CAPACITY TO CONTRACT: WHO CAN AND WHO CANNOT ENTER INTO A CONTRACT?

INTRODUCTION

A contract is an agreement enforceable by law, whether between two parties or individuals. A contract requires free consent, lawful consideration, the age of majority, and sound mind, and the disqualification of persons or parties who are disqualified by law, unsound mind, or those who are typically involved in or influenced by drugs or alcohol, or do not agree to anything.

Section 11 of the Indian Contract Act states that the

‘Every person is competent to contract who is of the age of majority according to the law to which he is subject, who is of sound mind, not disqualified to contracting to any law which he is subject’

This definition highlights 3 key aspects

1. Age of majority- a person must be at least 18 years of age
2. The soundness of mind- a person can make and understand the decisions.
3. Legal qualification- a person should not be disqualified by law.

WHO CAN ENTER INTO A CONTRACT?

1. Age of majority–A person of the age of majority must attain the age of 18 and enter into a valid contract. The age of majority extends to 21 years. This rule prevents minors from entering legally binding agreements that could harm their interests.
2. Person of sound mind—A contract is valid when the person is of sound mind while entering into the contract or agreement. Section 12 of the Indian Contract Act, of 1872 states the:

A person is said to be of sound mind to make the contract if at the time he makes it, he is capable of understanding and forming a rational judgement as to its effect upon his interest.

1. Persons not disqualified by law—A person must not be legally disqualified by law due to statutory provisions. Here are some examples of such disqualifications of persons, which are included:
2. Alien enemy means foreign citizens are living in India, the contract made before the declaration stands suspended till the declaration remains enforce.
3. Foreign sovereigns, ambassadors—Foreign sovereign, governments, their representatives, and diplomatic staff have full capacity to contract in India, but they have to claim their privilege of not being sued. Sections 84 to 87 of the Code of Criminal Procedure lay down the rules regarding suits by or against foreign states and ambassadors.
4. Insolvents—Insolvents cannot enter into a contract to sell their property. Because their property vests into the official receiver of the official assignee. After getting the certificate of discharge, they can make all types of contracts.
5. Convict—A convict becomes incompetent during the period of his imprisonment to enter into the contract. Their liability comes to an end at the expiration of the period of the sentence.
6. Married women—Are competent to enter into a contract concerning their separate properties and they can’t enter into a contract concerning their husband’s property.

WHO CANNOT ENTER INTO A CONTRACT?

Now we have to understand that who cannot enter into a contract,

Minors—Below the age of 18 years, a minor is legally incompetent to enter into a contract and a contract with a minor is void ab initio means that the contract is void from the beginning.

LEGAL CONSEQUENCES OF MINOR’S CONTRACT

A minor cannot be sued for breach of contract.

1. A minor cannot ratify a contract after attaining a majority. If a contract becomes void ab initio, it cannot be valid later.
2. The doctrine of restitution—giving back to the actual owner. If the minor has received a benefit under the agreement from another party, the court may require the minor to restore the benefit to the other party at the time of rescission of the agreement.
3. Person of sound mind—A contract is valid when both parties are of sound mind at the time of making the contract. According to section 12 of the Indian Contract Act 1872, a person is of sound mind if they:
4. Can understand the terms of a contract.
5. Can form a rational judgement regarding its consequences.

UNSOUNDNESS OF MIND CAN BE DUE TO: 

1. Mental illness
2. Intoxication
3. Temporary insanity
4. Not disqualified by law—A person must not be legally disqualified by law due to statutory provisions. Here are some examples of such disqualifications of persons.
5. Convicts
6. Foreign enemies
7. Insolvents
8. Corporation- a contract can be only with their legal capacity.

LANDMARK JUDGEMENTS 

1. Case—Mohori Bibee V. Dharnodas Ghosh [1903]

The subject of this case: what is the effect of the contract entered into by the minors?

Facts of the case:

1. On the 20^th of July,1895, Dharmodas Ghosh borrowed Rs. 20,000/= with interest at 12% per annum from Brahmo Dutt and mortgaged some of his houses. On the day the mortgage was executed, Kedar Nath, an attorney of Brahmo Dutt, got Dharmodas Ghosh to such a declaration that his age according to his mother’s statement is 21 years one month and three days.
2. On the 15^th of July 1895, before the execution of the mortgage deed, the mother, Dharmodas Ghosh, who was his certified guardian appointed by the Calcutta High Court, gave a notice to Kedar Nath that Babu Dharmodas Ghosh is still a minor under the age or 21 years and any one leading money to him will do so at his own risk.
3. On the 10^th of September,1895, Dharmodas Ghosh through his mother and guardian as a next friend filed a suit in the Lower Court alleging that at the time of the mortgage Dharmodas Ghosh was minor, therefore, the mortgage was not binding on the plaintiff and the contract is void.
4. The defendant Brahmo Dutt in his defense pleaded that:
5. The plaintiff was not a minor at the age of the mortgage.
6. The defendant or his attorney did not receive any notice about the minority of the plaintiff.

In this case, the decision of a trial court—The trial court decreed the suit of the plaintiff, against this decision, the defendant filed an appeal to the Calcutta High Court which was dismissed. Defendant filed a second appeal to Privy Council but died before the judgment, hence the appeal was prosecuted by MOHORI BIBI and another as the executors of his estate.

CONCLUSION

The capacity to contract is a legal principle that requires and ensures the parties to enter into a contract fully understand and accept their obligations. The landmark judgments have also shaped the legal understanding and the capacity of a contract.

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