Capacity to contract
One of the essentials of a valid contract, mentioned in section 10, is that the parties to the contract should be competent to make the contract. According to section 11 :
“Every person is competent to contract who is of age of majority according to 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.”
It means that the following three categories of persons are not competent to contract.
- A person who has not attained the age of majority, i.e., one who is minor.
- A person who is of unsound mind
- A person who has been disqualified from contracting by some law.
Although the above mentioned categories of persons are not competent to contract, yet they may sometimes be making some bargains, taking some loans, or be supplied with some goods by third parties, or be conferred with some benefits etc., the position of such person in such like situations is being discussed below.
THE POSITION OF A MINOR
Who is a minor ?
A person who has not attained the age of majority is a minor. Section 3 of the Indian Majority Act, 1875 provides about the age of majority. It states that a person is deemed to have attained the age of majority when he completes the age of 18 years, except in case of a person of whose person or property a guardian has been appointed by the Court in which case the age of majority is 21 years.
Nature of a minor’s agreement
As noted above a minor is not competent to contract. One question which arises in case of an agreement by a minor is, whether the agreement is void or voidable? The Indian contract Act does not have any provision to answer this question. In the absence of any statutory provision there had been controversy on this point. The controversy was set at rest by the decision of the Privy Council, in the case of Mohori Bibee Vs. Dharmodas Ghose in 1903. It was held that the agreement made by a minor is void..
The facts of Mohiiri Bibee Vs. Dharmodas Ghose are as under :
The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in favour of the defendant, Brahmo Dutt, who was a moneylender to secure a loan of Rs. 20,000. The actual amount of loan given was less than Rs. 20,000. At the time of the transaction the attorney, who acted on behalf of the money lender, had the knowledge that the plaintiff is a minor.
The plaintiff brought an action against the defendant stating that he was a minor when the mortgage was executed by him and, therefore, mortgage was void and inoperative and the same should be cancelled. By the time of Appeal to the Privy Council the defendant, Brahmo Dutt died and the Appeal was prosecuted by his executors.
The Defendant, amongst other points, contended that the plaintiff had fraudulently misrepresented his age and therefore no relief should be given to him, and that, if mortgage is cancelled as requested by the plaintiff, the plaintiff should be asked to repay the sum of Rs. 10,500 advanced to him.
The decision of the Privy Council on the various points raised by the defendant was as follows :
- The defendant’s contention that the minor had falsely mis-stated his age, the law of estoppel should apply against him and he should not be allowed to contend that he was a minor, was considered. The Privy Council found that the fact that the plaintiff was a minor at the time making of the agreement was known to the defendant’s agent. It was held that the law of estoppel as stated in Section 115, Indian Evidence Act, was not applicable to the present case, where the statement (about age) is made to a person who knows the real facts and is not misled by the untrue statement. It was observed :
“There can be no estoppel where the truth of the matter is known to both the parties, And their Lordships hold, that a false representation, made to a person who knows it to be false, is not such a fraud as to take away the privilege of infancy”
2. Anoher contention of the defendant was that, if the plaintiff’s claim to order the cancellation of the mortgage is allowed, the plaintiff should be asked to refund the loan taken by him, according to Section 64 and 65, Indian contract Act.
Section 64 of the Indian Contract Act reads as under :
“When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained of which he is promisor. The party rescinding a voidable contract shall, if he received any benefit there under from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.”
Their Lordships observed that Section 64 was applicable to the case of a voidable contract. Minor’s agreement being void, Section 64 was not applicable to the case and therefore the minor could not ask to pay the amount under this section.
Application of Section 65, Indian Contract Act, to the present case was also considered. Section 65 is as follows:
“When an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.”
As regards the application of this section to the present case is concerned, it was observed that that section, like section 64, starts on the basis of there being an agreement or contract between competent parties, and has no application to a case in which there never was, and never could have been, any contract. The minor, therefore, could not be asked to repay the amount even under Section 65.
3. The defendant claimed the refund of the mortgage money under another provision also, i.e. Section 41, Specific Relief Act, 1877. The section reads as follows :
“On adjudging the cancellation of an instrument, the Court may require the party to whom such relief is granted to make any compensation to the other which justice may require.”
As regards this section, it was held that this section gives discretion to the court to order compensation, but under the circumstances of this case justice did not require the return of money advanced to the minor, as the money had been advanced with the full knowledge of the infancy of the plaintiff.
Minor’s liability when the same act results in a tort as well as breach of agreement
It has been noted above that an agreement by a minor is void and, therefore, if a minor makes a breach of an agreement he cannot be made liable for the same. On the other hand, when a minor commits a tort he is liable for that In the same way and to the same extent as an adult person. commits a tort. For example, a minor misrepresents his age and fraudulently stating that he is of the age of majority takes a loan from another person. Under the law of contract the minor cannot be asked to repay .the loan as a minor’s agreement is void, but he has also committed fraud for which the liability for the tort of deceit can be possibly be there. The question which in such case arises is: Should we make him liable for fraud ?
If we do so, it may also mean enforcement of an agreement which is void.
On this point the Courts have held that where permitting an action in tort will result in an indirect enforcement of an agreement the law will not permit such an action, because “one cannot make an infant liable for breach of a contract by challenging the form of action to one ex delicto. In Johnson Vs. Pye (1665), a minor falsely stated that he was of the age of majority and obtained a loan of 300 pounds. It was held that the minor cannot be asked to repay the loan by bringing an action for deceit against him. Similar was the decision in Jennings
Although when an action under the law of tort implies an indirect enforcement of the contract the action for the same is not permitted, yet if the nature of the act is such that the tort committed by the minor is totally independent of the breach of obligation under the contract, the action for the same can lie. This may be illustrated by reference to Burnard Vs. Haggis (1863) There a minor hired a mare. It was expressly agreed that the mare will be used only for riding and not “for jumping and larking.” The mare was made to jump over a fence, she was impaled on it and killed. It was held that the minor was liable for negligently killing the mare as his act was totally independent of the contract made by him.
Burnard Vs. Haggis was followed in the case of Ballett Vs. Mingay (1943) There a minor hired a microphone and an ampliphier. Instead of returning the same to the owner the minor passed it on to his friend. It was held that the minor’s act of passing it on was altogether outside the purview of bailment and, therefore, the minor could be made liable for detinue.
Minor’s liability for necessaries
It has already been noted that a minor’s agreement is void ab initio, and he is incapable of making an agreement to pay for any services rendered or goods supplied to him. However, for the necessaries supplied to a minor reimbursement is permitted to the person supplying such necessaries. This is not on the basis of any contract between the parties but because it is deemed to be quasi-contractual obligation. Chapter V of the Indian Contract Act recognises “Certain Relations Resembling Those Created by Contract”, i.e. Quasi-contractual relations. Section 68 in that chapter makes a provision for the reimbursement for the necessaries supplied to a minor. The provision is as under :
“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.”
This section permits reimbursement if :
1. Necessaries are supplied,
2. To a person who is incapable of making a contract, i.e. a minor or a lunatic.
3. To a person who is dependent upon such person incapable of making a contract.
4. For re-imbursement no personal action can lie against the minor etc., but reimbursement is permitted from the property of such incapable person.
Illustrations
(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B property.
(b) A supplied the wife and children of B, a lunatic, with necessaries to their condition in life. A is entitled to be reimbursed from B’s property.
What are necessaries ?
According to Section 68 the necessaries supplied to a minor “should be suited to his condition in life”. It does not mean bare necessities of life, but such things which may be necessary to maintain a person according to his condition in life.
What are necessaries may depend upon the status of a person, and also his requirement at the time of actual delivery of the goods. In Jagon Ram Vs. Mahadeo Prasad Sahu it was observed :
“ Necessaries means goods suitable to the condition in life of the dependent and to his actual requirements at the time of the sale and delivery, and whether an article supplied to an infant is necessary or not, depends upon its general character and upon its suitability to the particular infant’s station in life. It must further be observed that as “necessaries” include everything necessary to maintain the infant in the state, station, or degree of life in which he is, what is necessary is a relative fact, to be determined with reference to the fortune and circumstances of the particular infant ; articles therefore that to one person might be mere convenience or matters of taste, may in the case of another be considered necessaries, where the usages of society render them proper for a person in the rank of life in which the infant moves.”
In Clyde Cycle Co. Vs. Hargreaves (1898), it has been held that a racing cycle is a necessary for an infant apprentice. Similarly, in Chapple Vs. Cooper (1844) it was held that an infant widow is bound by a contract for the burial of her husband as the contract is for a necessary. In Nash Vs. Inman (1908) a minor, who was already having sufficient supply of clothing suitable to his position, was supplied further clothing by a tailor. It was held that the price of the clothes so supplied could not be recovered.
In Ryder Vs. Wombwell, the defendant, an infant, having an income of only 500 Pounds per year was supplied a pair of crystal, ruby and diamond solitaries and an antique silver goblet. It was held that these things could not be considered to be necessaries. It was observed that certain things like ear rings for a male, spectacles for a blind person, or a wild animal, cannot be considered as necessaries.
In Kunwarlal Vs. Surajmal (1963) It has held that the house given to a minor on rent for living and continuing his studies is deemed to be supply of necessaries suited to the minor’s conditions of life, and the rent for the house can be recovered.
Position of a minor in partnership
Partnership arises out of contract. It is, therefore, necessary that the parties to the contract of partnership should be competent to contract. A minor being incompetent to contract cannot become a partner. If a minor is made a full-fledged partner along with other persons the agreement would be void and the deed containing their contract would be un-enforceable even between the other major partners.
A minor is not competent to enter into a contract. He can, however, accept benefits. In accordance with that position of a minor, Section 30, Indian Partnership Act declares that a minor may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership. If a minor is admitted to the benefits of partnership, he has a right to such share of the property and of the profits of the firm as may be agreed upon and may also have access to and inspect and copy any of the accounts of the firm. Such a minor is not personally liable towards the third parties for any act of the firm, but only his share is liable for such acts.
On attaining majority such a minor has an option either to become a partner or not to become a partner and leave the firm. This option can be exercised by him within a period of six months from the date of attaining the majority. But if he did not know that he had been admitted to the benefits of partnership then he may exercise the option within six months of his obtaining the knowledge that he had been admitted to the benefits of partnership. Such option has to be exercised by him by giving a public notice. If he fails to exercise the option either way, then on the expiry of the above stated period of six months he automatically becomes a partner.
If a minor, who had been admitted to the benefits of partnership, becomes a partner, his rights and liabilities as that of a minor continues up to the date on which he becomes a partner, but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership. It means that if a minor , on attaining the majority has become a partner his liability towards third parties is not only for the acts of the firm which were done after he becomes a partner, but his liability towards the third parties is retrospective for all the acts of the firm done since the date of his admission to the benefits of the firm. His share in the property and profits of the firm shall be the share to which he was entitled as a minor.
In case on attaining majority he elects not to become a partner, his rights and liabilities shall continue to be those of a minor as stated above, up to the date on which he gives public notice. His share will not be liable for any act of the firm which are done after such notice.
Position of a minor in case of Negotiable Instruments
Section 26, Negotiable Instruments Act, 1881 makes the following provision explaining the capacity of the parties to a contract in case of negotiable instruments :
“Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque.
A minor may draw, endorse, deliver and negotiate such instrument so as to bind all parties except himself.”
If we compare the position of the minor given in the second para with the position of a person competent to compare stated in the first para we find that a minor is incapable of doing two things; firstly, making of a promissory note, and secondly, acceptance of a bill of exchange. The reason is obvious. The main obligation in case of a promissory note depends on the promise made by the maker and in case of a bill of exchange on the undertaking by the acceptor. If they are incompetent to contract the whole of the instrument becomes inoperative. It is, therefore, necessary that the maker of the promissory note and acceptor of a bill of exchange must be competent to contract.
A minor has been authorised to draw, endorse, deliver and negotiate a negotiable instrument. Ordinarily an endorser of a negotiable instrument incurs liability towards his endorsee and the subsequent parties. But if the endorser is a minor he will not incur such liability. When a minor makes an endorsement he thereby binds all parties except himself. It means that the transferee of a negotiable instrument from a minor has a right to recover the amount from all those who are liable to pay the same, except the minor.
Position of a minor in a contract of agency
A minor is incapable of entering into a contract because an agreement by a minor is void. What a minor cannot do himself, he cannot do that even through an agent. Therefore, a minor cannot appoint an agent, or in other words, a minor cannot become a principal. Section 183, therefore, provides that any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.
There is no bar to a minor becoming an agent. An agent is merely a connecting link between his principal and the third parties, and it is they who should be competent to contract. An agent may not be competent to contract. Section 184 provides that as between the principal and third persons any person (even a minor) may be an agent.
It has been noted above that a minor is capable of becoming an agent for the purpose of binding the third party and his principal. So far as relations between the principal and his agent is concerned, a binding contract as between them is possible only if both parties i.e. the principal and the agent are competent to contract. Regarding this aspect Section 184 states that, “no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.” Thus, if a minor is appointed as agent, he will be able to create a contract between his principal and the third party, but so far as his own liability towards the principal is concerned that will not be there because of his minority.
No estoppel against a minor
When a minor misrepresents at the time of contract that he has attained the age of majority, the question which arises in such a case is, does the law of estoppel apply against him, so as to prevent him from alleging that he was a minor when the contract was made ? In other words, can he be made liable on the agreement on the ground that once he asserted that he has attained majority he should not be allowed to deny the same ? Section 115, Indian Evidence Act which lays down the law of estoppel is as under :
“Where 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 representatives shall be allowed in any suit or proceeding between himself and such person or his representative to deny the truth of that thing.”
According to the rule contained in Section 115, Indian Evidence Act, if you make a statement today which misleads another person, you are not allowed to deny the statement tomorrow when the question of your liability arises.
The question of estoppel came before the courts. In Mohori Bibee Vs. Dharmodas Ghose the minor misrepresented his age while taking loan, but the fact that the person taking the loan is a minor was known to the money lender. The Privy Council did not consider it necessary to decide whether Section 115, Indian Evidence Act was applicable to the present case, because the money lender was not misled by the false statement made by the minor as has was aware of the real age of the borrower.
From the various decisions of the different High Courts we find that the concensus is that the law of estoppel does nor apply against a minor. He is allowed to plead minority a a defence to avoid liability under an agreement even though at the time of making the agreement he falsely stated that he has attained age of majority.
Indian Law : compensation by a minor
It may be noted that in England restitution, that is, the restoring back the property by a fraudulent minor is permitted, if the property can be traced. According to Leslie Vs. Sheill the money obtained by a minor cannot be recovered from the minor as the same cannot be traced. If a minor is asked to pay back the money it may mean enforcing contractual obligation against a minor, which the law does not permit,
The question which has arisen in India
In India
1. Whether a minor can be asked to pay compensation under sections 64 & 65, Indian Contract Act for the benefit obtained by him under a void contract ?
2. Whether a minor can be asked to pay compensation in view of the provisions contained in sections 38, 39, and 41, Specific Relief Act, 1877 ?
Both the above questions have been answered in the negative by the Courts in the case of Mohori Bibee Vs. Dharmodas Ghose.
Beneficial Contracts of Service and Apprenticeship
Position in England
Under the English law an infant is bound by the contract of apprenticeship or service because such contracts are beneficial to him and help him in earning his livelihood. Contracts of apprenticeship stand on the same footing as the contract for necessaries.
Infants liability is only in respect of those contracts which are beneficial to him. If the contract is substantially beneficial to an infant even though there are some minor disadvantage s to him, the contract is binding. If, however, the contract is not substantially beneficial to the infant, but is prejudicial to his interest the same is voidable at his option.
In Clements Vs. London and North Western Railway Co., an infant, who was employed as a porter in a railway company agreed with his employers that he would join Company’s own insurance scheme and would not make any claim for personal injury under the Employers’ Liability Act, 1880. Under the Company’s insurance scheme the rate of compensation was lower but it covered more cases of accidents for which compensation could be recovered than under the Employer’s Liability Act. It was held that on the whole the agreement was beneficial to the minor and therefore, the same was binding on him.
If, on the whole, the contract is prejudicial to the interests of the infant, the same is voidable at his option. In De Francesco Vs. Barnum, a girl of 14 years was engaged by the plaintiff as an apprentice for training in stage dancing. The terms to which she was made to agree included that she would not marry during apprenticeship, she would not accept any professional engagement without the plaintiff’s consent, she would be willing to go for the performances abroad. The remuneration to be paid to the infant apprentice ranged between 6d. and 9d. per show during the first three years and between 6d. and 1 sh. Thereafter. Nothing was to be paid to her when she was not employed and the plaintiff could terminate the contract, if she was not found suitable for the stage dancing. It was held that considering the contract as a whole its terms were unreasonably prejudicial to the interests of the infant apprentice and were, therefore, not enforceable against her.
An infant is not liable for every beneficial contract. The liability is only for contracts of service or apprenticeship. There is no liability for a trading contract. In Cowern Vs. Nield the defendant, an infant, who was a trader in hay and straw, agreed to supply some clover and hay to the plaintiff. He received the payment from the plaintiff in advance but failed to supply the material. In an action against the infant defendant to recover back the price paid it was held that even though the contract was beneficial to the defendant, he being an infant could not be made liable for the same.
Contracts analogous to those of service and apprenticeship
A minor is bound for a beneficial contract of service or apprenticeship, or any contract analogous thereto. This may be illustrated by referring to the decision in Doyle Vs. White city Stadium Ltd. T5he plaintiff, who was an infant, applied for licence as a boxer, stating as under :
“I hereby apply for a licence as a boxer and, if the licence is granted to me, I declare to adhere strictly to the rules of the British Boxing Board (1929) as printed and abide by any further rules or alterations to existing rules as may be passed “
A licence was duly granted to him and renewed thereafter. In accordance with the rules the plaintiff was disqualified in one of the contests for hitting below the belt and a sum of 3000 pounds due to him was withheld. The infant sued to recover that amount. It was held that the infant’s contract with the Board of Control was so closely connected with the contract of service that the same was binding against him and, therefore, he could not recover the amount.
Position in India
Contracts of service
Unlike English Law contracts of service entered into by a minor are void. Neither a minor can enter into such a contract himself, nor can the minor’s guardian or other representative make a contract on his behalf. The following observations of Desai J. in Raj Rani Vs. Prem Adib explains the position :
“Now though according to English law the minor would be liable in the case of a contract of service where the contract was for his benefit, it is clear that under Section 11, Contract Act the minor’s contract being void, the minor would not be held liable …….. If the minor’s contract is a void contract, he is not entitled to sue for damage for breach of such contract including the contract of service where contract is entered into by the minor himself ….. If then a minor cannot sue on a contract of service entered into by him personally, is entitled to sue for obtaining practically the same relief, simply because the contract has been entered into for and on his behalf and for his benefit by his guardian ? I have already referred to the fact that a minor cannot employ an agent, and, therefore, it cannot be said that the contract was entered into “for and on his behalf” in that sense”
The facts of Raj Rani Vs. Prem Adib are as follows : The father of Raj Rani, who was a minor, entered into a contract on her behalf with Prem Adib, a film producer. According to the contract Raj Rani was to act as a film actress in the defendant’s studio, on payment of a certain amount. Raj Rani was not given any work. She sued the producer, Prem Adib for the breach of contract. It was held that the plaintiff, being a minor, the contract was void. It was also observed that the contract of service entered into by the father on behalf of his minor daughter was void for another reason also, that is, the same was without any consideration because consideration moving from a third party, who was a minor is no consideration.
Contracts of Apprenticeship
Although Indian law does not make a minor bound by the contract of service, contracts of apprenticeship are binding under the Indian Apprenticeship Act, 1961. Since the contracts of apprenticeship are binding against the minor, such contracts could validly be entered into by a minor’s guardian on behalf of the minor.
Contracts of marriage
Contracts of marriage are supposed to be beneficial to minors and, therefore, a minor is entitled to enforce them. In khimji Kaverji Vs. Lalji Karamsi (1941) the question before the Bombay High Court was, whether the contract of marriage of a minor girl entered into by her mother on her behalf with a major boy could be enforced and she could sue for the breach of contract. The question was answered in the affirmative and her action was allowed. Kania J. observed :
“The decision of this court show that a contract of betrothel made by a guardian of a minor Hindu was not questioned as enforceable. When the minor brought a suit against the other contracting party to get his rights declared and enforced, the court assisted him in doing so. The principle on which it appears that contracts of this kind are considered enforceable at the instance of the minor is that the contract was made on behalf of the minor by his guardian and if the court found that it was for his benefit the Court enforced it.”
In Abdul Razak Vs. Mahomed Husein (1917) The Bombay High Court allowed an action against a muslim father, who promised to give his minor daughter in marriage to the plaintiff, but subsequently there was a breach of the contract. In this case after the defendant agreed to give his minor daughter in marriage to the plaintiff, the plaintiff spent some amount by presenting ornaments and clothes to the defendant’s daughter and incurred certain other expenses in connection with the agreement for the marriage. On the breach of the contract of marriage, it was held that the plaintiff was entitled to recover the amount from the defendant under sections 65 & 73 of the Contract Act.
Contracts beneficial to a minor
While no liability can be incurred by a minor he is not debarred from accepting a benefit. If a minor has advanced mortgage money and there is a mortgage in his favour, he can sue for enforcement of a contract. (Raghava Chariar Vs. Srinivasa ) 1916
Similarly, a minor can sue on a promissory Note executed in his favour. (Ranganazu Vs. Madura Basappa) (1913)
Position of a person of Unsound Mind
We have already noted that according to section 11 a person of sound mind is competent to contract. It means that if a person is of unsound mind he is as much incompetent to contract as a minor. What is sound mind for the purpose of making a valid contract has been defined by section 12 as under :
“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 judgement as to its effect upon his interests.”
Soundness of mind is required only at the time of making a contract. It is possible that a person who is usually of unsound mind, may make a contract when he is of sound mind. It means that even a person who is usually of unsound mind can make a contract during lucid intervals, i.e., at such intervals when he is of sound mind. Thus, a patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.
Just as a person who is usually of sound mind can make a contract during lucid intervals, in the same way, a person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he i9s of unsound mind. Thus, a sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational judgement as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts (Ram Sundar Saha Vs. Raj Kumar (1928)
In Indar Singh Vs. Parmeshwardhari Singh (1957) it has been held that “ a person may to all appearances, behave in a normal fashion, but, at the same time, he maybe incapable of forming a judgement of his own, as to whether the act he is about to do is to his interest or not, and to the contracts of such a person the law gives protection”. In this case, on the death of his Father, the defendant No. 1 purported to sell some properties to the plaintiff for a consideration of Rs. 7,000/- and executed a sale deed for the purpose. The properties purported to be sold under the sale deed were worth Rs. 25,000/- Mother of defendant No. 1 pleaded that her son was a congenital idiot, incapable of understanding transactions relating to transfer of properties, and that he is a man of unsound mind and mostly wanders about here and there and therefore, the transaction made by him is void. It was held that defendant No. 1 was incapable of understanding business and forming a rational judgement as to its effect upon his interest at the relevant time and, therefore, the sale deed executed by him in favour of the plaintiffs did not confer any title on them.
