Capacity to Contract

Chapter 4

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Capacity to contract

Means Competence to enter into a contract Persons incompetent to contract

a) Minor

b) Person of unsound mind and

c) Persons disqualified by any law to which they are subject

Contracts entered into by persons mentioned above are void.

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Capacity to Contract

Section 11

Only a person:who is of the age of majorityof sound mind, andnot forbidden under any other

law

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Minor Who is a Minor?

Indian Majority Act, 1875, a minor is a one who has completed his or her 18th year of age.In the following cases a person continues to be a minor until he completes the age of 21 years :

a) Where a guardian of a minor’s person or property has been appointed under the Guardians and Wards Act, 1890; or

b) Where the superintendence of a minor’s property is assumed by a Court of Wards.

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Why should minors be protected ?

A minor has an immature mind and can’t think what is good or bad for him.

Minors are

often exploited.

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What happens to a contract with or by a minor?

Contract is void-ab-initio, i.e., neither the other party nor the minor can enforce.

Case law : Mohiri Bibi vs. Dharmdas Ghosh.

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Minor cannot be asked to refund the benefits received.

However, Minor can be a promisee/beneficiary. Minor cannot ratify even after attaining

majority. What about a situation where minor

represents to be of the age of majority?

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Contract still void

If benefits received can be traced in the same or altered form, Minor liable to restore.

Minor liable for necessaries supplied to him or any loan for necessaries to him or to any of his dependants.

However, only properties of the minor, if any shall be liable.

Case law : Nash vs. Inman.8J J Maini, MIMIT Malout

Effects of Minor’s agreement

1. An agreement with or by a minor is void Case Mohiri Bibi vs. Dharmdas Ghosh.

2. No Ratification

3. Minor can be a promisee or a beneficiary

4. No estoppel against minor

5. No specific performance except in certain cases

6. Liability for torts – a tort is a civil wrong.

7. No insolvency9J J Maini, MIMIT Malout

Effects of Minor’s agreement

8. Partnership

9. Minor can be an agent

10. Minor cannot bind parent or guardian

11. Joint contract by minor and adult

12. Surety for minor

13. Minor as Shareholder

14. Liability for necessaries

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Section 12

Person usually of unsound mind but occasionally of sound mind can make a contract when of sound mind (Onus on the other party)

Person usually of sound mind but occasionally of unsound mind cannot make a contract when of unsound mind (Onus on the person claiming to be of unsound mind)

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Mental Incompetence

Idiots Lunatics Intoxicated persons

Contract void-ab-initio except for necessaries as in the case of Minor.

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Persons of unsound mind

1. Idiocy – an idiot is a person with no intervals of saneness. He is incapable and his mental powers of understanding even ordinary matters are absent because of lack of development of brain. The agreement with an idiot is void.

Case Inder Singh vs. Parmeshwardhari Singh A property worth about Rs.25000 was agreed to be sold by a person for Rs.7000 only. His mother proved that he was a congenital idiot, incapable of understanding the transaction. The sale was held to be void.

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Persons of unsound mind

2. Drunkenness – temporary incapacity till the man is under the influence of intoxicants creating impotence of mind. He stands on the same footing as a lunatic.

3. Lunacy or insanity – It is a disease of brain. A lunatic loses the use of his reason due to some mental strain or disease. He may have lucid intervals of sanity. He can enter into contract during that period when he is of sound mind.

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Persons of unsound mind

4. Hypnotism - it also produces temporary incapacity till the person is under the impact of artificially induced sleep.

5. Mental Decay – it is on account of old age etc.

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Persons disqualified from contracting by any other law1. Alien Enemies

2. Foreign sovereigns

3. Insolvents

4. Convict

5. Corporations

6. Married women

7. Professional persons

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Free Consent

Coercion (Sections 15 and 19) Contract voidable at the option of the

aggrieved party. Benefits received to be returned.

Undue Influence One party is in a position to dominate

the will of the other. Uses that dominance to secure

undue/unfair contractual advantage 17J J Maini, MIMIT Malout

In some relationships, it is presumed, e.g., Parent and Child; Spiritual Advisor and Disciple; Trustee and Beneficiary; Doctor and Patient; Lawyer and Client.

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Fraud

Contract voidable at the option of the party defrauded.

Claim for damages.

However, relief available only if party actually defrauded.

A fraud that does not defraud is no fraud. Case of defective cannon

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Misrepresentation

Contract rendered voidable. Damages cannot be claimed.

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Mistake

Of Law Of Fact Mistake of Indian Law doesn’t render a

contract void or voidable. Ignorance of law is no excuse Mistake of foreign Law to be treated as

mistake of fact.

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Specific and General Offer

Specific Offer: made to a specified person or a group of

persons. can be accepted only by the person to

whom made.

Thus, if offer is addressed to ‘A’, ‘B’ cannot accept it.

Case Law: Boulton vs. Jones

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Mistake of Fact

Unilateral

- does not render contract void except where induced by fraud

Case Law: Cundy vs. Lindsey Bilateral

- absence of consent … contract is void-ab-initio

Case Law: Henkel vs. Pape

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Consideration

Something in return Section 2(d) When at the desire of the promisor, the

promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or promises to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.

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Consideration

Past, present or futureMust move at the desire of the

promisorMay move from promisee or any

other personNeed not be adequate but must

have value in the eyes of law

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‘No Consideration, No Contract’

Exceptions

(1)(a) Natural love and affection

(b) Between parties in a near relation

(c) Written

(d) Registered(2)(a)Promise to compensate

(b) Voluntary act which promisor was legally bound to do

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‘No Consideration, No Contract’

(3) (a) Written promise (b) to pay time-barred debt.

(4) Bailment

(5) Agency

(6) Gift

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Breach of contract

Both parties are promisors as well as promisees

If any of the promisors refuses or fails to perform, he is said to be guilty of breach of contract.

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Anticipatory Breach

Breach before time for performance arrives

Promisee may proceed:(a) As soon as breach is committed; or

(b) Wait till the time of performance arrives

Remedies(1) Suit for injunction Brook Bond Ltd. vs. Vijay Mallya

(2) Claim for damages29J J Maini, MIMIT Malout

Actual Breach

(Refusal or failure when time for performance is due, or

During performance.Remedies Right of Rescission Claim for damages Suit for specific Performance Suit for Injunction Quantum Meruit

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Claim for Damages

Damages U/S Section 73

Damages U/S Section 74

Only damages naturally flowing

from breach (Ordinary

Damages)

Special Damages(No claim for

consequential loss unless in the

Contemplation of the parties

(Hedley v. Baxendale)

ExemplaryDamages

Nominal Damages

Pre-fixed Damages

Penalty

Liquidated Damages(What can be recovered

is actual loss or amount prefixed, whichever is less)

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