Who is Competent to

Contract?

 Section 10 says, for a valid contract the parties to the
contract must be competent to contract.
 Section 11 provides that every person is competent to
contract who is of the age of majority according to the
law to which his is subject, and who is of sound mind
and not disqualified from contracting by any law to
which he is subject.
 Section 12 defines who is of the sound mind… A person
is said to be of sound mind if at the time when he
makes the contract, he is capable of understanding it
and of forming a rational judgment as to its effect upon
his interests.
Minor‟s 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.
 Continued…

 Under Indian Law the minor‟s agreement is void and,
therefore, cannot be enforced by either party to the contract.
 It can not be ratified by the minor even after being adult.
 Under the Act, 1872 a minor can not be compelled to return
the benefit or things received under the agreement.
 The doctrine of estoppel cannot be applicable against the
minor.
 If a minor and adult jointly execute a promissory note in
favour of an adult person, only the adult person would be
liable and not the minor.
 Minor‟s agreement is void but not illegal, because there is no
statutory provision which makes it void.
 Then on what basis it is declared to be void?
 Mohori Bibi v. Dharmodas
Ghosh, (1903)30 I. A. 114 (P.C.)

 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.
 Continued…

 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… It was declared
that by rejecting the contention court held that the
mortgage deed should not be cancelled and the minor
should be held liable and the knowledge of Kedar Nath
should not be imputed to Brahmo Dutt.
 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 Act 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.
 
 There is nothing in the Act which prevent a minor from
being a promisee. 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.
 2. 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,
AIR 1948 PC 95… 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.
 
 The ICA, 1872 makes it clear that a minor is
incompetent to contract and thus a minor cannot
incur liability under any contract and the rule of
evidence can not be invoked to defeat this provision.
 In Ganganand Singh v. Rameshwar Singh, AIR 1927
pat 271… the court held that rule of estoppel is a rule
of evidence and it is subject to the provisions of the
Indian Contract Act, which makes the minor‟s
agreement void.
 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).
 Where a minor has received some consideration during
minority and in addition to it he receives a further fresh
consideration after attaining the age of majority and he
promises to pay the whole amount, promise would be
binding.
 
 Where a person, after attaining the age of majority
not only promise to pay but actually pays the debt
incurred by him during minority, he cannot,
afterwards, recover it. Reason is minor‟s agreement
is void but not illegal. Person may opt to pay after
attaining majority.
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.
 
 Khan Gul v. Lakha Singh, AIR 1928 Lah. 609…
advance of money taken by minor for sale of land…
later refused… court held that the claim
maintainable under section 33 of the Specific Relief
Act.
 This approach is uphold by Law Commission and
stated that fraudulent minors can be asked to restore
the benefits, irrespective of the fact that, whether he
is a plaintiff or defendant.
 The present position has been incorporated under
section 33 of the Specific Relief Act, 1963.
Thank you…

 Person of Unsound Mind
(Void-ab-initio)

 The meaning of a person of sound mind is found in
Section 12 according to which “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.”
 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.”
 
 Under English law contract entered by the person
who does not bear incapacity is voidable at the
option of the person who is drunken or of unsound
mind.
 This section makes it clear that, a person who is
usually of unsound mind but occasionally of sound
mind may make a contract, when he is of sound
mind… but a person with normally sound mind but
occasionally of unsound mind may not be able to
contract, when he is of unsound mind. (illustration a)
 
 Chacko v. Mahadevan, AIR 2007 SC 2967… Sale deed
was executed by the transferor when he was suffering
from alcoholic psychosis… court set aside the sale
deed.
 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.
 An idiot is foolish by birth and always of unsound
mind and therefore cannot make a contract.
 
 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.
 Jyotindra Bhattacharjee v. Sona Bala Bora, AIR 2005
Gau. 12… 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 validated 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

 The 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.