The document discusses the capacity of parties to form a valid contract under business law. It outlines three types of parties that are considered incapable: minors under 18 years old, persons of unsound mind unable to understand contracts, and disqualified persons such as alien enemies or convicts. Minors can be promisees or agents but cannot be partners, company members, or adjudged insolvent. A person's soundness of mind is determined by their ability to understand and rationally judge a contract.

1. CAPACITY OF PARTIES
BUSINESS LAW
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES,
NMCC, MARTHANDAM

2. ESSENTIAL ELEMENTS OF A VALID CONTRACT
Essential
Elements
of
a
Valid
Contract
Offer and Acceptance
Legal Relationship
Lawful Consideration
Capacity of the Parties
Free Consent
Legality of the object
Legal Formalities
Certainty
Possibility of performance
Not expressly declared void
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM

3. CAPACITY OF PARTIES
• According to Sec.11 of the Indian Contract Act, 1872,
• Every person is competent to contract, who is
• Of the age of majority according to the law to which he is
subject
• Of sound mind and
• Not disqualified from contracting, by any law to which he is
subject.
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM

4. INCAPABLE PERSONS
1. MINORS
2. PERSONS OF UNSOUND MIND
3. DISQUALIFIED PERSONS
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM

5. 1. MINORS
• According to the Indian Majority Act, 1875, a
minor is one who has not completed his or
her 18th year of age.
• There are 2 exceptions:
• When a guardian of a minor or his
property is appointed by a court of law
and
• When a minor’s property is taken over by
the court of wards for management.
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM

6. A MINOR CAN / CANNOT
• A minor can be a promisee
• A minor can always plead minority
• A minor can be an agent
• A minor cannot be a partner
• A minor cannot be a member of a company
• Minor’s parents are not liable
• A minor can’t be adjudged as insolvent
• A minor can be a shareholder
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM

7. 2. PERSONS OF UNSOUND MIND
• The test of soundness of mind is :
• Capacity to understand the contract and
• Competency to form a rational judgement
• Persons of Unsound mind include :
a) Idiotic persons - IDIOCY
b) Lunatic persons - LUNACY
c) Drunkards - DRUNKEN PERSONS
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM

8. 3. DISQUALIFIED PERSONS
i. Alien enemies
ii. Convicts
iii. Insolvents
iv. Foreign sovereigns
v. Statutory corporations
S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM

9. S.M. GOLDYN ABRIC SAM, ASST. PROFESSOR, DEPT. OF MANAGEMENT STUDIES, NMCC,
MARTHANDAM