Capacity of parties

Minor
 Capacity of parties
• According to Majority Act,1875
– A minor is a person who has not completed
18 years of age.
 Capacity of parties
• Nature of Minor’s Agreements
– Void agreement
– Minor and Ratification
– Minor and Estoppel
– Minor and Restitution
– Minor and Necessaries
– Agreement by Guardian on behalf of Minor
– Minor can be a Promisee or Beneficiary
– Minor as an agent
– Minor as a partner
– Surety for a minor
– Minor as a member of a company
– Minor and insolvency
– Contract by Minor and Adult Jointly
– Position of Minor’s parents
– Minor and Negotiable Instruments
 Capacity of parties
• Nature of Minor’s Agreements
– Void agreement
• According to Contract Act, 1872, a minor’s agreement is void
because a minor has no capacity to enter into a contract.
Where a minor makes in agreement to perform some
obligations and other party wants to enforce those
obligations, the agreement is void. A minor is not liable to
perform any act which he has promised to perform. He
cannot be held liable because he does not possess the
capacity to judge what is good and what is bad for him. He
cannot be compelled to pay back the money received by him
under the agreement.
 Capacity of parties
• Example #1
– 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 and the amount was not
recoverable.
 Capacity of parties
• Example #2
– D, a minor mortgaged his house in favour of
M to secure a loan of Rs.20000 and received
Rs.8000 from the mortgage. M filed a suit for
recovery of money and sale of mortgaged
property in case of default. It was held, that
the agreement with minor was void and
therefore M could not recover the money, and
sell the minor’s mortgaged property.
• Minor & Ratification
– A minor’s agreement being void ab-initio has
no validity in the eye of law.
– It cannot be ratified by the minor on his
attaining the age of majority because an
agreement, which is void at the very
beginning, cannot be made valid by
subsequent ratification.
– A person who is not competent to authorize
an act cannot make it valid by ratifying it.
• Minor & Ratification
– Therefore, a promise by a person on attaining
majority to repay money advanced to him
during the period minority cannot be enforced
because consideration given during minority
is deemed to be no consideration at all.
– If it is necessary a fresh contract may be
entered into by the minor on attaining majority
provided it is supported by fresh
consideration.
 Capacity of parties
• Minor & Ratification
– Example
• M, a minor borrowed some of money and executed
a pro-note for it. After attaining majority M
executed a second pro-note in settlement of the
first note. It was held that the second pro-note was
void for want of consideration.
• Minor & Estoppel
– The doctrine of estoppel means that when a person
makes a false representation, and the other person
believes it to be true and acts accordingly. Later on
the person who has made false representation is
stopped from denying the truth of the representation.
– This principle applies to the contracts which are
entered into by the parties competent to contract.
– But it does not apply in case of minor. When a minor
shows misrepresents his age and leads the other
party to believe that he is major, and on such belief
the other party enters into a contract with him, the
minor is not stopped from denying his majority. He
can still plead that he is a minor and not major.
• Minor & Estoppel
– Examples
• M, a minor fraudulently shows that he is of full age
and enters into a contract with N to sell his house.
M, refuses to perform the contract on the ground
that he is a minor. N has no right to take action
against M.
• Minor & Estoppel
– The term restitution means restoring back to the owner that
which has been taken away or lost.
– Generally, a minor can’t be compelled to pay back the money
received by him under an agreement, which is void ab-initio.
– According to section 41 of Specific Relief Act, 1887 if anything is
traceable in the hands of minor, out of the proceeds of the
contract made by fraudulently representing that he was of full
age, the court may compel the minor to restore the amount to
the other party when the minor himself brings a suit against the
other party.
– But if the property or money has been lost by minor, then he
cannot be made responsible to restore to the person deceived.
 Capacity of parties
• Minor & Restitution
– Example #1
• M, a minor got Rs.17,500 as advance and
promised to sell the land. M refused to perform the
contract on the ground of minority. The court
ordered the minor to refund the amount.
 Capacity of parties
• Minor & Restitution
– Example #2
• A minor sells a house for Rs.50,000 showing that
he is an adult. Later on he sues to cancel the sale
on ground of minority, he may be asked by the
court to return the money received by him before
he can recover the possession of property sold by
him.
 Capacity of parties
• Minor & Necessaries
– According to section 68
• A person who supplies necessaries to a minor or anyone whom the
minor is bound to support, the supplier is entitled to recover
reasonable value of such goods from the property of a minor. If a
minor owns no property, the supplier will lose the price of
necessaries. Briefly a minor will not be personally liable, it is his
property only which is liable.
• What is a necessary article depends upon the status and
circumstances of the particular minor. Luxury goods cannot be
regarded as necessaries. Food and clothing may be necessaries.
The necessaries may include lodging expenses, medical expenses
and loans taken up by minor for necessaries, etc. but if a minor
takes a loan for trade that will not be a necessary.
• If the minor has already necessaries with him, at the time when
necessaries were supplied to him, the supplier has no right to
recover the value of those goods from him.
 Capacity of parties
• Examples
– A supplies necessaries to B, a minor for his life. A is
entitled to recover value from B’s property.
– A supplies to the wife and children of B, a minor, with
necessaries. A is entitled to recover expenses from
B’s property.
– A supplied a minor a coat with diamond buttons. A
cannot recover the price of coat.
– A minor purchased 11 coats. At that time he had
sufficient clothes. It was held that the coats were not
necessaries of life and minor was not liable to pay for
them.
• Agreement by Guardian on behalf of minor
– A contract made, on behalf of minor, by his
guardian is binding on minor. It can be
enforced against the minor provided the
contract is within the authority of the guardian
and it is for the benefit of the minor.
– The sole aim should be the benefit and
welfare of the minor.
 Capacity of parties
• Agreement by Guardian on behalf of minor
– On behalf of minor
– Within guardian authority
– For the benefit of the minor
– Sole aim benefit and welfare of minor
 Capacity of parties
• Example
– A contract of sale of immovable property by
the guardian of minor, for the minor’s benefit,
may be specifically enforced by either party to
the contract.
 Capacity of parties
• Minor can be a promisee or beneficiary
– Law does not regard a minor incapable of accepting
benefit.
– Any contract which is for the benefit of a minor and
under which the minor is not required to bear any
obligation is valid.
– A minor is capable of purchasing immovable property
and he may sue to recover the possession of the
property on payment.
– The infancy of one party to a contract does not affect
the other party’s liability.
– In other words, a minor can be payee, promisee and
endorsee under a contract.
 Capacity of parties
• Examples
– A promissory note executed in favor of minor
is valid and can be enforced in court.
– Where the minor has performed his part of
agreement and delivered the goods he would
become entitled to recover the price thereof.
• Minor as an agent
– A minor can be an agent. If a minor works as
an agent he can make his principal
responsible to third parties for his acts.
– But he cannot be held personally liable for
negligence or breach of duty.
 Capacity of parties
• Minor as an agent
– A appoints M, a minor as his agent to sell his
house. M makes agreement with B to sell A’s
house. The agreement is valid.
 Capacity of parties
• Minor as a partner
– A minor cannot become a partner of a firm.
– He can be admitted only in the benefits of the
firm through his guardian with the consent of
all the partners.
– Minor can inspect the accounts of a firm only
and not the books. He cannot participate in
the management of the firm.
– The minor’s liability is limited to his investment
in the business.
 Capacity of parties
• Example
– A, B, C are partners in a firm. They make a
contract with X who is the guardian of M, a
minor to make M as a partner. M can be
admitted to the benefits of firm.
 Capacity of parties
• Surety of a Minor
– Where in a contract of guarantee, an adult stands
surety for a minor, the adult is liable under the
contact, but minor is not answerable.
– The adult is responsible because there is direct
contract between adult and the third party.
– Example
• M, a minor makes a contract with X. S stands surety for M.
The contract is valid.
 Capacity of parties
• Minor as a member of a company
– A minor, being incompetent to contract, cannot
become a shareholder of a company.
– The company can refuse to register, transfer or allow
transmission of shares in favor of a minor unless
shares are fully paid. It means in case of fully paid up
shares, a minor can become a share holder of a
company.
– Example
• A has fully paid up shares in a company. He dies and leaves
M, a minor as his legal representative. The company is
bound to transfer the shares to M.
 Capacity of parties
• Minor & insolvency
– A minor cannot be declared insolvent. Even
for necessaries supplied to him, he is not
personally liable, only his property is liable. If
he has no property payment cannot be
recovered.
– Example
• M, a minor buys medicines from X. M has no
property. M cannot be held liable for payment. He
cannot be declared insolvent.
• Contract by minor & adult jointly
– Where a minor and an adult jointly enter into
an agreement with another person, the minor
is not liable but only adult would be liable.
 Capacity of parties
• Contract by minor & adult jointly
– Example #1
• M, a minor and A jointly make an agreement with X
to purchase a car. The agreement is valid.
– Example #2
• There was a joint purchase by two vendees, one of
whom was a minor; it was held that the vendor
could enforce the contract against the major
vendee.
 Capacity of parties
• Position of Minor’s parents
– The parents of a minor not liable for
agreements made by a minor, whether the
agreement is for the purchase of necessaries
or not.
– The parents can be held 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.
 Capacity of parties
• Minor and negotiable instruments
– A minor can make, draw, endorse, and deliver
bills of exchange, promissory notes and
cheques in order to bind the other parties
except himself.
– He himself is not liable but all the others
parties to the instrument would be liable in
their respective capacities.
 Capacity of parties
• Example
– M, a minor draws a bill of exchange on A. A
accepts the bill. M endorses it to C. the bill is
valid.
– X draws a bill on Y, a minor. Y accepts the
bill. The bill is invalid.
 Capacity of parties
• Persons of unsound mind
– 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.
– A person who is usually of unsound mind, but
occasionally of sound mind, may make a contract
when he is of sound mind.
– A person who is usually of sound mind, but
occasionally of unsound mind, may not make a
contract when he is of unsound mind.
 Capacity of parties
• Examples
– A patient in a lunatic asylum, who is at intervals of
sound mind, may contract during those intervals.
– 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.
– A property worth about Rs.25,000 was agreed to be
sold by a person for Rs.7,000 only. His mother proved
that he was congenital idiot, incapable of
understanding the transaction and that he mostly
wandered about. The sale was held to be void.
 Capacity of parties
• Causes of unsoundness of mind
– Idiocy
– Insanity
– Drunkenness
– Hypnotism
– Old age
 Capacity of parties
• Effect on agreement
– An agreement made by a person of unsound
mind is void ab-initio.
 Capacity of parties
• Burden of proof
– The burden of proving that a person was
mentally incapable of contracting lies on the
party who wants to cancel the contract on this
ground.
 Capacity of parties
• Disqualified persons
– Joint Stock company
– Diplomatic agent
– Alien Enemies
– Insolvent
– Convict
– Auditor