Notes and Articles for Law students

User Tools

Site Tools


contract_laws:part-1:capacity-to-contract

Capacity to contract

A contract can be formed only by parties who are competent to contract. According to :

Section 10: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

Section 11 : 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.

Persons competent to contract

Under Section 11 of the Indian Contract Act, following persons are competent to contract.

  • A person who attained the age of majority and is not a minor.
  • A person of sound mind.
  • A person who has not been disqualified by law or declared as insolvent/bankrupt

A government can enter into contracts like any other person.Under the Constitution of India, the executive power of the Union and of each state extends, inter alia, to the making of contracts for any purpose. However, when a government enters into a contract in the exercise of its executive power, the contract will only be valid and binding if certain formalities are complied with. Statutory corporations and statutory bodies can make contracts. The legislation that creates them confers the power to make contracts.

Persons Incompetent to contract

Section 11 of Indian Contract Act deals with capacity to contract, according to section 11: the following persons are incompetent to contract:

  1. minors;
  2. person of unsound mind; and
  3. persons disqualified from contracting by any law to which they are subject.

Minor

A person who has not attained the age of majority is a minor. Section 3 of the Indian Majority Act, 1875, about the age of majority. It states that a person is deemed to have attained the age of majority when he completes the age of 18 years, except in case of a person of whose person or property a guardian has been appointed by the court, in which case the age of majority is 21 years. In England, the age of majority is 18 years.

Note: A minor cannot bind himself by a promise, but he is competent to enforce a promise made to him. Although a minor is not liable on contract, he is liable in quasi contract to reimburse for necessaries supplied to him.

Nature of Minors Contract

According to section 11, a minor is incompetent to contract but the Indian Contract Act is conscious by its silence about the nature of minor's contract. That is to say, it is not clear as to whether it is void or simply voidable. This controversy was only resolved in 1903 by the judicial committee of the Privy Council in their well-known pronouncement in Mohori Bibi v. Dharmodas Ghose.

Mohori Bibi v. Dharmodas Ghose

The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in favour of the defendant, Brahmodutt, who was a money-lender to secure a loan. At the time of the transaction the attorney, who acted on behalf of the money-lender, had the knowledge that the plaintiff was a minor. The minor brought an action against the money-lender stating that he was a minor when the mortgage was executed by him and therefore, the mortgage was void and inoperative and same should be cancelled. By the time of Appeal to the Privy Council the defendant, Brahmo Dutt and Appeal was prosecuted by his executors. Sir Lord North observed-

Act makes it essential that all the contracting parties should be competent to contract and expressly provides that a person who by reason of infancy is incompetent to contract cannot make a contract within the meaning of the Act. The question whether a contract is void or voidable presupposes the existence of a contract within the meaning of the Act and cannot arise in the case of an infant.”

A minor's contract is, therefore ab initio and wholly void. In the view of Privy Council, this was also in accordance with the Hindu nation of a minor's incompetent to contract. The ruling of the Privy Council in the Mohori Bibi case has been generally followed by the courts in India and applied both to the advantage and disadvantage of minors. Mir Sarwajan v. Fakhruddin Mohd. Chowdhury1): A contract to purchase certain immovable property had been made by a guardian on behalf of a minor and the minor sued the other party for a decree of specific performance to recover possession. His action was rejected.

Effects of Minor’s Agreement

No estoppel against minor

When a minor by misrepresenting his age induces another to contract with him no estoppel is available against him – there cannot be estoppel against statute – policy of law is to protect minor from contractual liability – doctrine of estoppel cannot be applied to defeat the policy - An infant is not estopped from setting up the defense of minority. Estoppel means when person makes statement and any other person acted on such statement. Then such statement can not be denied or contradicted.

In case of Mohiri Bibee v. Dharmodas Ghose when a minor misrepresented his age while taking loan, but the fact that the person taking the loan is a minor was known to the money lender. The Privy Council did not consider it necessary to decide whether law of estoppels was applicable to the case, because the money lender was not misled by the false statement by the minor and he was aware of the age of the borrower and that the law of estoppel does not apply against a minor.

No liability for tort based in contract

An agreement by the minor is void and, therefore, if a minor makes a breach of an agreement, he cannot be made liable for the same. On the other hand, when a minor commits a tort, he is liable for that in the same way and to the same extent as an adult person. Sometimes an act done by minor may be both a breach of contract as well as the commission of a tort. In the case of Johnson v. Pye, a minor falsely stated that he was of the age of majority and obtained a loan of $300. It was held that the minor cannot be asked to repay the loan by bringing an action for deceit against him. Minor’s agreement is devoid of all consequences in law. A contract cannot be converted into a tort to sue an infant. Minor is not liable for tort connected with contract, but he is not absolved from liability for independent tort.

Doctrine of equitable restitution

When an infant obtained property or goods by misrepresenting his age, he can be compelled to restore it, but only so long as the same is traceable in his possession. If the minor has resold those goods he cannot be made to repay the value of goods and it is not applicable when the minor has received money instead of goods. In the case of Leslie v. Sheill A minor misrepresenting his age obtained loan from the plaintiff, who sued to recover on the grounds that the minor is liable for damages for fraud and the minor shall be compelled in equity to restore the money. The money was paid over in order to be used as defendant’s own and he has so used it. There is no question of tracing it, no possibility of restoring the very same thing got by fraud. Compulsion to repay an equivalent sum out of his present and future resources would amount to enforcing a void contract.

Indian Law: Compensation by a minor

The question which has arisen in India is how far a minor can be asked to restore back the benefit wrongly obtained by him under a void agreement? Can a minor be asked to pay compensation to the other party?

The following two kinds of provisions have arisen before the courts:

  1. Whether a minor can be asked to pay compensation under S.64 and 65, Indian contract act for the benefit obtained by him under a void agreement?
  2. Whether a minor can be asked to pay compensation in view of the provisions contained in S.39 and 41, Specific Relief Act?

In Mohori Bibee v. Dharmodas Ghose, the question whether a minor can be asked to pay compensation to the other party, under S.64 and 65 had arisen in this case. The privy council held that the question of compensation under S.64 and 65, Indian Contract Act, arises where the parties are competent to contract, and these provisions does not apply to the case of a minor’s agreement. In this case the minor had applied for the cancellation of the mortgage deed, executed by him, under S.39, Specific Relief Act and the Privy Council considered the question of compensation to be paid by him under S.41 of that act. It was held that since in this case the loan had been advanced to the minor with the full knowledge of his minority, the question of payment of compensation to such a money lender did not arise.

Liability to restore benefits

Where a minor seeks the help of court for the cancellation of his contract, the court may grant the relief subject to the condition that he shall restore all benefits obtained by him under the contract, the court may grant relief subject to the condition that he shall restore all benefits obtained by him under the contract or make suitable compensation to the other party. In the case of Khangul v. Lakhasingh, the defendant fraudulently concealing his age agreed to sell a plot of land, received Rs.17,500/-, refused to perform his promise and hence the plaintiff sued for possession or refund of consideration. The court held that the agreement was void and hence denied possession of the land but ordered payment of consideration back to the plaintiff. The reasons for the judgment were given by Shadilal CJ as follows:

There is no real difference between restoring the property and refunding money except that property can be identified but cash cannot be traced. It must be remembered that while in India all contracts made by infants are void, there is no such general rule in England. Therefore, there should be a greater scope in India than in England for the application of the doctrine of equitable restitution

Section 33 of Specific Relief Act, 1963

Where a defendant successfully resists any suit on the ground that the agreement sought to be enforced against him in the suit is void by reason of his not having been competent to contract under section 11 of the Indian Contract Act, 1872, the court may, if the defendant has received any benefit under the agreement from the other party, require him to restore, so far as may be, such benefit to that party, to the extent to which he or his estate has benefited thereby.

Beneficial contracts are enforceable by minor

Law laid down in Moharibibi has been generally followed and growingly limited to cases where minor is charged with obligations and the other contracting party seeks to enforce those obligations against the minor. The principle “minor’s agreement is void” means law will not enforce any contractual obligation of a minor, i.e., a minor is allowed to enforce an agreement which is of some benefit to him and under which he is required to bear no obligation. For example, mortgage executed in favour of minor, minor’s suit for recovery of possession of property on sale, enforcement of promise by the other after minor performs his promise.

Contracts of service

Contract of service entered into by a minor is void.

Contracts of marriage

In the case of Khimji Kuverji v. Lalji Karamsi, the question that was laid down before the Bombay High Court was, whether the contract of marriage of a minor girl entered into by her mother on her behalf with a major boy could be enforced and she could sue for the breach of contract.

Contracts of immovable property by the minor’s guardian

In the case of Mir Sarwarjan v. Fakhruddin, the guardian of a minor entered into a contract on behalf of the minor for the purchase of land. The minor sued for the specific performance of the contract. Even though the contract was to the advantage of the minor, the minor’s suit was dismissed.

No Ratification

A person cannot on attaining majority ratify an agreement made by him during his minority. Ratification relates back to the date of making the contract and therefore a contract which was then void cannot be made valid by subsequent ratification. As a minor’s agreement is void he cannot validate it by ratification on attaining majority. For instance, a minor borrows money and executes a promissory note. On attaining majority, he executes a fresh promissory note in substitution of the one executed as a minor. The second promissory note is also void being without consideration. In the case of Suraj Narain v. Sukhu Aheer, a minor executed a promissory note in favour of a money lender while he took a loan of Rs. 11,000 from him. After attaining the age of majority, he executed a secondary note in favour of the same person. The question before the court was whether the consideration received by a person during his minority can be good consideration fresh promise by him after attaining majority. It was held that the consideration received by a person during his minority could not be called consideration in its strict term within the meaning of S.2 (d), and there was no question of that consideration being considered valid for a fresh promise. The promisor, therefore, could not be made liable in respect of such a promise.

Ratification of acts done on minor’s behalf

A minor’s agreement being void ab initio, neither he can himself enter into contract nor authorize an agent to do so on his behalf. Since after the ratification of an act done on behalf of a person, the act gets the validity of a previously authorized act, it is necessary that the act to be ratifsied must be such as could have been legally authorized.

Liability for Necessaries

Section 68 deals with the claim for necessaries supplied to person incapable of contracting, or on his account. It states that if a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by another, person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. Illustrations A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property. In the Indian Contract Act, section 68 provides that a minor falls within the class of persons referred to in the section, a statutory claim is created thereby against his property. But though the property of the minor may be liable for the necessaries under section 68 of the Contract Act, the minor himself is not personally liable as in English Law.

There is, however, no definition of the term “necessaries” in the Contract Act. It is, therefore, necessary to turn to judicial decisions to determine its precise import. Now, it was ruled by Baron Parke in Peters v. Fleming, that from the earliest times down to the present, the word ‘necessaries’ is not confined in its strict sense to such articles as were necessary to support life, but extended to articles fit to maintain the particular person in the state, degree and station in life in which he is; and therefore we must not take the word “necessaries” in its unqualified sense but with qualification as above pointed out. To put the matter concisely, “necessaries” means goods suitable to the condition in life of the defendant and to his actual requirements at the time of the sale and delivery, and whether an article supplied to an infant is necessary or not, depends upon its general character and upon its suitability to the particular infant’s means and station in life.

Articles therefore that to one person might be mere conveniences or matters of taste, may in the case of another be considered necessaries, For instance, articles purchased by an infant for his wedding may be deemed necessary, while under ordinary circumstances the same articles might not be so considered. The word “necessaries,” therefore, includes money urgently needed for the requirements of a minor and cannot be restricted to what is necessary for the elementary requirements of the minor such as food and clothing. Thus cash lent to him to effect necessary repairs in his house, and payment of Government revenue are necessaries of the minor proprietor. In the case of a minor Muslim girl, marriage is a “necessity” the person incurring expenditure for marriage is entitled to relief under section 68. Expenses incurred for minor’s education, marriage of his sister, expenses incurred in funeral of minor’s parents, expenses incurred for necessary litigation etc. have been held to be necessaries. Expenses incurred for minor’s marriage have also been held to be ‘necessaries’. In the case of Nash v. Inman, a minor, who was already having sufficient supply of clothing suitable to his position, was supplied further clothing by a tailor. It was held that the price of the clothes so supplied could not be recovered.

Agreements By Persons Of Unsound Mind

Who is a Person of Sound Mind?

A person while making a contract should be of a sound mind otherwise the contract will have no validity in the eyes of law. The definition of a person of sound mind has been amply clarified by Section 12 of the Indian Contract Act which reads 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. Thus soundness of mind of a person depends on two facts:

  1. ,his capacity to understand the terms of the contract, and
  2. his ability to form a rational judgment as to its effect upon his interests.

If a person is incapable of both, he suffers from unsoundness of mind. Idiots, lunatics and drunken persons are examples of those having an unsound mind General Law of Contract 1 Section 12 further states that a person who is usually of unsound mind, but occasionally of sound mind, may undertake 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.

Position of Agreements by Persons of Unsound Mind

Lunatics

A lunatic is a person who is mentally deranged due to some mental strain or other.persona1 experience. However, he has some intervals of sound mind. He is not liable for contracts entered into while he is of unsound mind. However, as regards contracts entered into during lucid intervals, he is bound. His position in this regard is identical with that of a minor.

Idiots

An idiot is a person who is permanently of unsound mind. Idiocy is a congenital defect. Such a person has no lucid intervals. He cannot make a valid contract.

Drunken Persons

Drunkenness is on the same footing as lunacy. A contract by drunken person is altogether void.

Exceptions

A contract with a person of unsound mind is subject to the same exceptions as the contract with a minor is. Thus a person of unsound mind

  1. May enforce a contract for his benefit, and
  2. His properties, if any, shall be attachable for realization of money due against him for supply of necessaries to him or to any of his dependents.

Persons disqualified by law

Alien enemies

All persons other than Indian citizens are aliens. When the sovereign or the state of that alien is at peace with India, he is an alien friend. Contrary to it, he will be an alien enemy. In case of outbreak of war between India and the alien country, the following rules apply for the performance of agreements:-

  1. No contract can be made with an alien enemy during the subsistence of war, except with the prior approval of the Government of India.
  2. Performance of the contracts made before the outbreak of war will be suspended during the course of war. They can be performed only when the war is over. Even then, the government can put restrictions on the performance of such contracts, if it considers them necessary for national interest.

Insolvents

In simple words, the insolvent is disqualified from entering into a contract until he is discharged by the court of law.

Conclusion

From the above discussion, it can be concluded that the capacity to contract is the legal competence to contract. A person declared as incompetent to contract is the one who is incapable of entering into a contract, and a contract with such a person is unenforceable by law. Further, such persons are also divided into categories such as minor, unsound mind and persons disqualified by law. Any person if falls in any of these categories will be declared as an incompetent person to contract, making his contract void or voidable in certain circumstances. But the court of law also provides relief to certain people, making them incapable of contracting for only a specific period of time such as convicts and insolvents. Thus, the capacity to contract is an essential element to ful the requirements of a valid contract.

1)
1912 39 Cal 232 (PC)


Navigation: Home»Law of Contract

Created on 2020/12/21 22:05 by Japhin Raj • Last modified on 2020/12/21 22:05 by LawPage