Competency to Contract

What Does “Competent to Contract” Mean?

The term “competent to contract” refers to the legal ability of an individual to enter into a valid contract. Section 11 of the Indian Contract Act, 1872, provides the definition: 

“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.”

In simple terms, a person who has reached the age of majority (typically 18 years or older) and possesses a sound mind is considered competent to make a valid contract. This concept of competency is fundamental in contract law as it ensures that parties enter into agreements willingly and fully understand the terms and conditions of the transaction. 

It also safeguards individuals involved in contractual relationships from being taken advantage of, deceived, or unduly influenced.

Criteria for Competency

The Indian Contract Act of 1872 outlines the principles governing the interpretation and enforcement of contracts in India. According to this Act, a person must fulfil the following criteria to be deemed competent to enter into a contract:

Age

The individual must have attained the age of majority, which is generally 18 years. Minors lack the legal capacity to form binding agreements. However, a minor may benefit from a contract if it is drafted in their best interests.

Mental Ability

The person must possess a sound and stable mental capacity to comprehend the nature of the agreement they are entering into and understand the consequences of breaching the contract. 

If someone is not of sound mind or is under the influence of drugs or alcohol at the time of contract formation, they are considered incompetent to enter into a contract.

Contractual Competence

This criterion ensures that a person is not legally barred from entering into any type of binding agreement. It includes individuals who are bankrupt but have not yet been discharged, as well as those who suffer from mental illness.