Indian Contract Act 1872

Capacity to contract
The 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 1872
Persons not competent to contract
1. Minors
2. Persons of unsound mind
3. Persons disqualified by law
Minor
The 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 or
Where the superintendence of minor’s property is assumed by
a Court of Wards
The 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 contract
Sec.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 Necessities
Sec.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 1872
To 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 1872
Some illustrations
1. 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 mind
As 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 conditions
1. 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
contract
1. 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 law
The following persons are disqualified by law
1. 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. Insolvents
When 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 Convicts
A 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.