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Capacity To Contract: So, We Have Three Main Aspects

Capacity to contract is one of the most important aspects of a valid contract under Indian law. To have the capacity to contract, one must have attained the age of majority (18 years), be of sound mind, and not be disqualified from contracting under any applicable law. The document discusses these requirements and provides examples to illustrate cases where minors can or cannot enter into valid contracts.

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37 views

Capacity To Contract: So, We Have Three Main Aspects

Capacity to contract is one of the most important aspects of a valid contract under Indian law. To have the capacity to contract, one must have attained the age of majority (18 years), be of sound mind, and not be disqualified from contracting under any applicable law. The document discusses these requirements and provides examples to illustrate cases where minors can or cannot enter into valid contracts.

Uploaded by

savmisq2010
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Capacity to Contract

One of the most essential elements of a valid contract is the competence of the
parties to make a contract. Section 11 of the Indian Contract Act, 1872, defines
the capacity to contract of a person to be dependent on three aspects; attaining the
age of majority, being of sound mind, and not disqualified from entering into a
contract by any law that he is subject to. In this article, we will look at
all aspects in a detailed manner.

According to Section 11, “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.”

So, we have three main aspects:

1. Attaining the age of majority


2. Being of sound mind
3. Not disqualified from entering into a contract by any law that he is subject
to

1] Attaining the Age of Majority

According to the Indian Majority Act, 1875, the age of majority in India is defined
as 18 years. For the purpose of entering into a contract, even a day less than this
age disqualifies the person from being a party to the contract. Any person,
domiciled in India, who has not attained the age of 18 years is termed as a minor.

Let’s look at certain laws governing a minor’s agreement:

A Contract made with a Minor is Void


Since any person less than 18 years of age does not have the capacity to contract,
any agreement made with a minor is void ab-initio (from the beginning).

Example, Peter is 17 years and 6 months old. He needs some money to go on


vacation with his friends. He approached a moneylender and borrows Rs 25,000.
As security, he signs some papers mortgaging his laptop and motorcycle. Six
months later, when he attains the age of majority, he files a suit declaring that the
mortgage executed by him when he was a minor is void and should be cancelled.
The Court agrees and relieves Peter of all liability to repay the loan.

Also, if a minor enters into a contract, then he cannot ratify it even after he attains
majority since the contract is void ab-initio. And, a void agreement cannot be
ratified.

A Minor can be a Beneficiary of a Contract


While a minor cannot enter a contract, he can be the beneficiary of one. Section
30 of the Indian Partnership Act, 1932, also specifies that while a minor cannot
become a partner in the partnership firm, the benefits of the firm can be extended
to him.

Example, Peter lends some money to his neighbour, John and asks him to
mortgage his house as security. John agrees and the mortgage deed is made
favouring Peter’s 10-year-old son – Oliver. John fails to repay the loan and Peter,
as the natural guardian of Oliver, files a suit against John to recover his money.
The Court holds the case since a minor can be a beneficiary of a contract.

A Minor is always given the Benefit of being a Minor


Even if a minor falsely represents himself as a major and takes a loan or enters
into a contract, he can plead minority. The rule of estoppel cannot be applied
against a minor. He can plea his minority in defence.

Contract by Guardian
Under certain circumstances, a guardian of a minor can enter into a valid contract
on behalf of the minor. Such a contract, which the guardian enters into, for the
benefit of the minor, can also be enforced by the minor.

However, guardians cannot bind a minor by a contract for buying immovable


property. But, a contract entered into by a certified guardian of a minor, appointed
by the Court, with approval from the Court for the sale of a minor’s property can
be enforced.
Insolvency
A minor cannot be declared insolvent as he cannot avail debts. Also, if some dues
are pending from the properties of the minor and he is not personally liable for the
same.

Joint contract by a Minor and an Adult


In case of a joint contract between an adult and a minor, executed by the guardian
on behalf of the minor, the liability of the contract falls on the adult.

2] Person of Sound Mind

According to Section 12 of the Indian Contract Act, 1872, for the purpose of
entering into a contract, a person is said to be of sound mind if he is capable of
understanding the contract and being able to assess its effects upon his interests.

It is important to note that a person who is usually of an unsound mind, but


occasionally of a sound mind, can enter a contract when he is of sound mind. No
person can enter a contract when he is of unsound mind, even if he is so
temporarily. A contract made by a person of an unsound mind is void.

3] Disqualified Persons

Apart from minors and people with unsound minds, there are other people who
cannot enter into a contract. i.e. do not have the capacity to contract. The reasons
for disqualification can include, political status, legal status, etc. Some such
persons are foreign sovereigns and ambassadors, alien enemy, convicts,
insolvents, etc.

So, Capacity to contract under Indian contract act says

Capacity to contract is one of the most important aspects of a valid contract.


Everyone who enters into a contract must be competent. Age of majority, sound
mind are the main elements for a valid contract. Section 11 of the Indian
contract act deals with the capacity to contract.

for a valid contract, the parties to the contract must be competent to contract.

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