COMPETENCY OF PARTIES TO CONTRACT- PERSONS OF UNSOUND MIND

Section 11 prescribes that a person should be of sound mind to be competent to enter into a contract. But what is a sound mind? Section 12 of the ICA defines soundness of mind. It reads as under,

“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.

A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.”

This section provides for the test of soundness. It describes that a person should not be of unsound mind at the time of the contract. The test further demands that the person should understand what he/she is entering into, his/her rights and liabilities before entering into the contract. The person should be able to perceive the rational consequences and implications of his/her act of entering into the contract. He/she should be capable of forming a judgment in their best interests. For a contract to be valid, this test of soundness should be passed by the parties.

For example, A, a person of 70 years of age who has lost his sense of judgment and is known to make irrational decisions, gifts all his properties to his daughter without keeping anything for himself. Then he would be said to lack contractual capacity because of not being able to decide the implications of all his properties to his daughter and not considering his own interest.

It is of utmost importance that the disability should be present at the time of entering into the contract. For example, a medical certificate of insanity in 2011 does not invalidate the contracts made in 2004-2005 unless insanity of the person is established in that period.

Generally, there is a presumption of sanity when people contract with each other and the burden of proof lies on the person who is claiming that he/she was of unsound mind at the time of signing the contract and was not capable of comprehending the meaning and effect of entering into an agreement.

The effect of such a contract would be discussed later in this article.

Section 12 provides for two particular situations;

      I.          Where a person is usually unsound but is occasionally sound

 

In this particular scenario, wherein a person who is usually of an unsound mind (for e.g. a patient in an asylum) but has occasional moments of sanity can contract during those sound moments wherein he/she understands the consequences of their actions.

 

For e.g. A person having Alzheimer's usually doesn’t remember anything but has lucid moments occasionally transfers all her property to her son during one of those lucid moments understanding very well the implications of the transfer. Then such a contract will be valid.

 

The soundness is to be determined by heavy medical tests and it should be definitively proven by demonstrative medical evidence that the person was in a lucid interval during the time of entering into the contract. The burden of proof in such cases relies on the person alleging sanity.

 

    II.          Where a person is usually sound but occasionally unsound

 

Due to reasons of drunkenness, temporary insanity, delirium due to fever, etc., if the capacity of a sound person is crippled to an extent which leads to, he/she not being able to make a rational judgment, then, in that case, the contract formed while experiencing such lack of rationality would not be valid.

 

For example, A person during the state of intoxication enters into an agreement with his business rival to sell all his shares to the rival for a paltry amount then it would not be valid as the person was not capable of comprehending what he was entering into.

 

Under such cases, the burden of proof lies on the person claiming unsoundness.

 

EFFECT OF A CONTRACT WITH A PERSON OF UNSOUND MIND

Under English Law, a contract with a person of unsound mind is voidable at the option of the person of unsound mind. If he sufficiently proves that the other party knew while entering into the contract that he was not capable of understanding the terms and nature of the contract then the contract can be avoided. This principle was laid down in the case of Imperial Loan Co v. Stone. Lord Esher in this case held that,

“When a person enters into a contract, and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about.”

Therefore, a contract is voidable only if the other party knew about the incapacity of the person. If the other person was not aware of the incapacity then the contract/agreement will be binding on both the parties.

However, under Indian law, any agreement with a person of unsound mind is similar to that of one with a minor i.e. void ab initio or absolutely void. In the case of Inder Singh v. Parmeshwardhari Singh, a property which had high worth was sold for a very small amount of money by a person. His mother proved that he was a congenital idiot, lacking the ability to understand the nature and effects of the transaction. The Patna High Court declared the sale to be void and explained the effect of section 12 as follows;

“According to this section, therefore, the person entering into the contract must be a person who understands what he is doing and is able to form a rational judgment as to whether what he is about to do is to his interest or not. The crucial point, therefore, is to find out whether he is entering into the contract after he has understood it and has decided to enter into that contract after forming a rational judgment in regard to his interest.... It does not necessarily mean that a man must be suffering from lunacy to disable him from entering into a contract. A person may to all appearances behave in a normal fashion, but, at the same time, he may be incapable of forming a judgment of his own, as to whether the act he is about to do is to his interest or not. In the present case (he) was incapable of exercising his own judgment.”

LIABILITY FOR NECESSARIES

Section 68 of the Act postulates that in case where a person (X) supplies necessary items to P’s family or P (person of unsound mind/minor), P is liable to reimburse X and X is entitled to get reimbursed. This section applies to minors as well as those persons who have an unsound mind as both classes of persons are incapable of entering into a contract. The section reads as below,

“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.”

For example, if C provides for the necessaries of D, a minor, and his minor wife, B, then A is entitled to be compensated from D’s property.

To understand the application of this section it is important to understand,

       I.          What is included under necessaries?

 

Section 68 provides for liabilities of necessaries, but there is no definition of necessaries in the act. Therefore, the meaning of the term ‘necessaries’ is to be understood by analysing its literal meaning and the legal jurisprudence revolving around it. According to Black’s Law Dictionary, the term ‘necessaries’ means

 

“things indispensable, or things proper and useful, for the sustenance of human life.”

 

Food, clothing and shelter are considered as the three necessities to be alive. But in today’s world to live as a human being with dignity the proper cultivation of mind along with the body is equally necessary. Thus, amenities like basic intellectual, religious education as well as medical support are to be considered as necessaries.

 

The judicial interpretations laid down three conditions for something to be classified as a necessity;

 

1.     The contract must be for goods that are reasonably necessary for a person’s support in his station in life – It is now an established rule that the necessity of the goods be decided on the basis of the class of the particular person (Chapple v. Cooper). “What is necessary?” is a question of fact to be determined on the basis of the fortune and circumstances of the person who is being supplied with the necessaries. Therefore, some goods to one person might be of mere convenience or a matter of taste but to another, it might be a matter rendered as a necessity by the society he/she moves in. Articles of luxury are always excluded except in certain cases depending upon the facts of the cases.

 

2.     Peculiar circumstances in which the goods are supplied – A person might need things depending on the particular circumstances and the reason they are used for. For example, wedding presents for the bride of an infant can be considered as necessaries. However, the same items supplied in a normal situation would not qualify under the category of necessities (Jagon Ram Marwari v. Mahadeo Prosad Sahu). Another example would be where a minor is involved in a legal proceeding threatening his property, legal assistance provided to him would be considered as a necessity (Kedar Nath v. Ajudhia Prasad). Other situations like these shall be considered by the court while determining what is a necessity.

 

3.     He must not have already a sufficient supply of these necessaries – It should be proved by the supplier that the goods supplied by him to the person in question were because he did not have enough supply of the goods of those class. This principle was laid down in the case of Nash v. Inman. In this case, an undergraduate student who already had an ample supply of clothes corresponding to his position was supplied by the plaintiff with more fancy dresses. The price of such dresses was held to be irrecoverable by the court.

 

     II.          The nature of liability under section 68

 

This section is included in the chapter “Certain Relations Resembling Those Created by Contract”. The entire chapter deals with provisions for obligations of a quasi-contractual nature. Quasi Contract is a kind of obligation imposed by law on one party to another independent of any agreement between them. Further, such person does not incur any personal liability, the reimbursement is to be done from the property of such person. Thus, the liability arises not ex-contractu (from a contract) but from quasi-contract or restitutionary remedies.

The position regarding this in India is not similar to the law in England. In England, there exist two views, wherein one subscribes that the liability is quasi-contractual in nature whereas the other identifies a contract of necessaries as one of the types of contracts which a minor can make.

BY,

LAWVASTUTAH

 

REFERENCES

1.     Indian Contract Act, 1872.

2.      Pollock & Mulla, The Indian Contract and Specific Relief Acts, 16th edition.

3.      Avtar Singh, Contract and Specific Relief, 12th edition.

4.     Imperial Loan Co v. Stone, (1892) 1 QB 599 (CA).

5.     Inder Singh v. Parmeshwardhari Singh, AIR 1957 Pat 491.

6.     Chapple v. Cooper, . (1844) 13 M&W 252, 258: 153 ER 105.

7.     Jagon Ram Marwari v. Mahadeo Prosad Sahu, ILR (1909-10) 36 Cal 768, 111.

8.     Kedar Nath v. Ajudhia Prasad, 1883 Punj Rec l65.

9.     Nash v. Inman, , (1908) 2 KB 1.