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Whether I Can Enter into Contract Or Not?

Capacity to contract means who can enter into contract. Section 10 give us brief description about what agreements are contracts in which competency to enter into contract is also discussed. Parties which enter into contract must have capacity to do so.

Who is competent?
Section 11 tell us 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

It means all persons are competent to contract except:
  1. Minor
  2. Unsound mind
  3. Person disqualified by any law to which they subject.

A minor is a person who has not attained the age of majority and he can't enter into contract. Age of Majority is 18 years as Indian Majority Act 1875 and if the guardian is appointed it become 21 as per the Guardians & Wards Act 1890. Motive behind creating this was to protect the minor from being cheated or deceived as he was innocent and fragile. Court provides for special clock of protection to minor.

Though we know minor is not competent but nature of agreement is not defined anywhere whether it is void, voidable. It is 'Mohri Bibi vs Dharmodas Ghosh' which ended this confusion and stated that Minor agreement is void ab initio.

In this case a minor misrepresenting his age mortgage his house and able to get a loan and of which he almost takes half the payment. When the lender came to know of this and demanded money back minor went to court and filed a case stating that he was underage when he executed the mortgage and the same should, therefore, be cancelled. Lender first rely on section 64 of Indian contract but it was held that it applied to voidable contract so it can't apply here.

He then takes help of section 65 which provides that if contract is void then any benefit which a person get has to restore it but he again failed as it can't be applied to minor. Lender lastly takes help of section 41 of specific Relief act (section 33 now) on which court said though it gives discretion to the court but it will be injustice to minor. Therefore, lender failed to get the money and court held that contract with minor is void ab initio and so mortgage deed is also void.

There are some implications as to Minor agreement like:
  • No estoppel against minor:
    There can be no estoppel against the minor. Estoppel is defined under section 115 of Evidence act. It means if a person takes some stand then he can't go back but this doesn't imply to minor as he can't be stopped from pleading minority even if he misrepresented his age.
  • No liability in tort or contract:
    As minor is liable under tort it doesn't mean you can sue him there. If for contract minor will be held liable in tort, then all effort to save minor will be ruined. This can be seen from Johnson vs Pye . In this case minor obtain loan by misrepresenting his age. Lender bought action in tort for deceit. It was held that minor was not held liable and case dismissed as originally case belongs to contract and not for tort.
  • Doctrine of restitution:
    it means that if a minor obtains goods by misrepresenting his stage then he can be compelled to restore it as long as good are traceable in his hands. If he already used them, sold or converted them then it can't be restored. It is based upon the principle of law of equity.

    Leslie vs shiell
    In this case and infant succeeded to get 400 from the lenders by by telling them a lie. Unable to recover money on the principle of restitution because it was held that Restitution stops where repayment begins it led to the conclusion of the principle that the Restoration can be applied on in case of goods and can't be applied in case of cash because cash can't be traced.

    Khan Gul vs Lakha Singh
    In this case the defendant by fraudulently concealing his age contracted to sell a plot of land to the plaintiff and receive consideration but refused to pay for the property. Justice Shadilal held that the principle of Leslie vs shield can't be applied in India because it does not cover the cases of the money and he made the minor liable in this case. On the basis of his view Law commission of India in its 9th report introduce section 33 of the specific relief act which provides for the principle of doctrine of unjust enrichment.

    Ajhudia Prasad vs Chandan Lal
    In this case sum of money was taken by two minors against mortgage deed. They were of more than 18 but less than 21 but fraudulently concealed fact of being guardian appointed. Now the question was that whether lender would be able to get money but it was held that Restitution is still applicable so lender could not get the money.
  • Beneficial contract:
    A minor is allowed to enforce a contract which is beneficial to him because the law introduced this provision to protect the minor not to restrict him.

    Raghava chariar vs Srinivasa
    In this case a mortgage was executed in favor of a minor who advance whole of the mortgage money. The contract is enforceable as law does not want to deprive minor of benefits.
  • Ratification:
    Contract with a minor can't be ratified even after his attaining majority. A new contract with a fresh consideration has to be formed.
    Thus, these are some of the effects of minor agreement.

Unsound Mind:
The term Sound Mind been defined in the section 12 of the Indian contract act which says that A person is of sound mind when at the time of making contract able to understand the term & conditions and to form a rational judgement as to affect upon his interest.
  • A person can enter into a contract even when he is suffering from chronic unsoundness of a mind but at that time if he was of sound mind similarly when the person is of usually sound mind but occasionally of unsound mind he can enter into a contract at that time when he was of sound mind.
  • Mostly in this case's court presumes a person to be of sound mind so the burden is on the person to prove that at that time he was of unsound mind and was unable to understand the contents and to form rational judgement.
  • Unsoundness of mind can be due to any reason like it can be due to lunacy, drunkenness, any disease also. For example: If a person is suffering from a fever or a highly ill disease that he is unable to understand the fact of the case then he will be considered as a person of unsound mind at that time.
  • Agreement with a person of unsound person can't be ratified at any stage.
  • In India the contract with an unsound person is void where as in case of English law it is voidable as one has to prove that he is incapable of understanding the contract and the other party also knew the it, then the contract is voidable at his option.

Inder Singh vs Parmeshwardhari Dayal
In this case a person sold his property of Rs.25000 for Just Rs. 1000. His mother proved that he was a congenital idiot and used to wander around the street. Thus the contract was set aside and held to be void.

Person disqualified by law:
There are some categories of person which are disqualified by law. Means they don't have legal contract Person disqualified by law: There are some categories of person which are disqualified by law. Means they don't have legal contractual capacity.
  • Alien enemy:
    Contract with alien enemy are not allowed specially at the time of war. But if one is already in contract with such a person before relation become countries then in that case either contract will be suspended till good relation or will be dissolved.
  • Insolvent person:
    An insolvent can enter into contract only related to his person(body) but other than he can enter into any type of contract as he has nothing left with him after being declared bankrupt.
  • Convict:
    A person in prison can't enter into contract till the time of sentence. His capacity to enter into contract is suspended Except he has license or ticket of leave.
  • Corporation:
    If a company does something Outside its Memorandum of association and against companies act then all such agreement will be considered as void.
Hence these are some of categories of persons whose capacity to contract is restricted in one way or other for their as well as for society betterment. Written By Khushi Jain - First year student at Bharati Vidyapeeth New law college, Pune

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