CAPACITY TO CONTRACT

An agreement becomes a contract if it is entered into between the parties who are competent to contract (Sec. 10).

Everyone is competent (i) who is of the age of majority; (ii) who is of sound mind; and (iii) who is not disqualified from contracting by any law.

Contracts by a Minor A ‘minor’ is a person who has not

completed the age of 21 years. Under the Indian law a minor in not competent to contract.

A minor’s contract is absolutely void ab initio: In other words, a minor is neither liable to perform what he has promised under an agreement, nor liable to repay money received under it.

Principle behind this ruling is that a minor is incapable of judging what is good for him.

Specific performance of a minor’s contract is absolutely void: Guardian has no power to bind a minor by a contract for buying of immovable property.

Ratification of a minor’s contract: It means consenting to a past contract, made by a minor, of a future date on attaining majority. No question of ratification.

False representation by a minor – Estoppel: Estoppel means rule of evidence. A minor cannot be charged even if he represents falsely to enter into a contract.

Agreement by Guardian on behalf of minor is valid: In this case it is valid provided it benefits the Guardian or for legal necessity.

Insolvency: Minor cannot be insolvent. Relinquishment: Not applicable to a

minor. Service Contracts: Contract for

personal service is void.So, when can a minor contract?

(Exceptions) As a Promisee. For example,

promissory in minor’s favor can be enforced by him.

As an Agent. Can bind his principal by his acts, but is not liable to the same.

As a partner in a partnership firm. Not liable to any obligations of the firm.

Necessaries: Minor is bound to support the supplier of necessaries. Supplier can be reimbursed from property of minor.

Contracts by Persons of Unsound Mind

Contracts by Lunatics. Example: A patient in a lunatic

asylum who is at intervals of sound mind, may contract during those times.

Contracts by Drunkards. Contract by such a person is absolutely void and cannot be ratified.

Contracts with Parda-Nishin Women

Such women, who by custom of the country or by usage of the particular community to which she belongs is obliged to observe complete ‘seclusion’.

In order to make a valid contract with such a woman, it should be established that the deed was not only executed by her but was explained to and understood by her.

Contracts by Married or Single Women

Can enter into contract if she is a major and does not suffer from any disability.

A married woman can enter into a valid contract w/o her husband’s consent.

A married woman can even bind her husband’s property and pledge his credit for pressing necessities.

Other Contracts By Corporations It is competent to contract. It cannot enter into contracts of a

strictly personal nature.By Insolvents Such persons cannot enter into

contracts as his property vests in the hands of the Official Assignee, who can enter into contract on behalf of the insolvent.

FREE CONSENT

Sec. 13: “Two or more are said to consent when they agree upon the same thing in the same sense.”

Agreeing upon the same thing in the same sense means ad-idem.

Sec. 14: “Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake.”

Coercion

It is committing, or threatening to commit, any act forbidden by the IPC,

or the unlawful detaining, or threatening to detain any property,

to the prejudice of any person whatever,

with the intention of causing any person to enter into an agreement.

Ashok threatens to shoot Brijesh if he does not let out the house to him. Brijesh agrees to do so. This agreement has been brought about by coercion.

Ajay and Bittu are negotiating on a Contract, but Ajay are unwilling. A third party threatens to assault Ajay if he does not enter into contract with Bittu, who is unaware of these threatening. Ajay, thereupon out of fear, enters into a contract with Bittu. Does the contract become binding on Ajay?

It is observed here that the consent of Ajay has not been freely obtained as he was threatened with assault.

Coercion may proceed from anybody, even a person who is not a party to the contract.

Ajay’s consent as such is caused by coercion and therefore, the consent is not binding on Ajay.

Undue Influence

Sec.16(1): “A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.”

When is a person deemed to be in a position to dominate will of another? Real or apparent authority, or In a fiduciary relation, or Mental capacity temporarily or

permanently affected by reason of age, illness, or mental/bodily distress.

Relationships of father & son, guardian & ward, husband & wife, doctor & patient, trustee & beneficiary, solicitor & client, pardanishin women, etc would fall within the ambit of undue influence.

Fraud

Sec.17: Fraud means and includes any of the following acts committed by a party to a contract; or with his connivance; or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract –

(1) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;

(2) the active concealment of a fact by one having knowledge or belief of the fact;

(3) a promise made w/o any intention of performing it;

(4) any other act fitted to deceive; (5) any such act or omission as

the law specially declares to be fraudulent.

Essentials of Fraud

There must be an intention to deceive. Act done by a party to a contract, or

with his connivance or by his agent. There must be false representation of

facts, eg, suggestio falsi. There must be an active concealment

of a fact of which he has the knowledge and duty to disclose, eg, suppressio veri.

There must be a false promise. Any other act or omission which

the law considers it to be fraudulent.

Or fitted to deceive which is done with the obvious intention to commit fraud.

The party so induced must have acted upon it and suffered loss.

When is a contract not voidable? (Exceptions)

Deceit which does not deceive is no fraud.

Negligence is no fraud. Ignorance is not fraud. If there is a Waiver (pardon) of the fraud. Silence w/o any duty to speak does not

amount to fraud. Silence likely to affect willingness of

contracting by a person is not fraud.

When is silence fraudulent?

Where the circumstances of the case are such that it is the duty of the person keeping silence to speak; or

Where silence is in itself equivalent to speech.

X says to Y: “If you do not deny it, I shall assume that the horse is sound.” Y says nothing. Here Y’s silence is equivalent to speech.

Misrepresentation Consent given under misrepresentation

of facts is no consent at all. A statement made which in fact is not

true, under the belief that it is true, is misrepresentation.

X says to Y that Z’s horse is of a very good breed & can run 40kms at a stretch. X believes it to be true and Y buys the horse from Z. It turns out that the horse can run only 4kms. This is misrepresentation.

Mistake

An erroneous belief about something is called “mistake”.

When an agreement is entered into under a mistake, consent is not free.

Mistake is of two kinds – (i) mistake of fact; and (ii) mistake of law.

Mistake of Fact

Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void (Sec.20).

X agrees to buy from Y a certain breed of dog. It turns out that the dog was dead at the time of the bargain though neither party was aware of the fact. The agreement is void.

Mistake of Law

Sec.21 provides that a contract is not voidable because it was caused by a mistake as to any law in force in India;

but a mistake as to a law not in force in India has the same effect as a mistake of fact.