Incompetence: Besides minors and persons of unsound mind, there are some other persons who are incompetent to contract, partially or wholly, so that the contracts of such persons are void. Incompetency to contract may arise from political status, corporate status, legal status, etc.
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About Incompetence Through Status in Contracts
Alien Enemy (Political Status): An alien is a person who is the citizen of a foreign country. Thus, in the Indian context, an alien is a person, who is not a subject of India. An alien may be (i) an alien friend, or (ii) an alien enemy.
An Alien Friend (i.e., a foreigner): 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 in Indian ship, and also cannot be employed as Master or any other Chief Officer of such a ship.
When it comes to dealing with contracts involving individuals from a country at war with India—referred to as alien enemies—the situation is examined in two scenarios: (i) contracts made during the war, and (ii) contracts formed before the outbreak of war. While hostilities persist, aliens cannot enter into contracts with Indian citizens, nor can they bring lawsuits in Indian courts without permission from the Central Government.
Concerning contracts established before the commencement of the war, they are either dissolved or temporarily put on hold. Contracts that go against public policy or could benefit the enemy are dissolved outright. On the other hand, contracts that are not against public policy are merely paused for the duration of the conflict and resume after the war concludes, provided they haven’t already expired due to the statute of limitations.
It’s worth noting that an Indian individual who resides voluntarily or conducts business in a hostile territory is treated as an alien enemy.
Foreign Sovereigns and Ambassadors (Political status)
Foreign sovereigns and accredited representatives of a foreign country, such as Ambassadors, have certain unique privileges. They’re immune from lawsuits in our courts unless they willingly subject themselves to our legal jurisdiction. These individuals can engage in contracts and have the ability to enforce them in our courts. However, legal proceedings against them in Indian courts require approval from the Central Government.
Company under the Companies Act or Statutory Corporation by passing Special Act of Parliament (Corporate status)
A company cannot enter into a contract which is ultra vires its Memorandum of Association. A statutory corporation cannot go beyond the objects mentioned in the Act, passed by the Parliament. Similarly, Municipal Corporations (Local bodies) are disqualified from entering into contracts which are not within their statutory powers.
Married Women (Marital status)
A married woman has all the rights to enter into contracts and can take legal action or be taken to court using her own name. She is perfectly capable of making agreements and is not considered unable to engage in contracts.
Insolvent Persons (Legal status)
People facing financial difficulties aren’t allowed to enter into contracts until they’ve successfully obtained a certificate of discharge.