Effect of minors contract
Q. 7 (a) Who are competent to make a contract?
Or
What do you understand by the competency to
enter into a contract? Who are competent to form a contract under the Indian
Contract Act?
Q. 7 (b). Write a critical note on the minor's
contract with leading Explain with decided cases that minor's contracts are
void-ab intio. Can a minor's contract be specifically enforced and ratified?
or
Who are the persons 'not competent to
contract'? What is the nature of an agreement entered into by a minor? Discuss
the remedies available to the other party in such agreements.
Ans. Who are competent to Contract.-According to Section 10, for entering into a valid contract the parties must be competent to contract. Section 11 lays down the provision about the persons who are competent to contract.
According to Section 11:
"Every person is competent to contract who :
(i) is of the age of majority according to the law to which he is subject; and
(ii) is of sound mind; and
(iii) is not disqualified from contracting by any law to which he is subject."
Thus according to Section 11, the following persons are not competent to contract :
(a) Minors,
(b) Persons of unsound mind, and
(c) Persons disqualified from contracting by any law to which they are subject.
(a) Minor's Contract.-A minor's contract is altogether void and not merely voidable. [Mohiribibi v. Dharmodas Ghosh, ILR (1903) 30 Cal 539 (PC)]
(b) Persons of unsound mind.-Persons who are mentally deficient cannot make a valid contract. A person may be mentally deficient by reason of lunacy, idiocy or drunkenness. A contract entered into by person unsound mind is void (Kamola Ram v. Kaura Ram, 41 PR of (912)
Under English Law the contract of a lunatic is not void ab initio. It voidable if it can be shown that the other party knew of his unsoundness of mind. The burden of proof regarding unsoundness of mind and knowledge of the other contracting party rests on the party who seeks to avoid the contract.
Under Indian Law it is not necessary to prove that the person dealing with the lunatic knew of his being a person of unsound mind. The contra of a lunatic, like that of a minor, is void. The presumption is primarily favour of sanity and so the defendant has the burden upon him to prove his lunacy or unsoundness of mind.
What is a sound mind for the purposes of
contracting [Section 12]. According to Section 12:
(a) A person is said to be of sound mind for the purposes of making a 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 under his interests.
(b) A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.
(c) A person who is usually of sound mind, may make a contract when he is of sound mind.
Thus, A person shall be regarded as of sound mind if at the time enters into the contract
(i) he thoroughly understands the nature and contents of the contract he is entering into and
(ii) he has capacity of forming a rational judgment as to the consequences which he will have to suffer by being party to the contract. If a person is generally of unsound mind but sometimes of sound mind he may enter into a contract during the period of lucid interval, that is, when he is a sound mind. If a person is generally of sound mind but sometimes of unsound mind, he cannot enter into a contract during the period of unsoundness of mind.
Illustration.-A patient in a lunatic asylum, who is at intervals, of sound mind, may contract during those intervals. But a sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of the contract or form a rational judgment as to its effects on his interest cannot contract while such delirium or drunkenness lasts.
Ram Sunder v. Raj Kumar Sen, ILR (1958) 55 Cal. 255.-11 was held that merely showing that the deceased was a person of weak intellect would not bring a case within Section 12 of the Act. must be shown clearly that when any particular transaction was made there was that infirmity of mind which disabled the man of old age from understanding what he was doing.
(c) Disqualification from contracting by any law to which he is subject. A person who is disqualified to contract by any law to which he is subject, cannot be deemed to have capacity to contract.
Thus, a person whose estate is under the Court of Wards is in no better position than a minor and any agreement made by him is void. Similarly, an agreement made by an alien enemy or by a person who is adjudged as an insolvent by a Court is void. The capacity of a corporation or a company to make contracts is regulated and limited by law.
Nature of Minor's Agreement
Neither Sec. 10 nor Sec. 11 makes it clear whether, if a minor enters into an agreement, it would be voidable at his option or altogether void. However, after the decision in Mohoribibi case, it is now well-settled that a minor's agreement is absolutely void.
The rationale behind is clear : A child may show poor judgement in making a particular contract, and it is a protection against his own ignorance and immaturity not merely, fraudulent manipulation by others-that the law affords. The general presumption that every man is the best judge of his own interests is suspended in the case of children.
Effect of Minority on Contracts
(1) Contract by minor is void ab initio.-According to Indian Law, a contract made by a minor is void ab initio and not merely voidable and this is so whether the person contracting with him is aware of his minority or not. In case of Mohiri Bibi v. Dharmodas Ghose, ILR(1903) 30 Cal 539 (PC), ‘ A , a minor executed a mortgage in favour of B , a money lender to secure a loan of Rs. 20, 000 While considering proposed advance the attorney and agent of B received information that "A was a minor, yet he got the deed executed. Subsequently, the minor sued for the declaration that the mortgage executed by him during his minority was void and should be cancelled.
The Privy Council held that a minor's contract is void ab initio and wholly void and not merely voidable.
In case of Dhurandhar Prasad Singh v. Jai Prakash University, AIR 2001 SC 2552-The Supreme Court observed that a transaction against the minor without being represented by a next friend is void. Such a transaction is good so far as the minor is concerned, if he decides to avoid the same and succeeds in avoiding it by taking recourse to appropriate proceeding the transaction becomes void from the very beginning.
(2) No estoppel against minor.-In case where minor has misrepresented about his age and thereby induced another to contract with him, will there be any estoppel against such minor? At one time this question created a controversy but it is now settled law that there is no such estoppel against the minor. In case of Khan Gul v. Lakha Singh, (AIR 1928 Lah 609] held that the law of estoppel, which is a rule of evidence, is a general law and this has to be read subject to the special law contained in the Indian Contract Act. When the law of contract lays down that a minor shall not be liable upon a contract entered into by him he should not be made liable upon the same contract by virtue of the general rule of estoppel
(3) Minor and ratification.-If a minor makes an agreement he cannot ratify it even after attaining majority for there can be no ratification of a void contract. If, therefore, a minor passes a promissory note during minority, and after attaining majority purports to ratify his act by renewing the promissory note the ratification is of no effect and the note is void and cannot be sued upon except where there is a new consideration at the time of renewal. [Suraj Narain v. Sukhu Ahir, (1929) 51 All 164 (F.B)] a person borrowed some money during his minority and then made a fresh promise, after attaining majority, to pay that sum plus interest thereon. Held that the consideration received by a person during his minority cannot be called consideration within the meaning of sec. 2(d) and there is no question of that consideration being considered valid for a fresh promise. No doubt under Sec. 25 a past consideration may be a good consideration, but that past consideration must be an existing one and a valid one. The promisor, therefore, could not be made liable in respect of such a promise.
(4) Doctrine of
Restitution
English Law: If the minor has unjustly enriched himself, equity demands that such property or goods be restored. The English courts developed the equitable 'doctrine of restitution' to deal with the matter. In Leslie (R) Ltd. v Sheill (1914) 3 KB 607, the court laid down the three main propositions of this doctrine :
(i) If an infant obtains property or goods by misrepresenting his age, he can be compelled to restore it, but only so long as the same is traceable in his possession.
(ii) Where the infant has sold the goods or converted them, he cannot be made to repay the value of goods, because that would amount to enforcing a void contract.
(iii). The doctrine of restitution is not applied where the infant has obtained cash instead of goods, for 'restitution stopped where repayment began'. Since it is difficult to identify money and to prove whether it is the same money or different one the doctrine does not apply to money.
In this case, an infant succeeded in deceiving some money-lenders by telling them a lie about his age, and so got them to lend him £400 on the faith of his being adult. The Court held that infant cannot be compelled to restore the money. The money was paid over in order to be used as the infant's own and he so used it. There is no question of tracing it, no possibility of restoring the very thing got by the fraud. The object of the doctrine of restitution is to restore back the ill-gotten gains taken by the minor, rather than enforcing the contract. If a minor is asked to pay money which cannot be traced and which he no more possesses it would amount to enforcing the (void) agreement.
Indian Law: The English doctrine of restitution is contained in the Indian law, though with some modifications.
Mohoribibi v Dharmodas (1903 ) 30 Cal 539- In this case, the plaintiff, a minor, , mortgaged his house in favour of the defendant, a money-lender, to secure a loan of Rs. 20,000. A part of this amount was actually advanced to him. While considering the proposed advance, the attorney (acting for the money-lender) received information that the plaintiff was still a minor. Subsequently the minor commenced this action stating that he was under-age when he executed the mortgage and the same should, therefore, be cancelled. The relief of cancellation had to be granted as the plaintiff was entitled to it under Sec. 39 of the Specific Relief Act, 1877. The moneylender's only request was for the repayment by the minor of the sum or Rs. 10,500 advanced as part of the consideration for the mortgage.
The defendant first relied upon the Sec. 64 of the Contract Act, according to which a person who, having the right to do so, rescinds a voidable contract, he shall have to restore to the other party any benefit received by him under the contract. The court held that this section cannot apply to the agreement of a minor, which is absolutely void. Similarly no relief was allowed under Sec. 65 of the Contract Act, according to which a party receiving any benefit under a contract shall have to restore it if the contract becomes void or is discovered to be void. The court said that Secs. 64 and 65 starts from the basis of there being a contract between competent parties, while in a minor's case there never was, and never could have been any contract. 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 a minor because of his incompetency to contract. Thus a minors contract is absolutely void (The Law Commission of India in its 13th. Report recommended that an agreement is void or discovered to be vold, even though the invalidity arises by reason of the incompetency of a party to contract. Thus Sec. 65 covers the case of a minor. The recommendation has not been implemented so far).
Finally, the defendant relied upon Sec. 41 of the Specific Relief Act, 1877 (Sec. 33 of 1963), according to which on adjudging the cancellation of an instrument the court may require the party to whom such relief is granted to make any compensation to the other which justice may require. The Court, however, said that under the circumstances of this case (the defendant was aware that he was dealing with a minor); considering the provisions for protection of minors in Contract Act and Partnership Act (a minor may be admitted to benefits of a partnership but he can't be made liable for any of its obligations); and, that doctrine of restitution does not cover the cases of money, a minor cannot be made to repay. From this case, it is evident that relief under the Specific Relief Act is discretionary, and the court must be satisfied of the justice in the defendant's case.
(5) Validity of Contracts of immovable property entered into by the guardian of a minor.-On this point the development of law took the following course
(1) Mir Sarwarjan v. Fakaruddin, (1911) ILR 39 Cal. 232, - A minor entered into a contract for the purchase of land through his guardian. The minor sued for specific performance of the contract. That time his action failed though the contract was for his benefit. In the opinion of the Court it was not within the competence of the guardian of a minor to bind the minor or the minor's estate.
(2) Srikakulam Subrahamanyam v. Kurra Subba Rao, AIR 1948 PC 45. The position was subsequently changed. The Privy Council overruled its earlier decision in Mir Sarwarjan's case. In this case a transaction of land, entered through his mother as guardian, was held binding.
In Durga Thakurain's case, (AIR 1982 Ori. 158) the opinion of Privy Council as expressed in Subrahmanyam's case was upheld unequivocal and binding.
Certain Exception
(a) Minor and supply of necessaries [Section 68].-Section 68 gives an exception to the general rule that contracts by minors are void. According to this section though a minor cannot enter into valid contracts for the loan of money for the purchase and sale of goods or property for profit, yet he can enter into contracts for necessaries of life and bind his property. According to this section if necessaries of life are supplied to minors, the person who supplies them is liable to be reimbursed out of the property of the minor, if there is any. In other words we can say that if a minor has no property there is no remedy for a person who supplies the necessaries. Again, even in the case of necessaries there is no personal obligation on the minor to pay. If he has property of his own, the supplier, can reimburse himself from that property, but he cannot file a suit against a minor and cannot get a decree against a minor personally.
What are 'necessaries' - Necessaries mean goods suitable to the conditions of a life of minor. The word 'necessary' is not confined to the barest necessaries which would enable a minor to keep the body and soul together, but extends to articles fit to maintain the particular minor in the state or station or degree in the life in which he lives. For example, in the case of an Oxford undergraduate a watch was held to be necessary.
"The application of the rule stated in Section 68 is not confined to the necessaries supplied to the minor himself but extends to necessaries provided for the members of his family."
(b) Minor and contract for benefit.-A contract for the benefit of a minor has same position as an agreement for the supply of necessaries to 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. A minor is not debarred from accepting a benefit. The rationale behind it is: "The provision of law which renders minors incompetent to bind themselves by contract was enacted in their favour and for their protection, and it would be a strange consequence of this legislation if they are to take nothing under transfers in consideration d which they have parted with their money" (Raghava Chariar v Srinivisa in AIR 1917 Mad 630). A minor will have the option of retiring from a beneficial contract on attaining majority.
The following are the instances of contracts beneficial to a minor.
(1) If a minor has advanced mortgage money and there is a mortgage in his favour, he can sue for enforcement of the contract.
(2) Similarly, a minor can sue on a Promissory Note executed in his favour.
(3) A minor can recover insurance money when on his behalf the goods were insured.
(4)For the same reason if a contract is made on behalf of a minor by his guardian and for the benefit of the minor, he is entitled to sue on the contract.
(5) A minor is capable of purchasing immovable property and he may sue to recover the possession of the property purchased upon tender of the purchase money.
(6) A contract for the marriage of a minor is also prima faice for his or her benefit. While the contract of marriage could be enforced against the other contracting party at the instance of the minor it cannot be enforced against the minor.
(7) A minor can also be supplied with "necessaries suited to his condition in life (e.g. food, lodging, education) and the supplier of such necessaries is entitled to be reimbursed from the property of the minor.
(8)A minor is bound by the contract of apprenticeship under the Indian Apprenticeship Act, 1850. Under English law infant is bound by the contract of apprenticeship as well as contract of service because such contracts are beneficial to him and help him in earning his livelihood.
(c) Minor and refund of benefit [Section 65]. Section 65 laye down that, "When an agreement is discovered to be void or when a contract becomes void any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."
The extent of applicability of Section 65 in the case of a minor who has received benefits under an agreement made by him, are governed by the following rules:
(i) The minor must return any benefit received by him under the agreement.
(ii) But this principle mentioned just above, must not be used as pretext for imposing upon the very obligation under the agreement.
Illustrations.-(a) A minor agrees to buy a motorcar on part payment, the balance agreed to be paid after six months. This contract of sale is void. The minor cannot be compelled to pay the balance as the price. But the minor must return the car to the seller.
(b) A minor agreed to sell his house and received the entire sale price in advance; afterwards he repudiated the contract and refused to give possession of the house to the buyer. It was held that being a minor he could not be compelled under the law to carry out his obligation under the contract, but he must restore all benefits received by him under that contract. In other words he must refund the entire sale price received by him.
References
Avtar Singh – Law of Contract and Specific relief .
Mulla --- Law of Contract and Specific relief.
Dr. H.K. Saharay- Law of Contract.
Dr R.K. Bangia—Law of Contract.
https://www.slideshare.net/shrinivas1648/law-of-contract-business-law
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