Capacity to Contract: Minors and Persons of Unsound Mind - Prof. Capacity of parties, Assignments of Law

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CAPACITY TO CONTRACT

CAPACITY TO CONTRACT

S. 10 requires that the parties shall be competent to contract.

S. 11. Who are competent to contract .- 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.

Persons incompetent to contract

• Minor
• Persons of unsound mind

Mohoribibi v. Dharmadas Ghose

FACTS : dt. a minor mortgaged his properties in favour of pt., a money lender to secure the loan of Rs. 20,000/-, after some money was advanced pt. came to know about infancy of the dt. He filed a suit to repudiate the contract and recover the money advanced

HELD: Minor’s agreement is void ab initio

REASON : “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. General presumption that every man the best judge of his own interests is suspended in the case of children.”

Ruling is generally followed in India and applied both to the advantage and disadvantage of minor.

Mir Sarwanjan v. Fakhruddin Mohd. Choudhury

FACTS: A contract to purchase certain immovable property by a guardian on behalf of minor – minor sued for specific performance.

Rejected

it was not within the competence o f the minor or his manager bind the minor in contract for purchase of immovable property ; as the minor was not bound by contract there was no mutuality and consequently minor could not obtain SP”

Subramanyam v. Subbarao

FACTS: contract by mother of minor on his behalf for the purpose of discharge of father’s debts

Overruled earlier decisions and ruled that it is within the power of the minor to contract for debts of his father.

Necessity to relax the application of rule in the best interest of minor only.

3. Doctrine of equitable restitution - when an infant obtained property or goods by misrepresenting his age, he can be compelled to restore it, but only so long as the same is traceable in his possession. If the minor has resold those goods he cannot be made to repay the value of goods and it is not applicable when the minor has received money instead of goods.

Leslie v. Sheill - dt. A minor misrepresenting his age

obtained loan from the pt., who sued to recover on the grounds-

 Minor is liable for damages for fraud

 Minor shall be compelled in equity to restore the money.

Leslie v. Sheill

HELD

Lord Sumner – “When an infant obtained an

advantage by falsely stating his age, equity requires

him to restore ill-gotten gains but scrupulously short

of enforcing a contractual obligation entered in to

while he was an infant even by means of fraud. The

money was paid over in order to be used as dt’s own

and he has so used it. There is no question of tracing

it, no possibility of restoring the very same thing got

by fraud. Compulsion to repay an equivalent sum out

of his present and future resources would amount to

enforcing a void contract.”

Khangul v. Lakhasingh

• REASONS: Shadilal CJ., “There is no real difference between restoring the property and refunding money except that property can be identified but cash cannot be traced. It must be remembered that while in India all contracts made by infants are void, there is no such general rule in England. Therefore, there should be a greater scope in India than in England for the application of the doctrine of equitable restitution.”
• Later courts deviated from the rule and preferred Lord Sumner’s opinion.

S. 33. Specific Relief Act

Where a defendant successfully resists any suit on

the ground 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.

6. No Ratification

• A person cannot on attaining majority ratify an

agreement made by him during his minority.

Ratification relates back to the date of making the

contract and therefore a contract which was then

void cannot be made valid by subsequent

ratification.

• Eg. Executing promissory note on attaining

majority. – fresh consideration may make it valid

• no recovery of amount paid under such

agreement.

7. Liability for Necessaries

68.Claim for necessaries supplied to person incapable of contracting, or on his account.

If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by another, person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.

Illustrations

(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B's property.

(b) 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.

Indian Law

• Agreement of a person of unsound mind, like that of a minor, is absolutely void

S. 12 What is a sound mind for the purposes of contracting.-

A person is said to be of sound mind for the purpose of making a contract if,

• at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.
• A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

ILLUSTRATIONS

(a) A patient in a lunatic asylum, who is at

intervals of sound mind, may contract during

those intervals.

(b) A sane man, who is delirious from fever or who

is so drunk that he cannot understand the terms of

a contract or form a rational judgment as to its

effect on his interests, cannot contract whilst such

delirium or drunkenness lasts.