Who are Competent to Contract | Civil Law for Judiciary Exams PDF Download

Competency to Contract

• Definition: Competency to contract refers to the legal capacity that individuals must possess to enter into a valid contract.
• Criteria for Competency
  • Age of Majority: As per Section 11 of the Indian Contract Act, any individual who has reached 18 years of age is considered competent to contract.
  • Soundness of Mind: Section 12 states that a person of sound mind is eligible to enter into a contract. Those who are mentally incapacitated at the time of contracting are not deemed competent.
  • Not Disqualified by Law: According to Section 11, individuals not disqualified by law can engage in contracts.

Agreement with a Minor

Definition: An agreement involving a minor, as defined by Section 3 of the Indian Majority Act, 1875.

Who is a Minor?

• Legal Definition: A minor is an individual under 18 years of age, unless a court-appointed guardian oversees their affairs, in which case they remain a minor until 21 years.
• Competency to contract is crucial as it ensures that parties involved possess the necessary legal capacity to enter into a contract. This helps prevent agreements from being void or unenforceable due to incapacity issues.

Examples:

• Age of Majority: Sarah, who just turned 18, is now legally capable of entering into contracts.
• Soundness of Mind: John, who suffers from a mental illness that impairs his judgment, may not be considered competent to contract.
• Disqualification by Law: Individuals declared bankrupt by law may be disqualified from entering into certain types of contracts.

When it comes to agreements involving minors, special considerations apply. It's essential to understand the legal implications of engaging in contracts with individuals under the age of majority.

Illustrative Case:

• Minor's Contract: An 17-year-old student purchases a smartphone online. The seller later discovers the buyer's age and seeks legal advice on the validity of the contract.
• Court Intervention: In cases where a guardian oversees the minor's affairs, such as managing their inheritance, the minor's status as a legal minor may extend beyond the age of 18.

Nature of Agreement with Minor

• Section 10 and 11 do not explicitly clarify if agreements made by minors are voidable at their discretion or entirely void, sparking a debate on the nature of a minor's agreement.
• The resolution to this debate came through the Privy Council ruling in the case of Mohiri Bibi v. Dharmodas Ghosh.
• In the case of Mohiri Bibi v. Dharmodas Ghosh, the Privy Council decreed that a minor's agreement is completely null and void from its inception.
• According to the ruling, a minor lacks the capacity to contract or provide any form of consideration in such agreements.

Overview of Mohiri Bibi v. Dharmodas Ghosh Case

• The court's ruling in the Mohiri Bibi v. Dharmodas Ghosh case can be succinctly summarized as follows:
• When a minor enters into an agreement, it is considered void from the beginning. This means that the contract is null and void, as minors are not legally capable of entering into a contract or providing consideration.
• The court did not delve into the application of the doctrine of estoppel concerning minors. It clarified that estoppel would not be applicable in this particular case because the plaintiff was aware of the minor's legal incapacity due to their age.
• Section 64, which pertains to voidable contracts, is not relevant in this scenario since the minor's agreement is void ab initio. Similarly, Section 65, dealing with subsequent voidness or agreements found to be void, does not apply because minors lack the capacity to contract.
• According to Section 41 of the Specific Relief Act, the court has the authority to award compensation if deemed just. However, in this instance, the court decided against ordering compensation because the plaintiff was fully aware of the minor's legal status.

The Effect of a Minor's Agreement

a. No Estoppel Against a Minor:

• Estoppel does not apply to minors, who can use their age as a defense to avoid liability in agreements. Even if a minor falsely claims to be of legal age during the agreement, the agreement is void from the beginning, which is more important than estoppel.
• Estoppel cannot be invoked when both parties are aware of the true facts. Therefore, misleading a person who knows the truth does not remove the minor's protection under infancy.

b. No Liability in Contract or Tort Arising out of Contract:

• In general, a minor cannot be sued in tort based on a contract. If the tort is closely related to the contract and is part of the same transaction, the minor is not liable.
• However, if the tort is separate from the contract, just involving a contract does not release the minor from liability.
• For instance, in cases like Burnard v. Haggis and Ballet v. Mingay, minors were found liable for torts related to contracts. On the contrary, in Jennings v. Rundall, the minor was not liable as the claim was essentially contractual, not tortious.

Doctrine of Restitution

• The Specific Relief Act of 1877 was amended to introduce Section 33, which revolves around the concept of compensation.
• When a minor initiates legal action to invalidate a document, the court may, at its discretion, require the minor to compensate for any benefits received.
• If a minor, acting as a defendant, opposes the enforcement of a document on the grounds of minority, the court may ask the minor to return any benefits received under the document to the other party.

Section 33 - Restoring Benefits or Making Compensation:

• When a court annuls a document:
  • The party receiving relief may be obligated to return any benefits obtained from the opposing party and provide compensation as deemed just by the court.
• If a defendant successfully defends a lawsuit:
  • If the document is voidable and the defendant has gained benefits from it, the court can demand the defendant to return the benefits or compensate for them.
  • If the agreement is void due to the defendant's incapacity to contract under Section 11 of the Indian Contract Act, 1872, and the defendant has acquired benefits from the agreement, the court may instruct the defendant to return the benefits to the extent of their gain.

Contracts that Benefit Minors

1. Contract of Service and Apprenticeship:

• In England, minors are legally bound by contracts for service or apprenticeship, as these agreements are deemed beneficial for their livelihood. However, in India, only contracts for apprenticeship are enforceable under the Indian Apprenticeship Act, 1960, while contracts for service are not binding on minors.
• For instance, in the case of Raj Pani v. Prem Adib, a film producer had agreed to cast a minor plaintiff as an actress in a film through a contract made with her father. However, the producer later replaced her with another artist and terminated the contract with the plaintiff's father. The Bombay High Court ruled that neither the plaintiff nor her father could sue on the agreement.
• If the contract was with the minor plaintiff, it was considered null and void due to her status as a minor. If the contract was with her father, it was void because there was no consideration. The promise of a minor girl to provide services cannot constitute consideration for the producer's promise to pay her a salary, as it is unenforceable against her.

2. Contract of Marriage:

• A minor has the legal right to enforce a contract of marriage against the other party involved in the agreement. However, the contract cannot be enforced against the minor themselves. This is because a contract of marriage is deemed to be beneficial to the minor, and thus the minor is afforded the ability to enforce it.

3. Minor and Partnership:

• According to Section 4 of the Indian Partnership Act, 1932, all parties entering into a partnership agreement must possess the capacity to contract. Since minors lack the legal capacity to contract, they cannot be parties to a partnership agreement.
• Additionally, a minor cannot ratify a contract made during their minority once they reach the age of majority. This is because ratification pertains to the date of the contract's formation, and a contract that was void at that time cannot be validated through subsequent ratification unless fresh consideration is provided.
• However, if consideration was given for the contract during the minority, and either fresh consideration or the remainder of the consideration is furnished after attaining majority, a promise to pay both can bind the minor upon reaching majority. This principle was established in the case of Kundan Bibi v. Shri Narayan.
• In the case of Suraj Narayan v. Sukhu Ahir, ILR (1928) 51 All 164, a minor borrowed a sum of money and executed a simple bond for it. After attaining majority, the minor executed a second bond for the original loan amount plus interest. The court majority held that the suit based on the second bond was not maintainable because the second bond lacked consideration and did not fall under Section 25(2) of the Indian Contract Act.

Minor's Liability for Necessaries [Section 68]

• According to Section 68 of the Indian Contract Act, individuals who supply necessaries to a minor can seek reimbursement because it is considered a quasi-contractual obligation.
• Reimbursement is permissible under the following conditions:
  • The goods supplied must be necessary for the minor's station in life.
  • The minor must not already possess an adequate supply of these necessities.
• The term 'necessaries' is not explicitly defined in the Indian Contract Act. Judicial interpretations, such as in Chappell v Cooper, suggest that necessaries are items crucial for an individual's existence like food, clothes, shelter, education, and training.
• For a minor's estate to be held liable for necessaries:
  • The goods must be reasonably essential for the minor's support given their social standing.
  • The minor should lack a sufficient supply of these essential items.
• Debates exist regarding the nature of liability for necessaries provided to a minor or their dependents. Some argue it is quasi-contractual as it is not dependent on the minor's consent but on the supply of necessaries.
• In the Indian context, the liability for necessaries rests on the minor's estate, not the minor, suggesting a minimal contractual aspect.

Contractual Liability of Persons of Unsound Mind in India

• Definition of Sound Mind: A person is considered to be of sound mind in India if they are capable of understanding and forming a rational judgment about the contract's impact on their interests at the time of entering into it.
• Contractual Capacity: If a person is usually of unsound mind, they can enter into a contract during periods of soundness. Conversely, if someone is typically of sound mind, they cannot make a contract when they are of unsound mind.
• Key Considerations: The crucial factor is the individual's ability to assess that entering into the contract serves their interests at the time of agreement.

Section 12 of the Indian Contract Act

• Legal Provision: Section 12 of the Indian Contract Act defines a person of sound mind as someone capable of understanding the contract and making a rational judgment about its implications on their interests at the time of contract formation.
• Illustrations: Examples provided under Section 12:
  • A patient in a mental institution, experiencing intervals of sound mind, can enter into contracts during those lucid periods.
  • A mentally healthy individual who is temporarily incapacitated due to factors like fever or intoxication cannot form a contract during such periods of incapacity.
• Legal PrecedentsInterpretations of Section 12 in court cases: In the case of Rajinder Kaur v. Mangal Singh, the court is responsible for determining whether an individual is of unsound mind, giving weight to expert opinions but also making an independent judgment.In the case of Lingaraj v. Parvathi, the court must differentiate between intellectual weakness and actual lunacy when assessing a person's mental capacity.

Persons Disqualified by Law

A person who is not disqualified by law is competent to contract according to Section 11.

Alien Enemy

• An alien enemy, as defined in the Indian Contract Act, is a citizen of a country at war with India. Contracts with alien enemies during wartime are considered void.
• An Indian citizen residing in an enemy country is also treated as an alien enemy under contract law.
• Contracts made before the war may get dissolved if against public policy or remain suspended, reviving after the war ends, unless barred by limitation.
• Illustration: If a citizen of country X orders goods from a citizen of country Y, and war breaks out between the two countries before the goods reach Y, the contract becomes void.

Convicts

• A convict serving a sentence cannot enter into a contract until their sentence is completed.
• Upon completion of their sentence, convicts regain the capacity to enter into contracts.
• Illustration: If a convict signs a contract while in jail, it is considered void.

Insolvent

• An insolvent, declared bankrupt or subject to insolvency proceedings, cannot enter into contracts regarding their assets.
• As they lack control over their assets, contracts involving their property are invalid.
• Illustration: If A enters a contract to sell goods to B, and insolvency proceedings are initiated against A before the sale, the contract is void.

Foreign Sovereign

• Diplomats and ambassadors from foreign countries have contractual immunity in India.
• They cannot be sued in Indian courts without submitting to their jurisdiction and obtaining central government sanction.
• Foreign sovereigns can enforce contracts against third parties in Indian courts.

Conclusion

• Competency to contract is a vital concept in contract law as outlined in the Indian Contract Act, 1872. It determines whether parties have the legal capacity to enter into a contract.
• According to the Act, a person must be of the age of majority, of sound mind, and not disqualified by law to be competent to contract. For example, a minor, a person of unsound mind, or a person barred by law cannot enter into a contract.
• Understanding the competency of parties is crucial to ensure that the contract is legally binding and enforceable. Contracts entered into by parties lacking competency may be void or voidable.
• For instance, if a minor enters into a contract to buy a car, the contract is void as minors lack the capacity to contract. However, certain contracts with minors, such as for necessities, may be valid.