Capacity of parties Free Consent

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 Capacity to Contract

Capacity to contract refers to the legal ability of a party to enter into a contract. This means the person must be competent under the law, which involves having reached the age of majority and being mentally capable of understanding the contract terms. The six essential elements of a contract are:

  • Offer
  • Acceptance
  • Consideration
  • Capacity
  • Intent
  • Legality

Who Doesn’t Meet Criteria for Capacity?

  • Minors:
    • Generally, individuals under 18 years old lack the capacity to contract. Contracts entered into by minors are usually voidable. However, minors can contract for necessities such as food, clothing, and accommodation. Some states also allow minors to obtain bank accounts with strict terms.
  • Mental Incapacitation:
    • Individuals who cannot understand the terms and implications of the contract due to cognitive impairment lack the mental capacity to contract. Some states use a motivational test to assess if the person suffers from delusions or mania.
  • Intoxication:
    • Contracts entered into by individuals under the influence of drugs or alcohol are generally considered voidable. If intoxication was voluntary, the court might still enforce the contract, especially if the sober party did not exploit the intoxicated person.

Contracts involving parties who lack capacity are voidable, allowing the incapacitated party to rescind the contract. Courts may void such contracts and attempt to restore parties to their original positions.

Capacity of Companies

Companies must also have the capacity to contract, governed by their legal status and jurisdictional rules.

  • Civil Law Countries:
    • For example, French law allows companies to contract under certain conditions. French Civil Code Article 1147 allows companies lacking capacity to void contracts under relative nullity, while Article 1148 permits day-to-day acts authorized by usage or legislation.
  • Common Law Countries:
    • In these jurisdictions, a company's capacity is outlined in its memorandum of association. The ultra vires doctrine prevents companies from acting beyond their stated objects, protecting shareholders and creditors.

Consent and Free Consent

Free Consent is a crucial element for a contract. According to Section 10 of the Indian Contract Act, 1872, all agreements are contracts if made by the free consent of parties.

Meaning of Consent

  • Section 13 of the Indian Contract Act, 1872: Consent is when two or more persons agree upon the same thing in the same sense.

Free Consent

  • Section 14 of the Indian Contract Act, 1872:Consent is free when it is not caused by:
    • Coercion: Forcing someone to enter into a contract through threats or pressure (Section 15).
    • Undue Influence: Exploiting a position of power over someone to obtain consent (Section 16).
    • Fraud: Deceiving someone into entering a contract (Section 17).
    • Misrepresentation: Providing false information unintentionally (Section 18).
    • Mistake: Both parties misunderstand the terms (Sections 20, 21, and 22).

Contracts entered without free consent can be void or voidable.

  • Section 2(i): Agreements enforceable by law at the option of one or more parties but not at the option of others are voidable.
  • Section 2(g): Agreements caused by mistake are void.

Consideration

Consideration is something of value exchanged between the parties to support a promise. Section 2(d) of the Indian Contract Act, 1872, defines it as an act, abstinence, or promise given in exchange for a promise.

Importance of Consideration

Consideration is essential for a contract to be enforceable. Without it, a promise cannot create legal obligations.

Types of Consideration

  • Executed Consideration:
    • An act performed in return for a promise. For example, if A offers a reward for the return of lost property, and B returns it, A must pay the reward.
  • Executory Consideration:
    • A promise made in return for another promise. For example, a customer orders goods from a shopkeeper, and both parties promise to complete their part of the agreement in the future.
  • Past Consideration:
    • An act performed before the promise is made. Generally, past consideration is not valid unless it was done at the promisor’s request.

Essentials of a Valid Consideration

  • At the Desire of the Promisor:
    • The act or abstinence must be done at the promisor's request, not voluntarily or by a third party.
  • Promisee or Any Other Person:
    • Consideration can come from the promisee or any third person, known as the 'Doctrine of Constructive Consideration.'
  • Past, Present, or Future:
    • Consideration can be something done or not done in the past, present, or future.
  • Something of Value:
    • Consideration must have legal value, although it need not be adequate to the promise.

These principles ensure that contracts are formed with clear, mutual, and legally binding agreements, protecting the interests of all parties involved.