CAPACITY TO CONTRACT WITH CASE EXAMPLES

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INTRODUCTION:

The term capacity here means being able to completely understand the terms and conditions of the agreement by the parties to enter into the contract. The term party means any individual or any group of individuals or it can be a company as well. These parties are required to be legally competent to form the contract with any other party. They should be able to make and communicate the decision very well. They should also be mentally and intellectually able to enter into the contract.




DEFINITION:

The Contract Act, 1872 has defined the capacity of party to contract in the section 11. According to it, for a person to enter into contract, his age should not be below the age necessary for a person to enter into the contract, he should be of sound mind which means that the person should be mentally stable and he should be a clear citizen without being disqualified by any authority related to the contract.

MAIN ASPECTS:

There are three main aspects of the capacity of the parties:

  • Minors.

  • Unsound Mind.

  • Disqualified persons.

1. MINORS:

The contract in which one of the parties is minor

  • i.e., the person below the age of 18 is considered to be a minor, is a void contract
  • The person should not be less than 18 years of age and if there is a one single day to be turned into eighteen age, he is ineligible to enter into contract.
  • But in some cases, the required age i.e., the age of majority is different like the guardian or property of the minor is appointed under the Guardian and Wards Act, 1980 etc. 

Minor’s contract is a Void Contract:

The contract made with the minor is a void contract and is inoperative ab initio.

CASE-EXAMPLE

A house is mortgaged by a minor in the favor of a money lender for securing the loan of Rs. 500,000 out of which the money lender has paid the amount of Rs.80000 to the minor. Subsequently, the minor sued for setting the mortgage aside and due to his incompetency of entering the contract. [ Dharmodas vs Mohiribibi, (1903) High Court Calcutta] 

Minor as a Beneficiary of Contract:

The minor can bind himself into the contract but he can be a beneficiary to the contract. The case for this condition is as follows:

CASE-EXAMPLE

Ahmed’s neighbor asks him to lend some money but as security asks him to mortgage his house and thus a contract is formed that favors the Ahmed’s son who is 13 years old yet. The neighbor couldn’t repay the loan and hence Ahmed suits a case against his neighbor and the court will hold the case as the minor here is a beneficiary.


2. UNSOUND MIND:

Any person who is mentally unstable is considered to have an unsound mind. It includes:

  • A person can only enter into the contract if he is capable of understanding the terms of agreement or contract completely, able of forming the rationale judgments and if he can act upon the terms decided.

  • These persons can be lunatic patients or idiots that have completely lost their mind.

  • Drunken or any intoxicated person is also considered to have an unsound mind and contract made by them in the drunken condition is considered to be void.

CASE-EXAMPLE

The case of Hughes Vs. Jones 116 New York, is an example for the unsound mind party.

The contract was held void as the person was found insane, having unsound mind and drunken most of the times, but the court allowed the assumption of controlling the property.

3. PERSON BEING DISQUALIFIED:

Any person disqualified from any perspective, by law cannot enter into a contract. The person maybe disqualified politically, legally etc. These persons are:

  1. Alien Enemies: 

The alien enemies here mean the opposition party, with which the country is in the position of war, hence, the contract with them is void.

  1. Foreign sovereigns:

The foreign diplomatic staff cannot be sued until they give themselves to the jurisdiction of Courts. They have got some special privileges. 

  1. Corporations:

The competency of the corporations depends on their MOA. If the company exceeds its powers from the object clause mentioned, then the contract will be void. 

  1. Insolvents:

Any insolvent person is ineligible to enter into any contract but an official assignee can vest in his property.

  1. Convicts:

He cannot form any contract in case he is going to be imprisoned. 

CASE-EXAMPLE

Mr. Aslam who has been declared imprisonment for 6 months because of his criminal activity cannot enter into a contract with his neighbor asking for the mortgage contract.

CONCLUSION:

  • To conclude, it is important for a contract to be valid to follow the conditions regarding the capacity of the parties.
  • It should be made sure while entering into a contract that all the parties meet the legal requirements of contract
  • The validity of contract is ensured that will be helpful in binding the parties for bringing the contract to end by their required performance. 


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