Introduction
Contract is an agreement enforceable by law generally between two or more than two persons who are parties to the contract and bound by it. Each party is obligated to the contract in which they entered. In simple words a contract is a document created between two or more people which includes terms and conditions for the purpose of transaction between parties to it. Those parties obligated to follow terms and conditions, breach of such contract leads to legal consequences. Competency to contract is the foundation of any contract form under Indian contract law. Before application of any principle to form a contract whether the party or parties are competent to enter in the contract has to be taken into consideration, which means the party to the contract is fulfilling or not ,the basic needs given under Indian contract law 1872 ,to become part of the contract.
Indian contract Act explicitly mentions who are not competent to enter in contract or unable to be part of it. The person is minor, unsound and disqualified by law. Any person falling into any of these categories is not competent to be a part of the contract.
Definition and Legal Concept of Competency to Contract
Meaning of competency to contract
Competency of contract means ability of a person to enter into a contract which can be legally enforceable. Competency of contract requires age of majority , sound mind and not disqualified by law, When a person is competent to enter into a contract can understand the contract and its consequences .
Legal Basis of Competency
Legal base of competency of contract found in Indian contract Act,1872. Section 12 of the said Act talks about who is competent to contract and Section 13 gives clear idea about who is considered a sound and unsound mind person for the purpose of contract.
Section 12: 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.
It means a person attaining age of majority is considered sound mind and any law not restraining that person from entering into contract is considered competency.
Section 13: A person is said to be of sound mind for the purposes of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.
A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
Section 13 of Indian contract Act gives categories and how those work in case of contract . When a person can understand the contract ,its consequences and benefits he can obtain from it considered a sound mind and competent to enter into the contract . When a person has an unsound mind but can become sound and understand like a sound mind can enter into contract when he is sound . further when a person is sound but he becomes unsound for a specific period of time and during that period unable to understand what a sound mind can understand then in such a situation he can not enter in contract in that specific period of time when he is considered as unsound.
Illustration :
A gave drugs to B and signed a contract with B . In this case B is considered occasionally unsound and lacks the competency to contract.
A is an old person able to understand normally a few times. He signed the contract when he can understand what he is doing so here competency requirement fulfilled .
Competency to Contract of Minors
Definition of Minor in Contract Law
In the context of a contract, a minor is a person who is below the age of 18 years. In Indian contract age of majority is not explicitly mentioned. In case of contract age refer from the Act because it is not mentioned but use the word miner . A minor is based on jurisdiction which could be territorial means as per law of territory in which the contract is executing or vary on subject matter jurisdiction. Minor persons are considered to be incapable of understanding the contract and its obligation.
Why Minors Cannot Contract
A contract entered by a minor is void-ab-intio .It means void from the beginning of the contract . it was considered as never existed . This concept exists to protect the minor from contractual obligation and its consequences . It assumes that minors do not hold the ability to understand the contract because of several factors by the age which might lead minors to exploitation . To prevent the same minor cannot enter in contract or be the party of it .
Illustration:
A is a minor who has inherited property from his parents. His parents died in an accident. Subsequently, his uncle D entered into a contract with A for the transfer of the said property in favour of D. A signed the contract. However, the contract is not legally enforceable, as it is void ab initio, since a contract in which one of the parties is a minor is considered to have never existed in the eyes of law.
Exceptions to Minor’s Incompetency
Minor cannot be the party to contract is a legal principle given under indian contract law . but it also has an exception to the incompetency of minors to be a party to it. Contract includes offer and acceptance which is a crucial aspect of daily life of individuals including minors. Because of incompetency to enter into contract minors cannot enjoy the benefits. Those are contracts of necessities like contracts for food, employment , clothing ,shelter, etc. so the contract from which a minor enjoys benefits is an exception to minor’s Incompetency.
Illustration:
A student, living in a flat and not having attained the age of majority, entered into an agreement with landlord B. The agreement is considered valid, as it is for the benefit of A, the minor.
C, being a minor, went to a clothing shop and purchased clothes. The shopkeeper offered the clothes, and C accepted them in exchange for money. This contract is considered valid, as it relates to the supply of necessaries suited to the condition in life of C.
Competency to Contract of Persons of Unsound Mind
Definition of Unsound Mind
An unsound mind is one of the key aspects or conditions which make a person incompetent to enter into a contract. Indian contract Act,1872 includes provision which says unsound mind persons cannot be party to contract and also explained to whom should be considered unsound mind. It simply says a person who is incapable to understand the contractual obligation and its consequences due to mental illness is considered a person of unsound mind.
Illustration:
A person residing in a mental asylum entered into a contract with B. Such a contract is void, as A is mentally incapable of understanding the nature and consequences of the contract and therefore falls within the category of a person of unsound mind.
Effect of Unsound Mind on Contracts
As Mentioned in section 11 Indian contract act a person of sound mind can only be the party of contract . but section 12 gives some exceptional situations which can change the effect of unsound mind on contract. There are adjudicated unsound minds and Occasional unsound minds. when a person is declared unsound by court of law during that declaration of period if that person enters into the contract is void that is adjudicated unsound mind person. On the other hand, when a person’s unsound mind for a specific period of time is occasionally unsound.
Void and Voidable Contracts
When the competency to contract is in question, and a contract is entered into by a person of unsound mind, such contract is generally void, as it is not legally enforceable. However, due to certain exceptions, the contract may become voidable in specific circumstances.
A contract is void when it is not legally enforceable at law. Where exceptions apply, the contract does not become valid but voidable. Voidable contracts are those contracts which may be treated as valid or void depending upon the circumstances, and their enforceability lies at the discretion of the party concerned as well as the court of law.
Competency to Contract of Disqualified Persons
Who Are Disqualified Persons
A person is said to be disqualified by law when that person committed a crime ,declared bankrupt or restricted by law for a concerned transaction. This person is considered to be a disqualified menace not allowed by law to be a party to contract.
Illustration :
A murdered B which criminal offence .Now A cannot entered into the contract because he disqualified by committing crime
Effect of Disqualification on Contracts
Competency to contract by a disqualified person protects the public interest . Effect of such disqualification to prevent misuse of contractual freedom . That person who is not qualified to be a party to a contract is subject to disqualification . I
Key Legal Principles Governing Competency to Contract
- To make any contract enforceable that contract needs to be valid , lack competency to invalidate it.
- Any contract needs free consent and it is given by a minor ,unsound mind person, disqualified person not falling into free consent because as per law they are not competent to contract.
- If such a contract comes into existence then it becomes void or voidable .
- Competency of the party to contract is the core principle to validate the contract so all three components become essential while checking the competency .
- If still parties are incompetent but vulnerable and need be protect then that become exception
Conclusion
Competency to contract is one of the essential aspects that must be taken into consideration while forming a contract. Lack of competency can invalidate a contract, making it not legally enforceable. A person who is a minor, of unsound mind, or disqualified by law is not competent to contract. However, there are exceptions depending upon the circumstances, intended to protect the interests of these three categories minors, persons of unsound mind, and disqualified persons as they are considered vulnerable. Such exceptions allow them to derive benefits from contracts entered into for their welfare.
About Author
Vaishnavi Patil, a law student at Marathwada Mitra Mandal Shankarrao Chavan Law College, is an emerging legal writer with a keen interest in understanding and interpreting core principles of law. With a particular inclination towards Contract Law, she actively engages in research and writing to explore the evolving dimensions of legal capacity and the nuances surrounding the competency to contract. Vaishnavi aspires to contribute meaningful insights to the legal field while strengthening her academic and analytical foundations.
FAQs Section
- What is competency to contract?
“Competency to contract means having capacity to enter into a contract which is legally enforceable. A person who is minor, mentally unsound and Disqualified by law is incompetent to be party to a contract. These people are excluded from making contracts so that no one can misuse their incapability for their own use.
- Can a minor enter into a valid contract?
Minor cannot enter into the contract as they are not considered capable to understand the obligation of contract and its consequences. So the law considered a minor vulnerable position where anyone can take advantage and forfeited his benefit .Minors contract can be validated if that is made for minors benefit which is an exception to minor contract to protect his interest.
- Are contracts entered by persons of unsound mind valid?
A contract entered by a person of unsound mind is not valid as per Indian contract law. It can be validated if that contract was made by an unsound person in sound condition . It means if a person can be occasionally sound or unsound then when he is in sound mind condition he can be party of contract .Such contract becomes voidable in nature and subsequently declared valid or void.
- Who are considered disqualified persons under contract law?
A person is said to be disqualified by law when he commits a crime, restricted by certain law for transactions subjected to contract.such person is not competent to contract and contract made by such person not enforceable.
- What are the exceptions to incompetency in contracts?
A contract made by a minor ,unsound mind person and disqualified person is void because they are not competent to contract but it can be validated in certain exceptional cases. If a minor is party to the contract and it is beneficial for him then it can be validated to ensure his interest . when the contractual party is unsound but if the contract sign is in condition when that person was sound then that can become valid .