Wednesday, 5 February 2014

Contrcat Act 1872 - Person of unsound mind

by Asok Nadhani
4.3 Person of unsound mind (sec. 12)
i.      Not in sound mind : A Person is said to be unsound mind for the purpose of making an agreement, if at the time of making the agreement, he is not in sound mind.
ii.    Soundness of mind means that:
a.     Understand : He is in a state to understand what he is doing,
b.    Rational judgment : He is able to form a rational judgment about the effect of his acts to his interest.

4.3.1 Types of Person of unsound mind
The following types of persons are said to be of unsound mind:
  i.    Lunatics: A person who is mentally deranged. Such person can make a contract when he is mentally stable.
Ex. A patient in a lunatic asylum who is at intervals of sound mind, may contract during those intervals.
ii.    Idiots: A person who has completely lost his mental powers. Idiocy is permanent where as Lunacy is temporary. An agreement by an Idiot is void.
iii.    Drunken or Intoxicated persons: A person so drunk or intoxicated that he is not capable of forming a rational judgment during the period of intoxication or drunkenness. Like a Lunatic, a drunken person can make a contract when his condition is stable.
Ex. K a sane man was drunk and cannot understand the terms of the contract entered by him with L. K cannot perform the contract while such drunkenness lasts.

4.3.2 Agreement with Person of unsound mind
i.      Contracts made by persons of unsound mind : Contracts made by persons of unsound mind, at the time when they are unsound, are void, but contracts made during the time when he is of sound mind, are valid.
ii.    Estate liable for necessary supplies : Though the contracts of person of unsound mind is void, their estate is liable for necessary supplies made to support them.
Ex. A supplies some articles of food to B, the wife of C who is a lunatic. C has assets worth Rs. 5,000. On non-payment, A can recover from the assets of C for the 

For more details, refer to Mercantile Law, by Asok Nadhani, BPB Publications, www.bpbonline.com, bpbpublications@gmail.com

Contract Act 1872- Disqualified Persons

By Asok Nadhani

4.4 Disqualified Persons 
Persons not eligible to enter into a contract : Apart from minors and persons of unsound mind, the following persons are not eligible to enter into a contract in certain circumstances:
-        Alien Enemies,
-        Foreign Sovereigns,
-        Insolvents,
-        Body Corporate,
-        Convicts.

4.4.1 Agreements with Disqualified Persons 
1.     Aliens: Alien means a person of a foreign country.
a.     Alien friend : Contracts with alien friend (persons of a foreign country which is in peace with India) are valid subject to some restrictions.
b.    Alien enemy : Contracts with alien enemy (persons of a country which is in war with India) are void subject to following rules :
i.      Contracts made during war period: During war period (i.e., after the war is declared), an alien enemy can neither make a contract with an Indian, nor can sue in an Indian court, unless permitted by Central Government.
ii.    Contracts made before war:  Such contracts may be suspended (or dissolved if against public policy or it would benefit the enemy country). After the war is over, such pending contracts may be enforced unless they lapsed (time barred), or when permitted by Central Govt.
2.     Foreign Sovereigns: Diplomatic staff may enter into contract and can sue. They enjoy some special privilege and cannot be sued in Indian court unless they voluntarily submit to the court or when permitted by Central Government to be sued.
3.     Insolvents: Insolvent cannot enter into a contract. When a debtor is adjudged insolvent, his property is vested with the official assignee, who only can then enter into contracts relating to the property of the insolvent.
4.     Body Corporate: A Company or Body Corporate may enter into contract as permitted by its Memorandum of Association & Articles of Association.

5.     Convicts: A convict undergoing imprisonment cannot enter into a contract unless permitted by Central Govt. He can enter into a contract when he is lawfully at large, when he is pardoned or when his period of sentence expires. A contract already entered with a person who undergoes imprisonment cannot be enforced until the conviction is completed, unless permission from Central Government is obtained.

For more details, refer to Mercantile Law, by Asok Nadhani, BPB Publications, www.bpbonline.com, bpbpublications@gmail.com

Contract Act 1972- Minor

By Asok Nadhani
4.2 Minor
i.      Not completed 18 years : As per Indian Minority Act, a person who has not completed 18 years of age is said to be minor.
ii.    21 years of age in special cases : In some special cases (like when the guardian of minor’s property is appointed under Guardian & Wards Act, or where the superintendence of minor has been assumed by court of wards), the majority is attained only when he is of 21 years of age.

4.2.1 Legal Consequences of Agreement with Minors
(a)   Void ab initio : Any agreement with Minor is Void ab initio and cannot be enforced against the minor.
Ex. A money lender paid Rs 20000 to B, a minor, on mortgage of the minor’s house. The minor may apply to cancel the mortgage.
(b)   Beneficiary : A minor can be a promisee or a beneficiary in a contract and he can opt to enforce the contract to his advantage.
Ex. A mortgage is executed in favour of a minor. The minor can get a decree for enforcement of mortgage.
(c)   No Ratification : Minor’s agreement cannot be ratified on attaining majority. A fresh agreement to pay for goods supplied during minority is also void. However services rendered during minority and continued after majority may be enforced by the service provider.
Ex. A minor borrowed money signing a promissory note. On attaining majority, he signs another promissory note in settlement of earlier one. The second promissory note is void as no fresh consideration emerges.
(d)   Not bound to refund benefit : A minor is not bound to refund the benefit, even if received under a void contract.
Ex. A minor took loan against mortgage of his house. The minor may avoid repayment of loan. The mortgaged property can not be made liable for his debt.
(e)   Plead minority : A Minor can always plead minority. Rule of estoppel cannot be applied to minor.
Ex. A minor borrowed money from a lender representing himself as Major. He did not repay the loan. The lender sued him. Held, the contract was void and the lender cannot sue the minor for money not for the tort of misrepresentation.
(f)    Not enter into Partnership : A Minor cannot enter into a contract of Partnership, but he may be admitted into benefits of Partnership. Liability of minor is limited to his share of profit in the partnership.
(g)   Cannot incur debt : A minor cannot incur debt. A Minor cannot be adjudged insolvent.
Ex. A sold some articles from his shop to B on credit, not knowing that B was a Minor. The time fixed for payment expired and no payment was made. Some time later when B attained majority, A sued him for the price. Held minor cannot be made liable for debt.
(h)   Partly paid shares : A minor cannot be shareholder of partly paid shares.
(i)    Apprentice : A minor attaining 14 years of age may be appointed as apprentice.
(j)    Pay for necessary supplies : Minor is liable to pay for necessary supplies. The supplier is legally bound to support the minor, out of minor’s property. The property is liable, but the minor is not personally liable. (sec. 68
(k)   Agent : A Minor can be an Agent, without incurring any liability in the contract of agency. A minor cannot be a principal.
(l)    Hold property : A Minor can hold property.
(m)  Specific performance : Minor cannot be asked for specific performance of Contract.
(n)   Guardian : Guardian of Minor cannot be responsible for act of Minor.
(o)   Contract entered into by guardian : A Contract entered into by guardian on behalf of a minor will be valid if the guardian has the authority to enter into such contract on behalf of minor and is for the benefit of minor.
(p)   Immovable property : A Guardian of Minor cannot enter into contract to purchase immovable property on behalf of minor (even if he has authority to enter into contract on behalf of Minor).
(q)   Personal service  : A Contract for personal service to be rendered by minor is not valid.
(r)    Guarantee for a debt : A person giving guarantee for a debt owned by minor would be held as surety for default by minor.
(s)   Negotiable instruments : Minor is competent to draw, negotiate or endorse negotiable instruments. He will not incur any personal liability under such instruments. The negotiable instruments executed in favour of minor can be enforced by him.
(t)    Guarantor : Minor cannot be a guarantor.
(u)   Restitution : If the other party to the agreement fails to perform his part of obligation, the minor can claim restitution.

4.2.2 Necessaries of Minor
In the following cases, the cost of supply of necessary goods and services are to be reimbursed by the property of Minor:
a.     Necessaries : The goods must be ‘necessaries’, for the particular minor having regard to his status or standard of life. Necessaries include Goods, Services which are beneficial to a Minor.
b.    Need of goods : Minor must be in need of those goods both at the time of sale and delivery.
c.     Beneficial to minor : Contracts should be beneficial to the minor, even if it is not for supply of necessaries.
d.    Loans taken to obtain necessaries : Loans taken by the Minor to obtain necessaries is also recoverable by the Lender.
 
4.2.3 Rules of Estoppel applicable to Minor
i.      The Rule of Estoppel: It can be explained in the following way:
a.     Makes representation : X makes a representation (expressly by words, or impliedly by his conduct) to Y.
b.    Believes representation to be true : Y believes such representation to be true. He has no reasonable reason to regard it as false.
c.     Does some act : On the faith of such representation, Y does some act for which Y holds X as liable.
d.    No denial : X cannot deny the validity of statement made by him, i.e., X will be liable for any action done by Y on the faith of such representation. In other words, X shall be estopped from saying that the representation was false.
ii.    Applicability of Rule of Estoppel to Minor
a.     Minor can plead minority : A minor can always plead minority. The rule of estoppel does not apply to a minor, i.e., the minor may fraudulently make a representation to a person that he is of majority and competent to enter into a contract. On the faith of such misrepresentation by minor, a person may enter into an agreement with the minor. Afterwards, such other person cannot claim that the minor shall be bound by his false representation, since the rule of estoppel does not apply to a minor. Thus, the other person cannot enforce the agreement against the minor on the basis of false representation made by the minor. Thus, it is generally said, "A minor can always plead minority" and "Rule of estoppel cannot be pleaded against the minor" (even though he might have earlier misrepresented himself to be of age of majority). [Leslie vs Shiell]
b.    Question of fact : The rule of estoppel applies only in case of a question of fact. The estoppel does not apply in case of a question of law.

Ex. P makes a false representation to Q about certain provision of a law, and on the faith of such representation Q enters into a contract with P, Q cannot afterwards claim that the false representation made by P shall be binding on P.
For more details, refer to Mercantile Law, by Asok Nadhani, BPB Publications, www.bpbonline.com, bpbpublications@gmail.com


Asok Nadhani
Capacity to Contract

Parties entering into contract must have the capacity to do so (i.e., must have the legal ability to enter into a valid contract).

4.1 Persons competent to Contract
As per section 11, ­a person shall be competent to contract only if he fulfils all the following three qualifications. He should be:
a.    Age of majority : of the age of majority according to the law to which he is subject (i.e., he should not be a minor);
b.   Sound mind : of sound mind (i.e., he should be able to understand the contract and form a rational judgment),
c.    Not disqualified : not disqualified from contracting by any law to which he is subject.


For more details, refer to Mercantile law by Asok K Nadhani, BPB Publications, www.bpbonline.com, bpbpublicaions@gmail.com