CAPACITY TO

CONTRACT

N.D KAPOOR
DEFINITION
 Capacity means competence of the parties to enter into
a valid contract.
 According to Sec 10. an agreement becomes a contract
if it is entered into between the parties who are
competent to contract.
 According to Sec 11. every person is competent to
contract who a) is of the age of majority b) is of sound
mind c) is not disqualified from contracting by any
law to which he is subject.
 Incompetent are- a) minors b) persons of unsound
mind c) persons disqualified by law
MINORS
 Acc. to sec .3 of the Indian Majority act,1875 – a minor is who has
not completed eighteen years of age. In the following cases he
attains majority after twenty one years
a) where a guardian of a minor’s person or property has been
appointed under Guardians and Wards Act, 1890 or
b) where the superintendence of a minor’s property is assumed by
Court of Wards.
Fundamental rules governing minors agreements are based on:
 a) Law protects minors against their own inexperience and against
the possible improper designs of those more experienced. Protects
them, preserves rights and estates, excuses their laches and assists
them.
 b) Law should not cause unnecessary hardship to persons who deal
with minors.
MINOR’S AGREEMENTS:
 An agreement with or by a minor is void and inoperative ab initio
 He can be promisee or a beneficiary: contracts may be enforced at his option, but
not at the option of other party.
 His agreement cannot be ratified by him on attaining the age of majority i.e,
consideration given during minority is no consideration.
 If he has received any benefit under a void agreement, he cannot be asked to
compensate or pay for it.
 There can be no specific performance of the agreements entered into by him as
they are void ab initio.
 He cannot enter into a contract of partnership. But he may be admitted to the
benefits of an already existing partnership with the consent of the other partners.
 He cannot be adjusted insolvent.
 He is liable for necessaries supplied (goods) or necessary services rendered to him
 He can be an agent
 His parents/guardian is not liable for the contract entered into by him, even though
the contract for supply of necessaries.
 A minor is not liable in torts which arises of contract
PERSONS OF UNSOUND MIND
 Sec.12 lays down a test of soundness of mind. It reads as follows-
A person is said to be of sound mind for the purpose of
making a contract if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect
upon his interest.
Contracts of persons of unsound mind
Lunatics: A lunatic is a person who is mentally deranged due to
some strain or other personal experience. Periodical insanity. Can
enter into a contract when the person is in sound state
Idiots: An idiot is a person who has completely lost his mental
powers. An agreement of an idiot like that of an minor, is void.
Drunken/intoxicated persons: Suffers from temporary incapacity to
contract. Like lunatic.
 Agreements entered into by persons of unsound persons are void.
OTHER PERSONS
 Alien enemies
 Contracts with alien friend

a) during war can neither contract nor it can sue other party
b) before war are suspended or dissolved
 Foreign sovereigns and accredited representatives of foreign

state
 Corporations: Contractual capacity of a statutory committee

is limited by statute governing it.

 Insolvents: Deprived of power to deal in his property

divisible among creditors

 Convicts: Incapable of entering into a contract