Capacity and validity of contract
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1. Capacity to contract under Indian law requires that parties are of the age of majority, sound mind, and not legally disqualified from entering contracts. 2. Any agreement with a minor is void, as a minor lacks capacity until age 18. While minors cannot be bound by contracts, they can receive partnership benefits and must return benefits received under a void contract. 3. To be of sound mind, one must understand the contract and rationally judge its effects on their interests, as defined in Section 12 of the Indian Contract Act. People who are occasionally unsound cannot contract during those periods.
Capacity and validity of contract
- 1. UNIT - II CAPACITY AND VALIDITY OF CONTRACT -SHIVANI SHARMA -ASSISTANT PROFESSOR -SARDAR PATEL SUBHARTI INSTITUTE OF LAW
- 2. CAPACITY TO CONTRACT•One of the most essential elements of a valid contract is the competence of the parties to make a contract. •According to section 11, “every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.”
- 3. •Section 11 of the Indian Contract Act, 1872, defines the capacity to contract of a person to be dependent on three aspects; 1.Attaining the age of majority, 2.Being of sound mind, 3.And not disqualified from entering into a contract by any law that he is subject to (e.g. Insolvency)
- 5. ATTAINING MAJORITY •According to the Indian Majority Act, 1875, the age of majority in India is defined as 18 years. For the purpose of entering into a contract, even a day less than this age disqualifies the person from being a party to the contract. Any person, domiciled in India, who has not attained the age of 18 years is termed as a minor.
- 6. EFFECT OF MINOR’S AGREEMENT •Since any person less than 18 years of age does not have the capacity to contract, any agreement made with a minor is void ab-initio.
- 7. •Example, peter is 17 years and 6 months old. He needs some money to go on vacation with his friends. He approached a moneylender and borrows Rs 25,000. As security, he signs some papers mortgaging his laptop and motorcycle. Six months later, when he attains the age of majority, he files a suit declaring that the mortgage executed by him when he was a minor is void and should be cancelled. The court agrees and relieves peter of all liability to repay the loan.
- 8. •A very important case that had explained this issue is Mohiri Bibi v. Dharmodas Ghose. •In this case, a minor had borrowed some money from a money-lender by mortgaging his house. The money-lender moved to take possession of the minor’s house when he defaulted payment. The court, however, said since an agreement with minor parties is void, the money-lender could not enforce this contract.
- 9. RULES RELATING TO AGREEMENT WITH MINOR PARTIES Although, as a general rule, a contract with minors is void, we must keep in mind the following rules as well: •A contract with a minor is void and, hence, no obligations can ever arise on him thereunder. •The minor party cannot ratify the contract upon attaining majority unless a law specifically allows this. – Kundan Bibi v Shri Narayan
- 10. •The partnership act also prohibits minors from becoming partners in a firm. They can, however, receive the benefits of partnership and ratify the same upon attaining majority. •No court can allow specific performance of a contract with minors because it is void altogether. •The rule of estoppel under evidence law does not apply to minors under contractual obligations. In other words, even if a minor forms a contract claiming majority age, legal obligations cannot arise against him.
- 11. •A minor is incapable of contracting debts and hence he cannot be adjudged insolvent. • A minor can become an agent, and by his acts he binds his principal; however a minor is not personally liable for his principal. •A minor cannot be member of a Registered Company •No liability of torts – Burnard v Haggis, Jennings v Rundall
- 12. benefits under Section - 65? – No. ‐Lahore HC – Khan Gul v Lakhan Singh, Shadi Lal – ‘Minor should be made to pay back’ ‐Allahabad HC – Ajudhia Pd. V Chandan Lal – ‘Minor can’t be made to pay’ ‐Law Commission – ‘Minor should pay back’ – Accordingly Section 33 was included in the Specific Relief Act, 1877: “That the agreement sought to be enforced against him in the suit is void by reason of his not having been competent to contract under section 11 of the Indian Contract Act, 1872, the court may, if the defendant has received any benefit under the agreement from the other party, require him to restore, so far as may be, such benefit to that party, to the extent to which he or his estate has benefited thereby.”
- 13. •Minor’s liability for necessaries: ‐Under Section 68 of the Indian Contract Act, if a person incapable of entering into a contract, or anyone whom he is 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 person. ‐What comprises ‘necessary’ is a relative thing – Chappel v Cooper ‐It is to be noted that only minor’s property is liable, minor is not personally liable for necessaries supplied to him.
- 14. •A minor cannot be bound by contract but he can be a lawful beneficiary. Thus a promissory note executed in favor of a minor can be enforced. ‐The following are the contracts that are beneficial for the minor: 1.Contract of Service and Apprenticeship – Raj Pani v Prem Adib – In India only Contract of internship is binding and not contract of Service 2.Contract of Marriage 3.Minor vis-à-vis Partnership – Can’t be a partner – Section 4 Indian Partnership Act, 1932 4.Minor vis-à-vis Negotiable Instrument
- 16. WHO IS UNSOUND?•Section 12 of the Indian Contract Act, 1872: “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”
- 17. •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. ‐Lingaraj v Parvathi – Difference between mere weakness of intellect and lunacy