Capacity to contract

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  • 1. CAPACITY TO CONTRACT
  • 2. Meaning & Definition…
    • 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.”
  • 3. 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 )
  • 4. 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.
  • 5. 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
  • 6. Minor’s Agreements
    • 1. Agreement is void ab initio:
    • Case mohori bibi vs. Dharmodas Ghose – Dharmodas , a minor executed a mortgage for Rs. 20000 declaring himself major & received Rs. 8000 from mohori bibi, a mortgagee. The minor wanted to set aside the mortgage. The mortgagee wanted the refund of Rs 8000. It was held that the agreement with the minor was void ab initio & question of refunding money does not arise.
  • 7.
    • 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.
  • 8.
    • 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 enterd into a contract if they have the authority and it is for the benefit of minor, it is valid
  • 9.
    • 6. Minor can be a promisee or a beneficiary – Where the minor bears no obligation & rather the agreement is for his benefit, 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.
  • 10.
    • 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, then major would be liable.
  • 11.
    • 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
  • 12.
    • 13. Minor as a shareholder – A minor cannot become a shareholder but fully paid up shares my be transmitted to him through his lawful guardians.
    • 14. A minor is liable in tort(civil wrong) but where tort arises out of contract a minor is not liable in tort as indirect way of enforcing an invalid contract
  • 13.
    • A minor is liable to pay for his necessaries supplied or services rendered to him whom he is legally bound to support.
  • 14. Minor’s Liability for necessaries …
    • Necessaries is not confined to food, clothing & shelter but it also includes articles or services which are reasonably necessary for a minor suitable to his conditions in life … a watch or a bicycle may be necessary for a minor.
  • 15. Following are considered as necessaries …
    • For saving his property from sale in execution.
    • For marriage of a minor.
    • For marriage of his sister.
    • For shradh ceremonies of the ancestors of the minor.
    • For rent of house taken by minor for the purpose of studies.
  • 16. Following are not considered as necessaries …
    • Cigar & tabacco.
    • Refreshment for entertainment.
    • A silver gift
    • The minor would not be personally liable for reimbursement of necessaries, however his property is liable for reasonable price for necessaries.
  • 17. Services
    • Education
    • Medical help
    • Legal Advice
    • Training for advice
    • Also liable to pay loan taken for necessaries
  • 18. 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.”
  • 19. Unsoundness may be categorized as:
    • Idiots – has completly lost his mental powers
    • Lunatic – the person losses the capacity due to the illness of brain or mental bodily distress.
    • Drunkenness
  • 20. Persons disqualified from contracting
    • Alien enemy
    • Foreign sovereign (prior sanction of central govt)
    • 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
    • Convicts – persons who are sentenced to imprisonment cannot enter into contract during that period).
  • 21.
    • THANK YOU