Disqualified Persons under Law: Meaning and Disqualifications

Understanding the concept of Capacity to Contract is important for all the parties to a contract to make informed decisions and protect themselves from any loss or damages due to the consequences that might occur by contracting with a party who is not in the capacity to enter a contract. To make a valid contract, the competency of parties to a contract is an important requirement and the contract will only be enforceable in a court of law if the parties to the contract are legally competent to enter a contract. In the business world, important considerations are given to understand the capacity aspect of parties while entering into a contract to safeguard their interests.

Geeky Takeaways:

• The competency of the parties is one of the most essential elements to make a valid contract.
• The capacity to contract is the legal ability of an individual to enter into a contract.
• The parties must be competent and fulfill the required criteria before signing a contract.
• Apart from contractual capacity, contracts must also include an offer, consideration, legality, lawful intent, and acceptance.

Capacity to Contract

According to Section 11 of the Indian Contract Act, 1872, “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.” So the three major points established under Section 11 are:

• Attaining the age of Majority (As per Indian Majority Act, 1875).
• Being a Person of Sound Mind.
• Not Disqualified from entering into a Contract by any Law.

Also refer to Capacity of Parties : Capacity to Contracts and Legal Requirements

Disqualified Persons under Law

Indian Contract Act has prescribed a list of classes of persons who are disqualified from entering a contract wholly or partially. Indian Contract Act has expressly declared that those contracts which are entered by such person will be considered void. The class of person disqualified by law can be declared incompetent from contracting either due to their legal status, political status or corporate status. So, incompetent persons who are disqualified from contracting by any law to which they are subject to are as follows:

1. Alien Enemies

According to the Indian Contract Act, “An alien enemy is a person who belongs to a country that is in a war situation with India.” In other words, those people who have citizenship in countries that don’t have good bilateral relationships with India or are in a geopolitical conflict with India are alien enemies. Any person signing a contract during a war situation is not accepted. There might also be a situation when the contract was entered during a peace situation; however, later one of the parties becomes an alien enemy. So in such cases, the contract will become void from the moment one of the parties becomes an alien enemy.

In case a contract was entered during a peace situation, it will be considered valid. Contracts that do not violate public policy are just barred from performing for the period of conflict and restored after the completion of the war and contracts that were made before the war are either dissolved or suspended. Hence, a person can neither enter into a contract with Indian citizens, nor he can file a suit regarding the contracts with Indians in an Indian court. The only exception to this case is when he possesses a license from the central government. Also in a case where a citizen of India who has a business in an enemy country, would be viewed as one of the alien enemies.

2. Foreign Sovereigns and Ambassadors

Foreign Sovereigns and Ambassadors are given certain advantages as per the Vienna Convention. They cannot enter into contracts as they are free from civil liability, which is created by the law of the residential country. Due to this reason, individuals cannot enter into a contract with Foreign Sovereigns and Ambassadors because there is no legal remedy available against them. Any Foreign Sovereigns and Ambassadors will not be able to be sued in Indian courts if they have given their consent to surrender to our jurisdiction. Foreign Sovereigns and Ambassadors could agree and execute in Indian courts, but they cannot be brought to trial in Indian courts except with the permission of the Central Government. The provisions stated in the case of Engelke vs. Musmann laid down certain situations where the Central Government might provide authority to sue Foreign Sovereigns and Ambassadors:

• When Foreign Sovereigns and Ambassadors have filed a lawsuit against the one who wants to sue them.
• When the Foreign Sovereigns and Ambassadors have explicitly or implicitly relinquished the privileges.
• When Foreign Sovereigns and Ambassadors conduct trade under the court’s jurisdiction, he is to be prosecuted for such trade.

3. Convict

A person who is held guilty in a court of law and who is serving imprisonment as declared by the court cannot enter into any contract. A convicted person loses their legal capacity to perform certain work and such convicted person cannot enter into a contract during the period of punishment. He cannot sue on the contracts that he has entered before his conviction. Once the sentence of the court is expired or lifted, he can freely enter into a contract and make a suit for the contracts.

4. Married Women

Married women lack the legal competence to enter into a contract involving their husband’s property. However, if the husband fails to supply his wife with the necessities, the wife might act as his agent and bind the husband’s property to claim necessities.

5. Insolvent

In case, when a person is declared insolvent by the court, such a person will have limited capacity to enter into a contract of certain types. An insolvent person is not allowed to be involved in any real estate transactions or file a suit against his/her representation. The insolvent person may incur debts, may be appointed as an employee, and may also acquire a property, but in no event, he can enter into a sale of property. Such a person also has certain disqualifications like:

• Cannot be a magistrate.
• Cannot be a director in a company.
• Cannot be a member of a local body.

It is important to note that, he will be considered an ordinary citizen once the court has initiated the order of discharge.

6. Joint Stock Company and Corporation Incorporated Under a Special Act

A corporation or a firm is an artificial person in the eyes of the law. Their existence exists only in the law and their competence to contract is specified in their constituent memorandum. The contractual ability of corporations and Joint Stock Companies is expressly mentioned in the act that established it. The objectives clause of a company’s memorandum of association gives a brief idea about the contractual competence under the Companies Act. Any act which is performed more than the authority granted in the memorandum is considered null and invalid.

Conclusion

Indian Contract Act, 1872 has specified a series of classes of persons who will be disqualified by the law from entering the contract. The intention behind making a certain class of person disqualified to enter a contract is also because sufficient remedies are not available against such a class of person. The law has specified that alien enemies, foreign sovereigns and ambassadors, convicts, married women, insolvent, joint stock companies, and corporations incorporated under a special act are considered disqualified persons. The alien enemy is a person who is a citizen of a country that is in a war situation with India. He can’t enter into a contract until the war ends. Foreign ambassadors cannot enter into contracts as they are free from civil liability, which is created by the law of the residential country, and due to this reason, individuals cannot enter into a contract with them as no legal remedy is available against them. Convicts and insolvent persons can enter into a contract once the court has lifted the proceedings. A corporation’s contractual ability is specified in its MOA and AOA. A married woman can bind the property of his husband only in case when the husband is unable to provide her with necessities.

Frequently Asked Questions (FAQs)

1. Who is competent to contract by the law?

Answer:

“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.” So the three major criterias that are established under Section 11 are:

• Attaining the age of Majority (As per Indian Majority Act, 1875).
• Being a Person of Sound Mind.
• Not Disqualified from entering into a Contract by any Law.

2. How many classes of persons are disqualified by the law?

Answer:

• Alien Enemies
• Foreign Sovereign and Ambassadors
• Convict
• Married Women
• Insolvent
• Joint Stock Company and Corporation

3. What is an Alien Enemy?

Answer:

An alien enemy is a person who belongs to a country that is in a war situation with India. In other words, those people who have citizenship in countries that don’t have a good bilateral relationships with India or are in a geopolitical conflict with India.

4. Why Foreign Sovereigns and Ambassadors are not allowed to enter into contracts?

Answer:

Foreign Ambassadors cannot enter into contracts as they are free from civil liability, which is created by the law of the residential country. Due to this reason, individuals cannot enter into a contract with Foreign Sovereigns and Ambassadors because there is no legal remedy available against them.

5. Can an insolvent enter a contract?

Answer:

Insolvent person has a limited capacity to enter into a certain types of contract. The insolvent person may incur debts, may be appointed as an employee, and may also acquire a property, but in no event, he can enter into a sale of property.