Capacity To Contract - Essential elements of a contract

 Capacity refers to the competence of the parties to make a contract. It is one of the essential element to form a valid contract. 

According to Indian contract act, 1872 ''every person is competent to a contract who is of the age of majority, who is of sound mind and is not disqualified by law from contracting by any law''. 



(1) Age of Majority 

In India, the age of majority is regulated by the Indian Majority Act, 1875. According to the section 3 of Indian Majority Act, 1875 ''Minor means a person who has not yet attained the age of 18 years'' The age of majority being 18 years, a person less than that age even by a day would be a minor for the purpose of contracting. 

Position of agreement with Minor 

(i) A contract made by or with a minor is void ab-initio: A minor is not competent to a contract and any agreement with or by a minor is void from the very beginning. [case of Mohori Bibi vs Dharam Das Ghosh] 

(ii) No ratification after attaining majority: A minor cannot ratify the agreement on attaining majority as the original agreement is void ab initio and a void agreement can never be ratified. 

(iii) Minor can be a beneficiary or can take benefit out of contract 

(iv) Minor as a partner: According to section 30 of Indian Partnership Act, 1932 with the consent of all the partners minor can be admitted to the benefits of partnership. In other words, he is not personally liable for debt of firm. 

(v) Minor as a shareholder or member of a company: A minor can become a shareholder or member of a company if The shares are fully paid up and The articles of association do not prohibit so. 

(vi) Minor as an insolvent: A minor cannot be declared insolvent because he is not competent to contract. 

(vii) Minor can be an agent: A minor can act as an agent, but he will not be liable to his principle for his acts. A minor can draw, deliver, and endorse negotiable instruments without himself being liable. 

(viii) Contract for supply of necessaries: In case any necessary is supplied to minor or persons dependent on him, then person so supplying is entitled to recover the amount out of estate of minor. However if a minor has no personal property then no recovery is possible. 

(2) Person of sound mind 

According to section 12 of Indian Contract Act, ''A person is said to be of sound mind for the purposes of making a contract if, at the time when he makes it is capable of understanding it and of forming a rational judgement as to its effect upon his interests''. A contract by a person who is not of sound mind is void. 

(3) Person disqualified by law 

It means a person with whom law suggests general public not to enter contract cause they are disqualified from contracting, partially or wholly, so that the contracts by such persons are void. Incompetency to contract may arise from political status, corporate status, legal status, etc. Foreign sovereigns and ambassadors, alien enemy, corporations, convicts, insolvents, etc. fall under this category. 


Comments

Post a Comment

Popular posts from this blog

Short Selling - how it works

Image
Short selling is a trading strategy where an investor borrows shares of a stock or other asset from a broker and immediately sells them, hoping to buy them back at a lower price in the future. The investor benefits from the difference between the sale price of the borrowed shares and the lower price of their repurchase. Short selling is often used by traders who believe that the price of a particular asset will fall, or who want to hedge their portfolio against potential losses. However, this can be a risky strategy because the potential loss from a short sale is theoretically unlimited because there is no limit to  the asset's price appreciation. Short selling is also sometimes controversial, as some critics argue that it can increase market volatility and potentially lower the prices of stocks and other assets. Therefore, short selling is often subject to regulations and restrictions in various markets around the world.  Here is an example of how short selling works:  S...
Read more

What is marketing management? What are its features and functions?

CONCEPT OF MARKETING Traditionally, marketing has been defined as activities which direct the flow of products from producers to user.                        -or- Marketing is the social process by which customers obtain what they need and want through market offerings having value relevant to customers. FEATURES OF MARKETING 1. Customer needs and wants Marketing process helps the customers to obtain products which they need and want. Need of an individual is his mental feelings that he is lacking something. Want is a mental feeling of an individual that he is able to satisfy his particular need as he has adequate resources. Wants are converted into demand for products by marketers through product offerings. 2. Creating a market offering Market offering involves providing products with features which will satisfy customer needs and wants. Products include both goods which are in physical form and services which are in non-physi...
Read more

COMPETENCIES AND CHARACTERISTICS OF ETHICAL ENTREPRENEURS

COMPETENCIES         The success or failure of an enterprise depends upon the entrepreneurial values, attitudes and competencies. It is almost necessary that the entrepreneur possesses the necessary competencies then only he will be able to carry on his venture successfully. In the absence of these competencies, the entrepreneur may fail in his venture. Some people feel that these competencies are inherited or come by birth only. But this is not true. These competencies can be acquired through proper education, training and practice.       The entrepreneurial competencies can be classified as:           1. Behavioural Competencies.            2. Enterprise Launching Competencies.            3. Enterprise Managing Competencies. 1. BEHAVIOURAL COMPETENCIES     These competencies relate to the type of behaviour exhibited by the entrepreneur in performing v...
Read more