The term ‘capacity’ under English Law refers to the ability of the contracting parties to come into legally binding relations with each other. If any party fails to comply by this condition, the subsequent contracts may be deemed to be invalid, relying on the facts and circumstances of the case. Since the Indian Contract Law is primarily based on the English Common Law, hence Capacity to Contract carries the same importance as under the latter law, and qualifies to be one of the most essential elements of a valid contract.
A person is considered as capable to enter into a valid contract if he satisfies three conditions under the Act, namely, person has to be major, he or she should not be of unsound mind, and lastly he or she should not be disqualified by any law from entering into a contract.
The Indian Contract Act lays down three provisions which makes capacity as its centre of attraction:-
•The first factor is the age of majority. It provides that a minor i.e. eighteen years old, is not competent to contract. It is presumed that a man is the best judge of his own interests, but this is inapplicable with respect to minors to protect themselves from fraud, unscrupulous traders, etc. Hence, Minor contracts under the Act are generally considered to be void or voidable, barring exceptions. So, minor agreements, being void are not capable of being ratified after attainment of majority. Under common law, the contracts benefiting the minors are valid. For instance, if an infant enters into a contract in order to provide himself or herself with the means of self-support, then it shall be valid.
However, a guardian can step into the shoes of the minor to supplement for the minor’s incapacity to contract. When contract is entered into, on behalf of the minor, such as contracts of marriage, then those contracts have been held to be valid on the ground of customs. Also, a contract which is completely executed from the minor’s side can be enforced by the minor because there exists no liabilities and nothing needs to be done by him or her further, because it would end up as being for the benefit for the incapacitated persons. Furthermore, Section 68 of the Act is the provision which relates to the position of necessities supplied to the minor.
•The second factor concerns with soundness of mind. Consent is considered to be an act of reason which has to be combined with deliberation. It is possible for a man to behave normally, but he may be incapable of understanding the transaction, and thus being unable to form a rational judgment, which results in unsoundness of mind. According to Section 12 of the Act, a person is considered to be one of a sound mind if he is capable of understanding and making a rational judgment at the time when he comes into a contract. This implies that a person who is usually of unsound mind and partially of sound mind, then he or she should come into a contract when he is of sound mind, and if it is vice-versa, then the person should avoid making a contract when he or she is of unsound mind. Unsoundness of mind goes on to further render the contract as a void one. But, sanity is presumed in favour of that person, which implies the capacity to understand and make rational decisions as to their interests.
•The last factor is with respect to the persons disqualified by law to enter into a contract. These include several types of people. First is alien enemies , no one is allowed to come into a contract with an alien if any war is subsisting, unless the government allows for the same. The second is regarding the foreign sovereigns. The next is an insolvent person, who cannot be subject to any contractual agreement because when he is declared insolvent, his properties are with the official assignee and that he or she can only enter into a contract in correspondence with that property.
Case laws :-
Mohari Bibee v. Dharmadas Ghose:-
In this case, the respondent was a minor who was the sole owner of an immovable property. His mother was the legal custodian. He misrepresented his age to a person and mortgaged his property. Later his mother clarified regarding his minority. But that person sought to enforce the contract of mortgage once he attained majority. The Calcutta High Court went on to hold that any contract entered into with a minor or an infant qualifies to be void-ab-initio. So, they held in the context of the case that the mortgage contract was void as it was entered into by the minor respondent.
Critical analysis :-
After critically going through the legal provisions under the English and the Indian law, it was noticed that under the latter, it is not clearly specified in the statute as to whether a minor agreement is void or voidable. Though, Mohari Bibee case cleared it to an extent that it is void-ab-initio, but it has still attracted a lot of controversy on this point. But, meanwhile the law regarding the same is pretty clear in England, where it is provided that the minor can enter into a contract which would be deemed as voidable till the time he or she does not reach eighteen which implies that after attaining the majority, upon their will, they can either enforce the contract or terminate it.
But in India, they cannot ratify in absence of some special circumstances. Again, there has been variety of judicial decisions on this point which makes the situation unclear. Further, it is pertinent to note that under English Law, an unsound person is competent to contract, but he can avoid the contract if he satisfies the court that he was incapable to understand and the other party was aware of it. In India, situation differs, and a contract by an unsound person is rendered as void i.e. completely invalid.
At the end, one point which comes to the notice is that though Indian Contract Law has its origin in the English Law, but the interpretation and the stands in both the countries differ on several aspects, as stated earlier. To be precise, English law is comparatively clearer than the Indian law, as what is to be interpreted is already codified and grey areas are not left to be filled through judicial decisions, as in India.
BY: ALISHA BAWA