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Objectives

 To make aware the importance of capacity of parties in


a contract.

 To understand the various issues related to Capacity of


Parties.
Case
 It was for only five minutes that Raman had left his shop to
his eight year old son, Deepak. Deepak always imagined he
was grown up enough to do all that his father did. A
customer come up to the shop and asked the boy, “ could I
have that electric iron”. The boy had seen his father sell
things for Rs. 10. he thought Rs. 20 would be a good value
for the iron. He asked for Rs. 20 for the iron. The customer
paid the money and was about to leave that Raman came
back. Raman attempted to intervene by requiring the buyer
to either par Rs. 300 for the iron or returning it back. The
customer pointed to the sign on the shop – ‘ Goods once
sold will not be returned back’ and insisted on taking the
iron away.
CAPACITY OF PARTIES
 Capacity of Parities means contracting parties must
be competent to contract.

 Section 11 lays down 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.’
Contd……
 Thus the following persons are not competent to
contract:

 A person who is Minor


 A person of Unsound mind
 A person who is disqualified to make a contract
Minor
 According to Section 3 of the Indian Majority Act 1875 ‘a
person who has not completed eighteen years of age is
considered as Minor.

 Twenty one years if person or property or both a guardian is


appointed by the Court (under the Guardians and Ward act
1890 or where the minor’s property has been placed under
he superintendence of a Court of wards.’
General Principles Governing the
Law for Minor
 The law must protect minor against their own
inexperience. It therefore should protect minor
person, preserve their rights & properties, excuse their
negligence & assist them in pleading.

 In pursuing the object of protection of minors, the law


should not cause unnecessary hardship to the person
who deals with them. Thus in case of minor . the law
should behave like his guardian.
Rules or Effect as to Nature of
Minor’s Agreement
 An agreement with minor is absolutely void.
 U/s 26 of the Negotiable Instrument Act1881, Minor
can be a promisee of the negotiable instrument not a
promisor.
 Ratification or confirmation of minor’s contract is not
possible even after attaining majority.
 Minor is not Liable to compensate - U/s 64 and 65 of
the Act minor is not liable to compensate or
restoration of any benefit, that he has received from
the other party.
Contd…..
 No estoppels against a Minor - Under section 115 of the
Indian Evidence Act, minor has a right to tell a lie i.e.
minor cannot be stopped from pleading his infancy in
order to avoid a contract, even if he has entered into an
agreement by falsely representing that he was of full
age.
 The parents (guardian) of a minor are not liable for
agreements made by their minor ward.
 Minor can be appointed as an agent but he cannot
appoint an agent because u/s 183 of agency Act, only a
person competent to contract can appoint an agent.
Contd…
 Minor can be a shareholder of a company, but he is not liable for
the unpaid calls to the company.
 U/s 4 and 30 of the Indian Partnership Act 1932, minor can be
admitted for sharing the benefits of an existing firm with the
consent of all the partners.
 Minor cannot be declared as insolvent because minor’s
agreement is void.
 A contract of personal service by minor is void. Because minor
can not be appointed as an employee.
 U/s 68 of the Indian Contract Act and provisions of Specific
Relief Act, if a person supplying necessities to the minor is
entitled to be reimbursed form the property of such incapable
person.
 Minor as joint promisor- the adult (Major) joint promisor will
be liable on the contract & not the minor
Contd….
 Minor & Guarantee – a person who stands as surety (guarantor) for a
minor against money advocated to him, can be sued & made liable.
However, the minor cannot be held liable.

 Minor & Sale of Good act – Minor is capable of purchasing immovable


property. But he cannot sale that property.

 Minor as Trade Union Member – Under section 21 of Trade Union Act


1926, a person who has attained the age of fifteen years may be a
member of registered trade union. Such member will enjoy all the
rights of a member.

 Marriage Contract – Contract of Marriage of Minor by their parents or


guardians has been held to be valid an in interest of minor on the
ground of the customs of the community
Persons of Unsound Mind

 Under Section 12 of the Indian Contract Act, 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
judgment as to its effect upon his interests.
 The soundness of mind is required only at the time of
making contract, if person becomes of unsound mind after
making a contract; the validity of contract remains
unaffected. Persons of unsound minds include lunatics,
idiots, drunken persons, hypnotized persons, mentally
decayed and delirious (person in high fever).
Effects

 Agreements are absolutely void, if agreement is for the


benefit of a person of unsound mind it can be
enforced.
 Agreements made by such a person for supply of
necessities of life to him or to his dependent are valid
as quasi contract
 The contract made by the guardian of a lunatic
(appointed under the Lunacy Act) on his behalf can be
enforced and his estate is liable for the same)
Types of Person of Unsound Mind
 Idiot
 Lunacy or Insanity
 Delirious Person
 Drunken Or Intoxicated Person
 Hypnotized Person
 Mental Decay
Burden of Proof and other Related
Provisions:

 It is the duty of every person making a contract to


know about the soundness on mind of another person.
Agreement made in ignorance of unsoundness of
another person is also void.

 Effected person who wants to cancel the voidable


contract, has to prove that he was of unsound mind at
the time of making the contract.
Persons Disqualified by other
Laws

 Foreign sovereigns, diplomatic staff etc.: Foreign


government their representatives, ambassadors etc.
have full capacity to contract in India but they cannot
be sued without obtaining the prior sanction of the
Central Government. Thus, they are in a privileged
position and are ordinarily considered incompetent to
contract.
 Alien enemy: Alien means foreign citizen living in
India. When an alien is declared as alien enemy, the
contracts are void. The contracts before declaration of
war stand suspended till declaration remains in force.
Persons Disqualified by other
Laws
 Corporations and companies: A company or
corporation is an artificial person created by law. They
cannot enter into contract beyond the powers
conferred upon it by its Memorandum of Association
and their special Act. They also cannot enter into
contracts of a strictly personal nature e.g. marriage.
 Insolvents: Before order of discharge, an insolvent
person suffers from certain disqualifications e.g. he
cannot be a director of a company or member of local
body, he cannot sell his property but he can purchase
goods and services in his own name.
Persons Disqualified by other
Laws
 Married women: They can enter into contracts with
respect to their separate properties (called as Stridhan)
provided they are major and are of sound mind. They
cannot enter into contracts with respect to their
husbands’ properties except for necessaries which are
supposed to be supplied by her husband but he fails to
supply.
Cases…….
 Teji, a minor, broke his right leg in a football match.
He engaged Cure well, a doctor to set it. Does the
doctor have a valid claim for his services? Give reason.

 Akash is 16 years of age. He pretended to be a major


and bought portable CD player from a shop on credit.
Having got the possession of the CD player, he refused
to pay the money for the CD player. His claim is that
he is a minor and thus, the contract is not enforceable
against him.
Case…….
 Dev is of 17 years old. He bought a ticket for a music
performance for Rs. 100. the terms on the ticket
indicated that if the show was cancelled, organizers
would refund the full value of the ticket and give
additional compensation of Rs. 25. the performance
got cancelled as the artist could not reach the city. Dev
is demanding refund as well as the damages of Rs 25.
the organiser are claiming that as Dev is a minor, there
is no enforceable agreement between the parties, and
they are not obliged to give him either the refund or
the damages….
Case……
 Sushman is a 16 year old boy. He has a computer which
he rents to Rahul for 10 days with daily rental charges
of Rs. 100. After using the computer for ten days, Rahul
declares that as Sushman is a minor, there is no
contract between Sushman and him. Rahul is refusing
to give back the computer and the rental of Rs. 1000.