Legal Notes

What is Contract? Contract is an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as contract. Since the law of contracts is at the heart of most business dealings. There are two important elements in Agreeement of Contracts, i. e. 1) A proposal or an offer 2) An acceptance of that proposal or offer Essential Elements of a Valid Contract:- a) Agreement: – A negotiated and usually legally enforceable understanding between two or more parties.Although a binding contract can result from an agreement, an agreement typically documents the give-and-take of a negotiated settlement and a contract specifies the minimum acceptable standard of performance. b) Intention to create legal relationship: – One of the essential elements in the creation of a binding contract, this intention is implied by the fact that it is not expressly denied. Intention to bind the other party with th e involved legal obligations. ) Free and genuine contract:-Two parties must give their Free and genuine contract to the term of agreement. Such consent should not obtain one or more of following manners i. e. I. By coercion II. By undue influence III. By fraud IV. By misrepresentation V. By mistake If the consent would be proved to have been obtained in one or more of the aforementioned manner, such contract automatically declared as voidable contract. d) Lawful consideration:- Consideration is an essential element for the formation of a contract.It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract—an agreement by which both parties exchange mutual promises—each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other's performance, the performance is consideration for the promise, while the promise is consideration for the performance. Consideration must have a value that can be objectively determined.Example:- To make a gift or a promise of love or affection is not enforceable because of the subjective nature of the promise. e) Lawful object: – Courts will not enforce contracts that are illegal or violate public policy. Such contracts are considered void. For example, a gambling contract would be illegal in many states. f) Agreements not declared void or illegal:- The sagreement should be such Which have not been expressly declared as illegal or void by any law of the land. Such agreement would naturally be not enforceable by law just for this single reason. ) Necessary legal formalities: – legal formalities are the legal obligations which are to be performed or fulfill by each and every organization by performing legal formality a unique image of organization is created in the mind of employees and other stake holders. Who ar e competent to contract? 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, following person disqualified into valid agreement or contract: a) Minors ) Mentally incompetent person and c) Person who are declared incompetent through their status. MINORS Section 3 of Indian Majority 1875,a minor is a person who has not completed 18years of age. But then in the following specific cases, a minor is said to attain the majority on the completion of his 21 years of age ,instead : 1. Where a guardian of minor’s person or property is appointed under the guardians and wards act ,1890. 2. Where a court of wards assumes the superintendence of the minor’s property. For example : * If A is born in India on the 1st January 1850, and has an Indian domicile .B guardian of A is appointed by court of justice. A attains majority at the the first day of January 1871. (21 years) * If A is born in India on the 29th February 1852,and has an Indian domicile. B guardian A’s property is appointed by a court of justice. A majority at the first moment of the 28th day of February 1873. (21years) * A is born on the first day of January 1850. He acquires a domicile in India . No guardian is appointed of his person or property by any court of justice, nor is he under the jurisdication of any court of wards.A attains majority at the first moment of the day of januray ,1868. (18 years) Under the English law, a contract by a minor is not void, but only voidable , at the option of the minor only, though only under certain exceptional circumstances. Under the Indian law a contact with or by minor is void, and not just voidable. As noted above a minor is not competent to contract. One question which arises in case of an agreement by a minor is, whether the agreement is void or voidable? The Indian contract Act does no t have any provision to answer this question.In the absence of any statutory provision there had been controversy on this point. The controversy was set at rest by the decision of the Privy Council, in the case of Mohori Bibee Vs. Dharmodas Ghose in 1903. It was held that the agreement made by a minor is void.. Point 1 CASE LAW 1: Mohiri Bibi vs Dharmodas Ghose * The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in favour of the defendant, Brahmo Dutt, who was a moneylender to secure a loan of Rs. 20,000. The actual amount of loan given was less than Rs. 0,000. At the time of the transaction the lawyer, who acted on behalf of the money lender, had the knowledge that the plaintiff is a minor. * The plaintiff(Dharmodas) brought an action against the defendant stating that he was a minor when the mortgage was executed by him and, therefore, mortgage was void and inoperative and the same should be cancelled. By the time of Appeal to the Privy Council the defen dant, Brahmo Dutt died and the Appeal was prosecuted by his executors(Mohiri bibi) . The Defendant, amongst other points, contended that the plaintiff had fraudulently misrepresented his age and therefore no relief should be given to him, and that, if mortgage is cancelled as requested by the plaintiff, the plaintiff should be asked to repay the sum of Rs. 10,500 advanced to him. The decision of the Privy Council on the various points raised by the defendant was as follows : * The defendant’s argument that the minor had falsely mis-stated his age, the law of estoppels should apply against him and he should not be allowed to contend that he was a minor, was considered.The Privy Council found that the fact that the plaintiff was a minor at the time making of the agreement was known to the defendant’s agent. It was held that the law of estoppel as stated in Section 115, Indian Evidence Act, was not applicable to the present case, where the statement (about age) is made to a person who knows the real facts and is not misled by the untrue statement. * Another contention of the defendant was that, if the plaintiff’s claim to order the cancellation of the mortgage is allowed, the plaintiff should be asked to refund the loan taken by him, according to Section 64 and 65, Indian contract Act.Judgement according session Section 64 of the Indian Contract Act reads as under : â€Å"When a person at whose option a contract is voidable rescinds it, the other party there to need not perform any promise there in contained of which he is promisor. The party rescinding a voidable contract shall, if he received any benefit there under from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received. Their Lordships observed that Section 64 was applicable to the case of a voidable contract. Minor’s agreement being void, Section 64 was not applicable to the case and therefore the minor could not ask to pay the amount under this section. If a minor has happened to receive some benefits under a void contract , he cannot be asked to return or refund such benefits. A minor can be a promise or a beneficiary:- According to Indian law , a minor can’t behind himself by a contract.A minor may not create a valid mortgage (credit) ,to execute an enforceable promissory note, and also he not incapable of being mortgagee of a property that means minor is entitled to all the benefits available to him, under the contract Ratification of an agreement a minor after attaining majority is void and invaid. The reasons for the rule that a minor cannot ratify an agreement after attaining majority are * An agreement entered into by a minor is void ab initio. A minor cannot ratify an agreement on attaining the age of majority to validate the same as there is no valid agreement/contract to ratify.Ratification is always treated as validation of previous authority/concerned party and dates back to th e date of actual agreement and so a contract/agreement which was then void cannot be made valid by subsequent ratification. The minor on attaining majority can enter into a fresh agreement but the earlier amount/asset cannot be treated as consideration for the new agreement. * Also when the agreement was entered into during the minority there was no ‘proper consideration’ as the contract was void and this amount becomes ‘bad consideration’ for new agreement and is not enough for validating that agreement by its ratification. â€Å"Under section 11 a minor is not competent to contract he is disqualified from contracting. He can therefore neither make a valid proposal nor make a valid acceptance as defined in section-2, clause (a) and (b). He cannot, therefore, for the purposes of this Act be strictly called a promisor within the meaning of clause(c) nor can therefore anything done by the promise be strictly called a consideration at the desire of a promisor as contemplated by clause (d). It may, therefore, be urged that an argument by a minor cannot be strictly as being for â€Å"consideration’.If the part of the benefit was received by a person during his minority and the other part after attaining the age of majority, a promise by him after attaining majority to pay an amount in respect of both the benefits is enforceable, as that constitutes a valid consideration for the promise. A minor cannot even enter into a contract through guardian or any other agent because it is void contract and the same is not capable of ratification by a minor, on his attaining majority. Ratification in law is treated as equivalent to a previous authority, and it follows that as a general rule, a person or body of persons, not competent to authorize an act can’t give validity after ratifying it. CASE LAW 2: Madras High Court Indran Ramaswami Pandia Thalavar vs Anthappa Chettiar And Others. on 14 March, 1906. In this case, a minor gave a pr omissory note for borrowing an amount of Rs. 2500 in 1895 and in 1898 after attaining majority he gave another promissory note ratifying the previous loan.But the court clearly declined the argument that though the first agreement was done by a minor, it was done on the â€Å"desire off the promisor† citing above two reasons. A Minor can take the plea of being a minor Case Law -Leslie Vs Sheill The Events in the Case Sheill, a minor , fraudently misrepresented himself as a major and borrowed 400 pound sterling from Leslie. Actually Sheill was a minor at the material time ie at the time of borrowing the money.Sheill then spent the borrowed money and did not repay the loan. Leslie filed a suit against him claiming the following: Leslie’s claims 1. Recovery of the loan amount 2. Damages for the fraudulent misrepresentation( ie for the tort of deceit) The Verdict The court held that Leslie cannot recover the amount given to Sheill and also cannot claim damages under the La w of Tort. The justification for the verdict 1. A contract with a minor is void ab initio meaning it is void from the beginning.Hence even though the minor had misrepresented his age, the court cannot ask the minor to give the money back to Leslie as doing so would mean that the court is enforcing a void contract, which is not enforceable by law. Hence Leslie could not recover his money back. 2. Sheill has committed a tort( an action that harms another person, in this case it is Leslie). Law of Tort allows the aggrieved party to claim damages. But here the minor, Sheill is not bound by contract to borrow money or even for other purposes. Hence even damages cannot be claimed as the contract is void ab initio.Another Remark If Sheill had not spent the money, he cannot be asked to refund the money back. This is as per Section 30 and 33 of the Specific Relief Act, 1963. Section 30 of Specific Relief Act Court may require parties rescinding to do equity. – On adjudging the resciss ion of a contract, the court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require. Section 33 of Specific Relief ActWhere a defendant successfully resists any suit on the ground- (a)  that the instrument sought to be enforced against him in the suit is voidable, the court may if the defendant has received any benefit under the instrument from the other party, require him to restore, so far as may be, such benefit to that party or to make compensation for it; (b)  that the agreement sought to be enforced against him in the suit is void by reason of his not having been competent to contract under section 11 of the Indian Contract Act, 1872 (9 of 1872 ), the court may, if the defendant has received any benefit under the agreement from the other party, require him to restore, so far as may be, such benefit to that party, to the exten t to which he or his estate has benefited thereby. Source: http://www. indiankanoon. org/doc/172614/ Example Say there is a Minor M and two other persons N and O. M fraudulently misrepresents himself as a major at the time of contract and borrows money from N by mortgaging his property. He later sold the property by fraud to O.N then cancels both the agreements. Both the contracts are void ab initio. It was judged that M has to compensate both O and N as they both were not aware of the fact that M had fraudulently misrepresented them at the time of contract. Other points A minor can’t become a partner in any partnership firm:- under Section 30 of the partnership Act , 1932. The estate of a minor is liable to a person who supplies necessaries of his life to him. The guardians and parents of a minor are not liable to a creditors of a minor , for any breach of contract by a minor , even for the supply of the necessaries , or otherwise. A minor can , however , act as an agent.Con tracts by the Persons of Mental Incompetence Definition and Understanding The term Incompetence habitually means â€Å"The lack of ability, knowledge, legal qualification, or fitness to discharge a required duty or professional obligation† and consequently Mental Incompetence refers to that populace who are diagnosed as being mentally ill, senile, drunken state, delirium under the influence of high fever or suffering from some other debility that prevents them from managing his own affairs Such people may be accredited mentally incompetent by a court of law for which as a rule a guardian is appointed to handle the person's property and personal affairs.In order to be competent to a contract, a person should be of sound mind where the soundness of mind of a person depends on the following two factors: * His ability to understand the terms of a contract, and * His capability to form a rational judgment as to its effect upon his interest Henceforth, Section 11 and 12 specificall y articulates that â€Å"A person is said to be of sound mind for the purpose of making a contract, if at the time when he makes it, he is capable of understanding it and of forming a rational judgment to its effect upon his interests† * An individual who experiences from insanity at intervals can enter into a contract, when he is of sound mind * An individual who endures from insanity occasionally cannot enter into a contract, when he is of unsound mind Case Law 3:Civil Appeal Nos – 1619-1620 of 2001 Legal Terms Used * Appellant – An individual who, discontented with the judgment delivered and decided in a lower court or the findings from a proceeding asks a superior court to review the decision * Respondent – The revelry against whom an appeal or motion, an application for a court order, is instituted and who is obligatory to answer in order to protect his or her interests Details Citation : Supreme Court of India Appellants : Chacko and Anr. Responden t : Mahadevan Hon'ble Judges : A. K. Mathur and Markandey Katju, JJ. | Case DescriptionThe case essentially is of the civil nature dealing with the Sale of Property and the execution of aforementioned sale endeavor. Fundamentally the sale was challenged as being null and void, the circumstances being the appellant – Chacko and Anr. alleging that he was made to carry out the deed by acting under the influence of liquor by the respondent – Mahadevan and was not in a fit state of mind and hence confronting the sale of assets as illogical and annulled At the outset an injunction was sought against the respondent and anon a series of cross suits by both parties to the case were filed. As the trial court detained that the appellants failed to prove the accusations allowing the ensemble of the respondent.Shortly the appellant stimulated appeal before the first appellate court where the order primarily in favor of the respondent was now overturned in favor of the appellant as the fact that one cent land was sold for Rs. 18000 vide Ext. A2 (sale deed dated 4. 9. 1982) and three cent land was sold vide Ext. A3 (sale deed dated 11. 7. 1983) for a sum of Rs. 1000, showing an unconscionable and irrational transaction This lead to an infuriated respondent, bestowing a second appeal before the high court of Kerala on account of the indicted verdict against the judgment of the First Appellate Court and its findings of fact. The Findings of Fact include the â€Å"Unsound state of mind† of appellant established by medical certificate for Alcoholic Psychosis summiting to the well known Latin maxim â€Å"res ipsa loquitur† i. e. the matter speaks for itselfThe Rationale for the Final Decision â€Å"Transaction on the basis of documents executed when not in a robust state of mind† â€Å"The Court cannot interfere with the unyielding findings of fact as the medical certificate for Alcoholic Psychosis submitted for of the first Appellate Court and is restricted only to questions of law. † Judgment The second appeal signified that Chacko sold the land by sale deed dated 11. 7. 1983 when he was not of sound mind and some swindle was played on him at that time by Mahadevan with the court testifying that the Court cannot interfere with the findings of fact of the first Appellate Court, and is confined only to the questions of law.The deal was quashed by the court and in favor of the appellant Chacko dismissing Mahadevan’s plea Incompetence Through Status: Incompetence to contract may arise under various situations, like 1. From Political status 2. From corporate status 3. From Legal Status 4. From Marital status Examples 1. Pertaining to Political Status * An Alien Enemy cannot enter into a contract with an Indian during the period of war. If Pakistan is in war with India then no Pakistani can enter a contract with Indians during the period of war. But if they have entered into a contract already then the contract m ay be dissolved or suspended till the war is over. The contracts that are against public policy and that will benefit the enemy will stand dissolved.Other contracts will be suspended provided that they have not been rendered time barred under Indian Limitation Act. * Alien Friend: An Indian can enter into a contract with citizen of other foreign country which is not at war with India. 2. Pertaining to Corporate Status According to 1856 companies act, a company cannot enter into a contract against Memorandum of Association. 3. Pertaining to Legal Status Person declared insolvent are not considered to enter into a contract till such time they are able to get a certificate of discharge from insolvency. 4. Pertaining to Marital Status A married woman has full ability and competence to enter into a valid contract . She can sue and even be sued against, in her own name.