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Monday, 8 August 2011

Explain the term Contractual Capacity and who is competent to make a contract

Every person is not competent to enter into any contract unless he fulfills the conditions laid down in the contract act. According to the contract act every person is competent to contract.

1. Who is an adult.

2. Who is of sound minded.

3. Who is not disqualified.

Person Not Competent To Contract :-
Following persons are not competent to enter into a contract or we may say that they have no contractual capacity.

1. Minor :-According to contract act a person below than 18 years is a minor and cannot enter into any contract. A contract made by the minor is void.

2. Mentally Deficient :-
Mentally deficient person cannot make a valid contract.

Example 1 :- Mr. Ali is a person who occasionally of unsound mind may not enter into a contract when he is unsound mind.

Example 2 :- Mr. Lala is a person who is usually of unsound mind cannot enter into a contract.

Example 3 :- Mr. Arjun is so drunk that cannot understand the terms of contract and cannot enter into a contract.

3. Person Disqualified By Law :-
If any person is disqualified by the law enforceable law of the country cannot enter into valid contract.

4. Joint Stock Company :-
Joint stock company is a person in the eye of law but the capacity of the company to enter into contract is limited by law. Company has no physical existence. It has an artificial personality. So it can not make the contract personally. It will do the contract through agent according the law. Otherwise it will be void contract.

Example :- Khanani & Company makes an agreement with TATA Company to sell its assets which a company is not authorized by its memorandum of association, so agreement is void.

5. Foreigner :-
A foreigner cannot do any contract. Any type of contract which is made without the permission of the government is void and illegal.

Example :- Mr. Bhawani contracts with Mr. Chips a citizen of a Russia without the permission of the govt. to buy certain goods. This agreement will be void and illegal.

6. Imprisoned Person :-
If some person is imprisoned by the court of law, he cannot enter into contract during the period of sentence. But as the sentence expires this disability also comes to an end.

7. Diplomat or Ambassador :-
The diplomats are in privilege position and they cannot be sued without the permission of the govt. So they are considered incompetent to contract.

Example :- Mr. Kapul diplomat got the house on rent from Mr. Pritam. Mr. Pritam sued for the recovery of arrears of rent. It was held that no action could be brought against him.

8. Insolvent :-
In case of property a solvent can not enter into contract which is under the control of official receiver. He can enter into contract after the issuance of discharge order.

Example :- Mr. Sikandar insolvent whose land is under the control of official receiver. He promises to sell his house with Mr. Lala the agreement is void.


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