This article has been written by Tanya Gupta, pursuing BA- LLB from Ideal Institute of Management and Technology and School of Law, affiliated to Guru Gobind Singh Indraprastha University, Delhi. This article focuses on the position of minor under Indian Contract Act, 1872 and the effects of minor’s agreement.
A contract is a legally binding agreement that recognises rights and duties of the parties to the agreement. Section 10, Indian Contract Act, 1872 discuss what all conditions must be fulfilled in an agreement in order to constitute a contract.
Can anyone form a contract under the Indian Contract Act, 1872? No, there are certain people who are competent to form a contract. It is Section 11, Indian Contract Act, 1872 which discuss about that who are competent to contract:
Firstly, it states that every person is competent to contract who is of the age of majority, which means an individual who has attained the age of majority i.e. eighteen years may form a contract. Secondly, it states that every person who is of sound mind is competent to contract. Thirdly, it states that every person who is not disqualified from contract is competent to form a contract.
The Indian Majority Act, 1875 provides a clear picture as Section-3 of the Indian Majority Act, 1875 states that any person domiciled in India shall be deemed to attain majority only when the person has completed eighteen years and not before it.
Nature: Minor’s Agreement
1. Void – ab -initio
Void-ab- Initio means void from the very beginning. So, the contracts made by a minor are considered to be as void-ab-initio. These contracts are not valid. An agreement with a minor does not create any legal rights and obligations between the concerned parties.
Position of minor before Mohori Bibee v. Dharmodas Ghose, 1903:
Before passing the judgement of this landmark case, it was felt that the phrase in Sec 11, Indian Contract Act,1860 “no person is competent to contract who is not of the age of majority…” has two interpretations:
- A minor is absolutely incompetent to contract; the agreement with minor considered as void -ab-initio,
- An agreement with the minor considered as voidable, the minor is not liable but the other party is liable.
It created a lot of confusion that whether minor’s agreement considered as void or voidable.
A landmark case: Mohori Bibee v. Dharmodas Ghose, ILR (1903) 30 Cal. 539 (PC)
This case brings forth a landmark judgement regarding the effect of minor’s agreement and solved the issue of whether a minor’s agreement is void or voidable. In this case, the plaintiff (Dharmodas Ghose), when he was a minor, mortgaged his property to a money-lender, the defendant (Brahmo Dutt) to secure a loan of Rs. 10,500. At that time though, the attorney of money-lender knew about the fact of his minority. Money-lender was then, sued by the minor for asking for repayment of the loan. Brahmo Dutt had died by the time of Appeal and it was hence prosecuted by his executors. The defendant contended that:
- Law of estoppels should be applied against a minor, since he fraudulently represented his age and that he cannot refuse his previous representation by taking a dual stance.
- If the mortgage is cancelled, the loan amount should be paid back to him by the minor, under Sections 64 and 65 of the Indian Contract Act, 1872.
The Privy Council rejected the defendant’s contention and held that:
- Minor’s agreement was held to be void ab initio and that plaintiff cannot be made to repay the amount back to the defendant. Minor was allowed to plead his minority and hence, the agreement was made void.
- Law of estoppels, as stated in Section 115, Indian Evidence Act, was not applicable in this case, as the attorney had the knowledge of the true facts and was not misleading.
- Section-64 says that if a contract is voidable at the option of a party, rescinds it, the other party need not perform the promise and the party rescinding it, must restore the benefits accrued by him under the contract to another party. The Privy Council held that this Section would not be applicable in the case because it relates to voidable contract and not void contracts. Moreover, the section pertains to competent parties, and not incompetent parties making a contract as in the present case.
- Section 65, which says that benefits, if any, accrued through a void agreement, must be restored to the other party. The Council rejected the applicability of this section too in the present case and held that minor cannot be asked to repay back the loan amount.
- The defendant claimed refund of loan money even under Section 41, Specific Relief Act, 1877, which requires the party to whom relief is granted to make any compensation to other on the adjudication of cancellation of an instrument. The Privy held that since knowledge of infancy was known to attorney, the return of the money advanced to the minor was not required.
Hence, an agreement made with a minor is void ab initio.
Effect: Minor’s Agreement
The main reason behind the effects of the minor’s agreement is the nature of an agreement with the minor. The nature of the agreement with the minor is void-ab-initio, that is why the minor cannot liable for his actions. There are also some conditions for his act by which he enjoys some benefits or otherwise not. When he is minor means doli incapax not able to understand the nature and consequence of his act. But as soon as he attained the age of majority, he becomes doli capax means reasonable knowledge to understand the nature of his actions as well as a consequence.
Now, let’s discuss the effect of minor’s agreement. Following are the effects:
1. No estoppel against a minor:
The word estoppel means prevention of claim. In other words, it means someone makes another person to believe that particular thing or fact. If minor fraudulently enter into a contract by believing that he is major, but in reality, he is not, then, later on, he can plead his minority as a defence and cannot be prevented from doing so.
Section 115 of the Indian Evidence Act, 1872, lay down the law of estoppel but the Indian Contract Act makes it clear that a minor is incompetent to contract thus a minor cannot incur liability under any contract and the rule of evidence cannot be invoked to defeat this section.
2. Minor as an agent:
Agent acts as a connector between the principal and third party. Minor can be appointed as an agent but he is not personally liable for his actions. He is personally not liable for his actions as he has not sufficient knowledge for his acts. He is doli incapax that is not able to understand whatever he is doing. He is also will no be responsible to his principal. Different types of agent like brokers, auctioneers etc. There is a creation of the agency, either by express or implied contract it means the principal may appoint an agent through writing or an orally.
3. Minor as an insolvent:
Firstly, understand the meaning of term insolvent means when the liabilities of a person are more than the assets. A minor cannot be declared as an insolvent. This so because all agreements with minor is absolutely void.
4. Minor as a partner:
A partnership is defined as the relation between persons who have agreed to share the profits of a business carried by an all or any of them acting for all. Sec 30, Partnership Act, provides that though a minor cannot be a partner in a firm, but with the consent of all the partners, for the time being, he may be admitted to the benefits of partnership by an agreement executed through his guardian with the other partner.
So, minor cannot become a partner in the firm but he enjoys all the benefits of a firm with the consent of all other partners. If the majority of the partners agrees or give consent that minor enjoys the benefits of the firm then he can enjoy or otherwise not. The minor has the right to inspecting the taking copies of the books of account of the firm. On attaining the majority or on knowing that he had been admitted to the benefits of partnership, whichever is later, the minor must decide within six months whether he would like to become a partner in the firm and give public notice of his decision. If he fails or remains silent to give such a notice, it will be presumed that he has elected to be a partner in the firm. As after attaining the age of majority, it is presumed that he becomes doli capax means able to understand the nature and consequence of his act.
5. Restoration of Money or Property:
Sometimes, a minor receives some money or property by falsely representing their age. In such cases, the minor can be asked to restore such money or property so long as traceable in his possession.
6. Ratification of minor’s agreement:
As we all know that the nature of an agreement with minor is void. An agreement with the minor cannot be ratified even on the minor attains the age of majority according to the Indian Majority Act. But, when he attains the age of majority, if he makes a new promise for fresh consideration, and this new promise will be binding on all because the reason behind it the agreement with the major is valid as according to the requirements or an essentials for making valid contract stated under section 11 of the Indian Contract Act, 1872.
7. Necessities supplied to a minor (Section-68, Indian Contract Act,1872):
The general rule is that if a person is incapable of entering into a contract is supplied by another person with necessities of life, the person who has supplied is entitled to get reimbursement from the property of such incompetent person, including a child as well.
Section 11 of the Contract Act, 1872 explains the requirements of competency for entering into contracts. Individuals or entities can create contracts only if they meet these requirements. The very first such requirement is that of majority age according to Indian Majority Act. If he makes a contract if he is minor then it will result into void-ab-initio means void from the very beginning. With an essential specified under section 11, Indian Contract Act,1872 we must also have to fulfil the conditions enshrined under section 10 of the Indian Contract Act. The general rule of contracts is that every person, whether natural or artificial, can enter into contractual obligations. Section 11, however, lays down certain exceptions. For example, minors, persons of unsound mind and those whom the law specifically disqualifies are the exceptions.