CAPACITY OF PARTIES

Parties entering into contracts must be capable. Capacity of parties emphasises that the parties
entering into a contract should be capable of understanding it and forming a rational judgement as
to its effect upon their interests. Therefore, law requires that the parties should have sound mind.
Only a person with a sound mind can properly understand the implications of a contract. The law
does not allow certain persons enter into an agreement in public interest.

Section 11 the Act provides that, ‘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.’

INCAPACITY OF PARTIES

Minor Unsound mind Disqualified by Law

(immature mind) (Deficiency of mind) (Status)

Idiot Lunatic Drunkard

Alien Enemy Foreign Sovereign Insolvent Convict Married Woman

MINOR

According to the Indian Majority Act, 1875, a minor is a person who has not completed 18 years of
his/her age. However, when a guardian of a minor’s person or property has been appointed under
the Guardians and Wards Act, 1890, or a Court of Wards has taken charge of minor’s property,
during his/her minority, a minor will attain the age of majority after 21 years of age.

Position of a minor in India Law

I. An agreement with or by a minor subject to certain exceptions is absolutely void

and inoperative: An agreement with and by a minor is absolutely void and
inoperative.
Case Law Mohri Bibi Vs Dharmodas Ghosh 1903
II. A minor can be a promise or beneficiary: An agreement if it beneficial to the minor
can be enforced against him.
III. An agreement with a minor, being absolutely void, cannot be ratified by him on his
becoming a major: A minor cannot ratify a contract, otherwise it will defeat the very
objective of granting protection to the minor.
Case law Ramaswamy Vs. Chettiar 1906
IV. A minor cannot be asked to return any benefit enjoyed by him or to pay any
compensation for it.
 V. A minor can always plead infancy or minority: Even where a minor has
misrepresented his age i.e. he has declared to the other party that he was a major,
he is not liable.
VI. A minor can be an agent: A minor can be appointed as an agent. An agent is only a
connecting link between the principal and the third party. The minor agent is not
liable either to the principal or the third parties.
VII. A minor’s estate is liable for necessaries supplied to him or to any person whom
the minor is bound to support: In absence of such a provision minor’s life would
have become difficult. It covers services and benefits such as education, reasonable
expenses etc.
The necessaries should be according to the standard of life of the minor and he should be in
need of them both at the time of contracts as well as delivery.
Case Law Nash Vs. Inman 1908
VIII. A minor cannot be declared insolvent: Since a minor is incapable of binding himself,
he cannot contract debts. Even for necessaries of life he is not personally liable, only
his property is liable.
IX. A minor cannot become partner but may be admitted for the benefits of a
partnership if other partners agree: If all the partners of an existing partnership
agree, a minor may be admitted to the benefits of a partnership.
X. No liability of guardian for the acts of minor: The Guardian of a minor is not liable
for the acts of a minor. However, where a minor is acting as an agent of the guardian
can liable for the acts of a minor.

PERSON OF UNSOUND MIND

Section 12 , ‘ 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 judgement as to its
effect upon his effect upon his interests. To decide whether a person is of sound mind or not we
have to see two things: i. capacity to understand the contract. ii. ability to from a rational judgement
as to its effect on a person’s interest.”

Idiots, Lunatics and drunken persons have been placed in this category.

a. Idiot: An idiot is a person who is natural fool or born fool: He is completely devoid of
mental capacity. He cannot answer even the most simple questions put to him. His insanity
is permanent. Therefore, a contract with an idiot is void.
b. Lunatic: A lunatic is a person whose mental power has deranged due to some mental strain.
He is not a natural or born fool. Therefore, his incapacity is only temporary and during lucid
intervals he is alright and can enter into a valid contract during that time.
Thus in case of lunacy insanity is temporary or intermittent while in case of idiocy, it is
permanent.
Similarly, a person who is usually of sound mind, but occasionally of unsound mind, may not
make a contract when he is of unsound mind.
 c. Drunkards or intoxicated persons: A drunkard is a person who is under the influence of
drink or some durg. When he is drunk he is incapable of making any rational judgement.
Therefore, his case is treated at par with that of a lunatic.

Idiots, lunatics and drunken person are incapable of entering into contracts but their properties are
liable for necessaries supplied to them or their dependents whom they are legally bound to support.

PERSON DISQUALIFIED BY LAW TO ENTER INTO CONTRACTS

Persons are included who have been disqualified by law to enter into contracts either in the public
interest or because of their special privileges.

1. Alien Enemy: Contracts with an alien enemy is a person whose Sovereign or State is at war
with the Government of India. If the contract is against public interest or public policy, then
such a contract would be dissolved.
2. Foreign Sovereign or state: Foreign sovereigns have been given honourable status and,
therefore, enjoy some special privileges. Foreign sovereigns are the representatives of
foreign states eg. Ambassadors, high commissioners, etc. sovereigns cannot be sued unless
they voluntarily submit or agree to the jurisdiction of the local courts.
This privilege is available only to the present sovereign and not to the ex-members.
3. Convict: A convict is a person who has been imprisoned by a Court of law. If a convict is
undergoing imprisonment he is incapable of entering into contracts. After the imprisonment
is over or he is pardoned, he again becomes capable of contracting.
4. Insolvent: When a person is declared insolvent his property vests in an officer appointed by
the Court. Unless the insolvent is discharged he is not capable of entering into contracts.
5. Married woman: Under English Law, however, until 1883 property of married passed to
their husbands on their marriage. Under Indian Law men and women have equal contractual
capacity.