CONTRACTUAL CAPACITY
·
An important
element of a valid contract is that the parties to the contract should have the
capacity to enter into a contract.
· For an
“agreement” to become a “contract”, it is important that such agreement is
between persons who have the capacity to contract.
·
Capacity here
means competence of the parties to enter into a valid contract.
·
According to
section 11 of the contract act:
“ Every person is competent to contract who is of the age of majority according
to the law to which he is subject, & who is of sound mind, and is not
disqualified from contracting by any law to which he is subject.”
PERSONS DISQUALIFIED FROM ENTERING INTO THE CONTRACT
·
Minors, who are not of the age of majority.
·
Persons of unsound mind, and
·
Persons disqualified to contract by any
law (Insolvents).
A.
MINOR
Who is a minor?
·
– Acc. To sec 3 of Indian majority act,
1875, a minor is a person who has not attained the age of 18 years.
·
But where a
guardian of a minor’s person or property has been appointed under the guardian
and wards act, or where the superintendence of a minor’s property is by a court
of wards.
·
In English law,
the age of 18 years is taken a majority age in all situations.
RULES RELATING TO AN AGREEMENT WITH A MINOR
·
First rule- law
protects minors against their own inexperience & against the possible
improper designs of those more experienced
·
Second rule-the law should not cause
unnecessary hardship to persons who deal with minors.
MINOR’S
AGREEMENTS
1
Agreement is void: Since any contract with minor, that is any
individual less than 18 years of age cannot contract, so any minor agreement
which has been formed is void. However, the minor may enforce the agreement
against the other party if he has carried out his obligation.
2
No Ratification: Minor cannot ratify the agreement on attaining the
age of majority which he has entered into in the age of minority.
3
Minor can plead
minority to avoid contract. X, a minor borrows money by saying that he is a
major.
4
A minor is not
liable to restore the property or goods. Minor can be compelled. If goods are
traceable in his possession. If minor has sold the goods then nothing can be
claimed.
5
No specific
Performance: Means actual
performance of contract as agreed as contract is void ab intio. But in case
guardians entered into a contract if they have the authority and it is for the
benefit of minor, it is valid
6
Minor can be a
promisee or a beneficiary: Where the minor
bears no obligation & rather the agreement is for his benefit, and then
such agreement is valid. ( A promissory note executed in favor of minor is
valid )
7
Minor as a
partner: A minor cannot become
a partner in the partnership firm but he can be admitted to benefits of the
partnership with consent of all the partners. The minor is liable to losses but
not his personal property.
8
Minor as an
agent: The principal shall be
bound for the acts of minor agent. (Link between parents & third party).
9
Minor cannot be
adjudged as insolvent: Even for
necessaries, his property is liable but he is not personally liable.
10
Position of a
surety: Where in contract of
guarantee, a major stands surety on behalf minor, and then major would be
liable.
11 Minor’s Liability for necessaries: Minor is liable to pay a reasonable price for the
necessaries supplied to him…. His property is liable but he is not personally
liable.
12 Position of minor’s parents: The parents are not liable for the contract entered
into by the minor himself. They r liable only if minor is their agent.
13 Minor as a shareholder: A minor cannot become a shareholder but fully paid
up shares may be transmitted to him through his lawful guardians.
14 A minor is liable in torture (civil wrong) but where
tort arises out of contract a minor is not liable in tort as indirect way of
enforcing an invalid contract.
LEGAL POSITION OF MINOR
1. Contract with a minor is absolutely void.
2. Contract for
necessaries of life.
3. Minor’s contract for
his benefits.
4. Contract by parents
of minor.
5. A minor’s contract cannot
be ratified on his becoming a major.
6. There can be no
restitution or refund of benefit.
7. Minor as an agent.
8. Minor as a partner.
9. Position of a minor
in a limited Company.
10. Surety’s Liability
for minor.
11. Position of a minor
in a negotiable Instrument.
12. Minor’s Rights to hold property.
B. PERSONS OF UNSOUND MIND
·
ACC TO SEC 12: “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 & of forming a rational
judgment as to its effect upon his interest.”
·
Soundness of
mind of a person depends upon: His
capacity to understand the basics of the business concerned His ability to form
a rational judgment as to their effect upon his interest.
Unsoundness may be
categorized as:
·
An idiot is a born fool who has completely
lost his mental powers. He does not have the faculty to think or understand
even the ordinary matters. An idiot can never enter into a contract.
·
The law protects
such people by making them incompetent to contract because it would be very
simple for anybody to deprive them of their rights.
·
A person who has lost his mental power because
of accident, illness or personal tragedy is called a lunatic.
·
Lunacy denotes
periodic sanity. Such a person is incompetent to make a contract when his state
of mind is not sound. Such persons can be categorized as:
1. Those that are
normally alright, but have periodic fits of lunacy. Such person is incompetent
to contract.
2. Those that are
normally insane but are sometimes of same mind.
· A person who is intoxicated by drinking, or is
under the influence of drugs, or is delirious because of pain or sickness
cannot make a rational decision and as such is incompetent to make a contract.
C. PERSONS DISQUALIFIED FROM CONTRACTING
1. Alien enemy:
An alien enemy is an individual who, due to permanent or temporary allegiance
to a hostile power, is regarded as an enemy in wartime. Under federal law, an
alien enemy is a native, citizen, or subject of a foreign nation, state, or
sovereign with which the United States is at war.
2. Foreign sovereign:
Foreign sovereigns, diplomats and accredited representatives are not governed
by Indian law and are beyond the jurisdiction of Indian Courts.
3. Corporations:
Contract is ultra vires if not in MOA) • Insolvents- all property in hand of
Official assignee. He can enter into contract when court passes an order of
discharge
4. Convicts: Persons who are sentenced to imprisonment cannot
enter into contract during that period)
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