Capacity of Parties | Minor, Unsound Mind and disqualified Person with Examples?

CAPACITY OF PARTIES 

Competent to contract 

All the parties to a contract must be competent to contract. Every person is competent to contract who is of the age of majority, who is of sound mind and is not disqualified by law from contracting. 

In other words, a minor, a person of unsound mind and a person disqualified by law are not competent to contract. [Sec. 10, 11] 

Minor 

Age of Majority 

According to Majority Act, 1875, a minor is a person who has not attained 18 years of age. It means a person is competent to contract after attaining 18 years of age. However, when a court appoints a guardian for a minor, the minor attains the age of majority after 21 years. 

Minor's Agreements

The rules regarding Minor's agreements are as under: 

1. Void Agreement 

An agreement with a minor is void. A minor is not liable to perform any promise because he cannot understand the nature of a contract. A minor cannot be compelled to return the benefit received by him under the arrangement. 

Examples 

a. The uncle of MN, a minor, sold his property to MM. MN filed a suit against MM on the ground that his uncle sold his property when he was a minor. Held, the contract was void. ( Mehr Manzoor Hussain vs. Mohammad Nawaz) 

b. A minor hired a car under an agreement that he would be liable for any damage to the car. The agreement was not enforceable against the minor. ( Fawcett vs. Smethurst) 

2. Minor and Ratification 

The ratification means the acceptance of an agreement already made. Ratification by a minor is not valid. An agreement made by a minor cannot be approved by him on attaining the age of majority because an agreement which is void cannot become valid by subsequent approval. 

Example 

SA, a minor, borrowed Rs. 2000 and wrote a pronote in favour of SN. On attaining majority, SA wrote a second pronote to settle the first note. It was held that second pronote was void. (Suraj Narain vs. Sukhu Ahir) 

3. Minor and Estoppel 

The term estoppel means to prevent a person from denying the truth of a fact which he has already determined. The rule of estoppel does not apply to a minor. It means that if a minor fraudulently enters into a contract representing that he has attained 18 years of age, later he cannot be prevented from proving his minority in a court. 

Example

J, a minor, fraudulently showed that he was of full age and contracted with S to sell his house. J refused to perform the contract on the ground that he was a minor. S could not succeed. ( Sadiq Ali khan vs. Jai kishore) 

4. Minor and Reimbursement

Generally, a minor cannot be compelled to return the money received by him under an agreement. But where a minor enters into an agreement by fraudulently showing that he has attained 18 years of age, the court may order to return the amount. The court's decision depends upon the circumstances of the cases. 

Example 

a. L, a minor, got Rs. 17,500 as advance and promised to sell the land. Later, L refused to perform the contract. The court ordered L to return the amount. ( Khan Gull vs. Lakha Singh) 

b. J sold a house for Rs. 50,000 showing that he was an adult. Later, J sued to cancel the sale on the ground of minority. The court ordered J to return the money received by him. ( Jager Nath Singh vs. Lalta Prasad) 

5. Minor and Necessaries 

A person who supplies necessaries to a minor or his dependents can recover reasonable value of such goods from the property of a minor. If a minor owns no property, the supplier cannot recover the price of necessaries. If the minor already possesses necessaries at the time when necessaries are supplied to him, the supplier cannot recover value of those necessaries. [Sec. 68] 

Examples 

a. C supplies necessaries of life to B, a minor. C can recover reasonable value of goods from B's property 

b. C supplied a coat with diamond buttons to a minor. C cannot recover the price of coat 

c. B supplies some medicines to minor. C cannot recover the price of coat.

d. A minor purchased 11 coats. He had sufficient clothes at that time. It was held that the coats were not necessaries of life and minor was not liable to pay for them. (Nash vs. Inman) 

6. Agreement of Behalf of Minor

A contract made by the guardian on behalf of a minor binding on the minor. It can be enforced against the minor if the guardian is authorized to enter into a contract and contract is for the benefit of the minor. 

Example 

Shagufta Gul entered into an agreement to sell property on behalf of two minor girls Najia Gul and Saira Gul. Shagufta Gul was not the legal guardian of the minors. It was held that the arrangements was void ab initio. (Shahbaz Rasool vs. Amir Imran) 

7. Minor vs Beneficiary 

A minor is capable of accepting benefit. A minor can enforce the contract which is for the benefit of a minor and under which he is not required to bear any obligations. 

Examples 

a. A, a minor, advanced some amount to B. B mortgaged his property in favour of A. A can enforce the mortgage if B does not repay the money. ( Raghva Chariar vs. Srinivasa 

b. A, a minor delivered some goods under an agreement to P. P refused to pay. The court held that A could recover the price. (Abdul Gafar vs. Piare Lal) 

8. Minor as Agent 

A minor can act as an agent. If a minor acts as an agent, he can make his principal responsible to third parties for his acts. A minor is not personally liable to his principal for negligence or breach of duty. [Sec. 184] 

Example 

A appoints M, a minor, as his agent to sell his house. M makes an agreement with B to sell A's house. The agreement is valid. 

9. Minor as Partner 

A minor cannot become a partner of a firm. He can be admitted to the benefits of the firm through his guardian with consent of all the partners. Minor can only inspect the accounts of firm but not the books. The Minor's  liability is limited to his investment in the business. 

Example

A, B and C are partners in a firm. In order to make M, a minor, a partner they make a contract with X who is the guardian of M. M can be admitted to the benefits of firm. 

10. Surety for Minor 

When an adult stands surety for a minor in contract of guarantee, the adult is liable under the contract but the minor is not answerable. The adult is responsible because there is direct contract between adult and third party. 

Example 

M, a minor, makes a contract with X. S stands surety for M. The contract is valid. 

11. Minor as Member of Company 

A minor cannot directly buy shares of a company because he is not competent to contract. If parents of a minor are shareholders in a company, the company shall transfer shares in favour of the minor upon death of parents. A minor is not responsible for any unpaid amount on those shares. 

Example 

D held shares in a company. D died and left M, a minor, as his legal representative. The company is bound to transfer the shares to M. 

12. Minor and Insolvency 

A minor cannot be declared insolvent because he is not liable to pay debts. A minor is not personally liable for price of necessaries supplied to him. The price of necessaries can be recovered from the Minor's property only. If he owns no property, nothing can be recovered. [Sec. 68] 

Example 

M, a minor, buys medicine from X. M has no property. M cannot be held liable for payment. He cannot be declared insolvent. 

13. Contract by Minor and Adult 

Where a minor and an adult jointly enter into a contract with another person, the contract is valid. But if the minor does not perform his share of obligation, he cannot be held liable. However, the adults is responsible to perform the whole contract. 

Example 

a. M, a minor, and A jointly make an agreement with X to purchase a car. The agreement is valid. 

b. A minor and adult jointly agreed to pay some amount and executed a bond. The court held that adult was liable but minor was not liable. (Jamna Bai vs. Vasanta Rao) 

14. Liability of Minor's Parents

The parents of a minor are not liable to pay for an agreement made even for purchase of necessaries. The parents are liable if the minor acts as an agent of the parents. 

Example 

F sends his son M, a minor, to buy goods from S. M buys goods from S. F is liable for payment. 

15. Minor and Negotiable Instruments 

A minor can make, draw, endorse and deliver bill of exchange, promissory note and cheque to bind other parties except himself. He is not liable but all other parties to the instrument are liable in their respective capacities. 

Examples 

a. M, a minor, draws a bill of exchange on A. A accepts the bill. M endorses it to C. The bill is valid. 

b. X draws a bill on Y, a minor. Y accepts the bill. The bill is invalid. 

Person of Unsound Mind

For a valid contract, it is necessary that each party to the contract must have a sound mind. [Sec. 11] 

Sound Mind 

Section 12 states: "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." 

It means a person must be able to understand the nature of contract. A person who is temporarily of unsound mind cannot make a contract during such period. However, he can make a contract when he becomes of sound mind. A person may become of unsound mind due to insanity, drunkenness, old age etc. 

Examples 

a. B, a sane man, became temporary insane due to drug overdose and sold his scooter to C. The agreement is void. 

b. D entered into an agreement with S to sell property on unusual terms. Later, it was proved that D was of unsound mind at the time of agreement. Held, the agreement was void. (Dosa vs. Shahamad) 

Effect on Agreement 

An agreement by a person of unsound mind is void. However, the person who supplies necessaries to a person of unsound mind can recover reasonable value of those necessaries from the property of such person. If the person of unsound mind owns no property, then supplier cannot recover. [Sec. 68] 

Burden of Proof 

If a person is usually of unsound mind, the burden of proving that he was of unsound mind at time of contract lies on the person who challenges the validity of contract. If a person is usually of unsound mind, the burden of proving that he was of sound mind at the time of contract lies on the person who affirms it. 

Disqualified Person 

The following persons are disqualified from contracting: [Sec. 11] 

1. Joint Stock Company 

A joint stock company cannot enter into a contract outside the powers given by its memorandum of association or by the provisions of the companies Act. 

Example 

X Co. makes an agreement with A to sell property which the company is not authorized by its memorandum of association. The agreement is void. 

2. Diplomatic Agent 

The diplomatic agent means the staff of diplomatic mission of a foreign country in Pakistan. Foreign sovereigns, diplomatic staff and representatives of foreign staff can enter into a valid contract. They are responsible when they act in a personal capacity. But when they act on behalf of their government, they cannot be sued because they enjoy some privileges under the international law. 

Examples 

a. E, a German diplomat, got a house on rent in England from M on behalf of his country. M sued for recovery of arrears of rent. It was held that no action can be brought against E. (Engelke vs. Musman) 

b. A British diplomat takes a house on rent for personal use from B in Islamabad. It is a valid contract. 

3. Alien Enemy 

An alien means a citizen of a foreign country. An alien whose country is at peace with Pakistan is an alien friend. A contract with an alien friend is valid. An alien whose country is at war with Pakistan is an alien enemy. A contract with an alien enemy is illegal. 

Example 

Y contract to buy goods from X, a citizen of India without the permission of Pakistan Government. The contract is illegal and void. 

4. Insolvent 

An insolvent person cannot enter into a contract regarding his property which is under the control of an officials receiver. After the order of discharge, he can enter into a contract. However, he can make a contract which is necessary for his reasonable maintenance and that of his family. 

Example 

C, an insolvent, promises to sell his car to B. The agreement is void. 

5. Convict 

A convict is a person who is imprisoned by the court. During the period of sentence, he cannot enter into a contract. However, he can enter into a contract while on parole. He becomes capable of making a contract when the sentence of imprisonment expires. 

Example 

W, during imprisonment, enters into an agreement with S to sell his land. The agreement is void.