CAPACITY TO CONTRACT
Capacity to contract refers to the legal competence of parties to enter into a valid contract. The capacity of parties is an essential element which satisfies the requirements of a valid contract.
Under section 11 of the Indian Contract Act 1872, any person is competent to contract are as follows:
- A person who attained the age of majority and is not a minor.
- A person of sound mind.
- A person who has not been disqualified by law or declared as insolvent/bankrupt
PERSONS NOT ELIGIBLE FOR CONTRACT
If a person falls in any of the following categories, he/she will be declared as an incompetent party to a contract:
3 of the Indian Contract Act, 1872 states
the definition of a minor.
“Any person who is a citizen of India and is under the age of 18 years is a minor.”
An agreement with a minor is null and void that means it cannot be enforceable by law.
Further, even if the minor attains the age of majority that is age above 18 years, still the agreement cannot be enforced afterwards.
CASE: MOHIRI BIBEE VS DHARMODAS GHOSH
A landmark case held in the year
1903 in which the court held that a minor’s agreement is void-ab-initio that
means any agreement with a minor is void from the very beginning itself.
Facts of the case– Dharmodas Ghosh being a minor mortgaged his immovable property to a money lender Brahmo Dutt and secured a loan of Rs.20,000 at 12% interest rate per year. Later on, the plaintiff only paid Rs.8000 and refused to pay the rest of the amount. His mother(legal guardian) took the defence that his son being a minor was not liable for his actions and not bound to pay the sum.
Judgment – The Privy Council held that a minor is incompetent to contract (section 10) and an agreement with such a person cannot be enforced. Thus, Brahmo Dutt’s appeal was dismissed as there was no contract between the parties.
CONSEQUENCES OF ENTERING INTO AN AGREEMENT WITH A MINOR
Ratification of minor’s agreement: An agreement with a minor is void and hence cannot be ratified even if the minor attains the age of majority.
Minor as a beneficiary: If a contract benefits a minor, then such an agreement is valid and enforceable by law. Thus, he is permitted to act as a beneficiary for a contract.
Role of estoppel against a minor: Even if a minor by misrepresenting his age, induced a person to enter into a contract with him then also he cannot be made liable for such an act. Thus there can be no estoppel against a minor.
No specific performance: As a contract with a minor is void, he cannot be asked for specific performance of the contract. But the contract can be specifically enforced only if it falls under these exceptions.
- If the guardian enters into a contract on behalf of the minor.
- If the minor is being benefited from the contract.
PERSONS OF UNSOUND MIND
Under Section 12 of
the Indian Contract Act 1872, persons
of sound mind can be defined as the people who while entering into a contract
are capable of understanding the nature of it and therefore can form a rational
judgment regarding the same.
Thus, from the above statement, it can be concluded that people of unsound mind are:
- Incapable of understanding the nature of their act while entering into a contract.
- Unable to form a rational judgment.
As per Section 11, any contract with a person of unsound mind
will be declared as void.
Persons of unsound mind can be bifurcated into following heads –
- An idiot
- Intoxicated person
An idiot is a person who is permanent of unsound mind that is being of unsound mind by birth. Such a person can never understand the nature of the act and form a rational judgement about the same. Thus, contracts with such a person are void-ab-initio.
Lunatics are the ones who are not
permanently of unsound mind but are also of sound mind during a specific period
or interval. Such people are allowed to enter into a contract only when they
are of sound mind.
A person occasionally of sound mind but generally of unsound mind can enter into a contract at the time when is of sound mind.
A person occasionally of unsound mind but generally of sound mind cannot enter into a contract when is of unsound mind.
A person when intoxicated or drunk is usually not capable of making a rational judgment. Thus if such a person enters into a contract, it will result in a void contract.
Persons disqualified by law
Following are the people disqualified by law:
- Alien Enemy
- Foreign Sovereign
1) Alien Enemy
“Alien” is the one who is an outsider or the one not belonging to our country.
If the state where the person is an alien and the state where he belongs is at
war, then such a person will be an alien enemy to the other state.
A contract can be entered with an alien enemy only with the approval of the central government. Any contract without the approval of the Central Government will result in an unenforceable contract.
2) Foreign Sovereign
The foreign sovereigns can enter into a valid contract and such contracts are only enforceable in the Indian Courts when the contracts were made with the prior approval of the Central Government. A suit cannot be filed in the Indian Courts regarding the contract if there is no sanction of the Central Government.
convict is incapable of entering into a contract only during the period of his
imprisonment but still, he can enter into a contract if the central government
Thus a convict is incapable only for a specific period of time as at the time of his acquittal, he again becomes capable of entering into a contract.
a person is declared insolvent by the court, that means his property vests in
the receiver, and therefore he is unable to enter into a contract relating to
property as his power has already been taken away by the court.
Such a person can again become capable of entering into a contract when discharged by the court.
From the above discussion, it can be concluded that the capacity to contract is the legal competence to contract. A person declared as incompetent to contract is the one who is incapable of entering into a contract, and a contract with such a person is unenforceable by law. Further, such persons are also divided into categories such as minor, unsound mind and persons disqualified by law. Any person if falls in any of these categories will be declared as an incompetent person to contract, making his contract void or voidable in certain circumstances.
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