Study Notes on Contract for Law Entrance Exam - Capacity of Parties

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Get the updated and most relevant study notes on Contract of Capacity of Parties for upcoming CLAT and other Law Entrance Examination.

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Here we are providing you updated and most relevant Study notes on Contract of Capacity of Parties for Law Entrance Exam. These study notes are highly recommendable for all those who aspire to crack  CLAT, DULLB, AILET and other Law Entrance Exam.

Capacity of Parties:

One of the most important parts of making an agreement is the parties entering into it must be capable/ incapacity to enter into the agreement. If the parties are lacking in this element then the agreement is void according to Indian Contract Act.

Who is competent?
Every person is competent to contract who has gained the age of majority i.e., 18 years in case of natural guardianship and 21 years in case of guardianship provided by the court, one must be of sound mind and must not be disqualified by law.


Minor’s Agreements:

1. An agreement by a minor is void as initial and inoperative as against him:
Where a minor is charged with obligations and the other contracting party seeks to enforce those obligations against the minor, the agreement is deemed void ab-initio.

Case Law: Mohiri Bibi Vs Dharmodas Ghosh
A minor borrowed a sum of money after mortgaging his property. The mortgagee moved the Court for repayment of the sum borrowed. The Privy Council held that money advanced to a minor could not be recovered because an agreement with a minor is void ab. Initio.
Note: A minor is not liable even if he provides false information and acts fraudulently.

2. Agreement beneficial to minors is valid contracts:
In a contract, if a minor is a beneficiary, the contract is valid and enforceable.

Case Law: Raghavachariar Vs Srinivasa
In this case, a minor was the mortgagee. The minor had lent money to an adult mortgagor. The Madras High Court held that where a minor is a beneficiary, the contract would be enforced in favour of the minor.

3. Minor’s Contract Cannot Be Ratified:
Ratification means subsequent acceptance or adoption of an act/agreement. Since a minor’s agreement is void ab-initio, the minor on his attaining majority cannot ratify the agreement entered during his minority.

Case Law: Arumugam Chetti Vs Duraisinga Thevar
A minor had borrowed money during his minority. Upon attaining majority, he executed a promissory note in favour of the creditor to repay the borrowed sum. It was held that the promissory note was unenforceable, as ratification of a void agreement was not possible.
Note: The loan transaction between the minor and the creditor was a void agreement.

4. Rule of Estoppel Does Not Apply To Minors:
Estoppel means, “When one person has by words spoken, written or by conduct, leads another one to believe, the certain thing to be true, and the latter acts upon such belief, he is prevented from denying the truth of that thing.” A minor is not stopped from setting up the plea of the minority. In other words, he may plead infancy to escape from a liability.

Case Law: Leslie Vs Sheill
A minor boy borrowed funds, falsely representing that he was of full age. Later, he pleaded before the court he was only a minor and hence not in a position to repay. The court held that the rule of Estoppel does not apply to minors and held that the boy was not liable.

5. Minor’s Liability for Necessaries:
When a minor is supplied with the necessaries of life, by another person, the who so supplied is entitled to be reimbursed from the property of the minor.
Note: The above rule is applicable to a person of unsound mind also.
Note: A minor is not personally liable even for necessaries supplied.

6. Minor as a Partner:
A minor cannot become a partner as the partnership agreement requires the persons entering into it should be competent in accordance with law.
Minor, being incapable of contracting, cannot become a full-fledged partner. However, Sec.30 of the Indian Partnership Act permits a minor to be admitted to the benefits partnership firm.

7. The position of Minor’s Parents:
The parents of a minor are not liable for agreements made by a minor unless the minor acts on behalf of the parents. The parents are liable only if they are acting on behalf of the minor for a particular agreement otherwise no liability.

8. Minor and insolvency
A minor cannot be declared insolvent, as he is not personally liable for his debts. A minor can not be held personally liable even in case of necessaries.

9. Minor and agency
A minor can be appointed as an agent. The principal will be responsible to third parties for the acts of his minor agent. However, the principal cannot hold the minor agent personally liable for any wrongful acts.

10. Minor as a member of a company
To become a member of a company it requires buying of shares of the company and he cannot buy shares as it requires entering into agreement so a minor cannot become a member of a company, as he is incompetent to contract. He cannot purchase shares in the company. Where he inherits shares, the name of the guardian will be entered in the Register of Members.



Who is not competent to contract?

1. Alien enemies:
A person cannot enter into contracts with alien enemies. When a country is declared enemy character then the people of the country is called as alien enemies. Generally, a country is declared enemy character at the time of war.
2. Convict:
During the period of imprisonment, a convict is incompetent
·         to enter into contracts
·         to sue on contracts made before conviction
3. Insolvent person
An insolvent person is incompetent to contract with respect to his property.
4. Foreign Sovereigns and Ambassadors
They can enter into contracts and enforce them, but they cannot be sued in our courts without the permission of the Central Government.

Note: If a person gets attacks of insanity and otherwise behaves like a sound mind person. In such cases what was his state of mind while entering into the agreement. If it is proved that he was of sound mind when he entered into the contract. The contract is valid otherwise it would be void.

Study Notes on Contract for Law Entrance Exam - Void Contract

You can also try the following Practise question.

Practice Exercise:

1.  Sec. 10 of The Indian Contracts Act deals with
A. Valid contract
B.  Capacity to contract
C. Void contract
D. None of the above
Ans: B

2. The following people are incompetent to contract
A. Minors
B. Persons of unsound mind
 C. Persons disqualified by law
D. All of the above
Ans: D
3. A person without a court-appointed legal guardian attains majority at
A. 16
B. 17
C. 21
 D. 18    
Ans: D

4. Akash has a guardian appointed by the court. He attains his majority at
A. 16
B. 18
C. 21
D. None of the above
Ans: C

5.  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. Which Sec. of the Indian Contract Act has been mentioned above?
A. 10
B. 11
C. 12
D. None of the above
Ans: B

6. Agreement with a minor is
A. Valid
B. Void ab initio
C.  Voidable c
D. None of the above
Ans: B

7.  A minor borrowed a sum of money after mortgaging his property. This is
A. Void      
B. Voidable
C. Valid
D. None of the above
Ans: A

8. A contract, where the minor is a beneficiary is
A. Void      
B. Voidable
C. Valid
D. None of the above
Ans: C

9. Can a minor on attaining majority ratify the contract? 
A. No
B. Yes
C. Maybe
D. None of the above
Ans: A

10. A minor boy borrowed funds, falsely representing that he was of full age. Will the boy be held liable?
A. Yes        
B. No
C. Maybe
D. None of the above
Ans: B

11. Supplying necessities to a minor or lunatic would require them to reimburse the other party.
A. Yes        
B. No
C. Maybe
D. None of the above
Ans: A

12. Can a minor become a partner?
A. Maybe   
B. Yes
C. No
D. None of the above
Ans: C

13. If a minor, acts on behalf of the parents will they be held liable?
A. No
B. Yes
C. Maybe
D. None of the above
Ans: B

14. A minor can be appointed as an agent. Can the principal hold the minor liable for any wrongful acts?
A. No         
B. Yes
C. Maybe
D. None of the above
Ans: A

15. Will the parents be liable if they are acting for the minor?
A. No
B. Yes
C. Maybe
D. None of the above
Ans: B

16. Can a minor become a member of a company?
A. Yes. He can buy and sell shares
B. No. He cannot buy shares as it requires entering into a contract
C. Yes. Many minors are members in a company
D. all the above
Ans: B

17. A contract with X whose is a member of a country declared to be of enemy character. Is he competent to contract?
A. No
B. Yes
C. Maybe
D. None of the above
Ans: A

19. A convict cannot enter into contracts:
A. During his lifetime
B. During the time of imprisonment
C. Never
D. None of the above
Ans: B

20. Sec.12 of The Indian Contract Act deals with
A. Acceptance
B. Fraud
C. Sound mind
D. None of the above
Ans: C

21. A person who is usually of sound mind, but occasionally of unsound mind may not make the contract when he is of
A. unsound mind
B. sound mind
C. never
D. None of the above
Ans: A

22. A makes an offer to B a person who is usually of unsound mind. At the time he was of sound mind. Will this be valid?
A. Yes
B. No
C. Never
D. Maybe
Ans: A

23. Maya marries Charlie when he is intoxicated. Is this valid?
A. Yes
B. No
C. Maybe
D. None of the above
Ans: B

24. N sells his property to M for Rs.1. N is said to be of sound mind. This is
A. Valid
B. Void
C. Voidable
D. None of the above
Ans: A

25. A drunken person is said to be in the same category as
A. A person of sound mind
B. Superhero
C. A person of unsound mind
D. None of the above
Ans: C  


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Clear Law Entrance: Study Notes on Contract for Law Entrance Exam - Capacity of Parties
Study Notes on Contract for Law Entrance Exam - Capacity of Parties
Get the updated and most relevant study notes on Contract of Capacity of Parties for upcoming CLAT and other Law Entrance Examination.
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