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Void Contracts Involving Minors
Under English Law, contracts entered into by minors are considered voidable, meaning they can be voided at the option of the minor under certain exceptional circumstances. However, in Indian Law, contracts involving minors are deemed void, not just voidable.
Consequently, a minor lacks the capacity to bind themselves to a contract, as they are not competent to do so.
This legal principle in the Indian context was decisively articulated by the Privy Council in the well-known case of Mohiri Bibi vs Dharmodas Ghose [190, 30 Ca. 539].
In this case, Dharmodas Ghose, a minor at the time, had entered into a contract to borrow Rs 20,000, but the lender only provided Rs 8,000 against the security of a mortgage on his property. Subsequently, the minor filed a lawsuit to void the mortgage.
The Privy Council, while examining the validity of the mortgage, referenced Section 7 of the Transfer of Property Act, which stipulates that anyone competent to enter into a valid contract can create a valid mortgage.
However, under Sections 10 and 11 of the Indian Contract Act, it was established that contracts by minors are not merely voidable but void.
Consequently, the mortgage created by the minor was deemed invalid, and the court set it aside. The lender then sought to recover the Rs 8,000 loaned to the minor.
However, it was determined that since contracts entered into by minors are void from the outset, the lender could not recover the loan amount either.
Implications for Mortgages and Loans
If a minor has received benefits under a void contract, they cannot be compelled to return or refund those benefits. This principle naturally follows from the judgement rendered in the case of Mohiri Bibi vs Dharmodas Ghose, as discussed earlier.
Furthermore, it's worth noting that a minor can still act as a promisee or beneficiary in a contract.
While a minor may not be able to bind themselves by entering into a contract during their minority, there is no provision in the Indian Contract Act preventing them from obligating the other party to the contract.
In other words, although a minor may not be able to create a valid mortgage or execute an enforceable promissory note themselves, they are not precluded from being the mortgagee of a property or the payee or endorsee of a promissory note.
Therefore, minors are entitled to receive all the benefits available to them under a contract.
Even upon reaching the age of majority, a minor cannot ratify their old agreements. This is because a contract made by or with a minor is void ab initio, meaning it is void from the very beginning and is considered nonexistent in the eyes of the law.
Therefore, the concept of ratifying a non-existent contract simply does not apply.
For instance, suppose Mohan, a minor, signs a Demand Promissory Note (DP Note) in favor of Lakhan. Later, upon reaching adulthood, Mohan executes a new DP Note to replace the old one.
In such a scenario, both the original and the new DP Notes are deemed invalid and unenforceable under the law. This legal principle was upheld in the case of Indran Ramaswamy vs Anthiappa Chettiar (1906) 16 M.L.J. 422.
Benefits Received under Void Contracts
A minor always has the option to plead their minority status, as exemplified by the case of 'Leslie vs Shiell' [(1914) 3 K.B. 607], which elucidates pertinent legal principles.
In this case, Shiell, despite being a minor, deceitfully portrayed himself as an adult and borrowed £400 from Leslie. He spent the entire amount but failed to repay the loan.
Leslie initiated legal action against Shiell on two grounds: first, for the recovery of the loan amount, and second, for damages due to fraudulent misrepresentation (tort of deceit).
The court ruled that Leslie, as the lender, could not recover the loan amount from Shiell because he was a minor at the time of the transaction. Similarly, Leslie could not claim damages under tort law for the same reason.
This verdict stemmed from the understanding that a minor cannot be held bound by a contract, even if they deceitfully misrepresent themselves as adults. Enforcing such a contract would effectively endorse an unenforceable agreement.
Additionally, the court noted that since Shiell had already expended the borrowed funds, he could not be compelled to refund them, even on equitable grounds.
However, had the funds not been spent, Shiell, despite being a minor, would have been obligated to return them to the lender under Sections 30 and 33 of the Specific Relief Act, 1963. This underscores the principle that minors cannot be permitted to deceive others.
Partnership and Agency
Another example involves a minor who deceitfully misrepresented their age and borrowed money against mortgaged property, which they later fraudulently sold to another party.
Upon discovering the minor's true status, both the lender and the buyer were entitled to compensation since they were unaware of the minor's deceitful misrepresentation of age.
A minor is precluded from becoming a partner in any partnership firm. Nonetheless, under Section 30 of the Partnership Act, 1932, a minor may be admitted solely to the benefits of an existing partnership firm, with the unanimous consent of all partners, and only for a temporary period.
Liability for Necessaries
Furthermore, the estate of a minor is held accountable to individuals who provide necessaries of life to them. However, guardians and parents of a minor are not held liable to creditors for any contractual breaches committed by the minor, including in the provision of necessaries.
Despite these restrictions, a minor can serve as an agent. In such instances, the minor can legally bind the principal, even if the principal is their parents or guardian, without assuming personal liability.
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