Understanding Minor’s Capacity to Contract [Mohori Bibee and Another v. Dharmodas Ghose]

The Concept

The main concept of this case relates to the consequences of a minor’s contract. Section 10 of the Indian Contracts Act explains what agreements are contracts. One of the foremost requirements of an agreement to be a contract is the competence of parties.

Section 11 of the Indian Contract Act, while elaborating upon, who are competent to contract, talks about the age of majority. It states that among other requirements, a party in order to be competent to contract, needs to have attained the age of majority.  

Thus, persons below the age of majority (a minor) are not competent to enter into a contract. The contracts entered into by them are void ab initio (void from the very beginning). This means that a contract entered into by a minor would be treated as if the contract was never made in the first place. No obligations arise from the same.

Facts

The Plaintiff secured a mortgage for INR 20,000 at 12% rate of interest. He executed this in favour of the Defendant. The Plaintiff was a minor at this point. The Defendant’s attorney had acted on his behalf and allegedly had the information that the Plaintiff was a minor at the time of entering the contract.

Later on, the minor through his guardian and next friend brought a case against the Defendant that he was a minor when the mortgage was executed, hence the mortgage was void.

The Court of First Instance decided  in Plaintiff’s favour.  After the institution of the appeal before the Privy Council, the Defendant died and this appeal was prosecuted by his executors. 

Issues

Whether the contract entered into by the Plaintiff was void, on account of him being a minor at the time of entering into the contract?

Arguments by the  Appellant

1. The Respondent was a major when he executed the mortgage according to his declaration and the Appellant had no idea about his minority. Only the Attorney knew about the Respondent’s minority and his knowledge cannot be imputed to the Appellant.

2.  The Respondent is also ‘estopped’ under Section 115 of the Indian Evidence Act, from claiming that he was a minor at the time of executing the mortgage. Section 115 states that if a person through his declaration, act or omission has made the other party believe a thing to be true and the other party has acted upon such a thing, the person making the declaration/act/omission cannot later on deny the truth of that thing. 

3. The Appellants argued that the lower courts were wrong in not ordering the respondents to repay the amounts advanced as per section 64 of the Indian Contract Act. The lower courts had held that the contract is voidable but section 64 does not apply to infants/minors, as it applies only to those who are competent to enter into a contract. Section 64 inter alia  requires a party which rescinds a voidable contract to restore the benefit which he may have received from the other party under the contract.

Arguments by the Respondent 

1. The Defendants possessed knowledge of the Respondent’s actual age.

2. The contract is void ab initio as the Respondent was a minor 

Judgment

The Hon’ble Court dismissed the Appeal based on following reasons:

1. The Appellant’s attorney knew that the Respondent was a minor is a fact and indicated that the Appellant also knew about it. The Appellant’s attorney was an agent of the Appellant. He was fully authorised to carry out acts on behalf of the Appellant, hence, his acts and knowledge were the acts and knowledge of the Appellant.

2. Both sides of the parties knew about the actual age of the minor. Section 115 of the Indian Evidence Act is hence not applicable. There can be no estoppel where the truth of the matter is known to both parties. 

3. The Indian Contract Act makes it essential that all contracting parties should be “competent to contract,” and expressly provides that a person who by reason of being a minor is incompetent to contract cannot make a contract within the meaning of the Act. This is clearly reflected in the later sections of the Contract Act. The judges then discussed Section 68 which talks about reimbursement for supply of necessities by persons incompetent to enter into a contract. The reimbursement is to be made from a minor’s property. Similarly, other provisions which prohibit a minor to act as an agent or do not hold a minor personally liable for his acts in a partnership show that in order to hold a contract void or voidable, the existence of the given contract is necessary. As a minor is incompetent to cotntract, there is no contract to begin with. Hence, a contract entered into by a minor would be void ab initio. Hence, section 64 which deals with voidable contracts would not be applicable in the present case.

Reflective question 

What is the difference between a void ab initio contract and a voidable contract?