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Capacity to Contract


Capacity to Contract

Capacity to contract means the competency to enter into a valid contract legally. The capacity to contract binds the parties of the contract with a promise to oblige by it. But only certain persons have the competency or the capacity to make a contract. This article deals with the basic components necessary for a person to be competent to make a contract.

Competent to Contract

To make a contract, only certain people are eligible. The following are the people who have the capacity to contract:

  • Those with a sound mind
  • People who have crossed the majority age
  • Those who can contract because they are qualified under the contracting law

Incompetent to Contract

To make a contract, certain people are not eligible. The following are the people who do not have the capacity to contract:

  • Those with an unsound mind
  • Minors who have not crossed the majority age
  • Those who cannot contract because they are disqualified under the contracting law


Any person who is not of the age of majority is a minor. In India, 18 years is the age of majority. Below the age of 18 years does not have the capacity to enter into a contract. A contract or agreement with a minor is null from the beginning, and no one can sue them. The State provides the Minors with civil and criminal immunities. In addition to that, it takes custody of the well being and the property of the minor. These immunities do not let the minors to enter into a contract. But if a minor enters into a contract knowing his incapability, then such a contract shall work independently of any contract.

If a party is from India and another party from a foreign country, then there will more than one law that will be applicable in the contract. In such cases, the TNS Firm v. Muhammad Hussain has set specific guidelines. The age of the majority for ordinary mercantile transactions will depend upon the law of the country where they make the contract. The age of the majority for land transactions will depend upon the law where the land is located.

Effects of a Minor’s Agreement

if a minor enters into a contract by misrepresenting the age, then no one can stop him or her from disclosing their age. The minor is not liable for inducing another party into a contract. Even if any mishaps take place, he is not responsible. But in certain mishaps, he will be liable to it. The minor to avoid a contract can plead his infancy. An agreement of a minor stands as a doctrine of restitution. Whereas if a minor purchases a property by hiding his age, then the purchased property will be returned. But, if he has converted or sold them, then the law cannot sue him.

Contracts Beneficial to Minors

One can bring a minor into a contract if he is beneficiary for the contract. The minor does not have a restriction to be a promisee or payee in a contract. Thus a minor can purchase an immovable property and also can sue for the possessions upon the tender of the money. One cannot order a specific performance against a minor.

Claim for Necessaries Supplied to Minors

Section 68 of the Indian Contract Act, 1872 states that if a person does not have the capacity of being in a contract receives necessaries from another person. He has the power to reimburse from the incapable person. Though section 68 makes minor liable for the necessaries, it does not define the necessaries. The necessaries will be decided upon the case. To have reimbursement for the necessaries the party supplying the necessaries must prove that the good and reasonable. They have also to confirm that the provided necessaries are the only support for the minor and that they do not have any sufficient supply with them.


The minor can become an agent. But he is not responsible to the principal. The contract of apprenticeship is a  service contract, and it binds the minors by providing benefits to them. But such an apprenticeship contract is made by a parent or guardian.

Negotiable Instrument

The minor can draw, deliver, endorse and negotiate the negotiable instruments. This is to bind every party except him. Any person who receives any goods from the minor has to pay for it. A minor can avail the benefits of a partnership but cannot be a partner. A minor can register as a member to a fully paid shares of a company. If a minor owns the shares through transmission, then guardian of the minor’s name will appear as a member.

Person of Unsound Mind

The contract law refers to the medical dictionary for the definition of an unsound mind person. The mental incapacity prevents the person from understanding the transactions and also the awareness of its implications. An agreement or contract with an unsound mind person stays inoperative and void. But such a person cannot avail any benefits from the contract. The property of such a person is always liable. It is responsible for the necessaries he receives or to anyone he is bound legally to support. A person who is normally of unsound mind but occasionally of sound mind can contract when he is of sound mind. This is the lucid intervals.


It is a mental disorder if there is the incompetence of intoxication. The person who alleges it can only prove the intoxication. A person drinking or consuming any intoxicants cannot enter into a contract in such an unsound mind state.

Person Disqualified by Law

If the law does not accept any person, then he does not have the capacity to enter into a contract. The law should qualify a person for them to be a part of a contract.

Alien Enemies

The foreign country citizens living in India are the alien enemies. Such persons have the capacity to enter into a contract with the Indians only during peace times. Such a contract is also subject to the restrictions of the Government. If there is a war declaration between his country and India, then he will become an alien enemy, and so he does not have the capacity to enter into a contract. If the person from the foreign country enters into a contract before the declaration of the war, then the contract will stay suspended during the period of war. The contract can be revived after the end of the war if it has not barred the time limit.

Convict Serving Sentence

A person who is guilty and is serving imprisonment does not have the capacity to enter into a contract. He also cannot sue on the contracts that were before his conviction. After the expiry of his sentence, he is at liberty to suit.

Married Women

A married woman does not have the capacity to enter into a contract relating to the property of her husband. But the wife can be an agent for her husband and bind his property if he fails to provide her with the necessaries.


An adjudged insolvent has the capacity to enter into a contract of certain types. The insolvent can incur debts, be an employee and purchase a property, but he cannot sell the property. He has certain disqualifications like he cannot be a magistrate, he cannot be a company’s director, or he cannot be a local body’s member. The insolvent person has the capacity of a contract except for his property. He becomes an ordinary citizen after the order of discharge.

Pardanashin Women

A person under the veil or parda and set out of the house, then she is under undue influence. She does not have an understanding of the implications of the contracts and so she does not have the capacity to contract.

Corporation Incorporated under a Special Act and Joint Stock Company

Such a corporation or company will be an artificial person formed by the law. It does not have the capacity to contract outside the powers of the Memorandum of Association or the Special Act.

Judges, Legal Practitioners or Officers

The judges, legal practitioners or officers who have a connection with the business interest in actionable claims do not have the capacity to enter into a contract.

Officers and Employees of the Patent Office

The officers and the employees of the patent office do not have the capacity to take rights, obtain or take an interest in the patent issued by them during the period of appointment.

Foreign Sovereigns and Ambassadors

International laws extend diplomatic immunities to foreign consulate employees and ambassadors. Hence the Indian laws cannot enforce the contracts on them. They can sue the persons to implement the contracts with them, but they cannot be sued without a sanction from the Central Government. Thus the ambassadors and the consulate employees are in a privileged position but are considered to be not competent to contract.