BUSINESS REGULATORY FRAMEWORK INDIAN CONTRACT ACT1872 B COM

BUSINESS REGULATORY FRAMEWORK INDIAN CONTRACT ACT-1872 B. COM 2 ND YEAR, HONOURS PAPER-03, UNIT-01 SUBHASH KUMAR ASSISTANT PROFESSOR (GUEST) DEPT. OF COMMERCE CMB COLLEGE DEORH GHOGHARDIHA (MADHUBANI)

Who are competent to contract? As per Section 11 of Indian Contract Act, 1872, “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. ”

Section 11: Capacity of parties As per Section 11, Capacity to contract of a person is dependent on 3 aspects: 1. Attaining the age of majority 2. Being of sound mind 3. Not disqualified from entering into a contract by any law that he is subject to

1. Attaining the age of majority ■ According to the Indian Majority Act, 1875, the age of majority in India is defined as 18 years. ■ So, Any person, domiciled in India, who has not attained the age of 18 years is termed as a minor.

Certain laws governing a minor’s agreement: 1. An agreement with or by a minor is void. Case: MOHORI BIBI V. DHARMO DAS GHOSE “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. ” 2. No ratification: A minor cannot ratify the agreement even on attaining majority , because a void agreement cannot be ratified. Case: ARUMUGAN V. DURAISINGA “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. ”

3. Minor can be a promisee or beneficiary : While a minor cannot enter a contract, he can be the beneficiary of one. Section 30 of the Indian Partnership Act, 1932, also specifies that while a minor cannot become a partner in the partnership firm, the benefits of the firm can be extended to him. Case: The General American Insurance Co. Ltd. V. Madan Lal Sonu Lal “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. ” 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. The rule of estoppel cannot be applied against a minor. He can plea his minority in defense. A Minor is always given the Benefit of being a Minor.

5. No specific performance except in certain cases : A minor’s contract been absolutely void, there can be no question of the specific performance of such a contract. Under certain circumstances, a guardian of a minor can enter into a valid contract on behalf of theminor. Such a contract, which the guardian enters into, for the benefit of the minor, can also be enforced by the minor. However, guardians cannot bind a minor by a contract for buying immovable property. But, a contract entered into by a certified guardian of a minor, appointed by the Court, with an approval from the Court for the sale of a minor’s property can be enforced. 6. No insolvency: A minor cannot be declared insolvent as he is incapable of contracting debts and dues are payable from the personal properties of minor and he is not personally liable. .

7. Partnership : A minor being incompetent to contract cannot be a partner in a partnership firm , but under section 30 of the Indian Partnership Act, he can be admitted to the benefits of partnership. 8. 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 9. Joint contract by minor and adult : In such a case, the adult will be liable on the contract and not the minor. 10. 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. 11. 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.

2. Being of a sound mind: ■ According to Section 12 of the Indian Contract Act, 1872, “A person is said to be of sound mind for the purposes 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. ” ■ A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. ■ A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

Illustrations: ■ (a) A patient in a lunatic asylum who is at intervals of sound mind, may contract during those intervals. ■ (b) A sane man, who is delirious from fever, or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium of drunkenness lasts.

3. Not disqualified from entering into a contract by any law that he is subject to ■ Apart from minors and people with unsound minds, there are other people who cannot enter into a contract. i. e. do not have the capacity to contract. ■ The reasons for disqualification can include, political status, legal status, etc. ■ Some such persons are foreign sovereigns and ambassadors, alien enemy, convicts, insolvents, etc.

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. 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. 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.