Business Law Capacity of Parties Unit I


Capacity of Parties
An essential ingredient of a valid a contract is that the contracting parties must be ¶competent to contract·

Capacity of parties.

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 subjectµ

Capacity of parties.

Thus the section declares that a person is incompetent to contract under the following:1. if he is a minor, according to the law to which he is subject. 2. if he is of unsound mind, and 3. if he is disqualified from contracting by any law to which he is subject.

Capacity of parties. MINOR .

Capacity of parties. .

which is under 18 years of age is a minorµ. . Accordingly every person who has completed the age of 18 years become a major.Capacity of parties. MINOR According to section 3 of the Indian Majority Act 1875 ´A person domiciled in India.

attain majority at the age of 21 years.Capacity of parties. . But minors of whose person or property or both a guardian is appointed by a court. and minors of whose property superintendence has been assumed by a Court of Wards. Section 11 expressly provides that the age of majority of a person is to be determined ´according to the law to which he is subjectµ.

Capacity of parties. . the age of majority is determined by the law of place where the contract is entered. the age of majority is : (1) But the later trend of law for determining In the case of contract relating to ordinary mercantile transaction . The Courts of Law use to decide the age of majority by the law of domicile and not by the law of the place where contract is entered into.

the age of majority is determined by the law of the place where the land is situated. . (2) In the case of contract relating to Land transaction .Capacity of parties.

No ratification on attaining the age of majority. Minor¶s Agreement 1.Capacity of parties. The rule of estoppels does not apply to a minor. Beneficial agreement are valid contracts. 3. 4. 2. . An Agreement by a minor is absolutely void and inoperative as against him.

Capacity of parties. 6. 8. 7. . 9. Contract by minor and adult jointly. 10. Minor Partner. 5. Minor·s liability for necessaries. Specific Performance. Minor Agent. Minor and insolvency.

13. 11. . Minor·s liability in tort. 14.Capacity of parties. Position of minor·s parent. Surety for a minor. 12. Minor shareholder.

against minor.Capacity of parties.  Where a minor is charged with obligations . 1.  Law act as a guardian of minors and protects their rights because their mental faculties are not mature enough to judge what is good and what is bad for them. the agreement is deemed as void ab-initio. An Agreement by a minor is absolutely void and inoperative as against him.

Capacity of parties. . The mortgagee filed a suit for the recovery of his mortgage money and for sale of the property in case of default. Mohori Bibi vs Dharmo Das Ghosh:A minor executed a mortgage for Rs. The Privy Council held that an agreement by a minor was absolutely void as against him and therefore the mortgagee can not recover the mortgage money not could he have the minors property sold under his mortgage. 20. 8.000 from the mortgagee.000 and received Rs.

The court may in certain cases while ordering for the cancellation of an instrument. 1963.Capacity of parties Note:No restitution except in certain case A minor cannot be ordered to make compensation for a benefit under a void agreement. require the minor plaintiff to make compensation to the other party to the instrument as per Section 33 Specific Relief Act. . at the instance of a minor.

1963.Capacity of parties Section 33 Specific Relief Act. This Section is base on the well known principle that ´he who seeks equity must do equityµ. . is framed so as to afford relief only in a case where the minor himself as plaintiff seeks the assistance of Court and the Section is inapplicable if he happens to be merely a defendant in a suit by the person who dealt with him when he was a minor.

he may be directed by the Court to refund the purchase money received by him before he can recover possession of the property sold. 50. .000 and later on files a suit to set aside the sale on the ground of minority.Capacity of parties Jager Nath Singh vs Lalta Prasad If a minor sells a house for Rs.

1956. Beneficial agreement are valid contracts.  The Hindu Minority and Guardianship Act. also state that guardian is empowered to enter into a contract on behalf of the minor and the contract would be binding and enforceable if it is for the benefit of the minor. 2.Capacity of parties.  Any agreement which is beneficial for the minor and under which he is required to bear no obligation. . is valid.

Abdul Gafar vs Piare Lal Where a minor had performed his part of the agreement and delivered the goods he was held entitled to maintain a suit for the recovery.Capacity of parties. .

provided the case falls within the term of that Act. 1961. Note:- Contracts of apprenticeship and service by a minor  A Contract of apprenticeship stands on a different footing than an agreement of service by a minor.  A contract of apprenticeship is valid and binding upon a minor because such a contract is protected by the Apprentices Act. .Capacity of parties.

when they come to full age. . by which.Capacity of parties.  The Act provides that the minor must not be less than 14 years of age and the contract must be entered into on behalf of the minor guardian. crafts and employments. they may gain a livelihood.  The act was passed with a view to enabling children to learn trades.

 An agreement void ab-initio cannot be made valid by subsequent ratification.  Ratification means the subsequent adoption and acceptance of an act or agreement. .Capacity of parties.  It cannot be ratified by the minor on attaining the age of majority. No ratification on attaining the age of majority. 3.  A minor·s agreement being a nullity and void ab-initio has no existence in the eye of law.

Capacity of parties Thus. if an advance is made to a minor during his minority.( Mohendra vs Kailash) Since ratification relates back to the date when the contract was originally made. it is necessary for a valid ratification that the person who purports to ratify must be competent to contract at the time of the contract. . a promise to pay for such amount after he attains majority would not be enforceable.

Capacity of parties But if services are rendered or an advance is made to a minor during his minority and the services are continued or a further advance is made after he attains majority. a promise to pay for such services or amount as a whole would be valid and enforceable (Sindha vs Abraham) .

The rule of estoppels does not apply minor. .Capacity of parties 4. act or omission. neither he or his shall be allowed in any suit or proceeding between himself and that person to deny the truth of that thing. to a As per the Section 115 Indian Evidence Act µEstoppelsµ is ´where one person has by his declaration. intentionally caused or permitted other person to believe a thing to be true and act upon this belief.

Capacity of parties ‡ The rule of estoppels does not apply to a minor i. a minor is not estopped from pleading his infancy in order to avoid contract even if he has entered into the contract by falsely representing that he was of full age. .e.

. Minor·s liability for necessaries. incapable of entering into a contract or any one whom he is legally bound to support is supplied by another person with necessaries to his condition in life. The case of necessaries supplie to a minor is governed by Section 98 of the Contract Act which provides that ´ if a person is. the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable personµ.Capacity of parties 5.

But in case of minor it is his property from which the person who has supplied will be compensated in case of no property with minor he will loose the money.Capacity of parties This Section 68 confers a quasi right where the incapable if supplied by the necessaries become liable to pay back. . This is applicable only in the case of supply of the necessaries not the supply of Luxury items.

. But this being a void the court will never direct performance of the contract.Capacity of parties 6. Specific Performance: Specific performance means the actual performance of the contract as agreed.  But if it has been entered on minors behalf by his Guardians or the manager of his estate it is binding provided (a) The contract is within the authority of the Guardian or Manager and (b) It is for the benefit of the minor.

Capacity of parties 7. Minor Partner:- A minor being incompetent can not act as a partner in a partnership firm. . But under Section 30 in case of benefit to the minor through partnership it can be carried out by authorized Guardian on behalf of the minor.

 He will not participate in the management.  The minor can not will not be the part of losses if arise or any other obligation. .  He can accept these obligation if he feel fit to do so at the age of attaining majority.Capacity of parties  Such a minor will only be entitled to share the profit as agreed upon he can also view any books of account of the organization.

Thus in appointing the minor as an agent the principal runs a great risk.Capacity of parties 8. . but cnnot be held personally liable for any obligation of breach of contract. He shall bind the principal by his acts done in the course of such an agency. Minor Agent:Minor can act as a agent.

. Minor and insolvency:A minor can not be adjudicated an insolvent for he is incapable of contracting debts.Capacity of parties 9. Even for the necessaries supplied it is the property of minor which is liable rather the himself.

Capacity of parties 10. (Jamna Bai vs Vasanta Rao) . Contract by minor and adult jointly. the minor has no liability but the contract as a whole can be enforced. Where a minor and an adult jointly enter into an agreement with another person.

Capacity of parties 11. an adult stands surety for a minor. Surety for a minor:Where in a contract of guarantee. . (Kashiba vs shripat) Note:. the adult is liable under the contract all though the minor is not.Bombay High court (Manju Mahadeo vs shavappa Manju) and Madras High court (Edavan Nambiar vs Moolaki Raman) stated that the minor can not default thus there is no question of surety for a minor.

whether the agreement is for the purchase of necessaries or not. Position of minor·s parent:The Parents of a minor are not liable for agreement made by a minor. The parents can be held liable only when the child is contracting as an agent for the parents.Capacity of parties 12. .

Capacity of parties 13. Minor shareholder:A minor being incompetent can not be the shareholder of the company. a minor through his guardian can be a part of company as a shareholder on taking fully paid shares. A company can also refuse to register transfer or transmission of shares in favor of minor unless the share are fully paid. . Thus.

unless the tort is in reality a breach of contract. Minor·s liability in tort:A ¶tort· is a civil wrong for which the ordinary remedies is damage. A minor is liable for his tort. .Capacity of parties 14.

.Capacity of parties PERSONS OF UNSOUND MIND One of the essential conditions of competency of parties to a contract is that they should be of sound mind.

What is sound mind? .

. at the time when he makes it. if.Capacity of parties Section 12 of the Contract Act defines the term ¶Sound mind· as follows:´A person is said to be of sound mind for the purpose of making a contract. he is capable of understanding it and of forming a rational judgment as to its effect upon his interestsµ.

.Capacity of parties Therefore the person entering into the contract must be a person who understands what he is doing and is able to form a rational judgment as to whether what he is about to do is to his interest or not.

A patient in a lunatic asylum. who is at intervals of sound mind. who is usually of unsound mind but occasionally of sound mind. .Capacity of parties It further states that:(1) A person. may contract during those intervals. may make a contract when he is of sound mind. Eg:.

or from a rational judgment as to its effect on his interests.Capacity of parties (2) A person. cannot contract whilst such delirium or drunkenness lasts. . Eg:. may not make a contract when he is of unsound mind. or who is so drunk that he cannot understand the term contract. but occasionally of unsound mind. who is usually of sound mind.A sane man who is delirious from fever.

Capacity of parties Soundness of mind of a person depends on two facts:(i) His capacity to understand the contents of the business. (ii) His ability to form a rational judgment as to its effect upon his interests. which will be decided by court on the basis of proofs. If person is incapable of both he will be perceived of suffering from unsoundness. .

. He suffers from intermittent intervals of insanity. Thus contract with such person is void .Capacity of parties Unsoundness of mind arise from:Lunatics:-A lunatic is a person who is mentally deranged due to some mental strain on other personal experience. He is the person whose brain is not developed at all and thus his mental powers are completely loss even for the ordinary matters. Idiocy:-It is something which is God gifted. He can enter into the contract during the period when he is of sound mind.

. Mental decay:-On account of old age. till the drunkard is under the influence of intoxication.Capacity of parties Drunkenness:-It produces temporary incapacity. Hypnotism:-It also produces temporary incapacity till the person is under the impact of artificially induced sleep.

are those who are ´ disqualified from contracting by any law to which they are subjectµ .Capacity of parties DISQUALIFIED PERSON The third type of incompetent persons. as per Section 11.

. Alien Friends can contract but alien enemy can not.Capacity of parties Country) living in India can enter into contracts with citizens of India during peace time only and that too subject to any restrictions imposed by the Government in that respect. Alien Enemies:-An Alien enemies ( citizen of a foreign Foreign Sovereigns and ambassadors:One has to be cautious while entering into contracts with foreign sovereigns and ambassadors. because whereas they can sue others to enforce the contracts entered upon them they cannot be sued without obtaining the prior sanction of the Central Government.

During the period of imprisonment. a convict is incompetent to enter contract and to sue on contracts made before conviction.Capacity of parties Convict:Convict is one who is found guilty and is imprisoned. Married Women:Married women are competent to contract with respect of their separate properties provided they are major and sound minded. . They cannot get into contract for his husband·s property.

Being a Artificial Person he can not enter into contracts strictly personal nature e. .Capacity of parties Joint Stock Company and corporation incorporated under a special Act:A company is an artificial person created by law. Marriage.g. It cannot enter into contract outside the powers conferred upon by its Memorandum of Association or by the provision of its Special Acts.

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