Legal Capacity to contract refers to the ability to lawfully engage in a deal. The capacity to contract binds the contracting parties with an obligation to follow it. However, only a few people have the ability or skill to form a contract. This article discusses the fundamental elements required for a person to be competent to create a contract.
REQUIREMENTS FOR A PERSON ENTERING INTO A CONTRACT UNDER THE LAW
The Indian Contract Act of 1872, Section 11 specifies the requirements that allow a person in India to engage in contracts, the section states that:
“Every individual who is of sound mind and is not disqualified from contracting by any law to which he is subject is competent to contract.”
The parties’ ability to make a contract is one of the most important aspects of a legal contract. Section 11 of the Indian Contract Act, 1872, states that a person’s ability to contract is determined by three factors:
- reaching the age of majority,
- being of sound mind, and
- not be barred from doing so by any legislation to which he is subject.
According to the laws of the nation in which he resides, a person must have reached the age of majority.
The Indian Majority Act of 1875 governs the age of majority in India. An Indian citizen is said to have reached the age of majority when he or she has completed eighteen years of age, according to Section 3 of the Indian Majority Act, 1875.
MINOR CAPACITY TO CONTRACT
A minor in India is a citizen of India who has not reached the age of eighteen. A minor is unable to consider the nature of the obligations deriving from a contract. 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 a minor to carry out his or her portion of the agreement’s duties.
The contract entered into with a minor is null and void.
If anybody under the age of 18, lacks the legal ability to contract, any agreement formed with a child is null and void from the start (from the beginning).
Also, because a contract entered into by a minor is void ab initio, the deal cannot be ratified even after the child reaches the majority. A void agreement, on the other hand, cannot be ratified.
A Minor can be a Contract Beneficiary
A minor cannot engage in a contract, but he can benefit from one. While a minor cannot become a partner in a partnership business, the advantages of the firm can be given to him, according to Section 30 of the Indian Partnership Act, 1932. A minor can plead minority even if he falsely portrays himself as a major and takes out a loan or enters into a contract. A minor cannot be held liable under the law of estoppel. He may use his minority to his advantage.
Guardian’s Contract
A guardian of a child can enter into a legal contract on the minor’s behalf under certain situations. A contract entered into by the guardian for the benefit of the minor can also be enforced by the minor. A contract for the purchase of immovable property cannot, however, bind a minor.
However, a contract for the sale of a child’s property entered into by a certified guardian of a minor appointed by the Court and approved by the Court can be enforced.
Insolvency
A minor cannot be declared bankrupt since he is unable to obtain obligations. Also, if there are any outstanding debts from the minor’s holdings, he is not personally accountable for them.
A Minor and an Adult Sign a Joint Contract
In the instance of a joint contract between an adult and a minor that is signed on behalf of the child by the guardian, the adult is responsible for the contract.
When engaging in a contract, a person should be of sound mind.
A person is deemed to be of sound mind, he can analyze, comprehend, and appreciate the implications of duties imposed on him at the time of entering into a contract, according to Section 12 of the Act. When a person is momentarily unsound in mind, he cannot engage in a contract. A contract formed by someone who is mentally ill is invalid. Some of the characteristics of an unsound mind person:
Idiots- An idiot is a mental retardation condition in which a person’s mental age is less than that of a 3-year-old kid. As a result, idiots will be unable to comprehend the nature of the contract, and it will be null and invalid 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 legal contract when a lunatic enters into one while of sound mind, that is, when he is competent in understanding the nature of the deal.
People under the effect of drugs– A contract made while under the influence of drugs or alcohol may or may not be legitimate. The contract is void if a person is so intoxicated at the time of entering into it that he is unable to comprehend its nature and implications. It will be enforceable, however, if he is capable of comprehending the nature of the contract.
Persons disqualified or who are legally ineligible
Alien Enemy- An alien enemy is a citizen of a nation with whom India is at war. Any contracts signed with an alien enemy during the conflict are null and void. Under contract law, an Indian citizen residing in an alien enemy country territory is considered an alien enemy. Contracts entered into before the wartime are either dissolved if they are against public policy, or they are suspended and revived after the war is finished, assuming they are not limited by limitation.
Convicts- While serving his punishment, a convict cannot enter into a contract. Upon completion of his term, he regains his ability to engage in a contract.
Insolvent- A person who has been declared bankrupt or against whose insolvency proceedings have been initiated in court/a resolution professional has taken custody of his assets is referred to as an insolvent. So because an individual has no control over his assets, he is unable to enter into transactions involving the property.
Foreign- Diplomats and ambassadors from other nations are granted contractual immunity in India. It is not possible to suit them in Indian courts unless they consent to the jurisdiction of Indian courts. In such instances, the central government’s approval is also necessary. The foreign sovereign, on the other hand, has the right to enforce contracts against third parties in Indian courts.
Corporate body- A corporation is an artificial person. The memorandum and articles of association govern a company’s ability to enter into a contract.
CONCLUSION
One of the most necessary parameters for an agreement to be legal and enforceable in a court of law is the parties’ ability to contract. A contract established by someone who lacks the mental ability to comprehend the nature and implications of the deal is null and invalid from the start. Contracts with lunatics or persons under the influence of a drug, on the other hand, may or may not be invalid depending on the circumstances. When companies enter into contracts with one another, they always attempt to protect their own interests.