[4:16 PM, 7/21/2021] Arindam: Capacity to contract under Indian contract act
Main Aspects for a valid contract
Age of Majority
Contract by disqualified persons
Age of Majority
Capacity To Contract – According to The Indian Majority Act, 1875 age of majority is 18 years of age and not before it. Any person who is Indian domiciled and not completed 18 years of age is termed as “minor”. Therefore a valid contract must attain the age of majority. Here one question arises if any minor came into the contract then what will be the status of that contract.
The answer to that question is the contract which is made with the minor is void but the agreement made with a minor is void ab-initio.
Minor can be beneficiary
As the minor is not competent to contract but he/can be the beneficiary of a contract. According to section 30 of the Indian Partnership act 1932, The minor can not become the partner in the partnership firm but he can be the beneficiary of the firm with the consent of all partners.
Capacity to contract under Indian contract act – Contract by guardian
Contract by a guardian on behalf of the minor is a valid contract under some circumstances. The contract made by the guardian on behalf of the minor must be for the benefit of the minor and the valid contract which can also be enforced by the minor.
Capacity To Contract – A person who is unsound mind is incapable of entering into a contract. According to section 12 Indian contract act, a person who is entering into a contract must be a sound mind at the time he makes it. He/she must be capable to understand it and able to make rational decisions about how it will affect his interests.
Where a person is generally sound mind, the burden is on him, who challenges the validity of the contract to prove that he was of unsound mind at the time of execution of the document. A person who is an unsound mind but sometimes of a sound, He can make a contract when is of sound mind.
Contract by Disqualified Persons
Capacity To Contract – Some persons are disqualified by law for entering into a contract so the contract made by the disqualified persons is void. The purpose of this disqualification is the interest of the nation and the general public at large.
e.g – Alien enemy, convicts, insolvents, etc are some examples of disqualified persons.
Capacity to contract: limitations for adults
Legally speaking, every person who has reached the age of 18 is a major, with only some things such as drinking alcohol being restricted. However, a person’s legal capacity may be wholly or partially withdrawn due to serious mental illness. Depending on the type and severity of the illness, a person who is not a minor, but perhaps unable to make some decisions will still be able to contract in other cases.
For example: If an adult incapable of legal capacity buys a few sweets at a kiosk this is legitimate, as it is a matter of usual, minor cash transactions. Whether the cash transactions can be judged as minor or customary depends on the situation – if someone enters a binding phone contract, although the tariff may not be high, it might be that the individual cannot actually commit to paying that monthly amount.
Capacity to contract limited due to mental health issues
In addition to minors, persons with disabilities, or mental health issues, may also be able to register as having limited capacity to contract, regardless of their age. This usually only passes if these persons are not only temporarily unable to decide for themselves.
Some examples which may lead to an exception in someone’s capacity to contract may be the following:
Intellectual disability: If someone is recognized as having an intellectual disability, an application can be made for an exception for capacity to contract on the part of this person. It depends on how severe the disability is.
Hallucinations and visions: People who perceive things without a verifiable external stimulus; these perceptions can be present at all sensory levels.
Advanced dementia: Those affected by dementia or Alzheimer’s disease may be exempted from contracts.
Affective disorders: In an affective disorder, such as manic depression or severe bi-polar disorder, the affected person may experience acute, often uncontrolled mood changes. This may mean that a person should not be held accountable for things they do whilst affected by their depression, for example, and so have a limited capacity to contract.
Since the protection of a person who is not or only to a limited extent of legal capacity takes precedence over the law, it can happen that contracts which are signed are subsequently declared null and void. Only a court can determine whether a contract was legally incapable. In order to verify this, the individual’s mental health is determined, which can be stressful and challenging on the person in question.
Affected persons can be divided into different types of legal incapacity.
Partial legal incapacity: This type of legal incapacity exists if a mental disorder relates only to a certain area – for example if the person concerned has hallucinations, but otherwise behaves “normally” in everyday life.
Relative legal incapacity: Relative legal incapacity is the opposite of partial incapacity and refers to the fact that activities are of different difficulty. Those affected can, however, do everyday business, such as buying groceries or cinema tickets. However, they are not able to conduct long-term business, such as signing a mobile phone contract or buying a car.
Legal representative for non-minors
If, as a result of illness or an accident, a person of full age is no longer in a position to decide for themselves, a legal guardian must be appointed. As a rule, these are the parents. It is also possible for an unrelated person to act as a representative for the affairs of an adult person who has a limited capacity to contract.