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THE INDIAN CONTRACT ACT, 1872

Capacity of Parties
IMT Nagpur - 2012-14 (Section B, D & E)

Capacity of Parties
All agreements are contracts, if they are made by the parties competent to contract.
Capacity of Parties means the legal ability of the parties to enter into contract.

IMT Nagpur - 2012-14 (Section B, D & E)

Who are Competent to Contract


The following persons can enter into contract:
1. Who has attained the age of maturity. 2. Who is of Sound mind. 3. Who is not disqualified by law.
Conversely, 1. Minor, 2. Person of unsound mind & 3. Person disqualified by law are not competent to contract.
IMT Nagpur - 2012-14 (Section B, D & E)

Who is a Minor?
Who has not completed the age of 18 years.

IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


Agreement is void ab initio:
It is nullity in the eyes of law. Agreement by a minor can never be enforced by the other party. Law protects the minor.

IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


Mohiribibi V. Dharmodas Ghosh
D a minor borrowed money from M by executing mortgage of his house in favour of M. Later on he failed to pay the money. It was held that minors agreement is void and money cannot be recovered. M was ordered to release his house from mortgage. Court explained that a minor cannot be promisor but he can be a promisee.
IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


Minor can be a Promisee or Beneficiary
An agreement for the benefit of a minor is enforceable by the minor. If a major borrows money from the minor and later refuses to pay it, the minor can sue him and recover the money. Case Study 1-2

IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


No Ratification
Ratification by the minor is not valid. Ratification means the acceptance of a transaction already done.

However, on attaining maturity, he can enter into a fresh contract having the same terms & conditions. Case Study 3
IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


Minor Shareholder
Minor cannot apply for the allotment of shares in a company as he is not competent to contract. However, the minor can apply the transfer of fully paid up shares through his guardian.

IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


Restitution Order
A restitution order can be granted against a minor. The restitution order means restoring the things to its proper owner.

IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


Restitution Order
If money paid to the minor is in the same form, the minor may be ordered to pay it back. If money is used to purchase property, property purchased by the minor shall be used in paying off money.

IMT Nagpur - 2012-14 (Section B, D & E)

Effect of Minors Agreement?


Minors liability for necessities
In any contract for supplying necessities minor. Minor is liable.
(food, clothes, medicines)

to the

Case Study 4

IMT Nagpur - 2012-14 (Section B, D & E)

Person of Unsound mind???


An agreement with a person of unsound mind is void.
1. Idiot 2. Mental decay due to age or sickness 3. Drunken Person

IMT Nagpur - 2012-14 (Section B, D & E)

Person disqualified by law???

Company :
Objects are determined as per the MOA. A co. cannot enter into any transaction which is beyond the MOA.
IMT Nagpur - 2012-14 (Section B, D & E)

Person disqualified by law???

Alien Enemy :
Citizen of any country which is against India in war. If any contract is entered into with the alien enemy and war breaks down with that country, the contract is suspended until the war is over.
IMT Nagpur - 2012-14 (Section B, D & E)

Person disqualified by law???

Convict :
A convict cannot enter into a contract while he is undergoing imprisonment.

He can enter into contract when released from jail or granted bail.
IMT Nagpur - 2012-14 (Section B, D & E)

Person disqualified by law???

Insolvent :
An insolvent person cannot enter into contract relating to his property.

IMT Nagpur - 2012-14 (Section B, D & E)

Consideration

IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???

If A promises to make a gift of Rs. 5000 to B, and subsequently changes his mind, B cannot succeed against A for breach of promise, as B has not given anything in return.
It is only when a promise is made for something in return from the promisee, that such promise can be enforced by law against promisor.
IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???

Something in return.
A Coolie lifts Bs luggage & receive the remuneration.

Lifting luggage is causing detriment to the coolie but a benefit to the passenger, i.e., promisor.
IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???

A contract is valid if supported by consideration.


Consideration moves from both the parties. A promise without consideration is not a agreement and hence it is not a contract.
IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???

Consideration may move from Promisee or other person


If the consideration is moved from promisee or any other person, it is valid. Case Study 5

IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???

Consideration may be inadequate


If a person sells books worth Rs. 2000 in Rs. 200, it is valid consideration and a valid contract.

IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???
Consideration must be lawful
X promises Y to pay Rs. 5000 to beat Z. Y beats Z and claims Rs. 5000 from X. X refuses to pay.
Y cannot recover because the agreement is void on the ground of unlawful consideration.

IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???
Consideration should be possible to perform
A promises to discover treasure by magic if B pays him Rs. 50,000. Consideration from A is void because it is impossible to perform the promise.

IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???
Privity to contract: A stranger to a contract cannot sue. Means the party to the contract can sue each other but not the stranger.
Case Study 6 - 7

IMT Nagpur - 2012-14 (Section B, D & E)

Consideration???

Exception - No Consideration no Contract


1. Gift 2. Agreement on account of natural love & affection
(Agreement should be in writing, registered, parties to agreement must fall within blood relation)

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

One of the essential conditions of a valid contract is that it should be made out of free consent.

IMT Nagpur - 2012-14 (Section B, D & E)

Consent???

Consent = Meeting of Mind


Consensus ad idem = Identity of Mind Agreement is void if consent is not there.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

When the consent is there but it is not free, in such case, the contract is voidable at the option of one party, i.e., aggrieved party.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

A consent is free, when it is not obtained by


1. 2. 3. 4. 5. Coercion Undue influence Fraud Misrepresentation Mistake

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Coercion / Duress
Detention or threat to life or any other threat creating danger to life, if given to party or any family member, or relative of the party. Prohibited by IPC.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Coercion / Duress
Mr. X threatens to kill Mr. A, if Mr. A does not agree to sell his property to Mr. X. Mr. As consent has been obtained by coercion. Mr. D threatens to kill Mr. A, if Mr. A does not sell his land to Mr. B. Even if Mr. D is a stranger to the transaction between Mr. A and Mr. B, the agreement is caused by coercion.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Consequences to Coercion
When the coercion is employed, a contract becomes voidable at the option of the aggrieved party, and any benefit received by the other party under the contract must be paid back. If the aggrieved party has suffered from any loss, he can recover the loss from the defaulting party.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Undue Influence
A contract is entered on undue influence when relations that exist between the parties are such that one of them is in a position to dominate the will of the other, and the dominant party uses his position to obtain unfair advantage over the other.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???
Consequences of Undue Influence
Voidable at the option of aggrieved party.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???
When a person is deemed to be in a position to dominant the will of others?
A. When a person holds real or apparent authority over other 1. Master and Servant 2. Parent and Child

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???
When a person is deemed to be in a position to dominant the will of others? B. When he stands in fiduciary relationship over others

1. 2. 3. 4. 5.

Guardian and Child Guru and disciples Doctor and Patient Solicitor and Client Trustee and beneficiary
IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???
When a person is deemed to be in a position to dominant the will of others? C. When contract is made with Mentally weak Person

Mentally weak person = Sick, old age, illness, bodily distress

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

No presumption of Dominance of Will


1. 2. 3. 4. Landlord and Tenant Creditor and Debtor Husband and Wife Principal and Agent

Case Study 8 - 9

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???
Fraud

An intentional, deliberate or willful misstatement of facts, which are material for the formation of a contract.
Or any other act to deceive the other party. The fraud means and includes: 1. Suggestion of facts which is not true; 2. Active concealment of the fact; 3. A promise made without an intention to perform; 4. Any other act to deceive.
IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Fraud
Furniture dealer conceals the cracks in furniture by polish work. A shopkeeper while selling ghee represents the buyer that it is pure desi ghee although he knows that it is adulterated.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Effect of Fraud
A contract is voidable at the option of the aggrieved party, i.e., defrauded party. The party can cancel the contract.
Case Study 10-12

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Misrepresentation
False representation of the fact made innocently which is a material fact of contract. Intention is not to deceive other party.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Consequences of Misrepresentation
Contract is voidable at the option of the aggrieved party.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Mistake
An erroneous belief about some facts. It can be : 1. Mistake of law 2. Mistake of fact

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Mistake of law
Mistake in understanding the provisions of law by the party to contract.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Consequences of Mistake of law


Neither Void nor voidable.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Mistake of Fact
1. Bilateral Mistake 2. Unilateral mistake

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Bilateral Mistake
Both the parties are at mistake related to essential part of the contract.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Consequences of Bilateral Mistake

The agreement is void.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Bilateral Mistake
A agrees to buy a certain horse. It turns out that the horse was dead at the time of bargain though neither party was aware of the fact. The agreement was void.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Bilateral Mistake
A agrees to buy a certain horse from B. B has one race horse and one cart horse. A thinks that he is buying the race horse but B thinks that he is selling the cart horse. The agreement is void because there is bilateral mistake as to the identity of the subject matter.
IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Unilateral Mistake
One party is at mistake. Mistake on the part of only one party, is generally of no effect.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Consequences of Unilateral Mistake


Such contract is neither void nor voidable.

IMT Nagpur - 2012-14 (Section B, D & E)

Free Consent???

Unilateral Mistake

A submitted a tender to B for construction of a number of houses.

A made a mistake in calculating the cost therefore his offer was lower than other tenderers.
As tender was accepted. Held, it was binding contract although it was an erroneous estimate based on unilateral mistake. Case Study 13-15
IMT Nagpur - 2012-14 (Section B, D & E)

Thank You

IMT Nagpur - 2012-14 (Section B, D & E)

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