Capacity of Contract

1. BUSINESS LAW
UNIT 3

2. CAPACITY OF CONTRACT
• “CAPACITY OF CONTRACT”:-
• Sec- 11 of the Indian contract Act, “Every person is competent
to contract who is of the age of the majority according to the
law to which he is subject and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject”

3. • Persons not competent to contract:
• Sec-11 of the Indian contract Act, the following persons are
not competent to contract, ie., they are incapable of entering
into a valid contract.
• Minor
• Persons of unsound mind
• Persons disqualified by law

4. MINOR
• Sec-11 declares a minor incompetent of contracting; a contract
with or by a minor shall be void and unenforceable.

5. RIGHTS OF MINOR
• An agreement with a minor is void”
• The rule of Estoppels does not apply to a minor
• No restitution except in certain cases
• Minor’s liability for necessaries
• Minor’s liability in Tort [wrong]
• Partnership by minor
• A minor can be an agent
• Minor can be shareholder

6. PERSON OF UNSOUND MIND
• “UNSOUND MIND PERSON”
• Sec – 12 of the Indian contract Act reads as follows: “A person
is said to be of sound mind for the purpose of making a
contract if, at the time when he makes if, he is capable of
understanding if and of forming a rational judgment as to its
effect upon his interests”.

7. • Idiot: An idiot is a person who has completely lost his mental
faculties of thinking. Such a person is completely incapable of
forming a rational judgment. An agreement with an idiot is
completely void
• Lunatics: Lunatics is person whose mental faculties of thinking
are deranged i.e., disordered due to some mental strain or
some other reasons.

8. PERSONS DISQUALIFIED BY LAW
• Alien enemies: An alien is a person who is a foreigner to the
land. He may be either an alien friend.. And if a war is declared
between the two countries he is termed as an alien enemy.
• Insolvents: The insolvent is deprived of his power to deal with
the property.

9. • Convicts: A convict cannot enter into a contract while he is
undergoing imprisonment.
• Corporations and companies: A corporations and companies is
an artificial person created of law. It can enter into a contract
through human agents

10. FREE CONSENT
• Free consent is one of the essential elements of a valid
contract as it is evidenced by section 10 which pprovides that
all agreements are contracts if they are made by the free
consent of the parties.

11. FACTORS AFFECTING FREE CONSENT
• COERCION
• UNDUE INFLUENCE
• MISPRESENTATION
• MISTAKE
• FRAUD

12. COERCION
• “According to sec 15 Coercion is the committing or threatening
to commit, any act forbidden by the Indian penal code any
property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement”.

13. UNDUE INFLUENCE
• The term undue influence means the party who occupied the
superior position may obtain the consent of the other by unfair
use of his power.

14. MISREPRESENTATION
• Representation is a statement or assertion made by one party
to the before or at the time of contract, regarding some fact
relating to it.
• Misrepresentation is a false statement, which the person
making it honestly believes to be true or which does not know
to be false.

15. • The party making the false statement does not believe it to
true.
• There is active concealment of truth.
FRAUD

16. VOID AGREEMENT
• An agreement that is not valid and, therefore, not enforceable
in a court of law is void. The object of a void agreement may be
lawful.

17. • DIFFERENT TYPES OF VOID AGREEMENT:-
• Agreements by or with persons incompetent to contract
(Section 10 & 11)
• Agreements entered into through a mutual mistake of fact
between the parties (Sec. 20)
• Agreement, the object or consideration of which is unlawful
(Sec. 23).

18. • Agreement made without consideration (Sec. 25)
• Agreements in restraint of marriage (Sec. 26)
• Agreements in restraint of trade .
• Wagering agreement (Sec. 30)
• Impossible agreement (Sec. 56)
• An agreement to enter into agreement in the future

19. • An agreement which is enforceable by law at the option of the
one or more of the parties thereto , but not at the option of
others or others , is a voidable contract .
• Voidable Contract generally happens when one side of the
party is tricked into entering a contract by other party .