CAPACITY OF PARTIES

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Submitted by

NISHITA GUPTA
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Batch: 2019-24 Programme of Study: BBA LLB 

Symbiosis Law School, NOIDA

Symbiosis International (Deemed University), Pune
In
AUGUST, 2019
 CERTIFICATE

The project entitled, “ Capacity of Parties” submitted to the Symbiosis

Law School, NOIDA for Law of Contract, Specific Relief Act, 1963 as a part
of Internal Assessment is based on my original work carried out under the
guidance of Ms. Kanan Divetia and Pallavi Mishra.The research work has
not been submitted elsewhere for award of any degree.

The material borrowed from other sources and incorporated in the

research has been duly acknowledged.

I understand that I myself could be held responsible and accountable for

plagiarism, if any, detected later on.

Signature of the Learner

Date:
 ACKNOWLEDGMENT

First of all, I would like to express my deep and sincere gratitude towards
our research guide, Ms. Kanan Divetia and Pallavi Mishra for giving me
the opportunity to research on the given topic. Also, I would like to thank
him for providing me with invaluable support throughout my research. It
is a matter of great privilege and honor to work and learn under such
guidance and support. I would also like to thank him for showing patience
and empathy. I am indebted to him for sharing his expertise and sincere
and valuable encouragement extended.

I also thank the staff especially the Library of the institution for their
kindness and help.

Finally, I place on record, my thanks to all those people who have

supported me immensely to successfully complete this research project
indirectly.

Thank you
CAPACITIES OF PARTIES UNDER LAW OF
CONTRACTS

INTRODUCTION

Legal capacity is the characteristic of a person who can collect new rights,
or transfer rights, or expect responsibilities, in line with the mere dictates
of his very own will, as manifested in juristic acts, with none restraint or
difficulty springing up from his repute or legal circumstance. Ability;
qualification; legal strength or right. Applied in the sense to the attribute
of person (natural or artificial) developing out of their status or juristic
circumstance, which permits them to perform civil acts; as capability to
preserve lands, capability to devise, and so on.

This, in keeping with Black’s regulation Dictionary, is how one ought to

define ability. In less complicated phrases:

In each case of a valid agreement there have to be assent of the parties.

However a person can't be stated to assent that he can be certain, except
he be endowed with this kind of diploma of cause and judgment as will
allow him to realize the situation of negotiation. For this reason it's the
assent that's requisite to present validity to a contract, always
presupposes a free, fair and serious exercise of the reasoning faculty; or,
in other words, the power, each physical and ethical, of deliberating upon
and weighing the effects of the engagement about to be entered into. If,
therefore, either of the parties to an engagement be surely deprived of
the use his knowledge, or if he be deemed with the aid of law no longer to
have attained to it, there can in such a case be no aggregaitomentium
(agreement) and, therefore, no agreement which shall bind him. the rule
of thumb of regulation, therefore, which calls for the assent of the parties
to a contract, assumes that such assenting parties shall be in a position to
make a contract; and therefore, so that you can there being a valid
contract, an ability to contract is absolutely vital”. The contract by means
of a lunatic is void. The subordinate judge is an ‘individual’ and is capable
of stepping into a contract. The competency laid down by means of
section 11 is crucial for the formation of an contract which can also
become the embryo of a contract, and until it is found in both parties the
result is infertility.

EXPLAINATION

Section 10 of the Contract Act requires that an agreement to be

enforceable by law must be made by the parties competent to contract.

One of the most important element of law a valid contracts is the

competence of the parties to make a contract. Section 11 1 of the Indian
contract Act, defines the capacity to contract of a person to be dependent
on three aspects; attaining the age of majority, being sound mind, and
not disqualified from entering into a contract by any law that he is subject
to.

This Section deals with personal capacity in three distinct branches:

(a)   Disqualification by infancy, i.e. minors.

(b)   This Section deals with personal capacity in three distinct branches:

Disqualification by insanity, i.e. lunatics.

(c)   Other special disqualifications by personal laws, such as insolvency,

conviction etc.

MINORS

1
The Indian Contract Act ,1872 ,Section 11
 • According to Indian Majority Act, 1875 2, a person attains majority on
completion of 18 years of his age. But when a guardian of a minor person
or property has been appointed by the court, he attains majority on
completion of 21 years of age.

• NATURE OF MINORS AGREEMENT

• While s. 10 mandates that the agreement shall be between parties

competent to contract and S. 11 indicates that the minor is incapable of
entering to contract. But neither section provides as to the effect of
agreement entered into by a minor.

• This led to a controversy

Mohoribibi v. Dharmadas Ghose3

FACTS: a minor mortgaged his properties in favour of pt, a money lender

to secure the loan of Rs. 20,000/-, after some money was advanced pt.
came to know about infancy of the dt. He filed a suit to repudiate the
contract and recover the money advanced

HELD: Minor’s agreement is void ab initio

REASON: “the question whether a contract is void or voidable

presupposes the existence of a contract within the meaning of the Act,
and cannot arise in the case of an infant. General presumption that every
man the best judge of his own interests is suspended in the case of
children.”

Ruling is generally followed in India and applied both to the advantage

and disadvantage of minor.

Effects of Minor’s Agreement

2
Indian Majority Act 1875
3
Mohoribibi v. Dharmodas Ghose (1902 -03) 30 IA 114: ILR (1903) 30 Cal 539 (PC)
1. No estoppel against minor when a minor by means of misrepresenting

His age induces every other to contract with him no estoppel is to be

Had in opposition to him – there cannot be estoppel towards statute –

Policy of law is to protect minor from contractual legal responsibility –

Doctrine of estoppel cannot be applied to defeat the policy

An infant isn't always estopped from setting up the defence of

Minority.

2 .No legal responsibility for tort based in settlement - Johnson v. pye

Minor’s agreement is devoid all outcomes in law

A contract cannot be transformed in to tort to sue

An infant Minor isn't always answerable for tort related with contract,

However an infant isn't absolved from liability for independent tort.

3. Doctrine of equitable restitution - whilst an infant acquired property or

Goods by means of misrepresenting his age, he can be compelled to

Restore it, however only so long as the same is traceable in his

Possession. If the minor has resold those goods he can't be made to

Payoff the cost of products and it isn't always applicable while the

Minor has received cash in place of goods.

4 .Liability to restore benefits

• Where a minor seeks the help of courtroom for the cancellation of his

Contract, the courtroom may also provide the relief problem to the

Condition that he shall restore all benefits obtained via him

 Underneath

The contract, the courtroom might also supply relief problem to the

Condition that he shall restore all benefits received with the aid of him

Under the contract or make suitable repayment to the opposite party.

5. Beneficial contracts are enforceable via minor

• Law laid down in Moharibibi has been typically observed and

Growingly restrained to cases in which minor is charged with

Obligations and the alternative contracting party seeks to enforce

Those responsibilities towards the minor.

• The principle” minor’s settlement is void” means law will now not put

Into effect any contractual obligation of a minor, i.e., a minor is

Authorized to put in force an agreement which is of a few gain to him

And under which he's required to bear no duty.

• Eg. Mortgage achieved in favour of minor, minor’s suit for recovery of

Ownership of belongings on sale, enforcement of promise by using the

Other after minor plays his promise.

6. No Ratification

• A person cannot on accomplishing majority ratify an agreement made

By way of him during his minority. Ratification relates returned to the

Date of creating the contract and therefore a contract which became

Then void cannot be made valid by way of subsequent ratification.

 • Eg. Executing promissory note on reaching majority. – Fresh

Consideration may additionally make it legitimate – no recovery of

Amount paid below such agreement.

7. Liability for Necessity

68. Declare for necessary furnished to person incapable of

Contracting, or

On his account. If someone, incapable of getting into a contract, or on

His account.

If a person, incapable of entering into a contract, or anyone whom he's

Legally certain to guide, is supplied with the aid of another, person with

Necessaries

Suited to his situation in life, the person that has supplied such

Supplies.

Is entitled to be reimbursed from the property of such incapable person.

Illustrations

A supplies B, a lunatic, with necessaries suitable to his condition in

Life. A is entitled to be reimbursed from B's property. (b) A supplies the

Wife and children of B, a lunatic, with necessaries suitable to their

Condition in life. A is entitled to be reimbursed from B's property.

Persons of unsound mind

English Law

• A person of unsound mind is competent to contract but he can avoid it

by satisfying the court that –

• He was incapable of understanding the contract and

• The other party knew it

• Contract is voidable at his option and becomes binding if he affirms it

• Position of the drunken person is same.

Indian Law

• Agreement of a person of unsound mind, like that of a minor, is

absolutely void S. 124 What is a sound mind for the purposes of
contracting.- 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.

• A person who is usually of unsound mind, but occasionally of sound

mind, may make a contract when he is of sound mind. A person who is
usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.

ILLUSTRATIONS

(a) A patient in a lunatic asylum, who is at intervals of sound mind, may

contract during those intervals. (b) A sane man, who is delirious from
fever or who is so drunk that he cannot understand the terms of a
contract or form a rational judgment as to its effect on his interests,
cannot contract whilst such delirium or drunkenness lasts.

Persons disqualified by law

1. Alien enemies

2. Foreign Sovereigns and Ambassadors

3. Insolvents
4
The Indian Contract Act, 1872. Section 12.
4. Convict

5. Corporations

6. Married woman

7. Professionals

Literature Review

Singapore Journal of Legal Studies5

The Singapore civil law (Amendment) Act , effective 1 March 2009 ,

lowered the age of full contractual capacity from 21 to 18 with the sole
aim of encouraging entrepreneurship among the young .the article
examines if currently available scientific evidence and practical
considerations indicate: (1) whether there is utility in using an age based
criterion for conferring full contractual capacity and thus denying legal
protection in contracting in light of the need to balance protection of
minors in contracting against encouraging youthful entrepreneurship ;
(2)even if useful, whether full contractual capacity should be conferred
from age 18 in the Singapore contents , and (3) if extra measures ought
to have accompanied the lowering of the age of full contractual capacity
to mitigate potential problems affecting consumer- minor and
entrepreneur – minor who are now deprived of previously available legal
protection under contract law .

Cheshire, Fifoot & Furmston’s LAW OF CONTRACT6

The author in his book and under chapter 13 talks about the person
competent to contract .He discusses about the effects of contracts by
minors and different types of transactions made i.e. contracts for
necessities; beneficial contracts of service; voidable contracts; other
contracts then he talks about the delictual liability of minors and the
equitable doctrine of restitution .He also discusses about the doctrine of
5
Singapore Journal Of Legal Studies , Published by National University of Singapore.
6
Law of Contract by Michael Furmston , 16 edition.
ultra vires that a contracting party should be a recognised as such by
the law. He also tells that a person mentally disordered and drunkards are
incompetent to contract.

THE LAW OF CONTRACT – EDWIN PEEL7

The author in his book under chapter 12 talks about the capacity of
parties. He discusses various aspects of persons competent to contract
with various case laws .He also describes valid and voidable contracts,
mental incapacities, drink and drugs and corporations. He gives details of
two principles on which minor’s agreement is based.

CONCLUSION

It can thus be seen that capacity being a very essential factor in

contracts, needs to always be fulfilled. Each reason for incapacity, in
Indian and English law, has its own basis and history, academically and
judicially, and has thereby been incorporated into the laws of most
countries, both of Common and Civil law. The Indian structure is heavily
modelled on its English counterpart, and the basic It can thus be seen
that capacity being a very essential factor in contracts, needs to always
be notions and edifice is based on the English common law system.
However, the English model may be seen as far wider and more
comprehensive.

7
The Law of Contract by Edwin Peel ,12 edition.