Not everyone who makes an agreement can legally enter into a binding contract. The law decides who is competent to contract.
Who Is Competent to Contract?
Under Section 11 of the Indian Contract Act, 1872, a person is competent to contract if they:
- Have attained the age of majority,
- Are of sound mind, and
- Are not disqualified from contracting by law.
1. Minor
A person who has not attained the age of majority is a minor. As a general rule, an agreement with a minor is void, and the minor cannot ordinarily be made personally liable under it.
However, the law provides a special rule for necessaries—goods or services essential and suitable to the minor’s condition in life. The supplier may claim reimbursement from the minor’s property, but the minor is not personally liable.
Example: If a minor receives necessary medical treatment on credit, the hospital may seek reasonable reimbursement from the minor’s property.
2. Person of Unsound Mind
A person must be capable of understanding the contract and forming a rational judgment about its effect on their interests at the time of entering into it.
A person who is usually of unsound mind may still enter into a valid contract during a period when they are capable of understanding its consequences.
3. Persons Disqualified by Law
Certain persons may face restrictions on contracting because of their legal status, such as alien enemies, insolvents and persons subject to specific statutory restrictions.
Why Is This Important?
Questions may involve:
- A minor
- A person of unsound mind
- A person who becomes capable at a particular time
- A person legally restricted from contracting
The key is to determine whether the person was competent at the time of the agreement.
Approach
Ask:
1. Is the person a major?
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2. Were they of sound mind when the contract was made?
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3. Are they disqualified by law?
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4. If a minor is involved, does a special rule such as necessaries apply?
Practice Question
Principle: A person must be competent to contract. A person who is usually of unsound mind may enter into a valid contract during a period when they are capable of understanding the contract and judging its effect on their interests.
Facts:
Kavya has periods during which she is unable to understand the nature of her decisions. During a period when she is mentally stable and fully understands the terms of a contract, she agrees to purchase a computer from a store. Later, she argues that the contract is invalid because she sometimes suffers from mental incapacity.
Is Kavya’s argument correct?
A. Yes, because a person who is ever of unsound mind can never enter into a contract.
B. Yes, because mental incapacity automatically makes every contract void.
C. No, because capacity is assessed at the time the contract is made.
D. No, because mental capacity is irrelevant to the validity of a contract.
Answer: C
Explanation:
The relevant question is whether Kavya was capable of understanding the contract and judging its effect on her interests when she entered into it. Her condition at other times does not automatically invalidate the contract.
Competent to Contract = Majority + Sound Mind + No Legal Disqualification
Remember:
- Minor → Agreement is generally void
- Necessaries → Supplier may claim reimbursement from the minor’s property
- Sound mind → Capacity is assessed at the time of contracting
- Legal disqualification → Certain laws may restrict contractual capacity
Always check the person’s legal capacity at the time the contract is made.
