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Introduction
The Indian Contract Act, 1872 is the foundational legislation governing contracts in India. One of its pivotal principles is that only parties competent to contract can enter into a valid agreement. This requirement ensures that the parties have the legal and mental ability to understand and undertake the obligations arising from a contract. The Act outlines this requirement primarily in Sections 11 and 12, while Sections 64, 65, and 68 deal with the consequences of contracts involving incompetent parties. This article delves into the nuances of these provisions with detailed explanations, statutory text, and key judicial precedents.
Section 11: Who are Competent to Contract
Text of Section 11:
“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.”
Explanation:
This section lays down three essential conditions for competency:
- Age of Majority
- Soundness of Mind
- Not disqualified by law
Let us explore each in detail:
a. Age of Majority
Under the Indian Majority Act, 1875, a person attains majority at the age of 18. However, if a guardian is appointed, the age of majority is 21.
Case Law: Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal 539 (PC)
Ratio: A contract entered into by a minor is void ab initio (from the beginning). In this landmark case, a minor mortgaged his property. The Privy Council ruled the contract void as the minor was incompetent to contract.
b. Soundness of Mind
Section 12 provides the definition of a sound mind.
Text of Section 12:
“A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.”
This includes:
- Temporary or permanent unsoundness.
- Lucid intervals where a generally insane person may contract.
Case Law: Inder Singh v. Parmeshwardhari Singh AIR 1957 Pat 491
Ratio: A contract by a person who was of unsound mind at the time of the agreement was held void.
c. Not Disqualified by Law
This includes:
- Alien enemies
- Foreign sovereigns
- Convicts
- Insolvents
- Companies acting beyond their powers (ultra vires)
Case Law: Kanhaiyalal v. D.R. Banaji AIR 1953 Nag 133
Ratio: A disqualified person (like an insolvent) is incompetent to contract.
Section 64: Consequences of Rescinding a Voidable Contract
Text of Section 64:
“When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder from another party to such contract, restore such benefit.”
Explanation:
Though minors cannot contract, in cases where a contract is voidable due to other reasons, this section provides for restitution.
Example:
If a party misrepresents facts and the other rescinds the contract, any benefit received must be restored.
Case Law: Khan Gul v. Lakha Singh AIR 1928 Lah 609
Ratio: Even though the contract was void due to incapacity, the minor was directed to return benefits if they were traceable.
Section 65: Obligation of Person Who has Received Advantage Under Void Agreement
Text of Section 65:
“When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.”
Explanation:
This section mandates that any benefits under a void agreement must be returned. This reflects the principle of unjust enrichment.
Case Law: Leslie (R) Ltd. v. Sheill [1914] 3 KB 607
Ratio: A minor who fraudulently misrepresented his age was not held liable in contract but could not be compelled to pay damages as restitution would mean enforcing the contract.
Section 68: Claim for Necessaries Supplied to Person Incapable of Contracting
Text of Section 68:
“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 the property of such incapable person.”
Explanation:
Though a minor cannot contract, the supplier of necessary goods or services can recover reasonable expenses from the minor’s property, not personally.
Essentials of Section 68:
- Person incapable of contracting (minor, insane, etc.)
- Goods/services must be “necessaries”
- Suitability to the person’s standard of life
- Reimbursement only from property, not personal liability
Case Law: Nash v. Inman [1908] 2 KB 1
Ratio: Tailor sued a minor for supplying clothes. The court held clothes were not necessaries as the minor already had sufficient clothes.
Analysis and Practical Importance
a. Ensuring Fairness and Protection
The provisions protect individuals incapable of understanding contractual obligations from exploitation, especially minors and persons of unsound mind.
b. Commercial Prudence
Businesses and individuals must ascertain the capacity of the contracting party to avoid future disputes and liabilities.
c. Exceptions for Justice
Sections 64, 65, and 68 ensure fairness even when a contract is void or the party is incompetent, by allowing restitution or reimbursement.
d. Doctrine of Restitution and Equity
These provisions underscore equitable principles, ensuring no party is unjustly enriched.
Recent Trends and Judicial Interpretations
Indian courts continue to follow the principles laid down in Mohori Bibee strictly. However, they have shown flexibility in applying restitution principles to prevent unjust enrichment. There is increasing emphasis on capacity checks, especially in digital and online contracts.
Conclusion
The concept of capacity to contract under Sections 11, 12, 64, 65, and 68 of the Indian Contract Act is critical in ensuring that agreements are entered into by parties with full understanding and legal authority. While minors and others lacking capacity are protected, the Act also ensures that those dealing with them are not unfairly disadvantaged. By balancing protection with equitable relief, the Act promotes both justice and commercial certainty.
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References
- Indian Contract Act, 1872
- Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal 539 (PC)
- Leslie (R) Ltd. v. Sheill [1914] 3 KB 607
- Nash v. Inman [1908] 2 KB 1
- Khan Gul v. Lakha Singh AIR 1928 Lah 609
- Inder Singh v. Parmeshwardhari Singh AIR 1957 Pat 491
- Kanhaiyalal v. D.R. Banaji AIR 1953 Nag 133
- The Indian Majority Act, 1875