Capacity to contract by Ruby Sharma

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Capacity to contract by Ruby Sharma

  1. 1. Capacity to Contract 1 Ruby Sharma
  2. 2. Meaning of capacity to contract • According to sec. 10 of Indian law of contract, all agreements are contracts if they are made by the parties’ competent to contract. Thus the competence or capacity to contract is the one of essentials of a valid contract. 2 Ruby Sharma
  3. 3. Who are competent to contract? Section 11 reads, ” Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is sound mind and is not disqualified from contracting by any law to which he is subject”. 3 Ruby Sharma
  4. 4. List of Non Competency Conversely, it can be said that the persons falling under the following categories are not competent to contract:- 1. Minors 2. Persons of unsound mind 3. Person disqualified from contracting by any other law of the land. 4 Ruby Sharma
  5. 5. Who is a MINOR? Any person, who has not attained the age of majority prescribed by law, is generally known as Minor. • Section 3 of the Indian majority act prescribes the age limit for majority and says “A minor is a person who has not completed Eighteen years of age”. • But this same act also applies that in the following two cases a person attains majority only after he completes his age of 21 years:- 1. Where a court has appointed guardian of a minor’s person or property for both (under the Guardians and wards Act 1890) 2. Where the minor’s property has been placed under the superintendence of court of wards. 5 Ruby Sharma
  6. 6. Position of Agreement by a Minor 1. Minor’s agreement is absolutely Void from very beginning. Therefore it will be never enforced by law . Leading case : Mohiri Bibi V. Dharmodas Ghosh D, a minor borrowed a sum from M by executing a mortgage . Subsequently D, sued for setting aside the mortgage. The court held that agreement with a minor is void therefore the mortgage was not valid. M prayed for refund of the amount by the minor. It was held that the money advanced to minor cannot be recovered because minor’s agreement was void. 2. Minor can be a promise or beneficiary- The courts regard minor is capable or accepting benefits under an agreement. Example: - A who was a minor sold some goods to B who was a major person, now in this case after the selling the good A has the right to recover the price from B, even he is a minor person. 6 Ruby Sharma
  7. 7. 3. No Ratification- the term ratification means approving or confirming a past contract. one of the basic rule of ratification is that only valid acts may be ratified. A minor’s agreement is void from beginning so it cannot be ratify. 4. Generally a minor is not liable to compensate for any benefits which he has received. 5. No Estoppel-A minor is not estopped from setting up the plea of minority. Example: -A, was a minor person, by fraudulently representing he to be a major person, and inducing B to lend him 1000Rs. B lends the amount but now B cannot sue A for recovery because the rule of Estoppel does not apply against the minor. 7 Ruby Sharma
  8. 8. 6. The agreement made by a minor jointly with a major person are void vis-à-vis the minor but can be enforced against the major person. 7. A minor cannot become a partner in a partnership firm. He can share the profits only without incurring any personal liability. 8. A minor’s parent/ guardian/ manager can enter into contract on behalf of the minor . 9. The parents or guardian of a minor are not liable for agreements made by them for minor. 10.Minor cannot appoint an agent because only competent person can appoint agent. However a minor can be appointed as an agent by any person competent to contract. 8 Ruby Sharma
  9. 9. PERSONS OF UNSOUND MIND Section 11 requires that in order to be competent to contract, a person must be of sound mind. • What is a Sound mind? 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 and of forming a rational judgments as to its effect upon his interest. (Sec 12) 9 Ruby Sharma
  10. 10. Position of a person who is usually of unsound mind but occasionally of sound mind According to section 12,”A person who is usually of unsound mind but occasionally of sound mind may make a contract, when he is Of sound mind. Moreover,' A person who is usually of sound mind but occasionally of unsound mind may not make a contract, when he is Of unsound mind. A sane man who is so drunk that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interest, cannot enter into a contract while such drunkenness lasts. 10 Ruby Sharma
  11. 11. Position of Agreement with persons of unsound mind • Idiot: - An idiot is a person who is of unsound mind by birth. His incapacity is permanent. Such a person can never understand contract and make a rational judgments as to its effect upon his interests. Consequently the agreement with an idiot is absolutely void from beginning. • Lunatic: - A lunatic is the person whose mental powers are deranged due to some disease of brain or mental strain. The lunacy is not a disease of permanent nature and of course care able. This type of person can make a contract at time when he sane, but if he did some contracts during insanity they will be void. • Delirious person- A person delirious from fever is also not capable of understanding the nature and implications of an agreement. • Drunken or intoxicated person: - A drunken or intoxicated person is temporarily incompetent to contract. • Hypnotized person: - Hypnotism produces temporary incapacity till a person is under the effect of artificial induced sleep. 11 Ruby Sharma
  12. 12. Burden of proof Case The burden of proof lies on 1.Where a person is usually of sound mind The burden of proving that he was of unsound mind at the time of contract lies on the person who challenges the validity of contract. 2. Where a person is usually of unsound mind The burden of proving that he was of sound mind at the time of contract, lies on the person who affirms it. 3.In case of drunkenness or delirium from fever or other causes. The burden of proving lies on the person who challenges the validity of the contract. 12 Ruby Sharma
  13. 13. PERSONS DISQUALIFIED BY OTHER LAW • Alien Enemy-an alien whose country is at war with the Republic of India is called an alien enemy. • Foreign sovereigns and ambassadors-They can enter into contracts and enforce those contracts in our country but cannot be sued without the sanction of the Central Govt. • Convicts- A person is called a convict during his period of sentence. He cannot enter into a contract during that time but after that period or when he is on parole he can enter into contract. • Insolvents-He cannot enter into contracts relating to his property, cannot be sue or sued. 13 Ruby Sharma

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