In one line
A person is competent to contract only if legally adult, of sound mind for that transaction and not otherwise disqualified by law.
After this note, you should be able to
- Apply all three parts of Section 11.
- Use the Section 12 test at the time the contract is made.
- Distinguish temporary incapacity from a permanent label.
The three-part Section 11 test
Competence requires every part of the statutory test to be satisfied.
- Age of majority
- The person must have attained majority under the law applicable to that person.
- Sound mind
- The person must be able to understand the contract and form a rational judgment about its effect on personal interests.
- No legal disqualification
- A separate law may restrict contractual power because of status, office or the nature of the transaction.
Capacity is tested at the time of agreement
Section 12 focuses on the person's actual ability when the contract is made.
- Usually unsound, presently sound
- The person may contract during a lucid interval if the statutory understanding and judgment are present.
- Usually sound, presently incapable
- The person cannot contract while delirium, intoxication or another condition prevents understanding and rational judgment.
- Transaction-specific inquiry
- The complexity and consequences of the particular bargain matter when capacity is assessed.
Work through the facts
Illustration
Facts
A signs a complex guarantee while so intoxicated that A cannot understand its financial effect, and the lender knows of that condition.
Likely result
A lacked the Section 12 capacity required at the relevant time. The evidence of actual understanding, rational judgment and the lender's knowledge will be central.
What to learn
Do not decide capacity from a medical label alone. Apply the statutory abilities to the moment of contracting.
Cases with a purpose
Landmark judgments
Learn the rule and where to use it. A case name without its legal function adds very little to an answer.
Mathai Mathai v. Joseph Mary
Further reading(2015) 5 SCC 622
Principle: The Supreme Court applied Section 11 and held that a minor could not personally enter a valid contract imposing contractual obligations.
Use in an answer: Use it to connect the statutory requirement of competence with the legal consequence of minority.
Read primary judgmentFor a 10-mark answer
Answer structure
- Begin with the three requirements in Section 11.
- Apply the Section 12 understanding and rational judgment test.
- Fix the inquiry at the exact time of agreement.
- Identify any separate legal disqualification.
- State the legal effect and remedy carefully.
Common mistakes
- Discussing only age and ignoring soundness of mind.
- Assuming that a diagnosis proves incapacity for every transaction.
- Testing capacity at the time of the dispute instead of formation.
Before you close the tab
Quick revision
- Section 11 contains three cumulative requirements.
- Section 12 is functional and time-specific.
- A lucid interval may permit contracting.
- Temporary incapacity can prevent a valid agreement.
Test yourself
- What two abilities does Section 12 require?
- Can a person usually of unsound mind ever contract?
- At what time is capacity tested?
Short answers
Frequently asked questions
Is every person with a mental illness incapable of contracting?
No. The statutory question is whether the person could understand the particular contract and form a rational judgment about its effect when it was made.
Can temporary intoxication affect capacity?
Yes, if it actually prevents the understanding and rational judgment required by Section 12 at the time of contracting.
Primary sources
This is an educational study note. Always read the bare provision and the full judgment before relying on a proposition in research or practice.