The Indian Contract Act, of 1872(hereby ICA)[1] serves as the basis for contracts, legally binding parties and enforcing agreement terms, it also specifies penalties for breaches. Contracts are important in modern society because they help to resolve issues and generate mutual advantages while also boosting operational efficiency.
Under section 2 (h)[2]a contract is an agreement enforceable by law. Contracts are formed and validated according to the provisions of the ICA.
ICA incorporates the legal principle of Estoppel, which can be traced back to the French term “Estoupail”.[3] It was originally used to rectify discrepancies in different scenarios. In the context of the ICA, Estoppel is a legal principle that aims to prevent individuals from making contradictory statements about a specific fact or status.
This principle is particularly relevant when such statements or actions have influenced the actions of others in relation to a contract. In simpler terms, Estoppel prohibits a person from denying or negating a previous statement or action if it has caused someone else to change their behaviour.
An important feature of contracts is Contractual Capacity[4], which ensures parties understand and fulfil obligations, with breaches having legal consequences. In Section 10, the parties need to be competent in order to form a contract.[5] Competence is defined in Section 11 of ICA[6]. It says that “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”.
Principle, nature & types of estoppel
Promissory estoppel is a legal doctrine that prevents a party from withdrawing a promise if the other party has reasonably relied on the promise and suffered a loss as a result. The doctrine of promissory estoppel is based on the principles of justice and fairness.
“Union of India v. Anglo-Afghan Agencies”[7]
The case of “Union of India v. Anglo-Afghan Agencies (1968)”[8] is a landmark case on the doctrine of estoppel in India. In this case, the Government of India announced an Export Promotion Scheme to provide incentives to exporters of woollen goods. The scheme offered import entitlements to exporters, on the basis of the value of goods exported.
Anglo-Afghan Agencies, the respondent, exported woollen items under the plan and claimed import rights. Nevertheless, the Textile Commissioner decreased the import privileges without allowing the respondent to be notified.
The respondent filed a Supreme Court of India petition challenging the decrease in import rights. The Supreme Court ruled that the Government was estopped from refusing the respondent’s import rights. The court concluded that the government made a promise to exporters through the Export Promotion Scheme and that the respondent relied on the promise to its harm.
The case of “Union of India v. Anglo-Afghan Agencies”[9] is notable because it established that the estoppel theory can be used against the government.
Thus the theory of estoppel is based upon the principles of fairness and justice, and it can be utilised to prevent someone from breaking promises, even if such promises are not legally enforceable.
“Sourujmull And Ors. vs The Ganges Manufacturing Co”.[10]
The defendants promised to sell a specified quantity of gunny bags to the plaintiffs in the case of “Sourujmull And Ors. Vs. The Ganges Manufacturing Co.”[11] The plaintiffs, however, were unable to pay for all of the bags at the time of delivery, so the defendants agreed to keep the remaining bags for them until they could pay. Following that, the defendant refused to deliver the bags, claiming that the plaintiff had broken the contract.
The plaintiffs contended that the defendants were barred from disputing that they held the bags for them because they had relied on the defendants’ agreement to hold the bags and had expended considerable money as a result. The Calcutta High Court agreed with the plaintiffs, ruling that the estoppel concept may be used to prohibit the defendants from breaking their pledge.
The court argued that the theory of estoppel could also be applied in other instances where one person made a representation to another and that second person acted on that representation to the harm of the first person. The court further found that the representation did not have to be in writing or made for consideration for the theory of estoppel to apply.
The theory of estoppel could be used in a variety of settings, including business transactions, and it was not restricted to evidentiary law.
“State of Maharashtra v. M/s. Bhushan Power & Steel Ltd. (2021)”[12]
The State of Maharashtra acquired certain land from Bhushan Power & Steel Ltd. under the Land Acquisition Act, of 1894[13]. Bhushan Power & Steel Ltd. challenged the acquisition, arguing that the State had promised to not acquire the land if Bhushan Power & Steel Ltd. invested in a particular project.
The Supreme Court ruled that the notion of promissory estoppel could not be used to prevent the government from acquiring land under the Land Acquisition Act of 1894. The court reasoned that the theory of promissory estoppel is founded on the principles of fairness and justice and that it is intended to keep people from breaking agreements and causing injury to others. However, the court ruled that the notion of promissory estoppel could not be used to prohibit the state from exercising its sovereign rights.
The case of the “State of Maharashtra v. M/s. Bhushan Power & Steel Ltd. (2021)”[14] is a landmark case in the development of promissory estoppel in India. It established that the doctrine of promissory estoppel cannot be applied to prevent the State from exercising its sovereign powers.
Areas where the doctrine of promissory estoppel is not applicable:
- The doctrine of promissory estoppel cannot be applied to enforce a promise that is illegal or unconstitutional.
- The doctrine of promissory estoppel cannot be applied to enforce a promise that is made without consideration.
The following are the ingredients of the doctrine of promissory estoppel:
- There must be a clear and unambiguous promise made by one person to another person.
- The person to whom the promise is made must rely on the promise and act to their detriment.
- It must be unjust to allow the person who made the promise to go back on their promise.
Promissory Estoppel – Only A Shield, Not A Sword
Promissory estoppel allows the person to whom a promise has been made to enforce the promise against the person who made it, but not the other way around.
In the “Combe v Combe case”[15]
Denning LJ overruled the earlier practice, emphasizing that estoppel can only be a “shield,” not a “sword.” Justice Bhagwati expressed concerns in the “Motilal Padamat case” that allowing promissory estoppel as a sword could lead to excessive litigation
In the “Waltons Stores (Interstate) Ltd v Maher” case,[16]
The court held that promissory estoppel could be used to create a new cause of action, not just to defend an existing one. This challenges the traditional view of promissory estoppel as a defensive principle and shows that it can also be used to enforce promises.
In this case, Maher was bound by a contract under promissory estoppel, even though there was no formal contract in place. This is because Waltons Stores had made a clear and unambiguous promise to Maher, and Maher had relied on that promise to his detriment.
Law commission recommendations
In its 1984 report[17], the “Law Commission” recommended Section 25A to the ICA[18]. This section outlines conditions for a legally binding promise, even without consideration. It requires an unequivocal promise with the intent to affect legal relations, the promisor’s awareness of reliance, and actual reliance by altering one’s position. Exceptions exist when subsequent events make enforcement unfair to the promisor or when the promisor is the government.
Legal provisions
There is no provision for promissory estoppel in Indian law. Section 25 of the ICA[19] covers contracts without consideration (enforceability of promises), while Section 115 of the Indian Evidence Act, of 1872[20], deals exclusively with estoppels only.
Capacity of minors to a contract
The Indian Contract Act of 1872 forms the basis of contracts in India. It mandates that all parties must have the legal capacity to enter into a contract. Key elements for a valid contract include offer, acceptance, intent for a legal relationship, lawful consideration, competent parties, free consent, lawful purpose, and non-voidability. Now, let’s delve into minors’ capacity to contract.
Understanding Competency in Contracts
Section 10[21]
elaborates that parties entering into a contract must possess the necessary competency.
Section 11[22]
Any person is considered competent to contract who has reached the age of majority as defined by their local laws, is of sound mind, and has not been disqualified from contracting by any applicable laws.
Minors in Contract Law
The age of majority is set at eighteen years, with exceptions in cases where a court appoints a guardian, raising the age to twenty-one years.[23]
“MohoriBibee vs. Dharmodas Ghose”[24]
MohoriBibee, a minor, borrowed money from Dharmodas Ghose at a high rate of interest. She mortgaged her property as security for the loan. When she came of age, she refused to repay the loan or return the property. Ghose sued her to enforce the mortgage.
The Judicial Committee of the Privy Council held that a minor’s contract is void ab initio (from the beginning). The Privy Council held that promissory estoppel could not be used to enforce the mortgage contract.
The case of “MohoriBibee v. Dharmodas Ghose” established the principle that minors’ contracts are void ab initio.
The Doctrine of Restitution
One pivotal aspect of contracts involving minors is the doctrine of restitution. Section 64 of ICA[25]allows individuals with voidable contracts to seek restitution. However, this principle does not apply to contracts with minors, which are unequivocally considered void. Restitution is only feasible if the minor still retains the goods or property received as a consequence of the contract.
Contracts Beneficial to Minors
Certain types of contracts are deemed beneficial to minors and can be enforced for their benefit. These include contracts related to mortgage money, promissory notes executed in favour of a minor, and contracts that supply necessities suited to the minor’s condition, such as food, lodging, and education.[26]
“In summation, minors, by virtue of their limited contractual capacity, exist in a unique legal realm where certain contracts can be enforced for their benefit, while others are inherently void. The principles and legal precedents surrounding minors and contracts significantly shape the landscape of contract law under the Indian Contract Act of 1872.
Minors have limited contractual capacity, but there are exceptions and intricacies within contract law that must be carefully considered when dealing with contracts involving minors.”[27]
The Doctrine of Estoppel and Obligation of Minor to an Agreement
The doctrine of estoppel does not apply to minors under the Indian Contract Act, of 1872 (ICA). This is because Section 11 of the ICA[28] states that a minor is incompetent to contract. This means that a minor isn’t bound by a contract, except for a few exceptions.
Why the doctrine of estoppel does not apply to minors
Minors are still developing and learning, and they may not fully understand the consequences of their actions. They are more likely to be influenced by adults, and they may be pressured into entering into contracts that are not in their best interests. Also, allowing estoppel to apply to minors could lead to minors being exploited by adults.
“Khan Gul v. Lakha Singh”[29]
The court held in Khan Gul v Lakha Singh that a minor cannot be prevented from denying a contract. The court argued that minors are under the protection of the law, and will not be held liable to the same standards of responsibility as an adult.
Current and recent developments
Some people have argued that promissory estoppel should be applied to minors in cases where they have made a promise to an adult and the adult has relied on that promise to their detriment. However, the Indian courts have continued to hold that the doctrine of estoppel does not apply to minors.[30]
Should promissory estoppel be applied to minors?
Minors are still developing and learning, and they may not fully understand the consequences of their promises. They are more likely to be influenced by adults, and they may be pressured into making promises that they do not intend to keep. Allowing promissory estoppel to apply to minors could lead to minors being exploited by adults.[31]
An adult could pressure a minor into promising to do something for them, such as working for them for free or signing a contract. The minor may make the promise in order to please the adult, or because they do not understand the consequences of the promise. However, the minor may later realize that they do not want to keep the promise. If promissory estoppel were to apply in this case, the minor would be bound by their promise, even though they did not fully understand what they were promising.
In addition to this, there are other concerns, applying promissory estoppel to minors could make it more difficult for minors to void contracts that they have entered into under duress or fraud. This is because adults could use promissory estoppel to argue that minors should be bound by the contracts even if they were entered into under duress or fraud.
I personally do not support the application of promissory estoppel to minors. I believe that there are a number of reasons why promissory estoppel could be harmful to minors, and I do not believe that the benefits of applying promissory estoppel to minors outweigh the risks.