Table Of Contents

What is the capacity to contract?

The primary element of valid partnership contract is the contract capability or eligibility to partners to form a business contract agreement.

The capacity to contract here means the legal ability of an individual or an entity to enter into a partnership.

According to Contract Law, the partner must be competent and fulfill the specified criteria before signing a contract.

Section 11 of contract Act provide the “Every person is competent to contract who is of the age of majority according to the law to which he subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject.”

Section 10 of Contract Act 1872 “All agreements are contracts if they are made by free consent of parties competent to contract, for lawful consideration and with lawful object, and are not hereby expressly declared to be void.

Section 11 of Indian contract Act 1872 details the capacity in contract law. It is defines the ability to form contracts based on three aspects. They are as follows.

Attaining specified age.
Being of Sound mind
Not be disqualified from entering into a contract on the basis of any law he is subjected.

Disqualification by minority:

In order to be competent to contract, a person must be of the age of the age of majority according to law which he is subject. A minor does not hold the capacity of holding a contract in business. Any agreement made with a minor in business is void ab-intio, which mean “ from the beginning”.

Accord to Section 03 of Indian majority Act 1875, every person domiciled in Pakistan, the age of majority is 18 years, unless a guardian or a ward is appointed by court for that person, in which case the age of majority is 21 years.

Case Law

**[Mohori Bibee v Dhumodas]**

Court judgment

According to the ruling, any transaction with a minor is null and void simply because of section 2, 10 and 11 of the Indian contract Act. When section 11 is read in conjunction with section 10, the result is that a contract with a minor is null and void. Section 10 stipulates that all contracting parties must be competent, but section 11 establish the competency criteria, which excludes children, person of unsound mind and those who are expressly prohibited by law.

In this case the court also held that section 64 and 65 not applicable in void agreements.

Rules 01:

As an agreement with a minor is void, it cannot, upon his majority, be ratified by him. He can, of course, enter into a new agreement upon attaining majority, but each party will need to provide fresh consideration.

[Suraj Narain Dube v Sukhu Aheer]

Court Judgment

The court held that the loan to the defendant while a minor could not be good consideration for his subsequent promise to pay. On this basis, there was no consideration for the subsequent promise to pay and it was not enforceable unless it fell within one of the exception in section 25.

Rules 02:

A person seeking to avoid an agreement on the basis of his minority must prove his minority to the court.

[Amir Masood v Khurshid Begum]

Court Judgment

The court held that the plaintiff had not proved without a shadow of doubt that he was a minor at the time he entered into the agreement and was therefore bound by it.

Rules 03:

Ordinarily, an agreement will be void where a party is not competent to contract whether or not the other party knows of his minority. However, where a party enters into a contract with a minor believing that he is of majority on he basis of the minor’s fraudulent representation to him, the courts sometimes been reluctant to allow the minor to rely on his minority to avoid the obligation.

[Khan Gul v Lakha Singh]

Court judgment:

The court held that even if a minor deliberately mislead someone into believing they are of legal age, they can still use their minority as a defense to avoid contractual obligation. This is because the Indian contract Act deals explicitly with minor’s inability to enter into a contract. In this case the court discussed the principle of restitution and section 68 of Indian contract Act, which allow for reimbursement for necessary items provided to minors.

The court may, at its discretion provide a remedy under section 41 of the specific Relief act 1877.

Rules 04:

Where the plaintiff seeks to recover from a minor defendant on the basis of the defendant’s contractual liability, that claim will necessarily fail, as the defendant cannot be liable on the a void contract.

[Municipal committee, jhang Maghiana v Muhammad Mehtab]

Court judgment.

In this case the defendant was the minor and the plaintiff was seeking recovery on the basis of the defendant’s contractual liability. As the defendant could not be liable on a void contract, plaintiff was not entitled to recover the money due.

If the minor seek cancellation of an instrument on the basis of his minority, the court may as per section 41 of the specific Relief Act 1877 require him to restore any benefit he has received and is likely to do so if he made a fraudulent representation that he was of the age of majority.

Rules 05:

A contract entered into by the lawful guardian of minor is voidable at the option of the minor upon attaining majority unless it is for necessity.

[Yamin Khan v Rais Jhangli]

Court Judgment;

Court stated that as a rule sale entered into by a natural or duly appointed guardian for the benefit of minor is a valid sale but is voidable at the instance of the word upon his/her attaining majority.

However if sale\alienation has been made by a natural or duly appointed guardian for legal necessity related to the minor, then such sale would not be voidable and would be unassailable on he grounds of incapacity of minor to enter the contract.

Disqualification by insanity

A person who is not of sound mind will not be competent to contract. Section 12 stipulates that “A person is said to be of sound mind for the purpose of making 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 interest.”

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.

[Sultan v Nazar Sultan]