Introduction
One of the important cannons of sound lending is safety of funds lent. In order to ensure safety of funds, it is necessary to ensure legal recourse to the borrower for repayment and recovery of funds lent. This chapter deals with the legal position of different types of borrowers and the necessary precautions to be taken while dealing with them.
Individual :
An individual borrower must be competent to contract. Any person who has completed the age of 18 years is competent to contract. However, if a guardians of his property is appointed by the court he becomes major on completion of age of 21 years.
Minor :
According to Indian Contract Act, 1872, a minor is not capable of entering into a valid contract and a contract entered into by a minor is void ab-initio (except for necessities for which his property is liable). Hence in borderline cases, birth date certificate should be taken on record. Since contract with a minor is void, any contract of guarantee for advance to minor will also be unenforceable, as guarantor’s liability is coextensive with that of the principal borrower.
Even in case of advance against deposits in the name of minor loan should be granted to his guardian for legal necessity and or for the benefit of the estate of the minor. Guardian can create charge on such deposit of minor for legal necessity. However, even in such cases only minor’s property will be liable but minor will not be personally liable to pay such loan.
Lunatic :
Similarly all contracts made by lunatics are void except made during lucid intervals. Loan should not, therefore, be granted to a person of unsound mind.
One of the important cannons of sound lending is safety of funds lent. In order to ensure safety of funds, it is necessary to ensure legal recourse to the borrower for repayment and recovery of funds lent. This chapter deals with the legal position of different types of borrowers and the necessary precautions to be taken while dealing with them.
Individual :
An individual borrower must be competent to contract. Any person who has completed the age of 18 years is competent to contract. However, if a guardians of his property is appointed by the court he becomes major on completion of age of 21 years.
Minor :
According to Indian Contract Act, 1872, a minor is not capable of entering into a valid contract and a contract entered into by a minor is void ab-initio (except for necessities for which his property is liable). Hence in borderline cases, birth date certificate should be taken on record. Since contract with a minor is void, any contract of guarantee for advance to minor will also be unenforceable, as guarantor’s liability is coextensive with that of the principal borrower.
Even in case of advance against deposits in the name of minor loan should be granted to his guardian for legal necessity and or for the benefit of the estate of the minor. Guardian can create charge on such deposit of minor for legal necessity. However, even in such cases only minor’s property will be liable but minor will not be personally liable to pay such loan.
Lunatic :
Similarly all contracts made by lunatics are void except made during lucid intervals. Loan should not, therefore, be granted to a person of unsound mind.
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