Introduction

A contract is an exchange of promises between two or more parties to do, or refrain from doing, an act which is enforceable in a court of law. It is a binding legal agreement. That is to say, a contract is an exchange of promises for the breach of which the law will provide a remedy.

Section 10 of the Contract Act requires that the parties must be competent to contract. Competence to contract is defined in Section 11 as:

‘ Every person is competent to contract who is of the age of majority according to laws 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 following persons are said to be incompetent to contract:

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

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MINORITY

The age of majority in India is governed by the Indian Majority Act of 1875. By section 3 of the Act, every person domiciled in India shall be deemed to have attained his majority when he shall have completed his age of eighteen years and not before. In the case of a minor of whose person or property or both a guardian has been appointed by a court, or of whose property the superintendence is assumed by a Court of Wards, before the minor has attained the age of eighteen years, the Act provides that the age of majority shall be deemed to have been attained on the minor completing the age of twenty one years. A guardian may be appointed under the Guardian and Wards Act, 1890.

Effect of Minority.

The contract Act does not expressly state whether a contract made by a minor is void or voidable. By section 11 a minor is not competent to contract. Yet there might be two possibilities. It may be completely void or on the other hand it may be enforceable against the other contracting party but not against the minor. In such cases, therefore, the contract is voidable. In early cases, following the rules of English law, it was held that a minor’s contract was voidable and could become valid by ratification on attainment of majority.

In 1903 the Privy Council considered the position in Mohori Bibi v. Dharmadas Ghose (1903, 30 Cal. 539, P.C)

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Mohori Bibi v. Dharmadas Ghose. 1

The plaintiff, a minor for whom a guardian had been appointed under the Guardian and Wards Act, had executed at the age of twenty, a mortgage for a sum of Rs 20,000 out of which the moneylender had paid him only about Rs.8000. The defendant had sufficient notice of the plaintiff’s minority. A suit was instituted by the minor for setting aside the mortgage. It was contended by the defendant that a contract was only voidable and the sum borrowed must be refunded under section 65 of the Contract Act. According to section 65:

‘When a contract becomes void any person who has received any advantage under such contract, is bound to restore it, or make compensation for it. ’

The Privy Council rejected the argument and held that the minor’s contract was ab initio void and no question of refunding any money could arise in such circumstances.

By the decision of the Privy Council in Mohori Bibi’s case it is finally settled that a minor’s agreement in India is absolutely void.

Raj Rani vs. Prem Adib.2

The plaintiff is minor who 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

1 Mohori Bibi v. Dharmadas Ghose (30 IA 114: 30 Cal (1903)).2 Raj Rani vs. Prem Adib (A.I.R 1949 Bom. 215)

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defendant subsequently allotted that role to another artiste and terminated the contract with the plaintiff’s father.

The Bombay High Court held that neither she nor her father could file the suit on the promise. It was a contract with the plaintiff, and she being a minor Therefore, 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.

It was held that there being absence of the consideration contemplated by the parties, there was no contract between the plaintiff’s father and the defendant which was enforceable at law, and there is no breach of contract in respect of which the plaintiff’s father or the plaintiff can sue for damages.

Arumugham v. Dara Singh.3

In this case, a promissory note was given by a person on attaining majority as renewal of another promissory note given by him during his minority in consideration of money then borrowed. It was held that as the consideration for the promissory note is only the note executed during minority, the fresh promissory note was unenforceable.

Mir Sarwajan vs. Fakhruddin Mohd Chowdhury.4

Minor, by the power of his guardian or manager purchased an immovable property. Neither the guardian of a minor nor his manager is competent to bind the minor or his estate by a contract for the purchase of immovable property. The minor sued the other party for a decree of specific performance to recover possession. A 3 Arumugham v. Dara Singh ( 1914, 37 M. 38)4 Mir Sarwajan vs. Fakhruddin Mohd Chowdhury ( 1912 39 Cal. 232 PC)

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contract to purchase certain immovable property by a guardian on behalf of the minor was made. His action was rejected.

It was held that it was not within the competence either of the manager of the minor’s estate or of the guardian of the minor’s estate to bind the minor or the minor’s estate by a contract for the purchase of immovable property. The minor was not bound by the contract, there was no mutuality, and thus the minor could not obtain specific performance of the contract.

Subramanyam vs. Subba Rao.5

Mother of a minor acted as guardian to enter into a contract of sale for the purpose of discharging his father’s debts.

Orissa High Court held that endowment of property for religions purposes by guardian on behalf of minor, being within their competence was specifically enforceable. If the contract is within the competence of the guardian and it is for the benefit of the minor, it is specifically enforceable.

1. NO ESTOPPEL AGAINST MINOR:

In Mohori Bibi v. Dharmadas Ghose, it was contended that the minor was estoppel by section 115 of the Evidence Act, from pleading infancy because he had fraudulently overstated his age. There can be no estoppel where the truth of the matter is known to both parties and their Lordships hold, in accordance with English authorities, that a false, representation, made to a person who knows it to be false, is not such a fraud as to take away the privilege of infancy. In spite of these observations there was the conflict of opinions regarding the

5 Subramanyam vs. Subba Rao ( AIR 1948 PC 25)

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application of estoppel to a minor’s contract. It has finally been settled by the Privy Council in Sadik Ali Khan v. Jai Kishore. It was held that a contract entered into by a minor is a complete nullity b the statutory provision contained in the Contract Act. There cannot be any estoppel against a statute.

2. NECESSARIES:

By section 68 of the Contract Act a person supplying necessaries to a minor is entitled to be reimbursed from the property of the minor. The Section reads:

‘ If a person incapable of entering into a contract or anyone 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. ’

A minor is a person incapable of contracting within the meaning of that section.

Under English law, the liability is not contractual but it is based on a quasi-contract to pay a reasonable price for necessary goods supplied. In India, the liability arises by virtue of this statutory provision and it is necessary to inquire into the basis. There is a further distinction. Under the English law, liability is personal, whereas in India the minor’s property alone can be made liable for necessaries.

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Nash vs. Inman.6

An undergraduate at Trinity College, Cambridge was held not liable to pay for clothing including 11 fancy waistcoats. The father of the minor gave evidence that he was supplied with sufficient clothes. Thus the burden of proof came to be upon the plaintiff to prove that the minor was not adequately supplied and that he was in need of the necessaries. The basis of the liability to pay a reasonable price for necessaries can be said to be quasi-contractual nature. Under Contract Act the situation was covered by section 68.

3. SPECIFIC PERFORMANCE:

A minor’s agreement being void, no question of specific performance arises. If a contract is entered into by a guardian for and on behalf of the minor, it may be specifically enforced by or against the minor provided it is within the competence of the guardian and for the benefit of the minor.

4. RESTITUTION:

By common law, contracts of minors were treated as voidable. When the minor chose to avoid the contract the transaction would be invalidated and the other contracting party would have no remedy. The infant could not be made liable even for torts connected with contracts. In order to mitigate the rigour of the rule, equity provided the doctrine of restitution. The basis of the rule is that infants are no more entitled than adults to gain benefits to themselves by fraud. By the doctrine of restitution the infant will be ordered to restore non-necessary goods to the person

6 Nash vs. Inman ( 1908, 2 K.B. I)

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whom he has defrauded provided the goods are still in the possession of the infant. However, restitution is subject to important limitations.

When the infant obtains goods by fraud and remains in possession of them restitution is possible and permissible. When the infant has parted with the possession restitution becomes impossible. If the infant has obtained a loan of money which he has borrowed by fraud and subsequently spent, restitution becomes impossible. In the words of Lord Summer in Leslie v. Sheill, ‘Restitution stops where repayment begins. ’

Leslie Ltd vs. Sheill.7

The infant defendant induced the claimant moneylenders to lend him four hundred pounds by fraudulently misrepresenting that he was an adult. When they discovered the true position, the claimants sought to recover their advances. Their claim was brought on the ground that the money had been obtained by means of the defendants fraudulent misrepresentation and in the alternative for money had and received by the defendant to the use of the claimants. The claimants failed in their attempt to recover the four hundred pounds. The court of appeal held that the defendants minority provided him with a good defence to the claims brought. Lord Sumner said: ‘There is no fiduciary relation , the money was paid over in order to be used as the defendant's own and he has so used it and, I suppose, spent it. There is no question of tracing it, no possibility of restoring the very thing got by fraud, nothing but compulsion through a personal judgment to pay an equivalent sum out of his present or future resources, in a word nothing but a judgment in debt to repay the loan. I think this would be nothing but enforcing a void contract. So far as I can find, the Court of Chancery never would have enforced any liability under circumstances like the present, any more than a Court of law would have done so,

7 Leslie Ltd vs. Sheill ( 1914, 3 K.B. 607)

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and I think that no ground can be found for the present judgment, which would be an answer to the Infants' Relief Act.

Khan Gul vs. Lakha Singh.8

The defendant while still a minor by fraudulently concealing his age contracted to sell a plot of land to the plaintiff. He received the consideration of Rs 17,500 and refused to perform his part of the bargain. The plaintiff prayed for recovery of possession or refund of the consideration.

It was held that the doctrine of restitution rests upon the salutary principle that an infant cannot be allowed by a court of equity to take advantage of his own fraud. The order was passed for the refund of consideration.

5. RATIFICATION

A person cannot on attaining majority ratify an agreement made by him during his minority. Relates back to the date of making of the contract and therefore a contract which was then void cannot be made valid by subsequent ratification. It would be a contradiction to say a void contract can be ratified.

If necessary, a fresh contract should be made on attaining majority. A new contract will require fresh consideration.

8 Khan Gul vs. Lakha Singh ( ILR 1928 9 Lah 701: AIR 1928 Lah 609)

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Suraj Narain vs. Sukhu Ahir.9

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 that the second bond was not maintainable as that bond was without consideration and did not come under section 25/2 of the Indian Contract Act, which applies that where there is a promise to compensate wholly or in part a person who has already voluntarily done something for the promisor.

MENTAL INCAPACITY

INSANITY

In order to be competent to contract a person must be of sound mind. A person of unsound mind is one who is suffering from temporary or permanent mental derangement. What is a sound mind for the purpose of contracting is provided in for section 12 of the Contract Act. According to section 12:

9 Suraj Narain vs. Sukhu Ahir ( ILR (1928) 51 All 164)

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‘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.’

On the analogy of the rule in Mohori Bibi’s case an agreement by a lunatic intervals or an insane person is void under Indian law. But during lucid intervals such a person can enter into valid contracts. Section 68 regarding supply of necessaries is applicable to lunatics also.

It is said that a person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. Thus, a patient in a lunatic system, who is at intervals of sound mind, may contract during those intervals.

A person who is usually of sound mind, but occasionally of unsound mind may not make a contract when he is of unsound mind. A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests cannot contract whilst such delirium or drunkenness lasts.

In England, the contract of a lunatic is binding upon him unless it can be shown that at the time of making the contract he was wholly incapable of understanding what he was doing and that the other party knew of condition. Usually such conditions are said to be voidable. It has also been held that a contract made by a person who has been found of unsound mind by inquisition is absolutely void.

Individuals may have an inherent physical condition which prevents them from achieving the normal levels of performance expected from persons of comparable age, or their ability to match current levels of performance may be caused by contracting an illness. Whatever the cause, if the resulting condition is such that

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individuals cannot care for themselves, or may act in ways that are against their interests, those persons are vulnerable through dependency and deserve the protection of the state against the risks of abuse or exploitation. Hence, any agreements that were made are voidable, and a court may declare that person a ward of the state and grant power of attorney to an appointed legal guardian.

This sort of problem sometimes arises when people suffer some form of medical problem such as unconsciousness, coma, extensive paralysis, or delirious states, from accidents or illnesses such as strokes, or often when older people become afflicted with some form of medical/mental disability such as Huntington's disease, Alzheimer's disease, Lewy body disease, or similar dementia. Such persons are often unable to consent to medical treatment and otherwise handle their financial and other personal matters. If the afflicted person has prepared documents beforehand about what to do in such cases, often in a revocable living trust or related documents, then the named legal guardian may be able to take over their financial and other affairs. If the afflicted person owns his/her property jointly with a spouse or other able person, the able person may be able to take over many of the routine financial affairs. Otherwise, it is often necessary to petition a court, such as a probate court, that the afflicted person lacks legal capacity and allow a legal guardian to take over their financial and personal affairs. Procedures and court review have been established, dependent on the area of jurisdiction, to prevent exploitation of the incapacitated person by the guardian. The guardian periodically provides a financial accounting for court review.

In the Criminal Law, the traditional common law M'Naghten Rules excused all persons from liability if they did not understand what they were doing or, if they did, that they did not know it was wrong. The consequences of this excuse were that those accused were detained indefinitely or until the medical authorities certified that it was safe to release them back into the community.

Imperial Loan Company Limited vs. Stone.10

10 Imperial Loan Company Limited vs. Stone ( 1892 1 QB 599 )

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Where a defendant in an action of contract sets up the defence that he was insane when the contract was made, he must, in order to succeed in this defence show that at the time of contract his insanity was known to the plaintiff. The action was brought on a promissory note which the defendant, who had since the making of the note been found by inquisition to be a lunatic, signed as surety. The statement of defence alleged that the defendant when he signed the note was so insane as to be incapable of understanding what he was doing, and it was further added that the insanity was known to the plaintiffs.

The jury found that the defendant was so insane that he could not know what he was signing, but could not prove whether the plaintiff’s knew of it.

It was held that a defendant who seeks to avoid a contract on the grounds of his insanity, must plead and prove, not merely his incapacity, but also the plaintiff’s knowledge of that fact, and unless he proves these two things he cannot succeed. Applying that in the present case, it is apparent that the verdict entered for the defendant cannot stand, but that there must be a new trial.

DRUNKENNESS

The interpretation given to section 11 of the contract Act with regard to agreement entered into by minors and lunatics is applicable to an agreement by a drunken person. Therefore, a drunken man’s agreement is void.

In English law a drunken person’s contract is voidable. Therefore if property is transferred as the result of the contract by a drunken person and subsequently it

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passes to a bona fide purchaser for value, the innocent purchaser would acquire the valid title. This is shown in the case, Mathews v. Baxter.

Mathews v Baxter.11

In this case, the defendant, while drunk, agreed at an auction sale to purchase from the plaintiff certain horses and land. Afterwards, when sober, he affirmed the contract, and then repeated of his bargain. When sued on the contract he pleaded that he was drunk at the time he made it and to the plaintiff’s knowledge. It was held that the contract was only voidable and that he was liable as he ratified such a contract.

BANKRUPTCY

If individuals find themselves in a situation where they can no longer pay their debts, they lose their status as creditworthy and become bankrupt. States differ on the means whereby their outstanding liabilities can be treated as discharged and on the precise extent of the limits that are placed on their capacities during this time but, after discharge, they are returned to full capacity. In the United States, some states have spendthrift laws under which an irresponsible spender may be deemed to lack capacity to enter into contracts (in Europe, these are termed prodigality laws) and both sets of laws may be denied extraterritorial effect under public policy as imposing a potentially penal status on the individuals affected.

11 Mathews v Baxter ( 1873, L.R. 8 Ex 132)

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OTHER INCAPACITIES:

Political Status

During times of peace, one can enter into contracts with alien, or subjects of foreign countries. In times of war one cannot enter into a contract with an alien enemy unless he is residing in this country and has obtained permission to carry on trade. Declaration of war is a warning to all civil subjects not to carry on trade with the country at war. The test of a person being an alien enemy is not his nationality but the place in which he resides or carries on business. When war is declared between two countries the performance of obligations already created will be suspended. If the period is fairly long, the contract will become void on the grounds of impossibility of performance.

Mighell vs. Sultan of Johore.12

The Sultan of Johore, a foreign sovereign residing in England as a private person, made a promise of marriage to a young woman. She sought to sue him for breach of the promise.

It was held that, the foreign sovereign is entitled to immunity from civil proceedings in the Courts of any other country, unless upon being sued he actively elects to waive his privilege and to submit to the jurisdiction. Here, the defendant 12 Mighell vs. Sultan of Johore (1894, 1 Q.B. 149)

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has not done that, but just the contrary. For these reasons, the defendant a foreign sovereign is entitled to be treated as free from liability to be sued in this country and that he has done nothing to waive that right, and thus the appeal failed and must be dismissed.

Legal Limitations

The doctrine of ultra vires, the doctrine ordains that a statutory corporation can exercise only those powers which are expressly or impliedly conferred by the statute itself. In the case of a registered company under the Companies Act, it is required to have a memorandum of association and also articles of association. The memorandum is the charter which defines the statutory creature by starting the objects of its existence, the scope of its operations and extent of its powers. A company can only pursue those objects set out in the memorandum and can do only those acts which are conducive and incidental to the fulfillment of such objects. Everything else is ultra vires and void.

Very important reforms have been effected in the doctrine of ultra vires by new provisions of the Companies Act 1989 by introducing the new sections 35,35A and 35B. In short, the effect of the new provisions will be to make the rule of ultra vires a rule relating to the internal management of the company. Third parties are fully protected. In the case of directors going beyond the powers granted by the memorandum, a share holder could restrain them by injunction.

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Bibliography

I got all my information from the following sources:

Law of Contracts Contract and Specific Relief All India Records English Records Wikipedia Google Books

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