The basic framework of contract is provided by the Indian Contract Act, 1872 and herein we’re talking about Section 11 of Indian Contract Act, 1872 One of these prerequisites is the ability of the parties, where Section 11 of the said Act deals with. This provision is favorable in fulfilling its important function of identifying those who are qualified to enter into binding legal deals. It can be safely pointed out that understanding of Section 11 of the Indian Contract Act, 1872 and its exceptions is significantly important for understanding general principles of the contract.
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Section 11 of Indian Contract Act, 1872: Competency to Contract
Section 11 of the Indian Contract Act, 1872 states that:
“Every person is capable of entering into a contract if he is of the legal age of this or that state, if he is a sane person, and if under no circumstances is he allowed to make contracts under the law.”
This provision identifies three key criteria for determining the competency of a party to contract:
Age of Majority
Soundness of Mind
Qualified by the law to enter into a contract
Let’s examine the competency to enter into a contract as per the essential elements given under Section 11 of Indian Contract Act, 1872:
1. Age of Majority
Section 11 of Indian Contract Act, 1872 declares that one has to be of the age of majority to enter into a contract. Indian Majority Act, 1875 defines the age of majority as the person attains majority from his 18 years and above.
Minors cannot enter into contracts, which are void ab initio or invalid from the beginning. It's rationalised due to the fact that minors simply don't have the maturity or understanding they need to actually understand the implications of what they're doing.
The same fact was established in the case of Mohori Bibee v Dharmodas Ghose (1903) that under section 11 of the Indian contract act, 1872, a contract with minors is void. Here the defendant who was a minor, mortgaged property but the court held that the agreement is void as minor lakh the legal capacity to contract. The Privy council ruled that no legal obligation or restitution arise from avoiding contract, safeguarding minors from unfair obligations.
For example, a minor may not be held liable to repay loans or perform other contractual obligations.
Exceptions:
The exceptions to age of majority are given below:
Necessaries Supplied to a Minor: A minor is liable to pay for such necessaries as have been supplied to him or his dependents under Section 68 of the Indian Contract Act. Necessaries are things necessary to the smallest of the minor’s life and good comfort, viz food, clothes, and shelter. The minor’s property can be claimed from the supplier.
Beneficial Contracts: The courts will uphold contracts which are purely to the benefit of a minor, for instance where a minor is very young when the contract is made, such as in a contract for apprenticeship or a scholarship agreement. Agreements like that are enforceable so long as they enrich the minor.
Doctrine of Restitution: If a minor taps into a benefit by misrepresenting his age, the court may order restitution that is, the minor will be forced to give him the benefit obtained. But this is on the assumption that enforcing restitution does not validate a void contract.
Contracts by a Guardian: If the contract entered into is in the interest of the minor then the minor may be contractual partner to the guardian who may, however, not contract on his own behalf. Consequently, they include contracts for education, for marriage (in some communities), and the management of property.
Read to know what is contract drafting and who is a contract lawyer.
2. Soundness of Mind
Contract is a matter of sound mind. Section 12 of the Indian Contract Act provides the definition of a person of sound mind as someone who:
With the ability to understand the terms of the contract.
Able to make a rational judgement as to its effect on his interests.
A person is said to be unsound of mind if he is so from mental illness, intoxication or temporary incapacity. Such individuals enter into void contracts.
Exceptions:
There are basically 2 exceptions of unsoundness of mind under section 11 of Indian Contract Act, 1872:
Lucid Intervals: Where the person ordinarily of unsound mind, but enters into a contract for a lucid interval (a time of clarity and sound judgement), he is competent to contract. They will not be bound by the contract if an individual with a mental disorder who understands and agrees to the contract buys goods during a lucid interval.
Contracts of Necessaries: Section 68 expressly allows a supplier of necessaries supplied to a person of unsound mind to claim the necessaries as can be done in the case of a minor. If the supplier is reimbursed, the property of the person of unsound mind may be used.
3.Qualified by the law to enter into a contract
It is also stated in the third criterion under Section 11 that a person must not be disqualified to enter into a contract by any law to which he is subject. Such laws include particular statuses or professions.
The example for better understanding of qualification by law under Section 11 of Indian Contract Act, 1872 are:
Insolvents: An insolvent person is incompetent to contract respect of his property. However, he can even make some contracts with court authorization
Convicts: Persons sentenced to prison are not allowed to contract unless by law or court.
Foreign Sovereigns and Ambassadors: International law confers immunity on these individuals and they can't enter into contracts unless the contracts are for commercial purposes.
Corporations and Companies: Corporations can only contract as provided in their memorandum of association or articles of association. Contracts beyond their capacity are called ultra vires and void. Statutory provisions, though, may permit amendments in certain cases.
Summary
Section 11 of the Indian Contract act, 1872, prohibits those, who are not of their sound mind, are not of the age of majority, or legally incapacitated to enter into a contract.
Contracts made for minors are void unless necessaries are contracted for, or beneficial agreements.
They are also incapable of contracting if they are of unsound mind unless in a lucid interval.
Insolvents, convicts and certain protected people such as foreign sovereigns are excluded from legal disqualifications.
Section 11 provides clear rules and preserves the interests of such individuals while contracts are enforceable and equitable.
Section 11 of Indian Contract Act: FAQs
Q1. What does Section 11 specify?
It defines the one who may enter into contract as the person who is of majority age, sound mind and not legally disqualified.
Q2.Can companies have contracts with minors?
They are void unless necessaries are involved, or are beneficial, or were made by the guardian for the minor's benefit.
Q3. What about contracts made by persons of unsound mind?
Such contracts are void, unless made when they are so far impaired, as not to be capable (when made) of understanding and judging of the consequences of their engagement.
Q4. What are necessary in contracts?
Food or shelter, basic essentials, really. A minor or one not of sound mind is liable for necessaries supplied to him.
Q5. Are insolvents entitled to enter into contracts?
Property is not the usual type of contract that insolvents can enter into unilaterally.
