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Capacity To Contract

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13 views16 pages

Capacity To Contract

Uploaded by

naveent8899
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Capacity to

Contract
Introduction :
• A contract is a legally binding agreement between two or
more parties that creates legal obligations between them.
Such obligations play an extremely crucial role in
facilitating transactions, defining relationships, and
providing a legal framework for various agreements in both
personal and business contexts.
• Legal capacity to contract shall refer to the legal ability
of an entity or an individual to enter into a valid
contract that carries legal obligations, rights, and
responsibilities.
• The concept of legal capacity involves the mental and
legal competence necessary for parties to understand
the terms and conditions of a contract, make informed
decisions regarding the same, and be held accountable
for their contractual obligations.
• Legal capacity to contract stands as a prime doctrine
that upholds the functioning of contractual
relationships within the ambit of law.
legal capacity within the context of
contracts
• In the complex landscape of contract law, the concept of legal capacity
stands as an important determinant of the enforceability of contracts.
Legal capacity addresses the principle question of whether the parties
involved in a contract possess the requisite mental and legal competence
to enter into binding agreements. This nuanced concept explores various
cognitive abilities, age considerations, and freedom from coercion that
reinforces the capacity of individuals and entities to navigate through the
terrain of contractual relationships.
• One can say that legal capacity serves as a protective shield, and helps
in ensuring that the parties willingly, knowingly, and autonomously
undertook contractual obligations. This protective aspect is deeply rooted
in the balance between the autonomy of individuals to engage in
contractual relationships and the need for safeguards to prevent
exploitation or any unfair practices.
Categories of legal capacities to contract

• 1. Mental competence
• 2. Age competence
• 3. Intoxication
• 4. Corporate capacity
• 5. Bankruptcy
Consequences of lacking legal
capacity
• Consequences of lacking legal capacity to contract:
• Void Contracts: Contracts entered into by individuals lacking
legal capacity are generally void or voidable. Void contracts
are considered legally ineffective from the outset, while
voidable contracts may be challenged and potentially
annulled.
• Misrepresentation and undue influence: Parties who
enter into contracts with individuals lacking legal capacity
may be liable for fraud, misrepresentation, or undue
influence. They may be held responsible for taking advantage
of the vulnerable party’s inability to make informed decisions.
• Protection of minors and vulnerable adults:
Legal capacity restrictions aim to protect minors
and vulnerable adults from making unwise or
harmful contractual decisions. It ensures that
contracts involving such individuals are entered
into with the necessary safeguards and protections.
• Legal representation: Individuals lacking legal
capacity may require legal representation or
assistance from guardians, conservators, or
attorneys. This representation helps ensure that
their rights and interests are adequately protected.
Doctrine of Laissez-Faire
• The doctrine of laissez-faire was introduced in the 18th
century, although it gained prominence during the 19th
century. The term “laissez-faire” is French, which
means “leave it alone.” It emphasises minimal
government interference. It states that governments
should refrain from interfering in economic affairs and
allow the markets to operate without any kind of undue
regulation. Under this doctrine, even courts were
reluctant to interfere with contracts, assuming that
parties entered into agreements voluntarily.
Global perspective on legal
capacities to contract
• United Nations Convention’s take on Contracts
for the International Sale of Goods (CISG)
• Contracts for international sale of goods (CISG) happen
to be significant international treaties. It lays down a
set of rules for the formation of contracts between the
buyer and seller in international transactions. It mainly
focuses on commercial transactions and its principles
can influence the capacity of contracts related to
considerations on a global level.
• United Nations Convention on the Rights of the Child
(CRC)
• The CRC stands for the Convention on the Rights of the
Child. It is concerned with establishing the rights of
children in the formation of a contract that involves
minors. It sheds light on the protection of the rights of
children, including their right to participate in decision-
making as well, which may have implications for matters
related to the formation of a contract.
Legal requirements for a person entering
into a contract

• Sec.11 of the Indian Contract Act, 1872 lists


down the qualifications which enable a person
in India to enter into contracts-
• A person should have attained the age of
majority as per the law of the country of which
he is a citizen.
• In India, the age of majority is governed
by the Indian Majority Act, 1875. As per
Sec. 3 of the Indian Majority Act, 1875,
an Indian citizen is said to have attained
the age of majority upon completion of
eighteen years of age. In the USA (the
majority of the states) and the UK, the
age of majority is 18 years as well.
Contract With Minor
• A minor is one who has not attained the age of 18, and for every
contract, the majority is a condition precedent.
Mohiri Bibi v. Dharmodas Ghosh
• The case goes back to the year 1903 in which, for the first time, the Privy
Council held that a minor’s contract is void-ab-initio that it is void from
the beginning.
• Facts of the case – the plaintiff Dharmodas Ghosh, when he was a
minor, mortgaged his property to the defendant, a moneylender. At that
time, defendant’s attorney had the knowledge about plaintiff’s age. The
plaintiff later paid only Rs 8000 but refused to pay rest of the money. The
plaintiff’s mother was his next friend (legal guardian) at that time, so he
commenced an action against the defendant saying that at the time of
making of a contract, he was a minor, so the contract being a void one,
he is not bound by the same.

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