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CAPACITY OF PARTIES. INTRODUCTION For a valid Contract the parties to a contract must have capacity that is competence to enter into a contract. Section.

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Presentation on theme: "CAPACITY OF PARTIES. INTRODUCTION For a valid Contract the parties to a contract must have capacity that is competence to enter into a contract. Section."— Presentation transcript:

1 CAPACITY OF PARTIES

2 INTRODUCTION For a valid Contract the parties to a contract must have capacity that is competence to enter into a contract. Section 11 of the Contract Act deal with the competency of parties and provides that 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 of sound mind and is not disqualified from contracting by any law to which he is subject.

3 It follows that the following persons are incompetent to contract : 1. Minor 2. Person of unsound mind, and 3. Persons disqualified by any law to which they are subject. Contracts enter into by persons mentioned above are void.

4 Minor According to Indian Majority act,1875, a minor is one who has not completed his or her 18 th year of age. WHY SHOULD MINORS BE PROTECTED ? A minor has a immature mind and cannot think what is good or bad for him.minors are often exploited. So he must be protected by law from any exploitation but at the same time, the law must not cause unnecessary hardship to the persons who deal with minors.

5 Effects of minors agreement 1.An agreement with or by a minor is void : MOHORI BIBI V. DHARMO DAS GHOSE [1903] A a minor borrowed rs.20000 from B and as a security for the same executed a mortgaged in his favor. He became a major a few months later and filed a suit for the declaration that the mortgage executed by him during his minority was void and should be cancelled. It was held that a mortgage by a minor was void and B was not entitled to repayment of money.

6 2. No ratification: A minor cannot ratify the agreement even on attaining majority, because a void agreement cannot be ratified. ARUMUGAN V. DURAISINGA [1914] A minor borrowed a sum of money executing a simple bond for it, and after attaining majority executed a second bond in respect of the original loan and interest.It was held that suit upon the second bond was not maintainable.

7 3. Minor can be a promisee or beneficiary : The General American Insurance Co. Ltd. V. Madan Lal Sonu Lal [1935]59 Bom 656 X, a minor insured his goods with an insurance co. The goods were damaged.X filed a suit for claim.The insurance co. Took the plea that the person on whose behalf the goods were insured was the minor. The court rejected the plea and allowed the minor to recover the insurance money.

8 4.NO ESTOPPEL AGAINST A MINOR: Where a minor by misrepresenting his age has induced the other party to enter into a contract with him, he cannot be made liable on the contract.There can be no estoppels against a minor. It means he is not estopped from pleading his infancy in order to avoid a contract. The court may direct minor to restore property. No doubt, minor has got protection but he has no liberty to cheat others.

9 5. No specific performance except in certain cases : A minors contract been absolutely void, there can be no question of the specific performance of such a contract. A guardian of a minor cannot bind the minor by an agreement for the purchase of immovable property; so the minor cannot ask for the specific performance of the contract which the guardian had no power to enter into. But a contract enter into by the guardian or manager on minors behalf can be specifically enforced by 1.The contract is within the authority of the guardian or manager 2.It is for the benefit of the minor

10 6. Liability for torts : A tort is a civil wrong. A minor is liable in tort unless the tort in reality is a breach of contract. But a minor cannot be made liable for a breach of contract by framing the action on tort. You cannot convert a contract into tort to enable you to sue an infant. 7. No insolvency: A minor cannot be declared in solvent as he is incapable of contracting debts and dues are payable from the personal properties of minor and he is not personally liable.

11 8. Partnership : A minor being incompetent to contract cannot be a partner in a partnership firm, but under section30 of the Indian Partnership Act, he can be admitted to the benefits of partnership. 9.Minor can be an agent : A minor can act as an agent. But he will not be liable to his principal for his acts. A minor can draw, deliver and endorse negotiable instruments without himself being liable.

12 10.Minor cannot bind parent or guardian : In the absence of authority, express or implied,an infant is not capable of binding his parent or guardian, even for necessaries. The parents will be held liable only when the child is acting as an agent for parents. 11.Joint contract by minor and adult : In such a case, the adult will be liable on the contract and not the minor. 12.Surety for a minor: In a contract of guarantee when an adult stands surety for a minor then he [adult] is liable to third party as there is direct contract between the surety and the third party.

13 13. MINOR AS SHAREHOLDER: A minor, being incompetent to contract cannot be a shareholder of the company. If by mistake he becomes a member the co. can rescind the transaction and remove his name from register. 14. LIABILITY FOR NECESSARIES: A claim for necessaries supplied to a minor is enforceable by law. But a minor is not liable for any price that he may promise and never for more than the value of the necessaries. There is no personal liability of the minor but only his property is liable.

14 PERSONS OF UNSOUND MIND As per section 11 of Contract Act, for a valid contract each party to the contract must have a sound mind. Contracts made by persons of unsound mind are void. The reason is that a contract requires assent of two minds but a person of unsound mind has nothing which the law recognizes as a mind. Unsoundness of mind does not mean weakness of mind or loss of memory. It means not only lack of capacity to understand the terms of the contract but also lack of understanding to realize the effect of the terms of the contract.

15 Unsoundness of mind may arise from : 1.Idiocy : An idiot is a person with no intervals of saneness. He is incapable. His mental powers of understanding even ordinary matters are absent because of lack of development of brain. The agreement with an idiot is void. INDERSINGH V. PARMESHWARDHARI SINGH [1957] A property worth about Rs.25000 was agreed to be sold by a person for Rs. 7000 only. His mother proved that he was a congenital idiot, incapable of understanding the transaction. The sale was held to be void.

16 2. Lunacy or insanity : It is a disease of the brain. A lunatic loses the use of his reason due to some mental strain or disease. He may have lucid intervals of sanity. He can enter into contract during that period when he is of sound mind. 3.Drunkenness : It produces temporary incapacity till the man is under the effect of intoxication creating impotence of mind. He stands on the same footing as a lunatic. 4. Hypnotism : It also produces temporary incapacity till the person is under the impact of artificially induced sleep. 5.Mental decay : It is on account of old age etc.

17 PERSONS DISQUALIFIED FROM CONTRACTING BY ANY OTHER LAW 1. Alien enemies : An alien is competent to contract with citizens of India living in India. He can maintain an action on a contract entered into by him during peace time. But if a war is declared, an alien enemy cannot enter into any contract with an Indian citizen. 2. Foreign sovereigns and Amy minors : These persons are immune from the jurisdiction of local courts, unless they voluntarily submit to its jurisdiction. These persons have a right to contract but can claim the privilege of not being sued. The rules regarding suits by or against foreign sovereigns are laid down in sections 84 to 87 of Civil Procedure code.

18 3. Insolvents : An insolvent cannot enter into a contract as his property vests in the official receiver or official assignee. This disqualification of an insolvent is removed after he is discharged. 4. Convict : A convict while undergoing imprisonment is incapable of entering into a contract. But this disability comes to an end on the expiry of the sentence. 5. Corporations : A corporation is an artificial person recognized by law. It exists only in the eyes of the law. It is competent to enter into a contract only through its agents.

19 6. Professional persons : Doctors and advocates are included in this class. In England barristers are prohibited by the etiquettes of their profession from suing for their fees. In India these personal disqualifications do not exists. According to the Bar Council Act 1927 an advocate of the High Court can enter into a contract with his client and can also bring a suit against him for his fees. 7. Contractual capacity of married women : A woman is competent to enter into a contract. Marriage does affect the contractual capacity of a woman. She can even bind her husband in cases of pressing necessity. A married women may sue or be sued in her own name in respect of her separate property.


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