Capacity to-contract

Capacity to Contract

Chapter 4

J J Maini, MIMIT Malout

1

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.

2

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

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.

4

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.


5

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.


6

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?

7

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.

8

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

9

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


10

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)

11

Mental Incompetence
 Idiots
 Lunatics
 Intoxicated persons

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

12

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.

13

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.

14

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.


15

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


16

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

17

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


18

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


19

Misrepresentation
 Contract rendered voidable.
 Damages cannot be claimed.


20

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.


21

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

22

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

23

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.

24

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

25

‘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

26

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

27

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.


28

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

29

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

30

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)


31

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