CAPACITY TO CONTRACT

Charu Srivastava
Assistant Professor
CoLS, UPES
• Sec 10 
A)Competency to contract
B)Free consent
• Sec 11  Competency to contract
A)Minors
B)Persons of unsound mind
C)Persons disqualified by any law to which they
are subject
 MINOR’S AGREEMENT
• Who is a minor?
Sec 3 of the Indian Majority Act, 1875: who has not completed 18 years of his
age, except
i) When a guardian of a minor’s person or property is appointed by the
court
ii) When a minor’s property has passed under the superintendence of the
court of wards.
In these two exceptional cases a person becomes major after the completion
of 21 years of age.
• Nature of minor’s agreement.
Act does not specifically says that the minor’s agreement is void.
Sec 68 confers quasi- contractual right on the supplier of “necessaries” to a
‘person incapable of entering into a contract (or to anyone he is legally bound
to support)”, to be reimbursed from the property of such incapable person.”
It was authoritatively declared by the Privy council in Mohiri Bibee v. Dharam
Das Ghose, (1903) ILR 30 Cal 539, that a minor’s agreement is absolutely void.
 English Law
• Under the common law, an infant's contract is generally not void
but voidable at his option; if it appears to the court to be for his
benefit, it may be binding, and especially so if the contract is for
necessaries.
• Common law has treated minor's contracts voidable at the option
of the minor.
• These have been divided into two types:
1) first, positive voidable contracts, where the minor acquired interest
of permanent or continuous nature, namely, land, shares, etc,
which were valid until the minor disclaimed them;
2) secondly, the others termed negative voidable contracts, which
were not binding on the minor unless he ratified them after
attaining majority.
 INDIAN CONSTRUCTION
• No person is competent to contract who is not of the age of
majority according to the law to which he is subject; in other
words, a minor is not competent to contract.
• This proposition is capable of two constructions:
A) either that a minor is absolutely incompetent to contract in
which case his agreement is void, or that he is incompetent to
contract only in the sense that he is not liable on the contract,
though the other party is, in which case there is a voidable contract.
B) If the agreement is void, the minor can neither sue nor be sued
upon it, and the contract is not capable of ratification in any
manner; if it is voidable, he can sue upon it though he cannot be
sued by the other party, and the contract be ratified by the minor
on his attaining majority. Indian decisions initially followed the
English law holding the minor's contract voidable at his option.
 MOHIRI BIBEE V. DHARAM DAS GHOSE
PRIVY COUNCIL (1903) 30 IA 114

FACTS:
• The plaintiff-respondent, Dharmodas Ghose, while he was a minor, mortgaged his
property in favor of the defendant, Brahmo Dutt, who was a money lender to
secure a loan of Rs. 20,000 at 12% interest. A part of this amount was actually
advanced to the plaintiff. The money-lender himself did not take part in the
negotiations.
• Before the execution of the mortgage, a notice was issued on behalf of D's mother
to B about the fact of D's minority
• At the time of transaction, the attorney of the defendant was fully aware that the
plaintiff was incompetent to contract.
• With his mother as next friend, Dharmodas commenced an action against Brahmo
Dutt, stating that at the time of contract he was a minor, so the contract is void
and he is not bound to return the money.
• The Court granted relief to the plaintiff.
• An Appeal was filed but the same was dismissed by the Appellate Court.
• After this appeal Brahmo Dutt died. An appeal was filed in the Calcutta High Court
by his executors.
Issues –
(1). Whether the mortgage was void?
(2). Whether the plaintiff should return the
money received by him under such mortgage?
CONTENTIONS OF THE DEFENDANT- APPELLANT (Money lender)
• That they did not know that he was a minor.
• 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 plaintiff had falsely misrepresented his age, the law of estoppel
should apply against him and he should not be allowed to contend that he
was a minor.
• If the plaintiff’s claim to order the cancellation of mortgage is allowed, the
plaintiff should be asked to refund the loan taken by him, according to
Section 64 and 65 of the Indian Contract Act, 1872.
• The defendant claimed the refund of the mortgage money under Section
41 of the Specific Relief Act, 1877
• DECISION OF THE TRIAL COURT AND THE APPELLATE COURT:
The trial court found the facts as above stated, and granted the relief asked and the
appellate court dismissed the appeal from him.

DECISION OF THE PRIVY COUNCIL

• The attorney acted for defendants, so his acts amounts to defendant’s act.
• Rule of estopple embodied under section 115 of the Indian Evidence Act 1872,
does not apply to infants.  trial court and appellate court.
• The Privy Council found the fact that the plaintiff was a minor at the time of
making the agreement was known to the defendant’s attorney, therefore, the law
of estoppel as stated in Section 115 of the Indian Evidence Act, was not applicable
to the present case, where the statement (about age) was made to a person who
knew the real facts and was not misled by the untrue statement. Privy council did
not decide the question whether rule of estopple applies against a minor or not.
• The money lender was not entitled to get back the money actually
advanced by him. The act makes it essential that all the 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 the meaning of the Act. This is
clearly borne out by later sections ( sec 68, 183, 184) in the Act.
• It held that restitution of money under section 64 of the Act, cannot
be granted because a minor’s agreement is absolutely void and not
voidable.
• Similarly no relief can be granted under section 65 of the Act. The
privy council said “it is sufficient to say that section 65, like section
64 starts from 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”.
Section 65 applies only to contracts which subsequently either
become void or are discovered to be void.
• The money-lender sought an order for return of the advanced money under s 41
of the Specific Relief Act 1877; under which, on adjudging the cancellation of an
instrument, the court could exercise its discretion to require the party to whom
such relief was granted, to make any compensation to the other which justice
might require. In this case, the court of first instance had come to the conclusion
that under the circumstances of the case, justice did not require them to order the
return, by the respondent, of money advanced to him with full knowledge of his
infancy, and their Lordships saw 'no reason for interfering with the discretion so
exercised'.
• This decision has been considered later as an authority that the court may, on
adjudging the cancellation of an instrument at the instance of a minor, require the
minor according to the circumstances of the case, to compensate the other party
to the instrument under s 41 of the said Act.
• A minor cannot be made to repay the money received under his agreement in a
suit for avoiding it, except in the exercise of discretion under s 41 of The Specific
Relief Act 1877. The discretion will not be exercised to restore the consideration in
favour of a vendee who has knowledge about the minority or who is negligent.
NATURE OF MINOR’S AGREEMENT
1. An agreement with a minor is absolutely void.
2. No estopple. (Sec 115 of the Indian Evidence Act, 1872)
defines estopple as “
Estoppel. —When 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 representative shall be allowed, in any suit or
proceeding between himself and such person or his
representative, to deny the truth of that thing. Illustration A
intentionally and falsely leads B to believe that certain land
belongs to A, and thereby induces B to buy and pay for it. The
land afterwards becomes the property of A, and A seeks to set
aside the sale on the ground that, at the time of the sale, he
had no title. He must not be allowed to prove his want of title.
Brahma Dutt v. Dharm Das Ghose (1898)  estopple does not apply to
infants. The word person in the section means a person having contractual
capacity.”

Sadiq Ali Khan v. Jai Kishore ,AIR 1928 P.C. 152, The council held that “a deed
executed by a minor is a nullity and incapable of founding a plea of estopple
on the ground that there can be no estopple against the statute which has
declared a minor’s contract to be void”. This decision settled the controversy
regarding the applicability of section 115 if the Evident Act.
Lahore High court in Khan Gul v Lakha Sing, ILR 9 Lah. 701 (FB) 1928. held that
minor is not estopped from pleading his minority, and the court reconciled
section 11 of the contract act, with section 115 of evidence act, by applying
the principles that where a general intention is expressed by the legislature,
and also a particular intention, which is incompatible with the general
intention, then the particular intention is considered as an exception to the
general rule.
Gadigeppa Bhimappa v. Balangowda AIR 1931 Bom. 561  that sec 115
which is a mere procedure cannot overrule a plain procedure of law, section
11 being a substantive law. Bhimmapa was a minor sold certain land to
plaintiff representing to the plaintiff that he was a major. Held that no
estopple.
In this case SUBHA RAO , C.J. discussed various cases including Mohiri Bibee,
Khan gul and Ajudhia Prasad case and laid down as follows:
“A contract entered …….one can recover the goods but not damages or
price….the English decision describes “ restitution stops where repayment
begins.” but there is another principle of equity, namely, that one who seeks
equity must do equity. If a minor as plaintiff seeks relief from a court on the
basis that the contract was void, the court could refuse that relief unless he
has made good his fraudulent representation. If he seeks to, recover through
court goods which he parted with after receiving the consideration, the court
will not help him except by imposing the condition of returning the
consideration amount…”
3. Limited applicability of doctrine of restitution.
Anson says: when fraudulent misrepresentation still not enforceable but equity does
not stand idle and will, in certain circumstances, intervene in order to prevent the
infant from taking advantage of his own deceit.
Infant can be asked to restore the product if identifiable and still in his possession.
In a transaction between an adult and an infant, where an infant seeks unfairly to
retain the benefit under the transaction while setting up its invalidity (and particularly
in the case of an minor fraudulently misrepresenting his age) the English courts have
not allowed the minor to retain the unfair advantage.
Stocks v Wilson , Stocks v Wilson [1913] 2 KB 235.
A minor obtained furniture and other articles from the plaintiff by representing
himself to be of age and promised to pay. The goods were not necessaries. He sold a
portion of the goods for some amount and granted a bill of sale for the rest as security
for an amount lent to him by a third party. He then sold the goods to the grantee of
the bill of sale. The court held that he was liable in equity to account to the plaintiff,
which was the benefit of what had been obtained by reason of his fraud.
The judgment was criticised in R Leslie Ltd v Sheill but not overruled.
• English case Leslie Ltd v. Sheil (1914)
Infant falsely represented his age and tool loan twice from
plaintiff (money lender). In a suit for recovery of loan +
interest, the court of appeal held money cannot be recovered.
The three main propositions with respect to minors are :
1) Minor can be asked to restore the property or goods if
obtained by fraud or misrepresentation if tracable.
2) Where the minor has sold the goods or converted them, he
cannot be made to repay the value of the goods, because
that would amount to enforcing a void contract.
3) The doctrine of Restitution is not applied where the minor
has obtained cash instead of goods, for restitution stops
where repayment begins.
Lord Sumner, in R Leslie v Sheill [1914-15] All ER Rep 511. had said:
• ...when an minor obtains an advantage by falsely stating himself to be of full age,
equity required him to restore his ill-gotten gains or to release to party deceived
from obligations or acts in law induced by the fraud, but scrupulously stopped
short of enforcing against him a contractual obligation entered into while he was
an infant, even by means of a fraud. Restitution stopped where repayment began.
His Lordship then proceeded:

• The money was paid over in order to be used as the defendant's own, and he has
so used it and spent it. There is no question of tracing it, no possibility of restoring
the very thing got by the fraud, nothing but compulsion through a personal
judgment to pay an equivalent sum out of his present or future resources, in a
word, nothing but a judgment in debt to repay the loan. I think this would be
nothing but enforcing a void contract. So far as I can find, the Court of Chancery
never would have enforced any liability under circumstances like the present, any
more than a court of law would have done so.
• Khan Gul v. Lakha (1928) Lahore
A minor fraudulently concealed his age and contracted to sell a plot of
land to another. The minor received the consideration of Rs. 17, 500/-
and then refused to fulfil his part of the bargain. The other party
prayed for possession or refund of consideration. The question rose
whether a minor who entered a contract through false representation
retain the benefits from the contract while refusing to perform his
part. Since a minor’s contract is void, specific performance was not
granted. However, refund of the consideration was order.
Decision: Sir SHADILAL CJ : It was held that the doctrine of restitution
rests upon the salutary principle that a minor cannot be allowed by a
court of equity to take advantage of his own fraud. A false
representation by an infant that he was of full age gives rise to an
equitable liability. The grant of such relief is not enforcing the contract
but a restoration of the state of affairs as they existed before the
formation of contract.
A perusal of the judgements of various High Courts after
the Khan Gul case confirms that many still considered
themselves bound by the principle of restitution as
explained and restricted in the case of Leslie (R) Ltd and
conscious of the difference in position of a minor when
he was suing as a plaintiff and was being sued as a
defendant.
Some even expressed solidarity with observation made in
Leslie (R) Ltd that there was no rule of equity, justice and
good conscience which entitles a court to enforce a void
contract of a minor under the cloak of restitution.
• Full Bench of Allahabad High Court in Ajudhia Prasad v. Chandan Lal
(1937) All 860 (FB), considered at length the reasoning in the Khan
Gul case and dissented from it.
Defendants (minors) executed a mortgage deed in favor of the
plaintiffs.
Court said contract cannot be enforced and followed Leslie case. His
lordship observed:
“when a contract of transfer of property is void, and such property can
be traced, the property belongs to the promisor and can be followed.
There is every equity in his favor for restoring the property to him. But
where the property is not traceable, and the only way to grant
compensation would be granting a money decree against the minor,
decreeing the claim would be almost tantamount to enforcing the
minor’s pecuniary liability under the void contarct which is wrong. No
recovery of money is permitted.
• Law commission expressed its preference for
the Lahore high court judgement of Khan Gul
case.
• The issue is now settled by The new Specific
relief Act, 1963 under section 33.
• But the court will not order restitution by a minor in the following
cases even when he is a plaintiff:
a) Where the other party was aware of the infancy so that he was
not deceived (Bhim Mandal v Mange Ram AIR 1961 Pt. 21)
b) Where the other party has been unscrupulous in his dealing with
the minor (Mohammad Said v. Bishamber Nath (AIR 1924 All 156)
c) Where, though the minor has misrepresented his age, the other
party was so zealous to enter into contract that the false
misrepresentation exerted no influence on him. ( K. Mungall v.
Mahadavan, 1939 Rang. 545)
d) Where the other party fails to justify the return of money by the
minor. ( Kanta Prasad v. Sheo Gopal (1904) 26 All 342.)
• Sec 33 (2)(b) defendant can be compelled to restore the benefit to the other
party to the extent to which he or his estate has benefited thereby.
4. Beneficial contracts.
English law: contract of service / apprenticeship / necessaries are all treated as
beneficial contracts for a minor and hence enforceable whether entered into by a
minor or on his behalf.
Roberts v. Gray (1913) 1 KB 520 (CA)  damages $ 1500 were awarded against
the minor.
India: contract of service is void where apprenticeship is valid.
a) Contract of apprenticeship entered into by the guardian is valid provided it
falls within the apprenticeship act.
b) Minor can be a beneficiary
Raghav v Srinivasa 40 Mad 308 (FB 1917) held that a mortgage executed in favor
of a minor who had advanced the whole of the mortgage money was enforceable
by him or by any other person on his behalf.
c) Contract of service
But the case of executory contract is different where he consideration
is still to be supplied by the minor.
Raj Rani v. Prem Adib AIR 1949 Bom. 215.
d) Contract of marriage
The general rule is that a contract to marry in future by a minor is void
however in certain circumstances it is considered as valid.
Rose Fernandes v. Joseph (1924) 48 Bom. 673 agreement between
guardian of minor and defendant to marry. Minor can sue for
damages.
Khimji v. Lalji AIR 1914 Bom 129, an agreement can be enforced by
minor but not against minor.
e) Contracts entered into by guardian of a minor.
Subramanyam v. Subha Rao AIR 1948 PC 25,
It was held that if the contract is within the competence of the
guardian to enter into on behalf of the minor so as to bind him by it,
and it is for the benefit of the minor the contract can be specifically
enforced by or against the minor.
In the instance case the father of the minor died leaving him surviving
his widow and his minor. Prior to his death the father of the minor had
incurred certain debts, including a debt of Rs. 16,000 owing to the
appellants and secured by two promissory notes. By an agreement in
writing, the minor “by guardian and mother” agreed to sell the lands
in suit to the appellants. It was held that the contract was binding
upon the minor.
5. No ratification
Gobind Ram v. piran Dutta ( AIR 1935 Lah 561)
Annat Rai v. Bhagwan Rai ( AIR 1940 ALL 12) HC said that a person on
attaining majority may elect to pay a debt incurred by him during his minority
and if he does so, he cannot subsequently bring a suit for refund of that
amount for the simple reason that a contract entered into by a minor is void
and not unlawful.
6. Liability for necessaries.
After mohiri bibee case it can be said that a minor is not even
personally liable for the necessaries. As per section 68, reimbursement
out of property is permitted.
Nash v. Inman (1908) 2 KB I that in an action against an infant for
necessaries, the onus is on the plaintiff to prove, not only that the
goods were suitable to the conditions in life for the infant, but also
that he was not sufficiently supplied with the goods of that class at the
time of sale and delivery. In this case the plaintiff sued defendant for
$ 145 for clothes supplied to him when he was an undergraduate at
trinity college, cambridge. Clothes included 11 fancy waistcoats. Father
of the minor was at a good position. Action failed since he already had
clothes suited to his life.
7. Liability for tort
Liable for torts but he cannot be made liable for what was in truth a
breach of contract.
Bernard v haggis (1863) 147 ER 360 (MINOR HELD LIABLE)
8. Minor as a partner (sec 30 of partnership act, minor can be
admitted to the benefits of partnership)
9. Minor as an agent (sec 183 of indian contract act) minor can be
appointed as an agent but the liability will be that of an principal.
As between the principal and third persons, even a minor may become an
agent; but he will not be responsible to the principal. A minor may draw,
endorse, deliver and negotiate any negotiable instrument so as to bind all
parties except himself.
10. Minor can not be declared as an insolvent.
 PERSON OF UNSOUND MIND
• Section 12 : two tests:
a) Capable of understanding the consequence and
b) Capable of forming a rational judgement as to its effect upon his
interest.
Inder singh v parmeshwasdhari AIR 1957 Pat. 491 , property of Rs 25,000 was
agreed to be sold by a person for Rs 7000 only.
Joshi ram v. rukmini bai AIR 1949 ALL449
Not mere mental weakness or lack of intelligence”
• R. Lingaraj v. parvathi AIR1957 Mad 285
Under indian lunacy act 1912, a person of
unsound mind is one who is totally unsuited to
manage his affairs. In the instant case the
appellant was not held to be person of unsound
mind as he was able to give relevant and
rational answers to simple questions put to him.
There is a distinction between mere weakness of
intellect on one hand and lunacy on the other.
• Ranjit kumar v secretary, psycho-ANALYTICAL
Society AIR 1963 Cal 61.
It was held that disease of schizophernia is not
enough to make a man “lunatic”. It is the
ultimate responsibility of the court to find out
that the person is unable to understand his
actions.
OTHER PERSON DISQUALIFIED BY LAW
• Alien enemy –without permission of
government since considered against public
policy.
• Foreign soverigns  they can sue indian
citizens but not vive versa
• Convict
• Insolvent