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Capacity of Person to enter into Contract

 CAPACITY OF PERSON TO ENTER INTO CONTRACT


INTRODUCTION:

Almost every transaction around us is a result of a contract. When you buy vegetables from the seller, you promise to pay him money in exchange for vegetables. If you own a shop, you enter into two contracts; one with the manufacturer of the goods and second with the customer who will buy the goods from your shop.

While buying vegetables we might not pay attention as to whether the seller is competent enough to enter into a contract. However, if you are a shopkeeper, you need to check and be sure that the manufacturer is legally capable of doing so. This becomes important for you to hold the manufacturer legally liable for any defaults committed by him during the terms of the agreement.

LEGAL REQUIREMENTS:

Sec.11 of the Indian Contract Act, 1872 lists down the qualifications which enable a person in India to enter into contracts:

  • 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. In the USA (the majority of the states) and the UK, the age of majority is 18 years as well.

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.

  • 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.

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

DISQUALIFICATIONS FOR ENTERING INTO CONTRACT

As per the Indian Contract Act, 1872 all persons who do not meet the criteria as per Sec. 11 of the act are incompetent to contract. Hence, we can deduce that the following category of persons do not possess the legal capacity to enter into a contract

Minor

In India, a minor is an Indian citizen who has not completed the age of eighteen years. A minor is incapable of understanding the nature of the liabilities arising out of an agreement. Hence a contract with a minor is void ab initio (void from the beginning) and cannot be enforced in a court of law. The result is that a party cannot compel the minor to perform his part of obligations as enumerated in the agreement (plead specific performance of an agreement/rule against estoppel).

PERSON OF UNSOUND MIND

  • Idiots: An idiot, in medical terms, is a condition of mental retardation where a person has a mental age of less than a 3-year-old child. Hence, idiots are incapable of understanding the nature of the contract and it will be void since the very beginning.

  • Lunatic: A person who is of sound mind for certain duration of time and unsound for the remaining duration is known as a lunatic. When a lunatic enters into a contract while he is of sound mind, i.e., capable of understanding the nature of the contract, it is a valid contract. Otherwise, it is void.

PERSONS DISQUALIFIED BY LAW 

  • Alien enemy: 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.

  • Convicts: 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: An insolvent is a person who is declared bankrupt/ against whom insolvency proceedings have been filed in court/resolution professional takes possession of his assets. Since the person does not have any power over his assets, he cannot enter into contracts concerning the property.

  • Foreign sovereign: Diplomats and ambassadors of foreign countries enjoy contractual immunity in India. One cannot sue them in Indian courts unless they submit themselves to the jurisdiction of Indian courts. Additionally, sanction from the central government is also required in such cases. However, the foreign sovereign has the authority to enforce contracts against the third person in Indian courts.

  • Body corporate: A company is an artificial person. The capacity of a company to enter into a contract is determined by its memorandum and articles of association.
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