Capacity to Contract (Sections 10-12)
As per Sec 2(h) “A contract is an agreement which is enforceable by law. In
order to be enforceable, the agreement must satisfy the requirements given
under section 10 of the Indian Contract Act, 1872. Section 10 of Act
states that all agreements are contracts if they are made
·
By competent parties (Sec. 11, 12)
·
For a lawful object and lawful consideration (Sec. 23)
·
By the free consent of the parties (Sec. 14)
·
Are not expressly declared to be void.
Persons who are Competent to Contract
Anyone 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).
According to Section 3 of Indian Majority
Act, a person becomes a major on completion of 18 years of age. Hence a person
who has not completed his or her 18 years of age is known as a minor.
However, if a person is below the age of 18
years and a guardian has been appointed for him, he shall attain majority at
the age of 21 years. (Guardian and wards Act)
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.
B) Sound Mind: Mental Incompetence Prohibits a Valid Contract
A person who is not
of sound mind may not enter into a contract; he must be of sound mind so as to
be competent to contract. The soundness of a person depends on two facts:
(i)
his capacity to understand the terms of the contract, and
(ii)
his ability to form a rational judgment as to its effect upon
his interests.
If a person is incapable of both, he suffers from unsoundness of mind. Idiots, lunatics, and drunken persons are examples of those having an unsound mind.
But whether a party
to a contract, at the time of entering into the contract, is of sound mind is a
question of fact to be taken into account by a court.
Lunatic: (Temporary incapacity)
A lunatic person when he is of sound mind that period is called lucid intervals of mind. As regards contracts entered into during lucid intervals he is bound. However, he is not liable for contracts entered into while he is of unsound mind. In general, his position is identical with that of a minor i.e., the contract is void but the same exceptions as discussed above (under minor’s contracts) are relevant.
Idiot:
An idiot is
a person who is of permanently unsound mind. He does not have
lucid intervals. He is incapable of entering into a contract and therefore a
contract with an idiot is void. However, like a minor, his property, if any,
shall be liable for necessaries of life supplied to him. Also, he can be a
beneficiary.
Intoxicated Person:
A person
who is drunk, intoxicated or delirious from fever so as to
be incapable of understanding the nature and effect of an agreement or form a
rational judgment as to its effect on his interests cannot enter into valid
contracts whilst such drunkenness or delirium lasts. Thus, an intoxicated person
may get out of a contract provided he did not have the mental capacity to
understand it.
C) Persons should not be disqualified by law
1. Alien enemy:
A person who is not an Indian citizen is
called an alien or non-citizen of the Republic of India. An alien enemy is a
person whose country is at war with India. In India, a contract with an alien
enemy is void but a contract with an alien friend is valid under the Indian
Contract Act. No contract can be made with an alien enemy during the
subsistence of war, except with the prior approval of the Indian Government.
Contracts made before the war
period either gets dissolved if they are against public policy or remain
suspended and are revived after the war is over, provided they are not barred
by limitation.
Example: Aman, of country X, orders goods from Binod, of country Y. The goods are shipped and before they could reach Y, country X declares a war with country Y. The contract between Aman and Binod becomes void.
2. Convicts:
A convict cannot enter
into a contract while he is serving his sentence (imprisonment). However, he
regains his capacity to enter into a contract upon completion of his sentence.
Illustration- A, is serving his sentence in jail. Any contract signed by him during this period is void.
3. Insolvent:
The insolvent is disqualified from entering into a contract until he is discharged by the court of law. Since the person does not have any power over his assets, he cannot enter into contracts concerning the property. He can enter into two contracts (Contract of Marriage and Contract of employment)
4. Foreign sovereigns and diplomats:
Foreign sovereigns have some special privileges. Generally, they cannot be sued unless they, themselves surrender under the jurisdiction of the Indian court of law Or Indian citizen has obtained a prior sanction of the Government of India, in order to sue them in the Indian court of law.
5. Corporations:
The power of a corporation to make a contract vary according to the character of the corporation. A company is an artificial person created by law and is competent to contract. But its power of contract is subject to the limitation.
Conclusion
Now, it is clear that the person entering a contract must be legally
competent to contract. Section 11 of the Indian Contract Act, 1872, states when
a person is said major, sound, and not disqualified by law, then he is said to
be competent to contract. Incompetency has a critical role in contracts. To
avoid any legal consequences and difficulty arising due to this, one should be
cautious while entering into a contract.
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