Contract Law-Capacity to

Contract and Mistake

Tilak Pandey
Partner
 Capacity to Contract

• All the contracts entered by the party incompetent are void.

• The incompetent person in Nepal includes (Section 506 Civil
Code):
• Minor
• Lunatics
• Any other incompetency defined under the other laws

• In other countries (historically) includes in the incompetent

person includes:
• Alien enemies
• Foreign Sovereign
• Professional Person
• Corporations
• Married Woman (UK till 1935)
 Capacity to Contract

Minor
•Minor - a person not completing 18 years of age (Section 2 (e)
Civil Code )
•Contract with minor is void ab initio (from the beginning)
(Section 517 Civil Code).
•Minor can be entitled to the benefits from contract.
•Minor can also receive the price of the goods supplied for
major person.
•The cost of living expenses (necessary supplies) provided to
the minor can be recovered (Section 654 and 656)
•Necessary supplies- should be suitable to the condition of the
life of the minor. Nash v. Inman
•If minor misrepresents to be a major at the time of contract
and than claims as minor he should restore the benefits.
 Capacity to Contract

Minor
•The cost of living expenses provided to the minor can be
recovered (Section 654 and 656) –Necessary supplies-
should be suitable to the condition of the life of the
minor.
•The guardian or curator can make a contract on behalf
of the incompetent or quasi-competent person.
•Minor completing age of 14 may be engaged in work
with certain conditions (Child Labor Prohibition and
Regulation Act).
•If the contract is void the parties are required to refund
the cash if remains after adjustment (Section 538
(Restitution)
 Capacity to Contract
Lunatics
•Contract with lunatics are void except for necessaries.
•Insane person can make a valid contract during lucid
intervals (when he is of sound mind) ((Section 506)
Drunken Person
•The same rule relating to lunatics apply. However, there
has been no specific provisions in the laws of Nepal.
Alien Enemies
•The contract with the alien enemy is void. However, there
has been no specific provisions in respect of contract laws
in Nepal.
 Capacity to Contract
Corporations
•They can make contract to the extent authorized by their
incorporation documents.
•The person can enter into the contract on behalf of the
corporations to the extent authorized to him (Section 506)
Foreign Sovereign
•Foreign sovereign and their representatives enjoys special
privileges and immunities in the host country.
•However, the law does not prevent them to enter into contract if
they want.
Married Women
•Married woman was not capable to enter into contract in the past
particularly in the UK.
•There has been no such restriction in place now (since 1935)
•There has been no such restriction in our laws.
 Mistake
• If both parties to the contract are under a mistake as to a
matter of fact essential to the contract, the contract is void
(Section 517)
• The requirement of the mistake to render the contract void as
per the law should be that:
• The mistake should be by both the parties
• The mistake should be of the facts
• The facts should be of essential in nature
• The operative mistake may include:
• Mistake as to the nature of contract
• Unilateral Mistake
• Bilateral Mistake (common mistake or mutual mistake)
 Mistake
Mistake on the Nature of Contract (Non Est Factum)
•Signing a document in the mistaken belief that he is signing a
document of different nature.
•The mistake may be due to (i) blindness or (ii) illiteracy or (iii)
trick or misrepresentation by the other party.
•The nature of contract should be fundamentally different.
e.g. Signing a title transfer deed of a house with a mistaken belief that it is a
lease agreement.
•This is a weak ground to render the contract void as there may
be many issues involved.
•Thus, this pela (non est factum means “that is not my deed”)
may be the last resort to make the contract void.
•General principal is that the person bound by the document he
signed whether or not he has read or understood it.
 Mistake
Unilateral Mistake
•Unilateral mistake takes place when one of the contracting
parties is mistaken of some fundamental facts of the contract
and the other party knows the mistake.
•The Unilateral mistake occurs on (a) the identity of the party,
and (b) Mistake in making offer
•Identity of Party- if A intends to make a contract only with B but enters
into contract with C believing him to be B.
•For the mistake of identity: (a) the identity should be of
material importance to the contract, and (b) the mistake is know
to the other party.
e.g. Cundy v. Lindsay (mistake as to identity)
•If the identity is not important at the time of contract then it
does not make the contract void.
e.g. Philips v. Brooks (identity not important at the time of contract)
 Mistake
• Mistake of Offeror
• If the offeror makes material mistakes in making offer and
the offeree knows the mistake –the mistake is operative.
e.g. Hartog v. Colin - offer made to sell the goods quoting price per pound
in stead of per piece- mistake is accepted - contract void- trade practice
was also to charge the price on piece basis.

e.g. Webster v. Cecil – A offered to buy property from B for 2000 but B
rejected the offer. Later B offered to sell for 1250 (meant to be 2250).
The mistake accepted- contract void- mistake known to the other party.

• If the mistake is made by only one party which is not known

to the other party the contract is valid.

e.g. Van Praagh v. Everidge – land purchased on auction one lot in

mistake of another –price was not excessive-mistake of his own
carelessness –contract valid.
 Mistake

Bilateral Mistake
•Both the parties to the contracts are mistaken on the facts
essential to the contract.
•The bilateral mistake may be divided to (a) common or
identical mistake or (b) mutual or non-identical mistake.
•Common Mistake- Couturier v. Hastie –contract to buy cargo
as shipped from port A to port B and believing at high sea which in
fact was lost earlier unknow to the parties- contract void- common
mistake.
•E.g. Galloway v. Galloway – a separation agreement made with
certain payment obligation believing the parties to be married- letter
discover they were not validly married- contract void- common
mistake.
 Mistake

• Mutual Mistake- Raffles v. Wichelhaus - contract to buy cargo cotton

to arrive ‘ex Peerless’ from Bombay. There were two ships named
’Peerless’ sailing from Bombay one sailing in October and another in
December. One party meant the earlier ship the another the latter.
Contract void- for mistakes.
• Mistake by third party may also be operative
• E.g. Hankel v. Pape – inquiry made to buy rifles indicating that the buyer
may purchase up to 50 rifles. The clerk of the buyer should place the
order “send three rifles” in stead of “send the rifles”. All 50 rifles
delivered to the buyer - contract void.
• The mistake on the quality of subject matter depends on the
circumstance and generally does not render contract void.
• Generally the mistakes in quality give rise to breach of
contract or misrepresentation.
• In Nepal the mistake should be by both the parties to render
contract void.
 END

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