Other Essential Elements of a Valid Contract

Capacity of Parties and Agreements by Minor

Before going through this lesson, let us read the meanings of the difficult words that we will come across in this lesson.



Introduction
We have already learnt about the essential elements of a valid contract. We know that all agreements are contracts if they are made by free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are hereby not expressly declared void. In this lesson, we will focus on the meaning of parties competent to contract. Also we will learn about the persons who all can enter into an agreement.

Meaning of Capacity to Contract

Look at this picture!

Do you think these children in the picture can enter into the contract of sale of PlayStation 3 that belongs to Karan?

Obviously not!

But why?

It is because the capacity to contract is missing. Capacity is the competence (i.e. legal competence/ability) of the parties to enter into a contract. Section 10 of the Indian Contract Act, 1872 provides that the parties must be competent to contract in order to form a valid contract.

As per Section 11 of the Indian Contract Act, 1872, “Every person is competent to contract who is of the age of majority according to law to which he is subject, and is of sound mind and is not disqualified from contracting by any law to which he is subject.”

This definition points the presence of three important conditions with regards to competence of the parties in order to form a valid contract:

• Validity: An agreement by or with a minor is void ab-initio. In other words, an agreement with a minor is invalid right from its initiation/inception and is inoperative as against the minor.

Example: Suppose a minor A borrowed a sum of Rs 20,000 by mortgaging his property and executing a mortgage deed for Rs 50,000 with B. Later, B filed a suit for recovery of the amount due from A by sale of his property. However, it was held by the court that A, being a minor, cannot enter into a contract and consequently, the contract entered into by B with A is absolutely void. B, therefore, cannot recover the mortgage money and cannot even sell the property as per the deed. The same was decided in the leading case of Mohori Bibi (M) vs Dharmodas Ghose (D). D, a minor, borrowed a sum of money from M by mortgaging his property. Even in this case, the court held that the agreement entered into by D as a minor is void; therefore, the mortgage was not valid. Hence, M could not recover the money advanced to the minor D.

• Ratification on attaining the age of majority: Ratification implies subsequent adoption/acceptance of an agreement. We know that an an agreement with/by a minor is void ab-initio, i.e. it does not exist in the eyes of law. This means there cannot be any provision of ratification of such an agreement that does not exist. How can something be accepted later when it is not present previously?
So, as per the Indian Contract Act, 1872, an agreement with a minor cannot be ratified even after he attains majority because an agreement that was void earlier cannot be made valid by subsequent ratification.

Example: Suppose a minor (Chotu) borrowed a sum of Rs 10,000 by executing a promissory note in favour of Ram and then after attaining majority, he gave another promissory note in place of the first promissory note. Here, the second promissory note that has been issued after the attainment of majority stands void because it was issued without consideration. This is because the new promissory note that has been issued by Chotu after attaining majority has been issued in consideration of the first promissory note. However, as the first promissory note is void (due to involvement of a minor), the second promissory note will be treated as without consideration and hence void.
This was the decision of the Indian courts while deciding on the famous case of Suraj Narain vs Sukhu Ahir.

• Contract for the benefit of a minor: The contracts entered into by a minor are treated as void just to protect the interests of the minor. And accordingly, though a minor is incompetent to contract, but he/she can make the other party bound to contract if the contract is for the benefit of the minor and he/she has no obligations attached with it. In other words, contracts for the benefit of minors are valid.

Example: A promissory note executed in favour of a minor is considered to be valid as it is for the benefit of the minor and hence can be sued upon by him.
Similarly, although a minor cannot become a partner in a partnership firm, but with the consent of all the partners, he/she can be admitted to the benefits of the firm.

1. X (a minor), who is a person with a sound mind and is not disqualified from any law, can enter into a valid contract.

2. A contract with a minor is void ab-initio.

3. An agreement entered during minority cannot be ratified even after attaining the age of majority.

4. An agreement with a minor even for the benefit of minor is void.

1. False
Explanation: This statement is false as all the three conditions, i.e. the age of majority, presence of a sound mind and not being disqualified by law, must be present in order to validate a contract. Thus, X, who is a minor, cannot enter into a contract.

• No estoppel

Let us try to understand the concept of estoppel with the help of the following pictorial presentation.


As per the rule of estoppel, if a person, by declaration, act or omission, intentionally makes another person to believe a thing to be true and to act upon it, neither he nor his representatives are allowed, in any suit or proceeding between him and that person or his representative, to deny the truth of that thing. This means that Mr. X, who has represented himself as the owner of the mobile, cannot deny the fact later on that he is not the real owner of the same. However, this rule is not applicable to a minor. This means a minor can always plead his infancy to avoid the contract even when the minor had entered the agreement by falsely representing himself as a major.

However, in such cases, the court may direct the minor to restore the proceeds of the contract, if any, to the other party. The same was decided in the famous case of Khan Gul vs Lakha Singh.

Also, if the minor enters into a contract by fraudulently representing himself to be minor, obtains the funds from the other party and applies those in some wasteful expenditure or obtains some assets using those funds, then in such cases, either nothing can be recovered as all the funds have been wasted or the assets that have been purchased using such funds will be given to the person who entered into contract with such a minor.

1. When X has not taken anything under the contract from Y

2. When X takes Rs 5,000 from Y as per contract

Solution

1. X can escape from the contract by pleading his/her infancy.

2. In this case too X can escape from the contract and can plead his infancy to avoid the contract, but the court may direct him to restore the proceeds of the contract.

• Minor’s liability for necessaries: Necessaries are the things that are indispensable for the sustenance of human life. It implies the things/articles that are required for a person to maintain the same state of living as he is at present. In India, food, clothing, shelter and education are regarded as necessaries.
Section 68 of the Indian Contract Act, 1872 provides that “a person, incapable of entering into a contract, or any one whom such an incompetent person 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.”  In simple words, the person who supplies necessaries to the minor is entitled to reimbursement for the same from the property of the minor. However, two important points must be noted in this regard.

∘ The articles that are to be regarded as necessary vary from one individual to another depending on the prevailing status and circumstances of the particular minor.

∘ It is not the minor who is liable for the necessaries supplied, rather it is his/her property that is liable. Moreover, the parent or the guardian of the minor can also not be held liable unless the necessaries are supplied or rendered to the minor as an agent of the parent or the guardian.

• Contract entered by guardian: A contract entered into by the guardian or the manager of the estate of the minor on his/her behalf is binding on the minor and can be specifically enforced by or against the minor provided the contract is within the scope of the authority of the guardian or the manager and is for the benefit of the minor. But a guardian has no power to bind the minor by a contract for the purchase of immovable property and by a contract of service on his/her behalf and such contracts cannot be enforced by or against the minor.

1. A minor can be held personally liable for the necessaries supplied to him.

2. Parents or guardians can be held liable if the necessaries are supplied to the minor treating them to be agents.

3. A contract entered into by a guardian on behalf of a minor for the benefit of the minor is binding upon the minor.

1. False
Explanation: A minor cannot be held personally liable for the necessaries sup  plied to him; it is his property that is liable.

2. True
Explanation: If the necessaries are supplied to the minor treating him to be agent of parents or guardian, then thee parents/guardians can be held personally liable for this.

3. True
Explanation: A contract entered into on behalf of a minor by his/her guardian or the manager of his/her estate is binding on the minor and can be specifically enforced by or against the minor provided the contract is within the authority of the guardian or the manager an…