Capacity to-contract


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Capacity to-contract

  1. 1. Capacity to Contract Chapter 4 J J Maini, MIMIT Malout 1
  2. 2. 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. J J Maini, MIMIT Malout 2
  3. 3. Capacity to Contract  Section 11 Only a person:  who is of the age of majority  of sound mind, and  not forbidden under any other law J J Maini, MIMIT Malout 3
  4. 4. 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. J J Maini, MIMIT Malout 4
  5. 5. 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. J J Maini, MIMIT Malout 5
  6. 6. 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. J J Maini, MIMIT Malout 6
  7. 7. 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? J J Maini, MIMIT Malout 7
  8. 8. 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. J J Maini, MIMIT Malout 8
  9. 9. Effects of Minor’s agreement 1. An agreement with or by a minor is void 2. 3. 4. 5. 6. 7. Case Mohiri Bibi vs. Dharmdas Ghosh. No Ratification Minor can be a promisee or a beneficiary No estoppel against minor No specific performance except in certain cases Liability for torts – a tort is a civil wrong. No insolvency J J Maini, MIMIT Malout 9
  10. 10. 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 J J Maini, MIMIT Malout 10
  11. 11. 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) J J Maini, MIMIT Malout 11
  12. 12. Mental Incompetence  Idiots  Lunatics  Intoxicated persons Contract void-abinitio except for necessaries as in the case of Minor. J J Maini, MIMIT Malout 12
  13. 13. 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. J J Maini, MIMIT Malout 13
  14. 14. 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. J J Maini, MIMIT Malout 14
  15. 15. 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. J J Maini, MIMIT Malout 15
  16. 16. Persons disqualified from contracting by any other law 1. Alien Enemies 2. Foreign sovereigns 3. Insolvents 4. Convict 5. Corporations 6. Married women 7. Professional persons J J Maini, MIMIT Malout 16
  17. 17. 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 J J Maini, MIMIT Malout 17
  18. 18. In some relationships, it is presumed, e.g., Parent and Child; Spiritual Advisor and Disciple; Trustee and Beneficiary; Doctor and Patient; Lawyer and Client. J J Maini, MIMIT Malout 18
  19. 19. 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 J J Maini, MIMIT Malout 19
  20. 20. Misrepresentation  Contract rendered voidable.  Damages cannot be claimed. J J Maini, MIMIT Malout 20
  21. 21. 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. J J Maini, MIMIT Malout 21
  22. 22. 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 J J Maini, MIMIT Malout 22
  23. 23. 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-abinitio  Case Law: Henkel vs. Pape J J Maini, MIMIT Malout 23
  24. 24. 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. J J Maini, MIMIT Malout 24
  25. 25. Consideration  Past, present or future  Must move at the desire of the promisor  May move from promisee or any other person  Need not be adequate but must have value in the eyes of law J J Maini, MIMIT Malout 25
  26. 26. ‘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 J J Maini, MIMIT Malout 26
  27. 27. ‘No Consideration, No Contract’ (3) (a) Written promise  (b) to pay time-barred debt. (4) Bailment (5) Agency (6) Gift J J Maini, MIMIT Malout 27
  28. 28. 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. J J Maini, MIMIT Malout 28
  29. 29. 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 damages J J Maini, MIMIT Malout 29
  30. 30. 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 J J Maini, MIMIT Malout 30
  31. 31. Claim for Damages Damages U/S Section 74 Damages U/S Section 73 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) Exemplary Damages Nominal Damages Pre-fixed Damages Penalty Liquidated Damages (What can be recovered is actual loss or amount prefixed, whichever is less) J J Maini, MIMIT Malout 31