Capacity and Competency to Contract under Indian Contract Act
Capacity and Competency to Contract under Indian Contract Act, 1872
1. Introduction
For a contract to be valid and enforceable, the parties entering into it must have capacity and competency.
The Indian Contract Act, 1872 lays down rules regarding who is competent to contract, primarily in Section 11.
2. Section 11 of the Indian Contract Act: Competency to Contract
Section 11 states:
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.
This means:
The person must be of the age of majority.
The person must be of sound mind.
The person must not be disqualified by law from entering into a contract.
3. Explanation of Terms
a) Age of Majority
The Indian Majority Act, 1875 prescribes the age of majority as 18 years.
Persons below 18 years are considered minors and generally not competent to contract.
Contracts entered into by minors are generally void ab initio (void from the beginning).
b) Sound Mind
A person is of sound mind if, at the time of making the contract, he is capable of understanding it and forming a rational judgment as to its effect upon his interests.
Persons of unsound mind include those suffering from mental illness, intoxication, or other incapacities affecting mental faculties.
c) Disqualified by Law
Certain persons may be disqualified by law from contracting.
For example, foreign sovereigns, convicts, or persons disqualified under specific statutes.
4. Competency of Particular Classes of Persons
a) Minor
A minor cannot enter into a valid contract (Section 11).
Contracts with minors are void, not voidable.
The minor cannot be held liable for breach of contract.
Exceptions exist for contracts beneficial to the minor or for necessities supplied.
b) Persons of Unsound Mind
Contracts with persons who are unable to understand the nature of the contract are void.
If the person is usually of sound mind but momentarily unsound during the contract, the contract may be voidable.
c) Disqualified Persons
Certain persons disqualified by law (e.g., alien enemies, diplomats) cannot contract.
5. Legal Consequences of Incapacity
Contracts made by incompetent persons are void.
Such contracts cannot be enforced by law.
However, exceptions exist where contracts are made by agents on behalf of incompetent persons.
6. Relevant Case Law
a) Mohori Bibee v. Dharmodas Ghose (1903)
Facts: A minor mortgaged property to secure a loan.
Held: The mortgage deed was void because minors cannot contract.
Significance: Established that contracts entered into by minors are void, not voidable.
b) Nash v. Inman (1908) (English Case Influential in India)
Facts: A tailor sued a minor for non-payment for clothes.
Held: A minor is liable for necessaries (goods suitable to his condition in life).
Significance: Minors are liable only for necessaries, not other contracts.
c) B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates (2009)
Issue: Whether a person of unsound mind can enter into a contract.
Held: Contract entered into by a person of unsound mind is void.
The person must understand the nature and effect of the contract.
d) Raghunath Rai v. State of U.P. (1950)
Held that intoxicated persons who are incapable of understanding the contract are not competent.
e) R.K. Verma v. Union of India (2005)
Held that contracts with foreign sovereigns or persons disqualified by law are void.
7. Minors and Contractual Obligations
Minors cannot sue or be sued on contracts.
However, contracts for necessaries supplied to minors can be enforced.
Section 68 of the Indian Contract Act provides that if a person, incapable of contracting, is provided with necessaries, the supplier is entitled to be reimbursed.
8. Summary Table
| Criteria | Explanation |
|---|---|
| Age | Must be 18 years or above (majority) |
| Sound Mind | Must understand nature and consequences of contract |
| Disqualified Persons | Persons disqualified by law cannot contract |
| Minor’s Contract Status | Void (except contracts for necessaries) |
| Contracts with Unsound Mind | Void if incapable of understanding |
9. Conclusion
Capacity and competency are essential for a valid contract.
Without them, the contract is void and cannot be enforced.
The law protects minors and persons of unsound mind from exploitation.
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