Law Project-minor's Contract[1]

CONTRACT Section 2 (h) of the Indian Contract Act, 1872 defines a contract as: ‘An agreement enforceable by law is a contract.’ Contract is a combination of agreement and enforceability. Creation of obligation on the part of the parties to an agreement to perform their liabilities gives the cause of enforceability of an agreement. The nature of agreement is then changed into a contract.

MINOR According to Section 3 of the Indian Majority Act, 1875, a minor is one who has not completed his 18th year of age. So a person becomes a major after the completion of 18 years of life. To this rule there are two exceptions: (i)

When a guardian of the minor’s person or property is appointed by a court of law;

(ii)

When a minor’s property is taken over by the court of wards for management.

In either of these two cases minority continues up to the completion of the 21st year. In India Section 11 expressly provides that the age of majority of a person is to be determined according to the law to which he is subject. The Courts of Law used to decide the competency of contract by the law of domicile and not by the law of the place where the contract is entered into. But the later trend of law for determining the age of majority is:

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(a) In the case of contracts relating to ordinary mercantile transactions, the age of majority is to be determined by the law of the place where the contract is made; (b) In the case of contracts relating to land, the age of majority is to be determined by the law of the place where the land is situated.

LAWS REGARDING MINOR’S CONTRACT 1. A contract by a minor is absolutely void: A contract by a minor

is absolutely void and inoperative. Further where a minor is charged with obligations and the other contracting party seeks to enforce those obligations against minor, the contract is deemed as void ab initio. A minor’s contract being absolutely void, neither he nor the other party acquires any rights or incurs any liability under the contract. So a minor is neither liable to perform what he has promised to do under a contract, nor is he liable to repay money that he has received under it. The principle behind this ruling is, a minor is incapable of judging what is good for him. A minor, however, can derive benefits under the Act. That means, a minor can be a beneficiary i.e. a payee, an endorsee or a promise under the Act. 2. A minor cannot be compelled to compensate for or refund

any benefit which he has received under a void contract: Section 64 and 65 of the Contract Act, which deal with restitution, apply only to contracts between competent parties and are not applicable to a case where there is not and could not have been any contract at all. It has also been observed in many cases that the court may, on adjudging the cancellation of an instrument at the instance of a minor, require the minor to make compensation to the other party to the instrument. 2

3. A minor cannot ratify an agreement on attaining majority:

Ratification means consenting to a past contract entered into during minority at a future date on attaining majority. A minor’s contract being nullity and void ab initio has no existence in the eye of law. Therefore, a minor on attaining majority cannot ratify a contract entered into while he was a minor. The reason is that a void contract cannot be validated by any subsequent action and a minor’s contract is void ab initio. 4. Minor’s liability for necessaries supplied to him or to anyone

whom the minor is bound to support: The case of necessaries supplied to a minor is covered by Section 68 of the Contract Act which provides as follows-‘If a person incapable of entering into a contract, or anyone whom he 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 property of such incapable person.’ The minor’s property is liable for the payment of a reasonable price and not the price for necessaries supplied to the minor or to anyone whom the minor is bound to support. What is a necessary article is to be determined from the status and the social position of the minor. 5. The Rule of Estoppel does not apply to a minor: Section 115

of the Indian Evidence Act explains that-‘The principle of estoppel is a rule of evidence. When a man has, by words spoken or written or by conduct, induced another to believe that a certain state of things exists, he will not be allowed to deny the existence of that state of things.’ Lord Halsbury has written that-‘Estoppel arises when you are precluded from denying the truth of anything which you have represented as a fact, although it is not a fact.’ In India it has been held that the court can direct the minor to pay compensation to the 3

other party in cases where an infant obtains a loan by falsely representing his age he cannot be made to pay the amount of the loan as damages for fraud, nor can be compelled in equity to repay the money.

6. Specific Performance Order by Court will never be issued to

a minor: As we are aware that an agreement by as minor is absolutely void, the court will never direct specific performance of such a contract by a minor. But a contract entered into, on behalf of a minor, by his guardian or by the manager of his estate will be binding on the minor and can be specifically enforced by or against the minor provide(i)

The contract is within the authority of the guardian or manager;

(ii)

It is for the benefit of the minor.

7. Minor as a Partner: Law says that -‘A minor being incompetent to

enter into contract cannot be a partner in a partnership firm; but under Section 30 of the Indian Partnership Act 1932, he can be admitted to the benefits of partnership with the consent of all the partners by an agreement executed through his lawful guardian with the other partners.’ Such a partner will have a right to receive share of the property or profits of the firm and can have an access to and inspect the books of account of the firm. The minor cannot participate in the management of the business and can bear losses of the firm only up to the extent of the capital contribution in the firm. He cannot be made personally liable for any obligations of the

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firm, although he may after attaining majority accept those obligations if he thinks fit to do so. 8. Minor as an Agent: A minor can be appointed as an agent (Sec

184).

He

can

draw,

make,

indorse

and

deliver

negotiable

instruments so as to bind all parties except himself. In other words, it can be said that a minor can bind the principal by his acts done in the course of the agency, but he cannot be held personally liable for negligence or breach of duty. 9. Minor and the insolvency: A minor cannot be adjudicated as an

insolvent as he is incapable of entering into contracting debts. Even for the necessaries supplied to him, he is not personally liable, only if his property is liable (Sec 68). 10.

Contract by a minor and a major jointly: Where a minor and

a major jointly enter into a contract with another person the minor has no liability but the contract as a whole can be enforced against the major. 11.

Surety for a minor:

A contract by s minor is void, but a

contract by a guardian on his behalf is valid. Where a guardian enters into a contract in respect of his property on behalf of the minor, it is valid, provided it is for his benefit or for legal necessity. 12.

Position of minor’s guardian: A contract entered into by the

guardian of a minor on his behalf stands on a different footing from a contract entered into by a minor himself. A contract by a minor is void but a contract by a guardian on his behalf is valid provided the obligations undertaken are within the powers of the guardian. A contract made by the guardian is binding on the minor if it is for the benefit of the minor or is for legal necessity.

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13.

Minor as shareholder: According to Contract Act, a minor

being incompetent to contract can not be a shareholder of the company. Therefore a company can refuse to register, transfer or transmission of shares in favour of a minor unless the shares are fully paid. A minor acting through his lawful guardian may become a shareholder of the company, in case of transfer or transmission of fully paid shares to him. 14.

Minor’s Position and Liability in Tort: Tort is a civil wrong.

So, minor’s position in civil wrong is that- ‘A minor is liable for his tort, i.e. a civil wrong unless the tort is in reality a breach of contract.’ 15.

Minor’s marriage: Minor’s contracted by their parents and

guardians is valid. It is valid on the ground of the custom of the community. 16.

Relinquishment by a minor: A release by a minor of his rights

in a property is absolutely in fructuous in law. 17.

Service contracts:

(i) A contract for personal service by a minor is void under the Indian law and the mere fact it is for his benefit would not entitle the minor to sue under the contact. (ii) A minor may bind himself by a contract of apprenticeship if it be

for his benefit but he can not be used for failing to serve as such. (iii)

Contract with minor does not create legal contractual

relationship between the parties. Minor girls entering into a contract of service a person can leave the service at any time without committing any actionable wrong.

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18.

Minor’s Parents:

The parents of a minor cannot be held liable for any contract that a minor enters into. However, they can be held liable incase the minor is acting as their agent.

DISTINCTION BETWEEN INDIAN AND ENGLISH LAW AS TO MINOR’S CONTRACT The English Law is the principal source of Indian Law. But the Indian Law differs from the English Law on the subject of minor’s contracts on the following points: 1. In India the minor’s contract is altogether void but in England it is sometimes void and sometimes voidable. In England the loan of money to a minor is void. 2. In India, a minor can ratify a fresh consideration of a contract entered into during minority where as in England he cannot do so.

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3. In India a minor on attaining majority can neither sue nor be sued on contracts entered into by him during minority but in England he can sue on the contract for damages. 4. In India a minor’s property is liable for the necessaries and not his personal self acquired property but in England the minor is personally liable. 5. In India there can be no specific performance by or against the minor unless it is a contract entered into by a guardian on behalf of the minor sand the minor’s benefit. In England there can be no specific performance for want of mutuality in the contract.

CASE STUDIES CASE I: Ramchandra vs Manikchand And Anr. on 9/2/1968 (This appeal

is by the defendant. The trial Court has passed a decree for specific performance.) The suit was filed by the plaintiffs (respondents 1 and 2), when they were minors, through their guardian, Smt. Phulibai, their mother. Smt. Phulibai had entered into an agreement dated 30-9-1961 on behalf of the minors for purchasing house property from the defendant (appellant) for a consideration of Rs. 11,000. Rs. 1,000 was paid

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towards earnest and the rest of the amount was to be paid at the time of the registration of the sale-deed. The relevant term of the agreement was: The purchaser shall construct a partition wall at his own cost and

in the presence and help of the vendor. The plaintiffs' case was that the defendant did not obtain permission

from the Municipal Corporation and hence the construction could not be completed. The suit for specific performance was filed. The defence was that the breach was committed by the plaintiffs themselves

and

that

they

were

not

entitled

to

the

specific

performance. The defendant, claimed that he was entitled to the expenses incurred by them; and as the plaintiffs' guardian was not prepared to pay the amount, the sale-deed was not executed. Thus, the breach was committed by the plaintiffs. The trial Court found that the responsibility of constructing the partition wall was that of the purchaser, even if the defendant spent any amount, he did it at his own risk; and that, the plaintiffs were always willing to purchase the property and hence decreed their suit for specific performance. The plaintiffs were not guilty of committing any breach of the contract and that the defendant was not willing to execute the sale-deed as per the agreement. Solution: The trial court is right as the responsibility of constructing the wall was of plaintiff (purchaser) and if seller spends the money he did it at his own cost/risk and cannot claim the amount from the purchaser. Plaintiff has full rights to claim the property of which she has paid the earnest money and defendant (appellant) has to execute the sale deed as per the agreement dated 30/09/1961. The appeal should be dismissed. CASE II: Subrahmanyam's case. 75 Ind App 115 = (AIR 1948 PC 95) 1948

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A had executed promissory notes in the sum of Rs. 16,000 in favour of B. He had also mortgaged certain property to a third party in the sum of Rs. 1,200. A died on 4-10-1935. His widow entered into an agreement dated 29-11-1935 on behalf of her minor son to transfer the mortgaged property to B for a consideration of Rs. 17,000. Out of this amount, B was to utilize Rupees 1,200 in redeeming the mortgage and rest of the amount towards satisfaction of his own debt under the promissory notes. A suit was filed on behalf of the minor for possession of the property on the ground that the agreement entered into by his mother was not binding on him. The defence was that B was protected under Section 53A of the Transfer of Property Act. The trial Court held that as A and his son, the minor, were members of a joint Hindu family, the minor was bound to satisfy the debt. His guardian could have, therefore, validly transferred the property, as the transfer would have been for the benefit of the minor. Even though no sale-deed was executed in favour of B, he was entitled to protection under Section 53A of the Transfer of Property Act. This decision was reversed by the first appellate Court and was confirmed by the High Court. The guardian of the Hindu minor was, called upon to decide as to whether the expression 'the transferor' would include a minor on whose behalf the agreement had been entered into by the guardian. If the transfer would have been affected, the transfer would have been of the minor's property, and not of his mother, and hence there was no reason why the minor should not be treated as a transferor. The High Court was of the view that the observations of the guardians are not applicable to all contracts entered into on behalf of the minor. We have already pointed out that the guardian of a Hindu minor could validly transfer his property if it was for legal necessity or benefit of the estate of the minor; but he had no authority to purchase any property. 10

Solution:

A contract by a guardian on his behalf is valid provided the obligations undertaken are within the powers of the guardian. A contract made by the guardian is binding on the minor if it is for the benefit of the minor or is for legal necessity. Here the agreement entered into by the mother of minors is not binding on the minor as the agreement is not for their benefit. Minor are not bound to satisfy the debt taken by their guardian. The transfer of the said property to B is not for the benefit of the estate of the minor, thus null & void

CASE III: Suresh Chandra Pradhan vs Ganesh Chandra De And Ors. on

2/9/1949 Defendants 1 & 2 are minors & the suit-contract is one entered into on their behalf by their mother as guardian. The contract was for sailing the property for a sum of Rs. 75 out of which Rs. 35 was paid as advance & the balance was to be paid later. Defendant 3 who is the sister's husband of defendants l & 2 has purchased the suit property on 3-2-1943 subsequent to the agreement in favour of the plaintiffs. The genuineness of the consideration alleged to have been paid thereunder were denied by the defendants & contested in the courts below. It has been found by the trial Court that the agreement was true & that a sum of Rs. 35 was paid as an advance under it. It was also found that the agreement was executed in order to raise money to repay a decretal debt for Rs. 60 against the minors in respect of which there was an execution pending at the time. It was further found that defendant 3 was fully aware of the agreement & took the sale deed in his favour with notice of the same. The argument that has been advanced on behalf of the defendants is that no specific performance can be decreed against the minors on the basis of a contract entered into on their behalf by their guardian even though it may be for legal necessity or for the benefit of the minor. This contention has been 11

accepted by both the Courts below & the suit has been accordingly dismissed. It has been taken as settled law that a mere executory contract entered into by a guardian on behalf of a minor imposing a personal obligation on the minor's estate is not valid & binding & it makes no difference that it is for necessity or benefit. Solution: A contract by a minor is void but a contract by a guardian on his behalf is valid provided the obligations undertaken are within the powers of the guardian. A contract made by the guardian is binding on the minor if it is for the benefit of the minor or is for legal necessity. Here the contract entered into on their behalf by their guardian is for legal necessity but no specific performance can be decreed against the minors because Minor’s liability is only for the necessaries supplied to him.

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