Capacity to Contract

 

INTRODUCTION

According to Section 10 of Indian Contract Act, the parties to the contract should be competent to make a contract.

WHO ARE COMPETENT TO CONTRACT?

Every person is competent to contract who is of the 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.

Thus the following categories of persons are not competent to contract-

  1. A person who has not attained the age of majority, i.e. one who is a minor
  2. A person who is of unsound mind.
  3. A person who been disqualified from contracting by some law.

The parties may be either a person in fact, a natural person or a person in law, a juristic person. Law of contracts also recognizes circumstances where there is a need to protect people from themselves for they may enter into agreements to their detriment due to their inability to understand properly the implications of what they are doing. For example, contracts entered into by Pardanashin ladies as well as infirm and aged persons may require scrutiny if there is prima facie bias in the agreement even though there is no bar on their capacity to contract.

POSITION OF A MINOR IN CONTRACT ACT

A person who has not attained the age of majority is a minor. Section 3 of the Indian Majority Act, 1875, provides that a person is deemed to have attained the age of majority when he completes the age of 18 years, whether for his or her person or property a guardian has been appointed by the court or not.

  1. NATURE OF MINOR’S AGREEMENT:

Section 10 requires that the parties to a contract must be competent and Section 11 says that a minor is competent. But neither section makes it clear that if a minor enters into an agreement, it would be voidable at his option or altogether void. The Privy Council in Mohoribibee vs. Dharmodas Ghose (1903) 30. I.A 114 (P.C)Sir Lord North Observed, that “the Act makes it essential that all contracting parties should be competent to contract and expressly

Provides that a person who by reason of infancy is incompetent to contract cannot make a contract within a meaning of the Act. The question whether a contract is void or voidable presupposes the existence of a contract within the meaning of the Act, and cannot arise in the case of an infant”.

According to this ruling a minor’s agreement is absolutely void. In England also the Infants’ Relief Act of 1874 declares the following categories of a minor’s agreement to be “absolutely void” : (1) contracts for repayment of money lent or to be lent, or (2) contracts for goods supplied or to be supplied  ( other than necessaries), and (3) contracts for accounts stated.

The ruling of the Privy Council in Mohoribibee case has been generally followed by the courts in India and applied both the advantage and disadvantage of minors.

  1. EFFECT OF MINOR’S AGREEMENT:

A minor’s agreement being void, ordinarily it should be wholly devoid of all effects. Consequently all the effects of a minor’s agreement must be worked out independently of any contract.

  1. Estoppel: A minor who has made an agreement by misrepresenting his age may disclose his real age and he will not be estopped for setting up infancy. There is no estoppel against him.
  2. No Liability arising out of contract: “A minor is in law incapable of giving consent, and, there being no consent, there could be no change in the character or status of the parties.” In England it was laid down as early as 1665 in Johnson vs. Pye (1665) I Sid258: ER 1091 that “an infant who obtains a loan of money by falsely representing his age cannot be made to repay the amount of the loan in the form of damages for deceit”.

A minor cannot be held responsible for anything which would be an indirect way of enforcing his agreement. One cannot convert a contract into a tort to enable himself to sue an infant”.

DOCTRINE OF RESTITUTION:

In India the question of compensation, under the following two kinds of provision, has arisen before the courts:-

In India the question of compensation, under the following two kinds of provision, has arisen before the courts:-

  1. Whether a minor can be asked to pay compensation under Section 64 and 65, Indian Contract Act for the benefit obtained by him under a void agreement?
  2. Whether a minor can be asked to pay compensation in view of the provisions contained in Sec 39 and 41, Specific Relief Act, 1877?

Section 64, 65 Indian Contract Act:

In Mohoribibee vs. Dharmodas Ghose (1903) 30 I.A. 114 (P.C). In this case the Privy Council had held that (1) the question of compensation under section 64 and 65, Indian Contract Act, arises where the parties are competent to contract, and these provisions do not apply in case of minor’s agreement. Section 64 applies to voidable contract.

Section 39 and 41, Specific Relief Act.., 1877

Section 39: “Any person against whom written instrument is void or voidable, who has reasonable apprehension that such instrument, if left outstanding, may cause him serious injury, may sue to have it adjudged void or voidable, and the court may, in its discretion, so adjudge it and order it to be delivered up and cancelled”.

Section 41: “On adjudging the cancellation of the instrument, the court may require the party to whom such relief is granted to make any compensation to the other which justice may require”. In Mohori Bibee’s case it was held since in this case the loan had been advanced to the minor with the knowledge of his minority the question of payment of compensation to such a money lender did not arise. In Khan Gul vs. Lakha Singh, ILR (1928) Lah 701, the Lahore High Court ordered a minor to refund Rs 17,500which he had taken in advance for the sale of land when he refused to complete the contract. Section 41 of the Specific Relief Act, 1877 was not applicable as the minor had not invoked the aid of the court for having his contract cancelled. The court proceeded on the ground that restitution should extent to money also. But In Ajudhia Prasad vs. Chanchal Lal AIR 1937 All 610 the Allahabad High Court refused to follow the extended view of restitution ad held that a minor who had taken money by mortgaging his houses was not bound to restore money also held that “there is no equity, justice and good conscience which entitles a court to enforce a void contract of a minor against him under the cloak of restitution.”

Beneficial Contract: The law declared by Privy Council in the Mohoribibee case that a minor’s agreement is “absolutely void” has been generally followed, but it has been growingly “confined to cases where a minor charged with obligations and the other contracting party seeks to enforce those obligations against the minor”. Accordingly, a minor is allowed to enforce a contract which is of some benefit to him and under which he is required to bear no obligation.

“There is nothing in Contract Act to prevent an infant from being the promise”.

“The law does not regard a minor as incapable of accepting a benefit”.

Ratification: A person cannot on attaining majority ratify an agreement made by him during his minority. Ratification relates back to the date of the making of the contract and therefore, a contract which was void cannot be made valid by subsequent ratification.

PERSON OF UNSOUND MIND

In English law a person of unsound mind is competent to contract, although he may avoid his contract if he satisfies the court that he was incapable of understanding the contract and the other party knew it. The contract is voidable at his option. It becomes binding on him only if he affirms it. The position of a drunken person is also the same. If he makes a contract while drunk, he may, when sober, to elect to avoid or to affirm it.

Indian Law Section 12 says:

What is a sound mind for the purposes of contracting? A person is said to be of sound mind for the purpose of making 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. For example: A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.

In India, on the other hand, the agreement of a person of unsound mind is, like that of a minor is absolutely void. According to 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 forming a rational judgment as to its effects upon his interest.” A person who is usually of unsound mind may make a contract when he is of sound mind. But a person who is usually of sound mind may not make a contract when he is of unsound mind.

Leave a Reply

Your email address will not be published. Required fields are marked *