CA Foundation Solutions For Business Laws – Other Essential Elements Of Valid Contract

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Other Essential Elements Of Valid Contract Self-Study Questions And Answers

Question 1. Write Short Notes on the Capacity to Contract.

Answer:

The Capacity to Contract

It means that parties to the agreement must have the capacity to enter into a valid contract.

A person may be either natural or artificial i.e. persons can be human beings or body corporate.

According to Section 11

“Every person is competent to contract, who, according to the law to which he is subject to

  • Is of the age of majority,
  • Is of sound mind
  • Is not disqualified by any other law to which he is subject”

A person is disqualified to enter into contracts if he is:

  • A minor
  • A person of unsound mind
  • Otherwise disqualified by the law of the land to enter into a contract
  • An alien enemy
  • An insolvent
  • A convict undergoing imprisonment.

In India, the age of majority is regulated by the Indian Majority Act, 1 875.

  • According to it, every person domiciled in India attains majority on the completion of 18 years of age.
  • If any guardian has been appointed for the minors or the minor is under the guardianship of the court of wards, he attains majority on the completion of 21 years of age.

Relevant Case Law :

Mohlri Bibee V/s Dharmo Das Ghose

Facts

  • Dharmodas Ghose, a minor, entered into a contract for borrowing a sum of ₹ 20,000 out of which longer paid his ₹ 8,000.
  • Minor executed mortgage of property in favor of the lender.
  • Minor sued for setting aside mortgage.
  • Privacy council hard to ascertain the validity of the mortgage.
  • U/s 7 of the Transfer of Property Act, every person competent to contract is competent to the mortgage.

Decision: Any money advanced to a minor cannot be recovered as Sections 10 and 11 make the minor’s contract void.

As per the Transfer of Property Act, a minor cannot transfer a property, but he can be a transferee.

Position of minor’s agreement:

  • An agreement entered into by a minor is altogether void, i.e. void-abinitio.
  • Minor can be a promisee or a beneficiary.
  • Minor can always plead the majority.
  • Minor’s agreement cannot be ratified by him.
  • Contract by guardian is enforceable if:
    • It is within his competence and authority,
    • For the benefit of the minor.
    • Minor’s property is liable for necessaries.

Necessaries: “Goods suitable to the condition in life of such an infant or other person, and to his actual requirement at the time of sale and delivery.”

It includes:

    • Necessary goods
    • Services rendered
    • Loan incurred to obtain necessaries.
  • The court can never direct the specific performance of the contract.
  • Minor cannot be a partner in a partnership firm.
  • Minor can act as an agent and bind his principal without incurring any personal liability.
  • Minor can never be adjudicated as insolvent.
  • A minor is liable in a fort i.e. a civil wrong unless the fort in reality is a breach of contract.
  • Lunatics Agreement:

As per Section 12 of the Indian Contract Act,

“a person Is said to be of sound mind to make a contract if, at the time when he makes it, he is capable of undertaking it and of forming a rational judgment as to its effects upon his interests.”

  • A person of unsound mind includes:
    • Lunatics
    • Idiots
    • Drunkards
  • Such an agreement Is void.
  • Lunatics Slate will be liable for any necessaries supplied to him or his family.
  • A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind and he will be bound by It.
  • A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
  • Persons disqualified by law from entering into a contract.
    1. Alien Enemy: An alien enemy is a foreigner whose state is at peace with India.
      • Alien is a person who is not an Indian citizen.
      • He becomes an alien enemy on the declaration of war between India and his country.
      • He cannot enter into a contract with an Indian subject.
    2. Foreign Sovereigns and Ambassadors:
      • They enjoy certain special privileges due to which they cannot be legally proceeded against in Indian Courts.
      • If contracts are entered into through agents, then agents become personally responsible for the performance of the contracts.
    3. Convicts
      • Cannot enter into a valid contract while undergoing sentence, nor he can sue.

Note: All of the above points are known as flows in capacity.

Question 2. Define Free Consent under the Indian Contract Act, of 1872.

Answer:

Free Consent under the Indian Contract Act, of 1872.

As per the Indian Contract Act, “Two or more persons are said to consent when they agree upon the same thing in the same sense’ (consensus-ad-idem).

  • Free consent means consent given by parties out of their free will on their own without any fear, force, compulsion, or threat from the other party.
  • As per Section 1 4, consent is said to be free which is not caused by
    • Coercion
    • Undue Influence
    • Fraud
    • Misrepresentation
    • Mistake
  • In the absence of free consent, the contract is usually voidable at the option of the party whose consent is not free.

Question 3. Describe the Elements of Vitiating Free Consent.

Answer:

The Elements of Vitiating Free Consent

1. Coercion:

“It is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (IPC), or the unlawful detaining, or threatening to detain any property, to the prejudice of any person, whatever, to cause any person to agree.” ‘

Exceptions of Coercion:

The following threats are not coercion

  1. Threat to file a suit.
  2. Consent is given based on legal obligations.
  3. Threats by workers.
  4. Threats to detain property by mortgager.

It may proceed from any person and may be directed against any person or goods.

2. Undue Influence

  • A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other
  • It has the following two elements:
    • A dominant position
    • The use of it to obtain an unfair advantage.
  • A person is deemed to dominate the will of another if
    • He holds a real or apparent authority over the other, or
    • He stands in a fiduciary relation to the other, or
    • He makes a contract with a person whose mental capacity is temporarily or permanently affected by reasons of age, illness, or mental or bodily distress.
  • Relationships that are presumed to have undue influence include:
    • Parent and child
    • Guardian and ward
    • Religious or Spiritual Guru and Discipline
    • Doctor and Patient
    • Solicitor and Client
    • Trustee and Beneficiary
    • Ranee and Fiancee
  • A relationship where the dominant position is not presumed has to be proved by the aggrieved party:
    • Creditor and Debtor
    • Landlord and Tenant
    • Husband and Wife
  • This presumption can be rebutted by showing that:
    • Full disclosure of all materiai facts was made.
    • Adequate consideration was there, and
    • The weaker party received independent legal advice.

3. Fraud

Also known as wilful misrepresentation.

  • Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance or by his agent with intent to deceive another party thereto or his party, or to induce him to enter into the contract.
  1. The suggestion, as to fact, of that which is not true by one who does not believe it to be true,
  2. The active concealment of a fact by one having knowledge or belief of the fact,
  3. A promise made without any intention of performing it,
  4. Any other act fitted to deceive,
  5. Any such act or omission as to law is specially declared to be fraudulent.
  • Mere silence as to facts likely to affect the willingness of a person to enter into a contract is no fraud.
  • But silence amounts to fraud in the following cases:
    • Where a person must speak.
    • Where his silence is equivalent to speech.
    • When a person discloses only the half-truth.
  • Following are certain contracts upon which the law imposes a special duty to act with utmost good faith (contracts of Uberrimalfidei).
    • Insurance contracts.
    • Prospectus of a company.
    • Contract of sale of land.
    • Contract of family arrangements.
  • In all of the above-stated contracts, a person has to disclose all the material information.

4. Misrepresentations

  • Where a person asserts something that is not true, though he believes it to be true, his assertion amounts to misrepresentation.
  • Misrepresentations made by a person may be either:
    1. Innocent, or
    2. Without any reasonable ground
  • The aggrieved party can avoid the contract, but cannot sue for damages in normal circumstances.
  • Its damages can be obtained in the following cases:
    1. From a director or promoter making an innocent misrepresentation in the company’s prospectus.
    2. A person who has made a certain statement in the court, relying upon which a party has suffered damages, is stopped by the court from denying it.
    3. From an agent committing a breach of warranty of authority.
    4. Negligent representation made by one person to another between whom there exists a confidential relationship.

Note: When the consent is caused by coercion, undue influence, fraud, and misrepresentation, though the agreement amounts to a contract such a contract is voidable at the option of the party whose consent was so obtained.

Question 4. How Many Types of Mistakes are there?

Answer:

Types of Mistakes

  • It refers to miscalculation or judgmental error by both or either of the parties.
  • It must be a “vital operative mistake”.
  • When both parties to an agreement are under a mistake to a matter of fact essential to the agreement, the agreement is altogether void.

Other Essential Elements Of Valid Contract Types Of Mistake

Question 5. Describe the Legality of Object and Consideration as per the Indian Contract Act,1872.

Answer:

The Legality of Object and Consideration as per the Indian Contract Act,1872

  • As per Section 23, of the Indian Contract Act, “An agreement whose object or consideration is unlawful is void.”
  • Consideration or object is unlawful :
    • If it is forbidden by law.
    • It would, if permitted defeat the provisions of any law or,
    • Is fraudulent or
    • Involves injury to the person or property of another, or
    • Is immoral, or
    • Opposed to public property”.

Circumstances which make the consideration or object unlawful:

  • Forbidden by Law: It includes the acts that are punishable under any statute as well as prohibited by regulation or orders made in the exercise of the authority conferred by the legislature.
  • Defeat of the provision of law: Agreement defeating the provisions of any statutory law is void. The law includes any legislative enactment or rule of Hindu and Muslim law or any other rule for the time being in force in India.
  • Fraudulent: Agreement with an object to defraud others is void.
  • Injury to the person or property of another: An agreement having such an object is void.
  • Immoral: The object of any agreement being immoral is illegal. It is also legal if its consideration is an act of sexual immorality. It covers a wide range of topics.
  • Defeat any rule for the time being in force in India.
  • Opposed to Public Policy: Freedom of contract is restricted by law only for the good of the community, some of the agreements that are held to be opposed to public policy include:
    1. Trading with the enemy.
    2. Stifling prosecution i.e. agreement to present proceedings already instituted from running their normal course using forceispervasive and abuse of justice hence void,
    3. Maintenance and champerty i.e. an agreement in which a person agrees to assist another in litigation in exchange for a promise to hand over a portion of the proceeds of the action.
    4. Traffic relating to Public Offices.
    5. Agreements tend to create monopolies.
    6. Marriage brokerage agreements.
    7. Interference with the course of justice.
    8. Interest against obligation.
    9. Consideration was unlawful in part.

Question 6. Define Void Agreements and Give some Examples.

Answer:

Void Agreements

Certain agreements have been expressly declared void by the Contract Act.

  • They are void ab initio.
  • It includes the
    1. Restrain of marriage: Any agreement restraining any person, other than minor not to marry at all or not to marry any particular person is void.
    2. Restrain of trade (Section 27): Agreement restraining anyone from exercising a lawful profession, trade, or business of any kind, is void.
      • Both total or partial restraints are covered.
      • Restraining must be reasonable.
      • The following agreements are not in restrain trade:
        1. Service agreement by which an employee binds himself, during the term of his agreement, not to compete with the employer.
        2. Agreement by a manufacturer to sell during a certain period his entire production to a wholesale market or merchant.
        3. Agreement among the sellers of a particular commodity not to sell the commodity for less than a fixed price.
    3. Restrain to legal proceedings (Section 28): One party is restricted absolutely from enforcing his rights under a contract through a Court or which abridges the usual period from starting legal proceedings.
    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):
      • Wager means ‘bet’.
      • They are ordinary betting agreements.
      • It refers to an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay if the event does not happen.
      • Such an agreement is void.
      • If one of the parties has control over the event, the agreement is not a wager.
      • Though wagering contracts are void, transactions incidental to wagering transactions are not void.

Transactions similar to wager (Gambling):

  • Lottery transactions.
  • Crossword Puzzles and competitions.
  • Speculative transactions.
  • Horse Race transactions.

Transactions resembling wagering transactions but are not void:

  • Chit Fund.
  • Commercial transactions or share market transactions.
  • Games of skill and Athletic competitions.
  • Contract of Insurance.

Question 7. Distinguish between a Contract of Insurance and a wagering agreement.

Answer:

Difference between a Contract of Insurance and a wagering agreement

Other Essential Elements Of Valid Contract Contract Of Insurance And Wagering Agreement

Other Essential Elements Of Valid Contract Objective Questions And Answers

Question 1. State with reason whether the following statement is Correct or Incorrect: A person who is usually of unsound mind cannot enter into a contract even when he is of sound mind.

Answer:

Incorrect: According to Section 12, a person who is usually of unsound mind but occasionally of sound mind can enter into a contract.

Question 2. State with reason whether the following statement is Correct or Incorrect: According to the doctrine of “Privity of Contract, a stranger to a contract, if he is beneficiary, can not enforce the contract.

Answer:

Incorrect: According to the Doctrine of ‘Privity of Contract’, a stranger to a contract cannot sue. But if he is a beneficiary (in whose favor a trust has been created), he can enforce the contract.

Question 3. State with reason whether the following statement is Correct or Incorrect: Transactions incidental to wagering agreements are not void.

Answer:

Correct: In an ordinary sense, a wagering contract is void, but the transactions incidental to wagering agreements are not void. For example, a broker in a wagering transaction can recover his, brokerage. In the same way, money received by the agent on account of a wagering transaction can be taken back by the principal.

Question 4. State with reason whether the following statement is Correct or Incorrect: A contract to take a loan by a boy of sixteen years of age from a moneylender of 50 years old, is a valid contract.

Answer:

Incorrect: In the words of Section 11 of the Indian Contract Act, a person should be major to be competent to contract. A person becomes a major on the attainment of 1 8 years of old as per Indian Majority Act, 1 875. In the case given above contract will be void because the boy is a minor.

Question 5. State with reason whether the following statement is Correct or Incorrect: A person who is usually of sound mind, but occasionally of unsound mind is unable to make the contract.

Answer:

Incorrect: A person who is usually of a sound mind but occasionally of unsound mind is not considered competent to make a contract when he is of unsound mind.

Question 6. State with reason whether the following statement is Correct or Incorrect: It is a mixed question of law and fact whether time was the essence of the contract.

Answer:

Correct: Section 55 of the Indian Contract Act, of 1872, states that time as the essence of a contract means that time is an essential factor and hence the parties concerned with it must perform their promises within the specified time.

Question 7. State with reason whether the following statement is Correct or Incorrect: A minor cannot be appointed as an agent, as he is not competent to contract.

Answer:

Incorrect: A minor can be appointed as an agent. According to Section 184, of Indian Contract Act, 1972 any person can become an agent, between the principal and the third person, irrespective of whether he has the contractual capacity or not

Question 8. State with reason whether the following statement is Correct or Incorrect: A contract can be avoided if consent is caused by fraud.

Answer:

Correct: When consent to an agreement is caused by fraud, though the agreement amounts to a contract, such a contract is voidable at the option of the party, whose consent was so obtained.

Question 9. State with reason whether the following statement is Correct or Incorrect: Social agreements are enforceable in the Courts of India.

Answer:

Incorrect: Social agreements are not enforceable in the courts of India, as they do not contemplate legal relationships.

Question 10. State with reason whether the following statement is Correct or incorrect: A threat to commit suicide does not amount to Coercion.

Answer:

Incorrect: It amounts to coercion since it is forbidden and punishable by the Indian Penal Code.

Question 11. State with reason whether the following statement is Correct or Incorrect: Intentional misrepresentation is ‘fraud’.

Answer:

Correct: It amounts to fraud because it is assumed that the party has a reasonable ground to believe his assertion and his intention to put the other party to loss.

Question 12. State with reason whether the following statement is Correct or Incorrect: A minor can neither undertake a liability nor receive a benefit under a contract.

Answer:

Incorrect: As per the India Contract 1872, no one can prevent a minor from becoming a promise or a beneficiary, the law does not regard a minor as incapable of accepting a benefit.

Question 13. State with reason whether the following statement is Correct or incorrect: To constitute a valid contract, consideration between two parties must be adequate.

Answer:

Incorrect: The Court provides that as long as the contract exists it should be supported by consideration. It is not concerned with its adequacy. The adequacy of the consideration is to be considered by the parties to the agreement.

Question 14. State with reason whether the following statement is Correct or Incorrect: A threat to lodge criminal prosecution on a false charge amounts to coercion.

Answer:

Correct: According to Section 1 5 of the Indian Contract Act, 1872, Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code 1860. A threat to file or lodge criminal prosecution on a false charge is an offense in itself and hence prohibited. In this way, threat amounts to coercion.

Question 15. State with reason(s) whether the following agreements are valid or void:

  1. A clause in a contract provided that no action should be brought upon in case of breach.
  2. Where two courts have jurisdiction to try a suit, an agreement between the parties that the suit should be filed in one of those courts alone and not In the other.
  3. X, a physician, and surgeon, employs Y as an assistant on a salary of ₹ 75,000 per month for a term of two years and Y agrees not to practice as a surgeon and physician during these two years.

Answer:

1. Void:

An agreement restraining the parties from enforcing their legal rights is void. In this case, the agreement is void. ‘Since the clause in the agreement restricts the parties to bring a legal action even in case of breach of contract.

2. Valid:

If two courts have jurisdiction in a matter to try the suit then an agreement between the parties to that suit should be filed in one of the courts and not in the other is valid. In this case, the agreement is thus valid. Parties are free to choose a single court when they have to have the option of multiple courts to try a suit.

3. Valid:

If an employee agrees with his employer not to compete with him during his employment, is a valid contract. In this case, the agreement is valid. Since Y agreed not to compete with his employer during his employment period.

Other Essential Elements Of Valid Contract Short Notes

Question 1. Write short notes on the following: Capacity of the parties to a contract.

Answer:

Capacity of parties to contract: Capacity means the competence of the parties to enter into a valid contract. Section 11 of the Contract deals with the competency of parties and provides that every person is competent to contract who:

  1. Of the age of majority as per law to which he is subject,
  2. Of sound mind.
  3. Is not disqualified from contracting by any law to which he is subject.

The qualification stated above must be fulfilled by the person competent to contract. The first qualification refers to the age of the contracting person.

  • A person attains majority on completing his 1 8 years. In the case of matters of property, the majority is attained after completing 21 years of age.
  • The second qualification requires a person to be of a sound mind at the time of making the contract, he must be capable of understanding it and forming a rational judgment as to its effect.
  • Following are the people who are not supposed to be of sound mind such as a lunatic, an idiot, or a drunken person.
  • The third qualification requires that a person entering into a contract should not be disqualified by his status while entering into such contracts For example; alien enemies, insolvents, convicts, married women, and corporations.

The contract will not be valid if it is entered by persons who are not competent to contract.

Question 2. Write short notes on the following: Free consent.

Answer:

Free Consent: In the words of section 10, of the Indian Contract Act, free consent is one of the essential requirements of a valid contract. The consent which is obtained by the free will of the parties on their own accord is called free consent.

Consent is said to be free when it is not caused by (Section 14):

  1. Coercion, or
  2. Undue Influence, or
  3. Fraud, or
  4. Misrepresentation, or
  5. Mistake.

The contract becomes voidable when it is obtained by coercion, fraud, undue influence, or misrepresentation. But when the consent is obtained by mistake the contract becomes void.

Question 3. Write short notes on the following: Mere silence as to facts does not amount to fraud.

Answer:

Mere silence as to the facts does not amount to fraud: Mere silence of the party as to certain facts does not amount to fraud. A party to the contract owes no gratitude to disclose the whole truth to the other party.

  • The Rule of Caveat Emptor is applicable here is the Buyer Beware principle. This principle means that the buyer should be aware of things while making the contract.
  • In these cases, there is no duty to speak and silence does not result in fraud.
  • When both parties are aware of the contract, there is no duty to disclose the facts. Hence, silence does not amount to fraud. These are two exceptions to the rule.

These are:

  1. Where circumstances create a duty the part of the person keeping silent to speak and
  2. Where silence in itself is equivalent to speech.

Question 4. Write a short note on the following: Agreements in restraint of legal proceedings.

Answer:

Agreements in restraint of legal proceedings: Agreements in restraint of legal proceedings come under Section 28, of the Indian Contract Act, 1 872.

  • The section provides that every agreement by which any party thereto is restricted completely from following his rights under or in respect of any contract.
  • The usual legal proceeding in the ordinary tribunals or which fixes the time within which he may thus enforce his right is void to that extent. There are some exceptions to it;
  • The arbitration shall be valid in respect of all future disputes in connection with a contract.
  • If the parties agree to refer to arbitration, any question between them. which has already arisen, or which may arise in the future if it is in writing.

Question 5. Write a short note on the following: Coercion.

Answer:

Coercion: In simple terms, coercion means threat or force used by one party against the other to compel him to enter into a contract.

Section 15 of the Contract Act. 1872, defines coercion as, “the committing or threatening to commit any act forbidden by the Indian penal Code or Unlawful detaining or threatening to detain, any property, to the prejudice of any person, to cause any person to agree”.

For example: A threatens to shoot B, a friend of C, if C does not let out his house to him. C agrees to do so. Thus, the agreement has been bought by coercion.

Question 6. Write a short note on the following: When is an agreement in ‘restraint of Trade’ valid?

Answer:

An agreement in restraint of trade is void [Section 27, Indian Contract Act, 1872]: All agreements in restraint of trade, whether general or partial, qualified or unqualified are void.

However, in the following cases, a contract in restraint of trade is valid:

  1. Sale of goodwill: Section 27 itself gives one exception. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on or similar business within specified local limits.
  2. Partner’s agreements: A contract between partners to provide that a partner shall not carry on any business other than that of the firm while he is a partner. [Section 11(2)].
  3. A partner may agree with his partners that on ceasing to be a partner, he will not carry on any business. Similar to that of the firm within a specified period or local limits. [Section 36(2), Indian Partnership Act, 1932],
  4. A partner may upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on business similar to that of the firm within a specified period or local limits such an agreement is valid provided the restrictions are reasonable. (Section 54 of the Indian Partnership Act, 1932)
  5. A partner may upon sale of goodwill of a firm, agree with the buyer of goodwill that such partner will not carry on any business similar to that of the firm, within a specified period or local limits. Such an agreement is valid provided the restrictions are reasonable. [Section 55(3), Indian Partnership Act, 1 932].

Distinguish Between Other Essential Elements Of Valid Contract

Question 1. Distinguish Between the following: Coercion and Undue influence.

Answer:

Distinction between Coercion and Undue Influence

Other Essential Elements Of Valid Contract Distinction Between Coercion And Undue Influence

Question 2. Distinguish Between the following: Unilateral and Bilateral mistakes.

Answer:

Difference Between the following: Unilateral and Bilateral mistakes

Other Essential Elements Of Valid Contract Unilateral And Bilateral Mistake

Question 3. Distinguish Between the following: Fraud and Misrepresentation.

Answer:

The distinction between Fraud and Misrepresentation: Fraud means deliberate misstatement or active concealment of a material fact or any other act fitted to deceive.

Misrepresentation is an incorrect or false statement or breach of duty giving an advantage to the person committing it but the fallacy or failure is not due to any desire to deceive the other party.

The main points of distinction between the two are as follows:

Intention: In Fraud, the party committing fraud intends to deceive the other party, while in Misrepresentation the intention of the party is not to deceive. Misrepresentation is innocent, while fraud is deliberate or willful.

  • Belief: In fraud, the person making the suggestion does not believe it to be true, while in misrepresentation, the party making such suggestion believes it to be true.
  • Rescission and damages: In misrepresentation, the aggrieved party can rescind the contract or sue for restitution (Sec. 64). But he can not file a suit for damages. In fraud, the remedy available to the aggrieved party is not limited to rescission only, but to damages also.
  • Discovery of truth: In case of misrepresentation, the aggrieved party cannot avoid the contract if it had the means to discover the truth with ordinary diligence. But in Fraud, where there is active concealment, the contract is voidable, even though the aggrieved party had the means of discovering the truth with ordinary diligence.

Question 4. Enumerate the differences between ‘Wagering Agreements’ and ‘Contract of Insurance’ concerning the provision of the Indian Contract Act, 1872.

Answer:

The differences between ‘Wagering Agreements’ and ‘Contract of Insurance’ concerning the provision of the Indian Contract Act, 187

Other Essential Elements Of Valid Contract Difference Between Wagering Agreements And Contract Of Insurance

Other Essential Elements Of Valid Contract Descriptive Questions And Answers

Question 1. Comment on the following: “A minor is liable to pay for the necessities of life supplied to him”.

Answer:

“A minor is liable to pay for the necessities of life supplied to him”.

Section 68 of the Contract Act, deals with the cases of necessities of life supplied to a minor. The Act provides that “if a person incapable of entering into a contract or anyone.

  • When he is legally bound to support is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be recovered from the property. of such incapable person.”
  • Thus, a minor is not personally liable for the payment of necessities ‘ supplied to him, the payment for such necessities can be recovered only out of the property of the minor.
  • The supplier will lose the price of necessities if the minor does not possess any property. What constitutes necessities shall be determined concerning the status and the circumstances of a particular minor.
  • A simple example of necessities are food, clothing, and shelter but necessaries will also include a minor’s medical expenses, the cost of defending a minor’s civil or criminal proceedings, provisions for education, etc. Loans taken by a minor to obtain necessities also bind a minor.

The point to be noted is that the parent or guardian of a minor cannot be made responsible for any good supplied to a minor unless these goods are. supplied to a minor as the agent of the parent or guardian.

Question 2. Explain the term ’Fraud’ as per the Indian Contract Act. What are its effects on the validity of a contract?

Answer:

’Fraud’ as per the Indian Contract Act

When a wilful representation is made- by a party to a contract to deceive the other party or to induce such party to enter into a contract is called Fraud.

According to Section 17, fraud means and includes any of the following acts:

  1. A false suggestion as to fact known to be false or not believed to be true; or
  2. The active concealment of a fact with knowledge or belief of the fact; or
  3. A promise made without any intention of performing it; or
  4. Doing any other act fitted to deceive; or
  5. Doing any such act or making any such omission as the law specifically declares to be fraudulent.

Essential elements of the fraud:

The essential elements of the fraud are as follows: –

  1. There must be representation or assertion and it must be false.
  2. The representation or assertion must be of a fact.
  3. The party acting on the representation must have suffered some loss.
  4. Active concealment of the facts also results in fraud.
  5. The statement must have been made with a knowledge of its falsity or without belief in its truth or recklessly.
  6. The fraud must have deceived the other party.

Effect Of Fraud:

A contract becomes voidable at the option of the party whose consent to an agreement is caused by fraud.

The remedies available to the aggrieved party are as follows:

  • He may cancel the contract, or
  • He can insist the other party perform the contract so that he shall be put in the position in which he would have been if the representation made had been true.
  • He can sue for damages.

Question 3. Comment on the following: A minor can always plead minority.

Answer:

A minor can always plead minority

A minor can always plead minority: A minor’s agreement is void, so no money can be recovered from him on any type of advance made. A minor cannot be stopped from pleading with his minority.

  • Even when he procures a loan by falsely representing that he is a major, in a suit to recover the amount. In such a case the suit will stand to be dismissed.
  • A minor’s agreement being void, cannot be specifically enforced against the minor under the Specific Relief Act, The fact that the minor misrepresented his age or by fraud.
  • Induced the other party to enter into a contract with him, cannot be used to make him liable on his contract. The rule of estoppel cannot be pleaded against the minor.

Question 4. Answer the following: What is coercion? What are the consequences of coercion on the validity of the contract?

Answer:

Coercion: According to Section .15, “Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code, or the unlawful detaining or threatening to detains any property, to the prejudice of any person whatever, to cause any force in the place where the coercion is employed.” The following are the essential elements of coercion:

  1. There should be clear utterance of threat.
  2. The threat must be to commit an act forbidden by the Indian penal code.
  3. The act must be done to cause the other person to agree.

Effect of Coercion: The effect of coercion is given under section 19 of the Act and they are as follows:

  1. An agreement whose consent is obtained by coercion is voidable at the option of the party whose consent is so obtained.
  2. A person to whom the money has been paid or anything delivered under coercion must repay or return it (Section 72).

Question 5. Comment on the following: “An agreement by way of wager is not illegal”.

Answer:

Liability of wagering agreement:

  1. Wagering Agreements are void as per section 30 of the Indian Contract Act.
  2. Though the agreement is void and unenforced it is not forbidden by law.
  3. In other words, it can be said that wagering agreements are void but not illegal.
  4. But in the States of Gujarat and Maharashtra, wagering agreements are declared to be illegal.
  5. Thus, a broker can recover his brokerage in a wagering transaction.

Question 6. Answer the following: Who are disqualified persons to do the contract?

Answer:

Disqualified Persons: The following are the persons who are not complement to the contract as per Section 11 of the Indian Contract Act, 1872:

  1. Minor.
  2. Person of unsound mind.
  3. A person disqualified by law such as:
    • An alien enemy.
    • Foreign sovereigns and ambassadors.
    • Insolvents.
    • Convicts.
    • Corporation.
    • Married Women.
    • Professional person.
  4. under Article 299 of the constitution of India, the President of India, the governor of the state and their agents are not personally liable for the contracts made under the concerned government.
  5. If a public body or person is empowered by legislation with certain powers and duties, those persons or bodies are not in a position to enter into any contract.

Question 7. What is meant by agreement in restraint of trade? Describe in brief the various exceptions thereto.

Answer:

Agreement in restraint of trade

According to Section 27 of the Indian Contract Act, of 1872 an agreement seeking to hold a person from exercising a lawful profession, trade, or business of any kind is void to that extent.

Public policy wants every person to have at freedom to work for himself and should not be at liberty to prevent himself or the state of his labour, skill, or talent by any contract that he enters into.

This will avoid competition and will have a monopolistic tendency which is not in the favour of the public and society. But there are certain exceptions to this rule; The exceptions are divided into two broad heads:

  1. Statutory Exception
  2. Common Law exceptions.

1. Statutory Exception is the exception created by statutes:

  • Sale of goodwill: If a person purchases the business of another person and pays for its goodwill, then such purchaser can have reasonable restrictions on the trade of the seller of the goodwill (Section 27).
  • Partners competing business: As long as a person remains a partner of a firm, he is restrained from carrying on a similar business. (Section 1 1 (2) of the Partnership Act).
  • Rights of outgoing partner: A partner may agree with his partners that on leaving the firm, he will not carry on a similar business within a specified period or specified local limits. (Section 36(2) of the Partnership Act).
  • Partner’s similar business on dissolution: According to 54 of the Partnership Act. partners may in anticipation of the dissolution of the firm, agree that all as some of them shall not carry on a business similar to that of the firm within specified local limits.
  • Agreement in restraint of trade: Any partner on the sale of the goodwill of a firm agrees with the buyer that such partners, will not carry on any business similar to that of the firm within a specified period or local limits (Section 55 (3) of the partnership Act).

2. Exception under the common law arises from the judicial interpretation:

  • Service agreement: An agreement of sen/ice, by which a person binds himself during the term of the agreement to not table up service with anyone else. Or not to compete with his employer is valid.
  • Trade combination: Trade combination with the object of regulating business is desirable in the public interest.

Question 8. Comment on the following: Mere silence as to facts does not amount to fraud.

Answer:

Mere silence as to the facts does not amount to fraud: Mere silence of the party as to certain facts does not amount to fraud.

  • A party to the contract owes no gratitude to disclose the whole truth to the other party, The Rule of Caveat Emptor is applicable here that is Buyer Beware principal.
  • This principle means that the buyer should be aware of things while making the contract. In these cases, there is no duty to speak and silence does not result in fraud.
  • When both parties are aware of the contract, there is no duty to disclose the facts.

Hence, silence does not amount to fraud. These are two exceptions to the rule. These are:-

  1. Where circumstances create a duty the part of the person keeping silent to speak and
  2. Where silence in itself is equivalent to speech.

Question 9. State the exceptions to the rule that “a stranger to a contract cannot sue”.

Answer:

Stranger to a Contract: It is a general rule of contract that a person who is not a party to the contract can not sue for it. This specifies that unless there is a privity of contract a party cannot sue on a contract.

Privity of contract means the relationship subsisting between the parties to a contract. It means that no one but the parties to a contract can be bound by it or be entitled under it.

A stranger to a contract cannot sue except in the following cases:

  1. In the case of a trust, the beneficiary of the trust is in a position to enforce the contract even though he is a stranger to it.
  2. In case the contract is entered into by an agent, it can be enforced by the principal.
  3. Where an arrangement is made in connection with marriage, partition, or other family arrangements and a provision is made for the benefit of the person, he can sue although he is not a party to the agreement.
  4. Where the promisor himself has created the privity of contract by his conduct he is in a position to sue.
  5. A stranger to a contract can sue for the money, made payable to him by it where the money is charged on immovable property.

Question 10. Explain the following: Mistakes of fact.

Answer:

Mistake of fact: Mistake of fact may be divided into two groups that is:

  1. Bilateral Mistake
  2. Unilateral Mistake

1. Bilateral mistake: According to Section 20 of the Act, a Bilateral mistake is a 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.”

Bilateral mistake may relate to the existence, identity, title, quantity, and price of the subject matter, However, an erroneous opinion as to the value of a thing which forms the subject matter of the agreement is not to be deemed a mistake as to matter of fact.

2. Unilateral Mistake of fact: Section 22 of the Act deals with a unilateral mistake, “A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact”.

Question 11. Comment on the following: All illegal agreements are void but all void Agreements are not illegal.

Answer:

All illegal agreements are void but all void agreements are not illegal: The agreement which has no legal effect is void. In the case of an illegal contract, there is no legal effect between the parties but the transaction collateral to such a contract is further affected.

  • A contract that is termed illegal and is void ab initio, is treated by law as if it had not been made at all. Thus, parties to an illegal contract cannot get help from a court of law.
  • For example, in the case of an illegal contract for the sale of goods, the buyer though has paid the price, cannot sue for non-delivery.
  • The price cannot be recovered by the seller who has to make the delivery. No suit can be filed in respect of an illegal contract.

Question 12. Comment on the following: When does the mistake of the parties invalidate a contract?

Answer:

The mistake of the parties invalidate a contract

‘Mistake’ has not been defined anywhere in the Indian Contract Act, of 1872. But Section 20 of the act provides the effect of the term ‘mistake’ which is “when both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is declared void.”

The following conditions must be fulfilled before a contract can be avoided on the ground of mistake:

  1. There must be a mistake as to the formation of the contract.
  2. The mistake must relate to the matter of fact and not of law.
  3. The mistake must be of both parties i.e. bilateral.
  4. The matter of fact must be essential to the agreement.

Question 13. Comment on the following: Capacity to contract.

Answer:

Capacity of parties to contract: Capacity means the competence of the parties to enter into a valid contract. Section 11 of the Contract deals with the competency of parties and provides that every person is competent to contract who:

  1. Of the age of majority as per law to which he is subject,
  2. Of sound mind,
  3. Is not disqualified from contracting by any law to which he is subject.

The qualification stated above must be fulfilled by the person competent to contract. The first qualification refers to the age of the contracting person. A person attains majority on completing his 1 8 years.

  • In the case of matters of property, the majority is attained after completing 21 years of age. The second qualification requires a person to be of sound mind at the time of making the contract.
  • He must be capable of understanding it and of forming a rational judgment as to its effect. Following is the person who is not supposed to be of sound mind such as a lunatic, an idiot, or a drunken person.
  • The third qualification requires that a person entering into n contract should not be disqualified by his status while entering into such contracts For example; alien enemies, insolvents, convicts, married women, and corporations.

The contract will not be valid if it is entered by persons who are not competent to contract.

Question 14. Write brief answers to the following: Contract by a person of unsound mind.

Answer:

Contract by a person of unsound mind: A person is said to be of sound mind when he is capable of understanding the terms of the contract and can make a rational decision as to its effect upon his interest.

Thus, the person is of unsound mind when:

  • He is not in a position to make a contract or understand it.
  • He cannot form a proper and reasonable judgment as to how the contract will affect his interest.

Generally, it is assumed that every person is of a sound mind unless it is proved otherwise. A person who is usually of sound mind but occasionally of unsound mind cannot make a contract, when he is of unsound mind.

Thus, a drunkard is not competent to contract when he is drunk. Hence, a person of unsound mind is not competent to contract.

Question 15. Briefly answer the following: An agreement In restraint of trade la void.

Answer:

An agreement In restraint of trade la void

According to Section 27 of the Indian Contract Act, of 1872 an agreement seeking to hold a person from exorcising a lawful profession, trade, or business of any kind Is void to that extent.

Public policy wants every person to at the freedom to work for himself and should not be at liberty to prevent himself or the state of his labor, skill, or talent by any contract that he enters into.

This will avoid competition and will have a monopolistic tendency which is not in the favour of the public and society. But there are certain exceptions to this rule; The exceptions are divided into two broad heads:

  1. Statutory Exception
  2. Common Law exceptions.

1. Statutory Exception is the exception created by statutes:

  • Sale of goodwill: If a person purchases the business of another person and pays for its goodwill, then such purchaser can have reasonable restriction on the trade of the seller of the goodwill (Section 27).,
  • Partners competing business: As long as a person remains a partner of a firm, he is restrained from carrying on a similar business (Section 11 (2) of the Partnership Act)
  • Rights of outgoing partner: A partner may agree with his partners that on leaving the firm, he will not carry on a similar business within a specified period or specified local limits. (Section 36(2) of the Partnership Act).
  • Partner’s similar business on dissolution: According to 54 of the Partnership Act. partners may in anticipation of the dissolution of the firm, agree that all as some of them shall not carry on a business similar to that of the firm within specified local limits.
  • Agreement in restraint of trade: Any partner on the sale of the goodwill of a firm agrees with the buyer that such partners, will not carry on any business similar to that of the firm within a specified period or local limits (Section 55 (3) of the Partnership Act).

2. Exception under the common law arises from the judicial interpretation:

  • Service agreement: An agreement of service, by which a person binds himself during the term of the agreement to not table up service with anyone else. Or not to compete with his employer is valid.
  • Trade combination: Trade combination with the object of regulating business is desirable in the public interest.

Question 16. Briefly answer the following: Who is disqualified by law from entering into a valid contract?

Answer:

An essential element to form a valid contract, as per Section 11 is stated as “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject”.

Analysis of Section-11

This section deals with the personal capacity of three types of individuals only. Every person is competent to contract who:

  • Has attained the age of majority,
  • Is of sound mind and
  • Is not disqualified from contracting by any law to which he is subject.

Question 17. Briefly answer the following: Law relating to minor’s contracts.

Answer:

The law relating to minor’s contract:

  1. An agreement entered into by a minor is altogether void.
  2. Minor can be a beneficiary: Though a minor is not competent to contract, there is nothing in the Indian Contract Act, of 1872, that prevents him from making the other party bound to be minor.
  3. Minor can always plead minority.
  4. Ratification on attaining a majority is not allowed: As a minor’s agreement is void, he cannot validate it by ratification on attaining a majority.
  5. Though a minor’s agreement is void, his guardian can under certain circumstances enter into a valid contract on the minor’s behalf.
  6. Under section 68 (Indian Contract Act, 1872), any person would be entitled to reimbursement out of the minor’s estate, for necessities supplied to him or his family.

Question 18. Briefly answer the following: Explain Coercion and undue influence in a contract.

Answer:

Coercion and Undue influence may be distinguished in the following manner:

Coercion involves physical force or threat. The aggrieved party is competent to make the contract against its will. While undue influence involves moral or mental pressure. The aggrieved party believes that fie or she would make the contract.

  • Coercion involves committing or threatening to commit any act forbidden by the Indian Penal Code, detaining, or threatening to detain the property of another person. But no such illegal act is committed or a threat is given in case of undue influence.
  • It is not necessary that in case of coercion, there must be some sort of relationship between the parties. But some sort of relationship between the parties is necessary in the case of undue influence.
  • Coercion need not proceed from the promisor nor needlt be directed against the promisor. Undue influence is always exercised between parties to the contract.
  • The contract is voidable at the option of the party where consent has been obtained by coercion. Where the consent is induced by undue influence, the contract is either voidable, or the court may set it aside or endorse it in a modified form.
  • In case of coercion where the contract is rescinded by the aggrieved party, as per Section 64, any benefit received has to be restored to the other party.
  • But in case of undue influence, the court has the discretion to direct the aggrieved party to return the benefit in whole or in part or not to give any such directions.

Question 19. Examine with reason that the given statement is correct or incorrect ‘Minor is liable to pay for the necessaries supplied to him”.

Answer:

A claim for necessaries supplied to a minor is enforceable by law, but a minor is not liable for any price that he may promise and never for more than the value of necessaries.

There is no personal liability on the minor, but only his property (estate) is liable.

Hence, the statement “minor is liable to pay for necessaries supplied to him”. Is incorrect.

Question 20. Define Fraud. Whether“mere silence will amount to fraud” as per the Indian Contract Act. 1872?

Answer:

Fraud means and includes any of the following acts committed by a party to a contract or with his connivance, or by his agent, with an interest to deceive another party thereto or his agent or to induce him to enter into a contract.

  1. The suggestion, as a fact is that which is not true, by one who does not believe it to be true.
  2. Activeconcealmentoffactby one having knowledge or belief of the fact
  3. A promise made without any intention of performing it
  4. An ad filed to deceive.
  5. Any act declared as fraudulent by law.

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that regard being had to them.

  • It is the duty of the person keeping silent to speak, unless his silence is, in itself, equivalent to speech.
  • A. party under contract is under no obligation to disclose the whole truth to the other party. “Caveat Emptor’ i.e. let the buyer beware is the rule applicable to contracts.

There Is no duty to speak in such cases and silence does not amount to fraud. Similarly. there is no duty to disclose facts that are within the knowledge of both parties.

Question 21. “Mere silence is not fraud” but there are some circumstances where “silence is a fraud”. Explain the circumstances as per the provision of the Indian Contract Act 1872.

Answer:

Mere silence is not fraud:

Mere silence as to the facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, is equivalent to speech.

  • A party to the contract is under no obligation to disclose the whole truth to the other party. ‘Caveat Emptor i.e. let the buyer beware is the rule applicable to contracts. There is no duty to speak in such cases and silence does not amount to fraud.
  • Similarly, there is no duty to disclose facts which are within the knowledge of both the parties.

Silence is a fraud:

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.

The following contracts come in this category:

  • Fiduciary relationship: Here, the person in whom confidence is reposed is under a duty to act with utmost good faith and make full disclosure of all material facts, known to him.
  • Contracts of insurance: In such contracts, there is an implied condition that full disclosure of all material facts shall be made, or else the contract is avoidable.
  • Contracts of Marriage: Every material fact must be disclosed by the parties to a contract of marriage.
  • Contracts of family settlement: These contracts also require full disclosure of material facts within the knowledge of the parties.
  • Share Allotment Contracts: The person issuing the “prospectus’ at the time of public issue of shares or debentures, has to disclose all material facts within their knowledge.

2. Where silence itself is equivalent to speech:

For Example, A says to B. “If you do not deny it, I shall assume that the horse is sound,” B says nothing his silence amounts to speech.

In case of fraudulent silence, the contract is not voidable if the party whose consent was so obtained had means of discovering the truth with ordinary diligence.

Question 22. Discuss the essentials of Undue Influence as per the Indian Contract Act, 1 872.

Answer:

A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and he uses that position to obtain an unfair advantage over the other.

The essential ingredients of undue influence under the Indian Contract Act, of 1872 are:

  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: The relation between the parties is such that one of them is in a position to dominate the will of the other.
  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. The burden of proof: The burden of proving the absence of the use of the dominant position to obtain the unfair advantage will lie on the party who is in a position to dominate the will of the other.

Question 23. Explain the term ‘Coercion’ and what are the effects of coercion under the Indian Contract Act, of 1872.

Answer:

‘Coercion’

“Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code or the unlawful detaining, or threatening to detain any property, to the prejudice of any person whatever, to cause any person to agree”.

Effects of coercion under Section 19 of the Indian Contract Act, 1872:

  1. A contract induced by coercion is voidable at the option of the party whose consent was so obtained.
  2. The party receiving any benefit under the voidable contract must restore such benefit so far as may be to the person from whom it was received.
  3. A person to whom money has been paid or delivered under coercion must repay or return it.

Question 24. Define Misrepresentation and Fraud. Explain the difference between Fraud and Misrepresentation as per the Indian Contract Act, of 1872.

Answer:

Misrepresentation and Fraud

According to Section (17) of the Indian Contract Act, 1872: “Fraud means and includes any of the following acts committed by a party to a contract or with his connivance or by his agent, which an intention to deceive another party thereto or his agent, or to induce him to enters into a contract.

Following are some acts:

  • The active concealment of the fact by one having knowledge or brief of the fact.
  • A promise made without any intention of performing it.
  • Any other act filled to deceive.
  • Any such act that the law declares to be fraudulent, etc.

For Example: A sells by auction to B, a house which A knows to be unsound, and A says nothing to B. This is not fraud by A.

Silence may sometimes be fraud or will not depend upon the facts and circumstances of the case.

Misrepresentation:

According to Section (18) of the Indian Contract Act, 1 872. Misrepresentation means misstatement of material facts made believing it to be true without any intention of delivering the other party.

For Example: A makes a statement to B that C will be made the director of a company. A makes the statement on information derived, not directly from C but from M. B applies for shares on the faith of the statement which turns out to be false the statement amounts to misrepresentation.

The difference between fraud and misrepresentation is as follows:

Other Essential Elements Of Valid Contract Difference Of Fraud And Misrepresentation

Question 25. Mr. X a businessman has been fighting a long-drawn litigation with Mr. Y an industrialist. To support his legal campaign he enlists the services of Mr. C a Judicial officer stating that the amount of? 10 lakhs would be paid to him if he does not take up the brief of Mr. Y. Mr. C agrees but, at the end of the litigation, Mr. X refuses to pay Mr. C. Decide whether Mr. C can recover the amount promised by Mr. X under the provisions of the Indian Contract Act, 1872?

Answer:

Provision: According to the Indian Contract Act, of 1872. All Agreements in restraint of any trade or which are opposed to public policy are void and are such which are expressly declared by law to be a void agreement.

Analysis: In the given case, Mr. X has been fighting a long-drawn litigation with Mr. Y To support his legal campaign he enlists the services of Mr. C who is a judicial officer stating that the amount of ₹ 10 lakhs would be paid to him if he does not take up the brief of Mr. Y.

As this agreement is an agreement which is void and opposed to public policy hence, it cannot be enforced.

Concession: As at the end X refuses to pay Mr. C the decided amount Mr. C cannot recover the amount promised by Mr. X under the provisions of the Indian Contract Act, 1 872 as it is a void agreement between the two.

Question 26. Mr. S aged 58 years was employed in a Govt. Department. He was going to retire after two years. Mr. D proposed Mr. S apply for voluntary retirement from his post so that Mr. D can be appointed in his place. Mr. D offered a sum of ₹ 10 Lakhs as consideration to Mr. S to induce him to retire.

Mr. S refused at first instance but when he evaluated the amount offered as consideration as just double his cumulative remuneration to be received during the tenure of two years of employment, he agreed to receive the consideration and accepted the above agreement to receive money to retire from his office.

Whether the above agreement is valid? Explain the provision of the Indian Contract Act, of 1872.

Answer:

According to the provisions of the Indian Contract Act, of 1872

An agreement to trafficking in public office is opposed to public policy, as it interferes with the appointment of a person best qualified for the service of the public.

Public policy requires that there should be monetary consideration for the appointment to an office in which the public is interested. The following are examples of agreements that are void; since they are tantamount to the sale of public offices.

  1. An agreement to pay money to a public servant 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. In the given case, Mr. D offered? 10 lakh to Mr. S as a consideration to induce him to retire so that Mr. D can be appointed in his place.

The above agreement is opposed to public policy and therefore void.

Question 27. Examine the validity of the following contracts as per the Indian Contract Act, of 1872 giving reasons.

  1. X aged 16 years borrowed a loan of ₹ 50,000 for his purposes. A few months later he became major and could not pay back the amount borrowed on the due date. The lender wants to file a suit against X.
  2. J contracts to take In cargo for K at a foreign port. J’s government afterward declared war against the country In which the port Is situated and therefore the contract could not be told. K wants to file a suit against J.

Answer:

1. According to section 11 of the Indian Contract Act, 1 872 every person is competent to contract who is of the age of majority according to the law to which he is subject, and who Is of sound mind and is not disqualified from contracting by any law to which he Is subject. A person who has completed the age of 18 years Is a major and otherwise, he will be treated as a minor.

  • Thus, X aged 16 years is a minor and is incompetent to contract and any agreement with him is void (Mohori Blbi vs Dharmo Das Ghose 1903) Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a minor for the supply of the things which are the necessaries of life to him.
  • It says that though a minor is not personally liable to pay the price of necessaries supplied to him or money lent for the purpose, the supplier or lender will be entitled to claim the money or price of goods or services which are necessaries suited to his condition of life provided that the minor has a property.
  • The liability of the minor is only to the extent of the minor’s property. Thus, according to the above provision, the lender will be entitled to recover the amount of loan given to X for payment of personal purposes from the property of the minor.

2. As per the provisions of the Indian Contract Act, of 1872 any trade with a person owing allegiance to a Government at war with India without the license of the government of India is void, as the object is opposed to public policy.

  • Here, the agreement to trade offends against public policy by tending to prejudice the interest of the state in times of war. Such a contract will become void.
  • In the present case, J contracts to take in cargo for K at a foreign port. J’s government afterward declares war against the country in which the port is situated and therefore the contract could not be fulfilled.
  • Hence the contract becomes void ab initio. The contract made before such war war-like situation may be suspended or dissolved.

Question 28. Srishti, a minor, also representing her age, entered into a fin agreement with an unauthorized Laptop dealer Mr, Ggpta, owner of GP Laptops, lor purchased the Laptop on credit amounting to ₹ 60.000/- for purchasing a Laptop on 1st August 2021. She promised to pay back the outstanding amount with Interest @ 16% p.a. by 31st July 2022, She told him that In case she isn’t able to pay the outstanding amount, her lather Mr. Ram would pay it back on her behalf. After one year, when Sriahtl was asked to pay the outstanding amount with Internal she refused to pay the amount and told the owner that the sho Was minor and now he couldn’t recover a single penny from her.

She will be an adult on 1st January 2024, only after that agreement can be ratified. Explain by which of the following ways Mr. Gupta will succeed in recovering the outstanding amount concerning the Indian Contract Act, of 1872.

  1. By filing a case against Srishti, a minor for recovery of the outstanding amount with interest?
  2. By filing a case against Mr. Ram, father of Srishti for recovery of the outstanding amount?
  3. By filing a case against Srishti, a minor for recovery of the outstanding amount after she attains maturity?

Answer:

1. A minor is not competent to contract and any agreement with or by a minor is void from the very beginning. In the instant case, the agreement between Mr. Gupta and Srishti (minor) is void a9 Srishti is competent to make the contract.

Therefore, Mr. Gupta will not succeed in recovering the outstanding amount with interest by taking legal action against Srishti the minor.

2. Mr. Gupta cannot succeed in recovering the outstanding amount along with interest by filing a case against Mr. Ram, since he will not be liable for the acts done by his daughters moreover, Shrishti is not acting as an agent of his father, thus Mr. Ram (i.e.guardian) is not liable for the acts of his daughter even as a principal.

3. Mr. Gupta cannot succeed in recovering the outstanding amount with interest by filing a case against Srishti even after she attains majority age since minor agreements are void-ab-into and cannot be ratified even after attaining majority age.

Question 29. Mr. Y aged 21 years, lost his mental balance after the death of his parents in an accident. He was left with his grandmother aged 85 years, incapable of walking and dependent upon him. Mr. M their neighbor, out of pity, started supplying food and other necessities to both of them. Mr. Y and his grandmother used to live in the house built by his parents.

Mr. M also provided the grandmother with some financial assistance for her emergency medical treatment. After supplying necessities to Mr. Y for four years, Mr. M approached the former asking him to pay him back ₹ 15 -Lakhs inclusive of ₹  7 Lakhs incurred for the medical treatment of the lady (grandmother).

Mr. Y pleaded that he has his parent’s jewelry to sell to a maximum value of ₹ 4 Lakhs, which may be adjusted against the dues. Mr. M refused and threatened Mr. Y with a legal suit to be brought against him for recovering the money. Now, you are to decide based on the provisions of The Indian Contract Act, of 1872:

  1. Will Mr. M succeed in filing the suit to recover the money? Elaborate on the related provisions.
  2. What is the maximum amount of money that can be recovered by Mr. M?
  3. Shall the provisions of the above act also apply to the medical treatment given to the grandmother?

Answer:

Under Sections 11 and 12 of the Indian Contract Act, 1872, for executing a valid contract, the parties to same should be of sound mind.

As per Section 11: Every person is competent to contract who is of the age of majority according to the law to which he is subject,- and who is of sound mind and is not disqualified from contracting by any law to which he is subject.

As per Section 12: A person is said to be of sound mind to make a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interest.

Whereas, a person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

In the given case Mr. Y. is a person of unsound mind and he is looking after his grandmother aged 85 years, incapable of walking and dependent upon him. Mr. M out of kindness started supplying food and other necessities to both of them.

After supplying necessities to Mr. Y. for 4 years he approached to pay back ₹ 15 lakhs inclusive of ₹ 7 lakhs incurred for the medical treatment of the lady.

Now as per the above given scenario following conclusions can be drawn in this case.

  1. Mr. Y is an adult and is usually of sound mind but occasionally of unsound mind can make a contract when he is of sound mind. 6o, as per the above provisions Mr. M will succeed in recovering the money and he can file suit against Mr. Y.
  2. The maximum amount of money that can be recovered by Mr. M is only to the extent of Mr. Y’s estate i.e. the jewelry of his parents worth ? 4 lakhs can be adjusted against the dues.
  3. The provisions of the above act shall also be applied to the medical treatment given by Mr. M to the grandmother of Mr. Y.

Question 30. Mr. A, the employer induced his employee Mr. B to sell his one-room flat to him at less than the market value to secure promotion. Mr. B sold the flat to Mr. A. Later on, Mr. B changed his mind and decided to sue Mr. A. Examine the validity of the contract as per the provisions of the Indian Contract Act, of 1872.

Answer:

According to section 1 6 of the Indian Contract Act, 1 872, A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and he uses that position to obtain an unfair advantage over the other.

  • A person is deemed to be in a position to dominate the will of another where he holds a real or apparent authority over the other.
  • In the above case, MR. A, the employer induced his employee Mr. B to sell his one-room flat to Mr. A. Later on, Mr. B changed his mind and decided to sue Mr. A. Here, the employer has real authority over the employee.
  • Moreover, the employer is in a dominant position to get an unfair advantage from the employee. So law presumes undue influence in this case.
  • Therefore, a suit can be fixed here on the grounds of undue influence. Mr. B can sue Mr. A as the contract is voidable on the grounds of undue influence.

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