Introduction
Competency is the legal qualification, capacity, power, or fitness. It is the mental ability to understand the nature and effects of one’s acts. In the law of contract, competency means the eligibility or qualification of the parties entering into a contract.
Relevant Provisions
Sections 10 and 11 of the Contract Act, of 1872 deal with competency.
Definition of Competency
Section 11 gives the rules to determine the competency of parties. They are as follows
Every person is competent to contract who is of the age of majority according to the law to which he is subject, and of sound mind and is not disqualified from contracting by any law to which he is subject.
Capacity to Contract
According to Section 10 of the Contract Act 1872, an agreement becomes a contract when it is entered into between the competent parties.
According to Section 11 of the Contract Act 1872, every person is competent to contact whoever,
- Have attained the age of majority according to the law to which he is subject
- Is of sound mind
- Is not disqualified from contracting by any law to which he is subject
Incapacity to Contract
Incapacity to contract is due to the following two reasons.
A) Due to Mental Deficiency
Infants, minors, lunatics, idiots, and drunken persons fall under this category.
B) Due To Status
Foreign ambassadors, Foreign sovereigns, Alien enemies, Professional people, Corporations & Married women fall under this category.
A) Due to Mental Deficiency
i) Minor or Infants
A contract with or by a minor is void and a minor, therefore cannot bind himself by a contract because a minor is incompetent to contract.
ii) Idiots
An idiot is incapable of making a contract. All contracts made with an idiot are void, but his estate is liable for recoveries on account of the necessities of life supplied.
iii) Lunatics
A lunatic is not liable for contracts made with him while he was unsound mind, but he is bound in respect of a contract made by him during lucid intervals.
iv) Drunken Persons
A contract by a drunken person is void & not voidable. Ordinary drunkenness is not sufficient to avoid the contract. The person claiming intoxication or drunkenness must be so intoxicated that he is temporality deprived of reasons and that he could not give valid consent to the contract. However, drunken persons are liable for necessaries supplied.
B) Due to the Status
i) Aliens
- An Alien friend has the full capacity/competency to enter into a contract as a Pakistani citizen.
- The law regarding an Alien Enemy is of two types i.e. Before the war & During the war. No contract can be made during the war. However, contracts made before the war can be dissolved or suspended for the time being.
ii) Foreign Sovereigns, Ambassadors
Foreign sovereigns can enter into contracts and enforce those contracts in local courts. According to section 86 of the CPC in order to sue rulers of foreign states, ambassadors & envoys, prior sanction of the Central Government must be obtained.
iii) Professional Persons
The only class of professional persons who have no capacity to contract is that of Barristers practicing in England. They are not allowed to enter into any contract relating to their profession or to sue for their fees or to be sued. Their fees are deemed to be debts of honor from the solicitors to them.
iv) Corporation and Companies
The contractual capacity of a company registered under the Companies Ordinance is determined by the objects clause of its Memorandum of Association. Any act done in excess of the powers given in the memorandum is ultra-vires and void.
v) Married Women
A woman, married or single, enjoys the same contractual capacity as a man. She can deal with her personal property in any way she likes & for such contracts, her husband is not responsible. But as regards necessaries of life, she can make her husband under certain conditions.
vi) Insolvents
An insolvent person is deprived of all his rights. He is incompetent to contract until he obtains a certificate of discharge.
vi) Convicts
A convict while undergoing imprisonment is incapable of entering into contracts
The Legal Status of Minor’s Contracts
i) Minor’s Contracts are Void
A contract with or by a minor is void and a minor, therefore, cannot bind himself by a contract.
ii) Minor can be Promisee or Beneficiary
A minor can be a beneficiary. i.e., a payee, endorsee, promisee, mortgagee, etc. These contracts can be enforced at his option only.
iii) Minor’s Agreements cannot be Ratified
A minor’s agreement cannot be ratified by him on attaining the age of majority as the original agreement is void ab-initio.
iv) Minors are not Liable to Return Benefit
If a minor has received any benefit under a valid contract, he cannot be asked to refund the same.
v) Minors can always plead Minority
A minor is always allowed to plead minority, even where he had procured a loan or made a contract by falsely representing himself as of full age.
vi) No specific Performance by a Minor
A minor cannot be asked for specific performance as all his agreements are void ab-initio.
vii) A Minor cannot be a Partner
In a partnership, however, he may be admitted to the benefits of an existing partnership with the consent of all the partners of the firm.
viii) Minor’s Estate liable for Necessaries
The minor’s estate is liable not only for the necessities of life but also for the necessary services rendered to him.
Final Note
The law of contract not only defines the boundaries of competency/capacity to contract but also protects those who are in need of protection. Through the provisions of Section 11, the legislature has provided security to minors and people with unsound minds against the legal consequences that have to be borne in case of breaches.
FREQUENTLY ASKED QUESTIONS
Every person is not competent to contract. Discuss in the light of rules regarding the capacity of parties provided in Contract Act 1872.
(2018-A, 2017-S, 2016-S, 2016-A, 2014-A)
Who is competent to contract? Discuss the law relating to the nature of the minor’s contract.
(2008-S)
REFERENCES
- The Contract Act, 1872
- N-Series by M.A. Chaudhary
- Law of Contract by Avtar Singh
