CAPACITY TO CONTRACT

RAJKUMAR
SECTION 10
• Section 10 of the Contract Act requires that the parties must be
competent to contract. Competence to contract is defined in Section
11. The section declares the following persons to be incompetent to
contract. (1) minors, (2) Persons of unsound mind, and (3) persons
disqualified by law to which they are subject.
SECTION 11
• Every person is competent to contract who is the age of majority
according to the law to which he is subject, and who is sound mind,
and is not disqualified from contracting by any law to which he is
subject.
• This section deals with personal capacity in three distinct branches:
(a) disqualification by infancy (b) disqualification by insanity (c) other
special disqualification prescribed by law.
AGE OF MAJORITY
• The age of majority as well as the disqualification from contracting is
to be determined by the law to which the contracting party is subject.
• The general principle is that the capacity of a person to enter in to
contract is decided by the law of his domicile.

• Under section 3 of the Indian Majority Act, 1875 the age of majority is
generally eighteen years.
• If the agreement is void the minor can neither sue nor be sued up on
it and the contract is not capable of ratification in any manner.
Mohori Bibee v Dhurmodas Ghose
• The Privy council ruled that-the Act make it essential that all
contracting parties should be competent to contract and especially
provides that a person who by reason of infancy is incompetent to
contract cannot make a contract within the meaning of this Act. It
was accordingly held that a mortgage made by a minor was void and
a money lender who has advanced money to a minor on the security
of the mortgage is not entitled to repayment.
MINOR AGREEMENT BASED ON TWO
PRINCIPLES
• The law must protect the minor from his own inexperience which
may enable an adult to take unfair advantage on him.
• The law should not cause unnecessary hardship to the adults dealing
with minors fairly.
DOCTRINE OF RESTITUTION
• If an infant obtains 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. This is known as the equitable doctrine of restitution.
• Where the infant has sold the goods or converted them he cannot be
made to pay for the value of goods because that would amount to
enforcing a void agreement.
• Again, the doctrine of restitution is not applied where the infant has
obtained cash instead of goods.
• The well known authority is Leslie Ltd v Sheill. In this case money lender
attempt to recover the principle and interest as damages for fraud failed.
• The scope of relief possible against a fraudulent minor in India was
examined in Mohori Bibee v Dhurmodas Ghose.
RAGHAVA CHARIAR V SRINIVASA
• The following question was referred for the decision of a Full Bench
of the Madras High Court: Whether a mortgage executed in favour of
a minor who has advanced the whole of the mortgage money is
enforceable by him or by any other person on his behalf? The
unanimous opinion of the Full Bench was that the transaction was
enforceable by or on behalf of the minor.
UNSOUND MIND
• The agreement of a person of unsound mind is like that of a minor
absolutely void. According to 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 he is capable of understanding it and of forming a rational
judgment as to its effects upon his interest”.
• However a person who is usually of unsound mind may make a
contract when he is of sound mind. But a person who is usually of
sound mind may not make a contact when he is of unsound mind.
Chacko v Mahadevan
• A sale deed of property was executed at a time when the transferor
was suffering from alcholic psychosis, which was proved by medical
certificate. A very valuable land was sold for a paltry amount. The
Supreme Court ordered the sale deed to be set aside. The court said
that unsoundness of mind is a finding of fact. There could be no
interference in it in second appeal.
INSOLVENT
• An adjudged insolvent (before an ‘order of discharge’) is competent
to enter into certain types of contracts i.e. he can incur debts,
purchase property or be an employee but he cannot sell his property
which vests in the official receiver. Before ‘discharge’ he also suffers
from certain disqualifications e.g. can’t be a magistrate or a director
of company or a member of local body but he has the contractual
capacity except with respect to his property. After the order of
discharge,’ he is just like an ordinary citizen.