CAPACITY OF PARTIES

Competent to Contract
All the parties to a contract must be competent to contract.
Every person is competent to contract
The contracting parties must be competent to contract.
S.11 Contract Act:
“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 of sound mind,
and is not disqualified from contracting by any law to which he is
subject.”
Hence, the capacity of a party is dependent upon three factors:
1. age of majority (not a minor)
2. sound mind
3. not disqualified from contracting by law
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Minor (1st factor)

According to Section 3 of the Majority Act, 1875, a minor is a person who

has not attained 18 years of age.

It means that a person is competent to contract after attaining 18 years of

age. However, when a court appoints a guardian for a minor, the minor
attains the age of majority after 21 years.

What is the value of an agreement made by a minor in the eyes of the

law?

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NATURE OF MINOR'S AGREEMENTS
1. Void Agreement.
An agreement with minor is void. A minor is not liable to perform any act
which he has promised because he does not possess the capacity to judge
what is good or bad for him. He cannot be compelled to pay back the
benefit received by him under the agreement.
Example
A, a minor sold his shop to B. The amount was paid to A but the sale deed
could not be registered as A was minor. On a suit by B, it was held that as
A was minor so agreement was void ab-initio and the amount was not
recoverable.
(Shiam Lal vs: Ram Piary)
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2. Minor and Ratification
Ratification means act of confirming or approving. An agreement made
by minor cannot be confirmed by him on attaining the age of majority
because an agreement which is void from beginning cannot be made
valid by subsequent confirmation.

Example
M a minor borrowed some money and wrote a promissory note for it. On
attaining majority M wrote a second promissory note to settle the first
note. It was held that the second promissory note was void.
(Suraj Narain vs
Sukhu Ahir)

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3. Minor and Estoppels
The concept of estoppel means to prevent a person from denying the
truth of a fact which he has asserted earlier.
The rule of estoppel does not apply to a minor. It means that a if a minor
fraudulently enters into a contract representing that he has attainted 18
years of age, later he cannot be prevented from proving his minority in
court. Thus he remains unbound by the contract.

Example
M, a minor fraudulently shows that he is of full age and contracts with N
to sell his house. Later, M refuses to perform the contract on the ground
that he is a minor. N cannot sue M for performance of contract.
(Sadiq Ali Khan vs. Jai Kishore)
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4. Minor and Reimbursements
Generally, a minor cannot be compelled to repay the money received by
him under an agreement. However, where a minor enters into a contract
by fraudulently showing that he has attained the age of majority, the court
may order the minor to return the amount, though the final order depends
upon the circumstances of the case.

Example
A minor sold a house for Rs. 50,000 showing that he is an adult. Later, he
sued to cancel the sale on the ground of minority. The court ordered the
minor to return the money received by him.
(Jager Nath Singh vs. Lalta prasad)
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5. Minor and Necessaries
According to S.68, a person who supplies necessaries to a minor or his
dependents, can recover reasonable value of such goods from the
property of a minor. If a minor owns no property, the supplier cannot
recover the price of necessaries. lf the minor already possesses
necessaries at the time when necessaries are supplied to him, the
supplier cannot recover the value those goods.

Example
a) A supplied necessary food items to B, a minor. A can recover value
from B's property.
b) A minor purchased 11 coats. He had sufficient clothing at that time.
It was held that these many coats were not necessaries of life and
minor was not liable to pay for them.
(Nash
vs, Inman) 7
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6. Minor as Beneficiary

A minor is capable of accepting benefit. A minor can enforce the contract

which for the benefit of a minor and under which he is not required to
bear any obligations.

EXAMPLE

A, a minor advanced some amount to B. B mortgaged his property in

favor of A. A can enforce the mortgage if B does not repay the money.

(Raghva Chariar vs. Srinivasa)

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7. Contract by Minor and Adult Jointly
Where a minor and an adult jointly enter into an agreement with another
person, the minor is not liable but only the adult would be liable.
Example
a) M, a minor and A jointly make an agreement with X to purchase a
car. The agreement is valid.
b) A minor and adult jointly agreed to pay some amount and executed
a bond. The court held that adult was liable but not the minor.
(Jamna Bai Vs. Vasarita Rao)

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Agreement by guardian vs. Agreement by minor
Agreement made by guardian
A contract made on behalf of minor by his guardian is binding on the
minor. It can be enforced against the minor provided the contract is within
the authority of the guardian and for benefit of the minor.
Example: S entered into an agreement to sell property on behalf of two
minors, NG and SG. It was proved in court that S was not the legal
guardian of the minors therefore the agreement was held to be void ab-
initio.
(Shahbaz Rasool vs Amir Imran)
Agreement by minor
The parents of a minor are not liable for agreements made by a minor,
whether the agreement is for the purchase of necessaries or not. The
parents are only liable if the minor acts as an agent of the parents.
Example: F sends his son M, a minor to buy goods from S. M buys goods
from S. F is liable for payment. 10
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PERSONS OF UNSOUND MIND
Sound Mind (2nd factor)
Section 12 defines:
“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
judgment as to its effect upon his interests.”
It means that a person be must be able to understand the nature of contract. A
person who is temporarily of unsound mind cannot make a contract during such
period. However, he can make a contract when he becomes of a sound mind. A
person may become of unsound mind due to idiocy, insanity drunkenness,
hypnotism and old age, etc.

Example
a) A, a sane man who becomes temporary insane due to drug overdose sells his
scooter to B. The agreement is void.
b) D entered into an a agreement with S to sell property on unusual terms. Later,
it was proved that D was of unsound mind at the time of agreement. Held: the
agreement was void
(Dosa vs. Shahamad)
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Effect on Agreement
An agreement by a person of unsound mind is void but he can get benefit
under it. However, the person who supplies necessaries to the person of
unsound mind or any one whom he is legally bound to support, can
recover reasonable value of those necessaries from the property of such
person. If them person of unsound mind owns no property, then the
supplier cannot recover. (Sec 68)
Burden of Proof
Where a person is usually of sound mind, then the burden of proof lies on
the person who challenges the validity of contract.
Where a person is usually of unsound mind, the burden of proof lies on
the person who affirms it.
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DISQUALIFIED PERSONS (3rd factor)
Following persons are disqualified from contracting: (Sec:11)
1. Joint Stock Company
Joint Stock company cannot enter into contract outside the powers given to it by its
Memorandum of Association or by the provisions of the Company Ordinance.
Example: XYZ Co, makes an agreement with A to sell some property which the
company is not authorized by it memorandum of association, an agreement is void.
2. Diplomatic Agent
The diplomatic agent means the staff of the diplomatic mission, of a foreign
country in Pakistan. Foreign sovereigns, diplomatic staff and representative of
foreign staff can enter into contract in their personal capacity but not the behalf of
their governments.
Example: E, a diplomat rented a house from M on behalf of the state to which he
belongs to. M sued for recovery of arrears of rent. It was held no action could be
brought against E.
(Engelke vs. Musman) 13
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3. ALIEN ENEMY
An alien means citizen of a foreign country. An alien whose country is at
peace with Pakistan is an alien friend. A contract with an alien friend is
valid. An alien whose country is at war with Pakistan is an alien enemy,
A contract with an alien enemy is illegal.
Example: A contracts to buy goods with X, a citizen of India without the
permission of Pakistan Government. It is illegal and void.
4. INSOLVENT
An insolvent cannot enter into a contract with anyone regarding his
property, which will be in the control of official receiver. After the order
of discharge, he can enter into a contract.
Exmaple: A, an insolvent promises to sell his car to B. The agreement is
void. 14
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5. CONVICT
A convict is a person who has been imprisoned by a court of law. During
the period of sentence he is incapable of entering into contract. However,
he can enter into a contract while on parole. He becomes capable of
making a contract when the sentence of imprisonment expires.

Example: W during imprisonment enters into an agreement with S to sell

his land. The agreement is void.

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