UNIT – 03 OTHER ESSENTIALS ELEMENT OF A CONTRACT
- Capacity to Contract
The capacity to contract is a fundamental element of a valid contract. According to Section 11 of the Indian Contract Act, 1872, a person is competent to contract if they meet the following three conditions:
- They have attained the age of majority.
- They are of sound mind.
- They are not disqualified from contracting by any law to which they are subject.
- Minors
A minor is a person who has not completed 18 years of age. A contract with a minor is void ab initio and not merely voidable. This principle was established in the landmark case of Mohori Bibee v. Dharmodas Ghose (1903).
- Persons of Unsound Mind
According to Section 12 of the Indian Contract Act, a person is of sound mind for the purpose of contracting if, at the time of making the contract, they are capable of understanding it and forming a rational judgment about its effect on their interests.
- A person who is usually of unsound mind but occasionally of sound mind can enter into a contract when they are of sound mind.
- A person who is usually of sound mind but occasionally of unsound mind cannot enter into a contract when they are of unsound mind.
- Agreements made by a person of unsound mind are void. However, like a minor, their estate is liable for the payment of necessaries supplied to them.
Persons Disqualified by Law
Certain individuals are specifically disqualified from entering into contracts by law. Agreements made by these persons are void.
Examples include:
- Alien Enemies: A person who is a subject of a country with which India is at war cannot enter into a contract with an Indian citizen.
- Insolvents: An insolvent person is disqualified from contracting until they are discharged by the court.
- Convicts: A convict serving a sentence cannot enter into a contract.
- Foreign Sovereigns and Ambassadors: They can enter into contracts but have special privileges and cannot be sued without the central government’s permission.
- Free Consent-
Free consent is an essential element of a valid contract. According to Section 14 of the Indian Contract Act, 1872, consent is considered free when it’s not caused by:
- Coercion (Section 15)
- Undue influence (Section 16)
- Fraud (Section 17)
- Misrepresentation (Section 18)
- Mistake (Sections 20, 21, and 22)
- Elements Vitiating Free Consent-
- Coercion (Section 15)
Coercion is the act of compelling a person to enter into a contract by using force or threats. It’s the committing, or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property.
- Example: A threatens to shoot B if B doesn’t release A from a debt. B releases A under the threat. The release is voidable at B’s option because his consent was obtained through coercion.
- Effect: The contract is voidable at the option of the party whose consent was obtained by coercion.
- Undue Influence (Section 16)
Undue influence occurs when the relationship between the parties is such that one party is in a position to dominate the will of the other and uses that position to get an unfair advantage. It is a subtler form of pressure than coercion.
- Parent and child
- Spiritual adviser and devotee
- Doctor and patient
- Lawyer and client
Example: A spiritual guru convinces his devotee to gift him all his property, promising salvation. The devotee’s consent is considered to be under undue influence.
Effect: The contract is voidable at the option of the party whose consent was obtained through undue influence. The burden of proof is on the party who was in a position to dominate the other’s will.
- Fraud (Section 17)
Fraud involves an intentional act of deception to induce another party to enter into a contract. This can be done by a party to the contract or with their connivance or by their agent. It includes:
- False statement: Suggesting a fact is true when the person knows it’s false.
- Active concealment: Actively hiding a fact that you have knowledge of.
- False promise: Making a promise without any intention of fulfilling it.
- Any other deceptive act: Any other act or omission declared to be fraudulent by law.
Example: A, a seller, actively conceals a significant defect in a car he’s selling to B. This is an active concealment of a fact and constitutes fraud.
Effect: The contract is voidable at the option of the party who was deceived. The deceived party can also claim damages.
- Misrepresentation (Section 18)
Misrepresentation is an innocent and unintentional false statement made by one party that leads the other party to enter into a contract. The person making the statement believes it to be true but has no reasonable grounds for the belief.
- Key difference between Fraud and Misrepresentation: The intention. In misrepresentation, the false statement is made innocently, without the intent to deceive. In fraud, the intent to deceive is present.
Example: A sells his mare to B, genuinely believing it to be sound. B later finds out the mare is unsound. This is a misrepresentation as A did not have the intention to deceive B.
Effect: The contract is voidable at the option of the party who was misled. However, if the party had the means to discover the truth with ordinary diligence, the contract is not voidable.
- Mistake (Sections 20, 21, and 22)
A mistake is an erroneous belief that leads to a misunderstanding between the parties. When a mistake prevents the parties from agreeing on the same thing in the same sense, there is no consensus-ad-idem.
There are two types of mistakes:
- Mistake of Fact (Section 20): When both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. This is also known as a bilateral mistake.
Example: A agrees to buy a horse from B. Unbeknownst to both parties, the horse had died before the contract was made. The agreement is void.
- Unilateral Mistake (Section 22): A contract is not voidable merely because one of the parties was under a mistake as to a matter of fact.
- Mistake of Law (Section 21): A mistake of Indian law does not make a contract void. The principle is “Ignorantia juris non excusat”.
- Legality of Object & Consideration-
Legality of object and consideration is a critical element for a valid contract under the Indian Contract Act, 1872. According to Section 23 of the Act, an agreement is a void agreement if its object or consideration is unlawful.
When is Object or Consideration Unlawful?
The object or consideration is unlawful in the following cases:
Forbidden by Law : The purpose of the agreement is an act specifically prohibited by law, either by a statute or a rule/regulation of a competent authority.
-
- Example: An agreement to sell smuggled goods is unlawful because the act of smuggling is forbidden by law.
Defeats the Provisions of Any Law : The agreement’s nature, while not directly forbidden by law, would make a mockery of a legal provision if it were permitted.
-
- Example: A debtor agrees not to plead the law of limitation to an action on his debt. This agreement is void because it defeats the provisions of the Limitation Act.
Fraudulent : The agreement is entered into with the intent to deceive others.
-
- Example: A, B, and C enter into an agreement to share the gains acquired by them through fraud. The agreement is void because its object is fraudulent.
Involves Injury to Person or Property 🤕: The object or consideration of the agreement would cause physical harm or financial damage to a person or their property.
-
- Example: An agreement to publish a book that violates another person’s copyright is unlawful because it injures the property of another.
Immoral : The court regards the object or consideration as immoral. This refers to actions that society considers morally wrong.
-
- Example: An agreement to pay a woman a monthly allowance for her to live in a live-in relationship is void because the object is immoral.
Opposed to Public Policy : The agreement is harmful to the public good or against the welfare of the community. Public policy is used in a limited sense to avoid restricting the freedom of parties to contract.
- Void Agreements-
A void agreement is distinct from a voidable contract, which is an agreement that is initially valid and enforceable but can be set aside by one of the parties due to certain circumstances.
The Indian Contract Act, 1872, specifies several types of agreements that are expressly declared as void. Here are the key points and categories of void agreements:
- Agreements where essential elements of a valid contract are missing
An agreement becomes void if it lacks any of the essential elements of a valid contract as per Section 10 of the Indian Contract Act. These include:
Agreements by incompetent parties: For an agreement to be a contract, the parties must be competent to contract. This means they should be of the age of majority, of sound mind, and not disqualified from contracting by any law.
Agreements with unlawful consideration or object: As per Section 23, an agreement is void if its consideration or object is unlawful. This includes things that are forbidden by law, fraudulent, immoral, or against public policy.
Agreements without consideration: Section 25 states that an agreement made without consideration is void, with a few exceptions.
Agreements where consent is not free due to bilateral mistake of fact: An agreement is void if both parties are under a mistake as to a matter of fact essential to the agreement.
- Agreements expressly declared to be void
The Indian Contract Act, 1872, specifically declares the following agreements as void:
Agreement in restraint of marriage (Section 26): Any agreement that prevents a person (other than a minor) from marrying is void. The law protects an individual’s right to marry.
Agreement in restraint of trade (Section 27): Every agreement that restricts a person from exercising a lawful profession, trade, or business is void. This is based on the principle of protecting the fundamental right to carry on any trade or business.
Agreement in restraint of legal proceedings (Section 28): An agreement that restricts a person from enforcing their legal rights through the usual court proceedings or limits the time to bring a lawsuit is void.
Agreements void for uncertainty (Section 29): An agreement whose meaning is not certain or capable of being made certain is void.
Wagering agreements (Section 30): An agreement to pay money or money’s worth on the outcome of an uncertain future event is a wagering agreement and is void.
Agreement to do impossible acts (Section 56): An agreement to perform an act that is impossible from the very beginning is void. For example, an agreement to discover treasure by magic is void.
Key Differences between a Void Agreement and a Void Contract
| Feature | Void Agreement | Void Contract |
| Legal Status | Void from the very beginning. | Was initially a valid contract but later becomes void. |
| Cause | Lacks one or more essential elements of a valid contract from its formation. | Becomes impossible or unlawful to perform after it has been formed due to some subsequent event. |
| Legal Effect | Does not create any legal rights or obligations. | Creates legal rights and obligations until the time it becomes void. |
| Example | An agreement by a minor to sell property. | A contract to supply goods that are destroyed by fire before delivery. |