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Capacity to Contract:

Capacity to Contract Chapter 4 1 J J Maini, MIMIT Malout

Capacity to contract:

Capacity to contract Means Competence to enter into a contract Persons incompetent to contract Minor Person of unsound mind and Persons disqualified by any law to which they are subject Contracts entered into by persons mentioned above are void. 2 J J Maini, MIMIT Malout

Capacity to Contract :

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 3 J J Maini, MIMIT Malout

Minor :

Minor Who is a Minor? Indian Majority Act, 1875, a minor is a one who has completed his or her 18 th year of age.In the following cases a person continues to be a minor until he completes the age of 21 years : Where a guardian of a minor’s person or property has been appointed under the Guardians and Wards Act, 1890; or Where the superintendence of a minor’s property is assumed by a Court of Wards. 4 J J Maini, MIMIT Malout

Why should minors be protected ?:

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

What happens to a contract with or by a minor?:

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. Point decided ; an agreement with a minor is absolutely void J J Maini, MIMIT Malout 6

Case law : Mohiri Bibi vs. Dharmdas Ghosh. :

Case law : Mohiri Bibi vs. Dharmdas Ghosh. Point decided : an agreement with a minor is absolutely void Facts of the case ; A, a minor, borrowed 20000/- from B and as a security for the same, executed a mortgage in his favour. He became a major a few months later and filed a suit for the declaration that the mortgage executed by him during his minority was void & should be cancelled. It was held that a mortgage by a minor was void & B was not entitled to repayment of money. J J Maini, MIMIT Malout 7

Minor cannot be asked to refund the benefits received. :

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? 8 J J Maini, MIMIT Malout

Contract still void:

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 . 9 J J Maini, MIMIT Malout

Effects of Minor’s agreement:

Effects of Minor’s agreement An agreement with or by a minor is void Case Mohiri Bibi vs. Dharmdas Ghosh. No Ratification- an agreement with minor is completely void. A minor cannot ratify the agreement even an attaining majority because a void agreement cannot be ratified. A person, who is not competent to authorize an act, cannot give it validity by ratifying it. 10 J J Maini, MIMIT Malout

Slide 11:

Minor can be a promisee or a beneficiary- There is no restriction on a minor from being a beneficiary like being a payee or a promise in a contract. Thus, a minor is capable of purchasing immovable property and he may sue to recover the possession of the property upon tender of the purchase money. Similarly, a minor, in whose favour, a promissory note has been executed can enforce it. J J Maini, MIMIT Malout 11

Slide 12:

No estoppel against minor No specific performance except in certain cases - A guardian of a minor cannot bind the minor by an agreement for the purchase of immovable property, so that minor cannot ask for the specific performance of the contract which the guardian had no power to enter into . No insolvency - A minor cannot be declared insolvent even though there is dues payable from the properties of the minor. J J Maini, MIMIT Malout 12

Slide 13:

Liability for torts – a tort is a civil wrong A minor is liable in tort. Thus, where a minor borrowed a horse for riding only, he was held liable when he lent the horse to one of his friends, who jumped and killed the horse. Similarly, a minor was held liable for his failure to return certain instruments which he had hired and then passed on to a fried. But, a minor cannot be made liable for a breach, of contract by framing the action on tort. You cannot convert a contract into a tort to enable you to sue on infant. J J Maini, MIMIT Malout 13

Effects of Minor’s agreement:

Effects of Minor’s agreement Partnership Minor can be an agent Minor cannot bind parent or guardian Joint contract by minor and adult Surety for minor Minor as Shareholder Liability for necessaries 14 J J Maini, MIMIT Malout

Section 12:

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 ) 15 J J Maini, MIMIT Malout

Mental Incompetence:

Mental Incompetence Idiots Lunatics Intoxicated persons Contract void-ab- initio except for necessaries as in the case of Minor. 16 J J Maini, MIMIT Malout

Persons of unsound mind:

Persons of unsound mind 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 agree ment 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. 17 J J Maini, MIMIT Malout

Persons of unsound mind:

Persons of unsound mind 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. 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 18

Persons of unsound mind:

Persons of unsound mind Hypnotism - it also produces temporary incapacity till the person is under the impact of artificially induced sleep. Mental Decay – it is on account of old age etc. J J Maini, MIMIT Malout 19

Persons disqualified from contracting by any other law:

Persons disqualified from contracting by any other law Alien Enemies Foreign sovereigns Insolvents Convict Corporations Married women Professional persons J J Maini, MIMIT Malout 20

Free Consent:

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 21 J J Maini, MIMIT Malout

Slide 22:

In some relationships, it is presumed, e.g., Parent and Child; Spiritual Advisor and Disciple; Trustee and Beneficiary; Doctor and Patient; Lawyer and Client. 22 J J Maini, MIMIT Malout

Fraud:

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 23 J J Maini, MIMIT Malout

Misrepresentation :

Misrepresentation Contract rendered voidable. Damages cannot be claimed. 24 J J Maini, MIMIT Malout

Mistake:

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. 25 J J Maini, MIMIT Malout

Specific and General Offer:

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 26 J J Maini, MIMIT Malout

Mistake of Fact:

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 27 J J Maini, MIMIT Malout

Consideration:

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. 28 J J Maini, MIMIT Malout

Consideration:

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 29 J J Maini, MIMIT Malout

‘No Consideration, No Contract’:

‘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 30 J J Maini, MIMIT Malout

‘No Consideration, No Contract’:

‘No Consideration, No Contract’ (3) (a) Written promise (b) to pay time-barred debt. (4) Bailment (5) Agency (6) Gift 31 J J Maini, MIMIT Malout

Breach of contract:

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. 32 J J Maini, MIMIT Malout

Anticipatory Breach:

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 33 J J Maini, MIMIT Malout

Actual Breach:

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 34 J J Maini, MIMIT Malout

Slide 35:

35 J J Maini, MIMIT Malout