Page 25 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 2. A dealer enters into a contract to sell a smuggled item to X. The import of such type
of goods is illegal under the laws of the country. A refuses to deliver the item as
promised. What are the rights of X? The contract is void.

Self Assessment

Fill in the blanks:
15. The term …………………...is used in the sense of quid pro que.
16. Consideration must move at the desire of the …………………

1.8 Capacity to Contract [Ss.10-12]

1.8.1 Persons who are Competent to Contract

Any one cannot enter into a contract; he must be competent to contract according to the law.
Every person is competent to contract if he (i) is of the age of majority, (ii) is of sound mind, and
(iii) is not disqualified from contracting by any law to which he is subject (s.11). Thus, there may
be a flaw in the capacity of parties to the contract. The flaw in capacity may be due to minority,
lunacy, idiocy, drunkenness, drug addiction or status. If a party to a contract suffers from any of
these flaws the contract may not be a valid one. If the contract would have been allowed to be a
valid one then it would result in one party being at a disadvantage in the bargaining process.

1.8.2 Capacity of a Minor to Enter into a Contract

Age of a person determines enough maturity to make a contract. The contract law defines
maturity as the age of majority. That usually is 18 years. Does this mean that a minor is not
competent to contract? No, a minor may make a contract, but he is not bound by the contract;
however the minor can make the other party bound by the contract. Thus, a minor is not bound
on a mortgage or a promissory note, but he can be a mortgagee, a payee, or an endorsee. He can
derive benefit under the contract. However, an agreement with a minor cannot be ratified by
him on his attaining majority so as to make himself bound by the same. Further, if he has
received any benefit under the contract, the minor cannot be asked to refund the same. In fact he
is always allowed to plead minority and is not estopped to do so even where he had procured a
loan or entered into some other contract by falsely representing that he was of full age. It is to be
noted that if money lent to him or an item sold to him could be traced then the court may, on
equitable grounds, ask the minor to return the same to the lender or the seller, as the case may
be as a minor does not have the liberty to cheat. In the case of a fraudulent misrepresentation of
his age by the minor, inducing the other party to enter into a contract, the court may award
compensation to the other party under Ss.30 and 33 of the Specific Relief Act, 1963.
Further, a minor cannot be a partner in a partnership firm. However, he may with the consent of
all the partners for the time being, be admitted to the benefits of partnership (s.36, the Indian
Partnership Act, 1932). Also, a minor can act as an agent and bind his principal by his acts
without incurring any personal liability.

Section 68 provides that a minor’s estate is liable to a person who supplies necessaries of life to
a minor, or to one whom the minor is legally bound to support, according to his station in life,
not on the basis of any contract, but on the basis of an obligation resembling a contract. However,
there is no personal liability of a minor for the necessaries of life supplied. The definition of a
“necessary of life” depends entirely on the person and the situation. It probably will always
include food and probably will never include a car. In order to entitle the supplier to be reimbursed

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