UNIT III

CAPACITY TO CONTRACT
Who is competent to contract (Section 11)

subject, and who is of sound mind and is not disqualified from contracting by any law to which he is

Every person is competent to contract who-

(A) has attained the age of majority,
(B) is of sound mind and
(C) is not disqualified from contracting by any law to which he is subject.

INCAPABLE

(A) MINOR:
Law Relating to Contract with Minor:
1. A contract made with or by a minor is void ab initio: Minor is not competent to contract and any
agreement with or by a minor is void from the very beginning.
2. No ratification after attaining majority: A minor cannot ratify the agreement on attaining majority
as the original agreement is void ab initio and a void agreement can never be ratified.
3. Minor can be a beneficiary or can take benefit out of a contract: Though a minor is not competent
to contract, nothing in the Contract Act prevents the minor from making the other party bound to
him.
4. A minor can always plead minority: A minor can always plead minority and is not stopped to do
so even where he has taken any loan or entered into any contract by falsely representing that he
was major.
5. Liability for necessaries: (****) The case of necessaries supplied to a minor or to any other person
whom such minor is legally bound to support is governed by section 68 of the Indian Contract Act.
A claim for necessaries supplied to a minor is enforceable by law. But a minor is not liable for any
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 price that he may promise and never for more than the value of the necessaries. There is no personal
liability of the minor, but only his property is liable.

1. The contract must be for the goods reasonably necessary for his support in the station in life.
2. The minor must not have already a sufficient supply of these necessaries. Necessaries mean
those things that are essentially needed by a minor. They cannot include luxuries or costly or
unnecessary articles.
6. Contract by guardian - how far enforceable: Though a , his guardian can,

But all contracts made by guardian on behalf of a minor are not valid. For instance, the guardian of
a minor has no power to bind the minor by a contact for the purchase of immovable Property. But
a contract entered into by a certified guardian (appointed by the Court) of a minor, with the sanction
of
7. No specific performance
8. No insolvency: A minor cannot be declared insolvent as he is incapable of contracting debts and
dues are payable
9. Partnership: A minor being incompetent to contract cannot be a partner in a partnership firm, but
under Section 30 of the Indian Partnership Act, he can be admitted to the benefits of partnership.
10. Minor can be an agent: A minor can act as an agent. But he will not be liable to his principal for his
acts.
11. Joint contract by minor and adult: In such a case, the adult will be liable on the contract and not the
minor.
12. Surety for a minor: In a contract of guarantee when an adult stands surety for a minor then he
(adult) is liable to third party as there is direct contract between the surety and the third party.
13. Minor as Shareholder: Generally Not, until entire amount paid or on transmission of shares.
14. Liability for torts: A tort is a civil wrong. A minor is liable in tort unless the tort in reality is a breach
of contract.

(B) UNSOUND MIND

A person who cannot judge rationally
a. Idiot (pura pagal)
b. Lunatic (adha pagal)
c. Drunkard (bewada)

1. A person who is usually of unsound mind, but occasionally of sound

mind, may make a contract when he is of sound mind.
2. A person who is usually of sound mind, but occasionally of unsound mind, may not
make a contract when he is of unsound mind.

Position of unsound mind person making a contract: A contract by a person who is not of sound mind is
void.

(C) DISQUALIFIED BY LAW

(b) Alien enemy (dusre desh ka dushman)
(c) Foreign sovereign, estate, ambassador (bahar k big-
(d) CONVICT can contract when on leave
(e) CORPORATIONS (rules and regulations ke according contract baki ke liye
disqualified)
(f) INSOLVENT

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 UNIT III

FREE CONSENT
ELEMENTS:

Coercion (Section 15): Coercion is-

(i) Committing or threatening to commit any act forbidden by the India Penal Code; or
(ii) the unlawful detaining or threatening to detain any property to the prejudice of any
person whatever,
(iii) With the intention of causing any person to enter into an agreement.
(iv) It is to be noted that is immaterial whether the India Penal Code is or is not in force at
the place where the coercion is employed.

Effects of coercion under section 19 of Indian Contract Act, 1872

(v) Contract induced by coercion is voidable at the option of the party whose consent was
so obtained.
(vi) As to the consequences of the rescission of voidable contract, the party rescinding a
void contract should, if he has received any benefit, thereunder from the other party
to the contract, restore such benefit so far as may be applicable, to the person from
whom it was received.
(vii) A person to whom money has been paid or anything delivered under coercion must
repay or return it. (Section 72)

UNDUE INFLUENCE (Section 16)

It takes place when one party is at a dominating position & Uses his position to obtain unfair advantage.

A person deemed to dominate if:

He holds real or Stands in fiduciary Makes a contract

apparent authority relationship to the with a person
over other. other whose mental
capacity is
temporarily affected
by age, illness or
mental bodily
distress.

Essential Elements:

1. Relation between the parties: A person can be influenced by the other when a near relation between
the two exists.
2. Position to dominate the will: A person is deemed to be in such position in the following
circumstances:
a. Real and apparent authority: Where a person holds a real authority over the other as in the
case of master and servant, doctor and patient and etc.

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 b. Fiduciary Relationship: Where relation of trust and confidence exists between the parties to
a contract. Eg. Wife, creditor, debtor etc.
c. Mental distress: (Same Box 3)
d. Unconscionable bargains: Where one of the parties to a contract is in a position to dominate
the will of the other and the contract is apparently unconscionable i.e., unfair
3. The object must be to take undue advantage: Where the person is in a position to influence the will
of the other in getting consent, must have the object to take advantage of the other.
4. BURDEN OF PROOF (ONUS OF PROOF): Dominating party has to prove that he did not do undue-
influence.

Example: Father Son, Lender Borrower, Doctor Patient, Fiancé Fiancée

When consent to an agreement is caused by undue influence, the agreement is a contract voidable
at the option of the party whose consent was so caused

FRAUD (SECTION 17)

Contract
entered to
deceive Suggestion of a
someone. fact which is Active
not true, by concealment Promise
made Act fitted to
one who does of fact by one
without any deceive
not believe it to having
be true knowledge or intention to
belief of Act perform Any act which is
specifically
declared VOID

Effect of Fraud upon validity of a contract:

1. He can rescind the contract within a reasonable time.

2. He can sue for damages.
3. He can insist on the performance of the contract on the condition that he shall be put in the
position in which he would have been had the representation made been true.

Mere silence is not fraud (****) Generally No!

Exceptions:

Silence is fraud when:

1. Duty of person to speak: Where the circumstances of the case are such that it is the duty of the person
observing silence to speak.
Following contracts come within this category:
1. Fiduciary Relationship: Here, the person in whom confidence is reposed make full disclosure of all
material facts.
2. Contracts of Insurance: In contracts of marine, fire and life insurance, there is an implied condition
that full disclosure of material facts shall be made.
3. Contracts of marriage
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 4. Contracts of family settlement: These contracts also require full disclosure of material facts within
the knowledge of the parties.
5. Share Allotment contracts: of public issue of
shares/debentures by a joint stock company have to disclose all material facts within their
knowledge.
2. Where the silence itself is equivalent to speech:
assume that the horse is so
Exception: (**)
In case of fraudulent silence, contracts are not voidable if the party whose consent was so obtained
had the means of discovering the truth with ordinary diligence.

Summarized:

Q: Mere silence is fraud?

A: No.

Silence is fraud when

Duty of a OR Silence is
person to speak equivalent to
speech

Example: Horse stand? - did not speak

If speak, assume
Horse sound

If speak

Then fraud
(Silence = speak)

MISREPRESENTATION (Section 18)

(1) statement of fact, which of false, would constitute misrepresentation if the maker believes
it to be true but which is not justified by the information he possesses;
(2) When there is a breach of duty by a person without any intention to deceive which brings
an advantage to him;
(3) When a party causes, even though done innocently, the other party to the agreement to
make a mistake as to the subject matter.
Summarized:
Unintentionally say something which is wrong
Innocently doing fraud is misrepresentation

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 Contract any how remains voidable at the option of aggrieved party (intentionally)
jhoot bola ho ya (unintentionally) jhoot, to jhoot hain.

EXCEPTIONS
(Kb kb misrepresentation mein contract valid rahega)
When there were chances to know the truth and the party getting mis-represented
was negligent.
When the party getting mis-represented did not get mis-represented.
(Read Differences)
MISTAKE

Mistake by Indian Law Mistake of Fact/

Foreign Law

VALID VOID

Both One party at Party at mistake

parties at mistake by due to fraud/
mistake his own misrepresentation
relating to
important VALID VOIDABLE

(i) Mistake of Law: A mistake of law does not render a contract void as one cannot take excuse of
ignorance of the law of his own country. But if the mistake of law is caused through the inducement
of another, the contract may be avoided. Mistake of foreign law is excusable and is treated like a
mistake of fact. Contract may be avoided on such mistake.
(ii) Mistake of fact: Where the contracting parties misunderstood each other and are at cross purposes,
there is a bilateral or mutual mistake. 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.
Example: A offers to sell his Ambassador Car to B, who believes that A has only Fiat Car, agrees to
buy the car. Here, the two parties are thinking about different subject matter so that there is no real
consent and the agreement is void.

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 LEGALITY OF OBJECTAND CONSIDERATION
Which considerations and objects are lawful, and those which are not (Section 23):

1. When consideration or object is forbidden by law: Acts forbidden by law are those which are
punishable under any statute as well as those prohibited by regulations or orders.
2. Defeating the provision of Law
Means defeating the intention which law has expressed
Law looks for intention of parties
If intention is to defeat provision -> VOID

Mr. X not allowed to buy property

This is defeating provision of law

3. Fraudulent activity -
Agreement permitting fraudulent activity is void.
A
B steals bank money and distribute equally
C

C does not give money to A & B -> VOID

4. When consideration defeats any rule for the time being in force in India.
5. When consideration involves injury to the person or property of another
means criminal or wrongful harm.

A B
Agrees to print book for B having another copyright

Object will come injury to

Someone

Rs. 10 K
A B
repay

A says to repay it during manual labour daily (+) interest if default.

Consideration -> ILLEGAL as promoting slavery.
6. When consideration is immoral: The following are the examples of agreements where the object or
consideration is unlawful, being immoral.
Example: Where P had advanced money to D, a married woman to enable her to obtain a divorce from
her husband and D had agreed to marry him as soon as she could obtain the divorce
7. When consideration is opposed to public policy:
Some of the agreements which are held to be opposed to public policy are-
1. Trading with enemy: Any trade with person owing allegiance to a Government at war with India
without the licence of the Government of India is void
2. Stifling Prosecution: An agreement to stifle prosecution i.e.

abuse of justice; therefore, such an agreement is void.

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 Except when compounding is allowed by court
3. Maintenance and Champerty:
Maintenance is an agreement in which a person promises to maintain suit in which he has no
interest. Example: A offer B $2000, if he sues C for a case which they could have settled mutually
under provisions of law, just to annoy C. Such agreement is maintenance agreement.

Champerty is an agreement in which a person agrees to assist another in litigation in-exchange of

a promise to hand over a portion of the proceeds of the action. Example: A agrees to pay expenses
to B if he sues C and B agrees to pay half of the amount received from result of such suit. This is an
agreement of champerty. The agreement for supplying funds by way of Maintenance or
Champerty is valid unless
(a) It is unreasonable so as to be unjust to other party or
(b) It is made by a malicious motive
4. Trafficking relating to Public Offices and titles:
1. An agreement to pay money to a public servant in order to induce him
to retire from his office so that another person may secure the
appointment is void.
2. An agreement to procure a public recognition like Padma Vibhushan for reward is void.
5. Agreements tending to create monopolies: Agreements having for their object the establishment
of monopolies are opposed to public policy and therefore void.
6. Marriage brokerage agreements: Agreement to negotiate marriage for reward, which is known as
a marriage brokerage contract, is void.
7. Interference with the course of justice:

another for the performance of his agency is invalid.

A, who is the manager of a firm, agrees to pass a contract to X if X pays to A Rs. 200,000
privately; the agreement is void.

Generally, contract should be lawful.

Unlawful object & consideration (Sec 23) - VOID

OBJECT CONSIDERATION

Drug
AK47 (Sanjay Dutt)
MURDER

Prosecution X

Police Money

Unlawful Consideration

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 8. Consideration Unlawful in Party: By virtue of Section 24, if any part of a single
consideration for one or more objects, or any one or any part of any one of several

VOID AGREEMENTS
1. Agreement in restraint of marriage (Section 26): Every agreement in restraint of marriage of any
person other than a minor, is void. So, if a person, being a major, agrees for good consideration not
to marry, the promise is not binding and considered as void agreement.
2. Agreement in restraint of trade (Section 27): An agreement by which any person is restrained from
exercising a lawful profession, trade or business of any kind, is to that extent void. But this rule is
subject to the following exceptions, namely, where a person sells the goodwill of a business and
agrees with the buyer to refrain from carrying on a similar business, within specified local limits
such an agreement is valid. The local limits within which the seller of the goodwill agrees not to
carry on similar business must be reasonable. Under Section 36 of the Indian Partnership Act, 1932
if an outgoing partner makes an agreement with the continuing partners that he will not carry on
any business similar to that of the firm within a specified period or within specified local limits, such
an agreement, thought in restraint of trade, will be valid, if the restrictions imposed are reasonable.
Similarly, under Section 11 of that Act an agreement between partners not to carry on competing
business during the continuance of partnership is valid.
But an agreement of service by which an employee binds himself, during the term of his agreement,
not to compete with his employer is not in restraint of trade.

3. Agreement in restraint of legal proceedings (Section 28): An agreement in restraint of legal

proceeding is the one by which any party thereto is restricted absolutely from enforcing his rights
under a contract through a Court or which abridges the usual period for starting legal proceedings.
A contract of this nature is void.
However, there are certain exceptions to the above rule:
a. A contract by which the parties agree that any dispute between them in respect of any
subject shall be referred to arbitration and that only the amount awarded in such
arbitration shall be recoverable is a valid contract.
b. Similarly, a contract by which the parties agree to refer to arbitration any question
between them which has already arisen or which may arise in future, is valid; but such a
contract must be in writing.
4. Agreement - the meaning of which is uncertain (Section 29): An agreement, the meaning of which
is not certain, is void, but where the meaning thereof is capable of being made certain, the
agreement is valid.
5. Wagering agreement (Section 30): An agreement by way of a wager is void. It is an agreement
involving payment of a sum of money upon the determination of an uncertain event. The essence
of a wager is that each side should stand to win or lose, depending on the way an uncertain event
takes place in reference to which the chance is taken and in the occurrence of which neither of the
parties has legitimate interest.

Transactions similar to Wager (Gambling)

1. Lottery transactions: Lotteries are illegal and even collateral transactions to it are tainted with
illegality
2. Crossword Puzzles and Competitions: Crossword puzzles, picture competitions and athletic
competitions where prizes are awarded on the basis of skill and intelligence are the games of
skill and hence such competitions are valid. According to the Prize Competition Act, 1955 prize

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 competitions in games of skill are not wagers provided the prize money does not exceed Rs.
1,000.
3. Speculative transactions
4. Horse Race Transactions: A horse race competition where prize payable to the bet winner is
less than Rs. 500, is a wager.
Transactions resembling with wagering transaction but are not void
1. Chit fund: Chit fund does not come within the scope of wager
2. Commercial transactions or share market transactions
3. Games of skill and Athletic Competition
4. A contract of insurance

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