Mohori Bibee v. Dharmodas Ghose

A minor executed a mortgage for Rs. 20,000 in favour of a money lender whose attorney knew he was under age. The minor sued to have the mortgage declared void, and the lender's executors asked that he at least be made to repay the money advanced. The Privy Council held that the Indian Contract Act makes competence to contract essential, so the mortgage was void and no repayment was ordered.

Parties

Dharmodas Ghose — respondent; the plaintiff in the suit, an infant when he executed the mortgage on 20 July 1895, who sued through his mother and guardian as next friend.

Mohori Bibee and another — appellants; the executors of Brahmo Dutt, the defendant in the suit, who died after the appeal was instituted and whose executors prosecuted it.

Brahmo Dutt — money lender carrying on business at Calcutta and elsewhere, in whose favour the mortgage was executed; absent from Calcutta throughout, the business being carried through for him by his attorney Kedar Nath Mitter.

Procedural History

1. Suit. On 10 September 1895 the infant, by his mother and guardian as next friend, commenced the action against Brahmo Dutt, praying for a declaration that the mortgage was void and inoperative and should be delivered up to be cancelled.
2. Court of First Instance. Mr. Justice Jenkins presided, found the facts and granted the relief asked.
3. Appellate Court. It dismissed the appeal from Mr. Justice Jenkins. Both Courts below held that they were bound by authority to treat the contracts of infants as voidable only, and not void, but that Section 64 of the Contract Act refers only to contracts made by persons competent to contract and so does not apply to infants.
4. Privy Council. After the appeal was instituted Brahmo Dutt died, and his executors prosecuted it. The Judicial Committee had the case re-argued on the void-or-voidable point and delivered its judgment on 4 March 1903, dismissing the appeal with costs.

Facts

On 20 July 1895 Dharmodas Ghose executed a mortgage in favour of Brahmo Dutt to secure repayment of Rs. 20,000 at 12 per cent. interest, on some houses belonging to him. The amount actually advanced is stated to be in dispute. He was an infant at the time and did not attain 21 until the following September.

Brahmo Dutt was absent from Calcutta throughout. The whole business was carried through by his attorney Kedar Nath Mitter, the money being found by Dedraj, the local manager of Brahmo Dutt. While the advance was under consideration, Kedar Nath received a letter dated 15 July 1895 from an attorney, Bhupendra Nath Bose, instructed by the infant's mother and guardian, giving notice that Dharmodas Ghose was still an infant under 21 and that anyone lending money to him would do so at his own risk and peril. Kedar Nath denied receiving it, but both Courts below held that he received it personally on 15 July, and the Privy Council calls the evidence on the point conclusive.

On the day of execution Kedar Nath got the infant to sign a long declaration he had prepared, stating that he came of age on 17 June and that Dedraj and Brahmo Dutt, relying on this, had agreed to advance Rs. 20,000. Both Courts below held that Kedar Nath did not act upon, and was not misled by, that statement, and was fully aware at the time of execution of the minority. Kedar Nath said he got the declaration for the greater security of his client. The infant had no separate legal adviser.

Issues Raised

1. Was the knowledge of Kedar Nath to be imputed to the defendant, Brahmo Dutt?
2. Was the infant estopped by Section 115 of the Indian Evidence Act from setting up his infancy?
3. Is an infant's mortgage void or voidable, and does Section 64 of the Contract Act (restoration of benefit on rescission) therefore require him to repay the money received?
4. Did Section 65 of the Contract Act, or Sections 38 and 41 of the Specific Relief Act, or the maxim that one who seeks equity must do equity, require repayment?

Arguments Contended

Defence of Brahmo Dutt (as pleaded): the plaintiff was of full age when he executed the mortgage; neither the defendant nor Kedar Nath had notice of infancy; even if he was a minor, the declaration as to his age was fraudulently made and disentitled him to relief; and in any case no relief should be granted without making him repay the money advanced. A further plea that the plaintiff had ratified the mortgage wholly failed and was not the subject of appeal.

Appellants' contentions on appeal:

• The Courts below were wrong to impute Kedar Nath's knowledge to the defendant; Dedraj, the defendant's Gomastha, was the real representative in Calcutta and had no knowledge of the minority.
• The plaintiff was estopped by Section 115 of the Indian Evidence Act from setting up infancy.
• The point most pressed: the Courts ought not to have decreed for the respondent without ordering him to repay Rs. 10,500 said to have been paid to him, relying on Section 64 of the Contract Act.
• A new point on Section 65 of the Contract Act, not raised in the Courts below.
• The preamble showed the Act left contracts by infants outside it.
• Sections 38 and 41 of the Specific Relief Act, and the maxim that one who seeks equity must do equity, required repayment.

The judgment does not record the respondent's arguments.

Court's Reasoning

The judgment is a single opinion delivered by Sir Ford North on behalf of the Board. It numbers no paragraphs, so none are cited.

• Imputed knowledge: the Courts below were obviously right. Kedar Nath had full authority, stood in the place of the defendant for this mortgage, and his acts and knowledge were those of his principal. Dedraj himself said Kedar Babu was acting on behalf of his master from the beginning and that he left all matters regarding the minority in Kedar Babu's hands.
• Estoppel (Evidence Act, s. 115): the Board did not decide whether the section applies to infants. It held the section does not apply where the statement is made to a person who knows the real facts and is not misled. "There can be no estoppel where the truth of the matter is known to both parties". Following English authority (Nelson v. Stocker), a false representation made to a person who knows it to be false "is not such a fraud as to take away the privilege of infancy". The Board notes the same principle in the explanation to Section 19 of the Contract Act.
• Approach to the void-or-voidable question: the general current of Indian decisions since the Contract Act was that infants' contracts are voidable only, but not without protest and contrary decisions. The Board considered itself at liberty to act on its own view and had the point re-argued. It held that "the whole question turns upon what is the true construction of the Contract Act itself".
• Transfer of Property Act: section 7 deals only with persons competent to contract, and section 4 makes the contract chapters part of the Indian Contract Act, so the mortgage falls within that Act.
• Sections 2, 10 and 11 of the Contract Act: the Board set out section 2 (e), (g), (h) and (i), section 10 (agreements are contracts if made by parties competent to contract) and section 11 (competence: majority, sound mind, not disqualified by law). It concluded that the Act makes it essential that all contracting parties be competent to contract, and that a person incapable by reason of infancy cannot make a contract within the meaning of the Act.
• Supporting sections: section 68 (necessaries: reimbursement from the incapable person's property, though he is not liable and no demand is enforceable against him), sections 183 and 184 (no person under majority can employ or be an agent), and sections 247 and 248 (a minor admitted to a partnership's benefits cannot be made personally liable).
• Section 64: the question of void or voidable "presupposes the existence of a contract within the meaning of the Act, and cannot arise in the case of an infant". So there was no voidable contract of the kind dealt with in section 64.
• Section 65: like section 64, it starts from an agreement between competent parties and has no application where there never was, and never could have been, any contract.
• Preamble: even if the Act left infants' contracts outside it, that would not help the appellants; but the Act, so far as it goes, is exhaustive and imperative, and provides in clear language that "an infant is not a person competent to bind himself by a contract of this description".
• Specific Relief Act, ss. 38 and 41: these give the Court a discretion. The two Courts below held that justice did not require the infant to return money advanced with full knowledge of his infancy, and the Board saw no reason to interfere.
• He who seeks equity must do equity: this is the last point over again. The Board cited Thurstan v. Nottingham Permanent Benefit Building Society ([1902] 1 Ch. 1, since affirmed by the House of Lords), where a mortgage taken from an infant was declared void and no repayment of the advances was ordered; Lord Justice Romer said a Court of Equity cannot say it is equitable to compel a person to pay money in respect of a transaction which the Legislature has declared void as against that person. The Board said the same applied here.
• Hindu law: the Board observes that its construction seems to accord with the old Hindu law as declared in the laws of Menu (ch. viii. 163) and Colebrooke's Digest, although some decisions held before the Contract Act that an infant's contract was voidable only, in accordance with the English law as it then stood.

Judgement

The appeal wholly failed. The Privy Council advised His Majesty that it should be dismissed, with the appellants to pay the costs of the appeal. The decree of the Court of First Instance, declaring the mortgage void and ordering it to be delivered up for cancellation, stood, and the infant was not ordered to repay the money advanced.

Legal Principle / Ratio

Under the Indian Contract Act, competence to contract is essential (sections 10 and 11), and a person who is an infant is not competent to contract. His agreement is therefore not a contract within the meaning of the Act, so the void-or-voidable question, and the restoration provisions of sections 64 and 65 that presuppose a contract between competent parties, do not arise. A false statement of age made to a person who knows the truth does not estop the infant or take away the privilege of infancy. On the facts, the discretion under sections 38 and 41 of the Specific Relief Act was not exercised to compel repayment.

Critical Analysis

Analysis based on the judgment text.

The estoppel question was left open. The Board says the Courts below seem to have decided that section 115 does not apply to infants, but did not think it necessary to deal with that question. It decided only that the section does not apply where the other party knows the real facts. What the position would be where the lender was actually misled by a false statement of age is not decided in this judgment.

Repayment was refused partly on discretion tied to the lender's knowledge. Under the Specific Relief Act the Board declined to interfere with the lower Courts' view that justice did not require repayment of money advanced to the infant with full knowledge of his infancy. That reasoning rests on the lender's knowledge. The judgment does not say how the discretion would be exercised where the lender did not know.

Restitution against the infant's property is not addressed beyond the sections discussed. The Board notes that section 68 creates a statutory claim against an infant's property for necessaries, but the mortgage was not for necessaries and the judgment says nothing further on other forms of recovery.

Significance

The judgment departs from the general current of Indian decisions that infants' contracts were voidable only, and rests the result on the construction of the Contract Act itself: an infant is not competent to contract, so there is no contract within the Act. The Board explicitly chose to act on its own view of the Act and had the point re-argued for that purpose.

It also fixes two practical consequences on the facts: no estoppel arises where the lender knew the truth, and the infant was not made to repay the money advanced, the Board relying on the English decision in Thurstan for that outcome.

Exam-Important Points

• Facts in one line: an infant mortgaged houses for Rs. 20,000 to a money lender whose attorney knew he was under age; he sued to have the mortgage cancelled; the lender's executors sought repayment.
• Bench: Privy Council; judgment delivered by Sir Ford North on 4 March 1903.
• Holding: because an infant is not competent to contract under sections 10 and 11, his agreement is not a contract within the Act; sections 64 and 65 do not apply, so he need not restore the money.
• Estoppel: section 115, Evidence Act does not apply where the lender knows the real facts; the Board did not decide whether it applies to infants generally.
• Supporting sections cited: 68, 183, 184, 247 and 248 of the Contract Act; sections 38 and 41 of the Specific Relief Act (discretion).
• English authorities mentioned: Nelson v. Stocker (false representation to a person who knows the truth) and Thurstan v. Nottingham Permanent Benefit Building Society (no repayment where the Legislature has declared the transaction void).
• Trap: the Courts below had treated infants' contracts as voidable; the Privy Council dismissed the appeal, so the decree stood, but it replaced the Courts below's reasoning (voidable only) with its own construction of the Act: an infant's agreement is not a contract at all.

Prepared from the full text of the judgment.