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.