This article is written by Arya Senapati. The article tries to examine the legal principles related to the capacity of individuals necessary for entering into a valid and legal contract. It covers various propositions of law related to the competency of parties. It also focuses on landmark case laws, judgements, and illustrations to interpret the principles and provisions in a practical manner.      

Introduction

In most showrooms, movie theatres, or malls, one would not see children shopping for things for themselves on their own without the assistance of their parents. Similarly, you would not see a person with an unsound mind making purchases of high financial value on their own. This is primarily because, due to their immature minds or mental disorders, they are unable to understand the consequences of their actions, i.e., purchases, booking tickets, signing deals, etc. However, in modern times, children commonly shop for groceries, daily essentials, and stationery products on their own without any assistance from their parents. This peculiarity gives rise to the legal discussion around the capacity to contract and leads to the legal question: can all individuals be allowed to enter into a contract?

In the Indian legal system, the principles of contractual relationships are covered by the Indian Contract Act, 1872, which concerns itself with important aspects of contractual relations. The rudimentary provisions of the enactment discuss the validity of a contract, out of which the most significant are the legal aspects of an individual’s capacity to contract. By capacity, one understands the ability of an individual to enter into a contractual relationship which is deemed valid by law. Not everyone can be allowed by law to enter into contractual relationships, as many, due to their peculiar condition, limitations, or disabilities, are unable to understand the consequences of entering into a contract and thereby becoming unable to perform their end of the agreement effectively. 

What is capacity to contract

Section 2(h) of the Indian Contract Act, 1872 (hereinafter mentioned as “ICA”) defines a contract as any agreement enforceable by law. Section 2(e) defines agreement as every promise and every set of promises forming consideration for each other. Promise simply means an assurance to do some act or omit from doing an act. So, when two people promise each other to either do or omit from doing any act, they are said to enter into an agreement. An agreement, when it can be enforced by law, i.e., has all valid legal essentials or abides by all legal provisions, becomes a contract. As per Section 10 of the ICA, the primary essential which attributes enforceability to a contract is the capacity or competence of an individual to enter into a contract.

Essentially, capacity means the legal ability of an individual to form the necessary legal intention to enter into a valid contract. An agreement that fulfils all the essential elements of a contract becomes a valid contract. Therefore, if one of the parties to a contract is not legally capable or competent to enter into a contract, then the agreement becomes unenforceable and the contract becomes void. The reasoning behind this legal proposition is that a valid contract requires the capability of the formation of legal intention between both parties. It is often referred to as consensus ad idem, or the meeting of minds. When both parties agree upon the same or similar terms of a contract, then only legal intention to enter into a valid contract can be established. Due to certain limitations, a few categories of individuals are not capable of forming that intention. Therefore, they are prohibited from entering into a contract. 

The contracts lead to the creation of rights and obligations for both parties to a contract. Due to the restrictions, either physical or mental, people who are either minors or have any mental infirmity (unsound mind) are prevented from entering into valid contracts. Therefore, the law seeks to protect such individuals from situations of manipulation where a competent party can influence them unduly into entering into a contract and subsequently compel them to perform something which they are incapable of doing or claim damages for such a breach. That is why the law seeks to create a beneficial protection mechanism for such individuals. 

On the contrary, the law also envisages certain exceptional circumstances where contracts with such people, who lack capacity, are considered valid owing to their benefits and necessities. By creating such a legal system, a balance of rights and obligations is created between contracting parties. 

Section 11 of Indian Contract Act, 1872

Section 10 of the Indian Contract Act, 1872, simply states that all parties entering into a contract must be competent to contract. It does not go into the details of the competency. Section 11 defines competency by getting into the details of the legal capacity to contract. It deals with various categories of persons barred from entering into a contract due to specific reasons. The provision reads as:

“Section 11. Who is competent to contract: Every person is competent to contract who is of the age of majority according to 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.”

Thus, the section declares the following persons to be incompetent to contract

• Minors,
• Persons of unsound mind, and
• Persons disqualified by law to which they are subject

The operation of this section creates a clear disability/limitation for three sets of people, preventing them from entering into a contract. They are minors, persons of unsound mind, and persons disqualified by law. 

Therefore, people who are capable of entering into a contractual relationship are:

• Those who have attained the age of majority;
• Those who have a sound mind; and
• Those who are not disqualified by law specifically from entering into a contract

These criteria are used to judge whether a contract is valid or not based on the competence or capacity of a person to enter into a valid contractual relationship. If a person who is a party to a contract falls under one of the three disqualifications, then the contract is deemed to be void ab initio and unenforceable. 

Contracts with a minor

As per Section 3 of the Indian Majority Act, 1875, every person living in India shall be considered to be a major once he completes 18 years of age. This is the general rule regarding age of majority that a person is considered to be a minor till he attains the age of 18 years. The provision, however, creates an exception by stating that, in a special case where the person or property or both belonging to someone below 18 years of age is entrusted in the custody of an appointed guardian or a court of wards, he is considered a major only after attaining 21 years of age. This is how the courts determine the age of majority by ascertaining the age to be either 18 in general cases or 21 in special cases. However, the current position of law removes any discrimination between minors and minors with court appointed guardians and prescribes the age of majority as 18 for everyone.

Earlier, the Act referred to minors as infants, but the current terminology is “minor”. Section 11 says that a minority depends on the law to which the party is a subject. Therefore, in the Indian context, the Indian Majority Act, 1875, is given due consideration while ascertaining the majority. 

Illustration: Suresh, a 16-year-old boy, loses his parents due to an accident. The court appoints his paternal uncle, a respectable man, as guardian to that boy and the boy’s properties belonging to Suresh, which he inherits after his parent’s untimely death. In this case, Suresh can only enter into a valid contract after the age of 21. However, as per the current law, Suresh can be allowed to enter into a valid contract after attaining 18 years of age. 

Reasons for considering minor agreements as void

The reasons why a minor’s agreement is considered void are given below.

• The minors, due to their tender age, are incapable of understanding the consequences of their actions;
• The minors cannot form an appropriate legal intention to enter into a contract, and
• The minors can be exploited through fraudulent manipulation of others.

The law, therefore, seeks to protect a minor from the effects of his poor judgement. 

Nature of minor’s agreement

Section 10 of the Indian Contract Act, 1872, provides for the proposition that every party entering into a contract must have the legal ability to do so, and Section 11 talks about the types of people who are prevented from entering into a contract. The complication arises when neither of the provisions mentions the effects of a minor’s agreement. The question as to whether the agreement in which a minor is a party becomes voidable or is void from the beginning is left unanswered by the said provisions. This lack of detail led to a controversy regarding the ambiguity presented by the legal questions pertaining to the nature of a minor’s agreement. 

This conflict was resolved in the case of Mohori Bibee and Ors. vs. Dharmodas Ghose (1903), in which the Judicial Committee of the Privy Council stated that a bare reading of the text of Section 11 makes it clear that it intends to make it a mandate that all the contracting parties must be competent to contract. It also clearly mentions that a person who, by reason of minority, is incompetent to contract, cannot enter into a valid contract. 

Therefore, the legal question of whether a contract is void or voidable cannot arise in such a situation where a minor is involved, as the question leads to a pre-supposition regarding the existence of a contract between the parties. Since a contract cannot exist when a minor is involved, the question regarding it being void or voidable cannot technically arise from the discussion. Just to simply understand the proposition of the court, it is fair to say that a minor’s contract is absolutely void in its nature.

In the above-discussed case, the facts were such that Dharmodas Ghose, the plaintiff, took a loan of Rs. 20,000 from Bhramo Dutta, a local moneylender, and the attorney of the money lender knew that Dharmodas was a minor. Dharmodas also executed a mortgage deed whereby he mortgaged his houses in favour of the defendant, Brahmo Dutta, to secure the said loan. Only a part of the loan, i.e., Rs. 8000, was advanced to the minor. 

Upon attaining majority, Dharmodas filed a case against the money lender for cancellation of the mortgage deed on the ground that he could not execute the mortgage as Dharmodas was a minor during the period of the contract. The money lender contended that the law of estoppel would bind Dharmodas to pay the loan through mortgage as Dharmodas cannot go back on his own representation. 

The Privy Council held that the contract was void ab initio (absolutely void from the beginning) and the law of estoppel would not operate on the plaintiff as the attorney of the money lender has knowledge of the fact that the plaintiff was a minor. Therefore, this decision became a landmark precedent which held two important principles:

• A minor’s contract is absolutely void from the beginning; and
• The law of estoppel cannot bind a minor if the other party has knowledge about the fact that the contracting party is a minor during the entering of the contract. 

In a situation where an alternate decision would have been laid in the case, it would have led to a circumstance where the law would have been ambiguous. This is believed so, as it would have left the decision of validity or existence of the contract on the whims and fancies of a minor. Such liberty gives the minor excessive power to choose which contract he will abide by and which he will not. Such a situation creates an unfavourable circumstance for competent parties who may suffer a loss due to the denial of a minor from fulfilling their part of the contractual obligation. It also protects the minor, as the minor is assumed to lack the adequate mental ability to adjudge the consequences of entering into a contract while doing so. 

A child’s poor judgement can make him vulnerable to the manipulations of adults and grant him lesser bargaining power while deciding the terms of a contract. Therefore, the general rule that every man is the best judge of his own interests and, whatever actions he takes, he does so for his own good is suspended for minors. 

Judicial decisions on minor’s agreement

The decision laid down in the previous case has been followed and cited by Indian courts in many subsequent cases. The application presented a dichotomy where, in some cases, the application was an advantage to a minor and, in certain cases, it was not. The interests of justice were maintained by creating a fair playground for contracting parties. 

Going forward with this proposition, in the case of Mir Sarwarjan vs. Fakharuddin Mahomed Chowdhury (1906), the Privy Council came across a situation where a purchase agreement was entered for certain immovable property by the guardian on behalf of a minor, and when the minor sued the other party of the contract for a decree of specific performance so as to recover the possession of his property, his suit was denied. The Privy Council stated that neither the manager of a minor’s estate nor the guardian of the minor possesses the power to bind a minor or a minor’s estate with contractual terms. Since there was no mutuality, the minor could not subsequently obtain specific performance of the contract. 

Moving forward in the case of Sri Kakulam Subramanyam vs. Kurra Subba Rao (1948), the Privy Council overruled the previous precedents set by it and stated that the minor’s guardian do possess the power to enter into a contract of sale to discharge debts or for the benefit of the minor. In this case, the mother of the minor had sold his property on his behalf to discharge the debts of the minor’s father. The Privy Council held the sale valid as it was for the beneficial interests of the minor. This proposition gave power to the guardians of a minor or a minor’s estate to enter into a contract on behalf of the minor and bind the minor with contractual terms for his own benefit. 

Following the above proposition, the Odisha High Court in the case of Sri Durga Thakurani Bije Nijigarh vs. Chintamoni Swain (1982) held that the endowment of property on behalf of minors for religious properties done by their guardians or parents was specifically enforceable and binding. This gave rise to the doctrine of mutuality, which states that a group of persons or associations can enter into transactions on behalf of each other for each other’s beneficial interests. Keeping that in mind, many different High Courts expressed their dissatisfaction against the ruling of the Odisha High Court by stating that the doctrine of mutuality has no place in such situations as the matter was already in the competence of the guardians to dispose of the property. The doctrine of mutuality has no scope under Section 20 of the Specific Relief Act, 1963. Simply put, all the courts agreed to one proposition, if a contract falls within the ambit of competence of a guardian and is for the benefit of the minor, then it can be specifically enforced. 

In the present modern society, it is impossible to uphold the proposition that minors’ contracts are absolutely void because minors are being exposed more and more to public life through online shopping, e-commerce, public transport systems, tailoring, educational institutions, and movie theatres, amongst many other situations. In such a case, completely declaring the minor’s agreement as void would lead to a situation where the dependency of minors on their parents for smaller issues would increase manifold. Such a blind and strict proposition puts minors in a disadvantageous position. Therefore, the above proposition was developed in the case of Srikakulam Subramanyam vs. Kurra Subba Rao (1949), which created a valid balance between the rights and interests of the minor and the other contracting party. 

Government employment agreements by minors

When it comes to a contract for government employment with minors, the Jharkhand High Court in the case of State of Jharkhand & Ors. vs. Arun Kumar Dhar (2017) stated that the agreement of a minor with the State Government is not void as per Section 11 unless a particular rule exists under the corresponding service laws preventing minors from entering into such contracts. This was held so because Article 24 of the Indian Constitution only prevents children below 14 years from being employed, but no such restriction is placed on children between 14-18 years of age. Therefore, minors between 14-18 years of age can enter into a contract of government employment if the relevant service laws do not prohibit such an agreement. 

Effect of minor’s agreement

Ordinarily, since a minor’s contract is void, it cannot have any effect, as the existence of a contract cannot be presupposed in such a case. Therefore, to study the effects of a minor’s contract, it must be studied independently of any contract. Consequently, the court, through years of interpretation and various cases, drew the following consequences or effects of a minor’s agreement:

No estoppel against a minor

The law of estoppel states that if a party to a contract makes certain promises and the other party, based on such promises, performs certain actions, then the promising party is bound to fulfil his promises. In case of a minor’s agreement, one has to think of a situation where a minor, through misrepresentation or concealment of his age, makes the other party believe that he is a major and enters into a contract. Can he be bound by the law of estoppel, or will he be precluded from revealing his real age in a suit against him arising from such a contract? This question led to multiple conflicts of interpretation but was settled in the case of Jagar Nath Singh & Ors. vs. Lalta Prasad & Ors. (1910), wherein it was held by the Allahabad High Court that the law of estoppel is not binding on the minor. Even when the minor enters into a contract by misrepresenting his age, he still cannot be bound by it, and the contract will remain void. 

Rationale behind non-application of estoppel

The clear rationale behind such a proposition was that, if the law allows the status of the agreement to change based on representations of minors, many individuals will enter into a contract with minors to exploit them through undue influence and manipulation. They will make minors self-declare and self-attest their ages, which in turn dilutes the essence of the law, which seeks to protect the interests of a minor as they are presumed to be incapable of understanding the consequences of their actions while entering into a contract. This proposition was further highlighted in the case of R. Leslie Ltd. vs. Sheill (1914), wherein Sheill, by claiming to be a major, borrowed a sum of money from Leslie and refused to pay it back when the money became due. She was sued in the English Court of Appeal, wherein it was held that the contract was void and Sheill cannot be bound by the terms of the contract based on the proposition that, even if she misrepresented her age, a minor cannot be bound by the law of estoppel. 

The other reason as to why there can be no estoppel against a minor’s contract is that there can be no estoppel against a statute. Since the ICA declares a minor’s contract to be absolutely void through the statutory provision of Section 11, the principle of estoppel would not be applied for binding a minor on his promise. 

Subsequently, in the Indian context, in the case of Kanhaiya Lal vs. Girdhari Lal (1912), wherein a suit was filed for recovery of money on a promissory note executed by the defendant, Kanhaiya Lal, in favour of the plaintiff, Girdhari Lal’s father. The suit was resisted on the contention that Kanhaiya Lal was a minor when he executed the promissory note. The Delhi High Court in this case held that a minor cannot be bound by a promissory note executed by him as the law on estoppel or promissory estoppel does not apply to minors. 

In the case of Lakhwinder Singh vs. Paramjit Kaur (2003), the Punjab and Haryana High Court stated that it is the duty of the other party to make diligent enquiries about the age of the party they are entering into a contract with before making a contract. Such an inquiry must be diligent, reasonable, and vigilant.

No liability in contract or in tort arising out of contract

As has already been established, a minor’s contract is devoid of any effects in terms of legal propositions as a minor is incapable of providing informed consent; and, without consent, there could be no change in legal character. Therefore, the general rule that a minor’s contract is free from any legal effects persists in interpretation. There was no change in the status of parties as there is no space for a minor to consent legally to an agreement. 

In England, in the case of Johnson vs. Pye (1665) 82 ER 1091, wherein a minor obtained a loan of a sum of money by misrepresenting his age and claiming to be a major, it was held that he cannot be forced to repay the amount as the contract was not binding on him. This proposition has already been established that estoppel cannot be binding on minors. The other proposition that arose in this case was that can a minor be held liable under the law of torts for the damage sustained by the other party due to the misrepresentations of the minor? 

The English courts held that no minor can be made subject to a tortious claim for damage sustained by the other party in cases where the minor misrepresents his age and, as a consequence, the other party sustains damage. The rationale was that, if such an indirect way of recovery was allowed, it would dilute the protection that the law of contract affords to minors and it would make the position of minors extremely vulnerable. It would negate the effect of the proposition that the law of estoppel cannot bind minors. A contract cannot be transitioned to a tort simply to bring an action on a minor.

This proposition has also been upheld in Indian courts. The Calcutta High Court in the case of Harimohan vs. Dulu Miya (1934) held that a minor cannot be made liable in tort for money lent on bond if he was not liable in contract. The High Court also clarified that, if the tort is directly connected to the contract and is attempting to effect the terms of the contract or both the tort and the contract form part of the same transaction, then the minor cannot be made liable in tort as he is not liable in contract. 

In cases where the tort is independent of the contract and a contract is simply involved in the transaction as a matter of fact, a minor can be held liable for his action in tort. This legal proposition was put forth in the decision of Burnard vs. Haggis (1863), wherein an infant had borrowed a horse from one of his friends for personal use. Later on, he lent the horse to another person who killed the horse. Therefore, the minor was made liable by the Court of Common Pleas and Exchequer Chamber for the damage sustained by the owner of the horse. Similarly, in Ballet vs. Mingay (1943), a minor was held liable by the Court of Appeal under the law of tort for the tortious action of detenue on the ground that he failed to return certain instruments which were borrowed by him from his friend as he had given them to someone else and lost them consequently. . 

On the contrary, in Jennings vs. Rundall (1799), the defendant minor had hired a horse to ride till a particular point but rode it to a longer distance. He was not held liable as his actions fell under the scope of the contract. Since he was not liable under contract, he could not have been liable under torts. This case also reiterated the fact that a claim in contract cannot be converted into a claim of tort with the purpose of indirectly enforcing the contract upon a minor. 

Doctrine of restitution

The doctrine of restitution is the basic principle in contract law which states that, whenever someone makes an unlawful gain by causing an unlawful or dishonest loss to another, then the person who has made such gain can be compelled by law to restore the gains and any other accrued profit to the rightful owner. This doctrine is based on the principle of equity that no one should gain something inevitably at the loss of another. The application of this doctrine in the discussion regarding the effect of a minor’s contract poses the question whether, in a situation where a minor falsely represents his age and gains certain property or goods, can he be compelled to restore them to the rightful owner. The answer is yes. A minor who gains property or goods by falsely stating his age or by concealing his age can be compelled to restore the same if the goods can be found in his possession or are traceable in his possession. This proposition is known as the “equitable doctrine of restitution”. 

Exception to the doctrine of restitution

In situations where the infant has sold the goods or has converted them in any way, then he cannot be compelled to repay the value of the goods, as that would consequently have the effect of enforcing a void contract. Similarly, in situations where the minor has received money in place of goods or property, he cannot be compelled to return it, as the doctrine of restitution will not apply in such a situation. The doctrine of restitution simply aims to restore the one who has endured loss to be in a position in which he would have been had the misrepresentation not happened. 

This principle was also upheld in the case of Leslie vs. Sheill (1914), wherein a minor received a sum of 400 pounds from a money lender by deceiving him by misrepresenting his age. The court did not allow the recovery of money as the defendant was a minor and the contract was void. Following which the plaintiff attempted to recover the sum by claiming it to be a quasi-contract. To this attempt, Lord Sumner stated that common law relieves a minor from any liability arising from a tort which is directly connected to a void contract and, therefore, it is not possible to enforce an unenforceable contract in a roundabout way. Common law equally forbids courts from enforcing a part of a contract by assuming the contract to be an implied contract or quasi-contract, as the contract is wholly void in its very nature. 

Ultimately, the money lender bought in defence of the doctrine of restitution and contended that the minor should be compelled to restore the sum. The contention was rejected by Lord Sumner. He stated that the precedent till 1913 was that, whenever a minor gains a benefit by misrepresenting or concealing his age, equity could compel him to restore the unlawful gains or to relieve the other party of their obligations under the contract. 

This decision also overruled the decision given in Stocks vs. Wilson (1913) in which a minor obtained certain furniture and other articles by misrepresenting his age and ultimately sold them. He was compelled to restore the value of the said furniture and articles. This decision was criticised in the case of Leslie vs. Sheill and it was held that a minor cannot be compelled to restore the value of the goods. . 

Judicial recognition of the doctrine

This principle was upheld in the case of Jagar Nath Singh vs. Lalta Prasad (1910), wherein a minor had sold his property for a specific amount of money. He then sought to recover possession of his specific property with the contention that the contract was not valid as he was a minor. The Allahabad High Court held that he could claim recovery of possession only after restoring the amount of consideration that he received for the property. This principle was approved by the Privy Council in Mahomed Syedol Ariffin vs. Yeoh Ooi Gark (1916).

Similarly, in the case of Padinhare Veetil Madhavi vs. Pachikaran Veetil Balakrishnan (2009), the mother of the minor, sold a share of the minor’s property without the court’s permission. Later, the minor filed a suit to set aside the decision on the grounds that he was not competent to contract the same. The Kerala High Court in this case held that the sale of the property could be set aside only if the plaintiff restores the benefit he received through the contract. The plaintiff refused to return such consideration or benefits and, therefore, the court did not grant any relief to him.

Judicial decisions on restoration of benefits

The next landmark decision for this proposition was laid out in the case of Khan Gul & Anr. vs. Lakha Singh & Anr. (1928), in which the defendant, while he was still a minor, concealed his age and sold a property to the plaintiff for the amount of Rs 17,500 and, after receiving the amount, he denied the fulfilment of performing his part of the contractual obligation. The plaintiff sought a recovery of possession or the amount paid for consideration. There did not exist any possibility of specific performance, as the contract was absolutely void like any other minor’s agreement. The legal question which, therefore, arose was whether a minor having entered into a contract through misrepresentation has a right to refuse to perform his part of the contract and, at the same time, keep the benefit he received from the contract? 

In this case, Section 41 of the Specific Relief Act, 1877, is of no use as it only becomes applicable when the minor himself seeks the aid of the court. Neither could the principles laid down in Leslie vs. Sheill be applied, as it did not extend to cover money in India. Therefore, in this case, the learned Chief Justice found valid grounds to extend the ambit of the decision and stated that there exists not much difference between restoring property and refunding money except for the fact that property is identifiable and traceable but money is not traceable. By referring to Sections 39 and 41 of the Specific Relief Act, 1877 (currently Sections 31 and 33 of the 1963 Act), his Lordship stated that the application of the doctrine of restitution is not just limited to the cases covered by these provisions. Therefore, the Chief Justice ordered a refund of the amount of consideration based on the stricter interpretation of the principle that a minor cannot be allowed to benefit from his own misrepresentation and falsehood. 

However, the above proposition was not followed in the decision of Ajudhia Prasad vs. Chandan Lal (1937), which became another landmark decision for this concept. In this case, two minors borrowed a certain amount of money through a mortgage deed. They were above 18 years of age but below 21 years of age. They concealed the fact that they have court-appointed guardians. The legal issue which arose was whether the lender was entitled to a decree for the principal money or sale of the mortgaged property. 

The Lahore High Court rejected the broad view of restitution as taken in the case of Khan Gul vs. Lakha Singh and stated that Indian courts must be bound and restricted by the propositions of restitution set forth in the case of Leslie vs. Sheill. Deviating from these principles would equate to moving away from a set preponderance of authorities governed in both England and India. Such a deviation would also remove the distinction of the position of a minor when he is suing as a plaintiff and is being sued as a defendant in a case. 

Beneficial contracts for minor

The principle set forth by the Privy Council in the Mohori Bibee case that every minor’s agreement is absolutely void, has been typically followed in every case in India, but the application of the principle has largely stayed limited to cases where a minor is accused of not fulfilling his obligations and the other party wants to enforce those obligations as against the minor party. 

Therefore, serious concerns were raised regarding the applications of the provision in cases where the contract is actually beneficial for the minor but there remain no contractual obligations on the minor. The principle that a minor’s contract is absolutely void simply means that no court can impose any contractual obligation on a minor. Therefore, it would not be wrong to say that a minor is allowed to enforce a contract which gives certain benefits to him, but he is under no obligation arising from the contract. 

Judicial decisions

In the case of A.T. Raghava Chariar vs. O.M. Srinivasa Raghava Chariar (1916), the question which arose in front of the full bench of the Madras High Court was whether a mortgage which has been executed in favour of a minor who has advanced the whole of the mortgage money is enforceable by him or anyone on his behalf. The full bench of the High Court unanimously agreed to the fact that the mortgage can be enforced by the minor alone or on behalf of him by someone else. The Chief Justice of the Madras High Court noted that the law, which prevents minors or renders them incapable of being bound by contractual obligations, does so to protect them from unfavourable circumstances and exploitation but, by applying the same thing in cases where they are the beneficial end and are supposed to take consideration for the money paid by them, would defeat the entire purpose of the law and put minors at a disadvantaged position. 

Similarly, in the case of The Great American Insurance Co. Ltd. vs. Madanlal Sonulal (1935), the defendant, a minor, had provided certain goods for insurance and had paid consideration for the same. The bank refused to insure the goods on the grounds that the defendant is a minor and is incompetent to contract due to being a minority. The Bombay High Court stated that the law declaring a minor’s contract absolutely void did so with an intention to protect minors from exploitation. On the contrary, in situations where the minor has fulfilled his obligations and the other party resists their obligations on the ground that the party is a minor, then it would be inequitable to declare the contract absolutely void. It would be wrong to relieve the major party of their obligations, as it would put the minor in a disadvantaged position. Therefore, the High Court ordered the insurance company to pay the insurance money to the minor in this case. 

Similarly, in the case of Thakar Das vs. Putli (1924), it was held by the Lahore High Court that a minor is competent enough to purchase immovable property and he also has the right to sue for specific recovery of the possession of the property in cases where the seller resists the delivery of the property to him. An already executed transfer in favour of a minor cannot be impeached on grounds of his minority. However, leases are different from other types of transfers considering that ownership is not transferred and it is periodic. Therefore, in cases of a lease to a minor, they can be treated as absolutely void. In cases of promissory notes, a minor can execute one in his favour. 

Nothing in contract law prevents a minor from assuming the capacity of a promisee (the one to whom a promise is made). The law does not prevent a minor from receiving any benefits from a contract. Therefore, in the case of K. Balakrishnan vs. K. Kamalan & Ors. (2004), wherein a mother had executed a gift deed in favour of her minor child was not allowed to revoke the gift as she was bound by the deed. The minor was also a beneficiary in this case and, therefore, the contract was valid and binding. The fact that the mother retained the possession of the property and enjoyment too did not destroy the validity of the gift in any manner. 

Contracts of service

In the landmark decision of Raj Rani vs. Prem Adib (1948), a minor was given the character of a child actress in a movie which was being directed by the defendant, who was a producer of Hindi films. The party to the agreement was the father of the actress. Subsequently, the defendant gave the role to someone else and terminated the agreement made with the minor’s father. The Bombay High Court, in this case, decided that neither the minor nor her father possessed the right to sue on such a contract. If the contract was made with the actress, it would be nullified on the ground that the actress was a minor and, in a case where the contract was made with the father, it would be void as it was done so without any consideration. 

Contracts for marriage

As per principles of law, a contract for the marriage of a minor is also a beneficial contract. It used to be customary for many Indian communities to arrange the marriages of their minors, and the law adapted itself based on such customs. Since then, the Bombay High Court, in the case of Abdul Razak vs. Mohd. Hussain ILR (1916) 42 Bom 499, held that a contract of marriage can be enforced against the other contracting party at the instance of the minor but not against the minor himself. The exception to this principle is that, in cases where the agreement of marriage of a minor leads to a violation of a statute like the Hindu Marriage Act, 1955, the agreement can be avoided. One example of such a situation is when the girl child is below 18 years of age and not eligible for legal marriage. 

Marriage of a Muslim minor girl

This special situation was explored in the case of Kumari Shabnoor (Minor) D/O Mohammad vs. State of Uttar Pradesh (2007), wherein the parties to the contract of marriage of a minor Muslim girl were governed by the Shariat law. The medical report presented the fact that the girl was below the age of majority and, hence, had no free will to enter into a contract of marriage. Only her father or legal guardian could lawfully give her in marriage. The Kazi, who had performed the marriage, had knowledge of the minority status of the girl. Therefore, the Allahabad High Court declared the marriage invalid and reverted the custody of the minor Muslim girl to her father. 

Contracts of apprenticeship . 

In the common law system, contracts of service, including apprenticeship, and contracts for necessities have been kept at an equal level. In the landmark case of Roberts vs. Gray (1913 KB 520 CA), wherein the defendant, who was an infant, agreed to join the plaintiff for a world tour as the plaintiff was a reputed billiards player. The plaintiff spent a good sum and valuable time to make necessary accommodations and arrangements for the minor, but the minor ultimately repudiated the contract. The plaintiff was allowed to recover damages for breach of contract from the minor. The Court of Appeals decided that the said contract was a contract for necessities as it was for the instruction and training of the minor, which could help him earn a livelihood in the future. 

Although, as per the Indian law, the Bombay High Court in the case of Raj Rani vs. Prem Adib (1948) held that, even though a minor, under English law, would be liable under a contract of service, the contract was made for the benefit of the minor, under Indian law, the minor’s contract would still be void, as per Section 11 of the ICA, and the minor would have no such liability. 

Trade contracts 

As per law, trade contracts are not considered beneficial contracts for minors. This proposition was laid down in the landmark case of Cowern vs. Nield [1912] 2 K.B., wherein the minor was conducting a business of hay and straws. The plaintiff provided a cheque to the minor for supplying clover and hay. The minor supplied clover, but they were rejected for being in an unsuitable condition, and the minor failed to deliver hay. The plaintiff then sued the minor for damages for the breach of contract and for recovering the cheque amount but could not sustain the action. It was held by the King’s Bench that the trading contracts do not come under the category of beneficial contracts and, therefore, they cannot be enforced as they do not provide any real benefit to the minor. 

Option to rescind beneficial contract on majority

A minor has the option as per law to retire from a beneficial contract once he attains majority, provided that such an option was exercised within a reasonable amount of time deemed to be reasonable by a court of law. The minor can rescind the contract only within a reasonable time. The duration of reasonable time varies from case to case. In the case of Nazir Ahmed vs. Jiwan Das AIR 1938 Lah 159, where the minor, to marry a girl, settled his property, but the property which he received from his father’s will was also settled in the process, and then he tried to repudiate the contract five years after attaining majority, the House of Lords held that the period of five years is not a reasonable duration and, therefore, he cannot be allowed to retire from the beneficial arrangement of settlement of his properties. 

Ratification of minor’s agreement

The general principle of law says that a person cannot ratify an agreement, which he entered into as a minor, upon attaining a majority. The rationale behind this principle is that ratification always relates back to the date on which a contract was made and, therefore, a person cannot go back to the date of making a contract, which was void ab initio, and make it valid through ratification. However, a minor is free to make a fresh contract with that party with a fresh consideration upon attaining majority. 

In the case of Suraj Narain vs. Sukhu Ahir & Anr. (1928), the full bench of Allahabad High Court dealt with principles of ratification. In this case, a minor had borrowed a certain amount of money by executing a bond for the same and, once he attained majority, he executed a second bond with regards to the original loan along with the interest amount. The High Court held that a suit against the second bond cannot be maintained in law as the second bond was without any consideration and also did not fall under the ambit of Section 25 of the Indian Contract Act. 

In the case of Anant Rai & Anr. vs. Bhagwan Rai & Anr. (1940), a person has taken a loan during the minority and, upon attaining the majority, not only pays the debt which he incurred during the minority but also ratifies the contract. The Allahabad High Court held that, in such cases, he cannot recover the amount back, stating that minors are not allowed to ratify a contract upon majority because the loan agreement was merely void and not unlawful. 

Minor as a partner

As per general principles, partnership agreements are treated as contracts and, therefore, minors are prohibited from being partners in a partnership firm due to the simple reason that agreements with incompetent persons like minors are absolutely void. The only exception to this principle is where the nature of the agreement is such that the minor is a beneficiary of the partnership firms. As per Section 30 of the Partnership Act, 1932, all the partners must provide their consent for the same. In such cases, the minor is capable of receiving a share of the profit from the partnership firm but is not liable for the acts of the firm like the other competent partners. 

Minor as an agent

Similarly, a minor can create a contract of agency with a major principal, but the minor will have no liability for his own action. The principal is held liable for the actions of the minor agent. Section 183 of the Indian Contract Act, 1872 states that any person who has attained the age of majority and is of sound mind can be a principal by appointing an agent. Section 184 states that any person can become an agent but a person, who is a minor or is of unsound mind will not be responsible to his principal for his actions if such person is appointed as an agent by the competent principal. 

Liability for necessaries

It is a quasi-contractual obligation of the minor which binds him for reimbursement from his estate for the supply of necessaries. The persons who have been declared incompetent to contract, are still very much a part of society and have certain requirements to fulfil their daily lives. Therefore, completely prohibiting them from entering into contracts would lead to hampering their life and living. Hence, one of the exceptions to a minor’s contract being void is the validity of the minor’s liability for supply of necessaries. 

This concept is envisaged in Section 68 of the Indian Contract Act which states that, whenever a person is incapable of entering into a contract or someone who is dependent on such a person requires necessaries for sustenance of life, then any other person is allowed to provide such necessaries to the incapable person or any other person whom the incapable person is bound to provide for. In these cases, the supplier can claim reimbursement of the value of the necessaries from the property of such an incapable person. 

The landmark case law, which deals with the liabilities for the supply of necessaries, is the case of Nash vs. Inman [1908] 2 KB 1, in which Inman, a minor, bought a number of coats from Nash. It was found out that Inman already had many clothes and, hence, the English Court held that the coats could not be treated as necessaries and, therefore, the property of the minor cannot be appropriated for the payment of Nash. Necessaries are largely basic essentials which a person needs to have a healthy lifestyle and human existence. Therefore, if a person already possesses a sufficient amount of a particular thing and is yet provided with more of it by a supplier, it would not be considered necessary. 

What is a necessity

Necessities are largely goods which a person requires for daily subsistence and living. These can include groceries, clothes, sanitation and hygiene products, food, educational materials, stationary, etc. If a person already has enough of a particular thing, it won’t be considered as a necessity for him. Therefore, anything required for a healthy living that a person has an insufficient amount of is termed as a necessity. 

Extent of a minor’s liability

A minor is liable for the delivery of necessaries to him i.e. he should compensate the supplier from his own estate if:

• The necessaries are delivered to him; or
• Anyone that depends on him; or
• By the supplier

In such situations, the minor is liable to reimburse the amount of the necessaries to the supplier from his own estate. 

Contracts with persons of unsound mind

Largely, the principles governing a contract with a minor remain similarly applicable on a contract with a person of unsound mind. Therefore, in the Indian context, contracts with persons of unsound mind are absolutely void. They cannot ratify a contract upon reaching a lucid state of mind. They are allowed to enter into beneficial contracts where they have no contractual obligations. The principles of estoppel do not apply to persons of unsound mind either. 

What is an unsound mind

What one needs to understand is who is a person of unsound mind. According to Section 12 of the Indian Contract Act, “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 effect upon his interests”. 

In simpler terms, we can say that a person of an unsound mind is a person who:

• Is not capable of understanding the consequences of entering into a contract or the terms which the contract imposes on him; and
• Is not capable of comprehending the obligations arising from a contract and, therefore, cannot be expected to fulfil them. 

Rationale behind Section 12

Meeting of minds (consensus ad idem) is a primary requirement for the formation of a valid contract. A meeting of minds connotes a legal intention for creating a contract, which gives rise to contractual obligations. A person of an unsound mind can never create the same intention as a person of a sound mind and, therefore, meeting of minds will never take place. Persons of unsound mind are prevented from entering into contracts so as to protect them from exploitation due to their special conditions. 

Unsoundness of mind includes the below three special categories.

1. Idiot: a person who has an unsound mind or insane since his birth.
2. Lunatic: a person who has acquired a mental illness leading to an unsound mind after birth due to a disease or an injury.
3. Drunk: a person who is in an intoxicated state, which makes him incapable of understanding the consequences of his actions.

Burden of proof

The next legal issue that arises is how to prove whether someone is a person of unsound mind. The Supreme Court, in Chacko & Anr. vs. Mahadevan (2007), held that the burden of proof is on the person that challenges the validity of the contract. In situations where a person has periods of lucidity and periods of lunacy, the fact that the person was in a period of lucidity (clear mind) while entering into the contract, must be proven by the person who claims so. The burden of proof to prove that a person is of unsound mind is on the person who seeks to repudiate the contract on the ground of unsoundness of mind.

Example

Intoxication can also lead to an unsound mind. This aspect was conferred in the case of Asfaq Qureshi vs. Aysha Qureshi (2010). In this case, both the parties were Muslims and were married through Muslim rituals. In Muslim law, marriage is regarded as a contract. The wife claimed that she was involuntarily intoxicated during the marriage; therefore, she could not understand the consequences of what was going on due to the unsoundness of her mind. The Chhattisgarh High Court held that the marriage was void as the wife’s intoxication led to unsoundness of her mind and she was not capable of giving free consent to the marriage. 

Contracts with persons disqualified by law

After minors and people of unsound mind who require protection from law, the category which is prevented from entering into a contract due to legal disabilities is known as a person disqualified by law. These disabilities arise either due to financial, social, or political positions that these people may belong to. Certain categories of individuals under this portion are given below:

Alien enemies

Aliens are basically people who are citizens of a foreign country. Alien friends are those belonging to a country which has a friendly relationship with the Republic of India, and alien enemies are those who share a hostile relationship or are in a conflict with India. 

As per Section 83 of the Civil Procedure Code, 1908, alien friends and alien enemies with the permission of the Central Government can sue in Indian courts competent to try the suits, as if they were Indian citizens. However, alien enemies without the permission of the Central Government and those residing outside India cannot sue in Indian courts.

There are two categories of cases which emerge here:

1. Contracts during war or conflict: Such contracts, unless the Central Government issues a licence, are unenforceable.
2. Contracts before war or conflict: Such contracts are dissolved or suspended when they are against public policy or beneficial to the enemy nation.

The contracts made by alien friends in India are valid, but contracts by alien enemies are void due to concerns over national security and safety. In the case of O. Wuthrick vs. David (1916), a suit was filed at the Madras High Court to recover the rent. The plaintiff was the lessee, and the defendant was the lessor, who was a German citizen. Due to the subsistence of the world war, the defendant was declared to be an alien enemy. Therefore, the Madras High Court held that the covenant for lease was void and unenforceable due to the alien enemy status and incompetence of the defendant. 

Foreign sovereigns and ambassadors

These categories of people usually enjoy certain privileges which are granted to them by law. They are also given diplomatic immunity against being sued in Indian courts. They can only be sued if they agree to admit themselves to the jurisdictions of Indian courts. Therefore, they are allowed to enforce contracts in Indian courts, but no contract can be enforced against them without their approval or the approval of the Central Government. 

There are certain situations where the Central Government grants permission to sue them. Those are given below:

1. He himself has executed a suit in a court of law against the person seeking to sue him;
2. He himself or through an agent carries trade/ business within the court’s jurisdiction; 
3. He is in possession of immovable property which falls under the court’s jurisdiction and the suit in relation to such immovable property; or
4. He has waived off the privilege granted to him, which prevents others from suing him, in an express manner.

Convicts

The convicts, who are serving a sentence/punishment for certain criminal offences, are disqualified from entering into a contract. Once their sentence ends, the disqualifications also end with the sentence, and they are free to enter into contracts again. They can also enter into contract during parole or when they are pardoned by courts. The convicts are not bound by the law of limitation to file suit. The limitation is kept in abeyance during the period of sentence. 

Insolvent  

All the estate or property of a person declared to be insolvent is vested in the hands of an official assignee who is appointed by a court. Hence, the insolvent person lacks the power or capacity to enter into a contract with regard to those properties, as he cannot sue and cannot be sued by anyone else. Once the insolvency comes to an end, he is free to enter into contracts. 

In the case of the Official Assignee of Madras vs. A.R. Narayan Mudaliar (1951), the Madras High Court stated that whoever lends an amount to an undischarged insolvent has no method or legal route to recover the debt. This is done so that the undischarged insolvent has no borrowing power of his own. It was also stated that no court has the power to entertain any suit regarding an insolvency based on debt incurred by him while his insolvency continues. This is the reason why insolvent people are prevented from entering into a contract. 

When a debtor is held to be an insolvent, the court vests his property in the powers of an official receiver or an official assignee. The official receiver or assignee can enter into contracts with respect to the insolvent property and sue/ be sued on his behalf. These disqualifications come to an end when the court passes an order of discharge removing the insolvency status from the individual. 

Conclusion

Contracts are essential to sustain daily life and for the progress of human civilization, but certain members of society need the protection of the law to be prohibited from exploitation, and that is exactly why a limitation is imposed on certain categories of people from contracting. Even though the limitations exist, the law has also envisaged exceptional circumstances where such agreements with incompetent people are allowed to provide them with the benefits of entering into a contract. By creating such a balanced legal system of rights and obligations, the Indian legal system creates a wholesome approach towards the concept of capacity to contract. With changing global and social dynamics, the changes that these principles take are yet to be seen. 

Frequently Asked Questions (FAQs)

Does the law of estoppel apply to contracts with minors?

No, the law of estoppel does not apply to void agreements with minors unless the minor is the one seeking equity, in which case he must do equity by restoring the benefits he received under the contract. 

Can an unenforceable contract with a minor be enforced through a tortious action?

No, an indirect way of enforcing a void contract is prohibited in the law of contracts. In cases where the tort is independent of the contract, then the minor can be held liable for the same. 

What are the exceptions to contracts with minors and people with unsound minds being void?

Usually, contracts that are beneficial to the category of people and do not impose any obligation on them are allowed. Even contracts for supply for necessaries are considered valid. 

How is unsoundness of mind proved?

The unsoundness of mind can be proved through medical records, past history, subsequent conduct, and other circumstantial factors. The person who claims that the party was of unsound mind while entering the contract has the burden of proof on him. 

What are the categories of individuals under persons disqualified by law to contract?

Usually, alien enemies, sovereigns and ambassadors of other nations, convicts, and insolvents are prohibited from entering into a contract with others.

References

• https://egyankosh.ac.in/bitstream/123456789/56331/1/B-1U-3.pdf 
• https://deb.ugc.ac.in/Uploads/SelfLearning/HEI-Exempted-U-0748/HEI-Exempted-U-0748_SelfLearning_20231026135504.pdf 
• The book “Law of Contract and Specific Relief”, 13th Edition, 2022, EBC Publishers, authored by Avtar Singh

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