CAPACITY TO CONTRACT

Who is competent to contract? As per section 11 of the Indian Contract Act

(a) Every person who has attained the age of majority,
(b) Who is of sound mind and
(c) is not otherwise disqualified from contracting

is competent to contract.

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

(b) Sound mind – As per section 12 --A person is of sound mind if at the time when he makes it, he is
capable of understanding it and of forming a rational judgement as to its effect upon his interests.

Section further lays down that 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 cannot make a contract when he is of unsound mind.
(A) Position of Minor’s agreement
1. An agreement made with minor is altogether void – The word void means “void as against the
minor”. Contract with or by a minor is altogether void. The Act provides that a person who is
a major is competent to contract. An agreement by a minor involves a promise on his part and
he is incapable of giving a promise imposing a legal obligation. Therefore, the agreement with
the minor is void ab initio
Mohribibee V Dharmodas Ghose
In this case a minor has mortgaged his house in favour of B to secure a loan of Rs. 20000/- As
part of this amount Rs. 10500/- was advanced to A, a minor by B. A the minor sued for the
cancellation of the mortgage on the ground that he was minor when he executed the mortgage.
It was held that mortgage was void and was cancelled. Privy council which decided the case
held that the minor’s agreement is void. There is no question of refunding the amount. In this
case B who advanced money was aware that A was minor. Court held that if A the minor is
directed to refund the amount, then this is tantamount to enforce an agreement which is void.
2. Minor can be a beneficiary – Though a minor is not competent to contract. There is nothing,
which prevents him from making the other party bound to the minor. Thus minor though
incompetent to contract may accept a benefit. A promissory note executed in favour of a minor
is not void and can be sued upon by him. In the case Raghavachariah Vs. Srinivas it was
held that a mortgage executed in favor of minor and minor can a get a decree for its
enforcement.

A minor under a contract of sale delivered goods to the buyer. Minor can maintain a suit for
the recovery of price.

3. Minor can always plead minority :- A minor’s agreement is 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, he can plead his minority in a suit intended to
recover the amount from him (minor the suit against him will be dismissed)
 Applicability of Doctrine of Restitution :-

Following observations are important in this connection :-

(a) If an infant obtains property by misrepresenting his age, he can be compelled to restore it
but only so long as the same is traceable in his possession. This is known as the equitable
doctrine of restitution.

(b) But where the infant has sold the goods, he cannot be made to repay the value of the goods
because that would amount to enfocing a void agreement.

(c) Again the doctrine of restitution is not applied where the infant has obtained cash instead of
goods. The well-known authority on this point is Leslie ® Ltd. Vs. Sheill. Lord Summer
who delivered the judgement pointed out that the minor might have spent the money as his
own, there was no chance of tracing it and no possibility of restoring the very thing got and
the court would not pass a personal decree against the minor.

(d) A minor had fraudulently mortgaged and sold certain properties. He invokes the aid of the
court for the cancellation of his contract. Thus he is the plaintiff. The court may grant
relief and may compel him to restore all benefits obtained by him under the contract or
make suitable compensation to the other party. Reason is simple. He who seeks justice
must do justice.

The principle of restitution is contained in Section 33 of the Specific Relief Act. The net
result may be stated in the following two propositions:-

(I) Where void agreement has been cancelled at the instance of the party thereto, the court
may require him to restore such benefits as he has received and to make any
compensation to the other party which justice may require.

(II) Where the minor (defendant) successfully resists any suit on the ground that the
contract by reason of his being incompetent is void against him, he may be required to
restore the benefits, if any, obtained by him but only to the extent to which he or his
estate has benefited thereby.

4. 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 void as it is without
consideration.

5. Contract by guardian – how far enforceable – Though a minor’s agreement is 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 and which is within his {guardian}
competence and which is for the benefit of the minor. Such a contract is valid which minor can
enforce.

For instance a guardian can make an enforceable contract of marriage for a minor. It is
customary among most of communities in India for parents to arrange marriages between
minor children and the law has to adapt itself to the habits and customs of the people.
Similarly, when the father of the bridegroom contracts with the father of the bride to pay the
bride an allowance the bride can sue her father-in-law to recover arrears of the allowance.
 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 contact.
In the case of Raj Rani V Prem Adib – The plaintiff is minor who was allotted by the
defendant, a film producer the role of an actress in a particular film., The agreement was made
with her father. The defendant subsequently allotted that role to another artiste and terminated
the contract with the plaintiff’s father.
The Bombay High Court held that neither she nor her father could file the suit on the promise.
It was a contract with the plaintiff, and she being a minor Therefore, it was a nullity If it was a
contract with her father, it was void for being without consideration. The promise of a minor
girl to serve being not enforceable against her cannot furnish any consideration for the
defendant’s promise to pay her a salary.
6. Liability for necessaries – However, the contract with minor for necessaries is valid and
minor’s property is liable. This is illustrated in Section 68 of the act to the effect – If a person
incapable of entering into a contract or anyone whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable
person.
Thus any person would be entitled to reimbursement out of the minor’s estate, for necessaries
supplied to him or to his family whom he is bound to support A minor cannot be held personally
liable for necessaries but his property is liable.
What is necessary? Necessaries as defined by the English Sale of Goods Act, mean goods
suitable to the condition in the life of infant as required by him at the time of sale and delivery. It
includes not only food and clothing and housing but also includes the education and the
instruction needed. Necessaries also include services offered. Articles of mere luxury offered are
always excluded though luxurious articles of utility are in some and relevant appropriate cases
may be allowed. Even the money advanced to buy the goods and services necessary are also
included and covered.
As is clear from the above discussion, the term necessary is a relative fact to be determined with
reference to the fortune and circumstances of the particular minor. The infant’s need of things may
also sometimes depend upon the peculiar circumstances under which they are purchased and the
use to which they are put. For instance, articles purchased by an infant for his wedding may be
deemed necessary, while under ordinary circumstances the same articles may not be so
considered.
Example:- A minor who was a student brought 11 fancy coats from N. He was at that time
adequately provided with clothes. Held, not a single coat was a necessity. His properties could not
therefore, be attached for its payment. It is immaterial whether the other party knows this or not
(Nash V. Inman)
(B) Contract by a person of unsound mind – A person of unsound mind is incapable of entering
into a contract. An agreement by a person who is not of sound mind is void. However, such a
person can enter into a valid contract during an interval of lucidity. Unsoundness of mind is one
who is –
(i) Incapable of understanding the contract (ii) 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.
 Where a person is usually of sound mind, but occasionally becomes a person of unsound mind
cannot enter into agreement when he turns unsound.
Similarly, a person who is unsound mind can make a contract when he turns sound mind. For
example a patient in a lunatic asylum, who is at intervals of sound mind may contract during such
intervals.
An illustration is the decision of the Patna High Court in Inder Singh V Parmeshwardhari
Singh. A property worth about Rs. 25000/- was agreed to be sold by a person for Rs. 7,000/- only.
His mother proved that he was a congenital idiot incapable of understanding the transaction and
that he mostly wandered about. People to all appearances behave in a normal fashion, but at the
same time he may be incapable of forming a judgment of his own.
The liability for necessaries of life supplied to persons of unsound mind or to whom he is legally
bound to support is the same as of minors. (Section 68)

(C) Contract by disqualified persons – Besides minors and persons of unsound mind, there are also
other persons who are disqualified from contracting, partially or wholly. Contracts by such person
and with such persons are void. If, by any provincial legislation, person is declared ‘disqualified
proprietor’, he is not competent
An alien enemy during war cannot enter into a contract with an Indian subject. He cannot sue in
Indian Courts without a licence from the Central Government Contracts made before the war may
either be suspended or disallowed if they are against the public policy or if their performance
would benefit the enemy.
Similarly, a statutory corporation cannot enter into a contract which is ultra vires its
memorandum. Likewise, municipal bodies are disqualified from entering into contracts which are
not within their statutory powers.
Sovereign States, Ambassadors and Diplomatic Couriers enjoy certain special privileges with the
result that they cannot be legally proceeded against in Indian Courts and Indian Citizen has to
obtain a prior sanction of the Central Government to enable him to sue them in our law courts.
However, they can, at their will enter into contracts which may be enforceable in Indian Courts.

Insolvents: When a debtor is adjudged insolvent, his property vested in the official receiver or the
official assignee. As such the insolvent is deprived of his power to deal in that property It is only
the official receiver or the official assignee who can enter into contract in respect of that property
and can sue and be sued on his behalf.
Convict: - A convict while undergoing imprisonment is incapable of entering into contract. This
incapacity to contract comes to an end when the period of sentence expires or when he is pardoned.
 FREE CONSENT

Consent Means ( Sec 13)

Consent- two or more persons are said to consent when they agree upon the same thing at the same
sense.

When is consent said to be free?

 When it is not made under Coercion (Sec15)
 When not made under undue influence (Sec 16)
 When consent is not given under fraud (Sec 17)
 When it is not by misrepresentation (Sec 18)
 When there is no mistake between the parties (It can be only when there is a Mistake of fact
and not mistake of Law (Sec 20-22)

Coercion –Sec 15
Coercion is the committing or threatening to commit, any act forbidden by Indian panel code (XLV of
1860) or the unlawful detaining or threatening to detain any property, with the intension of causing
any person to enter into an agreement. E.g. Threat to commit suicide; agree on some things so as to
avoid prosecution. It’s a voidable contract not void contract.
In the case of Barton v/s Armstrong (1975)
In this case, former chairman threatened to kill the Managing Director unless the company bought
back his shares. So, it is voidable contract because no free choice, negative consent, no genuine
intension to contract.

Undue Influence -Sec 16

Some relations between the parties that relationship is of a dominating nature- or where the person can
use his will due to such position and obtain an unfair advantage over the other party. Real and
apparent authority or a fiduciary relationship or the mental capacity of the party is temporarily or
permanently affected due to age, illness, mental or bodily illness. It is a Voidable contract.
 Income Tax authority or a Magistrate
 Doctor Patient, Creditor Debtor, Teacher -Pupil
 Guardian and Child- It should have a trust and confidence relations so as not to exploit E.g.
Solicitor buying the property or selling his property by under valuing or overvaluing
 Mental Distress but not statutory compulsion or urgent need of money
 Unconscionable Bargains not allowed
 Contracts with the pardanashin lady
 Unequal Bargain, Strindhan given as a security by the wife when the husband is in debt
 Remedy-Recission of Contract allowed–Sec 19 A

Fraud- Sec 17
Act committed by a person or his agent or under his connivance etc with the intent to deceive another
party or his agent to induce him to enter into contract. It is a type of assertion of Facts without belief
in their truth.
Active concealment-
 But mere silence not fraud
 Until there is a duty to speak ,
 When silence is deceptive,
 Change the circumstances,
 Half truth
 Promise made without intention to perform
 Any other act which will deceive or declared to be fraud.

Misrepresentation- Sec 18
Where a person asserts something which is not true, though he believes it to be true, his assertion
amounts to misrepresentation.

 Positive assertion- Not warranted of the person making- not true, though he believes to be
true. E.g. car has traveled only 1000 KM; Mr. Kapil Dev will become the director. But it will
be untrue.

 Any breach of duty- without the intention to deceive and gives an advantage (gaining) to the
person committing it or any other person claiming under him (constructive fraud). E.g.
Conceal the content of the document.

 Misleading- others to his or someone else’s prejudice. By Inducing mistake about subject
matter, suppression of vital facts which are material facts but not expression of opinion change
of circumstances to be stated,

 Causing however innocent a party to agreement might have been to make mistake as to the
substance of the thing which is the subject matter of the agreement

 In all the above instances the consent must have been given by misrepresentation, which has
caused to agree to give consent to the contract.

Mistake- Sections 20 -22

When parties are under the mistake as to the matter of fact essential to agreement may be as to the -
Mistake as to Subject matter
 Horse dead while the parties are agreeing, ship is sunk while contracting Different subject
matter in mind.

 Mistake as to the Identity of the Person, Mistake as to the identity caused by Fraud.
 Mistake as to the Nature of Promise E.g.. Thinking that A is signing a power of attorney, while
it was a gift deed
 Mistakenly signing wrong documents Consequences
 Mistake of the both the parties- Void- Bilateral Mistake- perished goods (signing a separation
deed , when actually not married) ( Galloway V Galloway)
 Unilateral Mistake- Not just because it is mistake of one party
 Mistake of Law – Not voidable ( Law force in India)
 Mistake of fact – only allowed.