Introduction

• In India a contract is governed by the Indian Contract Act, 1872. A contract is nothing but a promise which is enforceable by law. A contract exists when there is agreement and enforceability.
• Section 10 of the Indian Contract Act, 1872 says that the parties entering a contract must be competent to contract (suitable/qualified by law).
• On the other hand, according to Section 11 of the Indian Contract Act, 1872, “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.”

Contract with a Minor:

• The term minor has not been defined in the Indian Contract Act 1872.
• 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.
• In India agreement with a minor is void ab initio means void from starting.
• A void contract is a formal agreement that is effectively illegitimate and unenforceable from the moment it is created.
• Void contracts can occur when one of the parties involved is incapable of fully comprehending the implications of the agreement.
• In Mohri bibee v. Dhurmodas Ghose (1903), the Privy Council declared the law that any contact by a minor or any minor's agreement is "absolutely void".
• Ratification of a Contract by Minor:
• There is no such thing as ratification of a minor’s contract. If a person, during the time of entering into the contract is minor, then the contract is void. The minor, after becoming a major, cannot rectify the contract (the contract if rectified, will not be valid).
• It cannot be rectified as it is believed that if a minor does not have the mental capacity to enter into a contract, he shouldn’t be given the authority to rectify it.

No Estoppel Against Minor:

• A minor who enters a contract under false pretence and claims to be a major, there will be no estoppel against him, and he legally does not need to prove his age in front of the court. The reason behind this is to protect the minors from liability he owes to the major.
• In Jagar Nath Singh v. Lalta Prasad (1908), The Allahabad High Court held that no estoppel shall be invoked in the case of a minor as the contract, by law, is already void ab initio.

Persons of Unsound Mind

• Section 12 of the Indian Contract Act, 1872, defines the term ‘soundness of mind’ as follows:
  • A person is said to be of unsound mind if he is incapable of understanding the question and forming a rational answer to that question.
  • A person is said to be of sound mind if he is capable of understanding the contract and the effect of that contract on 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. For example, A person in a lunatic asylum, who at intervals is of sound mind may contract during those intervals.

Lunatics:

• A person whose mental power is unbalanced is called a ‘Lunatic’. It is not necessary that a lunatic is always in the state of lunacy, he can have intervals of lunacy.

Idiots:

• A person who has completely lost his mental well-being is said to be an ‘Idiot’. Idiocy is a permanent ailment; therefore, an agreement by an idiot is void.

Intoxicated person:

• A drunken person is not in the correct state of mind for forming a rational judgment, therefore he is incompetent to contract in an intoxicated state.

Persons Disqualified by Law:

• The disqualified persons are incompetent to contract due to many reasons like legal, political or corporate status.
• Their legal status is the cause of disqualification by which they are regarded as incompetent for making contract.
• If such a disqualified person enters into a contract that contract does not amount to the status of valid contract.

Following is a list of disqualified persons:

Alien Enemy:

• A person from a foreign country is an ‘alien’. When war is declared with that country, the alien person belonging to that country is regarded as an alien enemy.
• In India, a contract with an alien enemy is void but a contract with an alien friend is valid under the Indian Contract Act, 1872.
• No contract can be made with an alien enemy during the subsistence of war, except with the prior approval of the Indian Government.

Convicts:

• A person punished by the court in the case of criminal charge, is known as convict or convicted criminal.
• Such a person loses their legal capacity to perform certain work. The convicted person does not enter into a contract during the period of punishment.

Insolvent:

• The insolvent is disqualified from entering into a contract until he is discharged by the court of law.

Foreign Sovereigns:

• Ambassadors, Representative, Delegates cannot enter into contracts as they are free from civil liability, which are created by the law of residential country and due to this, individual cannot enter into contract with such person because there is no legal remedy against them.

Corporations:

• A company is an artificial person created by law and is competent to contract. But its power of contract is subject to the limitation which may be either necessary or express.

Conclusion

• Competency to contract is an essential part of contract law. The Indian Contract Act, 1872, lays down specific provisions to determine the capacity of a person to enter into a contract. A person who is of the age of majority, of sound mind, and not disqualified by law can enter into a contract.
• It is crucial to understand the competency of the parties to a contract to ensure that the agreement is legally binding and enforceable.