CVM University

Faculty of Commerce, Management and Law

S. G. M. English Medium College of Commerce and Management
(SEMCOM)

Vallabh Vidyanagar

Class : BBA, ITM, BCOM Subject : Business Law- I

Faculty : Dr. Dipal Patel Module 2:Capacity to Contract

Topics

● Capacity to Contract
○ Various parties who cannot enter into a contract-
■ Minor
● Position of minor in a contract,
● Exceptions to the rule where minors cannot
enter into the contract,
● Ratification of minor’s contract,
● Liability of minor for necessities;
■ Drunkard person, lunatic, unsound mind,
prisoners, foreign ambassadors
● Consideration:
○ Definition, essentials, kind/types of consideration,
exceptions
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Capacity to Contract:

★ Parties qualified to enter into contract:

(Parties have Capacity to contract)

➔ Major
➔ Sound mind
➔ Person Not disqualified by law

“If a person is competent to contract it's a valid Contract”

★ Parties disqualified to enter into contract:

(Parties don't have Capacity to contract)

➔ Minor
➔ Unsound mind: Lunatic, Idiot, Drunk and Intoxicated
➔ Person disqualified by law: alien, enemy, prisoners (convict), foreign
ambassadors, corporation & company and insolvent

“If a person is incompetent to contract its a void agreement”

A. Minor:

Contractual capacity:

• Every person is competent to contract who is of age of majority according to

the Law to which he is subject, who is of sound mind and not is disqualified
from contracting by any Law to which he is subject S11.

Majority of age:

1. In general

Every person domiciled in India attains majority on the completion of 18

years of age [ as per Indian Majority Act, 1875]

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Every person below 18 years of age is known as a Minor

2. Special Cases
A. Where a guardian of a minor’s person or property is appointed under
the Guardian and wards Act, 1890 attains majority at the age of 21 years
B. Where a minor's property has passed under the superintendence of the
court of wards attains majority at the age of 21 years. (Special Cases)

Position of agreement entered into between minor:

(Nature & Effects of agreements with Minor)
1. An Agreement with a minor is void-ab-initio
2. Rule of Restoration or Rule of Restitution of property does not apply to
Minor
3. Agreement remains void even if the minor fraudulently represents his age.
(Case Law: Mohori Bibee vs Dharmodas Ghose)
• Validity: - An agreement with a minor is void-ab-initio

• A minor has received any benefit under a void contract, he cannot be asked
to return the same
• If a minor has received any benefit under a void contract, he cannot be
asked to return the same

• Fraudulent representation by a minor- no difference in the status of

agreement. The contract remains void

• A minor with the consent of all the partners, be admitted to the benefits of an
existing partnership

• Contracts entered into by minors are void-ab-initio. Hence no specific

performance can be enforced for such contracts.

• Minor’s parent/guardians are not liable to a minor’s creditor for the breach of
contract by the minor
• A minor can act as an agent but not personally liable. But he cannot be

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principal
• A minor cannot become shareholder of the company except when the shares
are fully paid up and transfer by share

• A minor cannot be adjudicated as insolvent.

• Can enter into contracts for Apprenticeships, Services, Education, etc.:

(a) A minor can enter into a contract of apprenticeship, or for training or

instruction in a special art, education, etc.

(b) These are allowed because it generates benefits to the Minor

• Guarantee for and by minor
• A contract of guarantee in favor of a minor is valid. However, a minor cannot
be a surety in a contract of guarantee. This is because the surety is ultimately
liable under a contract of guarantee whereas a minor can never be held
personally liable.

Exceptions to the above rule: minor will be held liable

• Contract for the benefit of a minor
• Contract by Guardian
Benefit of a minor by his guardian or manager of his estate.
a. within the scope of the authority of the guardian.
b. Is for the benefit of the minor
• Contract for supply of Necessaries

Food, clothes, bed, shelter, shoes, medicines and similar other things required for
the maintenance of his life or for the life of his dependents, expenses for
instruction in grade or arts; expenses for moral religions or intellectual education,
funeral expenses of his deceased family members, marriage expenses of a
dependent female member in the family; expenses incurred in the protection of his
property or personal liberty, Diwali pooja expenses, etc. have been held by courts
to be necessaries of life. However, the things like earrings for a male, spectacles
for a blind person or a wild animal cannot be considered as necessaries

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• Liability for tort: A minor is liable for a tort, i.e., civil wrong committed by
him.

Other parties who are disqualified for entering into contract

B. Unsound mind:

a. Lunatic
b. Idiot
c. Drunk and
d. Intoxicated

C. Person disqualified by law:

a. alien
b. enemy
c. prisoners (convict )
d. foreign ambassadors
e. corporation & company and
f. insolvent

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Consideration:
Meaning of consideration:
• quid pro quo (Latin Term) i,e something in return
it may be –
• (i) some benefit right, interest, loss or profit that may accrue to one party or,
• (ii) some forbearance, detriment, loss or responsibility suffered on undertaken
by the other party [currie V mussa]

Definition as per act

When at the desire of the Promisor, the promisee or any other person.

(a) has done or abstained from doing, or [Past consideration]

(b) does or abstains from doing, or [Present consideration]

(c) promises to do or abstain from doing something [Future consideration]

such act or abstinence or promise is called a consideration for the promise

Act (+ve) Positive Consideration Abstinence (-ve) Negative Consideration

❖ Right ❖ Forbearance

❖ Interest ❖ Detriment

❖ Benefit ❖ Loss Suffered

❖ Profit ❖ Responsibility Undertaken

Essential elements for a valid consideration:

The following elements should be present in order to have a valid

consideration:

1. Consideration must move at the desire of the promisor

2. Consideration may move at the desire of promisee or any other person
who is not a party to the contract

(Case Law: Chinnayya vs Ramayya)

3. Consideration may be past, present or future

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4. Consideration may be Inadequate, it need not be adequate

consideration need not be adequate. A contract is not void merely because

of the fact that the consideration is inadequate. The law simply requires that
the contract should be supported by consideration. So long as consideration
exists and it is of some value, courts are not required to consider its
adequacy.
5. Consideration must be real
6. Consideration should not illusory
7. The performance of an act that one is legally bound to perform is not
consideration for the contract mean’s something other than the promisor’s
existing obligation. (Consideration must not be something which the
promisor is already bound to do or as an official duty or contract and he
promises to do the very same thing to form an agreement than this promise
would not form any consideration for the other person's promise) [It's not a
valid Consideration]
8. Forbearance to Sue
Existing Claim : Valid Consideration (Real and Bonafide Suit)
No Existing Claim : Not a Valid Consideration (Illusory and Malafide Suit)
9. Must be legal:-
Consideration must not be unlawful, immoral or opposed to public policy

“Nudo Pacto non oritur action” i,e, an agreement without consideration is void

Exceptions to the above rule an agreement without consideration is void:

The following are the exceptions to the above rule

1. Written and registered agreements arising out of love and affection:- [S25 (1)]

• Expressed in writing and registered under law for the time being in force for
registration of document

• Natural love and affection

• Between parties standing in a near relation to each other

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2. Promise to compensate [S25(2)]

• Promise to compensate wholly or in part
• Who has already voluntarily done something for the promisor
• Something which the promisor was legally compellable to do

3. Promise to pay a time – barred debt. [S25(3)]

• A debt barred by limitation can not be recovered. Hence, a promise to pay such
a debt is without any consideration.

• Can be enforced only when – in writing and signed by Debtor or his authorized
agent
4. Completed gift- gift do not require any consideration.

5. Agency (S185 of ICA) – According to the Indian contract Act. No consideration

is necessary to create an agency.

Bailment (S148 of ICA)- consideration is not necessary to effect a valid bailment

of goods. It is Called Gratuitous Bailment.

Charity- If a person promises to contribute to charity and on this faith the promise
undertakes a liability to the extent not exceeding the promised subscription, the
contract shall be valid.

Case Laws
• Mohori Bibee v. Dharmodas Ghose is a leading case of minor

Mr. D, a minor, mortgaged his house for Rs.20000 to a money – lender, but the
mortgagee, i.e. the money – lender, paid him a sum of Rs.8000. Subsequently, the
minor sued for setting aside the mortgage. Privy council has held that the contract
was void, as Mr. D was minor and therefore he is not liable to pay anything to the
lender.

DR. DIPAL PATEL SEMCOM/BBA,ITM,BCOM/DP/BL-1/Unit-2