Capacity to Contract
S.No. Capacity Capacity
(Present) (Not Present)
1 Major Minor
2 Sound Mind Unsound Mind
3 Not Disqualified by law Disqualified by law
Valid Contract
Void Agreement
Capacity of Contract
Section 11
Capacity = Competent
• Minority, Mental incompetence & disqualified by law persons are incompetent to contract.
• Contact made by them = Void agreement
• Age of Majority, Sound mind & not disqualified by law persons are competent to contract.
• Contract made by them = Valid Contract
Capacity to Contract
The following are not competent to contract:
2. Mental 3. Disqualified
1. Minor Incompetence by law
5. Married 6. Convicted
4. Foreign Person
Sovereigns Women
8. Company/
7. Alien Enemy
Corporation
1. Contracts with Minors
• Define Minority in sec. 3 of Indian Majority Act, 1875.
• Minority is not defined in Indian Contract Act, 1872.
• Minority is defined under 02 situations, namely:
• In General
• In Special cases
Where guardian of a minor is appointed
under Guardian & wards act, 1890
Person
below 21
In Special Cases years of
age
M
Where the property of minor is under the
I superintendent of court of wards
N
O
R
In General Cases Person below 18
years of age
Effects of Agreements with a minor
Agreement to sell Cycle
Demand for cycle back
Uncle wants his Rs. 4000 to be returned
Effects of Agreements with a minor
• Cycle will be returned.
• Minor will not return the money back.
Effects of Agreements with a minor
Agreement to sell Cycle
Uncle wants his Rs. 4000to be returned
Demand for cycle back
Effects of Agreements with a minor
• Cycle will be returned.
• Minor will not return the money back.
• It is the responsibility of other party to verify minor’s age.
Positions of Minor’s Contracts
• Contract with a minor is void ab- initio.
• Agreement cannot be ratified by the minor on attaining majority.
• Minor cannot be asked to refund any benefit received under a void agreement.
• Agreement remains void even if minor fraudulently represents his age.
2. Contracts with Mental Incompetence
Person of unsound mind can be categorized as:
• IDIOTS
• LUNATICS
• DRUNKEN PERSON
• Idiots: Mentally Unstable since birth. Can never enter into a contract
• Lunatics: Person who is mentally deranged due to some, medical strain or other personal experience.
• Drunken Person: Person who is incapable of understanding the nature and effect of an agreement.
3. Contract with Person disqualified by law
• Example: Undischarged Insolvent
• Person facing insolvency case
• Earlier he was solvent, during pendency of insolvency case he is discharged Insolvent.
• During this period, an Official Receiver appointed by Govt. will make contract on his
behalf.
• In future depending upon the court decision, he might be declared insolvent or solvent.
• A company can not be declared insolvent, only an individual can.
4. Contract with a Convicted person
• Convicted Person: Person against whom court has passed a Judgement in a criminal
case.
• Such a person can enter into a contract only after he has served his duration of
Punishment.
5. Contract with Married Women
• A married women can make a contract for her personal property only.
• She cannot make a contract on behalf of her husband’s property.
• A married women is considered as an agent of her husband, thus for any contract
made by her for BASIC NECCESITIES, Her husband would be liable.
6. Contract with Alien Enemy
• Alien Enemy: Citizen of a warring Nation
• Existing Contracts with alien enemy are not valid during war.
• No new contract with alien enemy can be created during war.
• After the war is over:
• Existing contracts will become valid again.
• New contracts can also be created.
7. Contract with Foreign Sovereigns/ Ambassadors
• Also known as foreign representative.
• These are representative of different nations residing in our country.
• They represent the interests on their nation, respectively.
• They are entitled to legal immunity, no case can be filed against them. Hence, no
contracts can be made with them.
• Prior approval from their country Govt. is required to initiate legal action against
them.
• Note: Honorable President of India is also entitled to legal Immunity.
8. Contract with Company or Corporation
• Company cannot enter into following contracts:
• Company cannot make a contract beyond it’s Memorandum of Association, such
contracts shall be deemed “Ultra Vires” and Hence, not valid by law.
• Since company is an artificial person, it cannot create any contract like a natural
person. For Example: Marriage Contract.
