Who are Competent to Contract - Judiciary Exams PDF Download

Contract Law Summary

Every individual has the legal capacity to enter into a contract if they meet certain criteria. This includes reaching the age of majority as defined by the law, possessing a sound mind, and not being disqualified from contracting by any relevant laws. These conditions ensure that contracts are valid and enforceable.

Who Can Enter into a Contract?

• Every person who has reached the age of majority: Anyone who is 18 years old or above is considered competent to enter into a contract.
• Individuals of sound mind: Only those who are mentally capable are deemed competent for contracting. If a person is not of sound mind at the time of contracting, they lack the capacity to enter into a contract.
• Individuals not disqualified by law: Any person not disqualified by law is competent to contract, as per Section 11.

Dealing with Minors in Agreements

Who Qualifies as a Minor?

As per the Indian Majority Act of 1875, a minor is defined as an individual below 18 years of age. However, if a court-appointed guardian oversees a person's affairs, that individual remains a minor until they reach 21 years of age.

Nature of Agreement with Minor

• Section 10 and 11 do not explicitly clarify whether an agreement made by a minor is voidable at their choice or entirely void.
• A significant dispute arose regarding the nature of a minor's agreement, which was settled through the Privy Council ruling in the case of Mohiri Bibi v. Dharmodas Ghosh.
• The Privy Council, in the mentioned case, established that a minor's agreement is entirely null and void from its inception.
• According to this ruling, a minor lacks the capacity to enter into a contract or provide any form of consideration.

Understanding Mohiri Bibi v. Dharmodas Ghosh Case

• The court's ruling in Mohiri Bibi v. Dharmodas Ghosh case highlights that a minor's agreement is considered void ab initio, indicating it is invalid from the beginning as minors lack the capacity to form a contract or provide consideration.
• In this scenario, the court did not delve into the application of estoppel against minors. It clarified that estoppel would not be relevant since the plaintiff was aware of the minor's legal incapacity.
• Section 64, which pertains to voidable contracts, does not apply here as the minor's agreement is void ab initio. Similarly, Section 65, dealing with subsequent voidness or discovered void agreements, is irrelevant since minors cannot legally engage in contracts.
• According to Section 41 of the Specific Relief Act, the court has the authority to grant compensation based on the principles of justice. However, in this instance, no compensation was awarded as the plaintiff was cognizant of the minor's status.

The Impact of a Minor's Contractual Agreement

• No Estoppel Protection for Minors:
  • Estoppel, a legal principle, does not hold against minors. A minor can use their age as a defense to invalidate an agreement, even if they misrepresented their age as being of majority. The fundamental concept that a minor's agreement is void from the beginning takes precedence over estoppel.
  • Estoppel cannot apply when both parties are aware of the truth. Therefore, if a minor lies to someone who knows the truth, that lie does not constitute fraud that negates the protection of minority.
• No Contractual or Tort Liability Stemming from Contracts:
  • Typically, a contract cannot be transformed into a tort to enable legal action against a minor. If a tort is closely linked to the contract and is part of the same transaction, the minor is not liable in tort. However, if the tort is unrelated to the contract, the minor remains accountable despite the contractual involvement.
  • For instance, in the case of Burnard v. Haggis, a minor was held responsible when a mare borrowed for riding was killed by a friend. Similarly, in Ballet v. Mingay, a minor was liable for detinue for not returning hired instruments. Conversely, in Jennings v. Rundall, a minor was not accountable for a horse's injury during an extended journey as the issue was contractual, not tortious.

Doctrine of Restitution

• Overview:
  • Section 33 of the Specific Relief Act, 1877 deals with the principle of compensation under the doctrine of restitution.
• When a Minor Brings a Suit:
  • If a minor initiates a suit to cancel a legal document, the Court has the authority to request the minor to compensate for any benefits received.
• When a Minor is a Defendant:
  • If a minor, acting as a defendant, opposes the enforcement of a document due to their minority, the Court can demand the minor to return the benefits obtained under the document to the other party.
• Section 33 Details:
  • After canceling an instrument, the Court may ask the party receiving relief to return any benefits received and provide compensation as deemed just.
  • If a defendant successfully defends a suit:
    • If the instrument is voidable and the defendant benefited from it, they may be required to return the benefit or compensate for it.
    • If the agreement is void due to the defendant's incompetence to contract, and the defendant has benefited, they may need to return the benefit.

• Contracts that are Beneficial to the Minor
  • Contract of Service and Apprenticeship
    • In the context of England, a minor is obligated by any contract for service or apprenticeship, as these agreements assist them in earning a livelihood.
    • In India, only a contract for apprenticeship is legally binding under the Indian Apprenticeship Act, 1960, while a contract for service is not enforceable on a minor.
    • Example: In the case of Raj Pani v. Prem Adib, a minor girl was promised a role in a film, but the contract was deemed unenforceable as she was a minor and her promise to serve did not provide valid consideration.
  • Contract of Marriage
    • A minor can uphold a contract of marriage against the other party involved, but the contract cannot be enforced against the minor due to its beneficial nature.
  • Minor and Partnership
    • As per Section 4 of the Indian Partnership Act, 1932, all parties entering a partnership agreement must possess contracting capacity. Since minors lack this capacity, they cannot be part of a partnership agreement.
    • Example: In the case of Suraj Narayan v. Sukhu Ahir, a minor borrowed money and later, as a major, executed a second bond without fresh consideration. The court ruled that the second bond was invalid due to lack of consideration as per the Indian Contract Act.

Understanding Minor's Liability for Necessaries

• Reimbursement to the supplier of necessaries to a minor is allowed under quasi-contractual obligations.
• Conditions for reimbursement:
  • Necessaries must be supplied to a minor or their dependants.
  • Reimbursement is permitted from the minor's estate.
• Necessaries are goods essential for the minor's station in life, ensuring they lack an adequate supply.
• Definition of 'necessaries' from judicial perspective:
  • Includes food, clothing, shelter, education, and other essentials based on the minor's circumstances.
• Two conditions for a minor's estate to be liable for necessaries:
  • Goods must be necessary for the minor's support.
  • Minor should not possess a sufficient supply of these necessities.
• Debate on the nature of liability:
  • The liability is quasi-contractual, arising from the supply of necessaries rather than the minor's consent.
• Indian perspective:
  • Liability rests on the minor's estate, emphasizing a limited contractual aspect.

Persons of Unsound Mind

• Section 12 of the Indian Contract Act (ICA) addresses the contractual liability of individuals of unsound mind, including those who are intoxicated.
• A person is deemed to be of sound mind if they can comprehend and make a rational judgment about the contract's impact on their interests at the time of entering into it.
• If someone is generally of unsound mind, they can engage in a contract when they are of sound mind. Conversely, if they are typically of sound mind, they cannot contract when they are of unsound mind.
• The key criterion is whether the individual was capable of deciding that entering into the contract was in their best interest at the time of making the agreement.
• The Section states that a person is considered of sound mind for contracting if, during the agreement, they can understand it and form a rational judgment regarding its effects on their interests.
• Illustrations provided:
  • (a) A patient in a mental institution, experiencing intervals of sound mind, can enter into contracts during those lucid intervals.
  • (b) A sane individual, delirious due to fever or too intoxicated to comprehend the contract terms or make a rational judgment about its effects on their interests, cannot contract while in such a state.
• In the case of Inder Singh v. Parmeshwar Dhari Singh, it was clarified that this interpretation governs the provisions concerning individuals of unsound mind.
• Two case laws have interpreted Section 12:
  • In Rajinder Kaur v. Mangal Singh, the court's responsibility is to determine if a person is lunatic or of unsound mind. While expert opinions are considered, the final decision lies with the court.
  • In Lingaraj v. Parvathi, it was emphasized that the court must differentiate between mere intellectual weakness and lunacy.

Persons Disqualified by Law

• Alien Enemy:
  • An alien enemy, as defined by the Indian Contract Act, is a citizen of a country at war with India. Contracts with alien enemies during war are void. If an Indian citizen resides in the enemy's territory, they are also considered an alien enemy in contract law.
  • Illustration: If a citizen of country X orders goods from a citizen of country Y, but war is declared before delivery, the contract becomes void.
• Convicts:
  • Convicts are unable to enter into contracts while serving their sentences. However, they regain this ability after completing their sentences.
  • Illustration: If a person is serving a jail term, any contracts they enter into during this time are invalid.
• Insolvent:
  • An insolvent, declared bankrupt or facing insolvency proceedings, lacks the authority to engage in contracts regarding their assets.
  • Illustration: If an insolvency case is ongoing against a person, any sales contract they make involving their assets is void.
• Foreign Sovereign:
  • Diplomats and foreign ambassadors have contractual immunity in India, generally not subject to Indian court jurisdiction unless they agree to it. Central government sanction is often required. However, they can enforce contracts against others in Indian courts.

Summary: Competency to Contract under the Indian Contract Act, 1872

• Definition of Competency to Contract: Competency to contract is a crucial element in contract law, as outlined in the Indian Contract Act, 1872. It pertains to the ability of individuals to enter into a legally binding contract.
• Requirements for Competency:
  • Age of Majority: Individuals must have reached the age of majority, which is typically 18 years old, to be considered competent to contract.
  • Sound Mind: It is essential that the parties entering into a contract are of sound mind, meaning they are mentally capable of understanding the terms and implications of the agreement.
  • Not Disqualified by Law: Individuals who are not disqualified by law, due to reasons such as bankruptcy or mental incapacity, are deemed competent to contract.
• Importance of Understanding Competency: Understanding the competency of the parties involved in a contract is vital to ensure that the contract is legally valid and enforceable.

Examples to Illustrate Competency to Contract:

• Example 1: An individual who is 17 years old wishes to purchase a car. In this case, they would not be considered competent to enter into a contract for the purchase due to not having reached the age of majority.
• Example 2: If a person suffering from a mental illness enters into a complex financial agreement without understanding its terms, the contract may be voidable on the grounds of lack of a sound mind.

Conclusion:

• Competency to contract is a fundamental concept in contract law, governed by the Indian Contract Act, 1872.
• It ensures that parties entering into contracts meet specific criteria such as age of majority, sound mind, and absence of disqualifications by law.
• Understanding the competency of contracting parties is essential for the validity and enforceability of contracts.