Legal disqualifications from contracting other than minority and unsoundness of mind

The third test in section 11. Section 11 states that a person is competent to contract if he "is of the age of majority according to the law to which he is subject", is of sound mind, "and is not disqualified from contracting by any law to which he is subject". Age and soundness of mind are the first two tests. The question is about the third: a person who is an adult and of sound mind may still lack capacity because some law disqualifies him. Such incapacity flows from his political, corporate or legal status, may be total or only partial, and an agreement made in spite of it is void. Persons disqualified by status cannot contract unless they satisfy the formalities that the law lays down for them.

1. Political status.

• Foreign sovereigns and ambassadors form one class of persons whose status limits their capacity to contract.
• Alien enemy. A person owing allegiance to a government at war with India cannot validly trade with persons in India unless the Government of India grants a licence; an agreement to trade with him without one is void as opposed to public policy, and a contract made with him before the war may be suspended or dissolved. Example: during war-like hostilities with a neighbouring country, a Ludhiana firm's unlicensed order for machine parts from a supplier in that country is void.

2. Corporate status. Corporations make up the second class. Their incapacity, where it exists, comes from their corporate status rather than from age or mind.

3. Legal status. Convicts and insolvents are disqualified because of the legal position they are in. A clear statutory instance of a partial disqualification is section 5 of the Limited Liability Partnership Act, 2008: any individual may be a partner in an LLP, but not one who is an undischarged insolvent, or who has applied to be adjudicated an insolvent while that application is pending (nor one whom a court of competent jurisdiction has found to be of unsound mind, while that finding is in force). Example: Mohan, an undischarged insolvent, cannot join a Bengaluru LLP as a partner.

Conclusion. Apart from minors and persons of unsound mind, the law disqualifies, wholly or partly, foreign sovereigns and ambassadors, alien enemies, corporations, convicts and insolvents, each because of the status the law gives them.