Capacity of Parties

(e) Capacity of Parties

Capacity to contract means the legal competence of a person to enter into a binding

agreement. Section 11 lays down the test: "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." Three requirements

follow directly from this: (i) the person must have attained the age of majority, (ii) the

person must be of sound mind, and (iii) the person must not be disqualified by any other

law.

Minority and the law regarding a minor's agreement: under the Indian Majority Act, 1875,

a person attains majority at the completion of 18 years (or 21 years, where a guardian of

the minor's person or property has been appointed by a court). Any agreement made by a person

below this age is with a minor.

The governing rule — settled by the landmark Privy Council decision in Mohori Bibee v. Dharmodas Ghose (1903) — is that an agreement with a minor is void ab initio, not merely

voidable. The reasoning is that Section 11 makes competence to contract a condition precedent,

and a minor, being legally incompetent, cannot give a consent the law will recognise at all;

there is therefore no agreement in the eyes of the law from the very start. Consequences that

follow from this:

• No ratification on attaining majority — because the original agreement was void (not merely voidable), there is nothing to "ratify"; the minor (now major) would need to make an entirely fresh agreement, supported by fresh consideration, if they wish to be bound.
• A minor CAN be a beneficiary/promisee — a minor is fully entitled to enforce a contract that is wholly for their benefit (e.g. as a payee under a promissory note, or as a beneficiary under a contract of sale where they have already paid the price).
• No estoppel against a minor — even if a minor fraudulently represents that they have attained majority in order to induce the other party to contract, they cannot later be "estopped" (prevented) from pleading minority as a defence.
• A minor's property (not their person) can be held liable for necessaries supplied to them, under Section 68 — this is not contractual liability at all but a quasi-contractual claim; the minor is never personally liable, and only genuinely necessary goods/services suited to the minor's condition in life qualify (a luxury purchase, for instance, would not).
• Parents/guardians are not personally liable on a minor's agreement, unless the minor was acting as their authorised agent.

Persons of unsound mind — Section 12: "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." This test is applied AT THE

TIME the contract is made, which is why the Act specifically recognises that:

• A person who is usually of unsound mind, but occasionally of sound mind (e.g. a person with periodic lucid intervals), may contract when he is, in fact, of sound mind — so a lunatic CAN validly contract during a lucid interval.
• A person who is usually of sound mind, but occasionally of unsound mind (e.g. under the influence of alcohol or intoxicating drugs at the relevant moment), may not contract when he is of unsound mind.
• An idiot — permanently and completely lacking mental capacity — can never validly contract.

Effects of an agreement made by a person of unsound mind: the agreement is void, on

exactly the same reasoning as a minor's agreement (want of a legally recognised consent);

however, exactly like a minor, the property of a person of unsound mind can be held liable

for necessaries supplied to them, under Section 68.

Disqualified persons — categories of persons the law separately bars from contracting, or

restricts, even though they may be of full age and sound mind:

• Alien enemies — a person who is a subject of a country at war with India; contracts made during the continuance of the war are either suspended or treated as void, depending on their nature. …