Importance of capacity to contract

INTRODUCTION

Almost every transaction in our environment is the outcome of a contract. When you buy veggies from a merchant, you agree to give him money in return for the vegetables. If you run a store, you sign into two contracts: one with the maker of the items and another with the client who will purchase the goods from your store.

When purchasing veggies, we may not consider if the vendor is competent to engage into a contract. However, if you are a retailer, you must ensure that the manufacturer is legally capable of doing so. This is critical if you want to hold the manufacturer legally accountable for any defaults he commits throughout the life of the agreement.

Requirements for a person entering into a contract

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.

Minor

A minor in India is an Indian citizen who has not reached the age of eighteen. A minor is unable to comprehend the nature of the responsibilities emanating from an agreement. As a result, a contract with a minor is void ab initio (void from the start) and cannot be enforced in court. As a result, a party cannot compel the minor to undertake his portion of the agreement’s responsibilities (plead particular execution of an agreement/rule against estoppel).[1]

Person of unsound mind

Idiots- In medical terminology, an idiot is a mental retardation condition in which a person’s mental age is less than that of a three-year-old kid. As a result, fools are incapable of grasping the nature of the contract, and it is void from the start.

Lunatic- A lunatic is a person who is of sound mind for a period of time and then becomes unsound for the remainder of the time. It is a legitimate contract when a madman enters into it when he is of sound mind, i.e. capable of understanding the nature of the deal. Otherwise, it is null and void.

People high on drugs– A contract signed while high on drugs or drink may or may not be legitimate. If a person is so inebriated at the time of entering into a contract that he is unable to comprehend its nature and effects, the deal is null and void. However, if he can comprehend the substance of the contract, it will be enforceable.

Competency to contract on behalf of another

As per the Indian Contract Act, 1872 a person can employ another who shall enter into contracts with the third person on his behalf. The person in this instance is known as the principal and the other person so employed is known as the agent.

Any person may be employed as an agent. However, a minor or a person of unsound mind cannot be held liable for their acts to the principal.

An agent’s authority may be either-

  1. express, i.e. by word of mouth or documented in writing as in Power of Attorney  
  2. Implied, i.e. it might be deduced from the facts and circumstances of the case

Conclusion

One of the most basic elements for making an agreement legitimate and enforceable in a court of law is the competence of the parties to contract.

A contract made by someone who lacks the mental ability to grasp the nature and implications of the deal is void from the start. Contracts with lunatics or individuals under the influence of drugs, on the other hand, may or may not be invalid depending on the circumstances surrounding the transaction.

REFERENCES

https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-ii/capacity-to-contract/


[1] Mohori Bibee vs. Dharmodas Ghose

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