Capacity of parties in Contracts

Instructor: Fazal Khalique

Fazal.khalique@iiu.edu.pk
 Who is Competent to Contract?
 Section 11 Contract:
 According to Section 11 of Contract Act 1872 • “Every

person is competent to enter in to contract who(a) is of

the age of majority according to the law to which he is
subject.(b) is of sound mind, and (c) is not disqualified
from contracting by any law to which he is subject”
 Person having capacity to contract are ;

1. A person who is major

2. A person having sound mind, and
3. Not disqualified by law
 Who is not Competent to Contract?

 Persons beyond the scope of Section 11 are not

capable to enter into valid contracts. If they enter,
contract will be void-ab-initio.
 A person is incompetent if he/ she is

1. A minor
2. Person of unsound mind
3. Disqualified from contracting by law.
 A. Minor; Definition
 Who is Minor:
 Minor is a person who has not attained 18 years of age.
 However, According to Majority Act 1875, where a
guardian of a minor’s person or property has been
appointed, or
 the Court of Ward assumes charge of minors property,
then he attains majority at the age of 21.
  Nature of Minors Agreement
What a minor can not do
1.Void Agreement: He can not enter into a valid agreement
. An agreement with minor is void. He is not liable to
pay for acts done in minority, under any agreement
done by him.
 Example: A minor A sells his house to B. the amount is
paid by B. but the deed can not be registered as the
agreement is void-ab-initio. B can not recover damages.
2. No ratification: He can not ratify instruments entered
into in minority. Ratification means correction or
confirmation. His agreement cannot be ratified by him
on attaining the age of majority. If required a fresh
contract may be entered in to with new
consideration.
 What a minor can not do

3. Minor and Repayment: No restitution of benefits is

possible except the order of court. If he has received any
benefit under a void agreement, he cannot be compelled
to compensate or pay for it.
 Example: A, a minor, obtains a loan by mortgaging his

property. He is not liable to refund the loan. Not only

this, even his mortgaged property cannot be made liable
to pay the debt. 
4. Minor and Insolvency: A minor cant be declared
insolvent. He is not even liable for necessities supplied to
him. However, can be recovered from his property. If no
property, the payment can not be recovered.
 M a minor buys food stuffs from B. He could not pay the

amount. He has no property. He cant be insolvent.

 What a minor can not do
5. Minor as partner: He can not be a partner in a firm. However, he
can be a beneficiary through his guardian with the consent of other
partners. His liability is limited to the investment done by him.
6. Minor and Estoppel: The rule of estoppel or specificperformance
does not apply to minor. He may avoid any contract on the basis of
plea of minority, even if he has falsely representing that he was
major. Example: A person gave loan to a minor. Minor later pleads
minority in the court. The court can not stop him from pleading
minority, saying that you are major Even if he lies, the contract
would be deemed ab initio.
7. Liability of Minors Parent: Parents will not be liable for the
acts of minor. The parents are liable if he acts as the agent of the
parents. For Example: if father sends his minor son to buy goods on
his behalf. Then the father is liable.
 What a minor can do /be
1. Minor as beneficiary: Though contract with minor is void, but
he can be a beneficiary in contract. He can accept benefits. A
contract for the benefit of the minor is valid. E.g. If a minor
M delivers good to A under an agreement. A can not refuse
payment, saying M is a minor.
2. Minor as agent: A minor can act as agent. He can make the
principal responsible to third parties. He can not be a
principal.
3. Plead Minority: A minor can take the plea of minority in the
court of law to avoid a contract. For example. If he enters into
a contract with any person, later he refuses to perform his
obligation under the contract. He can avoid, if he could prove
minority.
 What a minor can do/ be
4.Minor and Necessaries: A person who provides
necessaries to a minor can recover the value from the
assets of minor. For example if a person manages the
cloth, food, education, medical facilities or shelter of
minor, he can recover them to the extent of minors
property and not beyond that.
5. Minor as member of a company: A minor can not buy
shares on his own. However, shares can be transferred to
him by a third party or shares can be transferred to him
by company on the death of parents.
 B. Person of Unsound Mind
 Section 12 Contract Act defines person of unsound mind
as ;  “ 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.”
 Ingredients of Definition: At the time of entering into

Contract;
 unable to understand the terms and stipulations of
contract
 unable to make rational judgement


Effect of agreement made by person of
unsound mind
 An agreement made by a person of unsound mind is
void ab initio. However, if someone supplies necessaries
to a person of unsound mind can recover reasonable
value of those necessaries from his property. If he is
having no property, he can not recover. (See section 68)
Contract During lucid Intervals. If a person of unsound

mind enters into an agreement when he is sane, the

contract will be valid.
 Court is duty bound to protect the interest of a lunatic.
 C. Persons disqualified by law
The following persons are disqualified from
contracting;
 Diplomatic Agent: The diplomatic staff of diplomatic

mission of a foreign country in Pakistan. No proceeding

in any court shall lie against them in local courts.
 Alien enemy: Alien is a citizen of foreign country. An

alien is at peace with Pakistan is alien friend. Contract

with alien friend is valid.
 An alien whose country is at war with Pakisatn is alien

enemy. Contract with him is void.

 if during contract, war starts between two the countries,

the contract becomes suspended.)

C. Persons disqualified by law
 Convict: A convict is a person who has been imprisoned
by the court of law. He or his agent can not enter into
contract. Contracts during convictions are void. He can
enter into contract, when released on bail, or he is on
parole.
 Insolvent: An insolvent person is one who is declared
insolvent by the court. His property is in hand of official
receiver of the court. He can not enter into contract,
unless the order is discharged by the court.
 Company as person: Acts done by the company which are

ultravires, (beyond the power of company illustrated in

the company's documents), are void.
The End