Capacity to Contract

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

Chapter 9

Slide 1

Definition of Capacity
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

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 minors 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. Minors parents/guardians are not liable to a minors 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 minors 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. Is 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 didnt 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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