Capacity to Contract

Meaning & Definition

According to section 11 of the contract

act:
“Every person is competent to contract
who is of the age of majority according
to the law to which he is subject to, &
who is of sound mind, and is not
disqualified from contracting by any law
to which he is subject.”
Persons disqualified from
entering into the contract
• Minors, who are not of the age of
majority.
• Persons of unsound mind, and
• Persons disqualified to contract by
any law (Insolvents)
Minor

• Who is a minor – According to section

3 of Indian majority act, 1875, a minor
is a person who has not attained the
age of 18 years.
Rules relating to an
agreement with a minor
• First rule – law protects minors
against their own inexperience &
against the possible improper
designs of those more experienced.
• Second rule – the law should not
cause unnecessary hardship to
persons who deal with minors.
Minor’s Agreement

• Agreement is void ab initio:

Case Mohori bibi vs Dharmodas Ghose –
Dharmodas, a minor executed a mortgage for Rs.
20,000 declaring himself major & received Rs.
8,000 from mohori bibi, a mortgagee. The minor
wanted to set aside the mortgage. The mortgagee
wanted the refund of Rs. 8,000. It was held that
the agreement with the minor was void ab initio &
question of refunding money does not arise.
1. However, the minor may enforce the agreement against the other party if
he has carried out his obligation.
2. No rectification – minor cannot ratify the agreement ok attaining the age of
majority which he had entered into in the age of minority.
3. Minor can plead minority to avoid contract.
Example: a minor borrows money by saying that he is a major.
4. Minor can be a promisee or a beneficiary – Where the minors bears no
obligation & rather the agreement is for his benefit, then such agreement is
valid. ( A promissory note executed in favour of minor is valid)

5. Minor as a partner – A minor cannot become a partner in the partnership

firm but he can be admitted to benefits od the partnership with consent of
all the partners. The minor is liable to losses but not his personal property.
Persons of Unsound Mind

• According to section12:
“ A person is said to be of sound mind
for the purpose of making a contract, at
the time when he makes it, he is
capable of understanding it & of
forming rational judgement as to its
effect upon his interest.”
Unsound Mind may be
categorized as:
• Idiots: Has completely lost his mental
powers.
• Lunatics: The person losses the
capacity of thinking due to illness of
brain or mental bodily distress
• Drunkenness
Persons Disqualified From
Contracting
• Alien Enemy
• Foreign Sovereign (prior sanction of Central
Government)
• Corporations – Contract is Ultra vires is not in MOA
• Insolvents – all property in hand of Official assignee.
He can enter into contract when court passes an
order od discharge
• Convicts – a person who is sentenced to
imprisonment cannot enter into contract (during that
period)
Thank you