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Law Of Contract - 1 (LLBG101)
Under the Supervision of: Ms. Charu Srivastava
ON THE TOPIC: Capacity to Contract


SAP NO: 500054889, 500055676
ROLL NO : 063, 064
Capacity to contract under Indian Contract Act, 1872 means the legal competence of a person to
enter into a valid contract. Usually the capacity to contract refers to the capacity to enter into a
legal agreement and the competence to perform some act. Those contracts are void which is
competent to contract with minor, persons of unsound mind and a person who has been
disqualified from contracting by some law. A minor is a person who has not attained the age of
18 yrs. It states that a person is deemed to have attained the majority when he completes the age
of 18 yrs except in a case of person of whose persons or property a guardian has been appointed
by the courts in which case age of majority 21 yrs. A person who is usually of sound mind may
not make a contract when he is of unsound mind. The idiot, lunatic, and drunk yard are the
person of unsound mind. Alien enemy, foreign sovereigns, insolvent and convict have cannot
enter into a contract.

The main area of concern about this research topic is who are the person disqualified to enter
into contract.

To restrain these persons from entering into contract

If the contract has took place what are the remedies available for aggrieved party.
What are the exceptions available for the incompetent person?

The idea of research here is that to check the competency of the person entering into contract

The first step to picture the situation if contract has been performed
To determine at the entering into contract what was the mental state of person?

Statement of problem
A contract made by minor is voidable. The minor, in other words, may avoid the legal
liability under a contract .Upon reaching the age of majority; a minor may affirm or ratify
the contract and therefore make it contractually binding on him. A minor can only avoid a
contract during his minority status and only for a reasonable time after he reaches the age
of majority. After a reasonable period of time, the contract is deemed to be ratified and
cannot be avoided. When a minor avoids a contract, there are certain rules of law
regarding the effect on any property received by the minor under the contract. If the
minor still has what he received from other party, he must return the property in some
situation, he cannot avoid the contract. In some exception cases contract is formed for
benefit of a minor and contract by his guardian or manager of his estate a) within the
scope of authority of the guardian b) is for benefit of the minor, contract for supply of

Survey of existing literature

In the survey of exiting literature we are trying to find these persons to
restrain from entering into contract are minors, persons of unsound
mind and person disqualified by some other law.

Identification of issues
In this following topic section 11 of Indian contract act 1872 is involved
and its issues are:

When lunatic can enter into contract.

If a minor has performed a contract would be liable to
return the money.
Issue involved in case of Mohiri Bibee v Dharm Das Ghose.

Objective and scope of research

To find out the persons who are competent to contract.
To find out the persons who are incompetent to enter into a contract.
To find out the remedies available if an incompetent person enter into
a contract.
To find out the exceptions of section 11 of Indian contract act 1872.

Research methodology
Study supported by secondary sources


Indian contract act 1872 -Avtar Singh

Atiyahas introduction to law of contract STEPHEN A.
SIMITH(Sixth edition)
Indian contract act R K BANGIA

1) Capacity to contract



The term CONTRACT is defined in section 2(h) of the Indian Contract Act, 1872, as
follows: An agreement enforceable by law is a contract. Thus for the formation of a
contract there must be (1) An Agreement, and (2) The Agreement should be enforceable
by law.

An agreement is regarded as a contract when it is enforceable by law. In other words, an

agreement that the law will enforce is a contract. All agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful consideration and
with a lawful object, and are not herein expressly declared to be void. Nothing herein
contained shall effect any law in force in India and not hereby expressly repealed, by
which any contract is required to be made in writing or in the presence of witnesses, or
any law releating to the registration of documents.

Every contract is an agreement, but every agreement is not a contract. An agreement

becomes a contract when the following conditions are satisfied:

(1) There is some consideration for it.

(2) The parties are competent to contract.

(3) Their consent is free.

(4) Their object is lawful.

A contract arises when the parties agree that there is an agreement. Formation of a contract
generally requires an offer, acceptance, consideration, and a mutual intent to be bound. Each
party to a contract must have capacity to enter the agreement. Minors, intoxicated persons, and
those under a mental affliction may have insufficient capacity to enter a contract. Some types of
contracts may require formalities, such as a memorialization in writing.

At common law, the elements of a contract are offer, acceptance, intention to create legal
relations, and consideration.

Not all agreements are necessarily contractual, as the parties generally must be deemed to have
an intention to be legally bound. A gentlemen's agreement is one which is not intended to be
legally enforceable, and which is "binding in honour only"

Offer and acceptance

In order for a contract to be formed, the parties must reach mutual assent (also called a meeting
of the minds). This is typically reached through offer and an acceptance which does not vary the
offer's terms, which is known as the "mirror image rule". If a purported acceptance does vary the
terms of an offer, it is not an acceptance but a counteroffer and, therefore, simultaneously a
rejection of the original offer. It is important to note that where an offer specifies a particular
mode of acceptance, only an acceptance communicated via that method will be valid.


Consideration is a concept devised by English common law, and is required for simple contracts,
but not for special contracts (contracts by deed). The case of Currie v Misa declared,
consideration to be a Right, Interest, Profit, Benefit, or Forbearance, Detriment, Loss,
Responsibility. Thus, consideration is a promise of something of value given by a promissor in
exchange for something of value given by a promisee; and typically the thing of value is goods,
money, or an act.

There are certain pre-requisites for a valid contract as enumerated in Section 10. Capacity of
parties is an essential for a valid enforceable contract. In the simplest of terms, the parties to a
contract must be competent to enter into a contract for it to be binding on them. Thus, the
incapacity of a party can prevent a contract from being enforced. For instance, a contract was
held unenforceable merely the housing society concerned agreed to sell land before it was
registered and thus, before it became a legal person.

Capacity to contract means the legal competence of a person to valid contract. Usually the
capacity to contract refers to the capacity to enter into a legal agreement and the enter into a
competence to perform some act. S. 10 requires that the parties shall be competent to contract.
All agreements are not contracts. Only those agreements are contract which fulfil he conditions
of section 10 and according to section 10 for a contract parties must be competent, the consent
must be free. Therefore the competency of the parties to a contract is most essentials element of
a contract.

Section 11. Who are competent to contract

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 sound mind and is not disqualified from contracting by any law
to which he is subject.

Section 11 provides three specific categories of persons who are not competent to enter into
contracts, namely

1) Minors;

2) People who are mentally incompetent; and

3) People disqualified by their legal status like insolvents.

The parties may be either a person in fact, a natural person or a person in law, a juristic person.
Law of contracts also recognises circumstances where there is a need to protect people from
themselves for they may enter into agreements to their detriment due to their inability to
understand properly the implications of what they are doing. For example, contracts entered into
by Pardanashin ladies as well as infirm and aged persons may require scrutiny if there is prima
facie bias in the agreement even though there is no bar on their capacity to contract.

Section 11 defines only the inherent competence required to be a party to a contract. It is not
concerned with the competence required of a person to become an agent or a representative.

According to Indian Majority Act, 1875, a person attains majority on completion of 18 years of
his age. But when a guardian of a minor person or property has been appointed by the court, he
attains majority on completion of 21 years of age.
It is usually presumed that every man is the best judge of his own interests. This presumption is
suspended with reference to minors to protect him against manipulation, fraud, unscrupulous
traders as well as his own ignorance. It can be said that law adopts a somewhat paternalistic
approach with regard to minors and the contracts they enter into. There exists a general
presumption whereby a minors contract is unenforceable against him in the law of contracts.

Age of majority: The age of majority is determined with regard to the law a person is subject to.
In India, the age of majority in India is eighteen years of age except where the courts have
appointed a guardian of a minors person or property where the age of majority is taken as 21
years. Section 3 of the Indian Majority Act, 1875 defines a minor as a person who:

a) Has not completed 18 years of age;

b) Has not completed 21 years of age where a guardian of the minors person or property has
been appointed under the Guardians and Wards Act, 1890; and

c) Has not completed 21 years of age where the superintendence of minors property is
assumed by a court of wards.

In England, persons who have not reached the age of 18 years are regarded as minors.


While s. 10 mandates that the agreement shall be between parties competent to contract and S. 11
indicates that the minor is incapable of entering to contract. But neither section provides as to the effect
of agreement entered into by a minor. This led to a controversy.

Section 11 expressly provides that a minor is not competent to contract. However, it says nothing
about whether a minors agreement is void altogether or merely voidable at his option The
uncertainty in this matter was settled by the Privy Council in the case of Mohiri Bibi vs.
Dharmodas Ghose. It was held that any contract entered into by a minor was void ab initio. A
contract with or by a minor is not valid.


Dharmodas Ghose, a minor, executed a mortgage in favour of Brahmo Dutt, a money lender
doing business at Calcutta secure a loan of Rs 20,000. The Plaintiffs attorney was carrying out
the business of the money lender during his absence from Calcutta. The attorney got the
information that Ghose was a minor while negotiations were on. The day the mortgage was
executed, the attorney got Dharmodas to sign a declaration that he was a major and that relying
on such assurance, Brahma Dutt agreed to advanced money 20,000 to him. Subsequently, the
minor filed a suit praying for a declaration that the contract was void and inoperative as he was
underage when executing the contract.

The suit was opposed and contested by Brahma Dutt on the following grounds:

a) That the principle of estoppel (Section 115 of the Indian Evidence Act, 1872) prevented the
minor from contending that he was not a major when he executed the mortgage.

b) That neither the money lender nor his attorney had any notice that the plaintiff was then a
c) That the loaned amount ought to be repaid on the basis of the maxim One who seeks equity
must do equity.

d) That even if the plaintiff was a minor, the declaration made by him was fraudulent and
disentitled him to any relief.

The Privy Council granted the cancellation of the contract under Section 39 of the Specific
Relief Act, 1877. With regard to repayment of the sum given as consideration for the mortgage in
advance, it was held that restitution is not applicable to contracts void ab initio.

Sir Lord NORTH observed: Looking at Section 11 their Lordships are satisfied that the Act
makes it essential that all contracting parties should be competent to contract and expressly
provides that a person who by the reason of infancy is incompetent to contract cannot make a
contract within the meaning of the Act. The question whether a contract is void or voidable
presupposes the existence of a contract within the meaning of the Act, and cannot arise in the
case of an infant.

The Privy Council also stated that a Court of Equity would not say that it is equitable to compel a
person to pay any money in respect of any transaction which the Legislature has declared to be
void as against that person.

In another case, a guardian made a contract to purchase certain immovable property on behalf od
a minor. The minor sued the other party for a decree of specific performance to recover
possession but his action was rejected. It was held that the guardian had no authority to bind the
minor or his estate via a contract for purchase of immovable property. Since the minor was not
bound by the contract and thus, there was no mutuality. He could not obtain specific performance
of the contract.

However, the Privy Council overruled its earlier decisions and held that a mother, in her position
as a guardian for a minor child, could enter into a valid contract of sale for the purpose of
repayment of his fathers debts. Here, a minor son and his mother sold of a piece of land to
certain creditors in satisfaction of the promissory notes executed by the minors father and
required that they also pay off the mortgage owed to another creditor. The appellants did so and
took possession of the land. Later, the minor brought an action to recover the land. It was held
that the transaction was for the benefit of the minor and his mother, as his guardian, had the
capacity to contract on his behalf. Hence, the contract was held binding upon the minor.

In the present scenario, it would be greatly undesirable that a minors contract is held absolutely
void. The later decisions of the Privy Council also point to the same trend. In recent times, the
judgements of the Indian Courts show a leaning to give more equitable interpretation to the
principle in the Mohiri Bibi case so that a minor may take advantage under a contract for his
benefit by enforcing it. For example, in Raghavachariar vs. Srinivas, it was held that a minor in
whose favour a mortgage is executed can have the benefit of it in equity (though not in law).

In England, a minors contract is only voidable at the option of the minor. However, certain
categories of contracts entered into by minors are declared to be absolutely void in order to not
let the whims and fancies of a child to dictate which agreements would be or not be enforced.
Under the English Law, contracts entered into by an infant are classified as:

1) Void Contracts. These include any agreement for the repayment of money lent or any
contract for goods supplied other than necessaries, etc.

2) Voidable Contracts. These contracts are binding on the minor unless he repudiates them
before he attains majority or within a reasonable time thereafter.

3) Valid Contracts. These contracts are binding on the infant and include contracts for
necessaries and contracts for the minors benefit.

4) Contracts enforceable at the option of the infant but not at the option of the other party.

Effects of Minors Agreement

A minor cannot bind himself by a contract because he is legally incapable of giving his consent
for the same. No obligations can be imposed on a minor unless they arise independently of any
contract. Theoretically, any agreement entered into by a minor is wholly devoid of any legal
effects. But the statement is not completely true. In fact, the agreements that confer benefits on a
minor and impose no obligation on him are enforceable at the instance of the minor.
A new concept of beneficial has come into existence now. It has been held in various cases. A
minor is bound for the beneficial contract. The beneficial contract are those contracts which are
for the benefit of minor. The first case was S.Subramanyam v/s Subha Roy-1948 - In this case
transfer of inherited property of a minor affected by his guardian to pay off an in-herited debt
was binding on him for his benefit. Here is a list of beneficial contract

i) Contract of Insurance Such contracts are in the benefit of minors.

ii) Contract to purchase the immoveable property Such contract are valid.

iii) Contract of service - These are for the benefit for the minors

iv) Contract of apprenticeship

Training period of any minor who is taking training from any person, because of the training
minor will case his livelihood. It is for his benefit and mono is liable to compensate hat person.

v) Contract of Marriage
When guardian made an agreement for the marriage of the minor then another party cannot
enforce it, but minor can enforce it. If agreement is made jointly by guardian and minor, it can
be enforced again on majority age.

vi) No estoppel against minor when a minor by misrepresenting his age induces another to
contract with him no estoppel is available against him there cannot be estoppels against statute
policy of law is to protect minor from contractual liability doctrine of estoppels cannot be
applied to defeat the policy An infant is not estopped from setting up the defense of minority.
vii) No liability for tort based in contract - Johnson v. pye Minors agreement is devoid of all
consequences in law A contract cannot be converted in to tort to sue an infant Minor is not liable
for tort connected with contract, but an infant is not absolved from liability for independent tort.

viii) Liability to restore benefits

Where a minor seeks the help of court for the cancellation of his contract, the court may grant the
relief subject to the condition that he shall restore all benefits obtained by him under the contract,
the court may grant relief subject to the condition that he shall restore all benefits obtained by
him under the contract or make suitable compensation to the other party.

The court ordered a minor to refund Rs.17500- which he had taken in advance for the sale of
land. When he refused to complete the contract. The court was of the opinion that still the
Specific Relief Act should apply whether the minor was the plaintiff or the defendant. The
doctrine of restitution should apply whether the minor had taken the goods or money.

ix) Liability for Necessaries

Claim for necessaries supplied to person incapable of contracting, or on his account. If a person,
incapable of entering into a contract, or any one whom he is legally 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 incapable person.
(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be
reimbursed from B's property.
b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in
life. A is entitled to be reimbursed from B's property.
Chapple vs Cooper

The court held that necessaries are not only food, shelter, clothes but also education or religious
and any such things which are necessary for life, comes under the definition of necessaries. The
following two conditions are necessary for liable

1. The supply must not be more than sufficient.

2. The supply must be according to the standard of minor.


The supply of a watch to a minor whose study was considered as the necessity because to have a
watch for graduate person is his necessity.


A minors agreement being void ab-initio, it is incapable of being validated a subsequent

ratification after the minor has attained the age of majority. Here is minor accepts the contract in
some terms is entered during minority then also he is not liable. If a minor takes 2000.00 in
minority and Rs.3000- after getting majority age and said major give back Rs.5000- then this is
valid and with consideration. After getting majority age if minor uses his option to be a partner,
he will be bound for all the responsibilities of minority period, which are against the firm.


1. If the agreement is on behalf of minor done by guardian.

2. With in his Power.

3. Guardian is capable to enter into contract.

4. The agreement will be in the interest of minor.

Raj Rani vs Prem - Father agreed with the Director of Film, and according to this agreement
Director of Film will give a role to Indrani. It was held void because no consideration was
therein. It this agreement is with the daughter then it is void abs-intro. If it is with his father
then it has no value even to think over it.


Restitution means if an agreement is declared void, benefit should be returned. Under section 64
& 65 of contract Act, that section 68 is applies only on voidable agreements, Section 56 is
applies on the agreement which were valid at the time of formation but due to some
circumstances(as under sec.56) it becomes void. Under the equitable doctrine of restitution minor
has to restore back the benefit so received by him the exact things but it is applicable in case of
goods and property not in the case of money. Restitution stop where repayments begins.

Leslie vs Sheill (1914)

It was held by the court of Appeal that the money could not be recovered. If there were allowed
that would amounts to enforcing the agreement to repay loan, which is void under Inflants Relief

Section 39(3) specific Relief Act 1877 If the court thinks he may pass an order of restitution in
any case, now a question arises whether he person did not know about the age of minor. If minor
is also not know his age. In this stage plaintiff does not get compensation. If respondent
misrepresent his age on this point there are different view of court.

Ajudhiya Parsad vs Chandan Lal 1937

Allahabad High Court refused to following, extended view of restitution and held that a minor
who had taken money by mortgaging his home was not bound to restore the money. Now
section 33(2)(b) added according to this section, when a plaintiff wants to dissolve the agreement
and says that at the time of agreement he is minor than he can get back all his profits.


According to rules contained in Sec.115 of Indian Evidence Act 1872, if you make a statement
today, which misleads another person, you are not allowed to deny the statement to-marrow
when the question of your liability arises. A question whether a minor who has made a false
representation about his age is stopped from pleading his minority, was raised, but it was not
decided in this case of Mohiri Bibi. Privy Council held that where the party knows about the age
of minor this principle could not apply. The question arises that whether minor can be stopped
by false representation as to his age is now settled by this case.

Nawab Sadiq Ali Khan vs Bibi Jai Kishori- 1928

It was held by Privy Council that if a minor makes a contract by fraudulently expressing his age
more than actual then he cannot be stopped as per the rules of estoppels that he was minor at the
time of contract.


English Law
A person of unsound mind is competent to contract but he can avoid it
by satisfying the court that
He was incapable of understanding the contract and
The other party knew it
Contract is voidable at his option and becomes binding if he affirms it
Position of the drunken person is same.
Campbell v. Hooper - maortgagee sought a decree for repayment of debt
evidence showed mortagagor was lunatic when contracted mortagagee
was unaware of it
HELD: mere fact of lunacy cannot make a contract invald. If the other party
had knowledge of it, it becomes vpoidable at the option of the lunatic.
Indian Law
Agreement of a person of unsound mind, like that of a minor, is absolutely
void S. 12 What is a sound mind for the purposes of contracting.- A person is
said to be of sound mind for the purpose of making a contract if,
It has to be understood that person has to understand the nature of the
contract he is entering into. He has to make rational judgment and
understand the terms and conditions of the contract, for this purpose he has
to be of sound mind. A person who is an idiot, lunatic and insane cannot
understand the terms of the contract. Certain types of unsoundness of minds
such as idiot are acquired since birth and others such lunacy and insanity are
acquired later.
A person who is of unsound mind can be under lucid interval at certain times.
Lucid interval is a state where he is not of unsound mind and can form a
rational judgment about the terms of the contract.
At this state of lucid interval he can enter into a contract but if he has
entered into a contract when he is not under lucid interval then that contract
is void. Eg: A who is undergoing treatment at a mental asylum escapes from
there and goes back to his native where he enters into a contract to sell his
ancestral property. Such a contract is totally void as he is a person who was
undergoing treatment at an asylum.
Drunken state
Mere drinking is not a hindrance to enter into a contract. But drunken state
of mind is a hindrance to enter into a contract. When a person is so drunk
that he cannot form a rational judgment about the terms and conditions of
the contract then such contract is a void contract. But if he is at such a state
of mind where he has consumed alcohol but he can still understand the
terms and conditions of the contract then that contract is valid as he could
understand the terms and conditions of the contract, that is why it is said
that mere drinking is not an hindrance to contract.
(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


1. Alien enemies

2. Foreign Sovereigns and Ambassadors

3. Insolvents

4. Convict

5. Corporations

1. Alien enemies.

An alien is competent to contract with citizens of the Indian living in India. He can
maintain as action on a contract enter onto by him during peace him time. But if a war is
declared, an alien enemy cannot enter into a contract with the Indian citizen. Contract entered
into before the declaration of war are either stayed or terminated but contract into during the war
are unenforceable.

2. Foreign sovereigns and ambassadors.

These people are immune from the jurisdiction of local courts, unless they voluntarily
submit to its jurisdiction. These persons have a right to contract but can claim the privilege of not
being sued. The rules regarding suits by or against foreign sovereigns are laid down in section 84
to 87 of Civil Procedure Code.

3. Insolvent.
An insolvent cannot enter into a contract as his property vests in the official receiver or
official assignee. This disqualification of an insolvent is removed after he is discharged.

4. Convict.

A convict while undergoing imprisonment in incapable of entering into a contract. But this
disability comes to an end on the expiry of the sentence.

5. Corporations.

A Corporation is an artificial person recognised by law. It exists only in the eyes of law. It
is competent to enter into a contract only through its agent.

Section 11 of the Indian Contract Act, 1872 declares minors and persons of unsound mind as
incompetent to contract. However by virtue of Section 26 of the Negotiable Instruments Act,
1881 a minor can be a party to a negotiable instrument so as to bind all parties except himself.
Thus an instrument in which a minor is a party is not void for all purposes but is void only
against the minor. Though Section 26 makes no reference to persons, other than minors, who are
incompetent to contract it can be safely said that by analogy the law enunciated in the case of
minors and the rules applicable to minors as parties to an instrument are applicable to persons of
unsound mind also. Thus persons of unsound mind and minors can never be liable upon a
negotiable instrument in any capacity.

It is to be noted that there are important differences with respect to the legal position of minors
and persons of unsound mind as parties to an instrument in India and England. The age of
majority in both the countries is eighteen years but in England a minor is liable upon a negotiable
instrument issued by him for necessaries whereas in India a minor is not. Moreover in India
lunacy is an absolute defence and if a person was of unsound mind at the time of the transaction
then he is totally absolved of all liability on the instrument. However in England the defence of
lunacy is not absolute and it can be successfully pleaded only if it can be shown that the plaintiff
knew of the fact that the defendant was a lunatic or that he took advantage of the defendants
lunacy. It can thus be safely concluded is Indian Law is more protective of the interests of minors
and persons of unsound mind than English Law.

1. Dr. J.C Verma, Bhashyam and Adiga- The Negotiable Instruments Act (New Delhi:
Bharat Law House Private Limited, 1990)
2. Contract and specific Relief-AVTAR SINGH
3. Atiyahas introduction to law of contract STEPHEN A. SIMITH(Sixth
4. Law of contractR K BANGIA