IMPORTANCE OF CAPACITY OF CONTRACT

Introduction : A contract, according to section 2(h) of the Indian Contract Act 1872, is a legally enforceable agreement. Section 10 of the Act states the requirements that make the agreement enforceable. The capacity of the parties to contract is one such requirement. The capacity to contract refers to an individual's legal ability to enter into a contract. Section 11 of the Act specifies who has the legal capacity to enter into a contract. So, according to the Section, any person is competent to enter into a contract if he or she is of legal age, is not disqualified by the law to which he or she is subject, and is of sound mind. In a nutshell, minors, individuals of unsound minds, and people disqualified by law are all incompetent to contract. The capacity to contract is critical, as its absence renders the agreement null and void. As a result, the element of contracting capability receives more attention at the time of signing a contract. Meaning of capacity to contract : Under English law, the phrase 'capacity' refers to the ability of the contractual parties to form legally binding relationships with one another. If either party fails to perform this condition, subsequent contracts may be declared void based on the facts and circumstances of the case. As Indian Contract Law is essentially based on English Common Law, the Capacity to Contract has the same importance as it does in English Common Law, and is considered to be the most important element of a valid contract. I. Minor’s agreement : As previously stated in Section 11, no person under the age of majority is competent to contract. In other words, a minor lacks the legal capacity to enter into a contract. Neither Section 10 nor Section 11 specify whether a minor's agreement is voidable at his discretion or completely void. However, following the Mohori bibi decision, it is now well established that a minor's agreement is null and void. In the case of children, the basic assumption that each individual is the best judge of his own interests is suspended. Because their mental powers are not mature, the law serves as a guardian for minors and defends their rights. As a result, any promises made by the minor under an agreement are not binding on him. Effects of minor’s agreement: The following are some of the consequences of a minor's agreement: 1. No estoppel against a minor : When a minor falsely represents at the time of the contract that he has reached the age of majority, the question that arises is whether the law of estoppel applies against him, preventing him from claiming that he was a minor at the time the contract was made. In other words, can he be held liable under the agreement on the grounds that once he claims to have obtained a majority, he should not be allowed to deny it? A minor's misrepresentation does not bind him. If a minor enters a contract by falsely representing himself to be a major, he is not barred from pleading in defense with his minority. He can always claim minority or infancy as an excuse. According to the various decisions of the various high courts, the law of estoppel does not apply to minors. To avoid liability, he may plead minority as a defense. The doctrine of estoppel cannot be used to undermine contract law's policy of protecting minors from contractual liability. In Kanhaiya Lal v. Girdhaai Lal, the minor was not held accountable for the promissory note he executed. Furthermore, in Khan Gul v Lakha Singh, it was found that the law of estoppel, which is an evidence rule, is broad and must be interpreted in accordance with the Indian Contract Act. When the law of contract states that a minor is not liable for a contract entered into by him, the general rule of estoppel should not hold him liable for the same transaction. 2. No Liability in Tort arising out of Contract : In general, a minor may be held liable in tort. He will not, however, be responsible for a tort arising from a contract because such liability is an indirect means of enforcing his agreement. The mere fact that a contract is involved does not free the minor from liability where the tort is separate from the contract. In Burnard v. Haggis, a minor hired a mare. It was clearly agreed that the mare would only be used for riding and not for jumping, so he gave her to one of his friends, who forced her to leap, causing her to fall and be killed. He was held responsible for the wrongdoing. In Jennings v Randall, on the other hand, the court declared him not liable since the horse had been hired for a short voyage and was taken on a considerably longer journey, resulting in its injury, and the plaintiff could not change what was, in essence, a contract claim into a tort claim. 3. Doctrine of Restitution If a minor has unjustly enriched himself, equity demands that the property or assets be restored. To deal with the situation, English courts established the equitable 'doctrine of restitution.' The three basic propositions of this doctrine were spelled out by the court in Leslie (R) Ltd. v Sheill: (i) If an infant gets property or goods by misrepresenting his age, he can be forced to return it, but only if the property or goods can be traced in his possession. (ii) If the infant has sold or converted the items, he cannot be forced to repay the value of the commodities, as this would be considered enforcing a void contract. (iii) Where the infant receives cash instead of things, the doctrine of restitution is not applicable because "restitution stopped where repayment began." The idea does not apply to money because it is difficult to identify and establish whether it is the same money or a different one. In this case, an infant deceived some moneylenders by lying about his age and convincing them to grant him £ 400 on the assumption that he was an adult. The court ruled that an infant could not be forced to pay back the money. The money was given to the youngster to be utilized as his own, and he did so. There's no way to track it down, and there's no way to get back what the infant took. Rather than enforcing the contract, the aim of the restitution doctrine is to restore the minor's ill-gotten gains. If a minor is asked to pay money that cannot be traced and that he no longer has, this amounts to enforcing a void agreement. The Indian law incorporates the English doctrine of restitution, however with certain variations; A minor executed a mortgage for Rs. 20,000 and got a specific payment from the mortgagee in the Mohoribibi v Dharmodas Ghose case. In the event of default, the mortgagee filed a lawsuit to collect his money and sell the property. The Privy Council ruled that a minor's agreement was null and void against him, thus the mortgagee couldn't get his money back or have the minor's property sold under his mortgage. Beneficial Contract: The law does not consider a minor incapable of accepting a benefit unless he has already provided the full consideration to be supplied by him and there is nothing left for him to do under the contract. He is now merely a promisee, and he prays the court to recover the agreed-upon benefit. However, where the contract is still executory or the consideration is yet to be supplied, the Mohori bibi principle will prevent any action on the contract. In Raghava Chariar v. Srinivasa, case the question was whether or not a mortgage in favor of a minor who has paid the mortgage in full is enforceable in a court of law by the minor or any other person acting on his behalf. The Madras High Court decided that a minor can enforce any transaction that benefits him or her and in which he or she is not obligated to bear any costs. In the case of Srikakulam Subramanyam v. Kurra Subba Rao, On behalf of the minor, a guardian entered into a contract to purchase certain immovable property. Later, in order to regain possession, the minor sued the other party for specific performance. It was determined that any contract can be explicitly enforced by or against a minor provided it is for his or her benefit and the guardian who entered into the contract on the minor's behalf is competent to do so. The following are examples of contracts that benefit minors: 1. A minor who has advanced mortgage money and has a mortgage in his favor can sue to have the contract enforced. 2. A minor has the right to sue on a Promissory Note that has been executed in his favor. 3. A contract for a minor's marriage is presumed to be for his or her advantage. While the marriage contract can be enforced against the other contracting party at the minor's request, it cannot be enforced against the minor. 4. A minor can also be provided with "necessaries suited to his condition in life" (for example, food, lodging, and education), and the provider of such necessaries is entitled to reimbursement from the minor's property. 5. A minor is capable of purchasing immovable property, and upon tender of the purchase money, he may sue to recover possession of the property purchased. Minors are not bound by the following contracts: 1. A minor's lease is void. 2. When an infant pays for anything and consumes or uses it, it is against natural justice for him (the minor) to be entitled to reclaim the money he paid. 3. Unlike English law, service contracts entered into by minors in India are void. 4. Benefit contracts do not include trade contracts. As a result, if a minor enters into a trade contract while conducting business, the contract is not binding on him. II. Persons of unsound mind Section 12 states that "A person is said to be of sound mind to make a contract if he is capable of understanding it and making a rational judgment about its effect on his interests at the time he makes it. When a person is of sound mind, he may enter into a contract, even if he is usually of unsound mind. When a person is usually of sound mind but occasionally of unsound mind, he may not enter into a contract.” Examples : 1. A patient in a lunatic asylum, who has moments of sound mind may contract during those intervals. 2. A sane person who is delirious from a fever or who is so drunk that he cannot understand the contents of a contract or make a rational decision about how it will affect his interests cannot contract while delirium or drunkenness is present. Position of Agreements by Persons of Unsound Mind : 1. Lunatics: A lunatic is a person who has become mentally ill as a result of mental or emotional stress or another personal event. He does, however, have occasional periods of sound mind. He is not accountable for contracts made while he is in a state of insanity. He is, nonetheless, bound by contracts struck into during lucid times. In this way, he is in the same situation as a minor. 2. Idiots: An idiot is a person who is mentally ill all of the time. Idiocy is a genetic condition. There are no lucid intervals in such a person's life. He is unable to form a legally binding agreement. In the case of Inder Singh v. Parmeshwardhari Singh, a property valued at approximately Rs. 25,000 was agreed to be sold for only Rs. 7,000. His mother demonstrated that he was born a fool, incapable of understanding the transaction. The Patna High Court declared the transaction void. In Rajinder Kaur v Mangal Singh, the court concluded that a person's mental simplicity or lack of intellect does not imply that he or she is an idiot or mentally ill. The court's ultimate responsibility is to record its judgment as to whether the person in question is a lunatic or of unsound mind, and while the experts' opinions should be given weight, the court should not abdicate its decision-making authority. 3. Drunken Persons: Drunkenness and madness are on the same level. A contract made by a drunken person is null and invalid. It's worth noting that being partially or completely drunk isn't enough to get out of a contract. It must be demonstrated that the individual arguing intoxication was so intoxicated at the time of contracting that he or she was temporarily deprived of reason and unable to provide legitimate consent to the contract. III . Persons Disqualified by law Apart from minors and people of unsound mind, there are some other people who have been declared incompetent to contract, partially or entirely, so their contracts are null and void. Thus, alien enemies, foreign sovereigns and ambassadors, convicts, insolvents in certain circumstances, and joint-stock companies and corporations formed under a special Act are all disqualified. 1. Alien Enemy: Contracts with an alien enemy (i.e., an alien whose country is at war with India) can be broken down into the following two categories: Contracts that were made during the war and the contracts that were made before the war. Unless the Central Government provides consent, an alien cannot deal with an Indian person or be sued by an Indian court while the war is ongoing. Contracts signed prior to the outbreak of the war are either dissolved or simply suspended. All contracts that are in violation of public policy or that may assist the enemy are dissolved. Contracts that are not against public policy are simply suspended for the duration of the conflict and then revived once the war is finished, assuming they have not already become time-barred by the law of limitations. 2. Foreign Sovereigns and Ambassadors: Foreign sovereigns and accredited representatives of foreign states (Ambassadors) are given special privileges. They cannot be sued in Indian courts unless they voluntarily consent to the Indian courts' jurisdiction. They can enter into contracts and have those contracts enforced in Indian courts, but they cannot be sued in Indian courts without the Central Government's permission. 3. Convicts: During the course of a sentence of imprisonment, a convict is not competent to contract. With the completion of the sentence period, this disability comes to an end. When a convict is on parole or has been pardoned by the court, he can enter into or sue on a contract. 4. The company under the Companies Act or Statutory Corporation under special Act of Parliament: A company or organization is an artificial person. It only exists in the eyes of the law, and its constitutional capacity determines its contractual ability. A statutory corporation's contractual capacity is specified by the statute that established it. The memorandum of association's objects clause determines a company's contractual capacity under the Companies Act. Any action taken in excess of the memorandum's powers is ultra-vires and null. Conclusion : One of the most basic prerequisites for an agreement to be legal and enforceable in a court of law is the parties' capacity to contract. A contract made by someone who lacks the mental capacity to comprehend the nature and consequences of the contract is null and void from the start. Contracts with lunatics or individuals under the influence of drugs, on the other hand, may or may not be void depending on the circumstances. Author:- NAVEEN TALAWAR

IMPORTANCE OF CAPACITY OF CONTRACT