1. Introduction: Why “Competency” matters #

A contract becomes enforceable only when it satisfies the essentials of a valid contract under Section 10, Indian Contract Act, 1872 (ICA)—i.e., agreement and enforceability by law. One core condition is that the parties must be competent to contract (capacity).

2. Who are competent to contract? (Section 11 ICA) #

Statutory rule (Section 11 ICA) #

Section 11 provides that every person is competent to contract who:

1. Is of the age of majority according to the law to which he is subject,
2. Is of sound mind, and
3. Is not disqualified from contracting by any law to which he is subject.

So, the law recognises three pillars of contractual capacity:

• Majority
• Soundness of mind
• No legal disqualification

3. Meaning of “Capacity to enter into a contract” #

Meaning #

“Capacity” means the legal ability/competence of a person to create binding contractual relations. If a person lacks capacity, the agreement may become:

• Void (no legal effect), or
• Voidable (enforceable at the option of one party), depending on the defect and the statute.

4. Essentials of Competency under Section 11 #

A. Majority (Age of Majority) #

A person must be a major (majority as per the law applicable—commonly under the Majority Act, 1875).

Legal effect of minority #

In India, a minor’s agreement is generally treated as void ab initio (void from the beginning).

Landmark Case: Mohori Bibee v. Dharmodas Ghose (1903) #

Facts: A minor mortgaged his property to a moneylender. The lender’s agent knew the borrower was a minor. Later, the minor sought cancellation of the mortgage.
Issue: Whether a minor’s contract is void or merely voidable, and whether the lender can enforce the mortgage.
Held: The agreement by a minor is void ab initio and cannot be enforced. Since the minor was incompetent under Section 11 ICA, no valid contract came into existence.

Minority is a complete bar to contractual capacity under Section 11; the agreement is void from inception.

B. Sound Mind (Section 12 ICA) #

Even a major must be of sound mind at the time of contracting.

Statutory test (Section 12 ICA) #

A person is of sound mind for contracting if, at the time of making the contract, he is capable of:

1. Understanding it, and
2. Forming a rational judgment about its effects on his interests.

Also, a person who is usually unsound may contract during a lucid interval, and a person usually sound may be incompetent during temporary unsoundness (e.g., intoxication).

Landmark Case: Imperial Loan Co. v. Stone (1892) #

Facts: Stone took a loan / signed a promissory arrangement with Imperial Loan Co. When the lender sued for recovery, Stone pleaded that at the time of contracting he was of unsound mind (incapable of making a binding contract).

Issue: What is the legal test for avoiding a contract on the ground of unsoundness of mind—is incapacity alone enough, or must the other party also have notice?

Held: The Court of Appeal held that the contract is not automatically void. It can be avoided only if both are proved:

1. Stone was incapable of understanding the nature and effect of the transaction at the time; and
2. the lender knew of that incapacity (or the incapacity was so apparent that it ought reasonably to have been known).

If the other party acted in good faith without such knowledge, the contract stands.

C. Not disqualified by law #

Even if a person is a major and of sound mind, they must not be disqualified by any law. Common examples:

• Alien enemy (contracts suspended or declared illegal depending on circumstances of war)
• Foreign sovereigns and diplomatic persons (restricted by principles of immunity; depends on municipal law)
• Insolvents (restricted to contract in immovable property under insolvency law)
• Trust or Companies (restricted by their constituting law or bye-laws—cannot do what their law does not permit)

Landmark Case: Ashbury Railway Carriage & Iron Co. v. Riche (1875) (Ultra Vires company contract) #

Facts: The company’s memorandum said its objects were mainly to make/sell railway carriages and related equipment, and to do things incidental to that business. It nonetheless entered into a contract with Riche to finance and construct a railway line (a separate kind of undertaking). Later, the company repudiated the contract and Riche sued.

Issue: If a company makes a contract outside the objects in its memorandum (ultra vires), is the company still bound—especially if shareholders approve or the company later wants to ratify it?

Held: The contract was void ab initio (a nullity). Because the company lacked capacity to enter into a railway-construction venture beyond its memorandum objects, the agreement cannot be ratified—not even by unanimous shareholder consent.

Performance of Contract (ICA) #

5. Meaning of “Performance of Contract” #

Statutory basis (Section 37 ICA) #

Section 37 ICA states that the parties must either:

• Perform, or
• Offer to perform (tender),
  their respective promises, unless performance is excused/dispensed with under the Act or any other law.

So, performance means fulfilling contractual obligations as promised. It includes:

• Actual performance (promise carried out), and
• Attempted performance / Tender (valid offer to perform; if refused, promisor may be discharged from further responsibility in many cases).

6. Who are competent to perform a contract? (As per ICA) #

General rule #

Ordinarily, the promisor must perform the promise, but the ICA recognises performance by others in appropriate situations.

A. Performance by the promisor himself (Section 40 ICA) #

If a contract involves personal skill, taste, qualifications, or personal confidence, it must be performed by the promisor personally.

Section 40 ICA (principle): If it appears from the nature of the case that it was the intention that the promise should be performed by the promisor himself, it must be so performed.

Landmark Case (personal performance): Robinson v. Davison (1871) #

Facts: Mrs. Davison, a pianist, agreed to play at the Robinson’s concert on a fixed date. Before the concert she became seriously ill, on medical advice could not perform, and the concert was affected. The Robinson’s sued for damages for non-performance.

Issue: In a contract that depends on personal skill/personal performance, does non-performance due to serious illness amount to breach, or is the contract discharged?

Held: No actionable breach. The contract was conditional on the performer being capable of performing. Serious illness made performance impossible, so the obligation was discharged (early form of frustration/implied condition).

B. Performance by an agent (Section 40 ICA) #

Where personal performance is not required, the promisor may perform:

• By himself, or
• Through an agent (typical in commercial contracts).

“If personal skill is not the essence, performance may be delegated.”

C. Performance by legal representatives (Section 37 ICA) #

If the promisor dies, then—unless a contrary intention appears—the promise is to be performed by the promisor’s legal representatives, to the extent of the estate inherited.

Section 37 ICA supports continuation of obligations unless performance is excused or a personal contract.

D. Performance by joint promisors (Sections 42 and 43 ICA) #

When two or more persons make a joint promise:

• Section 42 ICA: liability continues jointly during their lives and after death against legal representatives.
• Section 43 ICA: the promisee may compel any one or more joint promisors to perform the whole promise (subject to rights of contribution among promisors).

Illustration: A, B, and C jointly borrow ₹3,00,000 from D. D may recover the whole amount from A alone (Section 43). A can later recover contribution from B and C.

E. Performance by a third person, if accepted by the promisee (Section 41 ICA) #

Section 41 ICA: If the promisee accepts performance from a third person, he cannot afterwards enforce it against the promisor.

Landmark Case: Hirachand Punamchand v. Temple (1911) #

Facts: Temple (a British army officer) owed money to Indian moneylenders. When he didn’t pay, the lenders approached his father. The father sent a lesser sum by cheque/banker’s draft clearly stating it was “in full settlement” of his son’s debt. The lenders cashed it, but then sued Temple for the balance.

Issue: If a creditor accepts part-payment from a third party on the express condition that it is full and final settlement, can the creditor still sue the original debtor for the remainder?

Held: No. By cashing the father’s payment offered on “full settlement” terms, the lenders were taken to have accepted those terms and could not pursue the balance from Temple. The court treated it as unfair / a “fraud on the father” to accept the father’s money on those terms and then still sue the son.

Acceptance of performance from a third person can discharge the promisor to that extent (principle aligns with Section 41 ICA).

7. Conclusion #

Competency to contract is governed primarily by Section 11 ICA, read with Section 12 (soundness of mind), and relevant disqualifying laws. Capacity means legal ability to bind oneself through contract; absence of capacity defeats enforceability (e.g., minors—void ab initio as per Mohori Bibee).
Performance of contract is governed by Section 37 ICA, and performance may be by the promisor, agent, legal representative, joint promisors, or even a third party if accepted—subject to the rules in Sections 40–43 and Section 41 ICA.