Wednesday, 2 February 2022

CAPACITY TO CONTRACT

 CAPACITY TO CONTRACT

BY NUPUR GARG

INTRODUCTION 

Contract it is done between two or more persons and it is enforceable by law. Section 11 of the Indian Contract Act, 1872, defines the capacity to contract of a person to be dependent on three aspects; attaining the age of majority, being of sound mind, and not disqualified from entering into a contract by any law that he is subject to.

Section 11 lays down three conditions which are to be fulfilled in order to form a valid contract:

  1. A person should have attained the age of majority as per the law of the country of which he is a citizen. In India, the age of majority is governed by the Indian Majority Act, 1875. As per Sec. 3 of the Indian Majority Act, 1875, an Indian citizen is said to have attained the age of majority upon completion of eighteen years of age. 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.

  2. A person should be of sound mind at the time of entering into a contract.

As per Sec. 12 of the Act, a person can be said to be of sound mind when he can assess, understand his actions and realize the consequences of obligations imposed on him at the time of entering into a contract.

  1. A person should not be disqualified under any law to which he is subject.

PERSON WHO CANNOT ENTER INTO CONTRACT

  1. MINOR 

This term refers to a person who has not attained the age of eighteen years. Therefore, he is incompetent to contract as it is said that he is incapable to understand the nature of liabilities arising out of the agreement. Hence a contract with a minor is void ab initio (void from the beginning) and cannot be enforced in a court of law. 

Whereas a minor can be a beneficiary to a contract which means that he cannot be a party to the contract but the benefit of the same can be extended towards him. 

Under certain circumstances, a guardian of a minor can enter into a valid contract on behalf of the minor. Such a contract, which the guardian enters into, for the benefit of the minor, can also be enforced by the minor.


  1. PERSON OF UNSOUND MIND 

This person is termed as lunatic or idiot who is not mentally fit in order to understand the nature of the agreement. But in case of lunatic if the person was of sound mind at the time of entering into the contract, then then it will be a valid contract otherwise void. 


  1. PERSON DISQUALIFIED BY LAW 

An alien enemy is the citizen of a country India is at war with. Any contracts made during the war period with an alien enemy are void. An Indian citizen residing in an alien enemy’s territory shall be treated as an alien enemy under the contract law. 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.

A convict cannot enter into a contract while he is serving his sentence. However, he regains his capacity to enter into a contract upon completion of his sentence.

Insolvent person who is declared as bankrupt or any proceedings have been filed in the court.


CASE LAWS

       Mohari Bibee v. Dharmadas Ghose [ILR (1903) 30 Cal]

In this case, the respondent was a minor who was the sole owner of an immovable property. His mother was the legal custodian. He misrepresented his age to a person and mortgaged his property. Later his mother clarified regarding his minority. But that person sought to enforce the contract of mortgage once he attained majority. The Calcutta High Court went on to hold that any contract entered into with a minor or an infant qualifies to be void-ab-initio. So, they held in the context of the case that the mortgage contract was void as it was entered into by the minor respondent.

Campbell v. Hooper [(1855) 3 Sm&G 153]

The mortgagee, in this case, obtained a decree to repay the debt. But there was evidence leading to a conclusion that the mortgagor was a lunatic at the time of entering the contract, and the mortgagee was unaware of the same. Under English Law, it was held that mere fact of lunacy cannot make a contract invalid, and if the other party had the knowledge of lunacy, then it would become voidable at the option of the lunatic. Thus, knowledge is an important factor under English Law.

CONCLUSION

Competency of parties to contract is one of the most important requirements to make an agreement valid and enforceable in a court of law. A contract made by a person who does not possess the mental capacity to understand the nature and consequences of the contract is void ab initio. On the other hand, contracts with lunatics, people under the influence of the drug may/may not be void depending upon the circumstances surrounding the situation.

A person regains the legal capacity to contract upon removal of any of the disqualifications.

At the end, one point which comes to the notice is that though Indian Contract Law has its origin in the English Law, but the interpretation and the stands in both the countries differ on several aspects, as stated earlier. To be precise, English law is comparatively clearer than the Indian law, as what is to be interpreted is already codified and grey areas are not left to be filled through judicial decisions, as in India. Lastly, the English Common law proves to have a wider ambit as it deals with unsoundness under incapacity which even includes public corporations, minorities apart from intoxicated and mentally ill people.



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