• Meaning and Definition of Contractual Capacity

 The Contractual capacity is one of the most essential elements of the parties to form a valid contract. Parties must be capable or competent to enter in to particular contract. Actually the contractual capacity determines the qualifications of the parties to enter in a contract. Simultaneously it prevents the weak person being cheated by other mentally, physically and legally strong person. An agreement made by or with the parties lacking such capacity and competency is not valid and enforceable. The contract made by incapable parties does not create legal relationship as well as rights and obligations between the parties. The Court of law does not provide remedy to such contract in case of breaching of the terms and conditions. It means any contract must be formulated by competent party in according to prevailing law.

Every person competent to contract who is 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. Sec. 11 of ICA, 1872 Thus the person is incompetent to contract under the following circumstance according to Indian Contract Act, 1872 (Section 11)

  • If he is minor according to law,
  • If he is unsound mind and,
  • If he is disqualified from contracting by any law to which he is subject.

According to Section 3 of Nepal Contract Act, 2056; Any person other those mentioned below may be competent for concluding a contract.

  • Those who have not attained 16 years of age.(Minor)
  • Those who are of unsound mind.
  • Prevailing law shall be deemed to be incompetent to conclude that contract. (Disqualified person by law)

It means a sound minded person who has attained age of 16 years and not declared disqualified by law is called competent person to enter into a valid contract. If any person enters in to a contract, without such qualifications, would be void.