CAPACITY TO CONTRACT
We already know that the parties to a contract must be competent, that is, they must have the capacity to contract. The question, now, is who is competent to contract?
Law states that 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. That is, person is competent to contract if he –
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has attained the age of majority
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is of sound mind and
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is not otherwise disqualified from contracting
(a) AGE OF MAJORITY
Law states that every domiciled Indian attains majority on the completion of 18 years of age. But what is a person below the age of majority makes an agreement. The effect of such an agreement are as follows –
(i) An agreement entered into by a minor is altogether void.
An agreement entered into by a minor is void ab initio, that is, void from its inception. The question of its enforceability does not arise. Unless all the parties to an agreement are competent to contract, the agreement would be void. The main reason is that a minor is incapable of performing his part of the contract imposing a legal obligation.
(ii) Minor can be a beneficiary:
A minor, though incompetent to contract, make the other party bound towards himself. For example, a promissory note duly executed in favour of a minor is not void. Minor can enforce the same as he may accept a benefit.
Similarly, a minor cannot become partner in a partnership firm. However with the consent of all the partners, he may be admitted to the benefits of partnership.
(iii) Minor can always plead minority.
Minor can always plead minority. Even if a minor had stated himself an adult and entered into an agreement, and also received certain benefit out of the same; he may at a later stage plead minority and that the agreement is void. Thus, the law of estoppel is not available against a minor.
Say, for example, any money advanced to a minor cannot be recovered as he can plead minority and that the contract is void. Even if there had been false representation at the time of borrowing that he was a major, the amount lent to him cannot be recovered.
If a minor had obtained payment fraudulently by concealing his age, he may be compelled to restore the payment. But he cannot be compelled for an identical sum as it would amount to enforcing a void contract.
(iv) Minor cannot ratify his agreement even after attaining the age of majority.
A minor on his attaining majority cannot validate any agreement which was entered into when he was minor. Such a ratification amounts to agreement without consideration and is void. For example, Where A aged 19 executes a fresh promissory note in lieu of promissory note executed for a loan executed when A was 17 years of age (minor as per law). The fresh promissory note is without consideration and hence void.
(v) Liability for necessaries.
A person who supplied necessaries of life to a minor or his family, is entitled to be reimbursed from the properties of a minor. But this is not a contractual obligation in strict sense, but an obligation resembling a contract (also called Quasi contract). Necessaries of life include food, clothing, education etc. It is necessary to note that the minor is not personally liable but the cost of necessaries may be recovered from the estate of the minor.
(vi) Contract by guardian are valid.
A valid contract can be entered into with the guardian on behalf of the minor. The guardian must be competent to make the contract and the contract should be for the benefit of the minor. It is important to note in certain cases permission of Court is required to enter into such contracts. Such as for sale of immovable property of a minor, the guardian must seek permission of the court for a valid transaction.
(b) SOUND MIND
A person must be of “sound mind” to be able to enter into a valid contract. The term “sound mind” is used in legal sense and in ordinary sense. Legally, a person is considered to be of sound mind if he at the time of entering into a contract is capable of understanding it and forming a rational judgment as to its effect upon his interest.
A person who is of unsound mind but occasionally of sound mind can enter into a contact when he is in sound mind. Similarly, a person who is generally of sound mind, but occasionally of unsound mind cannot enter into a contract when he is of unsound mind. Thus, the period of lucidity is crucial in deciding competency of party in such cases. Similarly, a person while drunk may not be competent at times. The test of competency is –
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capable of understanding the contract
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form a rational judgment as to its effect upon his interest
In short, whether the person is able to understand the implications of the contract in question.
Thus, if you are a bar tender and a person has already drunk enough to lose his sense but presses for another drink. Its better not to serve him as he cannot be compelled by law to pay. There can be no valid contract after he lost his sense. Neither the case is covered under supply for necessaries.
The effect of an agreement with an unsound is same as that of a minor.
(c) NOT DISQUALIFIED BY LAW
At times, a person may be disqualified by law to enter into contract either wholly or partially.
For example, an alien enemy, during war cannot enter into a contract with an Indian subject. This disability to an alien enemy arises on account of public policy. Also, Statutory corporations or Municipal bodies cannot enter into contracts on matters which are beyond their statutory powers or ultra vires the memorandum or articles through which they are created.
