Capacity to contract

MITCON INSTITUTE OF MANAGEMENT

Presented By:Rahul Todur

Ruchi Khadtale

Ramesh Kumar.R

Eligibility Of Parties To Enter Into A Contract

Agreement Enforceable By Law (Sec 2h)

Contract

Contract ( Definition )

A contract is an agreement having a lawful object entered into voluntarily by two or more parties, each of whom intends to create one or more legal obligations between them.

Disqualified by Law

Who Lacks the Capacity to Contract? According to Sec 11

Minors

Mental Incapacity

Minors Have No Capacity to Contract

Persons under 18 years of age. Contract with minors is void and

inoperative ab initio.

Age of majority is 21 in following 2 cases :

a) Guardian appointed to minor or his property.

b) Minor’s property is under supervision.

Agreement with minors

Can be a promisee or beneficiary. Cannot rattify his agreement on attaining the

age of majority. Cannot be asked to compensate or pay for the

benefit received from a void agreement. Can plead for minority in case of mistake or

representation. Can enter into a contract for his own necessities. Minor’s guardians or parents are not liable for

the contracts entered by him.

Case :

• Mohiri Bibi vs. Dharmdas Ghose.

• In this case a minor enters into a contract for Rs 20,000 with a money lender and mortgaged the property in favour of money lender.

• The money lender paid the minor Rs 8000. Later the minor wanted to set aside the mortgage.

• The money lender wanted refund of the said amount.

• The court said that agreement with minor is void-ab-initio, and question of refunding does not arise.

Mental Incapacity [Unsound mind]

Party should be of sound mind before entering into a contract. A person is said to be of sound mind if at the time of entering the

contract he is capable of understanding it & forming a rational judgement as to its effects upon his interests. [Sec 12]

It includes :

a) Idiots

b) Lunatics

c) Drunken or Intoxicated

Disqualified by LAW

Alien Enemies : unhealthy relations with the country.

An alien enemy cannot sue or cannot be sued in Indian court.

Foreign sovereigns : can enter into contracts and also enforce them.

They can be sued only after the approval of the State Government.

Corporations : Cannot enter into contract of personal nature.

Contd….

Insolvents : Property of the insolvent vests with the official receiver.

He cannot enter into a contract but his official receiver can do so.

Convicts : Incapable to enter into a contract while undergoing imprisonment.

Can enter into a contract after expiry of sentence or in case of pardon.