CAPACITY TO CONTRACT

Sec.10: Parties must be competent to contract.  Competence to contract is defined in

Sec.11: Every person is competent to contract who –

(a)    is of the age of majority;

(b)   is of sound mind; and

(c)    is not disqualified from contracting by any law.

Minors: Indian Majority Act, 1875 – Sec.3 specifies that –

(1)   a minor is a person who has not completed 18 years of age.

(2)   In following cases, a person attains majority on completion of 21 years of age :

(a)    where guardian appointed for person or property of minor under the Guardians and Wards Act, 1890, or

(b)   where superintendence of minor’s property is under Court of Wards.

Rules regarding agreements with minors :

1.      Agreement with or by minor is void: minor cannot bind himself by contract - such agreement is inoperative.

      Mohiri Bibi Vs. Dharmodas Ghose  - minor mortgaged his property to money-lender to secure loan of Rs.20,000 – Out of it, Rs.10500 paid to the minor – Subsequently, minor sued for setting aside the mortgage.  Held, the mortgage was entered into with a minor and hence voids – Request for repayment of the amount advanced to the minor as part of consideration also turned down.

2.      Minor can be promisee or beneficiary- can be beneficiary (payee, endorsee or promisee) – such contracts enforceable at the option of the minor

      Sharafat Ali Vs. Noor Mohd.  – A promissory note executed in favour of a minor.  Subsequently, the drawer refused to honour the note on the ground that it being drawn in favour of a minor, was void.  Held, that the contract was for the benefit of the minor and he can enforce it. 

3.      His agreement cannot be ratified by him on attaining age of majority– ratification relates back to date of making of contract – therefore, contract which was then void cannot be made valid by subsequent ratification - Consideration given during minority is not valid – if fresh contract entered into after majority, fresh consideration to be paid.

      Indran Ramaswamy Vs. Anthiappa Chettiar  - Minor borrows money and executes promissory note – after attaining majority, executed another promissory note in settlement of first note -  The second note is void for want of consideration. 

      Smith Vs. King – K, a minor, speculated in stock exchange and became liable to the stockbrokers for £547.  On attaining majority, he gave two bills of £50 each in satisfaction of the original debt.  Held, there was no consideration for the bills and K was not liable on them. 

      However, where services rendered at desire of minor during minority and continued after majority on same request  -  forms good consideration for subsequent express promise to pay.  Sindha Shri Ganpat Singh Vs. Abraham – services rendered to a minor at his request – continued after majority at the same request – good consideration for promise to pay.

4.      Minor receives any benefit under a void agreement, he cannot be asked to compensate/pay for it– if minor mis-represented his age - can be compelled to restore it, so long as the same is traceable in his possession - If the goods sold or converted into money, minor not liable to pay - The doctrine of restitution not applicable, where infant has obtained cash instead of goods.  Sec.65 which provides for restitution in case of rescission of voidable agreements, not applicable to agreements with minor, which is absolutely void – even no relief allowed under Specific Relief Act, 1877.

      Mohiri Bibi Vs. Dharmodas Ghose  - minor mortgaged his property to money-lender to secure loan of Rs.20,000 – Out of it, Rs.10500 paid to the minor – Subsequently, minor sued for setting aside the mortgage.  Held, the mortgage was entered into with a minor and hence void – Request for repayment of the amount advanced to the minor as part of consideration also turned down.

      Ajudhia Prasad Vs. Chandan Lal - two minors borrowed money under a mortgage deed.  They were over 18 but less than 21 years of age, but fraudulently concealed the fact that a guardian had been appointed for them.  Question was whether the lender could get a decree for the principal amount or sale of mortgaged property. Held, where property is not traceable, granting a money decree would tantamount to enforcing minor’s pecuniary (monetary) liability under a void contract – no decree under cloak of restitution.

5.      No estoppel against minor-Minor can always plead minority – Even if minor mis-represents his age, he cannot be sued.

      Leslie Vs. Shiell – A minor succeeded in deceiving some money-lenders by lying about his age and got them to lend him £ 400 on the faith of his being adult.  On his refusal to pay, the money lenders sued him for money.  Held, where the infant has sold the goods or converted them, he cannot be made to pay.

6.      No specific performance of agreement– if entered into by minor, no specific performance as void ab initio – However, if contract entered into by parent/guardian/manager within scope of authority and for benefit of minor, such contract is enforceable. 

      Srikakulam Subrahmanyam Vs. Kurra Sabba Rao – to pay off promissory note and mortgage of his debt, minor son and his mother sold a piece of land to the holders of the promissory note and to pay off mortgage debt.  He paid off the mortgage accordingly and possession of land was given over by him.   Afterwards the minor brought an action to recover back the land.  Held, the transaction was for the benefit of the minor and the guardian had the capacity to contract on his behalf – binding upon the minor. 

7.      Cannot enter into partnership– but can become a partner in an existing partnership for a share in the profits only – cannot be liable for liabilities of the firm. 

8.      Minor cannot be adjudged insolvent – As minor incapable of contracting debts, he cannot be held liable for any – so cannot be adjudged insolvent.

9.      Liable for ‘necessaries’ supplied- Minor not personally liable – Only his estate liable for ‘necessaries’ supplied or necessary services rendered to him - Things necessary are those without which an individual cannot reasonably exist – articles of luxury are always excluded though luxurious articles of utility are in some cases allowed considering the fortune and circumstances of the particular minor – liability not on account of contract but out of quasi-contract. 

      To render minor’s estate liable, the supplier has to prove that the goods supplied are necessary for the minor.  Two conditions must be satisfied – (i) the contract must be for goods reasonably necessary for his support in his station in life, and (ii) he must not have already a sufficient supply of these necessaries.  Also, loans incurred by minor to obtain the necessaries binds the minor and is recoverable.

      Ryder Vs. Wombwell  - minor was supplied a pair of jewelled solitaires and an antique goblet and though he moved in a high society, he was held not liable as the plaintiff could not prove that the articles were specially necessary for the minor. 

      Nash Vs. Inman  - an undergraduate in the Cambridge University, who was amply supplied with proper clothes according to his position, was supplied by the plaintiff with number of dresses, including eleven fancy waistcoats.  Held, the waistcoats were not necessaries and hence the price was irrecoverable.

      Roberts Vs. Gray  - G, a minor, entered into a contract with R, a renowned billiard player, to pay him certain sum of money to learn the game and play matches with him during his world tour.  R spent time and money in making arrangements for the matches.  Held, G was liable to pay as the arrangement was for necessaries as it was in effect for teaching, instruction and employment and was reasonable and for the benefit of the minor.

10.  Minor can be an agent – minor binds the principal by his acts without incurring any personal liability.

11.  Minor is liable in tort (civil wrong) – but where tort arises out of a contract, minor is not liable, as it would indirectly tantamount to enforcing an invalid contract. 

Persons of unsound mind : Sec.12 – Person 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 forming a rational judgement as to its effect upon his interest.  There is a presumption in favour of sanity.

Soundness of mind depends on –

(a)    capacity to understand the contents of business concerned, and

(b)   ability to form a rational judgement as to its effects on own interest.

      Person usually of unsound mind, may enter into contract when of sound mind – but person usually of sound mind, may not make a contract when of unsound mind.

Example:

1.      Patient in lunatic asylum - may contract during intervals of soundness of mind.

2.      Sane man – delirious from fever or drunk – incapable of forming a rational judgement as to its effects on his interest – cannot contract whilst such delirium (fever or restlessness) or drunkenness lasts. 

     

Inder Singh Vs. Parmeshwardhari Singh  - property worth Rs.25,000 agreed to be sold for Rs.7,000 – seller’s mother proved that he was congenital (hereditary) idiot and mostly wandered about – incapable of understanding the transaction – Held, person may to all appearances behave in a normal fashion, but he may be incapable of forming a judgement of his own as to the effects of the act on his interest – in present case, in capable of exercising own judgement.

Sec.68 – estate of persons of unsound mind liable for necessities supplied to them – however, no personal liability.

Persons debarred by law:

1.      Alien enemies: During war, contracts made before stand suspended or dissolved – no new contracts during the ward.

2.      Foreign sovereigns, diplomatic staff and accredited representatives: require prior permission of Central Government.

3.      Corporations: authority regulated by memorandum and articles – cannot enter into contracts of strictly personal nature.

4.      Insolvents: Property vests in Official Receiver or Official Assignee - deprived of power to deal in that property – may contract on discharge by Court.

5.      Convicts: cannot enter into contract during imprisonment – gets power to deal only on discharge or completion of sentence or pardon – Limitation held in abeyance during period of sentence.