May 28, 2024

One of the foundations of contract law is contractual competence, which is also known as the capacity to contract. It establishes an individual’s legal capacity to make contracts and abide by their conditions. The capacity to contract concept is essential to maintaining the fairness and integrity of contracts in many different kinds of activities, from fundamental everyday agreements to intricate financial transactions.         

capacity to contract

The ability or eligibility of partners to enter a business agreement is the fundamental component of a legally binding partnership contract. Here, “capacity to contract” refers to a person’s or an entity’s legal ability to form a partnership. Business law states that before a partner signs a contract, they must be qualified and meet certain requirements.

The Indian Contract Act, 1972, specifically addresses capacity in contract law in Section 11. It outlines three criteria that determine the capacity to contract. They are listed below.         

  • Reaching the majority age
  • Having a clear head
  • Not barred from entering into a contract by any statute that applies to him.

capacity contract law: Why it is Important?

  • Protecting Vulnerable Parties: It makes sure that those who might not be able to understand the conditions and ramifications of a contract, such as  children, people suffering from mental diseases, or people suffering from dementia, aren’t exploited.
  • Ensuring Voluntary Consent: It’s critical to ensure that parties to a contract are doing so voluntarily and with consent. This aids in preserving the integrity of contracts.
  • Maintaining Legality: Agreements made by parties who lack the necessary capacity may be void or voidable, which means a court may not be able to enforce them.

capacity to contract indian contract act: Disqualifications


  • In India, the age of majority is 18 years old, as per the Indian Majority Act of 1875.
  • Anyone living in India who is younger than eighteen years old is considered a minor and cannot enter into a contract.

Unsound Mind:

  • A person is deemed of sound mind for contract purposes if, in accordance with Section 12 of the Indian Contract Act of 1872, they are able to understand and evaluate the implications of the contract on their interests.
  • It is important to note that a person who is normally mentally ill but who experiences periods of lucidity may participate in a contract. A contract, however, signed by an insane person is considered null and void.

Disqualified Individuals:

  • In addition to minors and people who are mentally ill, there are additional people who are disqualified and cannot sign contracts.
  • Disqualification factors include things like legal and political standing. Those who fall under this category include foreign diplomats, foreign foes, convicted felons, insolvents, and so on.

capacity in contract law: Example

  • Take the case where X, a person of legal age, receives regular confirmation from his physician that he is mentally well. Under these conditions, X is qualified to sign contracts while he is mentally competent.
  • Another example of the ability to contract is when a 17-year-old Y borrows 10,000 rupees from an adult named Z. Y cannot enter into a contract because she is still a minor, so it is null and void from the beginning. Because Y is a minor, Z cannot legally pursue her in the event that the debt is not repaid. Y can also use her minority as a legitimate defense.

legal capacity to enter into a contract: Important Case Ruling

Case of A.T Raghava Chariar v O.A. Srinivasa Raghava Chariar

  • A person of majority age and a minor engaged in a mortgage deal.
  • The minor fulfilled his portion of the duties and increased the financial amount.
  • The other side disregarded the terms of the arrangement.
  • The Madras High Court’s entire bench was required to determine whether a mortgage executed in the name of a minor who has contributed the full amount of the mortgage money is enforceable against him or against anyone acting on his behalf.
  • The court determined that the agreement being enforced is the mature mortgagor’s pledge to reimburse the mortgagee for the money advanced.
  • The mortgagee, who is a minor, has already fulfilled his portion of the duties and advanced the money that was paid for the mortgagor’s commitment. Nothing is awaiting action on his end.
  • The contract is therefore enforceable.

One of the most crucial conditions for an agreement to be deemed legitimate and enforceable in a court of law is the parties’ competence to the contract.

A contract created by someone who is mentally incapable of comprehending its terms and implications is null and void from the beginning. However, depending on the specifics of the case, contracts with insane people or those under the influence of drugs may or may not be void.      

Capacity to Contract FAQs   

  1. What are the conditions for capacity to contract?

Anyone who is of sound mind, has reached the age of majority under the applicable law, and is not prohibited from entering into contracts by any existing laws is competent to enter into contracts.

  • What role does capacity play in a contract?

The term “capacity in contract” describes a party’s physical capability to carry out the duties outlined in a contract. The term “capacity in contract” describes a party’s legal ability to engage into and be bound by a contract, taking into account factors such as age, mental health, and occasionally, certain legal statuses.

  • What are the objectives of capacity to contract?

As to Section 11 of the Indian Contract Act of 1872, a person’s ability to enter into a contract is dependent on three elements: attaining the age of majority, being of sound mind, and not being prohibited from entering into contracts by any relevant legislation.

  • Why is capacity important in contract law?

Because not everyone should be able to commit oneself to a string of legal duties, contractual capability is crucial. If certain responsibilities are not met, there may be a breach of contract that gives rise to legal action and other remedies.

  • Who Cannot enter into a contract?

Individuals who are underage, mentally challenged, inebriated, or addicted to drugs are typically not permitted to sign contracts. Simply put, mental incapacity is the inability of an individual to be competent to enter into a contract.

  • What is capacity to contract in simple words?

You have the power or right to sign a formal agreement to indicate your acceptance of it if you are capable of entering into contracts: In terms of age, an individual who turns 18 has the legal ability to enter into a contract as an individual.

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