RULE OF ESTOPPEL AND ITS APPLICATION: SUBSCRIPTION RULE AND MINOR ENTERING INTO A CONTRACT

The present blog will deal with the rule of Estoppel and its application in two facets of law viz. subscription rule and contract with a minor. In the simplest term Estoppel means “to stop” and in a legal sense, it means to prevent someone from asserting or acting contrary to what is implied by a previous statement or action of that person. Section 115 of the Indian Evidence Act, 1872 states the main gist of this rule. The illustration for the section is:

‘A’ intentionally and falsely leads ‘B’ to believe that certain land belongs to ‘A’, and thereby induces ‘B’ to buy and pay for it.

The land afterward becomes the property of A, and A seeks to set aside the sale on the ground that, at the time of the sale, he had no title. He must not be allowed to prove his want of title. The objective of this doctrine is to prevent someone from giving contradictory statements in a Court of Law and to avert the commission of fraud by one person on another.

Subscription Rule

To understand this facet, we first need to discuss the rule of promissory estoppel in very brief.  Under any contract, three conditions must be fulfilled to apply the rule of estoppel. Those are:

  1. Promise made by the promisor.
  2. In the faith of this promise, the promisee changed his legal position.
  3. Promisor is now estopped from denying his promise based on this rule of estoppel.

This is also known as Promissory Estoppel as the promisee changed his legal position on the faith of the promise made by the promisor and thus the promisor is bound to pay to the promisee or perform his promise. This principle of promissory estoppel will be analyzed using the instances of subscription cases in this part of the article. Subscription in layman’s language can be explained as an arrangement to receive something by paying in advance and in this article, it is used as the contribution of money to a fund, project, or cause to get the benefit at a later stage. A simple illustration of the same is stated below:

A(promisor) promises B(promisee) to subscribe to the construction of a building with a specific amount. In faith with the promise of A, B enters into a contractual agreement with C, a builder, for the construction of the building. Later, when B asks A for the sum of money for which he has subscribed earlier, A denies paying it. In this instant case, A will be stopped because of the principle of promissory estoppel.

Now let us analyze the same using a few case laws on the same. The first case which is based on a similar set of facts is that of Kedarnath Bhattacharjee v. Gorie Mohamed. In this case, the defendant had agreed to subscribe to Rs. 100 towards the construction of a Town Hall at Howrah offered by the Municipal Corporation of Kolkata. The Chairman of the Municipal Corporation on the promises made by the subscribers entered into a construction agreement with a builder for the construction of the same. When the defendant was asked by the Municipality for the amount for which he subscribed then he refused to pay the said amount and thus he was sued by the Chairman of the Municipal Corporation. In this case, the Hon’ble High Court of Calcutta stated that in the present case, persons were asked to subscribe knowing the purpose for which the subscription was asked, i.e., the construction of the Town Hall. The Corporation entered into the construction by considering the subscription made for the same and now the promisor is estopped from denying fulfilling his promise. The promisee has changed his legal position on the faith of the promise of the promisor and that is a sufficient consideration in this case thereby satisfying the conditions required under the rule of estoppel. Thus, the defendant was ordered to pay the said amount of subscription in the case.

The next case to be discussed for better clarification on the same is Doraiswami Iyer v. Arunachala Ayyar. In this case, the trustees of a temple invited for subscription for the repairs of the temple which was already started before the offer of subscription. The subscription was offered because as the work proceeded more money was required for the same. The defendant was one of the subscribers of the same but now he is denying to pay the same. The court deciding this case stated that the plaintiff, in this case, had not changed their position because of the promise made by the promisor who is the defendant here. The repair work was already going on and liability was already there on there on the plaintiff for the same. The promise made by the promisor is not a sufficient consideration in the case so that he can be estopped from fulfilling his promise by applying the principle of Promissory Estoppel. Rule of Estoppel will fail here because the repair work was not started in the faith of the promise made by the promisor.

Analyzing the cases discussed supra one can say that the liability and principle of Estoppel come into play only when the promisee on the faith of the promise, has altered his position by doing some act. The above explanations highlight the same.

Minor and the rule of Estoppel

Coming to the next part, we will analyze the applicability of the Rule of Estoppel in the case of a minor entering a contract under the Indian Contract Act, 1872 using a few landmark judgments in this regard. The whole controversy is the result of the decision of the apex court in the case of Mohiri Bibee v. Dharmodas Ghose where the court declared that any agreement entered with a minor will be void ab initio viz. void from the very beginning. In such a case the Rule of Estoppel can’t come into the picture as the whole transaction itself is void ab initio according to section 11 of the Indian Contract Act,1872. Now, the question arises what if the minor has entered into the agreement falsely representing himself as a major? What will be the position of Rule of Estoppel in such cases is the question answered by Shadi Lal, C.J. in the case of Khan Gul v. Lakha Singh.

In the above-stated case, the minor falsely represented himself to be a major according to the Majority Act, 1875. The minor received a benefit of Rs. 17,500 under the agreement and when the other party asked him to perform his side of the promise then he took the defense of the Minority stating the Mohiri Bibee case. The Trial Court in this case gave its decision that as the minor falsely represented himself to be a major thus, he is estopped according to the rule of Estoppel from taking the defense of his minority to avoid the performance of his side promise. The question before the Supreme Court, in this case, was whether a minor, who, by falsely representing himself to be a major, has induced a person to enter a contract, is estopped from pleading his minority to avoid the contract.

Keeping this in mind and commenting further on this Shadi Lal, C.J. opined that the term “person” in the language of S. 115 of the contract act is comprehensive enough to include a minor but the rule of estoppel is a rule of evidence and must be read along with and subject to the provisions of other laws. The law of estoppel is a general law applicable to all persons, while the law of contract relating to the capacity to enter into a contract is directed towards a special object: and it is a well-established principle that, when a general intention is expressed by the legislature, and also a particular intention, which is incompatible with the general one, the particular intention is considered an exception to the general one. This rule applies whether the general and specific provisions are contained in the same statute or different statutes. Now, when the law of contract specifies that a minor shall not be liable upon a contract entered into by him, he should not be made liable upon the same by the general rule of Estoppel.

We can thus safely conclude that the rule of estoppel fails to operate in any case where a minor enters into a contract with any person. Although it has been observed that courts provide compensation to the party at loss under the provisions of The Specific Relief Act, 1963.

Conclusion

One can conclude that the application of the rule to estoppel is very varied, and the above-discussed applications are just two of the many applications of the same. Estoppel provides the courts with a strong weapon to guard justice and the evidence of estoppel is conclusive proof against any person if proven correctly in a court of law. It is on the readers of this blog to read more about this rule and its application in different cases.

Author(s) Name: Saket Bhalotia (Faculty of Law, Delhi University)