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Relevancy Of Competency Of Parties To A Contract

In the ongoing phase of development and modernisation, people are more aware of their surroundings. They are particularly, in know, of the products and services that could help in their everyday life or in many occassions products and services are acquired simply because that their colleagues or acquaintances have acquired them.

To acquire these products or Services, the companies (Sellers) formulate a contract between the Seller and the Buyer, which binds both the parties to perform their part of the promise. On the same side of the discussion of a contract, comes the issue of parties who are contracting. Since, a contract is enforced by the power of law.

It is the law that specifies the qualifications required for the parties to contract. Every party to a contract must keep in consideration these legal requirements, if they desire enforceability, otherwise, there will be no contract but a mere agreement. This raises the fundamental question, which this article attempts to answer as to Who is competent to enter into a Contract?

Competency for Contract

The question of competency of parties is essential in the way that it assumes certain people to be incapable to fulfil their part of consideration to form a contract, and hence they are declared 'incompetent' to enter into a contract, by the law. Since, people desire to enter into a contract, to bind one another to fulfil their respective promises and to secure legal enforceability, law ensures the same and thus, lays down certain criteria according to which, people are considered to be able to complete the contract and hence, are competent parties to the contract.

The consideration of competency of parties is essential in the way that it very much ensures that the people participating in a contract are sound/sane and capable to form a contract and subsequently fulfil their promises as well. Thus, its importance arises from the fact that people come into a contract, to secure their position by making other party act in accordance of the agreement entered into, and to get legal enforceability.

For this, law requires the parties intending to form a contract, to make certain that each of them is in a position where they are fully prudent to understand the terms of the contract and satisfy their respective promises and consideration.

Factors Deciding Qualifications And Competency Of Parties:

Section 11 of the Indian Contract Act, 1872 details as to which parties are competent to contract- a person who has attained majority, who is of sound mind and lastly, is not disqualified by the law to enter into a contract. The subsequent sections of the act details about each of these requirements as mentioned by the law.

The Details Of Each Of These Is As Under:

  1. Minor's Agreement
    As per the Indian Majority Act, a minor is someone who is below the age of eighteen. Hence, the law makes a person of the majority age, i.e. age above eighteen to be qualified to enter into a contract. However, earlier the case was that if there is an appointed guardian, majority age was fixed at twenty one years, which eventually changed through an amendment, and majority age was fixed at eighteen years.

    The Indian Contract Act declares all agreements of minor to be void-ab-initio, i.e. void from the beginning, as it assumes people below the majority age to be less capable of fully understanding the terms and conditions of the contract. It is to be noted that a person cannot enforce the contract that was entered during his minority, when he attains the age of majority, since the agreement entered earlier was itself void from the very initial. Also, a minor's agreement cannot be ratified later, as an agreement which is void is not capable of ratification at a later point, as there is no contract formed in the first place.

    There are several cases decided, which furthers this principle of law. The first case where the Privy Council decided upon this principle was, Mohori Bibee VS Dhramodas Ghose, wherein a minor, for the reasons of securing a loan amount, mortgaged his property in favor of the moneylender. The court held the entire transaction to be void, as it was entered with a minor.

    There was no relief provided to the moneylender as it would mean enforcing the agreement not recognized by the law. Nevertheless, there is an exception to this general rule, which points out that if in an agreement entered into with a minor, he completed his part of the promise, law can enforce the other party to abide by the contract as well. Another interesting case law named Raj Rani VS Prem Adib, involves a promise on the part of a minor girl with a film producer to act in a film.

    There was another agreement that was entered with the minor's father as an assurance to the first agreement. The court held the first agreement to be evidently void, as it was entered with a minor. However, the second agreement was also declared void as the father's consideration for the daughter to act, is in itself something not recognized by the law, hence it is a situation of no flow of consideration from one side of the party.

    A contract entered into by the minor's guardian is a valid one, if it satisfies the following two conditions:
    1. Guardian is a competent party
    2. Contract entered into, is for the minor's advantage or for their legal necessities.
    In any agreement, it may be observed that the law weighs lighter for a minor as certain principles like estoppel, do not apply on a minor. The minor can refute his earlier claim of being a major in the court.

    Also, law allows minor to enter into agreements which benefit them with certain basic necessities of life, and the person helping the minor with such goods can claim their return from the minor's property, but not in any monetary form.
  2. Unsoundness Of Mind
    Law restricts people who are not of sane mind or are lunatics to enter into a contract and declares it void. A person with an unsound mind is not capable to fully understand the agreement in its true sense and thus there will be no meeting of minds when one person is unaware of what the contract entails with itself. Lunatics are people who are generally of sound mind but occasionally of unsound mind.

    The duration in which they are of unsound mind, they are restricted to enter into a contract because of their mental conditions, which limits their understanding ability. It is on the person who is of unsound mind to prove that he was not capable of understanding the agreement. This was established as per the case of Sudama vs. Rakshpal Singh.
  3.  Disqualification by law
    There are some classified group of people who are considered to be disqualified by the law to enter into contracts. These include alien enemies, convicts, persons against whom insolvency proceedings are filed and some foreign diplomats. These includes:
    1. Alien enemies include citizens of the country, India is at a war with. No person is permitted by law to make agreements with an alien enemy, during the subsistence of a war, which will be declared to be void.
    2. Convicts are prohibited to enter into any contract during the period of their sentence. However, they may enter into an agreement once their sentence is completed.
    3. Insolvent persons are not allowed by law to enter into contractual terms as they do not have the assets to fulfil the terms of the contract. But a person may enter into a contract if the insolvency proceedings against that person is pending.
    4. Foreign sovereigns including diplomats are immune from any suit with respect to contractual law, till they do not surrender themselves to the Indian court's jurisdiction.

These are the major conditions as listed by the law, to minimise the cases of breach of contracts and to make certain of the fact that the agreements entered by the parties are properly honoured by them. This becomes an essential step to establish contractual stability and worth of the terms of an agreement.

In this way, law makes certain of the fact that all the legal agreements to be enforceable should pertain to some pre-decided norms, such that only competent parties engage into meaningful agreements.

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