Contractual
Capacity
CHAPTER 4
Synopsis
1. Meaning of contractual capacity
2. Minors
a. Minors' contract: Effects of minority
b. Contract for necessaries and other beneficial contracts
3. Persons of Unsound-mind
4. Persons disqualified by law
Meaning of Contractual Capacity
Contractual capacity means an ability of a person to make a
reasonable calculation of the effects of the terms of a contract
upon his best interest. Under the Civil Code, 2074 that all the
persons have contractual capacity except minors, person of
unsound mind and other person disqualified by law-in-force.
Under Section 506 of the Civil Code, 2074 provides:
1. Any person other than those mentioned below may be
competent for concluding a contract;
a. Minor,
b. Person of unsound mind.
2. Notwithstanding anything contained in sub-section (1) any
person not qualified to enter into a specific contract under the
prevailing law shall be deemed to be incompetent to conclude
Incapacity to Contract (may
arise from)
Status Mental deficiency
(It may be) (which includes)
Political or Civil Status Other Status Minors/ Minority Person of Unsound
(It includes) (It includes) mind
Foreign Sovereign Corporations Idiots
Ambassador Married women Lunatics
Alien enemies Professionals Drunkard/
Criminals/ Felons intoxicated person
Mad
Slow pace of mind
Minors
Minors are the person not attaining the age of majority as fixed by
the law to which they are subjected.
As we stated that incapacity to contract may arise from minority,
minors are the person not attaining the age of majority as fixed by
the law to which they are subjected. The age of majority is
different from country to country but every person in each country
is defined as minors and saved from contractual liability.
The Civil Code, 2074 has fixed the age of majority as 18 years
Minor's Contracts: Effects of
Minority
A person who has not attained the ages of 18 years of old known
as minor and the minors are incapable to enter into a legally
binding contract. A contract entered into with or by a minor, is void
from ab-initio. No rights or benefits can be received against the
minor as well as no duties or liabilities can be imposed against
him. They are exclusively protected by law from the obligations
created by their agreements against their interest and property.
Contracts for Necessaries and Other Beneficial Contracts
1. Contract valid if for necessaries
2. Contract valid if for minor's benefit
3. Contract valid until avoided
Rules Regarding Minor's Contracts
The rules regarding minor's agreement can be summed up as follows:
1. Agreements by or with a minor is void and unenforceable from the very beginning.
2. He is liable upon contracts for supply of necessaries.
3. He is liable upon those contracts which as a whole is beneficial to him.
4. He can be a promisee or beneficiary.
5. Contracts in which the minor acquired on interest of a permanent or continuous
nature are valid until he disclaimed them, either during his minority or within a
reasonable time after becoming an adult.
6. Minor's agreement cannot be ratified by him on attaining the age of majority.
7. If he has received any benefit under a void agreement, he cannot be asked to
compensate as to pay for it.
8. The principle of estoppels does not apply as against him, i.e., he can always plead
his minority though he might have committed fraud and obtained articles without
paying for them.
9. No order of specific performance of the agreement can be issued as against the
minor.
10. He can be an agent but not a partner in a partnership firm.
Persons of Unsound Mind
The second group of persons who do not have contractual capacity
by reason of mental deficiency are the persons of unsound mind.
The persons of unsound mind are treated as a minor and free from
his liability as arised out of his promise. Persons of unsound mind
include:
1. Idiot
2. Lunatic/mad
3. Drunken/intoxicated person
Rules regarding the agreements of the
persons of unsound mind
The rules regarding the agreements of persons of unsound mind
can be summed up as under-
Where a person is proved as the person of unsound mind, s/he is treated as a
person of minor and all the rules which are applied to the minors' agreements are
equally applied to the agreements of the persons of unsound mind.
Persons of unsound mind are liable for the supply of necessaries and in the
contracts, in substance, beneficial to them.
Where a person is usually of sound mind, agreement may be void if it was made at
the time when he was in a state of the person of unsound mind.
Where a person is usually of unsound mind, his agreement may be valid if it was
made at the time when he was in a state of the person of sound mind.
Burden of proof rests on the person relying on the unsoundness of mind. If a person
relies on unsoundness of mind, he must prove it sufficiently to satisfy the court.
Persons Disqualified by Law
The third group of persons who are incapable to enter into a contract is
the person disqualified by any law to which they are subject. The law
makes them as disqualified and incapable as a result of their special
status, position, circumstances and responsibilities. Incapacity arising
out of status or circumstances or responsibilities may be divided into:
1. Political or Civil Status
i. Foreign sovereign and ambassadors
ii Alien Enemy
iii. Criminals/ Felons
2. Professional status
3. Corporate status
4. Married status
Thank You