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Capacity to Contract

Definition of ContractDefinition of Contract

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Competence of contracting partiesCompetence of contracting parties

Section 10 of the Contract Act requires that the Section 10 of the Contract Act requires that the parties must be competent to contract. parties must be competent to contract.

Section 11 of the Indian contract act states that every Section 11 of the Indian contract act states that every person is competent to contract, who is the person is competent to contract, who is the age of age of majoritymajority ,who is of ,who is of sound mindsound mind and who is and who is not not disqualified from contracting by lawdisqualified from contracting by law

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INCAPACITY

Minority(immature mind)

Disqualified by law(Status)Unsound mind

Idiot Lunatic Drunkard

CorporateStatus:a) Companyb) Statutory Corporations

MaritalStatus: MarriedWomen

LegalStatus:Insolventperson

PoliticalStatus:a) Alien Enemyb) Alien Friendc) Foreign Sovereigns &d) Ambassadors

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Following persons are incapable Following persons are incapable of contractingof contracting

A person disqualifiedBy law

A person of Unsound mind

A minor

A minor ,person of unsound mind and personDisqualified by law cannot enter into contractAny contract with any such party will be voidAb intio

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MINORMINOR

A PERSON WHO HAS NOT COMPLETED HIS A PERSON WHO HAS NOT COMPLETED HIS 1818THTH YEAR OF AGE IS CONSIDERED TO BE A YEAR OF AGE IS CONSIDERED TO BE A MINOR.MINOR.

IN CASE A GUARDIAN TO THE PERSON OR IN CASE A GUARDIAN TO THE PERSON OR PROPERTY OF THE MINOR IS APPOINTED PROPERTY OF THE MINOR IS APPOINTED BY THE COURT OR THE PROPERTY OF THE BY THE COURT OR THE PROPERTY OF THE MINOR IS PUT UNDER THE CHARGE OF A MINOR IS PUT UNDER THE CHARGE OF A COURT OF WARDS ,DURING THE PERIOD COURT OF WARDS ,DURING THE PERIOD OF HIS MINORITY .OF HIS MINORITY .

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Agreement with minor is VOIDAgreement with minor is VOIDdecided casedecided case

In Mohiri Bibi’s case ,the minor had executed In Mohiri Bibi’s case ,the minor had executed a mortgage for the sum of Rs20000 out of a mortgage for the sum of Rs20000 out of which the lender had paid the minor only which the lender had paid the minor only about Rs8000.The mortagagee filed a suit for about Rs8000.The mortagagee filed a suit for the recovery of his mortgage money and for the recovery of his mortgage money and for sale of the property in case of default .The sale of the property in case of default .The privy council held that an agreement by a privy council held that an agreement by a minor was absolutely void as against him and minor was absolutely void as against him and therefore the mortgagee could not recover therefore the mortgagee could not recover the mortgage money nor could he have the the mortgage money nor could he have the minor’s property sold under his mortgage.minor’s property sold under his mortgage.

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Introducing personIntroducing personof unsoundof unsound

mindmind

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Person of unsoundPerson of unsound mind mind

A person is said to be of A person is said to be of sound sound mindmind for the purpose of making a for the purpose of making a contract if at the time when he contract if at the time when he makes it, he is capable of makes it, he is capable of understanding it and of forming a understanding it and of forming a rational judgment as to its effect rational judgment as to its effect upon his interests.upon his interests.

The idiot, lunatic and drunkards are The idiot, lunatic and drunkards are the person of unsound mind.the person of unsound mind.

Section-12Of Indian Contract act

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Meaning of idiot, lunatic Meaning of idiot, lunatic and drunkardsand drunkards

Idiot: A person who is devoid of any faculties of Idiot: A person who is devoid of any faculties of thinking or rational judgment is called an idiot .all thinking or rational judgment is called an idiot .all agreements other than those for necessaries of agreements other than those for necessaries of life,with idiots are absolutely void.life,with idiots are absolutely void.

Lunatics:A person,whose mental powers are Lunatics:A person,whose mental powers are deranged is called a lunatic.agreement made with deranged is called a lunatic.agreement made with lunatic ,except those made during lucid intervals lunatic ,except those made during lucid intervals (period in which he is in his senses )are void(period in which he is in his senses )are void

For necessaries supplied to lunatic are valid.and the For necessaries supplied to lunatic are valid.and the property of lunatic can be takenproperty of lunatic can be taken

Drunkards: A person under the influence of drink Drunkards: A person under the influence of drink or drug stands on the same footing as lunatic.an or drug stands on the same footing as lunatic.an agreement with drunker is void.agreement with drunker is void.

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Introducing Introducing person disqualified by law to enter person disqualified by law to enter

into into any contractany contract

I am declared disqualified By law to enter into any contract

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Following are the people Following are the people disqualified by lawdisqualified by law

Alien enemy: A person who is not a Alien enemy: A person who is not a citizen of India is called an alien.citizen of India is called an alien.

Convicts: convict is incapable of Convicts: convict is incapable of entering into contract .and the entering into contract .and the incapability ends when sentence incapability ends when sentence expires or punishment finish.expires or punishment finish.

Corporation: A company is artificial Corporation: A company is artificial person created by law. it can only person created by law. it can only contract through its board of directors.contract through its board of directors.