CONTRACT LAW – I

UNIT - II

Tanmay J. Patil
Assistant Professor of Law

KLE Society’s Law College, Bengaluru

© Contract Law – I, Unit – II, Tanmay J. Patil, Assistant Professor of Law, KLESLCB
 • Capacity to Contract:

• Minor ’s agreements and its ef fects

• Agreement of Persons of unsound mind

• Agreements of Persons disqualif ied by Law

• Consent:
Syllabus • Free Consent

• Coercion

• Undue Inf luence

• Misrepresentation

• Fraud

• Mistake
Capacity to Contract

• S. 10 requires that the parties shall be competent to

contract.
• S. 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
• who is of sound mind
• is not disqualif ied from contracting by any law to which he is subject
 • According to Indian Majority Act,
1875 -

Age of • a person attains majority on completion of

18 years of his age

Majority • when a guardian of a minor person or

property has been appointed by the court,
he attains majority on completion of 21
years of age
 • S. 10 mandates that the agreement
shall be between parties competent
to contract
Nature of • S. 11 indicates that the minor is

Minor’s incapable of entering into contract.

• But neither section provides as to

Agreement the effect of agreement entered
into by a minor.

• This led to a controversy

Mohoribibi v. Dharmadas Ghose
• d t . a m i n o r m o r t g a g e d h is p r o p e r t i e s i n f avo u r o f p t ., a m o n e y l e n d e r t o se cu r e
t h e l o a n o f R s. 2 0 , 00 0 / - , a f t e r s o m e m o n e y wa s a d va n c e d p t . c a m e t o kn o w
a b o u t i n f a n cy o f t h e d t . He f i l e d a su i t t o r e p u d i a t e t h e co n t ra c t a n d r e cove r t h e
m o n e y a d va n c ed

• H E L D : M i n o r n o t l i a b l e b e c a u se M i n o r ’s a g r e e m en t i s vo i d a b i n i t i o

• Re a s o n s -

• t he q ue sti on w he t he r a c o n tra c t i s voi d o r voi da bl e p re sup p o se s t he e xi ste n c e of a

c o n t ra ct wi t hin the me a ni n g o f t he A ct, a nd ca n n ot a ri se i n the ca se o f a n i n fa nt
( m i n o r) .

• G e n e ra l p r e s u m p ti o n tha t e ve r y m a n i s th e be st j udg e of hi s ow n i nte re st s i s s u s p e n d e d

i n t h e c a s e o f m i n o r.

• Ru l i n g i s g e n e ra l l y fo l l o w e d i n In d i a a n d a p p l i e d b o t h t o t h e a d va n t a g e a n d
d i s a d va n t a g e o f m i n o r.
 • Mir Sarwanjan v. Fakhruddin Mohd. Choudhury -
• A co ntra ct t o p u r ch a se ce r tain imm ova ble p r ope r ty by a
g u ar dian on b eh alf of min o r – mi no r s u ed f or s pe cif ic
p e r f o rm an ce .

• H e l d : Sp e ci f ic p e r f o r man ce Re j e cte d

• I t wa s not wi thi n the co mp ete n ce of the mino r or his

m an ag er t o bi nd the mino r in co ntra ct f or pu r ch a se of
imm ova ble p r ope r ty ; a s th e min or wa s n ot b oun d by

Case Laws co ntra ct the re wa s no

co u l d n o t o b ta i n SP”
m utuality a nd con s eq ue ntly min or

• Subramanyam v. Subbarao
• C o n tra ct b y m o th e r o f m i n o r o n h i s b e h a l f f o r the
p u r p o s e o f d i s ch a r g e o f f a th e r ’s d e b ts .

• H ELD : Ove rruli ng ea rlier d e ci sion s a nd r ule d th at it i s

wi thi n th e p ow e r of t he min o r t o co ntract fo r de bts of his
f a th e r.

• C o ur ts s ta r te d n oti cin g the ne ce s sity t o rel a x the

a p p l ication o f r u l e i n t h e b e s t i n te r es t o f m i n o r o n l y.
Effects of Minors Agreement

1. No estoppel against minor

2. No liability for tort based in contract

3. Doctrine of equitable restitution

4. Liability to restore benefits

5. Beneficial contracts are enforceable by minor

6. No Ratif ication

7. Liability for Necessaries

1. No estoppel against minor

• When a minor by misrepresenting his age induces another to

contract with him no estoppel is available against him.

• Policy of law is to protect minor from contractual liability.

• Doctrine of estoppel cannot be applied to defeat the policy.

• An infant is not estopped from setting up the defense of minority.

2. No liability for tort based in contract

• Minor ’s agreement is devoid of all consequences in law

• A contract cannot be converted into a tort to sue an infant.

• Minor is not liable for tort connected with contract

• But he is not absolved from liability for independent tort.

 3. Doctrine of equitable restitution

• When an infant obtained property or goods by misrepresenting his age, he can be compelled
t o r e s t o r e i t , b u t o n l y s o l o n g a s t h e s a m e i s t ra c e a b l e i n h i s p o s s e s s i o n .

• If the minor has resold those goods he cannot be made to repay the value of goods and it is
not applicable when the minor has received money instead of goods.

• L e s l i e v. S h e i l l - d t . A m i n o r m i s r e p r e s e n t i n g h i s a g e o b t a i n e d l o a n f r o m t h e p t ., w h o s u e d t o
r e c ov e r o n t h e grounds-

• Minor is liable for damages for fraud

• Minor shall be compelled in equity to restore the money.

• HELD: Lord Sumner – “When an infant obtained an advantage by falsely stating his age, equity requires him to
restore ill-gotten gains but scrupulously short of enforcing a contractual obligation entered in to while he was an
infant even by means of fraud. The money was paid over in order to be used as dt’s own and he has so used it.
There is no question of tracing it, no possibility of restoring the very same thing got by fraud. Compulsion to
repay an equivalent sum out of his present and future resources would amount to enforcing a void contract.”
4. Liability to restore benefits

• W h e r e a m i no r se e k s t h e h e l p o f c o ur t f o r t h e c a n c e l l a t i o n o f h i s c o n t ra c t , t h e
c o u r t m a y g ra n t t h e r e l ie f su b j e c t t o t h e c o n d i t i o n t h a t h e s h a l l r e st o r e a l l
b e n e f i t s o b t a i n e d b y h i m u n d e r t h e c o n t ra ct o r m a ke su i t a b l e co m p e n sa t i o n t o t h e
o t h e r p a r t y.

• K h a n g u l v. L a k h a s i ng h –
• dt. fraudulently concealing his age agreed to sell a plot of land, received Rs. 17,500/-, refused to
perform his promise – pt sued for possession or refund of consideration

• HELD: agreement was void - no possession – payment of consideration ordered

• R E A S O N S : S h a d i l a l C J ., “ T h e r e i s n o r e a l d i f f e r e n c e b e t w e e n r e s t o r i n g t h e p r o p e r t y a n d r e f u n d i n g
money except that property can be identified but cash cannot be traced. It must be remembered
that while in India all contracts made by infants are void, there is no such general rule in England.
Therefore, there should be a greater scope in India than in England for the application of the
d o c t r i n e o f e q u i t a b l e r e s t i t u t i o n .”

• Later courts deviated from the rule and preferred L o r d S u m n e r ’s o p i n i o n .

5. Beneficial contracts are enforceable by minor

• Law l a i d d ow n i n Mo har i b i b i h as been genera l ly fo l l owe d a n d gr ow in g l y

l i m i ted to ca ses w here m i n or is ch ar ge d w it h o b l i ga t i o ns a n d t he o ther
co n tra cti n g p a r t y s e ek s t o e n fo r ce t h o s e o bl i ga ti o n s a ga i n s t th e mi n o r.

• T he pr in ci p l e “ m i n or ’s ag reemen t is vo i d” mea ns law w i l l n o t en for ce a ny

co n t ra ct u a l o b l i g a t i on of a m i n or, i .e ., a m i no r is a l l owed t o e nfor ce a n
a greeme nt wh i ch i s o f s ome be ne f i t to h i m a n d un de r w h i ch he i s requ ired to
bear no obligation.

• E g . Mor tg a ge executed i n f avo ur o f m i n or, m i no r ’s s u it fo r re cover y of

p o ssess i o n of pr o per ty on s a le , en fo r ceme nt of pro m ise by t he o t her af ter
m i n o r p e r fo rm s h i s p r o m i s e .
6. No Ratification

• A person cannot on attaining majority ratify an agreement made

by him during his minority. Ratification relates back to the date of
making the contract and therefore a contract which was then void
cannot be made valid by subsequent ratif ication .

• Eg. Executing promissory note on attaining majority. – fresh

consideration may make it valid – no recovery of amount paid
under such agreement.
 7. Liability for Necessaries
• S 6 8 . Cl a i m f o r n e ce s s a r i e s su p p l i e d t o p e r so n i n c a p a b l e o f c o n t ra c t i n g , o r o n h i s
a c c o u nt .
• If a person, incapable of entering into a contract, or

• any one whom he is legally bound to support,

• i s s u p p l i e d b y a n o t h e r, p e r s o n

• 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.

• I l l u s t ra t i o n s -
• A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from
B ' s p r o p e r t y.

• A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is
e n t i t l e d t o b e r e i m b u r s e d f r o m B ' s p r o p e r t y.
 • English Law
• A person of unsound mind is competent to
contract but he can avoid it by satisfying the
court that –
• h e wa s i n ca p a ble o f u n d e r s ta ndin g th e co n tra ct a n d

Persons of • th e o th e r p a r ty k n e w i t

• Contract is voidable at his option and

Unsound becomes binding if he aff irms it.
• Position of the drunken person is the same.

Mind • Campbell v. Hooper –

• M or tg ag ee s ou g ht a d e cr ee fo r re paym en t of d ebt –
e vide n ce showe d mo r t ga go r wa s l unati c w hen
co n tra cted – m o r tg a gee wa s u n a wa r e o f i t

• H ELD : “m er e f a ct of l u nacy ca nn ot ma ke a co ntract

invalid . If the othe r pa r ty ha d kn owle dg e of it, it
b e co m e s vo i d a ble a t th e o p ti o n o f th e l u n a tic .”
 • Indian Law

• Agreement of a person of unsound mind, like

that of a minor, is absolutely void

• S. 12 What is a sound mind for the purposes of

contracting .-
Persons of • A person is said to be of sound mind for the
purpose of making a contract if, at the time

Unsound when he makes it, he can understand it and of

forming a rational judgment as to its effect
upon his interests.
Mind • 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 patient in a lunatic asylum, who is at
intervals of sound mind, may contract
Persons of during those intervals.

• A sane man, who is delirious from

Unsound fever or who is so drunk that he cannot
understand the terms of a contract or
Mind form a rational judgment as to its
effect on his interests, cannot contract
whilst such delirium or drunkenness
lasts.
 1 . Al i e n e ne my : A p e r so n wh o i s n o t a n In d i a n c i t i ze n i s

called an alien. An alien e n e my is a p e r so n w ho se

c o u n t r y i s a t wa r w i t h In d i a . In In d i a , a c o n t ra c t w i t h a n

a l i e n e ne my i s vo i d b u t a c o n t ra c t w i t h a n a l i e n f r i e nd i s

Persons va l i d u n d e r t h e In d i a n Co n t ra c t Ac t . N o c o n t ra c t c a n b e

m a d e w i t h a n a l i e n en e my d u r i n g t h e sub s i st e n ce o f wa r,

Disqualified
e xc e p t with the prior a p p r ova l of the In d i a n

G o ve r n m e nt .

by Law 2 . C o nvi c t s : A co nvi c t i s a p e r s o n , wh o i s se n te n ce d b y a

c o m p e t e n t c o u r t t o t h e d ea t h se n t en c e o r i m p r i so n m e n t .

A c o nvi c t e d p e r so n c a n n o t e n t e r in t o a c o n t ra c t wh i l e

u n d e r g o i n g se n te n c e . W h en t h e p e r i o d o f h i s se n te nc e i s

o ve r o r h e i s p a r d o n e d , t h e n h i s i n c o m p e t en c y i s a l s o

o ve r.
 3. Insolvent: There is no prohibition against a contract by an

insolvent after the insolvency proceedings have commenced but

before adjudication. In simple words, the insolvent is

disqualified from entering into a contract until he is discharged

b y t h e c o u r t o f l a w.

3. For example, A executed a sale-deed, but before he could get it registered of the

Persons
deed took place during the pendency of the insolvency proceedings. Under these

circumstances, the sale-deed valid and binding on the parties.

4. Foreign sovereigns and diplomats: Foreign sovereigns have

Disqualified s o m e s p e c i a l p r i v i l e g e s . G e n e r a l l y, t h e y c a n n o t b e s u e d u n l e s s

t h e y, t h e m s e l v e s s u r r e n d e r u n d e r t h e j u r i s d i c t i o n o f t h e I n d i a n

by Law c o u r t o f l a w. T h e y c a n n o t e n t e r i n t o a c o n t r a c t u n l e s s a n I n d i a n

citizen obtained a prior sanction of the Government of India, in

o r d e r t o s u e t h e m i n t h e I n d i a n c o u r t o f l a w.

5. Corporations : The power of a corporation to make a contract

vary according to the character of the corporation. A company is

an artificial person created by law and is competent to contract.

But its power of contract is subject to the limitation which may

be either necessary or express.