Capacity to Contract Under the Indian Contract Act

Capacity to Contract under Indian Contract Act — Capacity to Contract under the Indian Contract Act

Competency to contract is one of the essentials for a valid contract, as given under section 10 of the Indian Contract Act of 1872. According to section 11 of the Contract Act, every person is competent to contract who is a major (18 years and above), is of sound mind and is not disqualified from contracting by any law to which he is subjected.

The following persons are considered incompetent to contract:
1. A person who has not attained majority, i.e. minor.
2. A person who is of unsound mind.
3. A person who is otherwise disqualified from making a contract under law.

Who Is Minor
Person of Unsound Mind
Person Disqualified by Law

Who Is Minor

A minor is a person who has not yet attained majority. According to the Indian Majority Act of 1875, the person is deemed to attain majority when he completes 18 years of age.

Agreement by Minor.

Indian Contract Act is silent on the consequence of an agreement by a minor. Therefore, English law was followed till 1902, and a contract with a minor was voidable. Later, in Mohori Bibi vs Dharmodas Ghose (1903), it was held that the minor’s agreement is void-ab-initio (void from the beginning).

Ratification of Agreement With Minor.

An agreement with a minor being void is incapable of being validated by ratification when the minor attains majority. As what cannot be done directly cannot be done indirectly. So, ratification would not make an agreement by minor valid.

In Suraj Narain vs Sukhu Abeer (1928), it was held that a minor cannot ratify acts done on his behalf after he becomes a major.

No Estoppel Against Minor.

In the light of various judgements, it was held that the law of estoppel doesn’t apply against a minor.

In Vaikuntrama Pillai vs Authimoolam Chettiar (1915), the court held that a minor, being incompetent to contract, is incapable of incurring liability for any debt. The same view was confirmed in Gadigeppa vs Balangowda (1931).

Restitution in Minor’s Agreement.

Sections 64 and 65 of the Indian Contract Act are applicable when the parties are competent to contract. Hence, neither section 64 nor section 65 of the Contract Act provides for restitution in an agreement with a minor.

However, section 33 of the Specific Relief Act allows restitution in an agreement with a minor but at the court’s discretion. Section 33 of the Specific Relief Act deals with the power to require benefit to be restored or compensation to be made when an instrument is cancelled or is successfully resisted as being void or voidable.

Must Read: Contract by a Minor and Its Legality, Effects, and Exceptions

Person of Unsound Mind

According to section 12 of the Indian Contract Act, a person will be held to be of sound mind if for the contract:
1. He is capable of understanding the contract.
2. He is capable of forming a rational judgement.

The soundness of mind is required at the time of making a contract. A person who is usually of unsound mind can make a contract during intervals when he is of sound mind.

The mental condition at the time of making the contract will be taken into consideration. The mental condition before or after making the contract is immaterial.

In Indar Singh vs Parmeshwardhari Singh, the court held that an agreement by the unsound mind is void.

The Gauhati HC held in Jyotindra Bhattacharjee vs Mrs Sona Balon Bora that the onus to prove the fact of unsoundness of mind was always on the person who alleged such state of mind.

Person Disqualified by Law

If a person is disqualified by law, he is not competent to contract. These are the categories of people who are disqualified under the law:

An insolvent.
An enemy national.
Convicts.
A company is disqualified from entering into any contract which falls outside the object clause of the memorandum.
Sovereigns and ambassadors from abroad.