Who are Competent to Contract

Every person is competent to contract who has the legal capacity to do so which includes the age of majority according to the law, soundness of mind and is not disqualified from contracting by any law to which he is subject.

This ensures that the contract is not voidable or unenforceable due to the incapacity of one or more parties involved.

Who are competent to Contract?

According to Sections 11 and 12 Indian Contract Act, the following persons are competent to contract:

1. Every person who has attained the age of majority: According to Section 11, any person who has attained the age of 18 years is competent to contract.
2. Persons who are of sound mind: According to Section 12, a person who is of sound mind is competent to contract. A person who is of unsound mind at the time of making the contract is not competent to contract.
3. Persons who are not disqualified by law: According to Section 11, any person who is not disqualified by law is competent to contract.

Agreement with a Minor

Who is a minor?

According to Section 3 of the Indian Majority Act, 1875, a person below 18 years of age is a minor. However, a person to whom a guardian has been appointed by the court for their person or property remains a minor until the age of 21 years. 

Nature of agreement with minor

Neither Section 10 nor 11 makes it clear whether the agreement entered by the minor is voidable at his option or altogether void. This led to a controversy about the nature of the minor’s agreement, which was resolved in the Privy Council decision in Mohiri Bibi v. Dharmodas Ghosh.

The Privy Council decision in Mohiri Bibi v. Dharmodas Ghosh held that a minor’s agreement is totally null and void from the beginning, and the minor is not considered competent to contract or give any consideration. 

Summary of Mohiri Bibi v. Dharmodas Ghosh

The court’s decision, in this case, can be summarized as follows:

• The minor’s agreement is void ab initio, meaning it is null and void and the minor is not competent to contract or give consideration.
• The court did not address the applicability of the doctrine of estoppel against minors but stated that it would not apply in this case as the plaintiff was aware of the minor’s minority.
• Section 64 does not apply as it applies to voidable contracts and the minor’s agreement is void ab initio. Section 65 is also inapplicable as it deals with subsequent voidness or agreements discovered to be void, while the minor is not competent to contract.
• Under Section 41 of the Specific Relief Act, the court has the discretion to order compensation if justice requires it. However, in this case, the court did not order compensation as the plaintiff was aware of the minor’s minority.

The effect of a minor’s agreement 

a) No estoppel against a minor 

The law of estoppel does not apply against a minor. The minor can plead minority as a defence to avoid liability under the agreement, even if they falsely stated that they had attained the age of majority at the time of making the agreement. The principle that a minor’s agreement is void ab initio overrides the procedural principle of estoppel. 

Furthermore, there can be no estoppel where both parties know the truth of the matter. Therefore, a false representation made to a person who knows it to be false is not fraud that takes away the privilege of infancy.

b) No liability in contract or tort arising out of contract 

In general, a contract cannot be converted into a tort to enable a party to sue a minor. If the tort is directly connected with the contract and is a means of affecting it and is a parcel of the same transaction, the minor is not liable in tort. However, where the tort is independent of the contract, the mere fact that a contract is also involved will not absolve the minor from liability. 

For example, in Burnard v. Haggis, the minor was held liable when they borrowed a mare for riding, but their friend jumped and killed her. Similarly, in Ballet v. Mingay, a minor was held liable for the tort of detenu for failing to return hired instruments to a friend. However, in Jennings v. Rundall, the minor was not held liable when they hired a horse for a short journey but took it on a longer journey, which resulted in injury to the horse. The reason was that the action was founded in a contract, and the plaintiff could not turn what was essentially a claim in the contract into a claim in tort.

Doctrine of Restitution

The Specific Relief Act, 1877 was amended to include Section 33, which contains the principle of compensation. The rule has been finally settled as follows:

a) If a minor brings a suit to cancel an instrument, the Court may, at its discretion, ask the minor to compensate for the benefits accrued to him. b) If the minor is a defendant and resists enforcement of the suit based on their minority, the Court may, at its discretion, ask the minor to restore the benefits they have received under the instrument to the other party.

Section 33 – Power to require benefit to be restored or compensation to be made when an instrument is cancelled or successfully resisted as being void or voidable:

(1) If a court cancels an instrument, it may require the party receiving relief to restore any benefit received from the other party and make any compensation that justice requires.

(2) If a defendant successfully resists a suit:

(a) because the instrument is voidable, and the defendant has received a benefit from the other party under the instrument, the court may require the defendant to restore the benefit to that party or compensate for it;

(b) because the agreement is void due to the defendant’s incompetence to contract under Section 11 of the Indian Contract Act, 1872, and

(c) the defendant has received a benefit under the agreement from the other party, the court may require the defendant to restore the benefit to that party to the extent to which the defendant or their estate has benefited.

Contracts that are Beneficial to the Minor

When a minor provides consideration to the other party, they are fully capable of enforcing the contract and receiving its benefits. However, if consideration is yet to be provided, the contract is not actionable.

1. Contract of Service and Apprenticeship

In England, an infant is bound by any contract for service or apprenticeship as these contracts are beneficial to them in terms of earning a livelihood. In India, only a contract for apprenticeship is binding under the Indian Apprenticeship Act, 1960, while a contract for service is not binding on a minor.

For instance, in the case of Raj Pani v. Prem Adib, a film producer had allotted the role of an actress in a particular film to a minor plaintiff through an agreement made with her father. However, the defendant later allotted the role to another artist and terminated the contract with the plaintiff’s father. The Bombay High Court held that neither the plaintiff nor her father could have sued on the promise.

If the contract was with the plaintiff, it was null and void as she was a minor. If the contract was with her father, it was void as there was no consideration. The promise of a minor girl to serve cannot furnish any consideration for the defendant’s promise to pay her a salary, as it is not enforceable against her.

2. Contract of Marriage

A minor can enforce a contract of marriage against the other contracting party, but the contract cannot be enforced against the minor. This is because the contract of marriage is considered beneficial to the minor.

3. Minor and Partnership

According to Section 4 of the Indian Partnership Act, 1932, all parties to a partnership agreement must have the capacity to contract. As a minor does not have the capacity to contract, they cannot become a party to a partnership agreement.

A minor cannot ratify a contract made during their minority after they attain majority. This is because ratification relates back to the date on which the contract was made, and a contract that was void at that time cannot be validated by subsequent ratification unless a fresh consideration is provided.

However, if a consideration was given for the contract during the minority, and a fresh or the rest of the consideration is furnished after attaining the majority, a promise to pay both can become binding upon the minor upon attaining the majority, as held in the case of Kundan Bibi v. Shri Narayan.

In the case of Suraj Narayan v. Sukhu Ahir, ILR (1928) 51 All 164, a minor borrowed a sum of money and executed a simple bond for it. After attaining the majority, the minor executed a second bond for the original loan amount plus interest. It was held by a majority of two against one that the suit upon the second bond was not maintainable as the second bond was without consideration and did not come under Section 25(2) of the Indian Contract Act.

Minor’s Liability for Necessaries [Section 68]

Under Section 68 of the Indian Contract Act, reimbursement is permitted to the person who supplies necessaries to a minor. This is because it is deemed to be a quasi-contractual obligation.

Reimbursement is allowed if the following conditions are satisfied:

• Necessaries are supplied
• To a person who is incapable of making a contract, or
• To the dependants of such a person
• Reimbursement is permitted from the estate of such a person.

The goods supplied must be necessary for the minor’s station in life, and the minor must not already have a sufficient supply of such necessities.

The term ‘necessaries’ is not defined in the Indian Contract Act. It is therefore necessary to turn to judicial decisions for guidance. In Chappell v Cooper [(1844) 13 M and W 252] (Alderson B), it was held that “things necessary are those without which an individual can’t reasonably exist.

In the first place, it comprises food, clothes, and shelter. Then, since the proper cultivation of the mind is as expedient as the support needed for the growth of the body, education and instruction in art and trade, etc., may be necessary also.” Thus, what constitutes ‘necessaries’ is a relative thing and depends on the circumstances of the minor’s life.

To render a minor’s estate liable for necessaries, two conditions must be satisfied:

1. The contract must be for goods reasonably necessary for the minor’s support in his or her station in life, and
2. The minor must not already have a sufficient supply of these necessities.

The nature of the liability for necessaries supplied to a minor or his or her dependents is a subject of debate. According to one theory, the liability is quasi-contractual because it does not depend on the minor’s consent but arises because the necessaries have been supplied. This is supported by the fact that minors and persons of unsound minds are incapable of giving consent. The liability, therefore, arises because of the supply of the necessaries (Nash v. Inman).

In India, since this subject has been dealt with in the chapter of quasi-contract and the liability is clearly mentioned to rest upon the minor’s estate and not on the minor, it has a very little contractual element.

Persons of unsound mind

In India, Section 12 of the ICA governs the contractual liability of persons of unsound mind, including those who are drunk. Under this section, a person is considered to be of sound mind if they are capable of understanding and forming a rational judgment about the contract’s effect on their interests at the time of making it.

If a person is usually of unsound mind, they can make a contract when they are of sound mind, but if they are usually of sound mind, they cannot enter into a contract when they are of unsound mind.

The important factor is whether the person was capable of forming a judgment that entering into the contract was in their interest at the time of making the contract.

The Section reads as:

“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 judgment as to its effect upon his interests.
A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

Illustrations

(a) A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.

(b) A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium or drunkenness lasts.”

In Inder Singh v. Parmeshwar Dhari Singh, it was held that this is the real import of the provisions regarding persons of unsound mind.

Two case laws have interpreted the provisions of Section 12.

In Rajinder Kaur v. Mangal Singh, it was held that it is the court’s duty to ultimately record its opinion on whether a person is lunatic or of unsound mind, and while the expert’s opinion should be given weight, the court should not give up its duty to decide. In Lingaraj v. Parvathi, it was observed that the court must distinguish between the mere weakness of intellect and lunacy.

Persons disqualified by law

According to Section 11, any person who is not disqualified by law is competent to contract.

Alien enemy

Under the Indian Contract Act, an alien enemy is a citizen of a country that India is at war with. Any contracts made during the war period with an alien enemy are void. An Indian citizen residing in an alien enemy’s territory is also treated as an alien enemy under contract law. Contracts made before the war period either get dissolved if they are against public policy or remain suspended and are revived after the war is over, provided they are not barred by limitation.

Illustration: A citizen of country X orders goods from a citizen of country Y. The goods are shipped, but before they could reach Y, country X declares war on country Y. The contract between A and B becomes void.

Convicts

A convict cannot enter into a contract while serving their sentence. However, they regain their capacity to enter into a contract upon completion of their sentence.

Illustration: A is serving their sentence in jail. Any contract signed by them during this period is void.

Insolvent

An insolvent is a person who has been declared bankrupt or against whom insolvency proceedings have been filed in court. Since the person does not have any power over their assets, they cannot enter into contracts concerning their property.

Illustration: A enters into a contract for the sale of goods with B. Before the sale takes place, an insolvency suit is filed against A. A sells the goods to B during the pendency of the insolvency proceedings. The contract is void.

Foreign sovereign

Diplomats and ambassadors of foreign countries enjoy contractual immunity in India. One cannot sue them in Indian courts unless they submit themselves to the jurisdiction of Indian courts. Additionally, sanction from the central government is also required in such cases. However, the foreign sovereign has the authority to enforce contracts against the third person in Indian courts.

Conclusion

Competency to contract is an essential aspect of contract law. The Indian Contract Act, 1872, lays down specific provisions to determine the capacity of a person to enter into a contract. A person who is of the age of majority, of sound mind, and not disqualified by law can enter into a contract.

It is crucial to understand the competency of the parties to a contract to ensure that the agreement is legally binding and enforceable.