CHAPTER 4

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

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 the 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 from the beginning. A minor is not liable to
perform any promise because he cannot understand the nature of an agreement. A
minor cannot be compelled to return the benefit received by him under the agreement.
 EXAMPLES
a. A minor hires a car under an agreement that he will be liable for any damage to the
car. The agreement is not enforceable.

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

2. Minor and Ratification

Ratification means the acceptance of an agreement already made. The
ratification of an agreement 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 that
is void cannot become valid by subsequent approval.

EXAMPLES
a. B, a minor, agrees to buy a house. The agreement is void. B cannot ratify the
agreement after attaining the age of majority.

b. K, a minor, owed £547 to a stockbroker. After attaining majority, K gave two bills to
pay the debt. Held, K was not liable. (Smith vs. King)

3. Proving Minority
 If a minor fraudulently enters into a contract showing that he has attained 18
years of age, he cannot be prevented from proving his minority in court.

EXAMPLES

a. B, a minor, showing himself as 20 years of age obtained a loan from C. B spent the
money. C cannot recover the loan from B.

b. J, a minor, fraudulently showed that he was of full age and contracted with S to sell
his house. Later, J refused to perform the contract on the grounds that he was a
minor. Held, S could not enforce the contract. (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 case.

EXAMPLE
S, a minor, obtained a loan from L by misrepresenting his age. L sued for
recovery of the loan. The court ordered S to return the loan. (Leslie vs. Sheill)

5. Minor and Necessaries

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

EXAMPLES
a. C' supplied necessaries of life to B, a minor. C can recover a 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 the
coat.
c. A minor purchased 11 coats. He had sufficient clothes at that time. It was held that
the coats were not necessaries of life and the minor was not liable to pay for them.
(Nash vs. Inman)
6. Guardian of Minor
A contract made by the guardian on behalf of a minor is binding on the minor. It can be
enforced against the minor if the guardian is authorized to enter into a contract and the
contract is for the benefit of the minor.
EXAMPLE
S made an agreement to sell property on behalf of two minor girls. S was not
the legal guardian of the minor girls. It was held that the agreement was void (Shahbaz
Rasool vs. Amir Imran)

7. Minor as Beneficiary
A minor is not bound to perform the contract. But if a minor performs his part of
the contract, the other party is bound to perform his obligation. If a minor has fulfilled
his promise under a contract, he can enforce the contract against the other party .
 EXAMPLES
a. B, a minor, sells and delivers books to C. C refuses to pay. B can sue C for the
recovery of payment.

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)
 EXAMPLES
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 the consent of all partners. A minor can inspect
the accounts of a firm but not the books. The minor's liability is limited to his
investment in the business.

EXAMPLE

B and C are partners in a firm. In order to make M, a minor, a partner they make
a contract with N who is the guardian of M. M can be admitted to the benefits of the
firm.
10.Surety for Minor
When an adult stands surety for a minor in a contract of guarantee, the adult is
liable under the contract but the minor is not answerable. The adult is responsible
because there is a direct contract between the adult and the third party.

EXAMPLE

B. a minor, makes a contract with C. D stands surety for B. The contract is valid.

11. Member of Company

A minor cannot directly buy shares of a company because he is not competent
to contract if the parents of a minor are shareholders in a company, the company shall
transfer the shares in favor of the minor upon the death of the parents. A minor is not
responsible for any unpaid amount on the shares.
EXAMPLE
N held shares in a company. N 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 the 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 some medicines. 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 adult is responsible to perform the whole contract.
EXAMPLES
a. M, a minor, and N jointly make a contract to purchase a car. The contract is valid.
b. A minor and adult jointly agreed to pay some amount and executed a bond. The
court held that the adult was liable but the minor was not liable. (Jamna Bai vs.
Vasanta Rao)
14. Parents of Minor
The parents of a minor are not liable to pay for an agreement made to buy
necessaries. The parents are liable if the minor acts as an agent of the parents.
 EXAMPLE
N sends his son M, a minor, to buy some goods from P. M buys the goods from
P. N is liable for payment.

15.Minor and Negotiable Instruments

A minor can make, draw, endorse and deliver a bill of exchange, promissory note
and cheque to bind other parties. He is not liable but all other parties to the instrument
are liable. A negotiable instrument drawn in favor of a minor can be enforced by him.
 EXAMPLES
a. B, a minor, draws a bill of exchange on A. A accepts the bill. B 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, 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 that a person must be able to understand the nature of a contract. A

person who is temporarily of unsound mind cannot make a contract during such a
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 temporarily insane due to a drug overdose and sold his
scooter to C. The agreement is void.

b. S sold some land but refused to transfer it. The doctor issued a certificate that S was
of unsound mind. Held, the sale was void. (Sultan vs. Nazar Sultan)

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 a reasonable value of
those necessaries from the property of such person. If the person of unsound mind owns
no property, then the supplier cannot recover. [Sec 68]

Burden of Proof
If a person is usually of sound mind, the burden of proving that he was of unsound
mind at the time of contract lies on the person who challenges the validity of the
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. Company
 A 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 Y to sell a property which X Co.is not
authorized by its memorandum of association. The agreement is void.

2. Diplomatic Agent
The diplomatic agent means the staff of the diplomatic mission of a foreign
country in Pakistan. The 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 international law.

EXAMPLES
.a. British ambassador takes a house on rent for personal use in Islamabad, It is a valid
contract.

b. 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)

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, a Pakistani national, contracts to buy goods from X, an Indian national
during the 1965 war. 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 official receiver. After the order of discharge, he can enter
into a contract. However, he can make a contract that is necessary for the reasonable
maintenance of himself and his family.
EXAMPLE
C, an insolvent person, 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 the
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
B. during imprisonment, makes an agreement with C to sell his land. The
agreement is void.

QUESTIONS
1. Who is a minor? Explain the position of an agreement with a minor.
2. Who is a person of unsound mind? Explain the position of an agreement with a
person of unsound mind.
3. Explain the legal position of a contract with persons disqualified by law.