Competence to Contract

Section 10 - Parties must be competent to contract.

Section 11 - Defines competence, who is incompetent to contract?
I. minors,
II. persons of unsound mind,
III. persons disqualified by law which they are now subject to.

I. MINORS
Age of majority is in accordance with the law which he is subject to.
India - 18 years
England - formerly 21 years and post family law reform act 1969 came down to 18 years.

> Nature of minor’s agreement :

Judicial Committee of Privy Council, 1903 in the case of Mohori Bibee v. Dhurniodas Ghose - laid down
that a minor’s agreement is absolutely void.
England, Infants’ relief act of 1874 declares the following categories of a minor’s agreement to be
“absolutely void” -
I. Contract for repayment of money lent or to be lent, or
II. Contract for goods supplied or to be supplied (other than necessary), and
III. Contract for accounts stated.

Mir Sarwarjan v. Fakhruddin Mahomed Chowdhury

A contract to purchase certain immovable property had been made by a guardian on behalf of a minor, and
the minor sued the other party for a decree of specific performance to recover possession. His action was
rejected. According to the court - not within the competence, minor not bound by the contract, there exists
no mutuality and that consequently the minor could not obtain specific performance of the contract.

Sirkakulam Subramanyam v. Kurra Subba Rao

Overruled the Mir Sawajan Judgement and entertained no doubt that it was within the powers of the
mother of a minor as a guardian to enter into a contract of sale for the purpose of discharging his father’s
debt.
Lord Morton said that section 11 and the Mohori Bibi case leave no doubt that a minor cannot contract
and that if the guardian and the mother had taken no part in this transaction it would have been void. If the
contract is within the competence of the guardian and it is for the benefit of the minor, it is specifically
enforceable.

Effects of minor’s agreement :-

A minor’s agreement being void, ordinarily it should be wholly devoid of all effects.
1. No estoppel against the minor - There can be no estoppel against a statute. The policy of the law
of contract is to protect persons below age from contractual liability and naturally the doctrine of
estoppel cannot be used to defeat that policy.

2. No liability in contract or in tort arising out of contract - A minor is in law incapable of giving
consent, and there being no consent, there could be no change in the character or status of the
parties.
Johnson v Pye - 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. A minor cannot be held
responsible for anything which would be an indirect way of enforcing his agreement.
Cannot convert a contract into a tort to sue a minor. If the tort is directly connected with the
contract and is the means of effecting it and is a parcel of the same transaction, the minor is not
liable in tort.
Fawcett v. Smethurst -If the harm is directly linked to the contract or wouldn't have happened
without the contract, then the infant is generally protected from being sued. However, if the harm
is unrelated to the contract, the infant can be held responsible.
Burnard v. Haggis - Where the tort is independent of the contract, the mere fact that a contract is
also involved, will not absolve the infant from liability. Thus, when an infant borrowed a mare for
riding only, he was held liable when he lent her to one of his friends who jumped and killed her.
Ballet v. Mingay - An infant was held liable for the tort of detenue for his failure to return certain
instruments which he had hired and then passed on to a friend.
Jennings v Rundall - When an infant hired a horse for a short journey but took it on a longer one,
causing harm, the court ruled that because the action was closely connected to the contract, the
infant couldn't be sued for negligence.

3. Doctrine of restitution -
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. If the infant 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.

1) Leslie ® Ltd v Sheill - An infant succeeded in deceiving some money lenders by telling
them a lie about his age, and so got them to lend him 400 pounds on the faith of his being
an adult. Their attempt to recover the amount of principal and interest as damages for
fraud failed as the doctrine of restitution is not to be applied where the infant has obtained
cash instead of goods. The law equally forbirds the courts of law to allow, under the name
of an implied contract or in the form of an action of a quasi contract or proceeding to
enforce a part of the contract, which the statute declared to be wholly void. Rejecting the
Doctrine of restitution also, he explained that the law stopped short of enforcing
contractual obligations against infants, even if they used deception to enter into the
contract. Lord Sumner emphasised that restitution should stop where repayment begins.
Since the money was already spent by the infant, there was no way to return exactly what
 was received. Therefore, forcing repayment would essentially be enforcing a void
contract, which is not allowed by law. In essence, Lord Sumner argued that compelling
the infant to repay the money would be like enforcing a contract that was invalid from the
beginning.

> Minor seeking relief, compellable to restore - Found in Section 41 of the original specific relief act of
1877. This section authorised the courts to order any compensation that justice required to be paid by the
party at whose instance a contract was cancelled.

2) Mohori Bibee v. Dharmodas Ghose - The plaintiff who was a minor, mortgaged his
houses 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 this he got to know that
the plaintiff was still a minor. Subsequently the infant commenced this action stating that
he was underage when executed he mortgage and the same should, therefore, be
cancelled.
The relief of cancellation granted to the plaintiff under section 39 of the specific relief
act. The money lender, under section 64 of the specific relief act wanted the relief to be
subject to repayment of 10,500 rupees advanced by the minor. According to section 64 - 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 privy
council held that this section applies only to voidable contracts and cannot apply to the
agreement of a minor, which is absolutely void. Section 65 which states that a party
receiving any benefit under a contract shall have to restore it if the contract becomes void
or is discovered to be void.
Section 41 of the Specific Relief Act states that on adjudicating 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. While this is based on the discretion
of the judges, no reason for interfering with such discretion was seen in the present case.

3) Khan Gul v. Lakha Singh - The defendant, while still a minor, by fraudulently concealing
his age, contracted to sell a plot of land to the plaintiff. He received the consideration of
Rs.17,500 and then refused to perform his part of the bargain.
The question was Can a minor who has entered into a contract by false representation
refuse to perform the contract and at the same time retain the benefit he may have
received therefrom? Section 41 of the specific relief act worded in a way such that
jurisdiction can only be exercised when the minor himself invokes the aid of the court.
Due to lack of traceability of money, and the inapplicability of the principle of restitution
in the cases of money.
Refund of the consideration ordered stating that restitution is not limited to sections 39
and 41 of the specific relief act and that an infant cannot be allowed to take advantage of
his own fraud.
 4) Ajudhia Prasad v. Chandan Lal - A sum of money was borrowed by two minors who
were more than 18 years of age and less than 21 and fraudulently concealed the fact that a
guardian had been appointed for them. The question was whether the lender could get a
decree for the principal money or sale of mortgaged property.
Overruled Khan Gul v. Lakha Singh and followed Leslie v. Sheill. Emphasis on the
difference in how the law treats minors when they are suing someone versus when they
are being sued.
If property cannot be traced back to the minor and the only way to compensate someone
would eb by giving them money, it would be like enforcing a contract that the minor
entered into, which is not allowed because minors are protected by law from such
contracts. If someone loses property to a minor and can prove that the minor has it in his
possession, they can get the property back. However, they cannot demand money or
damages because that would be like enforcing a contract with a minor, which is not
allowed by law. Minority of the mortgagee renders it void ab initio.

>> Amendment in Section 33 of the Specific Relief Act, 1963

1. If a contract is cancelled because it is void or voidable, the court can ask the party who initiated
the cancellation to give back any benefits they received under the contract and compensate the
other party if needed.
2. If a defendant successfully defends against a lawsuit because the contract is invalid due to their
incompetence (like being a minor), they may be required to return any benefits they received
under the contract, but only to the extent they personally benefited from it.

Exceptions :
A minor may not have to give back anything if the other party knew about their age or acted unfairly.
Also, if the minor lied about their age but the other party still wanted to proceed with the transaction, the
minor might not have to give anything back. Additionally, if the other party doesn’t provide enough
evidence that returning the money is fair, the court may not require the minor to do so.

>> Beneficial Contracts

Privy council in the Mohori Bibi Case established that a minor’s agreement is “absolutely void”. This is
applicable when there is a case of enforcement of a contractual obligation upon the minor. Accordingly, a
minor is allowed to enforce a contract which is of some benefit to him and under which he bears no
obligation.
Raghava Chariar v. Srinivasa - Whether a mortgage executed in favour of a minor who has advanced the
whole of the mortgage money is enforceable by him or by any other person on his behalf. It was
emphasised that laws preventing minors from entering into binding contracts are meant to protect them. It
argues that it would be unfair if minors were unable to benefit from transactions they have entered into,
especially when they have invested their money. Minors should not be deprived of the benefits of
agreements they have made, as long as those agreements are made in their favour and don’t impose
obligations on them.
On the same principle, if a transfer of immovable property has already been executed in the favour of a
minor, it cannot be impeached. A minor may enforce a promissory note and gift deed executed in his
favour.
Exception : A lease to a minor has to be held void.
Raj Rani v. Prem Adib - The plaintiff, a minor, was allotted by the defendant, a film producer, the role of
an actress in a particular film. The agreement was made with her father. The defendant subsequently
allotted that role to another artist and terminated the contract with the plaintiff’s father.
→ Neither the minor nor her father could have sued on the promise. If it was a contract directly with the
minor, it would have been null. If it was a contract with the father, it was void for being without
consideration. A promise made by a minor girl to serve, which is not legally enforceable against her due
to her status as a minor, cannot be considered as valid consideration for the defendant's promise to pay her
a salary.
Valentini v. Canali - The plaintiff, a minor, agreed with the defendant to become a tenant of his house and
to pay 100 pounds for the furniture therein. He paid 68 pounds in cash and gave a promissory note for the
balance. The plaintiff occupied the premises and used the furniture for some months and then brought an
action for the refund of the consideration paid by him.
The court ordered the cancellation of the promissory note, but refused to order a refund of the sum paid.
This was because the infant plaintiff had the quantity used of furniture for some months and he cannot
give back this benefit or restitute the defendant in the position before the contract.

>> Contacts of marriage

In cases where the agreement for the marriage of a minor violates statutory laws, such as the Hindu
Marriage Act, which sets the minimum age for marriage at 18 years for girls, the agreement may be
voided. However, if the girl reaches the age of 18 by the date set for the marriage, the agreement may be
considered valid.
If a girl was not yet 18 at the time of engagement but would turn 18 by the date set for the marriage, the
agreement would likely be upheld. If the other party breaches the agreement, the court may award
compensation to the minor for mental distress, loss of reputation in society, and expenses incurred for the
engagement ceremony.

>> Contracts of apprenticeship

Contracts of apprenticeship is another species of contracts which are of the benefit of minors. The Indian
Apprentices Act, 1850 provides for the contract to be made by a guardian on behalf of the minor (S.9).
Contracts of service and apprenticeship are treated similarly to contracts for necessaries, which are
essential or services required for a person’s well being.
Roberts v. Gray - In this case, the defendant, who was a minor, entered into a contract with the plaintiff, a
renowned billiards player, to accompany him on a worldwide billiards tour. The plaintiff made
preparations and incurred expenses for the tour, but the defendant backed out of the contract. Despite
being a minor, the plaintiff successfully claimed damages for the breach of contract.
Raj Rani v. Prem Adib - emphasised that while English law might hold a minor liable for a contract of
service, if it was for their benefit, under section 11 of the ICA, which declares a minor’s contract void, the
minor would not be held liable. This means that even if a contract of service would be beneficial to the
minor, their status as a minor renders the contract void, and they cannot be held accountable for it.

>>Trade contracts not included in beneficial contracts

Cowern v. Nield - Contracts which can be brought within certain categories and are also for the benefit of
the infant can be supported. The only contracts of an infant which can be enforced are which relate to the
infant’s person, as contracts by which he provides himself with clothes, food, lodging or contracts of
marriage apprenticeship and service.

>> Option to retire from beneficial contracts on majority

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 time.

>>Ratification
A person cannot on attaining majority 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
cannot be made valid by subsequent ratification. If necessary, a new contract should be made on attaining
majority.

Suraj Narain v. Sukhu Ahir - In this case, a minor initially borrowed money and signed a simple bond for
it. Upon reaching adulthood, the minor executed a second bond covering the original loan amount plus
interest. The lawsuit which was based on the second bond was not valid because it lacked consideration
and did not fall under section 25(2) of the ICA. The consideration which passed in the earlier contract
cannot be implied into the contract in which the minor enters on attaining majority. Simply lending money
to someone does not constitute performing a service for them in the context of this legal provision.

Anant Rai v. Bhagwat Rai - A person after attaining majority has not only ratified by also paid the debt
incurred by him during minority, he cannot afterwards recover it back. A person can alway make a fresh
promise after attaining majority in terms of the promise made during minority, all that is necessary is that
there should be some fresh consideration for it.

MC Nagalakshmi v. MA Farook - The defendant was a minor at the time when he executed a deed about
his interest in the estate. The suit was filed at a time when he had attained majority. He did not repudiate
the agreement on attaining majority. He rather admitted it. The contract became enforceable to the extent
of the minor’s interest in the estate.

>> Liability for necessaries (Section 68)

Section 68 of the contract act provides for the liability for necessaries supplied to persons incompetent to
contract. If a person incapable of entering into a contract, or anyone 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.
Chapple v. Cooper - Defines the meaning of necessaries as those without which an individual cannot
reasonably exist. Articles of mere luxury excluded, luxurious articles of utility are in some cases allowed.

Kunwarlal Daryav Singh v. Surajmal Makhanlal - The infant’s need for things may also sometimes
depend upon the peculiar circumstances under which they are purchased and the uses to which they are
put.

Nash v. Inman - An undergraduate at cambridge university, who was amply supplied with proper clothes
according to his position, was supplied by the plaintiff with a number of dresses, including eleven fancy
waistcoats, the price was held to be recoverable.
To render an infant’s estate liable for necessaries two conditions must be satisfied :
1) The contract must be for goods reasonably necessary for his support in his station in life, and
2) He must not have already a sufficient supply of these necessaries.
The supplier has to prove that not only were the goods supplied suitable to the condition in life of the
infant, but that he was not sufficiently supplied with the goods of that class.

>>Nature of liability
2 theories relating to the liability of a minor’s estate -
I. liability does not depend upon the minor’s consent and arises because of the quasi-contractual nature of
the contract.
II. An infant is not absolutely destitute of contractual capacity and a contract for necessaries is just one of
the categories of contacts which an infant is permitted to make.

II. Persons of Unsound Mind -

>> English Law : here a person of unsound mind is competent to contract, although he may avoid his
contract if he satisfies the court he was incapable of understanding the contract and the other party knew
it.
The contract is voidable at his option. It becomes binding on him only if he affirms it. According to Lord
Esher, a person is bound by the contract unless he can prove further that the person with whom he
contracted knew him to be so insane as not to be capable of understanding what it was about. The position
of a drunken person is the same, if he makes a contract when he is drunk, he may, when sober, elect to
avoid the contract or to affirm it.
Free consent necessary, a valid contract cannot be made by a person suffering from such incapacity of
mind as not to understand the nature of what he is doing. A fair contract with a person who was
apparently of sound mind, but who in fact was suffering at the time of the contract from such mental
disorder as rendered him incapable of entering into the contract is voidable and not void.

Campbell v. Hooper - A mortgagee sought repayment and foreclosure due to default, with evidence
indicating that the mortgagor was mentally incapacitated at the time of executing the mortgage. It was
held that simply providing lunacy would not necessarily strip the mortgagee of all equitable rights. No
precedent set where lunacy alone resulted in depriving the mortgagee of equitable relief.

>> Position in India :

In India, the agreement of a person of unsound mind is like that of a minor, completely void.
According to section 12 - a person is said to be of sound mind for the purpose of making a contract if, at
the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its
effects upon his interests.
A person who is usually of unsound mind, but occasionally of unsound mind, may make a contract when
is of sound mind.

>> Disability at the time of agreement :

Inder Singh v. Parmeshwardhari Singh - A property worth about Rs. 25,000 was agreed to be sold by a
person for Rs 7000 only. His mother proved that he was a congenital idiot, incapable of understanding the
transaction and that he mostly wandered about. The court held the sale void. In the present case, the man
was incapable of exercising his own judgement.
Chacko v. Madhavan - A sale deed of property was executed at a time when the transferor was suffering
from alcoholic psychosis which was proved by medical certificate. A very valuable land was sold for a
meagre amount. The sale deed was ordered to be set aside by the supreme court. A drunk person is treated
in the same category as a person of unsound mind.