made beyond such powers are void.
  • Convicts: A convict undergoing imprisonment cannot enter into a contract during period of imprisonment, unless permitted by Central Govt. He can enter into a contract when he is lawfully at large, when he is pardoned or when his period of sentence expires. A contract already entered with a person who undergoes imprisonment cannot be enforced until the conviction is completed, unless permission from Central Government is obtained.

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