Capacity to Contract

Detailed Presentation on Capacity to Contract under Indian Contract Act, 1872

Made By:
Edited By: Ayush Patria, Sangam University, Bhilwara

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1. CAPACITY TO CONTRACT

2. Sec. 11 of the Indian Contract Act, 1872 defines who are competent to contract - Every person is competent to contract who is of the age of majority according to the 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 subjected. WHO ARE COMPETENT TO CONTRACT

3. Thus the section declares that the following person are not competent to contract- Minors Persons of unsound mind Persons disqualified by law to which they are subject. Age of majority: The age of majority is generally eighteen years. WHO ARE NOT COMPETENT TO CONTRACT

4. Section 3 of the Indian Majority Act, 1875 provides as follows-: Every person residing in India shall be deemed to have attained his majority when he shall have completed his age of 18 years, and not before. INDIAN MAJORITY ACT, 1875

5. Section 10 says that the parties to a contract should be competent to contract and section 11 declares that a minor is not competent to a contract. But neither sections makes it clear regarding the validity of the contract, whether if a minor enters into an agreement, it would be voidable or altogether void. INDIAN CONTRACT ACT , 1872

6. What agreements are contract- Section 10-: All agreements are contract if they are made by free consent of Parties, competent to contract, with a lawful consideration lawful object, and are not hereby expressly declared to be void. INDIAN CONTRACT ACT,1872

7. Nothing herein contained shall affect any law in force in [India] and not hereby expressly repealed by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.

8. This case gave a resolution regarding nature of minor’s agreement. In the following case, the plaintiff, a minor mortgaged his house in favor of the defendant a money lender, to secure a loan of Rs. 20,000. MOHORIBIBI VS. DHARMODAS GHOSE ILR (1903) 30 CAL 539 (PC) PRIVY COUNCIL

9. During the hearing of the case, the fact that the plaintiff was minor and was confronted . The petitioner’s attorney advocated that he was under age when he executed the mortgage and also the same should, therefore, be cancelled.

10. The relief of cancellation had to be granted because the plaintiff was entitled to that. (under section 39 of the first Specific Act 1877 courts were authorized to order cancellation of void contracts. Now section 31 of the Act of 1963).

11. It was concluded that if in any agreement or deed where minor is a party or is connected in any way, that agreement shall be declared null and void as such agreement is void in the eyes of law. JUDGEMENT

12. The parents or custodians of a minor to an agreement will not be liable for any damages occurring during the course of agreement, unless or until the minor acted with the consent of the parents or custodians.

13. In its subsequent pronouncement in Subramanyam vs. Subba Rao [AIR 1948 PC 25]. The council overruled earlier decision and entertained little interference that it had been within the powers of the mother of a minor as a guardian to enter into a contract of sale for the aim of discharging his fathers debts. DEVELOPMENT AFTER MOHIRIBIBI CASE

14. Following this decision, the Orissa HC within the case of Durga Thakurani vs. Chintamani [AIR 1982, 158] held that Endowment of property for religious purposes by guardians on behalf of minors, being within their competence of was specifically enforceable.

15. The other High courts have also expressed the view that the doctrine of mutuality are imported into the matter where the contract was within the competence of the guardian and there's no scope for this doctrine under sec.20 of the particular Relief Act, 1963.

16. No Estoppel against minor - Estoppel is a rule which can hold a party liable who has started to do something before coming into a contract as a part of the - consideration . this rule can not be applied to minors . EFFECTS ON MINOR’S AGREEMENT

17. Doctrine of Restitution: Minor’s agreement being void, an agreement entered by him during his minority cannot be ratified after becoming a major..

18. In Leslie (R) Ltd. V Sheill (1914) 3 K A minor succeeded in deceiving some money-lenders by telling them a idle his age, so got them to lend him 400 pound on the belief of him being an adult. Their try to recover the quantity of principal and interest as damages for fraud failed.

19. The attempt also failed under quasi-contract and doctrine of restitution. Replacing the contention, Lord Summer said: “I think this is able to be nothing but enforcing a void contract.

20. 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. The person on whose behalf certain goods were insured, court allowed the minor to recover the money. BENEFICIAL CONTRACTS

21. Contract of marriage: contract of marriage could be enforced against the other contracting party at the instance of the minor it can not be enforced against the minor . Contract of apprenticeship: The Indian Apprenticeship Act 1850 provides for contracts in the nature of contracts of service which are binding on minors .

22. In general sense contracts which can be brought within certain categories and is for the benefit of the minor can be supported. TRADE CONTRACTS NOT INCLUDED IN BENEFICIAL CONTRACTS

23. A trading contract does not come within any of these categories. The only contracts of a minor which can be enforced are contracts by which he provides himself with clothes, food or lodging or contracts of marriage, apprenticeship and service.

24. A minor will have the option of retiring from a contract of beneficial nature on attaining majority provided that he exercises the option within a reasonable period of time. OPTION TO RETIRE FROM BENEFICIAL CONTRACTS ON MAJORITY

25. Where a minor in pursuance of a marriage settled his after acquired property and after attaining majority he received large sum of money under the will of his father which came under the settlement, and, therefore he attempted to repudiate the settlement.

26. A person on attaining majority cannot 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 then void can not be made valid by subsequent ratification. RATIFICATION

27. It would be contradictory in terms to say that a void contract can be ratified. It is a necessity to make a fresh contract on attaining majority.

28. It is a presumption of law that every person is entitled to enter into contract unless an exception applies. One of these exceptions is the age of contractual capacity for minor i.e. 21 at common law. However this was reduced to the age of 18 in 1969 by Act of Parliament. Attaining the age of 18 is understood as ‘majority’. ENGLISH LAW

29. Minors are permitted to enter into contracts for limited purposes, and the test is one that focuses on the nature of the transaction, as whether the minor is of an age such that they are capable of understanding the nature and consequences arises out of that contract. GENERAL EXCEPTIONS

30. The general law states that contracts entered into by minor that are for ‘necessaries’ are binding on children, as those are for apprenticeship, employment, education and service where they are rightly said to be for the benefit of the child.

31. Contract arising out of necessity such as supply of food, medicines, accommodation, clothing, amongst other things but generally excludes conveniences, and products and services for comfort or pleasure known as Commercial or ‘trading’ contracts are excluded. These latter contracts are voidable at the option of the minor, and whether the minor may avoid the contract depends on the nature of the contract.

32. Contracts where the minor may avoid the affect of the contract are for the acquisition of a legal or equitable interest in property of a permanent nature, such as shares, land, marriage and partnerships. Other contracts require positive ratification in order to be enforceable, which includes contracts for debts and the sale of goods that are not for necessaries.

33. The ratification must take the form of an acknowledgment that the debt is binding after attaining the age of 18. Fresh consideration is not required for the ratification to be complete. Restraint of trade may be unenforceable against a minor, even if they would be enforceable against an adult.