Introduction
The essentials of a valid contract are the proposal by the one party and the acceptance of that proposal by the other party followed by valid consideration and an intent to be legally bound by the terms of that contract. But one other requirement for a contract to be valid is the competency of the parties to the contract. Without the parties being competent to enter into an agreement the contract become void.
We often see children engaged in working in shops or operating their shop. So, it is important to understand the contracting capacity of children or person who has not attained an age where they can think on their own as to what is right or what is wrong for them. And it is equally important to protect their interest so that no other person can take unfair advantage and exploit them.
In this article, we will try to understand the concept of capacity or competency in the light of various provisions given in the statutes and judgments of the Court. Our major area of focus in this project will be on the contracting capacity of minors.
What is the Capacity to contract?
According to the dictionary, capacity means – “Legal competence; having the age and mental capacity to understand the consequences of one’s actions and to make rational decisions[i].”
In this article, we are discussing the capacity in relation of the formation of a valid contract so here, Capacity to Contract means, “The age and mental acuity necessary to enter into a binding contract[ii].”
Section 10 [iii]of the Indian Contract Act deals with the essentials to form a valid contract. It says that all agreements are contract if made by-
- Free consent of parties to the contract
- Competent to enter into agreement
- Lawful object and consideration
- And are not expressly declared as void.
Section 11 of the Indian Contract Act talks about the competency of the parties. It says that if a person has attained the age of majority and is of sound mind and is not disqualified from contracting by any law to which he is subjected. From here a category of people can be derived who are not competent to enter into an agreement. They are-
- Minors
- Person of unsound mind
- Person disqualified by law
If any one or more situation is found from above in a particular case, then such agreement with the person mentioned above is not said to be a valid contract.
Minors Agreements
Age of majority in India is governed by Indian Majority Act. In India, anyone who has not attained the age of 18 years are Minors and are not allowed to enter into agreement. This is because of the reason that the minors are not developed to the sense that they can understand the contractual terms and to protect them from exploitation by the other party.
Section 11 of the Indian Contract Act says that a minor is not competent to enter into an agreement. However the language of the section does not make it clear that if the Minor enter into an agreement, it would be void or voidable at his option. So due to the ambiguities in the language of provisions which leads to a lot of controversy regarding the nature of minor agreement. In the year 1903, this controversy was resolved by the Judicial Committee of the Privy Council in the landmark judgment in Mohori Bibee v Dhurmodas Ghose.[iv] In this case, a minor named Dhurmodas executed a mortgage deed to secure a loan of Rs. 20,000 from Brahmo Dutt, who advanced Rs. 10,500 to Dhurmodas. Dhurmodas’ mother informed Dutt’s attorney about his minority. Dhurmodas later sought to cancel the mortgage deed, arguing it was void due to his minority. Dutt requested a refund of the money advanced.
The court ruled that agreements with minors are void ab initio, meaning they are invalid from the outset. Thus, Section 64 of the Indian Contract Act, which deals with voidable contracts, did not apply. Similarly, Section 65, which involves obligations under void agreements, was also deemed inapplicable. Dutt's representatives then relied on Section 41 of the Specific Relief Act, 1877, but the court used its discretion to decide that justice did not require the minor to return the money. The court noted that Dutt was aware of Dhurmodas’ minority when the deed was executed. Consequently, Dhurmodas was not held liable to refund the amount.
Doctrine of Estoppel
This rule means that action of estoppel cannot be brought against the minor. It is a complete defense for the minor. Even if he misrepresents his age and induces the other to enter into an agreement, he will not be estopped from pleading his minority and escape his liability under that agreement[v]. The reason for that is, that if a minor is estopped from pleading his minority, then it would amount to enforcing a void agreement, and it is also against the policy of law that is to protect the interest of the minors.
Doctrine of Restitution
Restitution is the restoration of the party back to its original position. If a minor misrepresents their age and obtains benefits, they can be compelled to return those benefits till the time it is traceable in his possession. In Leslie v Sheill, the minor by misrepresenting his age obtained a loan from the plaintiff. The plaintiff then brought an action against the minor stating that the minor is responsible for fraud and requested for the return of the principal amount with interest. The court held that the minor was given money, and he has spent it, so it is not possible to restore the very thing got by the minor by fraud, and the same cannot be traced in his possession and forcing a minor to pay the amount from his present or future resource and it will amount to enforcing a void contract.
In Khan Gul v Lakha Singh[vi], a minor fraudulently concealed his age and entered into a contract with the plaintiff to sell a plot of land, receiving Rs. 17,500 as consideration. The minor later refused to fulfill his obligation. The plaintiff sought either the recovery of the plot or a refund of the money.
The court did not allow recovery of the plot, as specific performance of a void agreement is not possible. Section 41 of the Specific Relief Act, which applies when a minor is the plaintiff seeking to enforce his rights, was also deemed inapplicable.
The court applied the principle of restitution from Leslie Ltd v Sheil, ruling that the minor cannot deceive others and benefit from his fraud. Therefore, the court ordered the minor to refund the consideration to the plaintiff.
Minor as Beneficiary
Minor cannot enter into an agreement but there is no restriction on his being the beneficiary of an agreement and same can be enforce by him. This is because the Courts and law always wants to protect the interest of minor.
In Raghava Chariar v Srinivasa[vii], minor was allowed to enforce a contract that benefits him in some way but does not impose any obligations on him. In the given case, the Madras High Court bench unanimously concluded that a minor who has advanced the entire mortgage amount can enforce a mortgage executed in his favor and it can be enforced by him or any other person on his behalf.
In Raj Rani v Prem Adib[viii], a film producer (the defendant) allotted a film role to a minor actress (the plaintiff) through an agreement made with her father. The defendant later gave the role to someone else and terminated the contract. The Bombay High Court ruled that neither the minor nor her father could sue the defendant because the contract with the minor was void. Additionally, the father's contract was void due to the lack of consideration.
Contract for Necessaries
Section 68 of the Indian Contract Act[ix] provides claim for supply of necessary to a person incapable of contracting. Although necessary is not defined in Indian Contract Act but to understand necessary various decisions of the courts are take into consideration. An illustrative meaning can be found in Chappel v Cooper[x] where the court said that necessaries are described as items essential for survival, like food, clothing, and accommodation, and so forth. Items of pure luxury are always excluded, but in some cases, luxurious items of utility were allowed.
"What is necessary" is a relative concept that must be evaluated according to the environment of the specific minor. Accordingly, a "Gold Watch" may be a luxury item in one situation and a necessity in another, depending on the position of the minor.
For a minor's estate to be liable for necessaries, two conditions must be met:
- the contract must be for things that are reassuringly required for his sustenance at his position in life; and
- he must not already have an adequate supply of these necessities.
In Nash v Inman[xi], a Cambridge University student was supplied with numerous fancy dresses, despite already having an ample supply. It was held by the court that the material being supplied to minor was not a necessary and the price for supply dresses was irrecoverable.
Minor as Partner
The formation of a contract results in the formation of a partnership, and it is necessary for both parties to the contract to be of legal age. The minor may, however, be admitted to the benefit of the partnership for the time being with the proper approval of all the partners, as an exemption under Section 30 of the Partnership Act[xii]. But he won't be held responsible for any of his acts.
Ratification
Because a minor's agreement is null and void from the start, it cannot be ratified after the minor reaches the age of majority. Only actions that are "valid in law" both at the time of commission and at the time of ratification may be ratified. When a minor enters into an agreement while still a minor, it is not legally binding, therefore when the minor reaches majority, he cannot ratify the agreement since, in the eyes of the law, it does not exist. A fresh contract can be made after attaining age of majority.
Conclusion
Agreements with minors are generally void from the start, but there are exceptions, such as contracts for necessaries, minors as beneficiaries, and guardianship. If a minor fraudulently misrepresents their age, they can be required to return any benefits received. Minors cannot be prevented from claiming their minority, as this would defeat the purpose of the law protecting them. A minor cannot ratify a contract made during their minority upon reaching adulthood, as ratification cannot validate a previously void agreement. This is the fundamental framework governing minor agreements.
[i] The Essential Law Dictionary, (1st edn, 2008).
[ii] Ibid.
[iii] All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.
[iv] Mohori Bibee v Dhurmodas Ghose, 1903 SCC OnLine PC 4.
[v] Gadigeppa Bhimappa Meti v Balangowda Bhimangowda, AIR 1931 Bom 561.
[vi] Khan Gul v Lakha Singh, ILR (1928) 9 Lah 701.
[vii] A.T. Raghava Chariar v O.M. Srinivasa Raghava Chariar, ILR (1916) 40 Mad 308.
[viii] Raj Rani v Prem Adib, 1948 SCC OnLine Bom 92.
[ix] 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.
[x] Chappel v Cooper, (1844) 13 M&W 252, 258: 153 ER 105.
[xi] Nash v Inman, (1908) 2 KB 1.
[xii][xii][xii] The Indian Partnership Act, 1932 (9 of 1932) s 30.