For an agreement to be valid, the first requirement is that an agreement must be made by parties who are competent to contract. This is laid down in sections 11 and 12 of the Act[1]. Section 11 states that the person who is competent to enter the contract. It provides that every person is competent to contract who is
(i) Age of majority;
(ii) Sound mind and
(iii) Not disqualified from contracting by any law to which he is subject.
- Agreement by minors
Minor is a person who has not attained the age of majority. In other words, a minor is a person who has not completed 18 years of his or her age except –
(i) When the guardian of a minor’s property or person is appointed by court.
(ii) When the minor’s property is taken over by the court of the ward for management. In both cases, the age of the majority is 21 years. Following are the laws relating to an agreement by a minor: An agreement by a minor is void.
A minor cannot bind himself by a contract, but he can make the other party contract to be bound to him under this contract. A minor can become a promisee or a payee or endorsee of the property. A minor’s contract cannot be ratified. A minor is not personally liable for the supply of necessaries, but the minor’s property is liable for necessaries.
- Liability of minor is tort i.e. civil wrong.
- There can be no estoppel against a minor.
- A minor can be admitted to benefits of partnership and appointed as an agent.
- A minor can hold property.
- Agreement by persons of unsound mind
Section 12 of the Act states what sound mind is for the purposes of the contracting.
A person is said to be of sound mind to make a contract if, when he makes it, he can understand it and form a rational judgment as to its effect on his interest. When a person is of unsound mind but occasionally of sound mind can make a contract when he is of sound mind and vice versa. The unsoundness of mind may be due to idiocy, lunacy, insanity, drunkenness, contract by lunatic, contract by drunkard etc.
Impact of Incompetency
The foundation of a contract’s legality in India is established by the Indian Contract Act (ICA), 1872. The parties’ competency is one of the essential components of a legitimate contract. According to Section 11 of the Act, incompetence is the lack of one or more characteristics that a person needs in order to be able to make a legally enforceable agreement. For people and companies involved in contractual transactions, it is essential to comprehend how incompetency affects contracts under the ICA.
Key Categories of Incompetent Parties:
- Minors: Individuals below the age of 18 (with exceptions) are considered minors. Generally, contracts entered into by minors are void, meaning they have no legal effect (Section 11). However, exceptions exist for:
Necessaries: Contracts for essential goods and services like food, clothing, and shelter are enforceable (Section 68).
Personal benefit contracts: Agreements like marriage or apprenticeship that directly benefit the minor can be valid.
Ratification: Minors can ratify contracts upon attaining majority, making them binding.
- Persons of unsound mind: Individuals lacking the mental capacity to comprehend the contract’s nature and consequences are deemed incompetent. Contracts made during such periods are void (Section 12). However, exceptions include:
Lucid intervals: Agreements made during periods of sound mental state are valid.
Necessaries: Similar to minors, contracts for necessaries can be enforceable.
Ratification: Similar to minors, ratification upon regaining sound mind can validate the contract.
Impact of incompetency of contract
Void contracts: Contracts entered into by incompetent parties are generally void (except for mentioned exceptions). This means:
No legal obligations: Neither party is bound to fulfill the contract’s terms.
No enforcement: Courts cannot enforce void contracts.
Restitution: In some cases, courts may order restitution of property or benefits unjustly obtained due to incompetency.
In case of Mohiri Bibi v. Dharmodas Ghosh (1906)[2], A minor entered into a mortgage agreement for her deceased husband’s debt. The Privy Council held the contract void, emphasizing that contracts by minors are generally unenforceable, even for debts, unless they fall under the necessaries exception.
In another case of Amar Singh v. State of Rajasthan (1957)[3], A contract for necessaries with a person of unsound mind was held enforceable, reiterating the exception for essential goods and services.
Conclusion
Understanding the impact of incompetency on contracts under the ICA is crucial for safeguarding legal interests. Parties entering agreements should exercise due diligence to ascertain the other party’s competency. If faced with situations involving incompetency, seeking legal advice promptly is highly recommended to navigate the complexities and protect your rights.
Landmark cases like Mohiri Bibi and the Amar Singh case illustrate the practical application of the ICA and highlight the exceptions and nuances associated with each category.
Author: Chandan Jhinkwan, Rajiv Gandhi School of Intellectual Property Law, IIT Karagpur
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