Capacity of Parties to a contract - Essentials of a valid contract

Indian Contract Act

1. CAPACITY OF PARTIES prepared by dr. sairam a

2. CAPACITY OF PARTIES According to section 10 of the contract Act, parties making an agreement must have the contractual capacity. Section 11 of the Act states that “every person is competent to contract who is of a gage of majority according to law to which he is subject, and who is of a sound mind and is not declared disqualified from contracting by law to which he is subject.” Thus every person is competent to enter into a contract if, a. he has attained the age of majority b. he is of sound mind, and c. he is not disqualified by any law from contracting

3. MINOR A person who has not attained the age of majority is a minor. According to the Indian Majority Act 1875, a person who has not completed his 18th year of age is considered to be a minor. But if a minor is under the care and custody of the court and a guardian is appointed by the court for the minor, then the minor becomes major only on the completion of the age of 21 years.   Law regarding Minor’s Agreement:- An agreement with a minor is void ab initio: A minor does not have the contractual capacity and when he makes agreements, such agreements are void and cannot be enforced in the court of law. Minor can be a promisee or beneficiary : - A minor cannot be stopped from getting benefits in an agreement. If in a contract, minor is a beneficiary or suffered loss or he is a promisee , he can demand the enforcement of agreement. Ratification on attaining the majority is not allowed: A minor cannot ratify a promise entered into during his minority, after attaining majority.

4. MINOR Minor is not bound to return the benefits received: - If a minor retained any benefit under the agreement, he is not liable for repay or compensate the same. The reason is that the original contract is void in the beginning itself. The principles of estopel is not applicable to minor : - The general principle of estopel is not applicable to a minor. A minor is liable for necessaries supplied: According to sec 68, “if a person, incapable of entering into a contract or any one whom he is legally bound too support, is supplied by another person with necessaries suited to his condition in his life, the person who has furnished such supplies, is entitled to be reimbursed from the property of such incapable person. Minor can be an agent : A minor can act as an agent and bind his principal by his acts. He cannot be adjudged insolvent : A minor cannot adjudged insolvent as he is not competent to enter into contracts for debts. Minor- as partner: A minor cannot be a partner, but he may be admitted to the benefit of a partnership. His liabilities are limited to the extend of his interest in the partnership.

5. PERSONS OF UNSOUND MIND In order to be competent to contract, a person must be of sound mind. A person who is usually of unsound mind and occasionally of sound mind may make a contract when he is of sound mind. A person who is usually of sound mind but occasionally of unsound mind, may not make a contract when he is of unsound mind.   Types of persons of unsound mind: Idiots : A person who has completely lost his mental powers and incapable of forming a rational judgment is called an idiot. All agreements other than of necessaries of life, with idiots are absolutely void. Lunatic : A lunatic person is a person who suffers a serious mental disorder due to some mental strain or mental shock or any highly tragic event. A lunatic is not liable for agreements entered into during the period of his madness. Drunken persons: A drunken person suffers from temporary incapacity to contract. An agreement by a drunken person is void because during his drunkenness he cannot understand the business and its implications.

6. PERSONS DISQUALIFIED BY OTHER LAWS Alien enemies : - A person who is not a citizen of India is called alien. The following rules will apply in respect of an alien enemy: No contract can be made with an alien enemy during the subsistence of war Performance of the contract made before the outbreak of war will be suspended during the course of war. Foreign sovereigns, and ambassadors :- In the case of Ambassadors and foreign sovereigns, According to sec 86 of the civil procedures, previous sanction of the central government is to be obtained . Insolvents: When a debtor is adjudged as insolvent his property vests in the official Receiver and thereby he cannot enter into a contract. This disqualification is automatically removed after he is discharged. Convicts:- A convict when undergoing imprisonment is incapable of entering in to a contract. When the period of sentence expires, the incapacity to contract disappears. Corporations: A company or corporation can enter into contracts only through its agents, such as Board of Directors, Managing Directors etc in accordance with its Memorandum of Associations. Any contract beyond the Memorandum is not valid. Married women : They are competent to enter into a contract with respect to their separate properties. But she cannot enter into contracts with respect to their husbands’ property.