Chapter -4 Q&A CA.

Yagya Raj Joshi

Subjective Questions

1. All persons are not qualified to enter into a contract. Who are those persons?
Competency of parties to contract is one of the essential elements of a valid contract.
Parties to contract must be competent to enter into the contract. If all the parties or any
of the parties is incompetent as required by law there will be no binding effect. Persons
who enter into contract must be qualified for entering into contract. The need for
competency is based on the logic that an incompetent person cannot understand offer
and its essence and effect as well as the consequences of any contract. When a party
who is competent is entering into a contract with a party who is incompetent, the later
will be generally put into loss or disadvantage by the first party. So, such an agreement
must be made invalid and void. This type of agreement shall not be enforceable by law
or at the court law.
Only competent parties can enter into contract. Competent parties are those who can
enter into a valid contract. Generally, a person who is of the age of majority, who is
sound mind and is not disqualified from contracting by any law is a competent person.
Muluki Dewani Samhita Ain, 2074, Section 506 (1) of the Act reads, “All the persons
except following persons shall be competent to enter into contract:
a. Minor (Section 506(1)(a))
b. A person of unsound mind (Section 506 (1)(b))
c. Any person not qualified to enter into a specific contract under the prevailing law.
(Section 506 (2)).

Minor is a person who has not attained the age of majority. A minor is inexperienced and
the law must protect her while dealing with an adult person. As per section 2(e) of MCCA,
a child below the age of 18 is a minor.

Section 33 of MCCA defines unsound mind as a condition due to the physical and
mental circumstances of person whereby he is incapable of rationally understanding
work performed by him and its consequences or its effect.

Besides minors and persons of unsound mind, certain other persons who are
disqualified by the law to which he is subject are also incompetent to enter into contract.
The incompetence here arises not because of other reason but due to their legal status,
and such disqualified persons cannot enter into a valid contract. The persons
disqualified by law are as follows:

a. Alien enemy
b. Foreign sovereign and ambassadors
c. Convicts
d. Insolvents
e. Company or statutory corporations
f. Married woman

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Chapter -4 Q&A CA. Yagya Raj Joshi

2. Explain person of unsound mind. Who are considered to be person of unsound mind?

Section 33 of MCCA defines unsound mind as a condition due to the physical and
mental circumstances of person whereby he is incapable of rationally understanding
work performed by him and its consequences or its effect. A person with unsound mind
does not have contractual capacity. Therefore, a contract entered with a person of
unsound mind is void.

Generally, following persons are considered to be person of unsound mind:

a. Idiots (Person who is devoid of any faculties of thinking which is usually caused
by lack of development of the brain)
b. Lunatics (Person whose mental power has been damaged) and
c. Drunken or intoxicated person (Person under the influence of intoxications or
drugs),

are persons of unsound mind and agreement entered into by them are void. In each
case, it is the question of fact to be decided by the court (i.e. there is always a
presumption in favor of sanity and person relying on unsoundness must prove it
sufficiently to satisfy the court).

3. Mention the principles regarding agreement with the minor and describe them in brief.

The law protects the minor which otherwise would enable an adult to take unfair
advantage of him. Following principles have been established regarding agreement with
minors:
i. A minor does not have contractual capacity. So, an agreement with minor is “void-
ab-initio”. (Mohiri Bibee Vs. Dharmoda Ghose, 1903)
ii. Even if a minor has fraudulently concealed the age and pretended to be a major and
entered into a contract, the contract is void. However, the status-quo-ante (the
previously existing state of affairs.) must be restored and if the minor has obtained
the property by fraud, the court will require him to restore it to its owner.
iii. Minor can bind another person to a contract which is in favor of the minor whereas
contracts which are not beneficial to the minor are void.
iv. If a person supplies necessaries to a minor, then the supplier can recover from the
property of the minor. This is for the benefit of the minor himself as no supplier would
give credit to the minor unless the law imposed liability. However, minor cannot be
made personally liable. The guardians or parents are not liable on the child’s contract
unless the child acts as their agent.
v. The guardian or patron of a minor may enter into a contract on behalf and for the
benefit of the minor.

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Chapter -4 Q&A CA. Yagya Raj Joshi

vi. The agreement by a minor is void-ab-initio. So, it cannot be ratified even after
attaining the age of majority.
vii. If a minor and a major jointly enter into contract with another party, the minor will not
be liable for naything but the major will be liable for the whole liability or obligation
including even that of minor.
viii. A minor cannot be declared as insolvent since he does not have any contractual
capacity. A minor is not personally liable estate even for the necessaries; however,
recovery can be made from his estate.
ix. When a minor by misrepresenting his age has induced the other party to enter into a
contract with him, he cannot be made liable for the contract. There can be no
estoppel against a minor. He is not estopped from pleading his infancy in order to
avoid a contract.

4. Who are the persons qualified to enter into a contract?

Only competent parties can enter into contract. Competent parties are those who can
enter into a valid contract. Generally, a person who is of the age of majority, who is
sound mind and is not disqualified from contracting by any law is a competent person.
Muluki Dewani Samhita Ain, 2074, Section 506 (1) of the Act reads, “All the persons
except following persons shall be competent to enter into contract:
a. Minor (Section 506(1)(a))
b. A person of unsound mind (Section 506 (1)(b))
c. Any person not qualified to enter into a specific contract under the prevailing law.
(Section 506 (2)).

Minor is a person who has not attained the age of majority. A minor is inexperienced and
the law must protect her while dealing with an adult person. As per section 2(e) of MCCA,
a child below the age of 18 is a minor.

Section 33 of MCCA defines unsound mind as a condition due to the physical and
mental circumstances of person whereby he is incapable of rationally understanding
work performed by him and its consequences or its effect.

Besides minors and persons of unsound mind, certain other persons who are
disqualified by the law to which he is subject are also incompetent to enter into contract.
The incompetence here arises not because of other reason but due to their legal status,
and such disqualified persons cannot enter into a valid contract. The persons
disqualified by law are as follows:

g. Alien enemy
h. Foreign sovereign and ambassadors
i. Convicts
j. Insolvents
k. Company or statutory corporations

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Chapter -4 Q&A CA. Yagya Raj Joshi

l. Married woman

5. Describe the position of minor with relation to contract law.

Minor is a person who has not attained the age of majority. A minor is inexperienced and
the law must protect her while dealing with an adult person. As per section 2(e) of MCCA,
a child below the age of 18 is a minor.
The law protects the minor which otherwise would enable an adult to take unfair
advantage of him. Following principles have been established regarding agreement with
minors:
a. A minor does not have contractual capacity. So, an agreement with minor is “void-
ab-initio”. (Mohiri Bibee Vs. Dharmoda Ghose, 1903)
b. Even if a minor has fraudulently concealed the age and pretended to be a major and
entered into a contract, the contract is void. However, the status-quo-ante (the
previously existing state of affairs.) must be restored and if the minor has obtained
the property by fraud, the court will require him to restore it to its owner.
c. Minor can bind another person to a contract which is in favor of the minor whereas
contracts which are not beneficial to the minor are void.
d. If a person supplies necessaries to a minor, then the supplier can recover from the
property of the minor. This is for the benefit of the minor himself as no supplier would
give credit to the minor unless the law imposed liability. However, minor cannot be
made personally liable. The guardians or parents are not liable on the child’s contract
unless the child acts as their agent.
e. The guardian or patron of a minor may enter into a contract on behalf and for the
benefit of the minor.
f. The agreement by a minor is void-ab-initio. So, it cannot be ratified even after
attaining the age of majority.
g. If a minor and a major jointly enter into contract with another party, the minor will not
be liable for naything but the major will be liable for the whole liability or obligation
including even that of minor.
h. A minor cannot be declared as insolvent since he does not have any contractual
capacity. A minor is not personally liable estate even for the necessaries; however,
recovery can be made from his estate.
i. When a minor by misrepresenting his age has induced the other party to enter into a
contract with him, he cannot be made liable for the contract. There can be no
estoppel against a minor. He is not estopped from pleading his infancy in order to
avoid a contract.

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Chapter -4 Q&A CA. Yagya Raj Joshi

6. Generally, agreements by person of unsound mind are void. What are the exceptions to
this statement?

Section 33 of MCCA defines unsound mind as a condition due to the physical and
mental circumstances of person whereby he is incapable of rationally understanding
work performed by him and its consequences or its effect. A person with unsound mind
does not have contractual capacity. Therefore, a contract entered with a person of
unsound mind is void.

However, following exceptions exist:

a. A person generally having unsound mind but occasionally having sound mind may
enter into contract at the time of having sound mind. (Explanation 1 to section
506(1)(b))
b. A person generally having sound mind but occasionally having unsound mind shall
not be entitled to enter contract during the period of having unsound mind.
(Explanation 2 to section 506(1)(b))

Generally has Occasionally has Time of valid contract

PAST QUESTIONS

1. What do you mean by contractual capacity? What shall be the legal consequences of a
contract entered by a person with unsound mind? (June 2017)

Contractual capacity refers to the capacity or quality required to become a party of the
contract. In other words we can say a person must be a competent party in order to
enter any contract. Significance behind this requirement is that the party to a contract
should be able to understand and analyze the legal consequences of entering a contract
and must be ready to fulfill the liabilities of the Act, requires that the parties should not be
minor, unsound minded and not disqualified by any law to enter a contract.

Only competent parties can enter into contract. Competent parties are those who can
enter into a valid contract. Generally, a person who is of the age of majority, who is
sound mind and is not disqualified from contracting by any law is a competent person.
Muluki Dewani Samhita Ain, 2074, Section 506 (1) of the Act reads, “All the persons
except following persons shall be competent to enter into contract:
a. Minor (Section 506(1)(a))
b. A person of unsound mind (Section 506 (1)(b))
c. Any person not qualified to enter into a specific contract under the prevailing law.
(Section 506 (2)).

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Chapter -4 Q&A CA. Yagya Raj Joshi

Minor is a person who has not attained the age of majority. A minor is inexperienced and
the law must protect her while dealing with an adult person. As per section 2(e) of MCCA,
a child below the age of 18 is a minor.

Section 33 of MCCA defines unsound mind as a condition due to the physical and
mental circumstances of person whereby he is incapable of rationally understanding
work performed by him and its consequences or its effect.

Besides minors and persons of unsound mind, certain other persons who are
disqualified by the law to which he is subject are also incompetent to enter into contract.
The incompetence here arises not because of other reason but due to their legal status,
and such disqualified persons cannot enter into a valid contract. The persons
disqualified by law are as follows:

a. Alien enemy
b. Foreign sovereign and ambassadors
c. Convicts
d. Insolvents
e. Company or statutory corporations
f. Married woman

The legal consequence of a contract entered by a person with unsound mind is that the
contract is void-ab-initio.