Introduction

The Indian Contract Act, 1872, governs the formation and execution of contracts in India. One of its essential principles is that a contract must be entered into by parties who are legally competent to do so. Competency to contract is a fundamental aspect ensuring that contracts are entered into by individuals who have the legal capacity to understand their rights and obligations. This article critically examines competency to contract under the Indian Contract Act, 1872, with reference to statutory provisions, judicial pronouncements, and comparative analysis.

Meaning of Competency to Contract

Section 10 of the Indian Contract Act, 1872, provides that all agreements are contracts if they are made by free consent of parties competent to contract, for a lawful consideration and with a lawful object. Section 11 further clarifies competency, stating:

“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.”

Thus, three primary conditions must be met for a person to be competent to contract:

1. Attainment of the age of majority
2. Being of sound mind
3. Not being disqualified by law

Age of Majority and Contractual Capacity

The age of majority is determined by the Indian Majority Act, 1875, which fixes it at 18 years. However, if a minor is under the guardianship of a court-appointed guardian, the age of majority extends to 21 years.

Contracts by Minors: Void-ab-initio

A minor is not competent to contract. The Supreme Court in Mohori Bibee v. Dharmodas Ghose (1903) held that a contract entered into by a minor is void-ab-initio (void from the beginning). In this case, a minor mortgaged property to a moneylender, and the court ruled that the contract was not enforceable.

Implications of a Minor’s Contract

1. No Estoppel Against a Minor: A minor cannot be estopped from pleading minority even if he misrepresented his age (Leslie v. Sheill, UK case).
2. No Specific Performance: A contract by a minor cannot be enforced even if it is beneficial to him.
3. Beneficial Contracts: A minor can enforce contracts that benefit him, such as contracts for necessities.
4. Doctrine of Restitution: If a minor has received a benefit, he cannot be compelled to restore it unless the benefit remains in his possession (Leslie v. Sheill).
5. Partnership Contracts: A minor cannot become a partner but can be admitted to benefits of a partnership under Section 30 of the Partnership Act, 1932.

Soundness of Mind and Contractual Capacity

A person must be of sound mind to enter into a valid contract. Section 12 of the Indian Contract Act, 1872, provides:

“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 forming a rational judgment as to its effect upon his interest.”

A person who is occasionally of unsound mind can still contract when he is of sound mind. Conversely, a person of sound mind who is intoxicated or suffering from a mental disorder at the time of contracting is incompetent.

Case Laws on Soundness of Mind

• Inder Singh v. Parmeshwardhari Singh (1957)¹: The court held that a contract entered into by an unsound person during a lucid interval is valid.
• Chiranjilal v. Haridas (1933): A contract entered by a lunatic was held void as he could not understand its implications.

Disqualification by Law

A person may also be disqualified by law from contracting due to various legal restrictions. The following categories of persons fall under this:

Alien Enemies

Contracts with an alien enemy (citizen of a country at war with India) are unenforceable. However, contracts entered into before the war may be suspended until hostilities cease.

Convicts

A convict serving a sentence is incompetent to contract, but his capacity is restored upon release.

Insolvents

A person declared insolvent loses his contractual capacity concerning property dealings.

Corporations and Companies

A company can only contract within its Memorandum of Association; contracts beyond it are ultra vires (beyond power) and void.

Comparative Analysis with Other Jurisdictions

United Kingdom

• The Minors’ Contracts Act, 1987, states that contracts with minors are generally void but can be enforced if for necessities.
• Mental Capacity Act, 2005, governs contracts entered into by mentally incapacitated persons.

United States

• Under Common Law, a minor’s contract is voidable but not necessarily void-ab-initio.
• The Uniform Commercial Code (UCC) allows minors to disaffirm contracts but imposes obligations on them for benefits received.

Judicial Trends in India

Indian courts have upheld the rigid principle that minors’ contracts are void-ab-initio. However, recent trends show:

• Recognition of minors’ right to beneficial contracts
• Growing judicial reliance on the doctrine of restitution
• Expanding scope for minors in necessities and employment-related contracts

Conclusion and Recommendations

Competency to contract is a cornerstone of contractual jurisprudence. The law strikes a balance by protecting minors and incapacitated persons while ensuring that contractual obligations are met in a fair and just manner.

Recommendations:

1. Legislative Clarity: Indian laws can be refined to distinguish between void and voidable contracts for minors, similar to the UK approach.
2. Judicial Flexibility: Courts should consider the evolving socio-economic landscape and allow restitution-based remedies in exceptional cases.
3. Public Awareness: Greater awareness among the general public can prevent contractual disputes involving incompetent persons.

Thus, competency to contract remains a dynamic field of law requiring constant evolution in response to societal needs and changing economic conditions.

1. AIR1957PAT491 ↩︎