Capacity to Contract

 Section 10 of the ICA requires that the parties must be competent to contract.
 Section 11 defines who are competent to contract:
o Every person who is 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.

(A) Minor Persons

Nature and Effects of Minor’s agreement:
 After the decision of MOHORIBIBI case, it is now well settled that minor’s
agreement that a minor’s agreement is absolutely void.
 The rationale behind is clear: A child may show poor judgment in making a particular
contract, and it is protection against his own ignorance and immaturity – not merely
fraudulent manipulation by other that the law affords.
 It is important to note that the parents or guardian of a minor can contract on behalf of
the minor. If the contract is within the competence of the guardian and it is for benefit
of the minor it is specifically enforceable.
 No estoppels against minor:
o When a minor misrepresents at the time of the contract that he is a major, the
question arises- does the law of estoppel contained in sec. 115, Evidence act,
apply against him, so as to prevent him from alleging that he was a minor
when the contract was made?
o As per sec. 115:
 When one person has, by his declaration, act or omission, intentionally
act upon such belief, neither he nor his representative shall be allowed
in any suit or proceeding between himself and such other person or his
representative to deny the truth of that thing.
o In SADIQ ALI KHAN v. JAI KISHORE:
 It is not well settled that there is no such estoppel against the minor
even if he acted fraudulently. The minor is not stopped from setting up
the defence of minority.
 There can be no estoppel against a statute which has declared a minor’s
contract to be void.
o In KHAN GUL v. LOKHA SINGH:
 Held,
 That the law of estoppels, which is the rule of evidence, is a
general law and this has to be read subject to the special law
contained in the ICA.
 When the law of contract lays down that a minor shall not be
liable upon a contract entered into by him he should not be
made liable upon the same contract by virtue of the general rule
of estoppel.

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 No liability in contract or in tort arising out of contract:

o Minor will not be liable for a tort arising out of contract, for the reason that
such liability is an indirect way of enforcing his agreement.
o In JENNINGS v. RUNDALL:
 Where an infant had hired a horse to be ridden for a short journey and
took it on a much longer journey, with the result for a short journey
and took it on a much longer journey, with the result that it was
injured, the court held him not liable on the ground that the action was
founded in contract, and the plaintiff could not turn what was in
substance a claim in contract to one in tort.
 Doctrine of Restitution:
o English law:
 If the minor has unjustly enriched himself, equity demands that such
property or goods be restored.
 The English courts developed the equitable ‘doctrine of restitution’ to
deal with the matter.
 In LESLIE (R) LTD. v. SHELL :
 The court laid down the three main propositions of this
doctrine:
 If an infant obtains property or goods by
misrepresentation his age, he can be compelled to
restore it, but only so long as the same is traceable in his
possession.
 Where the infant has sold the goods or converted them,
he cannot be made to repay the value of goods, because
that would amount to enforcing a void contract.
 The doctrine of restitution is not applied where the
infant has obtained case instead of goods, for
‘restitution stopped where repayment began’. Since it is
difficult to identify money and to prove whether it is the
same money or different one, the doctrine does not
apply to money.
 In MOHORIBIBI v. DHARMODAS GHOSE:
 In this case, a minor executed a mortgage of Rs. 20,000 and
received certain sum of mortgagee.
 The mortgagee filed a suit for the recovery of his mortgage
money and for the sale of property in case of default.
 The defendant first relied upon the sec. 64 of the ICA,
according to which a person who, having the right to do so,
rescinds a voidable contract, he shall have to restore to the
other party any benefit received by him under the contract.
 Held,

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 That this section cannot apply to the agreement of a

minor, which is absolutely void.
 Similarly no relied was allowed under sec. 65 of the
Contract Act, according to which a party receiving any
benefit under a contract shall have to restore it if the
contract becomes void or is discovered to be void.
 The PC observed that under Indian law, a contract by an infant
is absolutely void and not as under English law, where it is
voidable only.
 The PC also held that
 It was not necessary to deal with the rule of estoppel in
the present case because the statement relied upon is
made to a person who knows the real facts and is not
misled by untrue statement.
 In ANUJA PRASAD v. CHANDAN LAL:
 Where a contract of transfer of property is void, and such
property can be traces, the property belongs to the promisor and
can be followed.
 There is every equity in his favour for restoring the property to
him.
 Where the property is not traceable and the only way to grant
compensation would be by granting a money decree against the
minor, decreeing the claim would be almost tantamount to
enforcing the minor’s pecuniary liability under the contract
which is void....
 There is not rule of equity, justice and good conscience which
entitles a court to enforce a void contract of a minor against
him under the cloak of restitution.
 Sec .33, the Specific Relief Act, 1963 clears the position-
 The principle for restitution is contained in Sec. 33 of the new
act:
 Where a void or voidable contract has been cancelled at
the instance of a party thereto (i.e. minor goes to the
court as the plaintiff for cancellation of contract), the
court may require him to restore such benefits as he has
received under the contract and to make any
compensation to the other party which justice may
require.
 Where the minor is defendant in a case and he resists the
enforcement of the suit on the ground that he is incompetent to
contract, the court may ask him to restore such benefits to the
other party, to the extent he or his estate has benefited thereby
(Clause b).
 Beneficial contracts:
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o Accordingly, minor is allowed to enforce a contract, which is of some benefit

to him and under which he is required to bear no obligation.
o Incapacity to contract does not preclude the capacity for legal rights.
o The following are instances of contracts beneficial to a minor:
 If a minor has advanced the whole of the mortgage money and there is
a mortgage in his favour, he can sue for enforcement of the contract.
Thus, where a minor has already given the full consideration to be
supplied by him he is entitled to enforce the contract. It may be noted
that where the consideration is still to be supplied by the minor, be
cannot enforce the contract.
 Similarly, a minor can sue on Promissory note executed in his favour.
 A minor can recover insurance money when on his behalf the goods
were insured.
 For the same reason if a contract is made on behalf of a minor by his
guardian having competence to do so, and for the benefit of the minor,
the minor is entitled to sue on the contract.
 A minor is capable of purchasing immovable property and he may sue
to recover the possession of the property purchased upon the tender of
the purchase of money.
 A minor is bound by the contract of apprenticeship under the Indian
Apprenticeship act, 1850.
 A minor cannot be a partner in a partnership firm, but under sec. 30 of
the Indian Partnership Act, he can be adminitted to the ‘benefits of
partnership’.
 The following contracts are not binding on a minor:
o A lease to a minor is void.
o When an infant has paid for something and has consumed or used it, it is
contrary to natural justice that he should recover back the money he has paid.
o Unlike English law, contract of service entered into by a minor are void in
India.
o Trade contracts are not included in beneficial contracts. Thus when a minor,
while carrying on business, enters into a trade contract such contract will not
be binding on him.
 In RAJ RANI v. PREM ADIB:
o The father of RAJ RANI, who was a minor, entered into a contract on behalf
of herself with PREM ADIB, a film producer.
o RAJ RANI was to act as a film actess on payment of certain amount. RAJ
RANI was not given any work. She sued the producer for the breach of
contract.
o The Bombay HC held,
 That she neither nor her father could have sued on the promise.

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 The promise of girl to serve, being not enforceable against her, cannot
furnish any consideration for the defendant’s promise to pay her a
salary.
 If the plaintiff had been a major, such a promise would have formed
good consideration.
o DESAI J. Opined that:
 A contract of service made by the father of a minor is not a contract
which the minor is entitled to sue, on the ground that it is for his
benefit, where the contract is executor and the full consideration
payable by or on behalf of the minor is not paid.
o DESAI J. Suggested,
 That “though according to English law the minor would be liable in the
case of contract of service where the contract was for his benefit, it is
clear that under Sec. 11, the minor’s contract being void, the minor
would not be held liable.
 Ratification of the Minor’ agreement:
o In SURAJ NARAIN v. SUKHU AHIR:
 Held,
 That a minor when he attained majority could not take upon
himself a liability which from the point of view of law, never
really existed.
 In this case, a person borrowed some money during his minority by
executing a promissory note and then made a fresh promise by
executing a second bond, after attaining majority, to pay that sum plus
interest thereon.
 Held,
 That the consideration received by a person during his minority
cannot be called consideration within the meaning of sec. 2(d)
and there is no question of that consideration being considered
valid for fresh promise
 That where, in addition to the consideration already given
during minority, a further advance is made or a fresh
consideration given after majority; a promise to pay the whole
of the amount becomes binding. There is no question of
ratification

(B) Persons of Unsound Mind

 According to Sec. 12 :
o 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 his interests.

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 In INDER SINGH v. PARMESHWARDHARI SINGH:

o A property worth about Rs. 25,000 was agreed to be sold by a person for Rs.
7,000 only.
o His mother proved that he was a born idiot incapable of understanding the
transactions.
o The court held,
 Sale to be void.
 According to Sec. 12, the person entering into a contract must be a
person who understands what he is doing and is able to form a rational
judgment as to whether what he is about to do is to his interest or not.
 In the present case, he was incapable of exercising his own judgment.
 In R. LINGARAJ v, PARVATHI:
o It was observed that the court must keep in view the distinction between mere
weakness of intellect on one hand and ‘lunacy’ on the other as understood
Indian Lunacy Act, 1912.
o The unsoundness of mind has reference to a mental condition which falls
outside the range of the wide spectrum of mental calibre ranging from
nincompoop to genius.
o The court held,
 A capacity of a person to manage himself and his affairs may vary
from person to person, but the total incapacity which alone would
justify a court finding a person to be of unsound mind is wholly
different from the inadequate ability of a person to look after himself
and his affairs according to accepted norms and standards and by no
stretch of imagination, bequeathed with incapacity following from
unsoundness of mind.

(C) Disqualified Person

 The third types of incompetent persons, as per Sec. 11, are those who are
“disqualified from contracting by any law to which they are subject”.
 Thus alien enemies, foreign sovereigns, and ambassadors, convicts, married women
(w.r.t. their husband’s properties), insolvents in certain cases, and joint –stock
companies and corporations incorporated under Special Act.

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