Capacity to Contract - Who cannot make a Contract, Minor in Law of Contract | Indian Contract Act, 1872

Capacity refers to the competence of the parties to enter into a contract. It is one of the essential requirements of a valid contract. Section 10 of the Indian Contract Act, 1872 provides that an agreement becomes a contract only when it is made by parties competent to contract.

Section 11 lays down who is 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.”

Thus, a person is competent to contract when he:

1. has attained the age of majority;
2. is of sound mind; and
3. is not disqualified from contracting by any law.

The Act therefore recognises three categories of persons who may lack contractual capacity, viz., minors, persons of unsound mind and persons disqualified by law.

Minor and His Agreement

Under the Indian Majority Act, 1875, a person ordinarily attains majority on completing 18 years of age. Therefore, a person who has not completed 18 years is a minor for the purpose of contracting.

The law gives special protection to minors because their mental faculties are not considered sufficiently mature to understand the legal consequences of contractual obligations. Consequently, a minor cannot be made personally liable merely because he has entered into an agreement.

Minor’s Agreement is Void Ab Initio

The leading case on this point is Mohori Bibee v. Dharmodas Ghose (1903). The Privy Council held that an agreement entered into by a minor is void ab initio, i.e. void from the very beginning. It is not merely voidable at the option of the minor.

In this case, Dharmodas Ghose, a minor, executed a mortgage of his property in favour of a money-lender for securing a loan. The money-lender’s agent had knowledge of his minority. The Privy Council held that the mortgage was void and the minor could not be made liable under it. The decision established that a minor is incapable of entering into a binding contract.

The important consequence is that a minor’s agreement cannot ordinarily be enforced against the minor, and there can be no specific performance of such an agreement against him.

No Ratification after Attaining Majority

A minor cannot ratify an agreement made during his minority after attaining majority. Ratification relates back to the date of the original agreement, and since the original agreement was void, it cannot subsequently be ratified.

If the person wishes to undertake the obligation after attaining majority, he must enter into a fresh contract supported by fresh consideration.

• For example, if A borrows money during minority and, after attaining majority, merely confirms his earlier promise to repay it, such confirmation does not amount to ratification of the original agreement. However, if a fresh consideration is provided after majority and a new agreement is entered into, the new agreement may be enforceable.

This principle was considered in Suraj Narain v. Sukhu Aheer (1928).

Minor Can Be a Beneficiary

Although a minor cannot be made liable under a contract, the law does not prevent him from receiving a benefit under a contract. A minor may therefore be a promisee or beneficiary.

Thus, where a promissory note is executed in favour of a minor, he may enforce the benefit conferred upon him. Similarly, where a mortgage is executed in favour of a minor and the consideration required from him has already been completely provided, he may sue for enforcement of the mortgage.

The principle was recognised in Raghava Chariar v. Srinivasa (1917). The court observed that there is nothing in the Contract Act which prevents a minor from being a promisee. The incapacity of a minor is essentially an incapacity to bind himself by contractual obligations, and not an incapacity to receive contractual benefits.

However, where the contract is still executory and the minor is required to perform an obligation or provide consideration in the future, he cannot enforce it merely by describing it as a beneficial contract.

Beneficial Contracts of a Minor

A contract made by a guardian on behalf of a minor may be enforceable when it is within the guardian’s authority and is clearly for the benefit of the minor. The minor can enforce such a contract, and in appropriate circumstances the contract may also be enforced against the minor.

For example, a guardian may enter into a contract relating to the education, training or other legitimate interests of the minor, provided the guardian has the necessary authority.

A minor may also:

• enforce a contract where he has already supplied the whole consideration required from him;
• sue on a promissory note executed in his favour;
• recover insurance money payable in respect of property insured on his behalf;
• purchase immovable property and sue for possession after tendering the purchase money;
• enforce a contract made by his guardian for his benefit, where the guardian had authority to enter into it;
• enter into a marriage arrangement which is recognised as beneficial, subject to the applicable law; and
• be admitted to the benefits of partnership under Section 30 of the Indian Partnership Act, 1932, although he cannot become a full partner.

Raj Rani v. Prem Adib

The distinction between a beneficial contract and an executory contract was clearly illustrated in Raj Rani v. Prem Adib (1949).

The father of Raj Rani, who was a minor, entered into an agreement with a film producer under which Raj Rani was to work as a film actress for payment of a salary. She was not given any work and sued for breach of the agreement.

The Bombay High Court held that she could not enforce the agreement. If the agreement was treated as a contract with Raj Rani, it was void because she was a minor. If it was treated as a contract with her father, it lacked consideration because the promise of the minor to provide personal services could not constitute enforceable consideration.

The case shows that a minor cannot enforce an executory contract merely because the contract appears beneficial to him. The distinction is particularly important in contracts of personal service.

No Estoppel against a Minor

A minor is not prevented from pleading his minority even if he falsely represented himself to be a major while entering into the agreement.

The doctrine of estoppel cannot be used to make a minor liable under an agreement which the law declares void. Thus, even where a minor has fraudulently misrepresented his age, he may generally plead minority as a defence. This principle was recognised in Khan Gul v. Lakha Singh (1928) and Sadiq Ali Khan v. Jai Kishore (1928).

The reason is that the protective provisions relating to minors cannot be defeated by applying a general rule of evidence such as estoppel.

Liability for Necessaries

Section 68 of the Indian Contract Act deals with the supply of necessaries to a person incapable of contracting. Where a minor is supplied with necessaries suited to his condition in life, the supplier is entitled to reimbursement from the property of the minor. The minor is not personally liable.

Necessaries include things reasonably required for the minor’s support according to his social and economic position, such as food, clothing, lodging, education and other essential requirements. Luxuries and unnecessary articles do not ordinarily fall within this category.

Two conditions are important:

1. The goods or services must be reasonably necessary for the minor’s condition in life.
2. The minor must not already have a sufficient supply of such necessities.

Thus, the liability is against the minor’s estate and not against the minor personally.

Contract by Guardian

A minor’s guardian may enter into a contract on behalf of the minor where the guardian has the necessary authority and the contract is for the benefit of the minor.

However, a guardian does not have unlimited power to bind the minor. A contract entered into without proper authority or one which is not for the minor’s benefit will not automatically become binding upon the minor.

Where a competent guardian enters into a contract for the minor’s benefit, the minor may enforce the contract. Such a principle was recognised in S. Subrahmanyam v. K.S. Rao (1949).

No Specific Performance of Minor’s Agreement

Since a minor’s own agreement is void, there is ordinarily no question of enforcing it by specific performance. A court cannot compel a minor to perform a contractual obligation which he was legally incapable of undertaking.

The position is different where a valid contract has been entered into by a competent guardian on behalf of the minor and for the minor’s benefit.

Restitution

The question of restitution arises when a minor has received some benefit under a transaction which is subsequently treated as void.

The earlier law was discussed in Mohori Bibee v. Dharmodas Ghose, where the Privy Council refused to make the minor personally repay the money received under the void mortgage. Sections 64 and 65 of the Contract Act could not be applied in the ordinary manner because those provisions presuppose a contract between competent parties.

The position is now governed in part by Section 33 of the Specific Relief Act, 1963. Where a defendant successfully resists enforcement of an agreement on the ground that he was incompetent to contract under Section 11, the court may require restoration of the benefit received, to the extent to which the minor or his estate has benefited thereby.

Thus, restitution is not the same as enforcing the minor’s contract. Its purpose is to restore the benefit actually received, subject to the statutory conditions.

The important cases in this connection include Khan Gul v. Lakha Singh, Ajudhia Prasad v. Chandan Lal and Gokeda v. Bhimayya.

Minor and Torts

A minor may be liable for a tort, i.e. a civil wrong, when the tort is independent of the contract. However, a minor cannot be made liable in tort where the alleged tortious liability is merely an indirect method of enforcing a contractual obligation.

• For example, in Burnard v. Haggis (1863), a minor who borrowed a horse for riding and then lent it to another person, who jumped the horse and killed it, was held liable because the wrongful act was independent of the contractual obligation.

On the other hand, where the claim in tort is merely a disguised claim arising from the contract, the minor will not be made liable.

Other Important Rules Regarding Minors

• A minor cannot ordinarily enter into a binding contract of personal service in India. This was illustrated by Raj Rani v. Prem Adib. A contract of apprenticeship, however, is treated differently where the law recognises it as beneficial to the minor.
• A minor cannot become a partner in a partnership firm because partnership is based upon contract. However, under Section 30 of the Indian Partnership Act, 1932, a minor may be admitted to the benefits of partnership with the consent of all the partners.
• A minor can act as an agent, but he is not personally liable to the principal for acts done as an agent. The principal, however, may be bound by the acts of the minor agent according to the ordinary rules of agency.
• A minor cannot ordinarily bind his parents or guardian merely because he has entered into an agreement. Parents become liable only where the minor was acting as their authorised agent.
• Where a minor and an adult jointly enter into a contract, the minor is not personally liable, while the adult may be held liable according to the terms of the contract. This principle was recognised in Jamna Bai v. Vasanta Rao (1916).
• A minor cannot ordinarily be declared insolvent because he is incapable of contracting debts in the ordinary sense.
• Where an adult stand as surety for a minor, the surety may be liable to the third party according to the terms of the guarantee, since the surety’s obligation arises from his own contract of guarantee.
• A minor may also hold fully paid-up shares in certain circumstances, such as through transfer or transmission acting through a lawful guardian, subject to company law requirements.

Conclusion

The position of a minor under the law of contract may therefore be stated as follows, “a minor cannot bind himself by a contract, but he can receive and enforce a benefit.” His agreement is void ab initio, he cannot ratify it on attaining majority, and he cannot ordinarily be made liable through estoppel or through an indirect contractual claim in tort. At the same time, the law protects legitimate benefits received by the minor and permits recovery from his property for necessaries supplied to him.

The central principle established by Mohori Bibee v. Dharmodas Ghose continues to be that contractual incapacity protects the minor from being burdened with contractual obligations, while it does not prevent the minor from enjoying rights or benefits conferred upon him by law.