Capacity To Contract

A contract is the end result of almost every transaction we see around us. When you pledge to pay the vendor for veggies, you are making a transaction. When you own a store, you enter into two contracts: one with the product's maker and the other with the person who will purchase it from your store.

We might not consider whether the vendor is capable of entering into a contract when purchasing vegetables. However, if you are a store owner, you must confirm that the manufacturer is able to do so lawfully. This becomes crucial if you want to legally hold the manufacturer accountable for any breaches of the agreement he may have made.

Who is competent to contract?

According to Section 11 in 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 of sound mind and is not disqualified from contracting by any law to which he is subject."

Hence, there are three key components to form the capacity to enter into a contract −

• Attaining the age of majority

• Being of sound mind

• Not disqualified from entering a contract by any law

Who are ineligible to enter a contract?

According to Section 11 of the Indian Contract Act of 1872, anyone who does not meet the requirements, is ineligible to enter a contract. So, it follows that the following group of people lacks the legal competence to engage into a contract −

Minor

A minor in India is a citizen who has not reached the age of eighteen. A minor is unable to comprehend the nature of the obligations resulting from an agreement. A contract with a minor is therefore null and void from the beginning and cannot be upheld in court. As a result, a party cannot demand that the minor fulfil his responsibilities as specified in the contract.

A person of unsound mind

The following are the people who are considered to have an unsound mind −

• Idiots − A person with a mental age less than that of a 3-year-old child is considered an idiot in terms of mental retardation. So, since idiots are unable to comprehend the nature of the contract, it will be void from the start.

• Lunatic − A person is considered mentally retarded if their mental age is lower than that of a 3-year-old child. As a result, the contract will be worthless from the start..

• Users of drugs − A contract made while under the influence of alcohol or drugs may or may not be enforceable. The contract is null and void if the individual who signed it was so inebriated that he was unable to comprehend its nature and effects. Yet, the contract will be enforceable if he is able to comprehend its terms.

Persons disqualified by law

The below-mentioned persons are disqualified by law to enter into a contract.

• Alien enemy − An alien adversary is a national of a nation with whom India is at war. All agreements established with an extra-terrestrial foe during the conflict are null and void. According to contract law, a citizen of India who lives in an enemy's country is considered that enemy. Contracts entered into prior to the start of the war are either dissolved if they violate public policy or remain suspended and are reactivated when the war is over, assuming they are not blocked by a statute of limitations.

• Convicts − While they are incarcerated, felons are not permitted to sign contracts. Yet, after serving his term, he regains his ability to sign contracts.

• Insolvent − An insolvent is a person whose assets are seized by a professional in debt resolution, who has been declared bankrupt, or against whom insolvency proceedings have been brought in court. The person cannot enter into negotiations with the property because he has no control over it.

• Foreign sovereigns − In India, diplomats and ambassadors from other nations are granted contractual immunity. They must submit to the jurisdiction of Indian courts in order for one to file a lawsuit against them there. In such circumstances, the central government's approval is also necessary. Yet, the foreign sovereign has the right to use Indian courts to enforce contracts against third parties.

• Body corporate − A firm is a made-up individual. Memorandum and articles of association are what determine a company's ability to enter into a contract.

Conclusion

One of the most crucial conditions for an agreement to be deemed legitimate and enforceable in a court of law is the parties' capacity to enter into a contract. A contract entered into by a party who lacks the mental capacity to comprehend its terms and implications is null and void from the start. Contracts with crazy individuals or those under the influence of drugs, however, may or may not be void depending on the specifics of the scenario. Upon the removal of any of the disqualifications, a person regains the ability to enter into contracts.

Businesses always work to protect their interests when entering into contracts with one another. The most frequent clauses used to guarantee that both parties are competent to contract are representation and indemnity agreements. The ability or eligibility of partners to enter into a business agreement is an essential component of a legitimate partnership contract. The legal capability of a person or entity to form a partnership is referred to in this context as having the capacity to contract. Business law stipulates that a partner must be capable and meet the requirements before agreeing to a contract.

Frequently Asked Questions

Q1. What is meant by capacity of parties?

Ans. The legal competence of the parties to enter into a contract is referred to as the parties' capacity.

Q2. What is the capacity to contract?

Ans. Sanjay has reached legal adulthood. Additionally, according to the medical professionals, he has moments of sound mind. So long as he has the capacity to contract and his mind is in a sound state, he is able to engage in a contract.

Q3. Who is incompetent to contract?

Ans. Somebody Having Certain Mental Disorders Who Is Incompetent to Contract A person who is unable to make reasonable decisions cannot engage in the contract, according to Section 12 of the Indian Contract Act of 1872.

Q4. What are the major basics of a contract?

Ans. The fundamental components necessary for the agreement to be a valid offer and acceptance, with appropriate consideration, capacity, and legality.