CAPACITY TO CONTRACT

Lecture Six

S. 10 requires that the parties shall be competent to contract.

S. 11. Who are competent to contract. - 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.

Minors Contract
It is usually presumed that every man is the best judge of his own interests.

Why should minor be protected?

They are often exploited. Their properties are usually stolen. It is duty of the court to protect their right.
The action of the old person aggravates the misuse of minors. This presumption is suspended with
reference to minors to protect him against manipulation, fraud, unscrupulous traders as well as his own
ignorance. It can be said that law adopts a somewhat paternalistic approach with regard to minors and
the contracts they enter into. There exists a general presumption whereby a minors contract is
unenforceable against him in the law of contracts.

Age of majority: The age of majority is determined with regard to the law a person is subject to

In Bangladesh, the age of majority in India is eighteen years of age except where the courts have
appointed a guardian of a minors person or property where the age of majority is taken as 21 years.
Section 3 of the Majority Act, 1875 defines a minor as a person who:

a) Has not completed 18 years of age

b) Has not completed 21 years of age where a guardian of the minors person or property has been
appointed under the Guardians and Wards Act, 1890; and

c) Has not completed 21 years of age where the superintendence of minors property is assumed by a
court of wards.

In England, persons who have not reached the age of 18 years are regarded as minors.
Validity of a minors agreement

Section 11 expressly provides that a minor is not competent to contract. However, it says nothing about
whether a minors agreement is void altogether or merely voidable at his option. The uncertainty in this
matter was settled by the Privy Council in the case of Mohiri Bibi vs. Dharmodas Ghose. It was held that
any contract entered into by a minor was void ab initio. A contract with or by a minor is not valid.

contracts for the supply of necessaries will generally be binding. There are no hard and fast rules to
identify what is a necessary but it does include the sorts of things the young person needs to live a
reasonable lifestyle. It includes basics such as:

food;
clothing;
a place to live;
medicine, and so on.

It will also include any contracts relating to the young persons education, apprenticeship or something
very similar, if it can be shown to be of benefit to the young person. The young person contracting in
this situation will be held bound to pay a reasonable price (although that may not be the contract price)
for necessaries actually sold and delivered. (Delivery is a technical term. Generally, delivery takes
place when the seller has given the buyer the power to take the goods away.) Where necessaries have
been sold but there has been no delivery, the young person does not have to take delivery or pay for the
goods.

Non-binding contracts and young people

Two classes of contracts are not binding on a young person, namely:

contracts that are not for necessaries; and

Effects of Minors Agreement

1. Minors agreement cannot be ratified by him.

A minors agreement is void from the very beginning and therefore, cannot be made valid by
ratification. However, if the minor wants to carry out the agreement, a fresh agreement should be made
on attaining majority.
2. No liability for tort based in contract - Johnson v. pye

Minors agreement is devoid of all consequences in law. A contract cannot be converted in to tort to sue
an infant. Minor is not liable for tort connected with contract, but an infant is not absolved from liability
for independent tort.

3. Doctrine of equitable restitution - when an infant obtained property or goods by misrepresenting his
age, he can be compelled to restore it, but only so long as the same is traceable in his possession. If the
minor has resold those goods he cannot be made to repay the value of goods and it is not applicable
when the minor has received money instead of goods.
Leslie v. Sheill - db. A minor misrepresenting his age obtained loan from the Plaintiff., who sued to
recover on the grounds-

Minor is liable for damages for fraud

Minor shall be compelled in equity to restore the money.

HELD

Lord Sumner When an infant obtained an advantage by falsely stating his age, equity requires him to
restore ill-gotten gains but scrupulously short of enforcing a contractual obligation entered in to while
he was an infant even by means of fraud. The money was paid over in order to be used as defendants
own and he has so used it. There is no question of tracing it, no possibility of restoring the very same
thing got by fraud. Compulsion to repay an equivalent sum out of his present and future resources
would amount to enforcing a void contract.

4. Liability to restore benefits

Where a minor seeks the help of court for the cancellation of his contract, the court may grant the
relief subject to the condition that he shall restore all benefits obtained by him under the contract, the
court may grant relief subject to the condition that he shall restore all benefits obtained by him under
the contract or make suitable compensation to the other party.

5. A minor can be a promise or beneficiary.

An agreement where a minor receive a benefit which can be enforced as against the other party.

6. No estoppel against minor.

The term estoppel may be defined as prevention of a claim or assertion by law.

when a minor fraudulently enters into a contract, representing that he is a major, but in reality he is not,
then later on he can plead his minority as a defense and cannot be stopped (i.e. prevented) from doing
so.

7. No specific performance of the agreements.

An agreement by minor is void so the court will never direct specific performance of such an agreement.

8. No bankruptcy.

The minor is not personally liable for any debt incurred during the period of his minority.

9. Minor as a partner.

A minor, being incompetent to enter into a contract, cannot be a partner in the firm. However, he may
be admitted only to the benefits of the firm with the consent of all other partners.

10. The Minor as an agent.

An agent is merely a connecting link, between his principal and third person. Therefore, a minor can be
appointed as an agent. But he will not be personally liable for his acts as an agent.
11. Position of minors guardian.

An agreement by minors guardian on his behalf is valid provided the obligations undertaken are within
the power of the guardian.

12. Companys shares of a minor.

A minor cannot apply for a companys share. If a minor by mistake become a member of a company,
then the company can cancel the transaction and remove the name from the register.

Person of Unsound Mind:

S. 12 What is a sound mind for the purposes of contracting. -

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.

Examples:

(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.

A person unsound mind cannot enter into a contract. A lunatic's agreement is therefore void. But if he
makes a contract when he is of sound mind, i.e., during lucid intervals, he will be bound by it.

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 judgement as to its effect on his interests cannot contract whilst such
delirium or state of drunkenness lasts. A person under the influence of hypnotism is temporarily of
unsound mind. Mental decay brought by old age or disease also comes within the definition.

Agreement by persons of unsound mind are void. But for necessaries supplied to a lunatic or to any
member of his family, the lunatic's estate, if any, will be liable. There is no personal liability incurred by
the lunatic.
If a contract entered into by a lunatic or person of unsound mind is for his benefit, it can be enforced
(for the benefit) against the other party (Jugal Kishore v. Cheddu, (1903) I All. L.J 43).

Disqualified Persons
If a person is declared disqualified by the court of law then he cannot enter into a contract, the contract
will be void.

Reasons for disqualification:

Alien enemy: Persons from a country with whom Bangladesh is in a state of war or is already at war
with.

Foreign sovereigns: These people are immune from the jurisdiction of local courts, unless they
voluntarily submit to its jurisdiction. These persons have a right to contract but can claim the privilege of
not being sued.

Bankrupt: An insolvent cannot enter into a contract as his property vests in the official receiver or
official assignee.

Convict: A convict while undergoing imprisonment in incapable of entering into a contract. But this
disability comes to an end on the expiry of the sentence.

Corporations: A Corporation is an artificial person recognized by law. It exists only in the eyes of law. It is
competent to enter into a contract only through its agent.

Professional persons: It is only in England, where the barristers cannot sue their clients for their
professional fees. In Bangladesh, no such rule exists.