Published On: 26th July, 2024
Authored By: Ojaswita Swami
BABU BANARASI DAS UNIVERSITY
ABSTRACT
The following legal article is a study that involves the significant interconnection between the mental incapabilities of an individual and the Law of Contract. It is necessary to define and analyze a person’s mental capacity to enter into various contractual obligations so as to protect the rights and interests of the opposite parties, that may be the parties to the contract. People suffering from mental disabilities or impairments are not considered to be competence in giving valid consent as they do not possess the ability to understand the nature of the contracts and the contracts are thereby held to be void or voidable depending upon the nature or the kind of agreement that was entered into between the parties in the contract so made. The Indian Law of Contract has provided various laws to safeguard the interests of such people. This article further provides knowledge about the consequences and implications of the contract in the form of becoming void or voidable in nature made by mentally incapable persons who are mainly minors and the persons with an unsound mind and at what position will such a contract stand in terms of its legality and enforceability.
INTRODUCTION
The concept of mental capacity covers a wide area of its own in the field of law which often assists in defining the legal liabilities of a person in order to determine and protect the rights and interests of the other parties to the contract. In the field of contract law, it must be ensured that the parties to a particular contract are thereby competent to enter into the legal agreement. A person is said to be mentally capable of doing something when he possesses a rational ability to understand, comprehend, analyze, and make reasonable decisions. Persons such as minors and lunatics are mentally incompetent to give valid and reasonable consent and hence the contracts which include such persons as its parties are declared to be void or voidable depending upon the nature and circumstances. The Indian Contract Act, of 1872 is one of the major statutes governing the contractual agreements made by any individual or business government, etc.
MENTAL INCAPACITY – MEANING
The inability of a person to understand and comprehend the nature of the affairs of life is said to be suffering from mental incapacity and is thereby held incompetent in various aspects.[1] A person is or becomes mentally incapable in the eyes of the law of entering into legal contracts due to various circumstances such as he is a minor i.e. a person who is below 18 years of age or he is suffering from unsoundness of mind either due to alcoholic intoxication or any other kind of cognitive impairment that is capable of affecting the intellect of a person.
In legal contracts, the mental condition and status of an individual play a crucial role in determining the validity and binding nature of the contract of the concerned parties. The parties must have a mutual understanding and agreement on the contract.
WHAT IS CONTRACT LAW?
Contract law is one of the branches of the civil arena of law that deals with the legal enforceability of lawful agreements between two or more parties. It is a body of law that regulates, enforces, and interprets agreements related to various activities such as property, exchange of goods and services, finances, employment, business, partnerships, etc. A written and signed agreement between two or more parties is said to be binding upon members of the contract and therefore, possess some obligations towards the other concerned parties.
The main objective of the contract law is to provide the citizens of the country with a legal framework to resolve their disputes and conflicts of interest which may have arisen from the contract made by them as parties to a contract with another.
DEFINITION OF CONTRACT AND ITS COMPETENCY
According to Section 2(h) of the Indian Contract Act, of 1872, a contract is, “An agreement enforceable by law.”[2]
In other words, in the country of India, a contract refers to any agreement that is enforceable and approved by the law of the land.
According to Section 11 of the Indian Contract Act, 1972, “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.”[3] Thus, minors, persons of unsound mind, and persons who have been disqualified from contracting by the law of the land are incompetent to contract.
WHO ARE SAID TO BE MENTALLY INCOMPETENT?
Minors and persons of unsound mind – are the two categories of incompetent persons who have been so declared incompetent due to their lack of mental capacity and mental capability.
The persons who have been disqualified from contracting by law do not fall under the category of mentally incapacitated as they are exempted due to their nature of origin or identity or other factors and not on the basis of their mental disability such as:-
- Convicts: these are the individuals who have been awarded punishment for the commission of a crime. While they are serving their term, they are prohibited from entering into any kind of contract. But after they have successfully served their punishment, they can enter into contractual agreements.
- Insolvents: when an individual is under a burden of debt of any loan or other asset and is unable to repay that debt due to the bankruptcy of the person’s possessions.
- Alien Adversary: if an Indian citizen or any other person who is residing in a country with which India is at war is, therefore, regarded as an enemy, any contract with such person is void and is disqualified by law.[4]
MINORS
In India, the age of majority is determined by the Indian Majority Act, of 1875. According to Section 3 of the Act, an Indian citizen is said to have attained the age of majority upon the completion of 18 years of age.
A minor is mentally incapable of understanding the nature of contractual agreements, their obligations, implications, and liabilities as his mind has not developed at a mature level to comprehend all these factors. Thus, a contract with a minor is void ab initio and is not enforceable in a court of law.
- Position of a minor in negotiable instruments
According to Section 26 of the Negotiable Instruments Act, of 1881, a minor is authorized to draw, indorse, deliver, and negotiate a negotiable instrument such as a bill of exchange, cheque, etc.[5]
- Position of a minor in a contract of agency
A minor cannot enter into a contract of agency as a principal which is clearly stated under Section 183 of the Indian Contract Act, 1872. The rationale behind this is that ‘an agent acts on behalf of the principal’ therefore, it would mean the enforcement of a contract by a principal who is a minor who is not allowed to contract by the law. However, there is no prohibition of a minor acting as an agent in the contract of agency under the terms of the agreement.[6]
- Position of a minor in partnership
A minor cannot enter into an agreement of partnership as being a partner requires the person to act as both the principal and the agent. The minor is not capable of being a principal hence, he cannot be a partner. However, there is an exception to Section 30 of the Indian Partnership Act according to which a minor, though not a partner, can be admitted to the profits of the partnership as a beneficiary with the consent of all the other partners.[7]
PERSONS OF UNSOUND MIND
The persons who possess an unsound mind are mentally incapable of comprehending the nature and consequences of a contract. It may include a drunken person or a person who has had an intake of drugs due to which his intellect has been affected. It also includes lunatics and insane people. No medical evidence is needed to prove that a person is suffering from unsoundness of mind. Proving that a person was not conducting himself reasonably and was not able to judge the consequences of the act is enough to prove that the contract made by such a person is void.
IMPLICATIONS OF CONTRACTS MADE UNDER MENTAL INCAPACITY
There are three main implications of contracts made by mentally incapable persons – valid, void, and voidable. These statuses are given to the contracts based on their nature and degree.
- Void Contracts
These refer to those contracts that do not possess binding power upon the persons who are parties to such a contract as these persons are declared to be mentally incapable of contract and hence, any contract entered into by them is void ab initio (void from the beginning). It is void from the beginning even if the other party was aware or should have been aware of the mental incapacity of the other party.
- Voidable Contracts
These refer to those contracts which are made by people who are mentally incompetent and can be declared voidable. This implies that a contract is valid and therefore enforceable until the incompetent party decides to nullify it. However, the incapacitated party must prove that it was mentally incapable of understanding and comprehending the terms and conditions of the contract at the time of signing it.
- Restitution
When a contract has been declared void due to the mental incapacity of a person then any kind of benefits, arising from the contract, received by either of the parties must be returned to the respective party. Thus, a restitution of the obtained advantages is required.
- Guardianship
If a person is mentally incapable either due to unsoundness of mind or minority, then he usually has a guardian to look after his interests. If such an incapacitated person enters into a contract without the approval of the guardian, then the contract may be declared voidable. This is done to protect and safeguard the interests of such a disabled person.[8]
- Burden of Proof
The burden of proving the mental incapacity of the party lies on the person so seeking to breach the contract. The person thus making the breach of a contract based on such a condition has to provide evidence to establish the mental disability of the incompetent person.[9]
- Contracts with Intoxicated Persons
Legal agreements that are entered into with persons who have been intoxicated by the use of alcohol or drugs or any other material and thus become mentally incapable of making reasonable decisions are declared voidable.
- Consent obtained by Unfair Means
In some instances, one party may obtain the agreement of another party by unfair means such as coercion, undue influence, fraud, or misrepresentation. These practices are illegal and thereby, the person who has given his consent due to any of these practices is not liable to the contract and is thus, exempted by the obligations of the contract and making it stand as void.
CONCLUSION
The mental condition of a person is crucial to be known in the Law of Contract in India. Only those persons who have attained an age of more than 18 years, are of sound mind, and are not legally disqualified are competent to contract. The main objective of the law is to maintain fairness and moral validity amongst the citizens as well as safeguard the rights and interests of such citizens. There are some people who have given their consent to a contract without having to know about its nature and consequences due to their mental disablement which leads to not making them stand liable as their intellect is affected in such a way that they fail to possess the ability to comprehend various affairs thus, the path to fairness and justice requires a thorough analysis of the mental capacity of a person in the field of law. Understanding the background of mental incapacity and its implications in contract law will help in guaranteeing the legality and enforceability of contracts in the country, which will further contribute to their legal validity. The Indian Contract Act, of 1872 is the statute that governs, regulates, and approves agreements across the country.
Reference(s):
[1] R Gauri et al Biju Antony et al Suranya S Kumar, Mental Incapacity and its Implications in Contract Law, ijrpr, September 2023, 1.
[2] Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872.
[3] Indian Contract Act, 1872, No. 9, Acts of Parliament, 1872.
[4] Deepak Singh et al Tush Arora et al Gazal Singh, Mental Incapacity and its Implications in Contract Law, JCLJ, 18 Apr. 2024, 12.
[5] Tazeen Ahmed, Capacity to Contract under Indian Contract Act, 1872, Law corner (Aug. 2, 2021), https://lawcorner.in/capacity-to-contract-under-indian-contract-act-1872/#Position_of_Minor_in_Contract.
[6] Tazeen Ahmed, Capacity to Contract under Indian Contract Act, 1872, Law corner (Aug. 2, 2021), https://lawcorner.in/capacity-to-contract-under-indian-contract-act-1872/#Position_of_Minor_in_Contract.
[7] Tazeen Ahmed, Capacity to Contract under Indian Contract Act, 1872, Law corner (Aug. 2, 2021), https://lawcorner.in/capacity-to-contract-under-indian-contract-act-1872/#Position_of_Minor_in_Contract.
[8] Adv Siddhant Kuwad, Mental Incapacity and its Implications in Contract Law in India, The Edu Law (Sep. 21, 2023), https://portal.theedulaw.com/SingleArticle?uid=494.
[9] Deepak Singh et al Tush Arora et al Gazal Singh, Mental Incapacity and its Implications in Contract Law, JCLJ, 18 Apr. 2024, 13.
