CAPACITY TO CONTRACT

Chapter-4

Section 10 of the Indian Contract Act mentions ‘capacity’ as one of the essentials of a
valid contract.
Section 11 mentions persons who are incapable to contract. Such persons are:
those of unsound mind;
minor (according to the law of which he is a subject)
person disqualified from contracting by law.

MINOR

WHO IS A MINOR?
According to Section 3 of the Indian Majority Act, 1875 a person below 18 years of age
is a minor.
However, a person to whose person or property a guardian has been appointed by the
court remains a minor till the age of 21 years.
WHAT IS THE NATURE OF A MINOR’S AGREEMENT?
In India –
Neither Section 10 nor 11 makes it clear whether the agreement entered by the
minor is voidable at his option or altogether void. This led to a controversy about
the nature of minor’s agreement, which was resolved in the Privy Council decision
in Mohiri Bibi v. Dharmodas Ghosh where it was held that the question whether a
contract is void or voidable presupposes the existence of a contract within the
meaning of the Act, and cannot arise in the case of an infant.
Minor’s agreement is thus absolutely void. A minor’s agreement being void ab-
initio it is incapable of being validated by a subsequent ratification after the minor
has attained the age of majority. The consideration furnished in respect of a
………… During minority cannot be considered to be a valid consideration for a
subsequent promise after attaining majority then no ratification is possible of a
promise made by a person during his minority.
This arrangement has been made by design. A child may show poor judgment in
making a particular contract and it is a protection against his own ignorance and
immaturity. The general presumption that every man is the best judge of his own
interest is suspended in the case of minors.

 Mohori Bibi v. Dharmodas Ghose Privy Council [1903] 30 IA 114: ILR 30 Cal 539
– Sir Lord North – On the 20th July, 1895, the respondent, Dharmodas Ghose,
executed a mortgage in favour of Brahmo Dutt; a money-lender carrying on business
at Calcutta, to secure the repayment of Rs.20,000 at 12 per cent interest, on some
houses belonging to the respondent. The amount actually advanced is in dispute. At
that time, the respondent was an infant: and he did not attain 21 until the month of
September following. Throughout the transactions, Brahmo Dutt was absent from
Calcutta, and the whole business was carried through for him by his attorney, Kedar
Nath Mitter, the money being found by Debraj, the local manager of Brahmo Dutt.
While considering the proposed advance Kedar Nath received information that the
respondent was still a minor; and on the 15th July, 1895 the following letter was
written and sent to him by Bhupendra Nath Bose, an attorney:
Dear Sir,

29
 I am instructed by S.M. Jogendranandinee Dasi, the mother and guardian
appointed by the High Court under the Letters Patent of the person and property of
Babu Dharmodas Ghose, that a mortgage of the properties of the said Babu
Dharmodas Ghose is being prepared from your office. I am instructed to give you
notice, which I hereby do that the said Babu Dharmodas Ghose is still an infant under
the age of 21, and any one lending money to him will do so at his own risk and peril.
On the day on which the mortgage was executed, Kedar Nath got in the infant to
sign a long declaration which he had prepared for him, containing a statement that he
came of age on the 17th of June; and that Debraj and Brahmo Dutt, relying on his
assurance that he had attained his majority, had agreed to advance to him Rs.
20,000. Kedar Nath was fully aware at the time the mortgage was executed in the
minority of the respondent.
On the 10th of September, 1895, the infant by his mother and guardian as next
friend commenced this action against Brahmo Dutt, stating that he was under age
when he executed the mortgage, and praying for a declaration that it was void and
inoperative, and should be delivered up to be cancelled.
The defendant, Brahmo Dutt, put in a defence that the plaintiff was of full age when
he executed the mortgage; that neither he nor Kedar Nath had any notice that the
plaintiff was then an infant; that even if he was a minor the declaration as to his age
was fraudulently made to deceive the defendant, and disentitled the plaintiff to any
relief; and that in any case the court should not grant the plaintiff any relief without
making him repay the money advanced.
The various points of the decision in this case can be summarised as follows:-
(1) The minor’s agreement is totally null and void i.e. void ab initio. It is void to the
extent that the minor is not at all deemed to be even competent to contract or give
any consideration.
(2) On the point whether the doctrine of estoppel will apply against a minor or not, the
court was generally silent excepting that it said that in the present case, there
would be no application of the doctrine of estoppel as the plaintiff was already
aware of the minor’s minority.
(3) As to the applicability of restitution by the minor for the gains acquired by him, the
court said that Section 64 would not apply as it applies to voidable contracts and
the minor’s agreement is void ab initio.
With respect to Section 65, the court said that this section deals with
subsequent voidness or the agreements which have been discovered to be void.
Whereas in the case of a minor, the minor is not at all competent to contract and,
therefore, Section 65 is inapplicable.
(4) As per the applicability of Section 41 of the then Specific Relief Act, the court said
that under that section the court has a discretion to order compensation if justice
so requires. But in the present case, the justice did not require so because the
fact of minority was known to the plaintiff.
(Thus, it can be seen that in the above case, excepting point no. 1, the court did
not give a concrete decision regarding either of the points 2, 3 and 4. These
points have been decided in the subsequent cases.)

In England
Minor’s contract is voidable at his option. This rule has been slightly modified by the
Infants Relief Act, 1874, which declares the following three contracts to be absolutely
void:
Contracts for repayment of money lent or to be lent.
Contract for supply of goods (other than necessaries).
Contracts for accounts stated.

30
EFFECT OF MINOR’S AGREEMENT
(a) No estoppel against a minor – The convention is that the law of estoppel does not
apply against a minor. He is allowed to plead minority as a defence to avoid liability
under the agreement even though at the time of making the agreement he falsely
stated that he has attained the age of majority. When the law of contract lays down
that a minor shall not be liable upon a contract entered into by him, he should not be
made liable upon the same contract by virtue of general rule of estoppel.
This point was not decided in Mohori Bibi Case. It was laid down in subsequent
cases. The main reason being that there cannot be an estoppel against a statute.
Also, when the general substantive principle laid down in the ICA says that a minor’s
agreement is void ab initio then the procedural principle of estoppel cannot override
that substantive principle.
Moreover, there can be no estoppel where both the parties know the truth of the
matter. A false representation, made to the person who knows it to be false, is not
such a fraud as to take away the privilege of infancy.

(b) No liability in contract or in tort arising out of contract – The principle generally
followed is that “you cannot convert a contract into a tort to enable you to sue an
infant”. If the tort is directly connected with the contract and is the means of affecting
it and is a parcel of the same transaction, the minor is not liable in tort.
But, where the tort is independent of contract the mere fact that a contract is also
involved will not absolve the infant from liability. Thus, in Burnard v. Haggis, the
infant was held liable where he borrowed a mare for riding only, but he lent her to
one of his friends who jumped and killed her. In Ballet v. Mingay, an infant was held
liable for the tort of detenu for his failure to return certain instruments, which he had
hired and then passed on, to a friend. In Jennings v. Rundall, however, the infant
was held not liable when he hired a horse to be ridden for a short journey but took it
to a longer journey, which led to injury of the horse. The ground here was that the
action was founded in contract and that the plaintiff could not turn what was in
substance a claim in contract ……… as in tort.

THE DOCTRINE OF RESTITUTION ( Can the minor be asked to return the benefits
secured by him?)
IN ENGLAND

A divergent view emerged from the judgements delivered by the Lahore HC (In
Khan Gul v. Lakhan Singh, Shadi Lal C J) and the Allahabad HC (in Ajudhia Pd.
v. Chandan Lal).
While the former opined that the minor should be made to pay back ill-begotten
money, the latter opined that the minor can’t be made to pay the compensation if
he is a defendant and if it involves money.
The views of Lahore HC were endorsed in the Law Commission Report.
Thus in view of the Law Commission the minor should pay even if he is a defendant
and even if the compensation involves repayment of money.
Accordingly, the Specific Relief Act, 1877 was amended and Section 33 (containing
the principle of compensation) was included.
As per the provisions of this Section (the rule is finally settled):
a) If a minor goes to a Court as a plaintiff urging the cancellation of an instrument
the Court may (read discretion of the Court) ask the minor to compensate for the
benefits that have accrued to him;

31
 b) If the minor is a defendant and resists the enforcement of the suit on the ground
of his minority the Court may (discretion) ask him to restore to the other party
the benefits he has received under the instrument.

 Section 33 – Power to require benefit to be restored or compensation to be made

when instrument is cancelled or is successfully resisted as being void or voidable
(1) On adjudging the cancellation of an instrument, the court may require the party
to whom such relief is granted, to restore, so far as may be any benefit which
he may have received from the other party and to make any compensation to
him which justice may require.
(2) Where a defendant successfully resists any suit on the ground –
(a) That the instrument sought to be enforced against him in the suit is
voidable, the court may, if the defendant has received any benefit
under the instrument from the other party, require him to restore, so far
as may be, such benefit to that party or to make compensation for it;
(b) That the agreement sought to be enforced against him in the suit is
void by reason of his not having been competent to contract under
section 11 of the Indian Contract Act, 1872, the court may, if the
defendant has received any benefit under the agreement from the
other party, require him to restore, so far as may be, such benefit to
that party, to the extent to which he or his estate has benefited thereby.

CONTRACTS THAT ARE BENEFICIAL TO THE MINOR

When the minor has furnished consideration to the other party, he is fully capable
to enforce the contract so that he is able to receive the benefits.
However, if the consideration is still to be supplied the contract isn’t actionable.
1. Contract of service and Apprenticeship.
IN ENGLAND: An infant, under the English law is bound by any contract for service or
apprenticeship because such contracts are beneficial to him to the extent of
enabling him earns his livelihood. In England, both are valid.
IN INDIA: In India, only a contract for Apprenticeship is binding, (under the Indian
Apprenticeship Act, 1960), a contract for service is not binding upon a minor.

Raj Pani v. Prem Adib – The plaintiff, a minor, was allotted by the
defendant, a film producer, the role of an actress in a particular film. The agreement
was made with her father. The defendant subsequently allotted that role to another
artist and terminated the contract with the plaintiff’s father.
The Bombay High Court held that neither she nor her father could have sued
on the promise. If it was a contract with the plaintiff, she being a minor, it was a
nullity. If it was a contract with her father it was void for being without
consideration. The promise of a minor girl to serve, being not enforceable
against her, cannot furnish any consideration for the defendant’s promise to pay
her a salary.
(Contract for service not binding)

2. Contract of Marriage
The contract of marriage can be enforced against the other contracting party at
the instance of the minor (However it cannot be enforced against, the minor). This
is so because a contract of marriage is for the benefit of the minor.

3. Minor vis-à-vis Partnership

Since Section 4 of the IPA, 1932 warrants that the parties to a Partnership
Agreement must have the capacity to contract, a minor can’t become a party to a
32
 partnership agreement and if this happens the partnership agreement would
become void.
A minor, however, can be admitted to the benefits of a partnership provided
such arrangement receives the assent of all the partners. A minor thus admitted to
the benefits of a partnership firm isn’t liable personally for the act of the firm; only
his share is liable for such acts. (As per section 30 IPA, 1932)

4. Minor vis-à-vis Negotiable Instruments

According to section 26, NI Act, 1881, a minor can’t make or accept a NI but can
draw, endorse, deliver and negotiate an NI. However, his such act binds all other
parties except himself.

RATIFICATION OF A MINOR’S CONTRACT

A minor can’t ratify a contract which he had entered into when he was a minor, after
he becomes a major. This is so because ratification relates back to the date on which
the contract was made and, , a contract which was void at that time cannot be
validated by subsequent ratification. A fresh consideration is needed for ratification.
When, under a contract, a consideration was given at the time of minority and a
fresh or the rest of the consideration is furnished after the attainment of majority, a
promise to pay both of them made after attaining majority becomes binding. (Kundan
Bibi v. Shri Narayan)
Suraj Narayan v. Sukhu Ahir, ILR (1928) 51 All 164 – A minor borrowed a sum of
money executing a simple bond for it, and after attaining majority executed a second
bond in respect of the original loan plus interest.
It was held by a majority of two as against one that the suit upon the second bond
was not maintainable, as that bond was without consideration and did not come under
Section 25(2) of the Contract Act, SULAIMAN CJ said:
Section 25, sub-clause (2), applies when there is a promise to compensate wholly
or in part a person who has already voluntarily done something for the promisor. The
word ‘compensate’ has been used advisedly and does not connote the same idea as a
loan. The word ‘voluntarily’ also indicates to my mind that something has been done
without any promise of compensation… Similarly, the expression ‘done something for’
does not mean ‘advance money to another person’. Doing something for a person is
not paying money to him.
 A minor can’t ratify acts done on his behalf after he becomes a major.

MINOR’S LIABILITY FOR NECESSARIES [SECTION 68]

For the necessaries supplied to a minor reimbursement is permitted to the person who
supplies such necessities. This is so because it is deemed to be a quasi-contractual
obligation.
Under Section 68 reimbursement is allowed if:
a) Necessaries are supplied
b) To a person who is incapable of making a contract, or
c) To the dependants of such a person
d) Reimbursement is permitted from the estate of such a person.
Moreover the goods supplied must be necessary in his station in life and he mustn’t
already have a sufficient supply of such necessities.
Illustrations: A supplies B, a lunatic with necessaries suitable to his life. A is entitled to
be reimbursed from B’s property.
A supplies the wife and children of B, a lunatic, with necessaries suitable to their
condition in life. A is entitled to be reimbursed from B’s property.

33
 As evident from the provisions of Section 68 the liability is only for the necessaries.
However; the ICA doesn’t give any definition for ‘Necessaries’. So one has to turn to
judicial decisions for ascertaining the real import of ‘necessaries’.

Chappell v Cooper [(1844) 13 M and W 252] (Alderson B):

“Things necessary are those without which an individual can’t reasonably exist. In
the first place it comprises food, clothes and shelter. Then, since the proper cultivation
of mind is as expedient as the support needed for the growth of the body, education
and instruction in art and trade, etc may be necessary also.”
Thus what comprises ‘necessaries’ is a relative thing. It is to be determined from
the circumstances of the life of the concerned persons.
Thus, to render an infant’s State liable for necessaries two conditions must be
satisfied:
1) the contract must be for goods reasonably necessary for his support in his station in
life, and
2) he must not have already a sufficient supply of these necessaries.
[The aforesaid has been held in Nash v. Inman (1908) 2 KB1]

Nash v. Inman (1908) 2 KB 1 – An undergraduate in the Cambridge University, who

was amply supplied with proper clothes according to his position, was supplied by the
plaintiff with a number of dresses, including eleven fancy waistcoats. The price was
held to be irrecoverable.

Nature of Liability
There are two theories regarding the liability of a minor’s estate for the necessaries
supplied to him or to his dependents.
According to one theory the nature of the liability is quasi-contractual because it doesn’t
depend upon the consent of the minor, rather it arises because the necessaries have been
supplied to him. This is quite right because minors and persons of unsound mind are
incapable of giving consent. Therefore whatever liability arises, it arises because of the
supply of the necessaries (Nash v. Inman).
In India also, since this subject has been dealt with in the chapter of quasi-contract and
the liability is clearly mentioned to rest upon the minor’s estate and not on him, it has very
little contractual element.

Liability of a minor under tort

Case Law
(1) Johnson v. Pye (1665) – No damages by a minor for the tort of deceit if the minor
takes loan of money by falsely misrepresenting his age  Since this would be
indirect enforcement of the contract.
(2) Barnard v. Haggis – Minor took horse for riding only  gave it to a friend and
jumped and larked and killed it  liable under tort (negligence).
(3) Ballet v. Mingay – Took some instruments  gave to friend and could not return 
liable for tort of conversion.
(4) Jennings v. Rundall (1799) – Took a horse to be ridden over a short distance but
made it to go to a much longer distance and injured it  not liable for tort also.

PERSONS OF UNSOUND MIND

POSITION UNDER THE ENGLISH LAW
– Person of unsound mind is competent to contract

34
 – He may avoid the contract if he satisfies the Court that he wasn’t capable of
understanding the contract and the other party knew about this fact.
– The contract is thus voidable at his option (The position of a drunken person is the
same as that of an insane person).

POSITION IN INDIA
Section 12 of the ICA deals with the persons of unsound mind. By virtue of ill (b) to the
said Section drunken people are also accorded the same footing vis-à-vis contractual
liability.
As per Section 12:
– A person is said to be a sound mind for the purpose of making a contract if, at the
time he makes it, he is capable of understanding it and forming a rational judgement
as to its effect upon his interests.
– A person who is usually of unsound mind can make a contract when he is of sound
mind.
– A person who is usually of sound cannot enter into a contract when he is of unsound
mind.
The real import of the entire provisions regarding persons of unsound mind is that what
is important is the fact whether the person at the time of making the contract was capable of
forming a judgement of his own that the act he was about to do (entering into the contract)
was in his interest.
(As held in Inder Singh v. Parmeshwar Dhari Singh AIR 1957 Pat 491.)
Case Law :- (1) It is the duty of the court ultimately to record its opinion as to wheather
the person in question is lunatic or of unsound mind and in doing so while the opinion of the
expects is to be given weight the court is not to give up its duty to decide . As it was held in
Rajinder Kaur v. Mangal Singh 1987
(2) In Lingaraj v. Parvathi (AIR1975) it was observed that the court must keep in view the
distinction between mere weakness of intellect on one hand and lunacy on the other.

35