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Unit 3: Capacity to Contract

The soundness of a person depends on two facts: (i) his capacity to understand the terms of the Notes
contract, and (ii) his ability to form a rational judgement as to its effect upon his interests. If a
person is incapable of both, he suffers from unsoundness of mind. Idiots, lunatics and drunken
persons are examples of those having an unsound mind. But whether a party to a contract, at the
time of entering into the contract, is of sound mind is a question of fact to be taken into account
by a court. There is a presumption that a person is sane but this presumption is rebuttable. The
person interested in proving the unsoundness of a person has to satisfy the court.
The liability for necessaries of life supplied to persons of unsound mind is the same as for
minors.

A lunatic is a person who is mentally deranged due to some mental strain or other personal
experience. However, he has some lucid intervals of mind. As regards contracts entered into
during lucid intervals he is bound. However, he is not liable for contracts entered into while he is
of unsound mind. In general his position is identical with that of a minor i.e., the contract is void
but the same exceptions as discussed above (under minor’s contracts) are relevant.
An idiot is a person who is of permanently unsound mind. He does not have lucid intervals. He
is incapable of entering into a contract and therefore a contract with an idiot is void. However,
like a minor, his property, if any, shall be liable for necessaries of life supplied to him. Also he
can be a benefi ciary.
A person who is drunk, intoxicated or delirious from fever so as to be incapable of understanding
the nature and effect of an agreement or form a rational judgement as to its effect on his interests
cannot enter into valid contracts whilst such drunkenness or delirium lasts. Thus, an intoxicated
person may get out of a contract provided he did not have mental capacity to understand what he
was doing and to appreciate its effects on his interests at the time when he made the contract.
Sometimes a person may not be competent to contract because of his status. Such an incompetency
to contract may arise from either political, corporate, legal status, etc.

3.1.4 Alien Enemy (Political Status)

An alien is a person who is a citizen of a foreign country. Thus, in the Indian context, an alien is a
person who is not a citizen of India. An alien may be (i) an alien friend or (ii) an alien enemy. An
alien friend whose country is at peace with the Republic of India, has usually the full contractual
capacity of a natural born subject. In case of contracts with an alien enemy (i.e., an alien whose
country is at war with India) the position may be studied under two heads; (a) contracts during
the war; and (b) contracts made before the war. During the subsistence of the war an alien can
neither contract with an Indian subject nor can he sue in an Indian court except by licence from
the Central Government. As regards contracts which are against the public policy or are such

which would benefit the enemy stand dissolved. Other contracts (i.e. not against public policy)
are merely suspended for the duration of the war, and are revived after the war is over provided
they have not already become time-barred under the law of limitation. Further an Indian, who
resides voluntarily or who is carrying on business in a hostile territory, would be treated as an
alien enemy.
However, an alien friend, whose country is at peace with the Republic of India, has usually, the
full contractual capacity of a natural born Indian subject. But he cannot acquire property on any

Indian Ship, and also cannot be employed a Master or any other Chief Officer of such a ship.
3.1.5 Foreign Sovereigns and Ambassadors (Political Status)

Foreign sovereigns and accredited representatives of a foreign state or Ambassadors can enter
into contracts and enforce those contracts in our courts. However, they enjoy some special
privileges. They cannot be sued in our courts unless they choose to submit themselves to the

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