Capacity to contract means the competency to enter into a valid contract legally. The capacity to contract binds the parties of the contract with a promise to oblige by it. But only certain persons have the competency or the capacity to make a contract. This article deals with the basic components necessary for a person to be competent to make a contract.

Competent to Contract

To make a contract, only certain people are eligible. The following are the people who have the capacity to contract:

• Those with a sound mind
• People who have crossed the majority age
• Those who can contract because they are qualified under the contracting law

Incompetent to Contract

To make a contract, certain people are not eligible. The following are the people who do not have the capacity to contract:

• Those with an unsound mind
• Minors who have not crossed the majority age
• Those who cannot contract because they are disqualified under the contracting law.

One can bring a minor into a contract if he is beneficiary for the contract. The minor does not have a restriction to be a promisee or payee in a contract. Thus a minor can purchase an immovable property and also can sue for the possessions upon the tender of the money. One cannot order a specific performance against a minor.

Section 68 of the Indian Contract Act, 1872 states that if a person does not have the capacity of being in a contract receives necessaries from another person. He has the power to reimburse from the incapable person. Though section 68 makes minor liable for the necessaries, it does not define the necessaries. The necessaries will be decided upon the case. To have reimbursement for the necessaries the party supplying the necessaries must prove that the good and reasonable. They have also to confirm that the provided necessaries are the only support for the minor and that they do not have any sufficient supply with them.

Capacity of parties is one of the five elements required of all legally enforceable contracts alongside:

• Agreement.
• Genuine intentions.
• Consideration.
• Legality of object.

Without all five elements being present in a contract, it may not be legally enforceable and could be considered null and void if challenged in court.

Capacity of parties refers to each party who is entering a contract. Each is required by law to have the mental and intellectual capacity to understand the terms of the contract and to make the decision to enter it. Therefore, people such as minors, those of reduced mental acuity, and people under the influence of drugs or alcohol would not legally meet the capacity required to enter into an insurance contract.

Other parties considered by law to have no legal capacity are trade names. A trade name on its own is considered to have no legal status and therefore have no legal capacity to enter into contracts. Trade names must be attached to a corporation or a natural person via a legal designation in order to gain the capacity necessary to enter into legally enforceable contracts. One caveat to this though is that minors have the ability to enter into contracts for necessities such as food, clothing and shelter under certain circumstances.

Competency of parties to contract is one of the most important requirements to make an agreement valid and enforceable in a court of law. 

A contract made by a person who does not possess the mental capacity to understand the nature and consequences of the contract is void ab initio. On the other hand, contracts with lunatics, people under the influence of the drug may/may not be void depending upon the circumstances surrounding the situation.

A person regains the legal capacity to contract upon removal of any of the disqualifications.

Companies while entering into contracts with one another always try to safeguard their interests. Representation and indemnification are the most commonly used clauses to ensure that both the parties are competent to contract.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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