CAPACITY

COURSE INSTRUCTOR
NISHTHA
Outline for the Module:

(1) Who is competent to contract?

(2) What is sound mind for the purposes of contracting?
(3) What are the consequences of a lack of capacity in contracting?
ICA provisions
Section 10 - What agreements are contracts:
All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object,
and are not hereby expressly declared to be void.

Section 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.
Note:
A minor is a person who has not attained the age of majority.
The Indian majority Act,1875 prescribes the age of majority as follows: Every
person domiciled in Indian attains majority on the completion of 18 years of
age.
However, there is an exception to the above provision. In case the guardian of
a minor’s person or property has been appointed by the Court, then the age of
majority is 21 years.
Mohori Bibee v Dharmodas Ghose (1903)

Judicial Committee of the Privy Council

Mortage deed is involved – Dharmodas Ghose, who was a minor mortgaged his
properties in favour of a money lender, Brahmo Dutt. In return, he received NATURE OF
part-payment for the same. MINOR’S
AGREEMENT
It is to be noted that while the deed was being executed, minor’s mother
had brought Dharmodas’ minority to the knowledge of the money lender
via a letter that was even acknowledged by the letter.
In the deed, DG was also made to sign a declaration that he has attained age of
majority.
Later on, she filed a suit for declaring the mortgage deed void.
Held: Reading of Section 10 and 11 of ICA – Minor’s contract is void.
Looking at these sections, their Lordships are satisfied that the Act makes it NATURE
OF
essential that all contracting parties should be "competent to contract," and MINOR’S
expressly provides that a person who by reason of infancy is incompetent to AGREEME
contract cannot make a contract within the meaning of the Act. This is clearly NT
borne out by later sections in the Act.

But declaring that a minor’s contract was void would have meant a return of any
benefit that any party may have got under the contract under section 65. The Privy
Council resisted this consequence by pointing out that voidness contemplated by RESTITUTION
section 65 presupposed the existence of a contract. But in a minor’s case, there
could never be such a contract in the first place, due to lack of capacity. It is now
common to refer to this idea with the phraseology of contracts void ab
initio.
DOCTRINE OF RESTITUTION

 S. 65: Obligation of person who has received advantage under void agreement, or
contract that becomes void: When an agreement is discovered to be void, or when a
contract becomes void, any person who has received any advantage under such
agreement or contract is bound to restore it, or to make compensation for it to the
person from whom he received it.
Eg: A pays B 1,000 rupees in consideration of B’s promising to marry C, A’s daughter. C is
dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees.
While the Court also looked at Section 41 of the Specific Relief Act, 1877 –

On adjudging the cancellation of an instrument, the Court may require the party to whom such
relief is granted to make any compensation to the other, which justice may require.

However, here the Court did not use its discretionary power – as the loan was advanced to him
while being fully aware that he is a minor.
Hence, in the present case, Dharmodas Ghose cannot be forced back to pay the amount that
was paid to him.

The last issue at hand was : Estoppel

The argument by Brahmo Dutt was that Dharmodas Ghose, is estopped by Section 115 of the
Indian Evidence Act from setting up that he was an infant when he executed the mortgage.

The section is as follows: "Estoppel. When one person has by his declaration act or omission
APPLICATION
intentionally caused or permitted another person to believe a thing to be true, and to act upon
OF ESTOPPEL
such belief, neither he nor his representative shall be allowed in any suit or proceeding between
himself and such person or his representative to deny the truth of that thing."

Court held: With respect to the argument around the plea of estoppel, the Court held that it is
not applicable in the case because here Brahmo Dutt already knew about the fact of minority.
The Court also observed that the authorities have established that if the minor, while
making a contract, makes a misrepresentation that he has attained the age of majority,
the concept of estoppel would not be applicable to him so as to estop (bar or preclude)
him from denying that he is a major.
DOCTRINE OF RESTITUTION
Three main principles for this doctrine are as follows:

Where the minor is the defendant :

1. In case the minor has obtained the property or goods by way of misrepresenting his age, then
he can be compelled to restore it but only to the extent as long as it is traceable in his
possession.

2. If the minor has gone ahead and sold the goods or converted them, then he cannot be
compelled to repay the value of the goods. While it would be doing justice to the other party -
it would amount to enforcing an agreement with a minor, which is not authorised by law!

3. The doctrine does not apply where the minor has obtained cash.

NOTE: However, in case it is the minor who is the plaintiff, then the Court may grant such relief.
But this is subject to the condition that the minor restores and makes adequate compensation in
respect of all the benefits obtained by him.
Tyler is 16 years of age. He pretended to be a major and bought a
portable CD player from a shop on credit. Having got the possession of
the CD player, he refused to pay the money for the CD player. His claim
is that he is a minor and thus, the contract is not enforceable against him.
Would the shop owner be successful in his claim? Would it make a
difference if he has sold the CD player?
Mohiri Bibi v. Dharmodas Ghosh (1903) 30 I.A. 114 (P.C), most recently
confirmed in Supreme Court of India in Mathai Mathai v. Joseph Mary
(2015).

Mathai Mathai v. Joseph Mary

 Mortgage deed executed by the uncle of the Appellant and the first
Respondent in favour of the deceased mother of the Appellant as
collateral security towards the dowry amount.
 At the time of execution and registration of the document, it is an
undisputed fact that the age of the mortgagee, the deceased mother
of the Appellant was 15 years as mentioned in the mortgage deed
itself. Therefore, she had not attained the majority under the Indian
Majority Act, 1875.
 A strong reliance was placed upon it by both the Land Tribunal and the
Appellate Authority in allowing the claim application of the Appellant holding
that he is a deemed tenant Under Section 4A of the K.L.R. Act without
noticing the aforesaid relevant factual aspect of the matter.

 Therefore, we have to hold that the mortgage deed-Ex. A1 executed by the

uncle of the Appellant and the first Respondent, in favour of the deceased
mother of the Appellant, is not a valid mortgage deed in respect of the
property covered in the said document for the reason that the deceased
mother at the time of execution and registration of the document was a
minor, aged 15 years, and she was not represented by her natural guardian to
constitute the document as valid as she has not attained majority according to
law.

 Many courts have held that a minor can be a mortgagee as it is transfer of

property in the interest of the minor.
 We feel that this is an erroneous application of the law keeping in mind the
decision of the Privy Council in Mohori Bibee's case.

 As per the Indian Contract Act, 1872 it is clearly stated that for an agreement to
become a contract, the parties must be competent to contract, wherein age of
majority is a condition for competency.

 A deed of mortgage is a contract and we cannot hold that a mortgage in the name of
a minor is valid, simply because it is in the interests of the minor unless she is
represented by her natural guardian or guardian appointed by the court.

 The law cannot be read differently for a minor who is a mortgagor and a minor who
is a mortgagee as there are rights and liabilities in respect of the immovable property
would flow out of such a contract on both of them. Therefore, this Court has to
hold that the mortgage deed is void ab initio in law and the appellant cannot
claim any rights under it.
 On the one hand, Indian courts were bound by the law laid down by POST
the Privy Council in Mohori Bibee|On the other hand, Mohori Bibee MOHIRI
was in practice, felt to lead to obviously harsh and unreasonable BIBI
DILEMMA
consequences.
 Faced with this dilemma, Indian courts began devising pathways
around Mohori Bibee that allowed them to ignore the decision in
some scenarios without challenging it explicitly.
 But there were serious limitations to the strategy of finding pathways
around the decision in an ad hoc and piecemeal fashion without
challenging its fundamental basis— which also sometimes entailed
logic chopping and tenuous interpretations of statutory provisions.
 Little wonder then that the Supreme Court of India in Mathai Mathai
had little trouble dismissing the most ambitious of these manoeuvres
as incompatible with the fundamental basis posited by Mohori Bibee
 PATHWAYS
AROUND
I. Restriction in Mohori Bibee did not come into play where all that was THE
being enforced was the obligation of the other party. CRITICISM

Raghava Chariar v. Srinivasa

The minor had advanced money against the security of a mortgage.
The challenge to the mortgage deed on the grounds of minority of the
lender was turned down by the court.
According to the court, provided the minor had fulfilled their
obligations under the contract, there was nothing that precluded them
from enforcing obligations due from another party.
Even though the minor could not be the ‘promisor’, the argument went, there was
nothing in the Act that precluded him from being the ‘promisee’.

Ayyangar J reasoned that the Act did not preclude a minor from being a ‘promisee’; the
requirement of competence applied only to the ‘promisor’.

The decision in Mohori Bibee was therefore limited to situations where the contract was
being enforced against a minor.

The minors according to this strategy would still be under no obligation to

perform their contracts, but they could enforce the contract against the other upon
having performed their end of the bargain.’
Criticism of this approach:
Contracts where the consideration on behalf of the minor was only part-performed or partly-
executed. Such contracts were deemed to not create any rights in favour of the minor because the
liability of the minor under the contract remained.
Bombay High Court decision in Raj Rani v. Prem Adib (1949) (contract of personal service case)
The contractual obligation on the film producer to pay a minor for the work done by her as an actor
was held to be not enforceable because the consideration for the bargain was not entirely executed on
the minor’s side.
In India, contract of personal service does not stand on the same footing as the contract of
apprentice or a contract of marriage of a minor.
The contract of apprenticeship entered into by the guardian is protected by the Apprentices Act (XIX
of 1850) provided the case falls within the terms of that Act, but no such exception is made in the
case of contracts of service.
The mere fact that the contract is for the benefit of the minor does not entitle the minor to sue on the
contract.
Service contracts with minors are void and unenforceable despite being beneficial to the minor,
whether entered by the guardian or minors themselves
A guardian cannot contract ‘on behalf ’ of a minor due to the law of agency
The High Court of Bombay treated the guardian as a minor’s agent and under the ICA, a minor was
incapable of employing an agent
II. Restriction in Mohori Bibee did not come into play where
a contract entered into by a guardian on the minor’s behalf is
binding provided it is in the interest of the minor

This second pathway around Mohori Bibee was borrowed from Hindu
and Muslim personal law which traditionally allowed guardians to act on
behalf of minors provided the actions of the guardian were for the
benefit of the minor or undertaken out of necessity.

Case Law: Rose Fernandes v. Joseph Gonsalves (1924) 48 ILR Bom

673

(Bombay High Court) (where breach of an agreement to marry by the

defendant of an agreement he entered into with the plaintiff ’s father was
held to be actionable).
POINTS TO REMEMBER:

A contract of guarantee in favour of a minor is valid. But he cannot be

a surety, as surety is the person who ultimately becomes liable, while a
minor can never be made personally liable.

Similarly, with respect to a Contract of agency, a minor cannot become

a principal but there is no bar on minor being an agent.

Can a minor ratify a contract upon attaining the age of majority?

The general rule in this regard is that that minor cannot ratify the
contract once he attains the age of majority – as the contract was void
to begin with!
CONTRACTS FOR SUPPLIES OF NECCESSARIES
ICA
Section 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.
 Arrangement for Necessaries
 India considers ‘contracts’ for goods and services supplied to minors
for necessaries as quasi-contractual arrangements where the advantage
received is restored from the minor’s property and no personal liability accrues.
 ‘Necessaries’ have not been defined under the ICA
 India has adopted the common law understanding of necessaries
which broadly means any goods or services suited to maintain the
minor’s status, degree, and station of life.
 Nash vs Inman
Inman was an undergraduate in the Cambridge University was
amply supplied with proper clothes according to his position by
the plaintiff.
The plaintiff supplied him with a number of dresses, including
eleven fancy waistcoats. Tailor filed an action against Inman for
reimbursement.
Inman pleads infancy at the date of the sale, and his plea is
proved.
In Nash v. Inman (1908) 2 KB, per Buckley L J;
The test of necessity is two-fold –
a) The contract should be for goods reasonably necessary for his support in his
station in life. whether the goods are necessaries or not it is difficult to draw the
line between law and fact. As regards the position in life of the boy you must
have evidence, and it may be that you cannot even determine whether the article
from its innate quality is capable of coming under the head of necessaries until
you know what his station in life is. Therefore to enable the judge to determine as
a question of law whether the goods are such as are capable of being in law
necessaries some evidence is required.
b) He should not have sufficient supply of these necessaries. Whether the
defendant was already adequately supplied or not was a question of fact and was
for the jury.
Necessaries means goods or services suitable to the condition in life of minor,
or any other person incapable of forming contract for himself, and as to his
actual requirements at the time of sale and delivery.
UNSOUND MIND

Section 12. (ICA) : 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