Capacity to contract is the legal and mental ability of a person to enter into a binding agreement under the Indian Contract Act, 1872.
## Core concept
Capacity is a condition precedent to formation of a valid contract. Section 11 of the Indian Contract Act states that every person is competent to contract who is: - Of the age of majority according to the law to which he/she is subject - Of sound mind - Not disqualified by any law to which he/she is subject
Three categories of persons lack capacity:
1. Minors (Age) - A minor is a person below 18 years of age (as per Indian Majority Act, 1875) - Contracts by minors are void ab initio (void from the beginning) - Exception: Contract for necessaries of life (food, clothing, shelter, education) – minor can be held liable for reasonable price, not contract price - Guardian's consent does not validate a minor's contract; it remains void - Minor cannot be sued for breach, but can sue others
2. Persons of Unsound Mind (Mental Capacity) - Section 12 covers persons who lack sound mind at the time of contract - "Sound mind" means the person understands the nature and effect of the contract - Lucid intervals: If a person of unsound mind enters contract during a moment of clarity, it may be valid - Burden of proving unsoundness lies on the person claiming lack of capacity
3. Persons Disqualified by Law - Alien enemies (citizens of hostile foreign nations) - Convicts (during sentence) - Undischarged insolvents - Married women (in some historical contexts, now largely removed) - Companies (contracts outside their Memorandum of Association under Companies Act, 2013)
## Formula / rule
Effect of lack of capacity: - Contract is void – neither party can enforce it - Restitution may be available: If one party has received benefit, restitution of that benefit (not based on contract, but quasi-contract principles under Section 68) - No liability for breach since no valid contract existed
Necessaries for minors (Exception to void contracts): - Goods supplied must be suitable to the minor's condition and station in life - The contract must be for actual necessaries, not luxuries - Supplier can recover reasonable price (not contract price) from minor's estate - Works as quasi-contractual liability, not contractual liability
## Common exam applications
Scenario 1: A 16-year-old buys a laptop for ₹1,00,000 on credit. Later refuses to pay. The supplier sues. - Contract is void; minor cannot be held liable - If the laptop is a necessity (e.g., for education), supplier may recover reasonable value, not full contract price - Minor can still sue the supplier if goods are defective
Scenario 2: A person adjudged to be of unsound mind enters a contract during recovery. Contract validity? - Depends on whether it was executed during a lucid interval - If yes, potentially valid (burden on defendant to prove unsoundness) - If no, void
## Common mistakes
- Mistaking "void" for "voidable": Contracts by minors are absolutely void, not voidable at the minor's option
- Assuming guardian consent validates: A parent/guardian's consent does NOT validate a minor's contract
- Confusing necessaries with essentials: Only goods actually necessary (not luxuries) attract quasi-contractual liability
- Forgetting burden of proof: Unsoundness must be proven by the party alleging it
- Neglecting restitution rights: Even void contracts may allow restitution of benefits under quasi-contract provisions (Section 68, Indian Contract Act)