Written by- Jaya pathak
Under Indian law, there are certain categories of persons who are deemed incompetent to contract. Agreements with them are void. Though these agreements can protect them from obligations but they cannot fully comprehend.
In this blog, we will discuss who is legally barred from contracting in India and what are the statutory provisions governing the capacity.
In India, a contract is governed by the Indian Contract Act, 1872. A contract is basically a document which is enforceable by law. It exists when there is an agreement and enforceability.
Section 10 of the Indian Contract Act, 1872 says that if two parties are entering into a contract then they must be competent to the contract that is suitable and qualified by law. On the contrary, according to section 11 of the Indian Contract Act, 1872, “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is a sound mind and not disqualified from contracting by any law to which he is subject.”
Contract with a Minor
The term minor has not been defined in the Indian Contract Act of 1872. According to the Indian majority act of 1875, the age of majority in India is defined as 18. If you want to enter into a contract, then even a day less than this age can disqualify the person from being a party to the contract. An agreement with the minors in India is void ab inito, that is void from starting.
A contract is basically a formal agreement which is legitimate and enforceable from the moment it is created. It can occur when one of the parties is involved what the party is incapable of fully comprehending the implications of the agreement.
The Privy Council declared that any contract by a minor or any minors agreement is absolutely void. This law has been declared in Mohri bibee vs Dhurmodas Ghose Case (1903).
Ratification of Contract
The ratification of a minor’s contract is a cake walk. If a person is minor during the time when contract is made, then the contract is void. Once the minor becomes a major, the contract cannot be rectified. If the contract is rectified then it will be invalid. It is believed that if a minor does not have a mental capacity to enter into contract, then it should not be given the authority to rectify it.
If a minor enters into a contract under false pretence and claims to be a major, then there will be no estoppel against him. The minor will not legally be required to prove his age in front of the court. The reason behind this is to protect the minors from liability he owes to the major. The Allahabad High Court held that no estoppel shall be invoked in the case of a minor as the contract, by law, is already void ab inito. This declaration was made in Jagar Nath Singh vs Lalta Prasad case (1908).
Persons of unsound mind
Section 12 of the Indian Contract Act, 1872 defines the term soundness of mind as follows:
- A person is said to be of unsound mind if he is incapable of understanding the question and forming a rational answer to that question.
- A person is said to be sound mind if he is capable of understanding the contract and the effect of that contract on his interests.
- It is important to note that if a person who is usually of an unsound mind but occasionally of a sound mind then he can enter a contract when he is of sound mind. For example, a person in a lunatic asylum who at intervals is of sound mind may contract during those intervals.
Who is a lunatic?
A person whose mental power is unbalanced is a lunatic. It is not necessary that a lunatic will always be in the state of lunacy. He can have intervals of lunacy.
Can contracts be made with idiots?
A person who has completely lost his mental well-being is said to be an idiot. It is considered as a permanent ailment. Therefore, agreement with an idiot is considered as void.
Can an intoxicated person enter into contracts?
No. Since a drunken person is not in the correct state of mind to form a rational judgment therefore, he is incompetent to contract in drunken state.
Persons disqualified by Law
The persons who are disqualified by law are incompetent to contract due to legal, political and corporate status. Their legal status is the cause of disqualification by which they are regarded as incompetent to make contracts. If a disqualified person enters into a contract, then that contract is not considered as a valid contract.
Who are the persons disqualified by Law?
- Alien enemy: A person from a foreign land is considered as an alien. When a country enters into a situation of what with that particular country than the person who is belonging to that country is regarded as an alien enemy. In India, a contract with an alien enemy is void but contract with an alien friend is valid. The Indian Contract Act of 1872 made this decision. It is also to be noted that no contract can be made with an alien enemy during the time of war except with the prior approval of Indian government.
- Convicts: There are those people who are punished by the court in the case of any criminal charge. Such a person loses their legal capacity to perform certain law. Such person cannot enter into a contract during the period of punishment.
- Insolvent: They are the person who is disqualified from entering into a court until he is discharged by the court of law.
- Foreign sovereigns: The representatives and delegates cannot enter into contracts as they are free from civil liability which are created by the law of residential country and due to this, individual cannot enter into contract with such person because there is no any legal remedy against them.
- Corporations: A company is competent to contract but its power to contract is subject to the limitation which may be either necessary or expressed.
Conclusion
The capability of contracting is an essential part of contract law. The Indian Contract Act of 1872 lays down certain specific provisions to determine the capacity of an individual to enter into contract. If a person who is of the age of majority, of sound mind and is not disqualified by law, he or she can enter into a contract. Therefore, it is quite important to understand the competency of the parties to a contract. It would ensure that the agreement is legally binding and enforceable.
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