CAPACITY TO CONTRACT 1

CAPACITY TO CONTRACT

Key Word of the Chapter

Capacity : Capacity

7.1 Concept
The legal ability to enter into a contract is known as contractual capacity.1 Capacity refers to a
person’s ability to comprehend and understood contractual obligations. 2 In general, all persons
have full legal power to enter into any contract they wish and bind themselves, but a few group
of persons do not have this power in full and they are said to be under incapacity.3 Personality
simply means holding rights and bearing duties

According to Section 506 of the Muluki Civil Code 2074, Nepalese Contract Act 2056, section
3(1) and (2) the following persons do not have contractual capacity.
a. Those who have not attained the age of majority i.e. a minor. (in Nepal as per Children’s
Act 2075, a person below the age of 18 years is termed as minor).
b. Those who are of unsound mind (Insane)
c. Those who are disqualified by the law.
Parties competent to enter into a contract:
Thus, every person is competent to enter into contract provided that he or she meets the
following criteria:
 Should not minor (attained the age of 18 years)
 Must have sound mind, and
 Must not disqualified by law

1 th
Gordon W. Brown & Paul A. Sukys, Business law, Glencoe / Mc Graw-Hill, California (10 Edition, 2001), p.141
2 th
Lawrence S. Clark et.al, Law and Business: The Regulatory Environment, Mc Graw-Hill Inc, (4 Edition, 1994),
p.200
3 th
Robert Upex, Davies on Contract , Sweet & Maxwell, London, ( 6 Edition , 1999), p.169
 CAPACITY TO CONTRACT 2

Indian Contract Act, 1872

Every person is competent to contract who is of age of the majority according to law to which he
is subjected and who is of sound mind and is not disqualified from contracting by any law to
which he is subject.

Minority is a term to describe who has not yet reached the age of majority, which is different
from country to country.
In England who attains 18 years of age is competent to enter into contract.4

The law on contractual capaicity is based on two principles.5

1. The first and more important, is that the law must protect the minor against his
inexperience, which may enable an adult to take unfair advantage of the minor or
to induce him/her to enter into a contract which, though in itself fair, is simply
improvident. This principle is the basis of the general rule that a minor is not
bound by his/her contracts.
2. The second principle is that the law should not cause unnecessary hardship to
adults who deal fairly with minors. Under this principle certain contracts with
minors are valid; others are voidable in the sense that they bind the minor unless
he repudiates, and a minor may be under some liability in tort and in restitution.

As a general rule a minor is not bound by any contract made during his minority. He/she is not
liable for the value of benefits he/she has received under the contract, although if he/she
disaffirms the contract he/she must return anything that he received under the contract and still
retains at the /her time of disaffirms. However, a minor is liable in restitution for the reasonable
value of necessaries furnished to him.6 In case a contract needed for minor or any person lacking
contractual capacity, the guardian as per section 506 of Muluki Civil Code, 2074, may conclude

4
Ashish Adhikari & Sudeep Gautam, Business Law in Nepal, Dhaulagiri Books and Stationaries, Kathmandu (2006)
p.54
5 th
G.H. Treitel, The law of contract, Sweet & Maxwell , London (10 Edition , 1999), p.498
6 th
Melvin A. Eisenberg, Gilbert Law Summaries, Harcourt Brace Legal & Professional Publications Inc., Chicago (12
Edition, 1993), pp.120-121
 CAPACITY TO CONTRACT 3

a contract on his/her behalf for his/her benefit. Similarly, an authorized person can enter into a
contract on behalf of a legal person (company) as per the same section of Muluki Civil Code
2074.

2.3. Rules regarding Minor’s Agreement

a. Contracts for necessaries – Necessaries are goods and services that are essential to a
minor’s health and welfare. Classified as necessaries are food, clothing, shelter and
medical and dental services. A minor’s contract covering necessaries is enforceable
against the minor.7 In determining whether goods and services qualify as necessaries, the
court inquires in to the minor’s family status, financial strength and social standing or
station in life. Necessaries, then, are not the same to all persons.8

In Nash v Inman, Inman, a minor, who was an undergraduate at Cambridge, bought

eleven fancy waistcoats form Nash. He was at the time adequately provided with clothes.
Held, the waistcoats were not necessaries and Inman was not liable to pay for any of
them.9 The extravagant clothing could not be classified as ‘necessary’. Accordingly, the
plaintiff could not claim the price of the goods supplied.10
In Chapple case11 it was held that provision of the funeral ordered by a minor widow for her
deceased husband was a necessary.
Minor as the agent: A minor can act as agents. He can draw, deliver and endorse negotiable
instruments without himself being liable but his principle may be liable to the acts of minor. The
parents are not liable on their child’s contract unless the child acts as their agents.12

7
n 1 , p.142
8
n 1, p.142
9
n 1, p.75
10 nd
Simon Salzedo & Peter Brunner, Brief Case on Contract Law, Cavendish Publishing Limited, London, (2 Edition,
1997), p.191
11
Chappel v Cooper (1884).
12
Blackburn v Mackey (1823), 1. C&P.1; Law v Wilkin (1837) 6.A&E. 718.
 CAPACITY TO CONTRACT 4

b. Minor agreement cannot be ratified – Since a minor’s agreement is void ab initio, it

has no existence in the age of law.

In Nazir Ahamad v. Jiwandas, held that a person cannot on attaining majority ratify and
agreement made by him during his minority.13 But, if, on attaining his majority, minor
ratifies a contract made by him during his minority; it will bind him although there may
be no consideration for the new promise.14

c. The principle of estoppel does not apply to a minor – Estoppel means a bar that
prevents one from asserting a claim or right that contradicts what one has said or done
before or what has been legally established as true.15

Evidence Act, 2031, Section 25

If a minor induces another party to contract with him by misrepresenting his age, there
will not be estoppel against him. The infant is not estopped from setting up the defense of
infancy. The reason is very simple. There can be no estoppel against a statue. The policy
of the law of contract is to protect persons below age form contractual liability and
naturally the doctrine of estoppel cannot be used to defeat that policy.16

d. Minor cannot be declared as insolvent – Minor cannot be declared as insolvent because

he is not capable of contracting debts. Even for necessary supplied, to him, he is not
liable to pay. While a person who has loaned money to a minor may not proved these as a
debt in the latter’s bankruptcy there being no enforceable liability against the minor.

e. Minor cannot enter into a contract of partnership - It is true that partnership is a

continuous relationship between the partners, but by becoming, a partner a minor does
not acquire an interest in a subject of a permanent nature to which obligations are

13
Ibid, p.140
14 th
Chitty on Contracts, General Principles, Sweet & Maxwell, London (27 Edition, 1994), p.452
15
Black’s law Dictionary
16
n 17, p.129
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attached. During the minority of the partner, a minor is not liable for debts incurred by
the partnership, but equally is not entitled to any share of the partnership assets until the
firm’s debts have been paid.

In Lovell and Christmas v. Beauchamp, held that minor does not become liable to
partnership creditors for debts or liabilities incurred while he is a minor.17

f. Minor is liable for a tort - An agreement with a minor is void ab initio and cannot ask
for damages or to restore the benefit, which he had got under a void agreement. But,
when a minor represents falsely himself as a major, the court may ask him to restore the
benefit to the party from whom he had got. If the tort may properly be considered as
arising independently of the contract or outside sits ambit altogether, the minor can be
made liable.18

g. Contract by minor and adult jointly - Where a minor and an adult jointly enter into an
agreement with another person, the minor has no liability but the contract as a whole can
be enforced against the adult. So, a contract made by a minor with an adult is binding on
the adult but not the minor.19

h. Parent or Guardian not liable for minor’s debts – A parent may be ordered to provide
financial relief for the benefit of his or her child, but apart from agency or personal
contract, he is no more liable to pay a debt contracted by the child with a third party
(even for necessaries) than a mere stranger would be.20

17
n 19, p.450
18
Ibid , p.454
19
J. C. Smith, A Case Book on Contract , Sweet & Maxwell, London (1996), p.636
20
n 19, pp.459-460
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Study of Cases:

Chhechyu Lama v. Ishwori Devi Pandit on behalf of Minor Rajendra Prasad Pandit21

the court said that though after death of father, mother is considered as natural protector of the
family. If mother does the work against the right of her children, then a sister can file a case in
the court to protect her brother’s right. Because mother doesn’t have any right to sell the house
without taking proper care of her children where minor children are staying.

21
NKP, (2050), Decision No. 4678, p.1