Who are competent to enter into a contract? what is the effect of a contact entered into by persons?

who are competent to enter into a contract? what is the effect of a contact entered into by persons who are not competent to enter to contract ?

Subject : Business Law and Cooperate Goverance

Whatever you have asked in your question - a valid contract, parties to a contract, competency, exceptions etc.; there are these and many more other aspects which determines the strength/fate of a contract. Again you having given reference under business law & Corporate Governance, I feel that you are looking for a professional answer to your question.

Under the situation, you should either go through the relevant enactment named Indian Contract Act or interact with a qualified professional in person on the topic. It is one of the oldest requirement of our society and an old enactment with thousands of solved case laws, plenty of situations, oral and written contracts, expressed and implied contracts, agreements and/Vs. contracts, exceptions, one sided situations....plenty of them. The more you discuss, the more questions you may have.

However, in brief, a competent person (aged even 1 moment*) can enter into a contract with another person (normaly but not essentially competent), verbally or in writing. A valid contract (may) bind both the parties under contract for their respective obligations in the contract. Now, majority of the words/expressions in this para have detailed explanations. Interesting!!

Examples:
1. *Aged even 1 moment - a private Limited company can enter into a contract the very next moment it gets incorporated (born). A company is a person capable to enter into a contract. An individual is competent for contracts at 18 years and above but the company can do so the very next moment it gets incorporated. A company can safely assume all those contracts undertaken by its promoters even before its actual/legal incorporation, so even before its birth. Plus still much more.....

2. A contract with a minor individual is void at the option of the minor - means a minor can enforce the contract to his/her benefit and still may not pay anything for it! The other competent party to such contracts becomes helpless!! Yet law may provides such competent parties some relief??? Don't just thnik here that minors' parents/guardians can be made to pay for or on behalf of the minors! Yet competent parties can enter into contracts with minors safely in certain situations.

Essential Ingredients of a contract - As per Contract Act, an agreement enforceable by law is a contract. [section 2(h)]. Hence, we have to understand first what is ‘agreement’.

Every promise and every set of promises, forming the consideration for each other, is an agreement. [section 2(e)]. - - A person makes a proposal (offer). When it is accepted by other, it becomes a promise. However, promise cannot be one sided. Only a mutual promise forming consideration for each other is ‘agreement’. - - For example, A agrees to pay Rs 100 to B and B agrees to give him a book which is priced at Rs 100. This is set of promises which form consideration for each other. However, if A agrees to pay Rs 100 to B, but B does not promise anything, it is not ‘set of promises forming consideration for each other’ and hence not an agreement.

It should be noted that the term ‘agreement’ as defined in Contract Act requires mutual consideration. - - Thus, if A invites B to dinner and B agrees to come, it is not an ‘agreement’ as defined in Contract Act.

Meaning of ‘Proposal’ - When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. [section 2(a)].- - Thus, a ‘proposal’ can be to do a positive act or abstinence from act (i.e. negative act). [English Act uses the word ‘offer’, while Indian Contract Act uses the word ‘proposal’. Generally, both words are used inter-changeably. This is not technically correct, as the word ‘offer’ is not used in Contract Act].

Meaning of ‘Promise’ - When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise. [section 2(b)]. - - Thus, when a proposal (offer) is accepted, it becomes a ‘promise’. As is clear from the definition, only person to whom proposal is made can signify his assent. Other person cannot accept a proposal.

Promisor and promisee - The person making the proposal is called the “promisor”, and the person accepting the proposal is called the “promisee”. [section 2(c)].

Reciprocal promises - Promises which form the consideration or part of the consideration for each other are called reciprocal promises. [section 2(f)].

Consideration for promise – The definition of ‘agreement’ itself states that the mutual promises should form consideration of each other. Thus, ‘consideration’ is essential for an agreement. A promise without consideration is not ‘agreement’ and hence naturally, it is not a ‘contract’.

Definition of ‘consideration’ - When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. [section 2(d)].

What agreements are contracts - All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall effect any law in force in India and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents. [section 10].

Who are competent to contract - 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. [section 11].

1.) Person must be of legal age.
2.) Person must be of sound mind.

Othewise the contract is null and void.

Of legal age, mentally sane, not a minor

a major, ie a person above 18 years of age. mentally sound people are competent to enter into a contract.
if either of the party breaks the contract then he can be sued by the other party.
an allien, a person disqualified by law and foriegn companies can not enter into contract.

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