Corporate legal environment

1. Capacity to Contract
Chapter 4
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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.
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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
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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.
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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.
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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.
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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?
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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.
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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
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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
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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)
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12. Mental Incompetence
 Idiots
 Lunatics
 Intoxicated persons
Contract void-abinitio except for
necessaries as in
the case of Minor.
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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.
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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.
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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.
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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
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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
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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.
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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
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20. Misrepresentation
 Contract rendered voidable.
 Damages cannot be claimed.
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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.
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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
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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
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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.
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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
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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
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27. ‘No Consideration, No Contract’
(3) (a) Written promise
 (b) to pay time-barred debt.
(4) Bailment
(5) Agency
(6) Gift
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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.
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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
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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
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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)
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