This unit discusses the capacity of parties to enter into valid contracts. It covers: - The three types of persons competent to contract: those who have attained the age of majority, are of sound mind, and are not disqualified by law. - Minors, persons of unsound mind, insolvents, convicts, and others disqualified by law lack capacity. - Agreements by minors are absolutely void and cannot be ratified upon reaching majority. Contracts by the mentally unsound are also void. - Free consent is a requirement for a valid contract and means approval given freely by one's will without any undue influence, fraud, coercion or misrepresentation.

1. UNIT III

2. UNIT III
CAPACITY TO CONTRACT
FREE CONSENT
VOID AGREEMENTS
VOIDABLE AGREEMENTS
ILLEGAL AGREEMENTS
MINORS

3. CAPACITY OF PARTIES
The capacity of the contract means the competence of the parties to enter into a
valid contract. An agreement will be valid and enforceable only if the parties to
it are competent to enter into contract.
DEFINITION:
According to Sec 11 of the contract Act, 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.

4. According to sec 11, the following, the three types of persons are competent to
contract
 One who has attained the age of majority
 One who is of sound mind and
 Persons not disqualified from contracting by any law
If a party to a contract is incompetent to contract then the contract is void.
Incapacity arises from Status, Mental deficiency, Unsoundness of mind
Persons are incompetent to contract
 Minor
 Persons with unsound mind
 Persons disqualified by law ( insolvent, convict)

5. MINOR :
According to sec 3 of the Indian Majority Act 1875, “ a minor is a person who has
not completed eighteen years of age”.
LEGAL RULES REGARDING CONTRACTS MADE BY MINORS:
1. Absolutely Void
2. No ratification on attaining majority
3. No estoppel against minor
4. No Restitution
5. Liability for necessaries
6. Contracts beneficial to minor
7. No liability of parents for minors acts
8. Minor as an agent
9. Minor and partnership
10. Minor and Negotiable instruments
11. Minor cannot be adjudged insolvent
12. Minor as a member of a company

6. INCOMPETENCY DUE TO UNSOUNDNESS OF MIND :
One of the essential conditions of competency of parties to a contract is that they
should be of sound mind
The agreement by persons of unsound mind are absolutely void
Sec 12 of the Indian contract Act, A person is said to be of sound mind for the purpose
of making a contract if, at the time when he makes it, he is capable of understanding it
and of forming a rational judgment as to its effect upon his interests.
 A person who is usually of unsound mind, but occasionally of sound mind, may
make a contract when he is of sound mind.
 A person who is usually of sound mind, but occasionally of unsound mind, may not
make a contract when he is of unsound mind.

7. Persons of unsound mind
1. Lunatic
2. Idiots
3. Drunken or Intoxicated Persons

8. IDIOTS
An idiot is a person who has completely lost his mental power. He does not exhibit an
understanding of even ordinary matters.
LUNATICS
A Person affected by Lunacy is said to be Lunatic. A person can become lunatic at any
stage of his life. Lunacy is a disease of brain. A lunatic is one whose mental power is
deranged due to some mental strain or other personal experience.
DRUNKEN OR INTOXICATED PERSONS
Drunken person is one who has completely lost his mental soundness temporarily due
to the effect of drinks. Drunken person cannot make a valid contract. Contract with a
drunkard is void.

9. INCOMPETENCY DUE TO STATUS:
 Alien enemy
 Foreign sovereigns and accredited representatives ambassadors
 Insolvent
 Convict
 Married Women

10. FREE CONSENT
MEANING:
Free consent means assent or approval given by the exercise of one’s will.