Economic Laws

Law of Contracts

According to sections 11 and 12 of the Indian Contract Act 1872, only a person of sound mind can enter into contract. A person is possessed of a sound mind if at the time of the contract he is capable of understanding it and of forming a rational judgment as to it’s effect upon his interest. The cognitive facilities of the contracting parties is required to be intact as without these facilities the parties will neither be capable of understanding nor of forming judgment. Errors of judgment and understanding are not protected so long as the power to judge and understand is there. A contract by a person of unsound mind is void and has no legal recognition.

The mental incompetence provisions in the law of contract only ensures that strangers whether scheming or not, do not deprive the family of it’s share in the property owned by its vulnerable members.

Right to own, manage and dispose of Property

Ownership of property can be by personal acquisition, bequest and succession. A mentally handicapped person cannot enter into a contract to acquire property. A mentally handicapped person can be a beneficiary of a gift of property. A trust for the benefit of the mentally handicapped person can also be created.

As the law stands today a mentally handicapped person is not disqualified from inheriting property in any system of law. However, under the eyes of the law, the person with MR cannot manage his property.

Others can manage the property of a person with Mentally Challenged in two ways-

When along with the grant of ownership, provision for the management of property is also made. For example, by creating a trust in favour of the challenged beneficiary, by which the trustee would take charge of the management and deal with the trust property as carefully as a man of prudence would.

When relatives of a person with a mental handicap apply to the court stating that as that person is incapable of managing his property, a manager for the purpose should be appointed.

Transfer of property can be by interring vivo. Disposition of property is regulated by the principles of contractual capacity. Section 7 of the Transfer of Property Act 1882 permits only persons competent to contract to transfer property. For all transfers of property whether it is for consideration as a scale mortgage lease or out of love and affection as a gift, the principles of contractual capacity will apply.