This article is written by Arya Senapati. It attempts to comprehend Section 11 of the Indian Contract Act, 1872 through principles of interpretation and concepts on competency to contract and judicial opinions on the capacity of a party to enter into a contract.

Introduction

In the modern digital economy, most of the actions performed online are transactional. Traces of contractual transactions are left every time a purchase is made from an e-commerce platform or an online streamer is hired or even when groceries are ordered from quick commerce. In such a scenario, where the world runs and interacts in the language of agreements and contracts, it is extremely important to revisit the ideals of the Indian Contract Act, 1872 and understand the legal principles laid out by the piece of legislation. 

India is known for its rich legal history and comprehensive process of legal development. The Indian Contract Act, 1872 (hereinafter referred to as ‘Act’) was enacted in the colonial era in order to lay the foundation of contractual obligations and define set terminologies for legal enforcement of the clauses in order to define the rights, obligations and entitlements resulting from a contract. The Indian Contract Act is a piece of law that encompasses all the principles dealing with contracts and agreements and all the other elements attached to them i.e. offer, consideration, acceptance, revocation, contractual relationships like agencies and bailment. Amongst many of its provisions is Section 11 which deals with specific guidelines related to the capacity of a person to enter into a contract or an agreement and the validity of such agreements when an incompetent person enters it as a party. It lays down certain disqualifications for a specific class of individuals preventing them from being a party to a contract due to logical rationale that shall be discussed ahead.

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The interpretation of Section 11 over the years has given rise to a detailed legal exploration of a person’s capacity to contract and the effects of such contracts and agreements to which an incapable person is a party. These limitations are necessary in the field of law to establish the process of fairness and maintain sanctity in contracts and agreements. It is also important to protect a particular class of people from exploitation and unnecessary conflicts owing to their position in society and mental maturity to interpret the seriousness of contracts. Every contract primarily holds certain rights and obligations that arise out of it but when people entering into such contracts are incapable of understanding the integrity of such rights and obligations, they fall into a murky space. 

This article discusses such disqualifications in terms of capacity to contract, legal precedents and practical implications of the intricate legal provisions of the Indian Contract Act, 1872 and the principles of competency as interpreted by courts and judiciary in various matters in a detailed way. By delving into such details, we can explore the relevance of such provisions in the contemporary world where e-contracts and smart contracts are easily accessible and people enter into such agreements on a daily basis. 

What is a contract

Contract has been defined by many legal scholars:

Sir William Anson defined the term as “A Contract is an agreement enforceable at law, made between two or more persons, by which rights are acquired by one or more to acts or forbearances on the part of the other or others”.

Sir Frederick Pollock defined the term as “Every agreement and promise enforceable at law is a contract”.

Since time immemorial, transactions have been a part of civilisations, even the earliest ones for that matter present seals and transcripts exhibiting a rudimentary form of agreement, making such transactions valid. As time progressed and legal regimes developed, a codified system of law came into existence to deal with such transactions. The agreements attaching validity to such transactions giving rise to rights and obligations for each party of the transaction came to be known as contracts. Contracts can be simply described as a “legally binding agreement between two or more parties that creates obligations enforceable by law”. Even though contracts and agreements are two terms that are used interchangeably, they are not the same. As per Section 10 of the Act, “All agreements enforceable by law are contracts”. Therefore, all contracts are agreements but all agreements are not contracts and this is due to the enforceability factor. Section 2(h) of the Act describes contracts as agreements enforceable by law and therefore, the enforceability of an agreement becomes the primary factor for determining the validity of a contract. Contracts also involve the exchange of promises of certain acts or omissions which are presented orally or in a written format and with the intention of performing such acts and omissions. There are many types of contracts based on their nature. Overall contracts are necessary for facilitating transactions and agreements between parties and establishing legal relationships through contractual obligations. 

The present legal system recognises certain elements of a valid contract. Following are the essential elements of a valid contract as laid down in Section 10 of the Act.:

  1. Offer: The first and primary element of any contract is an offer. It is a clear and concise proposal that is made by one party to another. The expression of intention to enter into a contract must be lucid. 
  2. Acceptance: The unconditional and unequivocal assent of both parties to the terms of the contract laid out in the offer is termed acceptance. 
  3. Consideration: This refers to anything that holds some value being exchanged between parties for fulfilling the terms of the contract. They can be money, goods, services or promises and are important for making a contract legally binding.
  4. Capacity: This means that every party entering into a contract must be legally capable of making such contracts. They must not fall under any category of disqualifications to prevent certain individuals from entering into contracts. If either of the parties is incapable of entering into a contract by law, the contract is not considered to be valid. 
  5. Legal object: At the core of it, every contract has a certain object or purpose. Such a purpose must be legal. A contract with an illegal or unlawful object is void and unenforceable. 
  6. Possibility of performance: Whatever the terms of a contract may be, if they include a certain act or omission which is impossible for either of the parties to perform, then such a contract is not considered as a valid contract. Therefore, it is important to describe the terms of a contract in absolute clarity and detail.  

When it comes to essential elements of a contract, the principles are established by certain English landmark cases, that the Indian courts cite till date. Two of the most prominent cases are:

In Carlil v Carbolic Smoke Co. (1892), the defendant company had released an advertisement for a smoke treatment and claimed that it can cure lung related ailments and if after the course of treatment, the patient is still facing the ailment, then a certain reward amount would be paid to the patient. Carlil sued the company after taking the treatment and not getting cured of the condition. The court of appeal held that the advertisement was an offer, the act of taking the treatment is the acceptance of the offer, the reward amount is the consideration and undergoing the treatment is performance of the terms of the contract and therefore, all elements of a valid contract is present and the company can be sued for breach. On being sued for breach, the defendant is bound to pay the promised amount to the plaintiff. 

In Lalman Shukla v. Gauri Datt (1913), the matter before the court was that the defendant whose nephew went missing had put up an advertisement that anyone who finds the missing boy shall be rewarded with a certain amount. Unaware of the advertisement, the plaintiff found the missing boy and after that claimed the reward amount. The Allahabad High Court held that for a valid contract, a valid acceptance is necessary and a valid acceptance cannot happen with knowledge and consent of the parties. Theefore, no contract is formed and the defendant is not liable to pay any reward amount to the plaintiff. 

Section 11 of Indian Contract Act, 1872

The idea of competency for entering into a contract is first mentioned in Section 10, but Section 11 deals with the concept in detail and explores the legal principles related to a person’s capacity to contract

Section 11 of the Indian Contract Act, 1872 reads as the following: 

“Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.”

By a simple reading of the above provision, it is clear that Section 11 of the Act deals with the capacity of individuals to enter into contracts. It states that only those people who:

  • Have attained the age of majority as per law
  • Are of sound mind
  • Are not disqualified by law to enter a contract

Are capable/competent to enter into a contract as a party. For every contract, having competent parties is important to ensure its validity. Section 11 mentions three important criteria for judging the competence of a person entering into a contract. These are the important elements of competency to contract:

Age of majority

Section 11 states that only those people who have attained the age of Majority as per the Indian Majority Act, 1875 are capable of entering into a contract. As a general rule, the age of majority is 18 years in India and therefore, a person who has completed the age of 18 years is capable of entering into a contract. This prevents minors below 18 years of age from entering into a contract due to the simple rationale that minors lack the mental capacity to understand the terms of a contract and they also fail to judge the consequences of entering into it. Minors also lack the social position to fulfill most contractual terms. Therefore, it is in the bona fide interest of minors to prevent them from entering into an agreement.

Illustration: Ramesh is a school student of 14 years old. He needs money to pay for a school trip and therefore approaches the money lender to lend him Rs. 10,000 against a mortgage for his golden ring. After attaining a majority, Ramesh filed a case against the money lender stating that the mortgage that he executed was done when he was a minor and incapable of understanding the consequences of it and therefore must be void and canceled. The court holds that Ramesh is not entitled to repay the loan and is free from the mortgage execution as he was incapable of entering into a contract when he did so.

Dharmodas Ghoshe v. Mohiri Bibee (1903)

In this case, Dharmodas Ghose, a minor, mortgaged his property to secure a loan of a certain amount from a money lender. When the money lender tried to execute the contract, the minor tried to revoke the mortgage by stating that he was a minor when he mortgaged the property and therefore, the contract is void. The Privy Council held that a minor contract is void ab initio and therefore, the mortgage cannot be executed legally. 

Sound mind

The provision states that only those with a sound mind are competent to enter into a contract. By doing so, the provision means that anyone who lacks the mental capacity to adjudge the consequences of entering into a contract or fails to understand the terms of a contract due to mental incapacity is incapable of entering into a contract. Every party to a contract must be able to understand or comprehend the terms, obligations and consequences of a contract clearly and there must be “consensus ad idem” or “meeting of minds” between all the parties of a contract. 

llustration: Joseph suffers from a severe case of Schizophrenia. While not being able to judge the consequences of a contract, Joseph enters into an agreement with Suresh to clean his backyard every week in exchange of a monthly payment of Rs. 5000. Suresh pays an advance of Rs. 2500 to Joseph. Joseph fails to clean Suresh’s backyard in the first week itself. Suresh takes action against Joseph for breach of contract. The court states that Joseph is incapable of entering into a contract due to his mental condition and therefore the contract is invalid. Joseph owes no obligation of performance to Suresh.

Ashfaq Qureshi v. Aysha Qureshi (2010)

In this case, the parties entered into a marriage under Muslim rituals and post the wedding, the wife stated that she was intoxicated and not in her sense while undergoing the marriage rituals and therefore, the contract of marriage is void and cannot be executed. The High Court of Chattisgarh held that the contract is void and the petitioner is not bound by the marriage as she entered into the contract while being incapableof adjudging the consequences of her actions. 

Absence of legal disqualifications

The provision states that if a person is disqualified from entering into a contract by virtue of any law or statutory provisions, then the person is not competent to contract as a party in India. Specific legal provisions of certain laws disqualify a person from entering into a contract based on the concerns of public policy, sovereignty, state interests etc. For eg: an individual from a foreign country in war or conflict with India is incapacitated from entering into a contract in India by law. Such legal disqualifications influence the individual’s ability to enter into a contract in India, adversely.  Usually, people who are insolvent, convicted of a serious offense or are alien enemies are incapacitated from entering into a contract in India. 

Illustration: Let’s say there’s a situation of war or conflict between India and Country A. During such a war, Jeremy, who is a resident and citizen of Country A, enters into a contract with Laxman, who is a citizen of India and a business owner. The contract is for the purchase of raw materials for Jeremy’s business. In such a case, the contract’s validity is vitiated as Jeremy, being a citizen of a country that is in a state of conflict with India, is an alien enemy and such alien enemies are disqualified by law from entering into a contract in India due to hostilities.

O. Wuthrick v. David (1916)

In this case, the plea which was filed in front of the Madras High Court was for recovery of rent. The plaintiff in this case is the lessee and the defendant is the lessor. The defendant was a German subject and in 1914, the defendant was declared an alien enemy due to the World War. Therefore, the court held that the lease was granted by and the covenant to pay rent entered into with an alien enemy and the covenant was therefore void and unenforceable.

Narasimhashetty v. Padmashetty (1998)

While dealing with a matter related to a specific performance of a sale, the Karnataka High Court held that a contract which was from its inception illegal, such as a contract with an alien

Enemy would be avoided by Section 2(g) and one which became illegal in the course of its performance, such as a contract with one who had been an alien friend but later became an alien enemy, would be avoided by Section 2(j). A mere failure to sue within the time specified by the stature of limitations or an inability to sue by reason of the provisions of one of the orders under the Civil Procedure Code would not cause a contract to become void.

The disqualifications are all made on reasonable grounds with the logical rationale behind them and therefore, three of the above-mentioned qualifications must be present in an individual to make him competent enough to enter into a contract. The absence of either in a person affects the confluence in turn making the person incapable of entering into a contract. If an incompetent individual becomes party to a contract then such contracts can be voidable or invalid based on the type of incapacity. Understanding these factors is essential to determine the validity of a contract and therefore, Section 11 is considered as the cornerstone for determining the validity and enforceability of a contract under the Indian Contract Act, 1872. Section 11 therefore has been applied and interpreted in many cases to decide the validity of a contract, some of which we shall discuss ahead. 

Contract with minors

Through multiple legal proceedings and interpretations, the conceptual framework regarding contracts with minors has developed thoroughly in India. Let’s discover the concepts in detail:

Who is considered a minor

By virtue of law, specifically the Indian Majority Act, 1875, Section 3, the ‘majority’ is defined based on two parameters:

  • A person reaches the age of majority after completing 18 years of age
  • A person for whom a guardian is appointed by the court attains majority after completing 21 years of age

Therefore, in general, a minor is anyone who is under 18 years of age as per law and in a specific sense where a guardian is appointed by the court, a person under the age of 21 years is a minor. Such individuals by virtue of their minority in terms of age are prohibited from entering into contracts. 

Validity of an agreement by a minor

As per Section 11 of the Indian Contract Act, a minor is disqualified from entering into a contract and is incompetent due to age. “No person is competent to contract who is not of the age of majority”. In such situations, disqualifications are made on minors because the law presumes the role of protector or guardian and prevents minors from entering into agreements that they do not understand due to their lack of maturity and capacity to distinguish between good and bad. Therefore, a minor cannot be bound by any promises that he makes in an agreement. 

There are multiple positions taken by courts as to the validity of an agreement by a minor. They are:

Minor contracts are completely void and minors can’t be bound by their promises

This stance by the court was highlighted in the landmark case of Mohori Bibee v. Dharmodas Ghose (1903). In this case, a minor entered into an agreement with a money lender to get a sum of money by executing a mortgage of his property in favor of the lender. On reaching the majority, Dharmodas sued for canceling the execution of the mortgage as he did it when he was a minor without being able to adjudge the consequences of his action. The privy council in this matter stated that “based on Section 10 and 11 of the  Act, the contract entered by Dharmodas when he was a minor is void and hence the mortgage is not valid.” The court also stated that the money that the lender provided to him could not be recovered due to the void nature of the contract. 

Mathai v. Joseph Mary (2014)

In this case, there is a mortgage deed executed by the uncle of the appellant and the first respondent in favour of the deceased mother of the appellant as collateral security towards the dowry amount. The mortgage deed mentions that the party who mortgaged the property was a minor when the contract was formed. Based on this fact and previously established precedents in Dharmodas Ghose, the Supreme Court of India held that the contract was void based on minority. 

Eda Mary,Mogalatur,Narsapur v. Y.Elzebeth Rani,Inamdar,Kakinada (2018)

In this matter, a sale deed was executed where a minor and his guardian entered into a contract with the plaintiff to sell a piece of land. When the sale deed was executed, the minor stated that the contract is void ab initio based on the minority of his age. The Telangana High Court held that the contract is valid as the guardian of the minor was involved thereby preventing the application of the doctrine that declares any contract with a minor as void. 

Fraud by a minor to enter into a contract

It is established that minor contracts are void and therefore minors cannot be bound by their promises. The complex situation arises when a minor enters into a contract by misrepresenting his age and claiming to be a major. While dealing with such complications, the Privy Council stated that such fraud would have no effect on the established principle that a minor cannot be bound by his promises. Even if the minor fraudulently claims to be a major, the contract still remains void. The simple logic behind this reasoning is such that if the law allows the status of the agreement to change based on such representations, many people will try to enter into contracts with minors by making them sign declarations and affidavits where they self-attest their age of majority. This shall vitiate the law’s purpose of protecting the minor’s interest. This concept was dealt with in the case of Leslie v. Sheill (1914) where Sheill claimed to be a major and borrowed a certain amount of money from Leslie and then in the course of time, refused to pay the sum back. On being sued, the English Court of Appeal held that the contract is void and Sheill cannot be bound by the terms of it and therefore, Sheill is not liable to pay the money back even though she misrepresented her age. Even the High Court of Delhi in the case of Kanhaiya Lal v. Girdhari Lal (1972) stated that a minor is not bound by a promissory note executed by him and therefore, even the concept of promissory estoppel doesn’t apply to minors. 

Restitution

The concept that minors cannot be bound by their promises does not give minors a free pass to cheat seniors and earn benefits out of such loopholes. Therefore, the Lahore High Court clarified in the case of Khan Gul v. Lakha Singh (1928) that wherever a contract is declared invalid due to a minor being a party to it, the court has the power to ask the minor to restore the money or property or any other benefit derived from such transactions to the other party if in such cases the benefit can be traced and it is equitable to direct restoration. This concept is called restoration and it helps the other party to gain status quo ante, meaning that the other party is restored back to the position that he was in before entering into the invalid contract. This concept has also been highlighted in Sections 30 and 33 of the “Specific Relief Act, 1963” wherein the provisions state that if a minor induces another party to enter into a contract by fraudulently misrepresenting his age, then the court has the power to grant compensation to the aggrieved party. 

Ratification on attaining majority

It is already established that a contract done with a minor is “void ab initio” meaning that it is void from the very beginning but can it be ratified by the person once he attains the age of majority? No. This concept was dealt with by the Court of Wards in the case of Indran Ramaswamy v. Anthappa (1906) wherein an individual had executed a promissory note to satisfy one that was executed by him for money that he borrowed during the minority. The court held that claims arising out of such a transaction are not valid as the contract is void ab initio and as there is no fresh consideration after the age of majority, there are no valid claims arising out of such a contract. It also stated that any consideration provided during a minority is not considered as a “good consideration”. 

Joint contract with a major 

When a contract is entered jointly by a major and a minor, the contract is void as concerned to the minor but it can be executed against the major. Therefore, in case of a joint promise between a major and a minor, the major is liable to fulfill the promise and can be bound by it but the minor is not. This concept was also reiterated by the Supreme Court of India in the case of Jamna Bai v. Vasanta Rao (1916).

Minor as a partner 

A partnership agreement is in the form of a contract and therefore a minor cannot be a partner in a partnership firm as contracts with minors are void but a minor can be a beneficiary to a partnership firm if all of the other partners consent to such an arrangement. In such situations, the minor can receive a share of the profit that the partnership gains but is absolved of any liabilities that the other major partners have to fulfill. A minor partner is not liable for any losses. In Shriram Sardarmal Didwani v. Gourishankar (1959), it was held by the Bombay High Court that a minor is incompetent to contract and, therefore, a contract of partnership cannot be entered into with a minor.  In CIT v. Dwarkadas & Co (1968), the Supreme Court held that a minor cannot become a full-fledged partner in an existing firm. The only concession that section 30 gives is that a minor may be admitted to the benefits of an existing firm.

Minor as an agent

A minor can form an agency relationship with a major principal but the minor will not be liable for any of his actions. The principal shall be liable for any acts done by the minor agent. 

Exceptions to minor contracts being void

There are certain exceptions to the general rule that: a contract to which a minor is a party is void. These exceptions are:

Contract for the benefit of a minor

Even when a person is incompetent to enter into a contract, he can receive any benefit arising out of it and can be a transferee in his own right. A minor can be a beneficiary to a contract as we have discussed above and can recover benefits from such arrangements. A minor similarly can also be a payee of a cheque or any other negotiable instrument and receive the payment that such instruments provide. Along the same lines, it is also established that a minor who sells goods to a person has the right to recover the sum of the goods from him. These are all considered contracts for the benefit of a minor. 

Contract by a guardian

Wherever a contract is entered by a guardian or estate manager of a minor on behalf of the minor, then such contracts can be enforced by the minor. They can also be enforced against the minor in cases where the contract is executed under the authority of the guardian and the minor derive certain benefits from such contractual arrangement. This principle was mentioned in the case of Subramanyam v. Subba Rao (1943) by the Madras High Court. Similarly, when the guardian or parent of a minor sells the property owned by a minor for the minor’s benefit, then such a contract is valid. In the case of Prakash Ramakrisha v. Manikrao Ramaji (2009), the Bombay High Court held that, when a matter relating to specifc performance of a sale deed is concerned where the guardian of a minor sells his property for the benefit of the minor, the guardian compensates for the incapacity of the minor and the contract is held to be valid. 

Contract for supply of necessaries

This concept is governed by Section 68 which states that whenever any person supplies certain necessaries to a person who is incapable of entering into a contract or to those who are dependent on him, then in such situations, the person who has provided the necessaries is entitled to be reimbursed from the property of such person who is incompetent to contract. Such contracts are considered as valid. Necessaries refer to the basic essentials that a person requires for his daily life. Necessity has to be understood in terms of the social status of a person. If a person has a sufficient amount of a particular thing and yet it is supplied by the supplier, the supplied materials won’t be considered necessary. It is immaterial whether or not the person is aware of the fact that he has a sufficient amount of the object. In the case of Nash v. Inman (1908), Inman, a minor, brought many coats from Nash. He already had many clothes in his possession and therefore the court held that the coats could not be considered as necessaries and his property could not be appropriated for payment. In India, necessaries largely consist of food, clothes, shelter and the education and marriage of women. 

Smart contracts and e-contracts

The discussion around e-contracts is a very contemporary one. E-contracts simply refer to those contracts which are offered, accepted and formed through electronic means primarily through the use of digital signatures. These e-contracts are authenticated through e-signatures that are defined in Section 2(p) of the Information Technology  Act, 2000 which describes it as “the authentication of any electronic record by a subscriber by means of the electronic technique specified in the second schedule including a digital signature” Shopping for a product online is the simplest example of an e-contract.

The concept of smart contracts was first identified by the legal expert Nick Szabo in the year of 1994 who recognised that these smart contracts are “self-executing” contracts which operate through blockchain technology as a form of a virtual agreement. In simple terms, smart contracts are those contracts which an individual enters in the digital space through a computer code. Such contracts are recognised for their ability to cut down on intermediaries, time and conflicts as they are easy to execute in most cases. The terms and conditions of the agreement are also non-modifiable, clear and integrated into the code which creates it

The primary feature of a smart contract is that its terms cannot be altered by anyone. It also does away with the need for physical drafting and submission. The transactions done through smart contracts are ultimate and irreversible. The validity of these contracts in the Indian context is determined by Section 10A of the IT Act, 2000 which states that an agreement is not unenforceable merely because it was proposed, accepted and formed through electronic means. 

Therefore, smart contracts are valid to the extent that they fulfill all the conditions of a valid contract as laid out in the Indian Contract Act. The prime difference between smart contracts and traditional contracts is that a traditional contract must be enforced by someone but smart contracts are self-executing and are enforced through codes. There are usually five types of smart contracts. The main among those are:

  • Shrink wrap contracts which are largely used for software licensing and the acceptance of a user is determined by his/her use of the software. 
  • Click wrap contracts are those which use click-on buttons like “accept” and “reject” for providing consent or not. 
  • Browse wrap contracts are those which require an individual to agree to the terms and conditions of a webpage to be able to access the contents of the same. 
  • The other two are emails and digitally executed agreements. Both of these agreements are executed electronically through digital signatures provided by a legitimate certifying authority in India.

E-contracts and smart contracts have revolutionized the way people enter into agreements by making the process less time-consuming, highly transparent and devoid of any intermediaries. 

One of the landmark cases in the domain of e-contracts in India is Spicejet v. Sanyam Aggarwal (2017), wherein the State Consumer Dispute Redressal Commission of Punjab held that: “The Internet is a unique marketplace, any computer connected to the Internet can access the website and conclude an e-contract. The contractual obligations exist between the offeror and the offeree in an electronic/e-commerce market. An electronic contract is only valid if it meets the requirements of the contract. The essentials for a valid contract are that there must be a valid offer and its acceptance, means consensus between the contracting parties”. Thus ensuring the validity of e-contracts in India. 

Minor’s contract in the digital age

Most jurisdictions like the USA, UK and Canada around the world have the same approach towards minors entering into contracts; which is to declare them incompetent in doing so. Two exceptions are common in all these jurisdictions, which are; contracting for necessaries of a minor which are for the benefit of the minor and anyone dependent on him and secondly, allowing minors to enter into contracts which are enforceable with the consent of a guardian. These exceptions acknowledge the fact that it is wrong to take away contractual rights from a minor altogether as it would handicap a minor from benefitting in certain situations. This above inference is made from the judgment given in the case: Zouch v. Parsons (1765) by the Court of King’s Bench. The present discussions on the validity of minors entering into contacts in the digital age rely highly on the notion that minors cannot be entirely prohibited from entering into contracts. Most of the settled laws on a minor’s capacity to contract were drafted at a time when the digital space did not exist. Currently, the world runs on internet and web technology and therefore many jurisdictions have felt the necessity of having discourses on the validity of minors entering into contracts in the digital space. When we talk about digital space, the primary interactions that minors have on it are in two mediums: social media and quick commerce. Therefore, there are three classes of contracts in the current digital age. First is where the contracts are formed in the physical world through physical interaction. Second is where contracts are formed both physically and electronically and the third class consists of exclusively online contracts. The second class is where quick commerce platforms like Amazon, Flipkart, Zomato etc fall into place. The third class consists of social media applications like Facebook, Instagram, Snapchat etc. 

Most minors enter into a contract where the terms are non-negotiable and non-modifiable in the digital era. It has also been seen that these quick commerce platforms became the primary source for minors to obtain necessaries during a time like COVID-19. Post-pandemic, minors rely largely on these digital mediums to purchase their books, clothes, food items etc. Looking at the third class i.e. social media, most platforms like Facebook have an age restriction of 13 years, thereby allowing minors to create accounts and avail their services but in return the consideration paid by the minors is their private data. While creating accounts, minors do not understand the terms and conditions laid out by these platforms. This was noted in the case of Dawes v. Facebook Inc. (2017) by the US District Court. where the claimants claimed that Facebook has breached their right to privacy and infringed on their personal data by using their pictures in digital advertisements and hyperlinks. The court in this case noted that the acceptance of terms and conditions while creating an account by the user signifies his assent to the use of personal data by Facebook but minors are incapable of understanding such terminologies and therefore are susceptible to data breach and privacy violations in the online space. 

In the Indian context, Section 10A of the Information Technology Act,  2000 clearly states that a contract cannot be deemed unenforceable simply because the formation, communication and acceptance were made through electronic means. This provision recognises the validity of digital contracts but there hasn’t been any specific provision yet dealing with minor contracts in the digital space. It is a common notion that minors are the primary users of the online space as they are more adept with technology. Even the Internet and Mobile Association of India revealed that 433 million internet users are 12+ years old and 70 million internet users fall in the range of 5-11 years old. In such a situation, the doctrine of infancy which is used to protect minors by not binding them by their promises fails to protect them as the application of this doctrine will lead to severe loss of parties on the other end of the contract.

Concluding the discussion, it is almost impossible to ascertain the competency of a contracting party in the digital age as the party on the other side has no way of ascertaining if the purchaser or user is a minor. Minors can easily misrepresent their age on such platforms and it is important to create new provisions for protecting minor’s privacy, data and safety as well as the interests of quick commerce and social media platforms. It is the right time to reflect on these changes and create a fresh approach as law is dynamic and it constantly changes with time.

Contracts with persons of unsound mind

Who is a person of unsound mind

In a general sense, a person of unsound mind refers to someone who lacks the mental capacity of an ordinary reasonable man. In the legal context, Section 12 of the Indian Contract Act states that: “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’‘. Therefore, a person of unsound mind is someone:

  • Incapable of understanding or comprehending the conditions of a contract
  • Cannot adjudge the consequences or liabilities of entering into a contract while doing so

This disqualification is done to protect individuals incapable of taking their own care and understanding the consequences of their actions from entering into situations which bind them by promises that they may not be able to perform in the future. Entering into a contract requires clear, absolute and unqualified acceptance and understanding of the terms which is not in the capacity of someone who is of unsound mind. Eg: drunk and intoxicated people, lunatics, asylum patients etc. 

Burden of Proof

While a minority can be easily proved through birth certificates and other means, it is tough to prove that a person was not of sound mind while entering into a contract. Therefore, there are certain rules as to the burden of proof when it comes to proving unsoundness of mind. These principles were held in Chacko v. Mahadevan (2007) by the Supreme Court of India.They are:

  • The burden of proof to prove that a person was of sound/ unsound mind while entering into a contract falls on the party who challenges the validity of such a contract. 
  • If a person has periods of lucidity and periods of lunacy, then the burden of proof for proving that the person was of clear and lucid mind while entering into the contract falls on the person who claims so. 

Exceptions to the general rule

The general rule states that a person who is not of sound mind cannot enter into a contract and such contracts are void but there are certain exceptions to this rule and these exceptions are the same as those mentioned in minor contracts. Therefore, a person of unsound mind can enforce contracts which are for his benefit or for supply of necessaries to him or his dependents. 

Persons disqualified by law

Other than minors and people of unsound mind, certain categories of people are declared incompetent by law to enter into a contract either partially or wholly and such incompetency arises from either a political point of view or social and economic positioning. Some of the categories are:

Alien enemy

The Section 83 of Civil Procedure Code, 1908 describes the alien enemy as “lien enemies residing in India with the permission of the Central Government, and alien friends, may sue in any Court otherwise competent to try the suit as if they were citizens of India, but alien enemies residing in India without such permission, or residing in a foreign country, shall not sue in any such Court.”

An Alien is a person who is a citizen of a foreign country. Alien friends are those individuals that belong to a country that India shares a friendly relationship with whereas alien enemy refers to those who belong to countries in conflict or war with India. Contracts enforced by alien friends in India are valid but contracts enforced by alien enemies are invalid due to legal restrictions and concerns over national safety and security. While a war is subsiding, an alien enemy cannot enter into a contract in India nor can he be sued in Indian courts unless a license is provided by the Central government. When it comes to contracts entered before the war, they are either suspended or dissolved. This principle was established in the case of O. Wuthrick v. David (1916). In this case, the plea which was filed in front of Madras High Court is for recovery of rent. The plaintiff in this case is the lessee and the defendant is the lessor. The defendant was a German subject and in 1914, the defendant was declared as an alien enemy due to the World War. Therefore, the court held that the lease was granted by and the covenant to pay rent entered into with an alien enemy and the covenant was therefore void and unenforceable.

Foreign sovereigns and ambassadors

Foreign sovereigns and ambassadors have certain privileges attached to them by virtue of law. One such privilege is that they can’t be sued in Indian courts and can only be sued if they agree to admit themselves to the jurisdiction of Indian courts. Therefore, they can be a party to a contract in India and enforce it in the courts but no contracts can be enforced against them in courts unless they agree to do so or the Central Government sanctions it. 

Convicts

Convicts are disqualified from entering into a contract while serving their sentence as a punishment for a crime but this disqualification ends when the term of their sentence ends. Convicts are also free to contract during their parole or when they are pardoned by the courts. 

Insolvent

When a person is declared as insolvent, all of his property is vested in the authority of an Official Assignee that is appointed by the court and therefore, the insolvent person cannot enter any contracts in relation to those properties, nor can he sue or be sued. Once the insolvent is discharged, this disqualification comes to an end. In the case of Official Assignee of Madras v. Narayan Mudaliar (1951), the Madras High Court held that: “an undischarged insolvent had no borrowing capacity at all and that the Act (the Presidency Towns Insolvency Act) provides no machinery by which any creditor who lends to an undischarged insolvent can recover his debt. He also held that no Court has got any power or jurisdiction to entertain a suit against the insolvent on the basis of a debt incurred by him while an undischarged insolvent.” Therefore contract entered by insolvents are void during insolvency.

Conclusion

Contract law is the cornerstone for governing all sorts of transactions and contractual obligations in India. It is established that contracts are all about the rights and obligations that arise out of them. Therefore, by preventing minors and people of unsound minds from entering into a contract, the lawmakers attempt to protect them from taking action. They do so as such persons are incapable of judging the consequences of such an agreement. The lawmakers also create certain exceptions to recognise the importance of contracts for purposes of necessaries and sustenance. Thereby allowing minors and people of unsound mind to enter into contracts for their benefit or through the assent of a guardian. The disqualifications prescribed by law are such to prevent a certain class of people from entering into a contract for the purposes of public policy, state interest and preservation of law and order. The judiciary has time and again interpreted the sections to provide a robust mechanism for entering into a contract with competence. Further, the examination of ambiguity that arises in the digital space with smart contracts must be explored by the legislators to establish guidelines for the competency of minors for entering into online contracts. It is essential for law to change with changing times and the Indian Contract Act 1872 which is a pre-independence law must be reviewed to enter provisions which complement the current digital age. 

Frequently Asked Questions (FAQs)

What category of people are incompetent of contracting?

People who have not crossed the age of majority, people of unsound mind and people disqualified by law are declared incompetent to contract as per Section 11 of the Indian Contract Act. 

What does the term “void ab initio” refers to?

The term void ab initio means void from the beginning. These contracts are void since the initiation of the process of contracting. Minor contracts are usually referred to as contracts which are void ab initio.

What is the principle regarding agents and representatives contracting on behalf of incompetent persons?

The Assam High Court in Dharmaswhar v. Union of India (1955) held that Section 11 aims at defining inherent incompetency to contract. It does not cover cases of agents and representatives, who, though competent to contract are contracting for and on behalf of others and are, therefore, under restriction.

When can a person of unsound mind enter into a contract?

As per section 12, those people who have periods of unsound mind and sound mind, can only enter into a contract during periods of sound mind where they are capable of judging the consequences of entering into a contract. 

What happens to the validity of a contract entered by an intoxicated person?

As per Ramesh Chand Gupta v. J.S. Lamba (2013), the Delhi District Court held that an intoxicated person is incapable of entering into a contract as he/she is incapable of judging the consequence of his action. Therefore, a contract made by an intoxicated person is void.

References

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