Contracts by different entities

Contracts by persons of unsound mind:

Contracts by lunatics: Section 12 of the Act defines a person who is of sound mind. It states that a person is said to be of sound mind for the purpose of making a contract if, at the time when the 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.

1) A patient in a lunatic asylum who is at intervals of sound mind, may contract during those intervals.
2) The same 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 or drunkenness exists.

A contract by a lunatic, for example, a person of unsound mind like that of a minor’s contract, is altogether void. A person of unsound mind is incompetent to contract.

In Indersingh v. Parmeshwar Singh Singh (AIR 1957–Pat 49) where person who was idiot and incapable of understanding the transactions, agreed to sell property worth about Rs 25,000/- for Rs 7000/- only, it was held that the agreement was void as the person was incapable of exercising his own judgment.

Contracts by drunkards: Contract by a drunken person is absolutely void and cannot be ratified. In order that a contract by a drunkard should be void, the drunkenness must be so effective and absolute that no rational judgment can be formed by the contracting party. He should be incapable of understanding the nature of the contract and its legal consequences. Under English Law contracts by persons of unsound mind are voidable but not void.

Contracts with Parda-Nishin Women:

A Parda – nishin lady is one, who by custom of the country or by usage of the particular community to which she belongs is obliged to observe complete ‘seclusion.’ The Court assumes that a parda-nishin lady is open to undue influence and, therefore, she is not able to exercise her independent understanding. In order to make valid contract with a parda-nishin woman, it should be established that the deed was not only executed by her but was explained to and understood by her. The Court must be satisfied that the deed was executed by her with the full understanding and that she had full knowledge of the transaction, besides she had independent and disinterested advice in the matter.

Where an illiterate harijan woman and a childless widow was serving in railway and when there was nothing on record to show that she was suffering from any ignorance or illiteracy or mental deficiency, it was upheld by Supreme Court that she could not be compared to a ‘pardanashin’ lady.

Contracts by married women:

A woman married or single whether under Hindu or Mohammedan Law can enter into a contract if she is a major and does not suffer from any disability. A married woman, therefore, can enter into a valid contract without her husband’s consent. A married woman can even mind husband’s properties and pledge his credit for pressing necessities.

Property acquired by a married woman through her own skill, shall be deemed to be separate property. A married woman may sue and be sued in her own name in respect of her separate property.

Contracts by Corporations:

A corporation is an artificial person created by law under the Companies Act, or formed by Special Act of the Legislature. It is competent to contract. A corporation cannot enter into contracts of a strictly8 personal nature. The powers of the corporation to contract vary according to the character of the corporation. Its powers are subject to limitations which may be either –

1) Necessary or natural limitation;
2) Express or legal limitation

Necessary or natural limitation: The necessary or natural limitation is one which is imposed by the nature of the corporation, for example, a corporation must contract through its agents under its agents under its seal.

Express or legal limitations: The express or legal limitation is one which is imposed by the terms of its incorporation. For example, the corporation cannot contract beyond the powers defined in its Memorandum and Articles of Association, for otherwise the contract would be ultra vires and void.