Capacity to contract with special reference to effects of Minor’s agreement

    Capacity to contract as a concept is of a particularly complex nature, considering the number of laws and precedents on it. There are three main incompetent persons to contract and minor is the main focus here. A minor’s agreement is generally void, a principle set by the Mohori Bibee case[1]. No obligation, no estoppel and doctrine of restitution are the effects of minor’s agreement. Beneficial contracts are an exception to a minor’s agreement being void, and contracts of necessaries and scholarship are two such contracts. Many leading cases have set precedents and more complexities to the subject matter such as Roberts v. Grey[2] for contract of apprenticeship, Suraj v. Sukhu[3] for ratification of contract reaching the age of majority etc. This topic holds a lot of importance in law to keep the power of government in check, as well as to prevent injustice from happening in the name of capacity. 

    Introduction

    “Capacity” in the context of a contract can be described as a person’s ability to properly comprehend what he/she may be getting into by agreeing to form a contract with another individual. In section 10, it is expressly stated that the parties must be “competent to contract”[4]and right after that in section 11, it is defined what competent to contract entails. Much of the topic can be summarised in these two sections. Section 11 can be divided into three points to describe who exactly are competent to contract:

    1. Every person is competent to contract who is of the age of majority according to the law to which he is subject. 
    2. Person who is of sound mind. 
    3. Person who is not disqualified from contracting by any law to which he is subject

    We are supposed to study this closely to distinguish the persons who are incompetent to contract, which should be simple as we can just make the vice-versa of the above points to be considered incompetent to contract. But it’s not as simple since we need to further describe the limitations to such incompetency to prevent injustice; that is the significance of such a study. 

    Minor

    From the first point above, it can be said that anyone who is not of the age of majority is a minor. In Indian law, the age of majority of a person is reached at the age of 18, and the day of their birth is counted as a whole day[5], so anyone under the age of 18 is incompetent to contract.

    As stated earlier in Section 10 of ICA, parties must be competent in order to contract, and section 11 of the same Act states that minors cannot be competent. But the provisions are still silent on a minor’s agreement and its effects. 

    While the provisions are silent on the matter, precedent has been set on it through Mohori Bibee v. Dharmodas Ghosh [6], which resolved this issue of minor’s agreement by declaring it void. Three principles were set through this case are as:

    1. Any contract with a minor or an infant is neither valid nor voidable but is void ab-initio. 
    2. Section 64 of the Indian Contract Act,1872 is only applicable in the case where the parties entering in contact are competent to make such contract and is not applied to cases where there is no contract made at all.
    3. The legal acts done by a representative or any knowledge of an agent means that such acts done or having knowledge of anything is of his principal.

    The above was declared by the Privy Council with regards to minor’s agreement, and ruling of Privy Council is generally followed in Indian courts. Their ruling is applied in both advantage as well as disadvantage of the minor in question. 

    As an example of disadvantage to minors, Mir Sarwarjan v. Fakhruddin Mohd. Chaudhury case[7] can be referred to. In this case, a contract was made to purchase a certain immovable property by the guardian on behalf of a minor, who (the minor) later sued the other party for specific performance to recover possession. This action was rejected by the court. 

    In another case, Shrikakulam Subrahmanyam v. KurraSubba Rao[8], transfer of inherited property of a minor to pay off an inherited debt, by their guardian, was allowed since it was for his benefit. Contract of necessaries and scholarship are two such contracts that are considered beneficial contracts to minors. 

    Effects of minor’s agreement

    All minor contracts are ab initio void, so all minor’s agreements are worked out separately from any contract.

    No Estoppel: The Indian Evidence Act describes estoppel as the following:

    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.”[9]

    From the above description of estoppel, it can be understood that minors cannot come under this, as all contracts are ab initio void. 

    No liability in Contract or in Tort arising out of Contract: 

    In Johnson v. Pye case[10], England, it was declared 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”. 

    In India, minors cannot be held responsible for anything that would indirectly enforce his/her agreement. This principle has been generally followed in our country. 

    Where the tort is independent of contract, the mere fact that a contract is also involved, will not absolve the infant from liability. 

    In Jennings v. Rundall case[11], the judge said that the protection given to the infant “was to be used as a shield and not as a sword”. 

    Doctrine of Restitution: 

    This doctrine states that a minor can be held liable if he/she has misrepresented their age in order to obtain the other party’s property or goods, so long as the same is traceable in the minor’s possession. 

    This doctrine is only applied on goods and property, not money. 

    In Leslie (R) Ltd v. Sheill case[12], a minor successfully deceived money lenders to lend him some money, by misrepresenting his age. The lenders sued him for recovery of their money, but the suit failed as the minor didn’t take any goods that could be returned. The attempt to recover the principal and interest for fraud failed, the claim for return of principal money under quasi contract also failed, and the doctrine of restitution was also rejected.

    https://legalreadings.com/critical-analysis-on-the-medical-negligence-laws-in-india/

    Beneficial contracts as an exception 

    The general rule of a minor’s contract being void set by the Mohori Bibee case is followed, but confined to cases where a minor is charged with obligations and the other party seeks to enforce those obligations against the minor. A minor is allowed to come into contract which is strictly beneficial to him/her and not have any ramifications or obligations by law in the said contract:

    Contract for necessaries:

    Section 69 of the Indian Contract Act states that “A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other”, and a minor can be included in this as a beneficiary party. 

    Sections 183 and 184 of the Act state that even a minor can be an agent as section 184 states “As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained”. 

    According to a special provision in the Negotiable Instruments Act, under section 26, it states “A minor may draw, indorse, deliver and negotiate such instrument so as to bind all parties except himself”[13]. 

    According to the Indian Partnership Act, under section 26 it states “Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner”[14], and minors can claim the benefit of such partnerships. 

    Section 7 of the Transfer of Property Act describes people that are competent to transfer and it states “Every person competent to contract and entitled to transferable property, or authorised to dispose of transferable property not his own, is competent to transfer such property either wholly or in part and either absolutely or conditionally, in the circumstances, to the extent and in the manner, allowed and prescribed by any law for the time being in force”[15], and nowhere it’s stated that a person not competent to contract cannot be a transferee of the property by a third party. Example, a contract between two adults can be made to transfer some property and that can be transferred to a minor.

    Section 41 of the Companies Act states “(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members. (2) Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. (3) Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company.”[16]. So, with this, we can decipher that a minor can be a member. It should also be clarified that a minor can only be a member of fully paid up shares, but for an actual contract with obligations or shares issued under a guardianship, the guardian would be personally held liable for any purchase of shares. 

    Contracts of scholarship:

    Section 22 of the Maharashtra Co-operative Societies Act assures that a minor can be part of a society “Provided that, the provisions of clause (a) shall not apply to an individual seeking admission to a society exclusively formed for the benefit of students of a school or college”[17],where sub clause (a) of section 22 talks about people competent to contract under the Indian Contract Act.

    Contracts for apprenticeship:

    These are another type of contracts that can be considered to be for the benefit of minors. The apprenticeship contract is an employment contract between an employer and a young person aged 16 to 25 who has completed his/her compulsory schooling. The Indian Apprenticeship Act provides contracts that can be binding on a child. Roberts v. Grey case[18], is a prime example of such, where a minor was held liable. In this case, the claimant sued the minor for not going on a tour that he asked to be organised. It was held that the tour was for the minor’s benefit, thus, the claimant could continue the action for damages against the minor. The judge said “…when you get a contract for labour, and you have a remuneration of wages, that contract, I think, must be taken as prima facie binding upon an infant”. 

    Ratification

    An agreement made during a person’s minority, cannot be ratified by reaching the age of majority. A new contract has to be made in order for it to be considered legal. 

    Suraj v. Sukhu[19] is an example of such “where a minor borrowed a sum of money, executing a simple bond for it, and after attaining majority executed a second bond in respect of the original loan plus interest thereon”. It was held that a suit upon the second bond was not maintainable, as that bond was without consideration and did not come under section 25(2) of the Indian Contract Act.

    Liability for necessaries

    Section 68 of the Indian Contract Act states that “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”, and is self-explanatory as to how that’s related to minor’s contract. 

    Peter v. Fleming [20] is a great example of this, where a plaintiff tried to sue the other party that claimed infancy, for goods that he considered “necessaries”. It was held that a chain watch is ornamental and not considered part of necessaries according to the definition by law. 

    Conclusion

    From all this, it can be said that the scope of this matter is quite large and dynamic, considering how competency can be discerned depending on the case. With the amount of codification of this subject matter i.e., capacity of minors to contract, it doesn’t leave much room for interpretations or loopholes. But nothing is perfect, and debate of capacity to consent to the contract of a minor is a major part of this imperfection, and so, we need to have more discussions and debates over it to have a solution. As of now, the law does a great job upholding all the set precedents and provisions. 

    References

    [1] (1903) 30 Cal 539.

    [2] (1913) 1 KB 520.

    [3] (1928) AIR 1928 All 440.

    [4] The Indian contract Act, 1872.

    [5] The Majority Act, 1875, s.3.

    [6] Supra note 1.

    [7] (1912) 14 BOMLR 5.

    [8] (1948) 50 BOMLR 646.

    [9] The Indian Evidence Act, 1872, s.115.

    [10] (1665) 1 Sid. 258.

    [11] (1799) 101 ER 1419.

    [12] (1914) 3 K.B.607.

    [13] The Negotiable Instruments Act, 1881, s.26.

    [14] The Indian Partnership Act, 1932, s.26.

    [15] The Transfer of Property Act, 1882, s.7.

    [16] The Companies Act, 1956, s.41.

    [17] The Maharashtra Co-operative Societies Act, 1960, s.22.

    [18] [1913] 1 KB 520.

    [19] AIR 1928 All 440.

    [20] (1840) 151 ER 314.


    HARSHIT JOSHI, LLOYD LAW COLLEGE

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