Capacity To Contract
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CAPACITY TO CONTRACT
MINOR”S CONTRACT According to section 3 of The Indian Majority Act, a person shall be deemed to have attained his majority has fixed as eighteen years. (prior to the amendment of 1999 it was 18 for other purposes 21 and the word „Indian‟ has been removed.) English law declares that minor’s agreement is voidable at the option of the minor. However, contracts for necessaries and contract of service beneficial to the minor are valid and enforceable. With the Infants Relief Act, 1874 contracts for repayment of money lent or to be lent or goods supplied (other than for necessaries) and all accounts stated with infants shall be void.
Sec 10 requires competency and Sec 11 declares minor not competent. But does not declare whether minor’s agreement is voidable or void-ab-initio
Before 1903 Indian courts favoured the common Law interpretation that the contract is voidable at minor’s option
In 1903: Mohiri Bibee v. Dharmodas Ghose:
Facts : Dharmodas Ghosh executed a mortgage deed in favour of Brahmo Dutt, a money lender, to secure repayment of Rs. 20,000 with interest at 12 percent per annum… at the time of execution of the deed he had not attained the age of 21 years and his mother was a guardian of his person and property under the order of the court. Brahmo Dutt was absent from calcutta and business was carried out by Kedar Nath, who was his attorney… when she knew about this deal… she informed Kedar Nath through letter about the actual situation…she had also warned that anyone lending money shall do that at his own risk… the letter was written on July 15, 1895 while mortgage deed was executed on July 15, 1895.
On the date of execution of a mortgage deed Kedar Nath got Dharmodas Ghosh to sign a declaration that he is a major person… on September 10, 1895 Dharmodas Ghosh, through his mother instituted a suit for cancellation of deed as it is void being entered by a person who is a minor. By the time of appeal to Privy Council, the Brahmo Dutt died… the appeal was prosecuted by Mohiribibi and Shew Prasad Shroff, the executrix and executor under the will
Basis of the decision
Nature of Minor’s Agreement: (the agreement is void-ab-initio and can not be enforced by either of the party by virtue of Sec. 10 and 11 of the Act, 1872)
Estoppel: (knowledge of Kedar Nath was the knowledge of the Brahmo Dutt being principle and agent. Fact of infancy was brought to the knowledge by mother of Dharmodas Ghosh). Therefore can not plead estoppel under Section 115 of Indian Evidence Act.
Restitution of Benefits: Section 64 of the ICA (a party rescinding a voidable contract shall restore benefits) does not apply as it governs voidable contracts and not void contracts so benefits received under the same contract can not be recovered. Also held that Section 41 (now 33) of the Specific relief Act, 1877 does not apply. (relief on cancellation of an instrument to compensate the other party for a loss caused.)
EXCEPTIONS
General Rule: Minor‟s Agreement is void. But in order to provide benefits to the minor many exceptions have been created, as follows:
1. When minor has performed his obligation under the contract: A minor can be a promisee but can not be a promisor. If minor being a promisee does some act further to the promise, he can enforce that contract, if other party being a adult fulfill his promise can not enforce it against minor… he can not even obtain possession of the property.
Similarly, if the goods are received from minor, the major may be asked to pay money for the same.
If minor has given consent for purchase of the immovable property, he can enforce that contract.
Gifts in favour of minor is also not prohibited under The Transfer of Property Act.
Contract is made by the Guardian for the Minor for his Benefit:
If the contract is made by guardian for the benefit of the minor, he can sue.
Great American Insurance v. Mohan lal, AIR 1935 Bom 353… guardian taken insurance contract in relation to the property of the minor… property was destroyed… co. pleaded that party is a minor… held that as it was for the benefit of the minor so can sue.
In Srikakulum Subramanyam v. Kurra Subba Rao, Held that if the contract entered into by the guardian of the minor on his behalf is within his competence and it is for the benefit of the minor, it will be valid and enforceable.
Minor and Estoppel
Section 115 of the Indian Evidence Act lays down the law of estoppel.
The law of estoppel does not apply against the minor. Even where a minor falsely states that he is major, while actually he is a minor, he is allowed to plead minority to avoid liability.
Gadigeppa v. Balangowda, AIR 1931 Bom. 561… there can be no estoppel against an act of Parliament or against an act of legislature and the principle of estoppel can not be invoked against the plain provision of the statute.
Ratification of Minor’s Contract
An Agreement with a minor is void-ab-initio so can not be ratified by the minor after attaining majority.
Nor he can ask any person to make contract on his behalf and consequently he cannot ratify the acts done on his behalf during minority.
The rule is person shall be competent to give authority when the acts were performed.
Consideration given to the minor during minority cannot be valid consideration for a promise made by him to be fulfilled after attaining the majority.
In Suraj Narain v. Sukhu Aheer, AIR 1928 All 440… minor borrowed money… after attaining majority made a fresh promise to pay that money with interest… Court held that promise after attaining majority is not supported with valid consideration so was void and not enforceable… Consideration during minority is not a good consideration under S. 2(d) and also not enforceable under 25 (2).
Restitution of Benefits (Equitable Doctrine of Restitution)
Can minor be compelled to return the benefit or things received under the agreement?
English Law: Even if minor fraudulently represents himself to be a major and induces people to enter into a contract, the contract is not enforceable.
However equity intervenes and minor may be compelled to return the benefits provided that things are in his possession. This rule is distinct from contract law and not affected by the Infants Relief Act.
It shall not have effect of enforcing contractual obligations. (It is available in very limited situations… mainly when the property is identifiable and still in his possession.)
Leslie (R) Ltd. V. Sheill, (1914) 3 KB 607… Loan advanced to a minor so when money spent can not be recovered.
Indian Law: Similar approach… stated that both Section 64 (as it deals with voidable contracts) and 65 (applies only when contract is discovered to be void but minors agreement are void-ab-initio) which talk about restitution, does not apply.
Restitution of benefits may be allowed under section 33 of Specific Relief Act, 1963.
In Mohori Bibi v. Dharmo Das Ghosh, this deference was not allowed to be taken because, the person with knowledge, entered into an agreement with minor. Further, nature of the benefits flowing to the minor.
LAW COMMISSION REPORT
Minor’s Liability for Necessaries
Minor’s agreement void-ab-initio: incapable of making a contract to pay for any service or goods. However for necessaries supplied to minor, reimbursement is permitted
On the basis of quasi- Contractual Relationships : (Because of special circumstances on the basis of principles of natural justice and equity, law imposes obligation on any person similar to those created by contract but they are not created by a valid contract)
Claim for Necessaries supplied to person incapable of contracting or on his account (S. 68) “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.”
What are necessaries? Chapple
v. Cooper: Things necessary are those without which an individual cannot reasonably exist.
Ryder
v. Wombwell: An infant having a meagre income being supplied a pair of crystal, ruby and diamond solitaires not necessaries.
Jagon
Ram v. Mahadeo Prasad Sahu: goods suitable to the condition in life of the defendant and to his actual requirements, whether an article necessary or not depends on its general character and its suitability
UNSOUND MIND
Person of Unsound Mind
Black’s Law Dictionary, says:
“As a ground for voiding or annulling a contract or conveyance, insanity does not mean a total deprivation of reason, but an inability, from defect of perception, memory and judgment, to do the act in question or to understand its nature and consequences.”
Section 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 effect upon his interest.”
A person who is usually of unsound mind, but occasionally of
sound mind, may make 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.
Illustration b : Drunk
Under English law a person of unsound mind is competent to contract, but voidable at his option if he proves to the court that he was unable to understand the impact of the contract and the other party knew so.
Chacko v. Mahadevan, : Sale deed was executed by the transferor when he was suffering from alcoholic psychosis, Sale deed set aside by SC.
Wording of section 12 is very important, the understanding may be affected by disease, drunkenness, or some other cause.
The time when such understanding is taken into account is the time when the contract is made.
The disability must be at the time of making the agreement.
Nilima Ghosh v Harjeet Kaur: Report of medical unfitness being much later in point of time will have no bearing on the agreement entered much before.
It does not matter that, at the time of making a contract the person contracting with a person with unsound mind or drunken did not know that the person with whom he is transacting is a person with unsound mind or in a drunken state… contract would be void-ab-initio.
Onus to prove on person who alleges such state of mind
Indar Singh v. Parmeshwardhari Singh: Property worth Rs. 25000 agreed to be sold in Rs 7000, mother pleads the defendant was congenital idiot, incapable of understanding transactions and of unsound mind therefore.
Held not necessary for lunacy to disable him from entering into contract, whether incapable to form a rational judgement important
Jyotindra Bhattacharjee v. Sona Bala Bora: just because a person has always a quarrel with his wife and son and stays away from the family can not prove that he is of unsound mind… sale deed executed by him cannot be invalidated on this ground.
Mere loss of memory make a person unfit for management of his own affairs in his lifetime.
There can not be fixed standard of sanity for all transactions.
Person Disqualified from Contracting by Law
Person Disqualified from Contracting by Law
Any person who has been adjudged insolvent is not competent to contract. However, if the court discharges him from bankruptcy, then his incompetency on this ground is removed. Similarly, a person who is imprisoned is not capable to make contract during the period of imprisonment but this incapacity comes to an end when the period of sentence expires or he is pardoned. Contract with alien enemy would be a void contract.
MINOR”S CONTRACT According to section 3 of The Indian Majority Act, a person shall be deemed to have attained his majority has fixed as eighteen years. (prior to the amendment of 1999 it was 18 for other purposes 21 and the word „Indian‟ has been removed.) English law declares that minor’s agreement is voidable at the option of the minor. However, contracts for necessaries and contract of service beneficial to the minor are valid and enforceable. With the Infants Relief Act, 1874 contracts for repayment of money lent or to be lent or goods supplied (other than for necessaries) and all accounts stated with infants shall be void.
Sec 10 requires competency and Sec 11 declares minor not competent. But does not declare whether minor’s agreement is voidable or void-ab-initio
Before 1903 Indian courts favoured the common Law interpretation that the contract is voidable at minor’s option
In 1903: Mohiri Bibee v. Dharmodas Ghose:
Facts : Dharmodas Ghosh executed a mortgage deed in favour of Brahmo Dutt, a money lender, to secure repayment of Rs. 20,000 with interest at 12 percent per annum… at the time of execution of the deed he had not attained the age of 21 years and his mother was a guardian of his person and property under the order of the court. Brahmo Dutt was absent from calcutta and business was carried out by Kedar Nath, who was his attorney… when she knew about this deal… she informed Kedar Nath through letter about the actual situation…she had also warned that anyone lending money shall do that at his own risk… the letter was written on July 15, 1895 while mortgage deed was executed on July 15, 1895.
On the date of execution of a mortgage deed Kedar Nath got Dharmodas Ghosh to sign a declaration that he is a major person… on September 10, 1895 Dharmodas Ghosh, through his mother instituted a suit for cancellation of deed as it is void being entered by a person who is a minor. By the time of appeal to Privy Council, the Brahmo Dutt died… the appeal was prosecuted by Mohiribibi and Shew Prasad Shroff, the executrix and executor under the will
Basis of the decision
Nature of Minor’s Agreement: (the agreement is void-ab-initio and can not be enforced by either of the party by virtue of Sec. 10 and 11 of the Act, 1872)
Estoppel: (knowledge of Kedar Nath was the knowledge of the Brahmo Dutt being principle and agent. Fact of infancy was brought to the knowledge by mother of Dharmodas Ghosh). Therefore can not plead estoppel under Section 115 of Indian Evidence Act.
Restitution of Benefits: Section 64 of the ICA (a party rescinding a voidable contract shall restore benefits) does not apply as it governs voidable contracts and not void contracts so benefits received under the same contract can not be recovered. Also held that Section 41 (now 33) of the Specific relief Act, 1877 does not apply. (relief on cancellation of an instrument to compensate the other party for a loss caused.)
EXCEPTIONS
General Rule: Minor‟s Agreement is void. But in order to provide benefits to the minor many exceptions have been created, as follows:
1. When minor has performed his obligation under the contract: A minor can be a promisee but can not be a promisor. If minor being a promisee does some act further to the promise, he can enforce that contract, if other party being a adult fulfill his promise can not enforce it against minor… he can not even obtain possession of the property.
Similarly, if the goods are received from minor, the major may be asked to pay money for the same.
If minor has given consent for purchase of the immovable property, he can enforce that contract.
Gifts in favour of minor is also not prohibited under The Transfer of Property Act.
Contract is made by the Guardian for the Minor for his Benefit:
If the contract is made by guardian for the benefit of the minor, he can sue.
Great American Insurance v. Mohan lal, AIR 1935 Bom 353… guardian taken insurance contract in relation to the property of the minor… property was destroyed… co. pleaded that party is a minor… held that as it was for the benefit of the minor so can sue.
In Srikakulum Subramanyam v. Kurra Subba Rao, Held that if the contract entered into by the guardian of the minor on his behalf is within his competence and it is for the benefit of the minor, it will be valid and enforceable.
Minor and Estoppel
Section 115 of the Indian Evidence Act lays down the law of estoppel.
The law of estoppel does not apply against the minor. Even where a minor falsely states that he is major, while actually he is a minor, he is allowed to plead minority to avoid liability.
Gadigeppa v. Balangowda, AIR 1931 Bom. 561… there can be no estoppel against an act of Parliament or against an act of legislature and the principle of estoppel can not be invoked against the plain provision of the statute.
Ratification of Minor’s Contract
An Agreement with a minor is void-ab-initio so can not be ratified by the minor after attaining majority.
Nor he can ask any person to make contract on his behalf and consequently he cannot ratify the acts done on his behalf during minority.
The rule is person shall be competent to give authority when the acts were performed.
Consideration given to the minor during minority cannot be valid consideration for a promise made by him to be fulfilled after attaining the majority.
In Suraj Narain v. Sukhu Aheer, AIR 1928 All 440… minor borrowed money… after attaining majority made a fresh promise to pay that money with interest… Court held that promise after attaining majority is not supported with valid consideration so was void and not enforceable… Consideration during minority is not a good consideration under S. 2(d) and also not enforceable under 25 (2).
Restitution of Benefits (Equitable Doctrine of Restitution)
Can minor be compelled to return the benefit or things received under the agreement?
English Law: Even if minor fraudulently represents himself to be a major and induces people to enter into a contract, the contract is not enforceable.
However equity intervenes and minor may be compelled to return the benefits provided that things are in his possession. This rule is distinct from contract law and not affected by the Infants Relief Act.
It shall not have effect of enforcing contractual obligations. (It is available in very limited situations… mainly when the property is identifiable and still in his possession.)
Leslie (R) Ltd. V. Sheill, (1914) 3 KB 607… Loan advanced to a minor so when money spent can not be recovered.
Indian Law: Similar approach… stated that both Section 64 (as it deals with voidable contracts) and 65 (applies only when contract is discovered to be void but minors agreement are void-ab-initio) which talk about restitution, does not apply.
Restitution of benefits may be allowed under section 33 of Specific Relief Act, 1963.
In Mohori Bibi v. Dharmo Das Ghosh, this deference was not allowed to be taken because, the person with knowledge, entered into an agreement with minor. Further, nature of the benefits flowing to the minor.
LAW COMMISSION REPORT
Minor’s Liability for Necessaries
Minor’s agreement void-ab-initio: incapable of making a contract to pay for any service or goods. However for necessaries supplied to minor, reimbursement is permitted
On the basis of quasi- Contractual Relationships : (Because of special circumstances on the basis of principles of natural justice and equity, law imposes obligation on any person similar to those created by contract but they are not created by a valid contract)
Claim for Necessaries supplied to person incapable of contracting or on his account (S. 68) “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.”
What are necessaries? Chapple
v. Cooper: Things necessary are those without which an individual cannot reasonably exist.
Ryder
v. Wombwell: An infant having a meagre income being supplied a pair of crystal, ruby and diamond solitaires not necessaries.
Jagon
Ram v. Mahadeo Prasad Sahu: goods suitable to the condition in life of the defendant and to his actual requirements, whether an article necessary or not depends on its general character and its suitability
UNSOUND MIND
Person of Unsound Mind
Black’s Law Dictionary, says:
“As a ground for voiding or annulling a contract or conveyance, insanity does not mean a total deprivation of reason, but an inability, from defect of perception, memory and judgment, to do the act in question or to understand its nature and consequences.”
Section 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 effect upon his interest.”
A person who is usually of unsound mind, but occasionally of
sound mind, may make 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.
Illustration b : Drunk
Under English law a person of unsound mind is competent to contract, but voidable at his option if he proves to the court that he was unable to understand the impact of the contract and the other party knew so.
Chacko v. Mahadevan, : Sale deed was executed by the transferor when he was suffering from alcoholic psychosis, Sale deed set aside by SC.
Wording of section 12 is very important, the understanding may be affected by disease, drunkenness, or some other cause.
The time when such understanding is taken into account is the time when the contract is made.
The disability must be at the time of making the agreement.
Nilima Ghosh v Harjeet Kaur: Report of medical unfitness being much later in point of time will have no bearing on the agreement entered much before.
It does not matter that, at the time of making a contract the person contracting with a person with unsound mind or drunken did not know that the person with whom he is transacting is a person with unsound mind or in a drunken state… contract would be void-ab-initio.
Onus to prove on person who alleges such state of mind
Indar Singh v. Parmeshwardhari Singh: Property worth Rs. 25000 agreed to be sold in Rs 7000, mother pleads the defendant was congenital idiot, incapable of understanding transactions and of unsound mind therefore.
Held not necessary for lunacy to disable him from entering into contract, whether incapable to form a rational judgement important
Jyotindra Bhattacharjee v. Sona Bala Bora: just because a person has always a quarrel with his wife and son and stays away from the family can not prove that he is of unsound mind… sale deed executed by him cannot be invalidated on this ground.
Mere loss of memory make a person unfit for management of his own affairs in his lifetime.
There can not be fixed standard of sanity for all transactions.
Person Disqualified from Contracting by Law
Person Disqualified from Contracting by Law
Any person who has been adjudged insolvent is not competent to contract. However, if the court discharges him from bankruptcy, then his incompetency on this ground is removed. Similarly, a person who is imprisoned is not capable to make contract during the period of imprisonment but this incapacity comes to an end when the period of sentence expires or he is pardoned. Contract with alien enemy would be a void contract.
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