Indian Contract Act 1872 Capacity to contractThe enforceability of an agreement(Sec.2(b) carries a pre condition that the parties to a contract must be competent to contract(Sec 10).The competency/capability or capacity, has been defined in Sec 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’

Indian Contract Act 1872Persons not competent to contract1. Minors2. Persons of unsound mind3. Persons disqualified by lawMinorThe term Minor is explained in sec 3 of Indian Majority Act 1875‘A minor is a person who has not completed eighteen years of age’Note:Where a guardian has been appointed to take care of a minor’s person or property under the guardian and Wards Act 1890 orWhere the superintendence of minor’s property is assumed by a Court of WardsThe person becomes major on completing the age of 21 years

Position of Minor before Mohri Bibi Case (1903)

• Before 1903 it was felt that the phrase in Sec. 11 “ no person is competent to contract who is not of the age of majority..” has two interpretations –

• (1) a minor is absolutely incompetent to contract; the agreement with minor void ab initio,

• (2) an agreement with the minor voidable, the minor is not liable but the other party is liable.

Indian Contract Act 1872

Effects of minor’s contractSec.10 & 11 make it clear that any agreement made by a minor is void ab initio(not existent from the very beginning) Mohri bibi V. Dharmodas Ghosh(1903)Facts. "A minor borrowed Rs. 20000 from B and as security executed a mortgage in his favor. He became major a few months later and filed a suit for the declaration that the mortgage executed by him during his minority was void and should be cancelled. It was held that a mortgage by a minor was void and B was not entitled for recovery of money.

• In Mohribibi Case the privy council upheld the first notion, that an agreement with minor is void ab initio –

“any other rule would have made the law asymmetrical, leaving to the whim of a child to pick and choose between agreements made by him …”, it was observed.

• It was accordingly held, that the agreement made by a minor was void in nature and the money lender wasn’t entitled to the repayment of the money advanced.

• The law dealing with minors is based upon two principles –

- The law must protect the minor against his own inexperience,

- That the law should not cause unnecessary hardship to adults who deal fairly with minors [Triental, p 416]

Indian Contract Act 1872 No ratification An agreement with the minor is completely void. A minor cannot ratify the agreement even on attaining majority, because a void agreement cannot be ratified. A person who is not competent, an act cannot give it validity by ratifying. But If on becoming major, minor makes a new promise for fresh consideration, then this new promise will be binding. Minor can be a promisee or beneficiary If a contract is beneficial to a minor it can be enforced by him. Their is no restriction on a minor from being a beneficiary, for example, being a payee or a promisee in a contract. Thus a minor is capable of purchasing immovable property and he may sue to recover the possession of the property upon tender of the purchase money. Similarly a minor in whose favor a promissory note has been executed can enforce it.

Rule of Estoppel and Minor

• The Indian Evidence Act, 1872 Sec.115 -Estoppel.- When one person has, by his declaration, act or omission, intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, neither he nor his representative shall be allowed, in any suit or proceeding between himself and such person or his representative, to deny the truth of that thing.

Indian Contract Act 1872 No estoppel against a minor Where a minor by misrepresenting his age has induced the other party to enter into a contract with him, he cannot be made liable for the contract. There can be no estoppel against a minor. It means he is not estopped from pleading his infancy in order to avoid a contract. No Specific performance Except in certain cases A minor's contract being absolutely void, there can be no question of the specific performance of such contract. A guardian of a minor cannot bind the minor by an agreement for the purchase of immovable property ; so the minor cannot ask for the specific performance of the contract which the guardian had no power to enter into.But a contract entered into by guardian or manager on minor's behalf can be specifically enforced if(a) The contract is within the authority of the guardian or manager.(b) It is for the benefit of the minor.

Indian Contract Act 1872 Doctrine of Restitution The term restitution may be defined as the act of restoring back to the rightful owner that which has been taken away or lost.The doctrine implies that when a person obtains property or goods by false misrepresentation, he can be compelled to restore it to the person from whom he has received it.The doctrine applies on the minors too, who can be compelled to restore the property or goods as long as the same is traceable in his possession(Sec.33 Specific Relif Act)

Doctrine of Restitution

Where the minor has sold the goods or converted them, he cannot be made to repay the value of goods as this would be amount to enforcing a void agreement.

The Court in Mohribibi Case refuse to invoke Sec. 41 of the Specific Relief Act, 1877 which provided a compensation that justice required to be paid by the party at whose instance a contract was cancelled as in this case the lender had the knowledge of infancy.

Doctrine of Restitution

• The matter was resolved in Sec. 33 of the Specific Relief Act which can be summed up as below –

(1) Where a void or voidable agreement has been cancelled at the instance of a party , the court may require him to restore such benefit as he has received under the contract and to make any compensation which justice may require.

(2) Where a defendant successfully resist any suit on the ground that the contract, by reason of his being incompetent, he may be required to restore the benefits obtained by him under the contract, but only to the extent to which he or his estate has benefited thereby.

Doctrine of Restitution

• The Court will refrain from compelling a minor for any restitution where the other party was aware of his minority or had a mala fide intention while dealing with the minor

Indian Contract Act 1872 Minor’s Liability for NecessitiesSec.68 of Indian Contract Act says‘If a person, incapable of entering into contract or anyone whom he is legally bound to support, is supplied by another person with necessities suited to his condition in life, the person who has furnished such supplies is entitled to the reimbursed from the property of such incapable person.’Here it is notable that the liability of the minor is not personal, it is only his property, which is liable for meeting the liability for necessities supplied to him.

Indian Contract Act 1872To establish the minor’s property liable for necessities the following two conditions are required.1. The contract must be for goods reasonably necessary for

minor’s support in his life.2. The minor must not have already a sufficient supply of

these necessaries.Here it is important to note that Indian Contract Act does not define the term ‘Necessaries’ but understood upto food, clothing and lodging.The English Sales of Goods Act.1893 defines‘The necessaries are the goods suitable to the life of infant or other person, and to this actual requirement at the time of sale and delivery’

Indian Contract Act 1872Some illustrations1. The funds supplied to a minor for marriage of a female

minor in the family are held necessaries and the moneylender was directed to reimbursed from the property of a minor(Tikki Lal V. Komal Chand(1940)

2. The expenses incurred for performing funeral of father of a minor(Bacchu Singh v. Baldeo Prasad(1933)

3. The money advanced to save minor’s property from sale in execution(kedar Nath V. Ajudhya Singh)1883

4. Education, training for trade, medical care, legal service etc.(Chappel V. Cooper)1884

5. A wrist watch for an undergraduate student,an ear-ring for a girl, at the time of her marriage, etc(Ryder v. Wombwell)1868

Contract for the benefit of the Minor

• Srikakulam Subrahmanyam v. Kurra Shubha Rao (ILR 1949 Mad 141 PC),

In order to pay off the promissory note and mortgage debt of his father, the minor son and his mother sold a piece of the land to the holders of the promissory note. Afterwards the minor filed to recover the property back. It was found that the sale was made for the benefit of the minor and his mother (guardian) had the capacity to contract on his behalf. The sale of land was held to be valid.

Srikakulam Subrahmanyam v. Kurra Shubha Rao (ILR 1949 Mad 141 PC),

• It was observed by the Court, Sec. 11 and Mohribibi case leave no doubt that a minor cannot contract and that if the guardian had taken no part in this transaction it would have been void. But, the contract being for the benefefit of the minor and within the power of the guardian was held to be binding upon him.

Indian Contract Act 1872 Persons of unsound mindAs per sec.12, ‘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 effects upon his interest’The section requires two conditions1. He should be capable of understanding the nature and contents of

the contract.2. He should be capable of forming a rational judgment about the

effects of the contract on his interest.In otherwise situation he shall be considered as unsound mind and any contract, entered into by him, would be void (Sec.11)The following persons are considered as incapable of making a contract1. Idiot. who has completely lost his mental faculties of thinking, so is incapable of forming a rationale judgment

Indian Contract Act 1872

2. Lunatics, is a person whose mental faculties of thinking are deranged(disordered)but are not completely lost and he suffers from intermittent intervals of sanity or insanity.The contracts entered during sanity are valid otherwise void(exception is even during insanity period any contract made for necessities would be valid, like a contract made by a minor and the property of lunatic would be liable for repayment)3. Intoxication, as a man under the influence of intoxication can not take a rational decision, he would be categorized as an unsound mind person, so a contract would be void

Indian Contract Act 1872

Persons disqualified by lawThe following persons are disqualified by law1. Alien Enemies, an alien is a person who is a foreigner to the

land, who can be alien friend or alien enemy, the status of friend or enemy shall be determined by the relationship between the countries of citizenship, during the war or peace or on the declaration of the war.

An alien enemy cannot enter into a contract with an Indian national, even he cannot sue in Indian court during the war.Any contract made by an alien enemy during the war, without a license from the central govt. is unenforceable.The contracts made before the war is either cancelled or suspended during the war and/or the govt. may impose conditions which it deem fit in the interest of the nation.

Indian Contract Act 1872

2. Foreign Sovereigns, diplomatic staff and accredited representatives of foreign states.These persons can enter into a valid contract and also enforce them in Indian courts. However no suit can be filed against them without prior permission of the central Govt.3. InsolventsWhen a person has been declared as insolvent ,his property vests in Receiver or Official assignee, and his power to enter into a contract is withdrawn. However his disqualification of an insolvent can be removed when a competent court passes an order of this intent.4 ConvictsA convict cannot enter into a contract during imprisonment, but when that time expires or he is acquitted, he becomes eligible to enter into a contract again.