Principles of Law of Contracts

Capacity to contract
Capacity To Contract Under Indian Contract Act, 1872

INTRODUCTION:
The rule of law that needs the consent of the parties to a contract expects "that such assenting parties
shall be competent to contract; and thus, in order for there to be a legal contract, a capacity to contract
is absolutely essential." The Indian Contract Act of 1872 governs contract law in India. Section 11 of
the Act addresses capacity. According to Section 11:

Who is competent to contract?

Every person who is of the age of majority under the law to which he is subject, is of sound mind, and
is not barred from contracting by any legislation to which he is subject is competent to contract.
Section 11 of the Indian Contract Act states that any individual is competent to contract.
➔ A person of sound mind
➔ A person who has acquired the age of majority and is not a juvenile.
➔ A person who has not been disqualified by law or declared insolvent/bankrupt.

Who can not make a contract?

➔ Minors
➔ Persons of unsound mind
➔ Persons disqualified by law

MINOR’S AGREEMENT:
A minor lacks the legal capacity to enter into a contract. The question that arises in the event of a
minor's agreement is whether the agreement is void or voidable. Section 10 requires that the agreement
be made between persons who are legally capable of contracting. Section 11 states that the juvenile is
unable to engage into a contract. However, neither clause addresses the consequences of a minor's
agreement. This sparked controversy.
Agreement is void ab initio:
Case: Mohori Bibee v. Dharmodas Ghose
Facts: A minor mortgaged his properties in favor of plaintiff, a money lender to secure the loan of Rs.
20,000/-, after some money was advanced. came to know about infancy
of that. He filed a suit to repudiate the contract and recover the money advanced
Held: Minor is not liable because the Minor's agreement is null and void from the start.

Reasons:
i. The question of whether a contract is void or voidable presumes the existence of a contract within
the meaning of the Act and cannot arise in the case of an infant (minor).
ii. The general presumption that every man is the best judge of his own interests is suspended in the
case of minors.

No ratification:
When a person attains majority, he cannot ratify an agreement made during his minority. Ratification
is time limited to the date of the contract's formation, so a contract that was then void cannot be made
valid by subsequent ratification. Because a minor's agreement is null and void, he cannot validate it by
ratification upon reaching majority. A minor, for example, borrows money and signs a promissory
note. When he attains majority, he executes a new promissory note in place of the one he executed as a
minor. The second promissory note is also void because it was issued without consideration.

Minor can be compelled:

A minor is not liable to restore property or goods. He can be compelled if the goods are traceable in his
possession. If a minor has sold the goods nothing can be claimed.

No specific performance:
It means that the agreed-upon performance of the contract is null and void from the start. However, if
guardians enter into a contract with the authority and for the benefit of a minor, it is valid.

Minor can be a promisee or a beneficiary:

There can be no question about the specific performance of a minor's contract because it is completely
void. A minor's guardian cannot bind the minor by an agreement for the purchase of immovable
property; therefore, the minor cannot seek specific performance of a contract that the guardian had no
authority to enter into.
However, a contract entered into on behalf of a minor by a guardian or manager can be specifically
enforced if
(a) the contract falls within the guardian or manager's authority.
(b) It is done for the minor's benefit.

Minor as a partner and agent:

Although a minor cannot be a partner in a partnership firm, he may be admitted to the benefits of
partnership under Section 30 of the Indian Contract Act.
A minor can act as a legal representative. However, he will not be held accountable to his boss for his
actions. A minor can draw, deliver, and endorse negotiable instruments without exposing himself to
liability.

Position of minor’s parents:

A minor cannot bind his parent or guardian, even for necessities, in the absence of express or implied
authority. When the child acts as an agent for his or her parents, then the parents are held liable.

Minor’s liability for necessaries:

Section 68 of the Indian Contract Act governs the supply of necessities to a minor or to any other
person whom the minor is legally obligated to support. A claim for necessities provided to a minor is
legally enforceable. A minor, on the other hand, is not liable for any price that he may promise and is
never liable for more than the value of the necessities. The minor has no personal liability, but only his
property is liable.

Considered as necessaries:
● For saving his property from sale in execution
● For marriage of a minor
● For marriage of his sister
● For shradh ceremonies of the ancestors of the minor
● For rent of house taken by minor for the purpose of studies
Not considered as necessaries:
● Expensive gift
● Cigar & tobacco
● An expensive gift

PERSONS OF UNSOUND MIND

Under Section 11 of Indian Contract Act, 1872, for executing a valid contract, the parties to the same
should be of sound mind. Section 11 and 12 of the Contract Act reads as under:
★ Sec. 11. Who is competent to contract:-Everyone who 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 is competent to contract.
★ Sec. 12. What is a sound mind for the purposes of contracting?—A person is said to be of
sound mind for the purposes of contracting if, at the time of making it, he is capable of
understanding it and forming a rational judgement as to its effect on his interest.
★ A person who is usually of unsound mind but occasionally of sound mind may make a
contract when he is of sound mind."

Position of Agreements by Persons of Unsound Mind:

Lunatics:
A lunatic is a person who has become mentally ill as a result of mental stress or another personal
experience. He does, however, have some moments of clarity of thought. He is not liable for contracts
made while he is insane. Contracts entered into during lucid intervals, on the other hand, bind him. In
this regard, he is in the same position as a minor.

Idiots:
An idiot is someone who is mentally ill all of the time. Idiocy is a birth defect. There are no clear
intervals in such a person's life. He is unable to form a legally binding contract.

Drunken persons:
Drunkenness is on the same level as insanity. A contract made by a drunken person is null and void.
Exceptions:
Contracts with unsound minds are subject to the same exceptions as contracts with minors. Thus, a
person of unsound mind,
(i) may enforce a contract for his benefit
(ii) his property, if any, shall be attached for the realization of money due against him for the supply of
necessaries to him or any of his dependents.

OTHER PERSONS - Disqualified by Law:

Alien enemies:
Aliens are all people who are not Indian citizens. When an alien's sovereign or state is at peace with
India, he is considered an alien friend. Contrary to popular belief, he will be an alien foe. In the event
of a war between India and an alien country, the following rules govern the performance of agreements:
I. Except with the prior approval of the Government of India, no contract with an alien enemy can be
made during the period of war subsistence.
II. During the course of the war, performance of contracts made prior to the outbreak of war will be
suspended. They can only be carried out once the war has ended. Even so, the government has the
authority to impose conditions on the performance of such contracts if it deems them necessary in the
national interest.

Convicts:
A convict cannot enter into a contract while serving his sentence, according to Indian Contract Law.
Nonetheless, after finishing the sentence, he regains his ability to enter into the contract.

Insolvents:
When a person is declared bankrupt, he becomes insolvent and is barred from entering into any
contract under Indian Contract Law. Foreign diplomats and ambassadors are immune from being sued
in Indian courts for contract enforcement unless they submit to the jurisdiction of the Indian courts.
CONCLUSION:
Finally, it is possible to conclude that the capacity to contract is the legal capacity to contract. A person
who has been declared incompetent to contract is incapable of entering into a contract, and a contract
with such a person is legally unenforceable. Furthermore, such people are classified as minors, people
of unsound mind, and people barred by law. If a person falls into any of these categories, he will be
declared incompetent to contract, rendering his contract void or voidable in certain circumstances.
However, the court of law can grant relief to certain people, such as convicts and insolvent, making
them incapable of contracting for a limited time.
Therefore, capacity of contract is inevitable for a valid contract.

CASES:
Mohiri Bibi vs. Dharmdas Ghose
Mahomed Yakub v. Abdul Quddus
Suraj Narain v. Sukhu Aheer
Peters v. Fleming

SOURCES:
● A Detailed Analysis of Provisions Related to Competency to Contract Under the Indian
Contract Law - Law Times Journal Competency of Contract
● ‘Sound-mind’ and ‘Unsound-Mind’ in Indian Contract Act and other Civil Laws – Saji
Koduvath Associates (indianlawlive.net)
● Capacities of Parties entering into a Contract–Persons having capacity to contract as per
Indian Contract Act (ipleaders.in)