Contractual Capacity

The ability to discern how one's own actions will affect his or her best interests is referred to as capacity. In other words, it refers to a person's capacity to understand the nature of his action and to discriminate between good and wrong, moral and immoral, and legal and illegal. It indicates whether a person residing on a country's territory is subject to its laws or not. Not everyone can be constrained by the law. The law cannot impose restrictions on those who are mentally ill, minors, professionals, aliens, married individuals, ambassadors, and diplomats, among others. Therefore, the ability to calculate the impact, outcomes, and nature of the terms and conditions of one's own contract on one's future is referred to as contractual capacity.

Incapacity to Contract

Incapacity to contract can be caused by a number of things, including insanity, mental incapacity, substance abuse, being married, having adversaries from another country, corporations, felons/criminals, professions, ambassadors/diplomats, and foreign sovereigns.

Unsound Mind

It covers those who are mentally unstable. Those are:

• Idiot: Someone who is unable of distinguishing between right and wrong.
• Mad: A person whose mental state is not proper.
• Lunatic: A psychopath is a person with a poor attitude.
• Drunkard/druggist/ intoxicated person: A person whose momentary mental state has been altered by drink, drugs, or other intoxicants

Disqualification by Law

The laws of many nations differ in some way. Not every person residing on a country's land can be restricted by its laws. It also includes those who are ineligible under the laws under which they are subject. It is they-

Foreign Sovereign

• Ambassador/Diplomats
• Professionals
• Insolvents
• Corporations
• Felons/Criminals
• Alien enemies.
• Married persons.

Minor

A minor is a person who has not reached the age of majority. Therefore, a person under the age of 16 is referred to as a minor in Nepal. Agreements made by or with a minor are typically void and unenforceable. Any contract made by a minor, including those for the purchase and sale of real estate, business transactions, or other legal agreements, is void. The following two essential tenets form the basis of all legislation governing agreements with minors:

• When interacting with other people who are experienced and mature, the law should protect minors' rights and property against their inexperience and immaturity. It is true that minors lack the capacity to understand the nature of their actions and to distinguish between good and wrong, as well as to assess the repercussions of their actions on their interests.
• When dealing with children, the law shouldn't place undue burdens on those who interact with them even while the minors have actually benefited from the arrangement.

Rules regarding minors' agreements

We already know that the law cannot be used to enforce an agreement with a minor. The following are more specific guidelines for agreements with minors:

• Even after reaching the age of majority, the consent of a minor cannot be validated.
• No minor may serve as a promisor.
• Parents of minors are not accountable for their actions.
• All contracts made by or with minors are void.
• Minority is always a valid defense.
• Minors are exempt from the estoppel theory.
• Although minors cannot be held individually accountable, their property might.
• The minor is responsible for providing necessities.
• The consent of children is valid if it is in their best interests.
• Shareholders and partners who are minors are not subject to liability.
• When a minor and a major enter into a joint contract, the minor is not held accountable.

Persons of Unsound Mind

Individuals whose mental capacity or state is unreasonably impaired due to mental illnesses or shocks, distress, emotion, depression, or the use of certain intoxicating or alcoholic substances, etc.

Rules regarding agreements of the persons of unsound mind

The laws governing agreements made by people who are not of sound mind might be summed up as follows:

• When someone is determined to be of incompetent mind, that person is considered as a minor and all laws governing agreements made by minors also apply to agreements made by persons of incompetent mind.
• People who are not of sound mind are responsible for the provision of necessities and for the contracts that are, in reality, advantageous to them.
• Though an agreement was formed when a person was not of sound mind, even if they are typically of sound mind, it may be void.
• When a person is typically not of sound mind, his or her agreement may still be enforceable if it was made while they were in a state of sound mind.
• The person claiming insanity has the burden of providing evidence. If someone relies on mental incapacity, they must make a convincing case to the court.

Persons disqualified by law

The individuals who are legally barred from making contracts fall into the various groups of people who are unable to do so. They lack the ability not because of mental instability but rather because of their unique status and obligations to the community or country. These people are ineligible to make legal contracts for the benefit of the general public. The following people are prohibited by law:

• Foreign Sovereign: The statute disqualifies those who hold autonomous power with a foreign state.
• Ambassador/Diplomats: The legislation disqualifies anyone who advocates for or represents a specific task.
• Professionals: The law disqualifies individuals who operate in higher level professions.
• Corporations: The law disqualifies the official body.
• Insolvents: The legislation automatically disqualifies anyone who is in debt.
• Felons/Criminals: Law disqualifies anyone who have had illegal activity reported to the police in the past.
• Alien enemies: The law disqualifies citizens of foreign nations.
• Married persons: The law disqualifies anyone who is married and has relocated outside of their country.

References:

Business Law, Ram Prasad Shrestha;M.K Books, Bhotahity, Kathmandu,2013

Merchantile law, ICAI, 2013

Yugaraj Pandey