One of the most essential elements of a valid contract is the competence of the parties to make a contract.
SECTION 10 : All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
SECTION 11 : 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.
MEANING AND DEFINATION
According to SECTION 11, “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.”
So, we have three main aspects:
1. Attaining the age of majority
2. Being of sound mind
3. Not disqualified from entering into a contract by any law that he is subject to
A GOVERNMENT can enter into contracts like any other person.Under the Constitution of India, the executive power of the Union and of each state extends, inter alia, to the making of contracts for any purpose. However, when a government enters into a contract in the exercise of its executive power, the contract will only be valid and binding if certain formalities are complied with. Statutory corporations and statutory bodies can make contracts. The legislation that creates them confers the power to make contracts.
PERSON OF SOUND MIND
According to SECTION 12 of the Indian Contract Act, 1872, for the purpose of entering into a contract, a person is said to be of sound mind if he is capable of understanding the contract and being able to assess its effects upon his interests.
It is important to note that a person who is usually of an unsound mind, but occasionally of a sound mind, can enter a contract when he is of sound mind. No person can enter a contract when he is of unsound mind, even if he is so temporarily. A contract made by a person of an unsound mind is void.
ILLUSTRATION: (a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.
(b) A sane man, who is delirious from fever, or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.
PERSON OF UNSOUND MIND
IDIOTS - An idiot, in medical terms, is a condition of mental retardation where a person has a mental age of less than a 3-year-old child. Hence, idiots are incapable of understanding the nature of the contract and it will be void since the very beginning.
LUNATIC- A person who is of sound mind for certain duration of time and unsound for the remaining duration is known as a lunatic. When a lunatic enters into a contract while he is of sound mind, i.e. capable of understanding the nature of the contract, it is a valid contract. Otherwise, it is void.
ILLUSTRATION - A enters into a contract with B for sale of goods when he is of sound mind. A later becomes of unsound mind. The contract is valid.
PEOPLE UNDER THE INFLUENCE OF THE DRUG - A contract signed under the influence of alcohol/drug may or may not be valid. If a person is so drunk at the time of entering into a contract so that he is not in a position to understand the nature and consequences, the contract is void. However, if he is capable of understanding the nature of the contract, it will be enforceable.
ILLUSTRATION - A enters into a contract with B under the influence of alcohol. The burden of proof is on A to show that he was incapable of understanding the consequence at the time of entering the contract and B was aware of his condition.
IN INDER SINGH V. PARMESHWARDHARI SINGH (AIR 1957 PAT 491)
a property worth about Rs. 25,000 was agreed to sold by a person for Rs. 7,000 only. His mother proved that he was a born idiot incapable of understanding the transaction. The court held sale to be void. The Court observed: “ACCORDING TO SEC. 12, the person entering into a contract must be person who understands what he is doing and is able to from a rational judgment as to whether what he is about to do is to his interest or not. The crucial point, therefore, is to find out whether he is entering into the contract after he has understood it and in regard to his interest… It does not necessarily mean that a man must be suffering from lunacy to disable him from entering into a contract. A person may behave in a normal fashion, but at the same time, he may be incapable f forming a judgment of his own… In the present case (he) was incapable of exercising his own judgment.”
Under ENGLISH LAW, a person of unsound mind is competent to contract, although he may avoid his contract if he satisfies the court that he was incapable of understanding the contract and the other party knew it. The contract is voidable at his option.
An agreement by a person of unsound mind is absolutely void as against him but he can derive benefit under it. Further, the property of an insane person is always liable for necessaries supplied to him or to any one whom he is legally bound to support.
PERSON DISQUALIFIED FROM CONTRACTING
Apart from minors and people with unsound minds, there are other people who cannot enter into a contract. i.e. do not have the capacity to contract. The reasons for disqualification can include, political status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien enemy, convicts, insolvents, etc.
INCAPACITY THROUGH STATUS
Contractual incompetency may come from, Professional status, artificial status, marital status, Political status, etc. Persons who lacked capacity, due to their status are wholly or partially under SECTION 11 of the Indian Contracts Act, disqualified from entering into a contract. Besides, minors and persons of unsound mind, persons disqualified by law, are also barred from contracting depending upon which they are subject.
POLITICAL STATUS
- ALIEN ENEMY
An alien is a person who belongs to a country other than India. There will be either an alien friend or an alien enemy. An alien friend belongs to the country which is at peace with India and those people usually have the contractual capacity to make contracts with Indian citizens. However, some limitations exist. The alien enemy is from a country at war with India. The contractual position of such a person may be divided into two categories: contracts made during wartime and contracts made before wartime. In the first case, he cannot enter into the contract with Indian citizens and even he cannot suit regarding the contracts with Indians in Indian courts, except only in the case of possessing a license from the central government. Contracts made before the outbreak of the war are either dissolved or suspended.
Contracts that do not violate public policy are simply barred from performing for the period of conflict and resurrected only after the completion of the war, supposing those shouldn’t already become time-barred under the law of limitations. It should be noted that a citizen of India who deliberately settles or does business in an enemy country would be viewed as an alien enemy.
ILLUSTRATION - A, of country X, orders goods from B, of country Y. The goods are shipped and before they could reach Y, country X declares a war with country Y. The contract between A and B becomes void.
- AMBASSADORS AND FOREIGN SOVEREIGNS
Foreign sovereigns and ambassadors have certain advantages. They will not be able to be sued in Indian courts if they consent to surrender to our jurisdiction. They could agree and execute them in Indian courts, although they cannot be brought to trial in our courts besides the Centre’s permission. This indicates protection persists even if he engages in trading. Nonetheless, if a non-resident of India, for example, engages in a deal with an Indian representative, the contract holds the agency liable. The situations when the Central Government might provide authority to suit an ambassador were stated in Engelke vs. Musmann, 1928. They are first, when the individual had filed a lawsuit against the one who wants to sue him secondly when he had explicitly or implicitly relinquished the privileges. Thirdly, when he conducts trade under the court’s jurisdiction or is a trade of immovable property and he is to be prosecuted in relation to that.
FINANCIAL STATUS
- INSOLVENTS
When a borrower declares bankruptcy, his/her property is turned over to the Judge appointed “Official Receiver or Official Assignee.” He/she is not allowed to be involved in real estate transactions or lodge a suit against his/her representation. When he is relieved, his restriction is removed.
ILLUSTRATION - A enters into a contract for sale of goods with B. Before the sale takes place, an insolvency suit is filed against A. A sell the goods to B during pendency of insolvency proceedings. The contract is valid.
LEGAL STATUS
- FELONS AND CONVICTS
A felon is not qualified to enter during the continuance of the term of imprisonment he is undergoing through. After the punishment period has expired, this restriction will end. Even on parole or after pardoning by the law, a convicted criminal can enter into or sue on a contract.
ARTIFICIAL STATUS
- CORPORATIONS
A corporation or a firm is an artificial person. It has existed in the eyes of the law, and its competence to contract is specified by its constituent memorandum. The statutory corporation’s contractual ability is specifically defined in the Act that established it. The objectives clause of a company’s memorandum of association determines its contractual competence under the Companies Act. Any conduct performed more than the authority granted in the memorandum is null and invalid.
MARTIAL STATUS
- MARRIED WOMEN
A married woman lacks the legal competence to engage in a contract involving her husband’s property. Nevertheless, if her husband fails to supply her with the necessities, the woman might act as his agent and bind the husband’s property.