CAPACITY OF PARTIES

One of the essential conditions for the enforceability of an agreement is that the concerned parties
must be competent to enter into an agreement. The ‘capacity to contract’ means the competence
(i.e., capability) of the parties to enter into a valid contract.
According to Sec. 11 of the Contract Act, “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 a sound mind, and is not-
disqualified from contracting by any law to which he is subject”.
PERSONS NOT COMPETENT TO CONTRACT
As per the statement of Section 11 of the Indian Contract Act, the following persons are not
competent to contract, i.e., they are incapable of entering into a valid contract.
(i) Minors;
(ii) Persons of unsound mind; and
(iii) Persons disqualified for contracting by any other law.
MINORS
According to Section 3 of the Indian Majority Act, 1875, a person who has not completed his age
of 18 years (majority), is considered to be a minor.
In the following two cases, a person becomes major on completing the age of 21 years:
a) Where a guardian of a minor’s person or property has been appointed under the Guardians and
Wards Act, 1890; and
b) Where the superintendence of minor’s property is assumed by a Court of Wards.
Rules Regarding Minor's Agreements
The law protects minor’s rights because they are not mature and may not possess the capacity to
judge what is good and what is bad for them. The position of a minor as regards his agreements
may be stated as under:
1. An agreement with or by a minor is void ab initio: An agreement with a minor has been held to
be void ab initio. It is not only void, but is absolutely void.
2. A minor can be a beneficiary: A promissory note executed in favour of the minor can be
enforced. He can draw, negotiate or endorse a negotiable instrument so as not to incur any liability
upon himself.
3. No ratification: Since a contract with or by a minor is altogether void, he cannot ratify contracts
entered into by him during his minority, even after attaining the majority. There can be no
ratification of a contract void ab intio.
4. No restitution or Doctrine of Restitution: Sometimes, the minor receives some property or
money by falsely representing his age. In such cases, the minor can be asked to restore such
property or money so long as the same is traceable in his possession.
5. The liability of Minor’s parents or guardian: A contract made by the minor's parents or guardian
or manager of his estate can be specifically enforced by or against the minor provided: (a) the
contract is within the scope of authority of the parent, etc., and (b) it is for the benefit of the minor.
6. No Estoppel: Where a minor represents fraudulently or otherwise that he is of age and thereby
induces another to enter into contract with him, he in an action founded on the contract, is not
estopped from setting up infancy.
7. Minor’s property liable for necessaries: Sometimes, a person supplies necessaries to a minor. In
such cases, the supplier of necessaries can claim reimbursement from the property of minor.
8. Minor’s liability for tort: A minor is liable for negligently causing any injury or damage, or for
converting property that does not belong to him. But, he is not liable for a tort directly connected
with a contract which as an infant he would be entitled to avoid. In other words, a person cannot
convert a contract into a tort to enable him to sue an infant.
9. Minor as an agent: Minor can act as an agent and bind his principal by his acts without incurring
any personal liability.
10. Minor as a partner: A minor cannot be a partner in a firm. But under Section 30 of the
Partnership Act, he can be admitted to the benefits of partnership with the consent of all the
members.
11. Minor as an insolvent: A minor cannot be declared insolvent because he is not competent to
contract.
12. Cannot be a shareholder: Minor cannot become a shareholder of a company.
13. Guarantee/ surety for a minor: A guarantee for a minor is a valid agreement and in no case the
guarantor or surety can escape from his liability.
14. Joint Contract: whenever a joint contract is formed by minor and a major with another party
then in such a contract the major is responsible to the other party.
PERSONS OF UNSOUND MIND
According to Section 12 of the Indian Contract Act, defines the term ‘Sound Mind’ as follows:
“A person is said to be 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 judgement as to its effects
upon his interests”.
Thus, if a person is not capable of both, he is said to have suffered from unsoundness of mind.
Section 11 of the Act also specifically declares that persons of unsound mind are incompetent to
enter into an agreement.
The following persons are also considered to be the persons of unsound mind.
1. Idiot: An idiot is a person who has completely lost his mental faculties of thinking for rational
judgement. All agreements, other than those for necessities of life, with idiots are absolutely void.
2. Lunatics: A lunatic is a person who is mentally deranged (disordered) due to some mental strain
or other personal experience but who has some lucid intervals of sound mind.
3. Drunken or intoxicated person: A drunken or intoxicated person is a sane person who is delirious
from fever or who is so drunk that he cannot understand the terms of a contract or form a rational
judgement as to its effect on his interest.
4. Hypnotised Person
5. Person Suffering from Mental Decay
PERSONS DISQUALIFIED BY ANY LAW
1. Alien enemy: \"Alien\" means a person who is not a citizen of India. During the continuance of
war with the country to which an alien belongs, he becomes an alien enemy. In that situation, he
can neither contract with an Indian subject nor can he file a suit in an Indian court. He can do so
only after obtaining the permission of the Central Government. Contracts made before war may
either be suspended or dissolved. They are dissolved if found to be against public policy or of
benefit to the enemy.
2. Insolvent: When a person is declared as an insolvent, his property vests in the Official Receiver
or Assignee. And the insolvent is deprived of his power to deal with the property, and sue and be
sued on his behalf.
3. Foreign Sovereigns, their Diplomatic Staff and Accredited representatives of Foreign States:
Such persons can enter into valid contracts and can enforce them in Indian courts. However, a suit
cannot be filed again them, in the Indian courts, without the prior sanction of the central
government.
4. Joint Stock Company and Corporations incorporated under Special Acts: A corporation or
company, being an artificial person, and having a separate legal entity, can hold property; can
purchase or sell property; and can sue or be sued in the Courts of Law. But it cannot enter into
contracts which are strictly of personal nature.
5. Felons or Convicts: A convict cannot enter into a contract while he is undergoing imprisonment.
This inability comes to an end on the expiration of the period of imprisonment or if he has been
pardoned.