Capacity to contract

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Capacity to contract

Aim:- The article tries to explain the basic requirement for valid contract. It explains the capacity to contract between the parties.

Section 10 of the Indian Contract Act provides that an agreement in order to be a contract, must satisfy the following conditions:

a. It must be made by free consent of the parties

b. The parties must be competent to contract

c. It must be made for a lawful consideration and with a lawful object

d. It should not have been expressly declared as void by law

Also there must be consensus ad idem or identity of minds in the sense that parties have agreed about the subject matter of the contract at the same time and in the same sense, as evidenced by offer and acceptance(Section 13) . It has been observed that the agreement must import an intention to create a legal relationship between the parties, and that agreements relating to social matters are not enforceable by law.

Capacity to Contract

Every person is competent to contract according to Section 11 as follow:-

Age of majority:

In India the age of majority is regulated by the Indian Majority Act (Act IX of 1875). Every person domiciled in India attains majority on the completion of 18 years of age.

Sound Mind:

A person is said to be of sound mind for the purpose of making a contract if at the time when it, he is capable of understanding it and of forming a rational judgement 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. Similar is the case with a person who is generally of sound mind but occasionally of unsound mind.

Position of Minor’s Agreement

An agreement entered into by a minor is altogether void:

Contract with or by a minor is altogether void. The Indian Contract Act simply says that only a person who is a major is competent to contract. The main reason for holding a minor’s agreement void is that a minor is incapable of giving a promise imposing a legal obligation.

Minor can be a beneficiary:

Though a minor is not competent to contract, nothing in the Contract Act prevents him from making the other party bound to the minor. Thus, a promissory note duly executed in favour of a minor is not void and can be sued upon by him. A minor cannot become a partner in a partnership firm. However he may, with the consent of all partners, be admitted to the benefits of partnership (Section 30 of the Indian Partnership Act, 1932).

Minor can always plead minority:

A minor’s contract being void, any money advanced to a minor on a promissory note or otherwise cannot be recovered. Even when a minor procures a loan by falsely representing that he is full age, it will not stop him from pleading his minority in a suit to recover the amount and the suit will be dismissed.

But where a minor had fraudulently mortgaged and sold certain properties, the Court held that on the cancellation of the agreement at the instance of the minor the lender and purchaser must be compensated.

Ratification on attaining majority is not allowed:

As a minor’s agreement is void he cannot validate it by ratification on attaining majority. For instance, a minor borrows money and executes a promissory note. On attaining majority, he executes a fresh promissory note in substitution of the one executed as a minor. The second promissory note is also void being without consideration. But a person who supplies necessaries of life to a minor or to one whom the minor is legally bound to support, according to his situation in life, is entitled to be reimbursed from he property of the minor not on the basis of any contract but on obligation resembling a contract. However, a minor’s property is liable for necessaries and no personal liability is incurred by him.

Contract by guardian – how far enforceable:

Though a minor’s agreement void, his guardian can under certain circumstances enter into a valid contract on the minor’s behalf. Where the guardian makes a contract for the minor, which is within his competence and which is for benefit of the minor, there will be a valid contract which a minor can enforce. For instance, a guardian can make an enforceable contract of marriage for a minor. But all contracts made by guardian on behalf of a minor are not valid. For instance, the guardian of a minor has no power to bind the minor by a contract for the purchase of immovable property. But a contract entered into by a certified guardian (appointed by the court) of a minor, with the sanction of the court for the sale of the minor’s property, may be enforceable by either party to the contract.

Liability for necessaries:

Under section 68, any person would be entitled to reimbursement out of the minor’s estate for necessaries supplied to him or to his family. Necessaries also include goods and services. If minor had obtained payment fraudulently by concealment of age, he may be compelled to restore the payment, but he cannot be compelled for an identical sum, if any, as it would amount to enforcing a void contract.

Contract by a person of unsound mind:

A person of unsound mind too, under the Indian Contract Act, incapable of entering into a contract. Although a contract by a person who is not of sound mind is void, such a person can enter into a valid contract during an interval of lucidity. The test of unsoundness of mind is whether or not the person is capable of understanding the business and of forming a rational judgement as to its effect upon his interest. Idiots, lunatics and drunken persons are examples of those having an unsound mind.

The presence or absence of the capacity mentioned in this section at the time of making the contract is in all cases a question of fact. Where a person is usually of sound mind, the burden of proving that he was of unsound mind at the time of execution of a document lies on him who challenges the validity of the contract.

Illustration, a patient in a lunatic asylum, who is at intervals of sound mind my contract during such intervals.

The liability for necessaries of life supplied to person of unsound mind is the same as for minors(section 68).

Contract by disqualified persons:

Besides minors and persons of unsoud mind, there are also other persons who are disqualified from contracting, partially or wholly, so that the contracts by such a person are void. If by any provincial legislation, a person is declared disqualified proprietor, he is not competent to enter into any contract in respect of the property.

Illustrations

(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.

(b) 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.

(c) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.

 (d) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B’s property.

Frequently Asked Question’s

1. What are various ingredients of capacity to contract?

According to section 11 of Indian Contract Act, 1872, every person who:

  • Has attained the age of majority
  • Is of sound mind
  • Is not otherwise disqualified from contracting,

Is competent to contract.

2. What are legal consequences of contract with minor?

An agreement entered into by a minor is altogether void. The word void when used in relation to a minor it should be understood as “void as against the minor”. Contract with or by a minor is altogether void. The Indian Contract Act simply says that only a person who is a major is competent to contract. . The main reason for holding a minor’s agreement void is that where an agreement by a minor involves a promise on his part or his promise is a necessary part of the agreement it is void because a minor is incapable of giving a promise imposing a legal obligation.

3. What are essential elements of contract?

Agreement – Offer and Acceptance

The parties to the contract should have a mutual understand regarding the subject-matter of the contract. There must be a “lawful offer” and “lawful acceptance” thus resulting in an agreement. The parties must have agreed to the subject-matter in the same sense.

Legal purpose

There must be an intention among the parties that the agreement should be attended to by legal consequences and create legal obligation. Agreements of social or domestic nature do not contemplate legal relations.

Lawful Consideration

Consideration means ‘something in return’. In every legal contract, there must be something in return. An agreement is legally capable to be enforced only when each of the parties to it gives something and gets something. The consideration should not be unlawful, illegal, immoral or opposed to public policy.

Capacity to contract

Every person who enters into a contract must be competent. In other words, the person should be of the age of majority, should have a sound mind, and must not be disqualified from any law to which they subject. Minors, lunatics, unsound and intoxicated persons are incompetent to enter into a contract. However, there are exceptions as defined in Section 68. In case of an exception the minor or lunatic is not personally liable.

Consent to contract

All the parties must have agreed upon the subject matter of the agreement in the same sense. Section 14 says that if the agreement is induced by coercion, fraud misinterpretation or mistake, it is said to be “no free consent” and such a contract is voidable and cannot be enforceable by law.

Lawful object

If the object in the agreement is unlawful, the agreement is void.

Illustration: The landlord cannot recover rent through court of law when he knowingly lets his house to carry on prostitution.

Certainty

Every agreement of the contract must be certain. If the agreement is not certain or incapable of being made certain, it is void.

Possibility of Performance

Every contract must be capable of performance. Otherwise, the agreement is void. An agreement to do an impossible act whether physically or legally, is void.

Not expressly declared void

The agreement must not have been expressly declared to be void under the Act. Examples of such agreements are restrainment of trade, marriage, legal proceedings and wagering agreements. Such agreements are not enforceable by law.

Legal formalities like Writing, Registration etc.

A contract may be oral or in writing according to the Indian Contract Act. In certain special cases the agreement must be in written. In some cases like contracts by companies, selling or buying of shares etc., the contract must be registered.

All the above ingredients must be satisfied in every valid contract. It can be noted that all contracts are agreements, but not all agreements are contracts.

Edited by Soma Sarkar

Approved & Published – Sakshi Raje

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Jeetu kanwar
I am Jeetu Kanwar from Army Institute of Law, Mohali pursuing BA.LLB. The sphere of I.PR and criminal law attracts me the most. If at all I get any free time, I like reading books mostly of the fiction genre, more specifically, the crime fiction. I am an enthusiastic debater, mooter, reader , writer and a researcher. I like to explore different things. My basic interest lies in working for the downtrodden section of society and working for a good cause. It gives me an immense pleasure in working for the society. I am a patient listener and a observer.