LAW OF CONTRACT

CAPACITY OF PARTIES

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 CAPACITY OF PARTIES
Competent to Contract
All the parties to a contract must be competent to contract.
S.11 Contract Act:
“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.”
Hence, the capacity of a party is dependent upon three factors:
• age of majority (not a minor)
• sound mind
• not disqualified from contracting by law

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 CAPACITY OF PARTIES
Minor (1st factor)

According to Section 3 of the Majority Act, 1875, a minor is a person who has
not attained 18 years of age.

It means that a person is competent to contract after attaining 18 years of age.

However, when a court appoints a guardian for a minor, the minor attains the age
of majority after 21 years.

What is the value of an agreement made by a minor in the eyes of the law?

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 CAPACITY OF PARTIES

NATURE OF MINOR'S AGREEMENTS

1. Void Agreement.
An agreement with minor is void. A minor is not liable to perform any act which
he has promised because he does not possess the capacity to judge what is good or
bad for him. He cannot be compelled to pay back the benefit received by him
under the agreement.
Example
A, a minor sold his shop to B. The amount was paid to A but the sale deed could
not be registered as A was minor. On a suit by B, it was held that as A was minor
so agreement was void ab-initio and the amount was not recoverable.
(Shiam Lal vs: Ram Piary)

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 CAPACITY OF PARTIES
2. Minor and Ratification
Ratification means act of confirming or approving. An agreement made by
minor cannot be confirmed by him on attaining the age of majority because an
agreement which is void from beginning cannot be made valid by subsequent
confirmation.

Example
M a minor borrowed some money and wrote a promissory note for it. On
attaining majority M wrote a second promissory note to settle the first note. It
was held that the first promissory note was void.
(Suraj Narain vs Sukhu Ahir)

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3. Minor and Estoppels
The concept of estoppel means to prevent a person from denying the truth of a
fact which he has asserted earlier.
The rule of estoppel does not apply to a minor. It means that a if a minor
fraudulently enters into a contract representing that he has attainted 18 years of
age, later he cannot be prevented from proving his minority in court. Thus he
remains unbound by the contract.

Example
M, a minor fraudulently shows that he is of full age and contracts with N to sell
his house. Later, M refuses to perform the contract on the ground that he is a
minor. N cannot sue M for performance of contract.
(Sadiq Ali Khan vs. Jai Kishore)

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4. Minor and Reimbursements
Generally, a minor cannot be compelled to repay the money received by him
under an agreement. However, where a minor enters into a contract by
fraudulently showing that he has attained the age of majority, the court may order
the minor to return the amount, though the final order depends upon the
circumstances of the case.

Example
A minor sold a house for Rs. 50,000 showing that he is an adult. Later, he sued to
cancel the sale on the ground of minority. The court ordered the minor to return
the money received by him.
(Jager Nath Singh vs. Lalta prasad)

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5. Minor and Necessaries
According to S.68, a person who supplies necessaries to a minor or his
dependents, can recover reasonable value of such goods from the property
of a minor. If a minor owns no property, the supplier cannot recover the
price of necessaries. lf the minor already possesses necessaries at the time
when necessaries are supplied to him, the supplier cannot recover the value
those goods.

Example
a) A supplied necessary food items to B, a minor. A can recover value from
B's property.
b) A minor purchased 11 coats. He had sufficient clothing at that time. It was
held that these many coats were not necessaries of life and minor was not
liable to pay for them.
(Nash vs, Inman)
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6. Minor as Beneficiary

A minor is capable of accepting benefit. A minor can enforce the contract which
for the benefit of a minor and under which he is not required to bear any
obligations.

EXAMPLE

A, a minor advanced some amount to B. B mortgaged his property in favor of A.

A can enforce the mortgage if B does not repay the money.

(Raghva Chariar vs. Srinivasa)

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7. Contract by Minor and Adult Jointly
Where a minor and an adult jointly enter into an agreement with another person,
the minor is not liable but only the adult would be liable.
Example
a)M, a minor and A jointly make an agreement with X to purchase a car. The
agreement is valid.
b)A minor and adult jointly agreed to pay some amount and executed a bond.
The court held that adult was liable but not the minor.
(Jamna Bai Vs. Vasarita
Rao)

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 Capacity of Parties
Agreement by guardian vs. Agreement by minor
Agreement made by guardian
A contract made on behalf of minor by his guardian is binding on the minor. It
can be enforced against the minor provided the contract is within the authority of
the guardian and for benefit of the minor.
Example: S entered into an agreement to sell property on behalf of two minors,
NG and SG. It was proved in court that S was not the legal guardian of the minors
therefore the agreement was held to be void ab-initio.
(Shahbaz Rasool vs Amir Imran)
Agreement by minor
The parents of a minor are not liable for agreements made by a minor, whether
the agreement is for the purchase of necessaries or not. The parents are only liable
if the minor acts as an agent of the parents.
Example: F sends his son M, a minor to buy goods from S. M buys goods from S.
F is liable for payment.

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 PERSONS OF UNSOUND MIND
Sound Mind (2nd factor)
Section 12 defines:
“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.”
It means that a person must be able to understand the nature of contract. A person
who is temporarily of unsound mind cannot make a contract during such period.
However, he can make a contract when he becomes of a sound mind. A person
may become of unsound mind due to idiocy, insanity drunkenness, hypnotism and
old age, etc.

Example
a)A, a sane man who becomes temporary insane due to drug overdose sells his
scooter to B. The agreement is void.
b)D entered into an a agreement with S to sell property on unusual terms. Later, it
was proved that D was of unsound mind at the time of agreement. Held: the
agreement was void
(Dosa vs. Shahamad) 12
Effect on Agreement
An agreement by a person of unsound mind is void but he can get benefit under
it. However, the person who supplies necessaries to the person of unsound mind
or any one whom he is legally bound to support, can recover reasonable value of
those necessaries from the property of such person. If the person of unsound mind
owns no property, then the supplier cannot recover. (Sec 68)

Burden of Proof
Where a person is usually of sound mind, then the burden of proof lies on the
person who challenges the validity of contract.
Where a person is usually of unsound mind, the burden of proof lies on the
person who affirms it.

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 DISQUALIFIED PERSONS (3rd factor)
Following persons are disqualified from contracting: (Sec:11)
1. Joint Stock Company
Joint Stock company cannot enter into contract outside the powers given to it by
its
Memorandum of Association or by the provisions of the Company Ordinance.
Example: XYZ Co, makes an agreement with A to sell some property which the
company is not authorized by it memorandum of association, an agreement is
void.
2. Diplomatic Agent
The diplomatic agent means the staff of the diplomatic mission, of a foreign
country in Pakistan. Foreign sovereigns, diplomatic staff and representative
of foreign staff can enter into contract in their personal capacity but not the
behalf of their governments.
Example: E, a diplomat rented a house from M on behalf of the state to which he
belongs to. M sued for recovery of arrears of rent. It was held no action 14could
3. ALIEN ENEMY
An alien means citizen of a foreign country. An alien whose country is at peace
with Pakistan is an alien friend. A contract with an alien friend is valid. An
alien whose country is at war with Pakistan is an alien enemy, A contract
with an alien enemy is illegal.
Example: A contracts to buy goods with X, a citizen of India without the
permission of Pakistan Government. It is illegal and void.
4. INSOLVENT
An insolvent cannot enter into a contract with anyone regarding his property,
which will be in the control of official receiver. After the order of
discharge, he can enter into a contract.
Example: A, an insolvent promises to sell his car to B. The agreement is void.

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5. CONVICT
A convict is a person who has been imprisoned by a court of law. During the
period of sentence he is incapable of entering into contract. However, he
can enter into a contract while on parole. He becomes capable of making a
contract when the sentence of imprisonment expires.

Example: W during imprisonment enters into an agreement with S to sell his

land. The agreement is void.

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