CHAP TE R14 Capacity to Contract a 1 da > rv GCHAPTER CONTENT S SS ‘* Minors © Other Persons * Persons of Unsound Mind © Questions—Objective, Test, Practical The parties who enter into a contract must have the capacity to do so. ‘Capacity’ here means competence of the parties to enter into a valid contract. According to Sec. 10, an agreement becomes a contract if it is entered into between parties who are competent to contract. According to Sec. 11, every person is competent to contract who (a) is of the age of majority according to the law to which he is subject, (b) is of sound mind, and (c) is not disqualified from contracting by any law to which he is subject. Thus, Sec. 11 declares the following persons to be incompetent to contract: 1. Minors, 2. Persons of unsound mind, and 3. Persons disqualified by any law to which they are subject. MINORS According to Sec. 3 of the Indian Majority Act, 1875, a minor is a person who has not completed 18 years of age. In the following two cases, he attains majority afler 21 years of age: 1. where a guardian of a minor’s person or property has been appointed under the Guardians and Wards Act, 1890, or . where the superintendence of a minor’s property is assumed by a Court of Wards. The rules governing minors’ agreements are based on two furdamental rules: XN The first rule is that the law protects minors against their own inexperience and against the Possible improper designs of those more experienced, It has been rightly observed, in support of this argument, that “the law protects their (minor's) persons, preserves their rights and estates, excuses their laches (negligence or undue delay in enforcing a right such as to disentitle a person to a certain remedy) and assists them in their pleadings, A minor may show poor judgment inP21 Law of utiact | General Pilnclples ction ayutinat his oven ignorance and sats Handulent manipulation by others that the law affords, I ta Tin in the bent jude af hin own interests is suspended in the cave of ¢ the haw should nod care unrece: inp Wakingea contiaet, and itive prot "Vhe second rite in that, in pursuing the above ob handship to persons who deal with minors. ments may te Minon's ing Is. The position of a minor as regards his ag as under 1. An agreement with or by a minor Is void and inoperative ab initio atinmed this view most emphatically in Mohiei Bibi, Dharmadas Ghove, 539, In this ease, a minor mortgaged his house in favour of a money lender to 0f 820,000 out of which the morty: (the money-lender) paid the mina Subsequently the minor sued for setting aside the mortgage, stating that he» when he executed the mortgage. Meld, the mortgage was void as the money’ he was dealing with a minor and, therefore, it was cancelled. Further, the money “end= request for the repayment of the amount advanced to the minor as part of the car for the mortgage so not accepted, v He can be a promise or a beneficiary: Incapacity of a minor to enter into a co Examples: (a) M, aged 17, agreed to purchase a second-hand scooter for 25,000 from S. 2200 as advance and agreed to pay the balance the next day and collect the scooter When he came with the money the next day. $ told him that he had char and offered to return the advance. S cannot avoid the contract, though Mf ma: likes. (b) A mortgage was executed in favour of a minor. Held, he could get a dec enforcement of the mortgage [Raghavachariah v. Srinivas, (1917) 40 Mad. 3 (c) A,aminor, under a contract of sale delivered goods to the buyer. Held. to maintain a suit for the recovery of price [Abdul Ghaffar v. Prem Piare Lal. ATR (1934) Lah. 480). 2 of 3. His agreement cannot be ratified by him on attaining the age of majority: “Consigerstice which passed under the earlier contract cannot be implied into the contract which the m: enters on attaining majority.” [Nazir Ahmed v. Jiwan Dass, A.LR. (1938) Lah. $9), Ts consideration given during minority is no consideration. If it is necessary a fresh contrac may be entered into by the minor on attaining majority provided it is supported bs consideration [S. Shanmugam Pillai v. K.S. Pillai, (1973) 2 SCC 312). . Examples (a) M, a minor, borrows 25,000 from L and executes a promissory note in favour of Z. Aaa atning majority, he executes another promissory note in settlement of the st note. The second promissory note is void for wat si y Bi n nt of consideration [Indu Ramaswamy v. Anthiappa Chettiar, (1906) 6 M.L.J. 422}, ‘10. Capacity to Contract 11 53 (0) Kan infint, speculated on the stock exchange and became liable to the stockbrokers for £547, Subsequent to his attaining the age of majority, he gave two bills for £50 cach in satisfaction of the original debt. Held, K was not liable on the bills [Smith v. King, (1898) K.B, 543}. However, services rendered at the desire of the minor expressed during his minority and continued at the same request after his majority form a good consideration for a subsequent express promise by him in favour of the person who rendered the services [Sindha v. Abraham (1895) 20 Bom. 755). . If he has received any benefit under a void agreement, he cannot be asked to compensate or pay for it: Sec. 65 which provides for restitution in case of agreements discovered to be void does not apply to a minor, Example: M,a minor, obtains a loan by mortgaging his property. He is not liable to refund the loan. Not only this, even his mortgaged property cannot be made liable to pay the debt. . He can always plead minority: Even if he has by misrepresenting his age, induced the other party to contract with him, he cannot be sued either in contract or in tort for fraud because if the injured party were allowed to sue for fraud, it would be giving him an indirect means of enforcing the void agreement. Example: S, a minor, by fraudulently representing himself to be of full age, induced L to lend him £ 400. He refused to repay it and L sued him for the money. Held, the contract was void and S was not liable to repay the amount (Leslie v. Shiell, (1914) 3 K.B. 607}. Lawrence J, observed in this case: “Whenever the infant is still in possession of any property in specie which he has obtained by his fraud, he will be made to restore it to its former owner. But I think it is incorrect to say that he can be made to repay money which he has spent, merely because he received it under a contract induced by his fraud.” The Court may, where a loan or some property is obtained by the minor by some fraudulent representation and the agreement is set aside, direct him, on equitable considerations, to restore the money or property to the other party. Whereas the law gives protection to the minors, it does not give them liberty “to cheat men”. This is called doctrine of restitution. There can be no specific performance of the agreements entered into by him as they are void ab initio: A contract entered into on his behalf by his parent/guardian or the manager of his estate can be specifically enforced by or against the minor provided the contract is (a) within the scope of the authority of the parent/guardian/manager, and (b) for the benefit of the minor, He cannot enter into a contract of partnership: But he may be admitted to the benefits of an already existing partnership with the consent of the other partners. For a detailed discussion of minor as a partner, refer to the Chapter on ‘Law of Partnership’, He cannot be adjudged insolvent: This is because he is incapable of contracting debts. He is liable for ‘necessaries’ supplied or necessary services rendered to him or anyone whom he is legally bound to support. He can be an agent: An agent is merely a connecting link between his principal and a third Party. As soon as the principal and the third party are brought together, the agent drops out. A minor binds the principal by his acts without incurring any personal liability.54 | Law of Contract : General Principles 11. His parent/guardian are/is not liable for the contract entered into by him, even the contract is for the supply of necessaries to the minor. But if the minor is acti agent for the parents guardian, the parents/guardia thoug, | NG as ay | shall be liable under the contract, 12. A minor is liable in tort (a civil wrong), but where a tort arises out of a contract a Minor, | not liable in tort as an indirect way of enforcing an invalid contract [Leslie Ltd. y, Shiel, | (1914) 3 KB. 607], | Minors’ liability for necessaries. A minor is liable to pay out of his property for ‘necessaries supplied to him or to anyone whom he is legally bound to support (Sec. 68). The claim arise, not out of contract but out of what are called quasi-contracts. Again, it is only the Property of the minor which is liable for meeting the liability arising out of such contracts. He is ny personally liable, The law has provided this exception intentionally because if it were not so, it would be impossible for minors even to live. The term ‘necessaries’ is not defined in the Indian Contract Act. The English Sale of Goods | Act, 1893, defines it in Sec. 2 as “goods suitable to the condition in life of such infant or other | Person, and to his actual requirement at the time of sale and delivery.” Such goods need not necessarily belong to a class of useful goods, but they must be (/) suitable to the position and financial status of the minor, and (ii) necessaries both at the time of sale and at the time of delivery. Necessaries include— (a) Necessary goods: Necessary goods are not restricted to articles which are required to maintain a bare existence, such as bread and clothes, but include articles which reasonably necessary to the minor having regard to his station in life. A watch and a bicy may well be considered to be necessaries. An engagement ring may be a necessary, but a vanity bag bought for the minor’s fiancee. Example: I, a minor, bought eleven fancy waistcoats from N. He was at that time adequate! provided with clothes. Held, the waistcoats were not necessaries, and J was not liable to pay for any of them [Nash v. Inman, (1908) 2 K.B. 1], M1, (1868) L.R. 3 Exch. 90, Bramwell, B. for a male, spectacles for a blind man, a wild animal... (the edible flesh of a wild animal taken by hunting) fo £1 a week” could not be necessaries, . said that “earrin a daily dinner of turtle and veniso: ra month for a clerk with a salary © 2 Cooper, (1844) sband of a mine! egards contracts whic s living and continuing his seesCapacity to Contract 11 55 to pay as the agreement was one for necessaries as it was in effect “for teaching, instruction, and employment and was reasonable and for the benefit of the infant" [Roberts v. Gray, (1918) PKB. $20), Loans incurred to obtain necessaries: A loan ti binds him and is recoverable by the lender as [Martin v: Gale, (1876) 4 Ch, D, 42 estate which is liable for such loans, ken by a minor to obtain necessaries also if he himself had supplied the necessaries }, But the minor is not personally liable. It is only his PERSONS OF UNSOUND MIND One of the essential conditions of com > petency of parties to a contract is that they should be of sound mind, See, 12 ays down a test of soundness of mind, It reads as follows: “A person is said (0 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 sa upon his interests Aperson, who is usually of unsound mind but oceasionall: y of sound mind, may make a contract when he is of sound mind. A person who is usually of sound mind, but occ contract when he is of unsound mind. Examples: asionally of unsound mind, may not make a (2) Apatient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals, (4) 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 lasts. Soundness of mind of a person depends on two facts: (a) his capacity to understand the contents of the business concemed, and (b) his ability to form a rational judgment as to its effect upon his interests. If a person is incapable of both, he suffers from unsoundness of mind. Whether 4 party to a contract is of sound mind or not is a question of fact to be decided by the Court. There is a presumption in favour of sanity. Ifa person relies on unsoundness of mind, he must Prove it sufficiently to satisfy the Court. For the purpose of declaring an agreement to be void. What is relevant is that the person in question was suffering from the disability on the date of execution of the agreement, The report of medical unfitness of the year 1989 had no bearing on an agreement entered into in 1985 and 1987 [Nilima Ghosh v, Harjeet Kaur, ALR. (2011) Del. 104) Contracts of Persons of Unsound Mind Lunatic . A lunatic is a person who is mentally deranged due to some mental strain or other Personal experience. He suffers from intermittent intervals of sanity and insanity, He can enter into contracts during the period when he is of sound mind. Wiots. An idiot is a person who has completely lost his mental powers. He does not exhibit understanding of even ordinary matters. Idiocy is permanent whereas lunacy denotes periodical ‘sanity with lucid intervals. An agreement of an idiot, like that of'a minor, is void.56 I Law of Contract : General Principles Drunken or intoxicated persons. A drunken or intoxicated person suffers from tempo incapacity to contract, i.e., at the time when he is so drunk or intoxicated that he is incapable of forming a rational judgment, The position of a drunken or intoxicated person is similar 1¢ tha ofa lunatic. Agreements Entered into by Persons of Unsound Mind are Void However, persot whom they are lega to them, It of unsound mind are liable for necessities supplied to them or to anyone Hy bound to support, But even in such cases, no personal liability attaches only their estate which is liable (Sec, 68). OTHER PERSONS - An alien (the subject of a foreign State) is a person who is not a subject of the Republic of India. He may be (a) an alien friend, or (b) an alien enemy. Contracts with an alien Jriend (an alien whose State is at peace with the Republic of India), subject to certain restrictions, are valid. Contracts with an alien enemy (an alien whose State is at war with the Republic of India) may be studied under two heads, namely— (a) contracts during the war, and (6) contracts made before the war. Alien enen During the continuance of the war, an alien enemy can neither contract with an Indian subject nor can he sue in an Indian Court. He can do so only after he receives a licence from the Centra! Government. Contracts made before the war may either be suspended or dissolved. They will be dissolved if they are against the public policy or if their performance would benefit the enemy. For this Purpose even an Indian who resides voluntarily in a hostile country, or who is carrying on business there would be treated as an alien enemy, Foreign sovereigns, their diplomatic staff and accredited represent They have some special privileges and generally cannot be sued unless they of their own submit to the jurisdiction of our law Courts. They can enter into contracts and enforce those contrac in our Courts. But an Indian citizen has to obtain a Prior sanction of the Central Goverame in order to sue them in our law Courts. An ex-king can, however, be sued against in our Courts without any such sanction [Mighell v, Sultan of Johore, (1894) 1. Q.B. 149}, The Central Government grants permission to sue a foreign sovereign or amb: lor, ele. (a) when he has instituted a suit in a Court against the person desiring to sue him: or (6) where he himself or through his agent carries on t rade within the jurisdiction of the Court: or (c) where he is in possession of immovable Property in the jurisdiction of the Court and is to be sued with reference to such property; or (d) when he has. expressly waived the Privilege accorded to him. an artificial person created b atives of foreign S Corporations. A corporation is apart from its members, It ma 3 IS a statutory corporation, ie, a 4 ney 3 ‘ature, its contractual capacity is limited b Statute governing it, As rey, i ee, eae aes it, A ration formed under the Companies Act, 2013 tee aie iS 7 joint stock company), its contractual Capacity is regulated by the terms 7 ‘um of Association and the Provisions of the Companies Act. If it exceeds itsEayentiy tab antreed prottie eaponeenty eamnntboenedd ane UE att ater iver fey cenecinnatete irapilieation fret ie edyeete gan Arann fir the corti infin rien the eanipany ane ie veil further, Hemened ee ay ANAT AME UNE EY poner puttttte te TE Pee ATT Tetad nied rect a teatintand pert ett part ents Av trown a abetetat de ctcltitabioed tianlian, Hite praperty Vesta it thie Ofer Hacwiver gu tat Acnttet Aw xvi th thee ttenly it te cleprivedd at He pawee te deat in that pregecnty meas andy the lal Revener Or CMTE Aeitieg Who Gat enter Inte eantincte febating pe De PAWEL al ee ata be ted On ha Hehall, The thealvent alec afters from certain: ovanatatfonttoane Mee abe rent ved av Hen thie Chirag piteme tt arden af lee hares, onmits A come reanior ttatoraoigs aprammmnent fe he upable of entering iia a contrat, Pea PRNNEUNE, ARTEL TT OE AMT aT A COMTENEE TE he belay filly at barge ander a lence called Ske AE Raves Pine tr ately fo eoTHae OF foie On continet, comes tan end when the Sem EAP SMH CAPS OF hen he fs pation, The convict, however, does not suffer from the nme ot ite Lae OEE ntttation, Viviitation ts held Gnabeyanee ducing the period of hie sentence pawn’ ——— Rinna byon FrOARL As cANIPSPAUT HY CoHtEACT Who A OF the ae al majority aceorTing to the law to which he we coset aand WhO) fs OF pout nu, atl Ge NOt disqualified Nom contracting by any law to which he ve sass 1D, 1 Nima A nimor is & person who has wot completed 1X yearn oF age, But where # guardian has been appoveta ty a nninor unlce the Guardians and Wards Act or where a minor is under the guardianship co the Court of Wants, he attains majority at the age of 21, The position ay regards his agreements 1 astnhas: (U Has agreement is altgether void and inoperative, (2) He can be a promisee oF a beneficiary 1 a cuetract. (3) His estate is liable tir the necessary woods supplied OF necessary services rendered to enor to anyone when he is legally bound to support or for necessary lent to him to buy necessaries (4) He may enter into contracts of apprentiveship, service, education and instruction provided these are beneficial five ham. (8) He can be an agent, (6) He cannot be a partner, But he ean be admitted tw the henctits of an already existing partnership with the consent of the other partners, (7) If he has recenved any benefit under a void agreement, he cannot be asked to compensate or pay for it. (8) The Court never onders spevitic performance of his agreements, (9) He can always plead minonty and 1s ot estopped from doing so even when he enters into an agreement by falsely misrepresenting his age. (10) He cannot be adjudged insolvent, Persoas of unsound mind, Lunatics: A lunatic can enter into a contract when he is of sound mind. Idsets. An agreement of an idiot like that of a minor is altogether void. Dranken or intaxicated persons: Theit position is similar to that of lunatics, These persons, like a minor, are liable for necessaries supplied (o them or other minor dependants, 3. Other persons. Alien enemies: During the war an Indian citizen cannot enter into a contract with an ahen enemy. Contracts made before the war are either suspended oF dissolved. Forcign sovereigns and accredited representatives of foreign State: They can enter into contracts ard enforce these contracts in our Courts. But they cannot be sued in our Courts without the prior Sanction of the Central Government, Corporations: The contractual capacity of a statutory corporation is limited by the Statute governing HAs regards a company registered under the Companies Act, 2013, its contractual capacity is regulated by its Memorandum of Association and the Companies Act, 2013, Insolvents: When a debtor is adjudged insolvent, he is deprived of his power to deal in his property divisible among his creditors. Convicts: A convict when undergoing imprisonment is incapable of entering into a contract.Capacity to Contract 11 57 owers, whether expressly conferred on it or derived by reasonable i clause in the Memorandum, the contraet is ulira vire enter into contracts of a strictly personal nature a: Mplication from its objects ‘s the company and is void. Further, it cannot 8 itis an artificial and not a natural person, Insolvents, When @ debtor is adjudged insolvent, his property vests in the Official Receiver or Official Assignee, As such the insolvent is deprived of his power to deal in that pro ns Ir is only the Oficial Receiver or Official Assignee who can enter into contracts relating ta his property, and sue and be sued on his behalf. The insolvent also suffers from certain sisqualifcations which are removed when the Court passes an order of discharge: Conviets. A convict when undergoing imprisonment is incapable of entering into a contract. He can, however, enter into, or sue on, a contract if he is lawfully at large under a licence called “ticket of leave”, This incapacity to contract, or to sue on a contract, comes to an end when the period of sentence expires or when he is pardoned, The convict, however, does not suffer from the ngours of the Law of Limitation. Limitation is held in abeyance during the period of his sentence. Every person is competent to contract who is of the age of majority according to the law to which he is Jpject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject (Sec. 11). 1. Minor. A minor is a person who has not completed 18 years of age. But where a guardian has been appointed to a minor under the Guardians and Wards Act or where a minor is under the guardianship of the Court of Wards, he attains majority at the age of 21. The position as regards his agreements is as follows (1) His agreement is altogether void and inoperative. (2) He can be a promise or a beneficiary in a contract. (3) His estate is liable for the necessary goods supplied or necessary services rendered to him or to anyone whom he is legally bound to support or for necessary lent to him to buy necessaries. (4) He may enter into contracts of apprenticeship, service, education and instruction provided these are beneficial for him. (5) He can be an agent. (6) He cannot be a partner. But he can be admitted to the benefits of an already existing partnership with the consent of the other partners. (7) If he has received any benefit under a void agreement, he cannot be asked to compensate or pay for it. (8) The Court never orders specific performance of his agreements. (9) He can always plead minority and is not estopped from doing so even when he enters into an agreement by falsely misrepresenting his age. (10) He cannot be adjudged insolvent. 2. Persons of unsound mind. Lunatics: A lunatic can enter into a contract when he is of sound mind. Idiots. An agreement of an idiot like that of a minor is altogether void. Drunken or intoxicated persons: Theit position is similar to that of lunatics, These persons, like a minor, are liable for necessaries supplied to them or other minor dependants. 3. Other persons. Alien enemies: During the war an Indian citizen cannot enter into a contract with an alien enemy. Contracts made before the war are either suspended or dissolved. : Foreign sovereigns and accredited representatives of foreign State: They can enter into contracts and enforce these contracts in our Courts, But they cannot be sued in our Courts without the prior sanction of the Central Government. . | Corporations: The contractual capacity of a statutory corporation is limited by the Statute governing it. As regards a company registered under the Companies Act, 2013, its contractual capacity is regulated by its Memorandum of Association and the Companies Act, 2013, ; Insolvents: When a debtor is adjudged insolvent, he is deprived of his power to deal in his property divisible among his creditors. Convicts: A convict when undergoing imprisonment is apable of entering into a contract.