Business Law - Batch a - Group 4 - ASB - Capacity of Parties and Law Relating to Minors

8/8/2019 Business Law - Batch a - Group 4 - ASB - Capacity of Parties and Law Relating to Minors

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Business Law

Assignment No.1

ASB Batch A , Group 4

Neethu Jose (09063)

Nirmala.G (09065)

Nivedha.P (09067)

Pooja Nair (09069)

Prashanth K Nath (09071)

Praveen P (09073)

Raghav R Warrier (09077)

Rahul V Gopinath (09079)

Ramasamy N (09081)

Rohitha Chowdary K (09083)

Capacity of Parties and Law Relating to Minors


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Capacity of Parties and Law Relating to Minors

According to Section 11 Every person is competent to contract who is of the age of

majority according to the lawa) 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.

Conversely speaking, the following categories of persons are deemed disqualified or

incompetent to enter into a valid agreement and contract:

a) Minors

b) Mentally incompetent persons, and

c) Persons who are declared incompetent through their status (political, corporate, legal

etc).

a)Minors

As defined in section of the Indian Majority Act, 1857, a minor is a person who has

not completed 18 years of age. But then, in the following two specific cases, a minor is said

to attain the majority on the completion of his 21 years of age, instead:

a) Where a guardian of minors persons or property has been appointed under theGuardian and Wards Act,1890,or

b) Where a Court of Wards assumes the superintendence of the minors property.

Rules Relating to a Minors Contract

1. Minors contract is absolutely void

In Mohrori Bibee v.Dhurmodas Ghose(1903-30Cal.539) Privy Council had

held that a minors contract is void ab initio and not merely voidable. A minors

agreement being absolutely void, neither he nor the other party acquires any right

or incurs any liability under the agreement. So a minor is neither liable to perform


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what he has promised to do under an agreement nor he is liable to repay money he

has received under it. The principle behind this ruling is ,a minor is incapable of

judging what is good for him. Even if a minor has received any benefit, he cannot be

asked to compensate or pay for it. A minor is incapable of giving a promise imposing

a legal obligation upon him.

In Mohrori Bibee v.Dhurmodas Ghose(1903-30 Cal.539) , a minor executed a

mortgage for the sum of ` 20, 000/- out of which he received ` 8, 000/-. Minor filed a

suit subsequently for setting aside the mortgage. The money lender claimed refund

of` 8, 000/- from the minor. It was held that minors contract is all together void and

the money lender, therefore, cannot recover the amount. A minors contract being

absolutely void, he can neither sue nor be sued upon it.

2. Specific performance of a minors contract

As a minors contract is absolutely void there can be no specific performance

of such a contract in Mir Sarwarjan Vs Fakhruddin Mahomed (1912Cal.232 ) , Privy

council has held that guardian has no power to bind a minor by a contract for the

purchase of immovable property. Even a minor cannot enforce a specific

performance as there is no mutuality. However, when such a contract is entered into

by a guardian on behalf of a minor, for minors benefit, it can be specifically enforced

by or against the minor.

3. Ratification of a minors contract

Ratification means consenting to a passed contract entered into during

minority at a future date on attaining majority. It relates back to the date of the

making of the contract. Since a minors contract is void, there can be no question ofratifying it as the consideration given during the minority is held to be no

consideration at all. It cannot be made valid by a subsequent ratification. A fresh

contract can be entered into by a minor on attaining majority with a fresh

consideration.


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4. False representation by a minor-Estoppel

A minor cannot be stopped by a false representation as there can be no

estoppels against a statute. A minor who falsely represents himself to be major and

thereby induces another person to enter into a contract with him, can plead

minority as defence. The infant is stopped from setting up infancy.

A minor cannot be sued on the ground that he falsely represented that he is

of full age and thereby induced other persons to enter into a contract, because to

allow an injured person to sue a minor person, would be giving him an indirect

means of enforcing a void contract.

It has been held by Andhra High court that equity requires a minor who

seeks to avoid a contract which he induced the opposite party to enter into with him

by fraudulent misrepresentation as to his age to return the consideration which he

received under it and this equitable principle is found statutorily embodied in

sections 41 and 9 of Specific Relief Act. Gokeda Latcharao Vs Vishwanathan

Bhimayya AIR 1956 Andhra 182.

5. Liability of a third person-Surety for a minor

An agreement by a guardian on the behalf of a minor is valid. Where a

guardian enters into a contract in respect of a minors property on behalf of the

minor, it is valid, provided it is for his benefit or for legal necessity.

6. Insolvency

A minor cannot be adjudged insolvent as he is incapable of contracting.

7. Relinquishment by a minorA release by a minor of his rights in a property is absolutely in fructuous in

law.


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8. Service contracts

a) A contract for personal service by minor is void under Indian law and themere fact it is for his benefit would not entitle the minor to sue under the

contract.

b) A minor may bind himself to a contract of apprenticeship if it be for hisbenefit but he cannot be sued for failing to serve as such.

c) Contract with minor does not create legal contractual relationship betweenthe parties. Minor girls entering into a contract of service with a person can

leave the service at any time without committing any actionable wrong.

Exceptions to the rule that minors contract is absolutely void when can a minor

contract?

1. Promisee or transferee

A minor can be a promisee or transferee. Law does not regard a minor as

incapable of accepting benefit. Example:- A promissory note executed in favour of a

minor can be enforced by the minor. A minor is allowed to enforce a contract which

is of some benefit to him and under which he has to bear no obligation.

2. Agency

A minor can act as an agent. He can bind his principal by his act but unlike

other agents, he is not liable to his principle of acts.

3. Partnership

A minor cannot enter into a contract of partnership as a full-fledged partnerthough he may be admitted to the benefits of partnership by his guardian with the

consent of other partners, provided it is supported by necessity or benefit. A minor

partner cannot be personally liable for any obligations of the firm, but minors share

alone in the property of the firm is liable. Personally, he is not liable.


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4. Necessaries

If a person supplies necessaries to a minor or to minor dependants, which he

actually needs, whom the minor is bound to support , the person who supplies such

necessaries is entitled to be reimbursed from the properties of such a minor. A

minor is therefore, liable to pay out of his property for necessaries supplied to him,

or to his minor dependants whom he is legally bound to support.

Example: A supplies B, a lunatic, with necessaries suitable to his condition in life, A

is entitled to be reimbursed from Bs property.

It should be noted that the minors property is liable to compensate for

necessaries supplied and not the minors personally.

b)POSITION OF PERSONS OF UNSOUND MIND

Who is a person of Unsound Mind

According to Section 12 of the purpose 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, is

capable

a) to understand the terms of the contract,

b) to form a rational judgment as to its effect upon his interests.

Thus, if a person is not capable of both, he is said to have suffered from unsoundness

of mind. These examples of persons having an unsound mind include idiots, lunatics and

drunken persons. A person who is so mentally deficient by birth as to be incapable of

ordinary reasoning or rational conduct is said to be an idiot. A person affected by lunacy is

said to be lunatic. A person can become lunatic at any stage of his life.


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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.

Example: A patient in a lunatic asylum who is at intervals of sound mind may contract

during those lucid intervals.

Position of a Person who is usually of Sound Mind but Occasionally of Unsound Mind

According to Section 12, A person who is usually of sound mind but occasionally of

unsound mind may not make a contract when he is of unsound mind.

Example: A sane man 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 contract whilst

such drunkenness lasts.

Burden of Proof

The rules regarding the burden of proof are summarized as under:

Case The burden of proof lies on...

1. Where a person is usually of soundmind

2. Where a person is usually of unsoundmind

3. In case of drunkenness or deliriumfrom fever or other causes

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.

The burden of proving that he was of sound

mind at the time of contract lies on the

person who affirms it.

The burden of proving that he was delirious

from fever or was so drunk at the time of

contract, lies on the person who challenges

the validity of contract.


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Position of Agreements with Persons of Unsound Mind

The position of agreements of persons of unsound mind is summarized as under:

Persons of unsound mind Capacity to enter into contract

1) Lunatic (i.e. a person who ismentally deranged due to some

mental strain or other personal

experience but who has some lucid

intervals of sound mind)

a)While he is of unsound mind

b)While he is of sound mind

2)Idiots(i.e. a person who is

permanently of unsound mind)

3)Drunken Person(i.e. a sane

person whos delirious from fever or

whos so drunk that he cannot

understand the terms of a contract orform a rational judgment as to its

effect on his interest

He cannot enter into any contract. Any

agreement entered into by him during this

period is altogether void and he cannot be

held liable thereon.

He can enter into a valid contract and he is

liable for such contracts.

He cannot enter into any contract. Any

agreement entered into by him is altogether

void and he is not liable thereon.

He cannot contract while such delirium or

drunkenness lasts.


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c) PERSONS DISQUALIFIED BY LAW

Besides minors and persons of unsound mind, there are others who are disqualified

from contracting under the provision of some other laws. Such persons have been shown in

the below figure.

a)Alien enemy

An alien is a person who is the citizen of a foreign country. An alien may

either an alien friend or an alien enemy.

An alien whose country is at peace with the Republic of India is called as

alien friend. He has usually the full contractual capacity.

An alien whose country is at war with the Republic of India is called an alienenemy.

Persons (other than minors or persons of unsound mind) disqualified by law

Alien enemies Foreign Sovereigns Convicts Insolvents


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His contractual capacity can be summarized as under:

1. Positions of contracts during thewar

2. Position of contract entered intobefore the war

a)If such contracts are against the

public policy or are such that may

benefit the enemy

b)If such contracts are not against

public policy

An alien enemy can neither enter into

any contract nor can be sued in an

Indian Court except by license from the

Central Government.

a)such contracts stand dissolved

b) Such contracts are merely suspended

for the duration of the war and reviewed

after the war is over unless they have

already become time barred under the

Law of Limitation Act.

Example: X, an Indian, carries on a business in Pakistan. He enters into a contract

with Y who carries on business in India. Immediately after the formation of the

contract, a war broke out between India and Pakistan. In this case, X becomes an

alien enemy though he is Indian and the contract between X and Y (if not against the

public policy) will be suspended for the duration of the war and reviewed after the

war is over.


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b) Foreign Sovereigns and Ambassadors

They can enter into contracts and enforce those contracts in our courts but

they cannot be sued in our courts without the sanction of the Central Government

unless they choose to submit themselves to the jurisdictions of our courts.

Notes:

1) An ex-king can be sued in our Courts.2) Where a foreign sovereign etc. enter into a contract through an agent residing in

India, the agent shall be held liable on the contract.

c) Convicts

A person is called a convict during his period of sentence. His contractual

capacity is summarized as under:

1. During the period of sentence2. After the expiration of the period

of sentence or when he is on

parole

He cannot enter into any contract

He can enter into a contract. He can sue

on a contract.

d) Company under the companies Act or Statutory Corporation under the Special

Act of Parliament

The contractual capacity of the company and the statutory corporation is

summarized as under:

1. In case of a Company

2. In case of Statutory Corporation

Its contractual capacity is determined by

the object clause of its Memorandum ofAssociation.

Its contractual capacity is determined by

the statute creating it.


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Any act done in excess of the power given is ultra vires (i.e. beyond power)

and hence void.

e) Insolvents

When a persons debts exceed his assets, he is adjudged insolvent and his

property stands vested in the Official Receiver or Official Assignee appointed by the

Court. Such person

1) Cannot enter into contracts relating to his property,2) Cannot sue,3) Cannot be sued.Note: When the insolvent is discharged, the aforesaid disqualification is removed.


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Appendix

Voidable Contract

A voidable contract is one, which could be repudiated but at the option andwill only of one of the parties involved. Thus such contract would be deemed to

valid and binding, unless it is specifically repudiated by the party, entitled to do so.

It is affected by one or more of the flaws, like simple misrepresentation, fraud,

coercion and undue influence.

Void Contract

As against voidable which could be set aside by only one of the parties, in

case of void contract, it cannot be enforced even by either of the two parties

involved, inasmuch as such agreements are invalid and void ab initio(right from the

beginning), and, thus, is unenforceable in law.

Estoppel

Estoppel is a rule of evidence. When a man has by words, spoken or written,

or by conduct, induced another to believe that certain state of things exist, he will

not be allowed to deny the existence of that state of things.

Business Law - Batch a - Group 4 - ASB - Capacity of Parties and Law Relating to Minors

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