written by | October 31, 2022

What is the Capacity to Contract under Indian Contract Act?

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Table of Content


The capacity to enter into a contract means the competence of the parties involved. Both parties must satisfy three essential conditions to enforce their duties under the agreement in a court of law. The first condition is attaining the age of majority, the second is being of sound mind, and the third one is that an individual is not disqualified from entering into a contract by any law that he is subject to. It means that if one of the parties to the contract fails to perform his duty or tries to deceive or harm the party resulting in a loss of any one of them will not be enforced in court. In a nutshell, If the parties to the contracts fail to be competent, they will lose their legal protection, and their suit for damages will be admissible in a court of law. 

Did You Know? In India, The legal age to attain a majority is 18 years, according to The Indian Majority Act, 1875

Overview and Importance of Capacity to Contracts

The entire idea is about competency to enter within a valid contract legally. The capacity to contract merge with parties of contract with a promise to oblige by it. Only a particular individual has the competency for making contracts.

An incompetent person cannot enter into a valid contract. If he does, his legal immunity will lapse, and he cannot appeal in a court of law. Thus, a person incompetent to the contract can sign a document that binds him but only to his wishes. If the person denies performing the contract, Other parties to the contracts cannot thrust him into the court of law to execute the contract, nor will the court be open to hearing further proceedings since the contract has no legal status. To form legal contracts, you must be aware of the conditions led down by sec. 11 of the Indian Contract Act, 1872. 

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Who is Competent to Enter into a Contract?

As per sec. 11 of The Indian Contract Act, 1872, every individual is incompetent to enter into a legally enforceable contract unless he or she has the following issues:-

  1. The person who has not attained the legal age of the Majority
  2. If the person is of unsound mind
  3. If he or she Is disqualified explicitly from entering into a legal contract

Legal Age of Majority

According to The Indian Contract Act, 1872, a person will attain the legal age of majority in India only if He or she completes the age of 18 years and  not  before. A person below the age of 18 years is considered a minor and will be incompetent to enter into a legal contract.

  1. Legal Status of a minor in India 

  • A contract entered by a minor can be adopted when the minor acts as an agent. However, the minor will not be held liable for his actions to the third party acting as an agent, but the principal will be held liable for his action. 

For example:

Suraj Narayan v. SukhuAheer: In the case at hand, a person borrowed some money while still a minor and then renewed his promise to pay back that amount plus interest after turning 18, but this contract was not enforceable because the consideration received while still a minor is not a good consideration.

  • A minor can also enter into a contract to benefit from it. However, He will not be able to get liable in the contract. 

For example - In the death of Mr A, His minor son Mr B will get the benefits from his estate. However, If there is a debt father's name, Mr B will not be liable in his capacity to make the payment as and when the debt is settled, but the estate of Mr A will be held liable.

  • Under the Indian laws, a minor can plead his minority in the court of law even if he enters into a contract by making a false representation. As per sec. 68 of The Indian Contract Act, 1872, a minor can be held liable for the necessities he supplied. The meaning of Necessities would depend on the situation and is subjected to court interpretation. However, it includes food, shelter, education, and other necessities of a similar kind. However, in no case will the minor be held liable in his capacity, but his estate will.
  • A minor cannot be declared insolvent since he is incompetent to enter into a contract and, thus, cannot be held for debt and other dues. Under sec. 30 of the Partnership Act, a minor cannot be a partner in a partnership. However, He can be admitted for the benefits of a partnership.
  • A minor cannot be a shareholder of a company and will be unable to cast a vote in the meeting of the members. If a minor acquires the share on his own by mistake, the company should make arrangements to remove his name from the register of members. In that case, the shares can be held in the name of trust for the benefit of a minor.

A Person of Unsound Mind

A person is considered of sound mind if, at the time of entering into a contract, is capable of understanding the terms of the contract and rational judgment out of the interpretation of norms led down in the agreement; otherwise, the person will be considered unsound. For example - an over-drunk person who cannot make a rational judgment out of the contract will be regarded as a person of unsound mind.

However, a person who is occasionally of unsound mind will enter into a legally enforceable contract at the time when he is of sound mind. Thus, an agreement made by an unsound mind will be void and cannot be enforced in court.

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Disqualified Individual

The competent authority might pass on an order for a person to be disqualified from entering into a contract. Besides this, the following persons are disqualified from entering into a valid contract in India -

  • A Foreign Ambassador
  • Convict
  • An Insolvent individual
  • An enemy

Thus, If a person is disqualified directly from contracting, he can not enter into a legal contract.

Conclusion

In a nutshell, one of the most crucial aspects of a valid contract is competence of parties for making a contract. Section 11 Under Indian Contract Act, 1872  it is important to understand that the Judiciary in India assumes that every citizen of India is aware of every deed, document, Act, rule, and notification from the date they published in “The Gazette of India”.
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FAQs

Q: What is insolvency of minor?

Ans:

Minors are considered insolvent when they cannot avail debt. Also when dues are pending from properties of minors and are not personally liable for the same.

Q: What is the process of Contract by Guardian?

Ans:

Guardian of a minor can enter within a valid contract on behalf of a minor. Such a contract that guardians enter into for the benefit of minors could be enforced by minors.

Q: Who are the persons specifically disqualified from entering a valid Contract?

Ans:

Besides this, the following persons are specifically disqualified from entering into a valid contract in India : 

  • A Foreign officer 
  • Convict
  • An Insolvent Person
  • An enemy

Q: Who is Competent to enter into a valid Contract?

Ans:

According to sec. 11 of The Indian Contract Act, 1872 an individual becomes incompetent when they do not meet age criteria and sound mind.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.