Capacity of Parties

For a valid contract, the parties to a contract must have capacity i.e. competence to enter into a contract. Every person is presumed to have capacity to contract but there are certain persons whose age, condition or status renders them incapable of binding themselves by a contract. Incapacity must be proved by the party claiming the benefit of it and until proved the ordinary presumptions remains.
Section 11 of the Contract Act deals with the competency of parties and provides that “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 disqualified from contracting by any law to which he is subject.”

It follow that the following person are incompetent to contract:

(a) minor 
(b) person of unsound mind, and
(c) Person disqualified by any law to which they are subject.
Contract entered into by the persons mentioned above are void.

Every person is competent to contract:

(a) Who is of the age of majority.
(b) Who is of sound mind.
(c) Who is not disqualified from making a contract.

Therefore the following persons are not competent to contract

(a) A person who is a minor.

(b) A person of unsound mind.

(c) A person who is diqualified from making a contract. 

Minor: Who is Minor?

An infant or a minor is a person who is not a major. According to the Indian Majority Act, 1875, a minor is one who has not completed his or her 18th year of age. A person attains majority on completing his 18th year in India.
In the following two cases, a person continues to be a minor until he completes the age 21 years.

1. Where a guardian of a minor’ person or property has appointed under the Guardians and Wards Act, 1890; or
2. Where the superintendence  of a minor’s property is assumed by a court of wards.
   An amendment to this ACt was made by Indian Majority (Amendment) Act 2000 which fixed uniform age of majority as 18 years irrespective of the fact whether any guardian has been appointed but president’s assent to kid has yet to be obtained.

To deal with the problem the law provides the following two approaches:

1. In case of contracts relating to ordinary merchantile transactions, the age of majority is to be determined by the law of place where the contract is made.
2. In case of contracts relating to land, the age of majority is to be determined by the law of the place where the land is situated.

Example:

A, 18 years old-domiciled in india, endorsed certain negotiable Instrument in Ceylon, by the law of which he was a minor. Therefore, he was held not to be liable as endorser.