Section 2(h) of the Indian Contracts Act 1872 defines a contract as an agreement that is enforceable by law. Section 10 of the Act lists out the requisites that make the agreement enforceable. One such requisite is the capacity of the parties to contract.
CAPACITY TO CONTRACT
Capacity to contract basically means competency of the parties to contract. Section 11 of the Act declares the people who are competent to enter into a contract. So as per the Section, every person is competent to a contract given the person is of the age of majority and is not disqualified as per the law to which he is subjected to and he/she should be of sound mind.
PERSONS COMPETENT TO CONTRACT
To make a contract, only certain people are eligible. The following are the people who have the capacity to contract:
- Those with a sound mind
- People who have crossed the majority age (Above 18 Years)
- Solvent Person
- Persons who are not disqualified by law
Only above parties are competent to contract as per Indian Contract Act, 1872.
INCOMPETENT TO CONTRACT
- Persons of Unsound Mind:
According to Indian Contract Act 1872, A person with unsound mind cannot enter into a contract because of his mental state but he/she can enter into contract
A minor is one who has not attained the age of 18, and for every contract, the majority is a condition precedent. By looking at the Indian law, minor’s agreement is a void one, meaning thereby that it has no value in the eye of the law, and it is null and void as it cannot be enforced by either party to the contract.
However, the judicial committee of the privy council in the landmark case of Mohiri Biwi vs. Damodardas Ghosh held that the agreement with the minor was VOID lacking all the contractual obligations on either side. The rationale propounded by the council was that a child may exhibit poor judgment in making a contract that may adversely affect its interests. Hence, deeming the agreement with the minor as void may best serve his interest. The contract which is for the benefit of the minor and within the competence of the guardian is enforceable.
Section 68 states that if a person does not have the capacity of being in a contract receives necessaries from another person. He has the power to reimburse from the incapable person. Though section 68 makes minor liable for the necessaries, it does not define the necessaries. The necessaries will be decided upon the case. To have reimbursement for the necessaries the party supplying the necessaries must prove that the good and reasonable. They have also to confirm that the provided necessaries are the only support for the minor and that they do not have any sufficient supply with them.
The Indian Apprentices Act of 1850 allows minors to enter into arrangements (through their guardians) that are similar to service contracts. Its very objective is to enable poor children and orphans to learn certain vocational skills in their minority so that they can gain a livelihood when they become adults. Nevertheless, it was held by Desai J. in Raj Rani v. Prem Adib that the minor cannot be held liable in such a contract as he or she is a beneficiary, and his or her contract is void. In such case, no reimbursement can be claimed for training, rather the minor ought to be paid for the work.
Position of a Minor in a Contract of Agency:
It is important to highlight that even if a minor enters into contractual agreements through an authorized agent acting on his behalf, the agreement would still be considered void.
So, a contract which is entered by a minor (acting as a principal) through his agent is void. The rationale behind this is that ‘an agent is said to act on behalf of the principal’; so, it would mean enforcing a contract by a principal who is a minor, viz., someone not allowed by law to contract.
Although the minor cannot act as a principal, he or she can be an agent as an agent functions only as a connecting link between two parties. Moreover, he can be absolved from liability as an agent on account of his minority.
- Person Disqualified by Law
If the law does not accept any person, then he does not have the capacity to enter into a contract or held by court as convict that is person convicted for crime of certain offence. The law should qualify a person for them to be a part of a contract.
An adjudged insolvent has the capacity to enter into a contract of certain types. The insolvent can incur debts, be an employee and purchase a property, but he cannot sell the property. He has certain disqualifications like he cannot be a magistrate, he cannot be a company’s director, or he cannot be a local body’s member. The insolvent person has the capacity of a contract except for his property. He becomes an ordinary citizen after the order of discharge.
- Corporation Incorporated under a Special Act and Joint Stock Company
Such a corporation or company will be an artificial person formed by the law. It does not have the capacity to contract outside the powers of the Memorandum of Association or the Special Act.
In nutshell, minors, people of unsound minds, people disqualified by law and many others which are prescribed by Indian Contract Act, 1872 are incompetent to contract. Competency to contract is of great importance for its absence renders the agreement void. Hence, the aspect of the capacity to contract attracts greater attention at the time of making an agreement.
Author’s Name: Neelkanth Vyas (Lords Universal College of Law, Mumbai)