Introduction
Hey there, contract enthusiasts! Ever wondered who can legally enter into a contract? Let’s dive into the essentials of contract competency under the Indian Contract Act of 1872. Contracts are essentially agreements enforceable by law, but not just anyone can make one. To keep things fresh and straightforward, I’ll break down the key points for you.
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What Makes an Agreement a Contract?
For an agreement to be enforceable as a contract under Section 10 of the Indian Contract Act, of 1872, it must satisfy the following:
- Competent Parties (Sections 11 and 12)
- Lawful Object and Consideration (Section 23)
- Free Consent (Section 14)
- Not Expressly Void
Competency to Contract (Section 11)
According to Section 11, a person is competent to contract if they:
- Are of the age of majority (18 years or older).
- Are of sound mind.
- Are not disqualified from contracting by any law.
So, who isn’t competent to contract? Let’s break it down:
Minors
In India, a minor is anyone under 18 years of age. Contracts with minors are void from the beginning (void ab initio). Here’s a classic case to illustrate:
Mohori Bibee vs. Dharmodas Ghose
Dharmodas Ghose, a minor, mortgaged his property for a loan. Despite knowing he was a minor, the lender proceeded with the contract. The court ruled the contract void because minors can’t be bound by contracts.
Key Takeaway: Minors can’t legally enter into contracts, and such agreements are unenforceable.
Can a Minor Be a Partner?
Partnerships are created through contracts, which require all parties to be of the age of majority. However, under Section 30 of the Partnership Act, a minor can be admitted to the benefits of partnership with the consent of all partners but is not liable for any acts.
Liability of a Minor under the Negotiable Instruments Act
As per Section 26 of the Negotiable Instruments Act, a minor can draw, endorse, and negotiate instruments, binding all except himself.
Can a Minor Be an Agent or Principal?
A minor cannot be a principal (Section 183) since it requires the capacity to contract. However, a minor can act as an agent (Section 184), and the principal will be bound by the minor’s actions without the minor being personally liable.
Persons of Unsound Mind
Section 12 defines a person of sound mind as someone capable of understanding the contract and its effects. Contracts made by those of unsound mind are void.
Illustration: A person in a lunatic asylum, who is occasionally of sound mind, can only make a contract during those lucid intervals.
Key Takeaway: Contracts with persons of unsound mind are void unless made during periods of sanity.
Persons Disqualified by Law
Certain individuals are legally barred from contracting:
- Alien Enemies: Citizens of countries at war with India cannot contract.
- Convicts: Individuals serving a sentence cannot contract.
- Insolvents: Persons declared insolvent cannot contract until discharged.
- Foreign Sovereigns and Diplomats: They have special privileges and usually cannot be sued or enter contracts without government permission.
- Corporations: They can contract but within the limits of their charter or incorporation documents.
Also Read: Types of Contract
Alien Enemies
An alien enemy, a citizen of a country at war with India, cannot enter into a valid contract during wartime without special permission from the government.
Convicts
Convicted individuals cannot enter into contracts while serving their sentences. Once their sentence is completed or they are pardoned, they regain the ability to contract.
Insolvents
Persons declared insolvent are disqualified from contracting until they are discharged by the court.
Foreign Sovereigns and Diplomats
They cannot be sued or enter into contracts without the prior sanction of the Government of India due to their special privileges.
Corporations
A company, being an artificial person created by law, can contract but only within the scope of its charter or incorporation documents.
Doctrine of Restitution
Restitution means restoring benefits received under a void agreement. Section 65 of the Indian Contract Act covers this. If a contract is later found void, any benefits received must be returned.
Example: Restitution in Action
If a company goes insolvent after receiving an advance payment for goods, it must return the advance to the payer.
Key Takeaway: Benefits obtained under void contracts must be returned to avoid unjust enrichment.
Case Law Examples
Mohori Bibee vs. Dharmodas Ghose
Dharmodas Ghose, a minor, mortgaged his property for a loan. Despite knowing he was a minor, the lender proceeded with the contract. The court ruled the contract void because minors can’t be bound by contracts.
Bank of Rajasthan Ltd vs. Sh Pala Ram Gupta
In this case, the court held that an agreement which was void and illegal from the very beginning could never apply the provisions of restitution.
Kuju Collieries Ltd vs. Jharkhand Mines Ltd
The Supreme Court held that an agreement discovered to be void at a later stage invites the application of Section 65. The advantaged party is bound to restore benefits received to the disadvantaged party.
The Infants Relief Act, 1874
The Infants Relief Act, 1874 (1874 Chapter 62 37 and 38 Vict) states that all contracts by infants (except for necessaries) are absolutely void. Additionally, no action can be brought upon ratification of an infant’s contract after they reach full age.
Key Provisions:
- Contracts by infants for repayment of money lent or for goods supplied (other than necessaries) are void.
- No action can be brought to charge a person on a promise made after full age to pay a debt contracted during infancy.
Delictual Liability
Delictual liability concerns damages suffered by a person due to another’s wrongful act or omission, entitling the injured party to compensation.
Example: If Adam, while driving, knocks Ben down, Ben can claim damages for his injuries.
Key Takeaway: Delictual liability ensures compensation for wrongful acts.
Conclusion
Understanding who can and cannot contract is crucial for enforcing agreements legally. Minors, individuals of unsound mind, and those disqualified by law are not competent to contract. Always ensure parties are competent to avoid legal complications. Got any questions? Drop them in the comments!
Stay informed and contract wisely!
Also Read: Intention to Create Legal Obligation