What is the Meaning of Capacity to Contract? Detailed Explanation

The capability to participate in a valid contract legally is known as the capacity to contract. The capacity to contract is responsible to bind both the parties with a promise to abide by it. But only specific individuals have the capability to make a contract. In this blog, we will discuss in detail the capacity to contract and the basic requirements for an individual to be capable enough to make a contract.

Individuals eligible for a Contract

In order to make a contract, the individuals must possess the following qualities:

1. The individual should have a sound mind.
2. The individual must be over the maturity age.
3. Those who are eligible to contract under the contracting law.

Ineligible Individuals

Certain individuals are ineligible to make a contract or do not possess the capacity to contract:

1. Individuals who have an unsound mind.
2. Minors or those who are younger than the maturity age.
3. Those who have been disqualified according to the contracting law.

Minors and the effect of a Minor’s Agreement

If an individual is not of the maturity age, then he will be considered to be a minor. In our country, 18 years is considered to be the age of maturity. Any individual below the age of 18 years is not capable of entering into a contract. A contract with a minor is supposed to be null from the very beginning and no one has the right to sue them. The minors are awarded civil and criminal immunities by the state government. The state government also takes custody of the property and well being of the minor. Due to these immunities, the minor can not enter into a contract. But in case a minor enters a contract even when he is aware of his incompetence, then such a contract will work independently of any other contracts.

If in a contract, one of one of the parties is from India and the party is from abroad, then the age of maturity will be depending on the law of that country in which the contract is made in case of an ordinary mercantile transaction and in case of land transactions, the age of maturity will depend on the law of that country in which the land is situated.

If there is an instance of a minor entering a contract  by falsifying their age, then in such a case, the minor will not be responsible for convincing the other party to make the contract. In case of certain mishaps, he will not be responsible while it is possible that he is deemed responsible for some of the mishaps.  In order to avoid a contract, the minor also has the choice of pleading his infancy. A minor’s agreement is taken as a doctrine of restitution. And in case a property has been purchased by a minor by falsifying his age, then that property will be returned. Even if he has sold or converted the land, then he can not be sued by the law.

An individual with an unsound mind

An individual with an unsound mind is defined as per the medical dictionary. Due to an unsound mind, the individual becomes incapable of understanding the transactions and becomes unaware of the implication. Any sort of contract with an individual of an unsound mind is void and can not operate adequately and such an individual is also incapable of availing the benefits of the contract. If there is an individual who has intervals of sound or unsound mind, is capable of making a contract when he is in his sound mind.

Individuals disqualified by the Law

There are certain individuals who are not permitted by the law, they do not possess the capacity to contract. In order to have the capacity to contract, an individual must be permitted by the law. The following entities are ineligible for capacity of contract due to the law are as follows:

1. Alien Enemies

Alien enemies are those individuals who belong to a foreign country but are residing in India. Such an individual has the capacity to contract only in times of peace. In case of declaration of a war between India and their native country, the individual will be considered to be an alien enemy and will not possess the capacity to contract. If the individual has entered into a contract before the war declaration, then the contract will be suspended for the time period till the war persists.

2. Individuals serving sentences in prison

Any individual who is guilty of an offence and has been serving imprisonment does not possess the capacity to contract.

3. Married Women

A married woman also does not possess the capacity to contract regarding her husband’s property. However, the wife can act as an agent for the husband and can help in binding the property in case he is unable to provide her with necessities.

4. Insolvents

An insolvent possesses the capacity to contract only for certain conditions. The insolvent can either be an employee, can purchase a property, can incur debts but can not sell the property. He can not be the magistrate, or the director of a company or the member of a local body. However, after receiving an order of discharge he is considered to be a normal citizen. 

5. Companies under the incorporation of Special Act and Joint Stock Company

Any such company will be an artificial entity that is formed by the law. Outside the powers of the MoA or the Special Act, it does not possess the power of capacity to contract,

6. Officers, Judges and Legal Practitioners

All the officers, judges and legal practitioners who have some sort of interest in business with actionable claims do not possess the capacity to contract.

7. Officers of the Patent Office

All the employees and officers of the patent office do not possess the capacity to contract and acquire interests in patents which are issued during the appointment period.

8. Foreign Ambassadors

The ambassadors are privileged due to the diplomatic immunities extended by the international laws but they still do not possess the capacity to contract. Also, contracts can not be enforced with them by the indian government.

Conclusion

In this blog, we discussed in detail the capacity to contract. We also learnt about the eligible and ineligible candidates who possess the capacity to contract. We discussed minors and the effects of the minor’s agreement and the entities who are disqualified by the law and do not possess the capacity to contract.