Competence to Contract

1. Definition and Importance

• Competence to contract refers to the legal capacity of a person to enter into a binding contract.

• Ensures parties understand the terms and consequences of the agreement.

2. General Principles

• Capacity: The legal ability to enter into a contract.

• Free Will: Entering into a contract voluntarily without coercion or undue influence.

• Legality: The contract’s purpose must be legal.

3. Legal Provisions (Indian Context)

• Governed by the Indian Contract Act, 1872.

• Section 11: Specifies who is competent to contract.

4. Who Can Enter into a Contract?

• Adults: Individuals who have reached the age of majority.

• Indian Majority Act, 1875, Section 3: Majority age is 18 years.

• Sound Mind: Individuals mentally capable of understanding terms and consequences.

• Indian Contract Act, 1872, Section 12: Defines a person of sound mind.

• Not Disqualified by Law: Individuals not barred from contracting by law.

5. Categories of Persons with Limited Capacity

1. Minors:

• Definition: Persons below the age of majority.

• General Rule: Contracts with minors are void ab initio (from the beginning).

• Case Law: Mohori Bibee v. Dharmodas Ghose (1903) - A minor’s contract is void.

• Exceptions:

• Necessaries: Contracts for necessaries supplied to minors are valid.

• Indian Contract Act, 1872, Section 68: Supplier can be reimbursed from the minor’s property.

• Beneficial Contracts: Contracts beneficial to the minor, like education or apprenticeship, may be upheld.

• Ratification: Minors cannot ratify a contract upon reaching majority; they must enter into a new contract.

1. Persons of Unsound Mind:

• Definition: Individuals incapable of understanding the nature of the contract and its implications.

• Indian Contract Act, 1872, Section 12: Specifies criteria for soundness of mind.

• General Rule: Contracts with persons of unsound mind are voidable at their option.

• Exceptions:

• If the person was of sound mind at the time of contract, it may be valid.

• Necessaries supplied to persons of unsound mind can be reimbursed from their estate.

• Indian Contract Act, 1872, Section 68: Similar to minors, suppliers can be reimbursed.

1. Persons Disqualified by Law:

• Alien Enemy: Contracts with citizens of a country at war with India are void.

• Foreign Sovereigns and Diplomats: Contracts are subject to privileges and immunities.

• Convicts: Contracts made during imprisonment are void.

• Insolvents: Persons declared insolvent cannot contract concerning their property.

Case Laws

• Age: In the landmark case of Mohori Bibee v. Dharmodas Ghose (1903) [Indian Case Law], a minor entered into a mortgage agreement. The court held the contract void due to the minor's incapacity.

• Mental Capacity:  Banks v. Goodfellow (1870) [English Case Law] involved a man who entered into a contract while demonstrably intoxicated. The court ruled the contract void due to his lack of sound mind at the time.

• Disqualification by Law:  Cheshire v. Black (1909) [English Case Law] dealt with a woman under a lunacy commission entering into a contract. The court found the contract void due to her legal disqualification.