Chapter 9 Slide 1

Capacity to Contract

“No brilliance is need in the law. Nothing but common sense, rational decision making power.”

• A person must have the ability to give consent before he can be legally bound to an agreement, thus capacity is the ability to incur legal obligations and acquire legal rights

Definition of Capacity

Section 11 of the Indian Contract Act 1872 deals with the competency of parties and provides that every person is competent to contract

(i) Who is of age of majority

(ii) Who is of sound mind

(iii)Who has not been disqualified by law from entering into a contract

Minors

• A minor is a person who is under the age of 18 years old

• As they have less experience, the law tries to protect minors from situations where they might enter into contracts which do not benefit them

Effect of minor’s agreement

1. An agreement with minor is void

[Case: Mohiri Bibi v. Dharmodas Ghose]• Dharmodas Ghose, a minor, entered into a

contract for borrowing a sum of Rs. 20,000

out of which the lender paid the minor a sum of Rs. 8,000.

• The minor executed a mortgage of property in favor of the lender.

• Subsequently, the minor sued for setting aside the mortgage.

Held: Mortgage was void and lender was not entitled to repayment of money

2. No ratification

[Indran Ramaswamy v. Anthiappa Chettiar]• A,a minor makes a promissory note in favor of B.• On attaining majority, he makes out a fresh

promissory note in lieu of the old one. • Neither the original, nor the fresh promissory

note is valid

3. A minor can be a promisee or a beneficiary.

[ Case: General American insurance co. v/s Madan Lal Sonu Lal]

• A minor insured his goods with insurance co.• The goods were damaged. X filed a suit for

claim. • The insurance company took the plea of his

minority. • The court rejected his plea and allowed the

minor to recover insurance money

4. No estoppel against minor

[Leslie v. Shiell]• S, a minor, borrowed £400 from L, by

fraudulently misrepresenting that he was a major.

• On default by S, L sued for return of £400.

Held : L could not recover £400, and his claim for damages also failed.

• It is to be noted that if money could be traced then the court would have, on equitable grounds, asked the minor for restore the money, as minor does not have a liberty to cheat.

5. If a minor has received any benefit under a void contract, he cannot be asked to

refund the same.

6. A minor cannot be a partner in a partnership firm.

7. Minor’s parents/guardians are not liable to a minor’s creditor for the breach of

contract by the minor. parents are liable where the minor is acting as an agent of the parents or the guardian.

8. A minor can act as an agent and bind his principal by his acts without incurring

any personal liability.

9. Liability for tort:

10. No insolvency

11. Joint contract by a minor and an adult

12. Surety for a minor

13. Minor as a shareholder

14. Liability for the necessaries

Contracts for Necessaries• Necessaries are things necessary to maintain

the minor• Necessaries includes food and clothes• It would not include things like jewellery and

DVD players and other luxuries• Minor is only required to pay a reasonable

price for necessaries• If the minor already has a good supply of a

particular thing (eg clothes) then more of these may not be necessaries even though they are useful and within the minor’s usual income

[Case: Nash v. Inman]I, a minor, ordered 11 fancy coats for about

£45 with N, the tailor.

The tailor sued I for the price. I’s father proved that his son had already a number of coats and had clothes suitable to his condition in life when the clothes made by the tailor were delivered.

Held : The coats supplied by the tailor were not necessaries and, therefore, the action failed

Minors

Valid Contracts with Minors

• Contracts for Necessaries

• Beneficial Contracts of Service

Persons of Unsound mind

Two tests of soundness are:

(i) Capacity to understand the contract

(ii) Capacity to form rational judgment as to its effects upon his interests

Persons disqualified by law from entering into a Contract

(i) Alien Enemy

(ii) Insolvent

(iii)Joint stock Company incorporated under Special acts

(iv)Convicts

Cases

• Tanya, a minor, was the daughter of a construction worker. When se was 17, she bought an evening gown for $400.00 to wear to a school dance. After the dance, Tanya decided she didn’t like the dress and returned it asking for the money back. Is she legally entitled to the money?

• Yes, the gown was probably not a necessary item for Tanya.

THANK YOU

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