CA > Foundation > Paper 2 – Skim Notes

Unit 3: Other Essential Elements of a Contract

Overview

  • Understanding incapacity to contract
  • Legal consequences of contracting with a minor
  • The principle of ‘consensus ad idem’
  • Different elements vitiating free consent
  • Circumstances leading to unlawful objects and considerations in contracts
  • Agreements opposed to public policy
  • Understanding and implications of void agreements

Key Topics

Capacity to Contract

  • Defined as the competence of parties to make contracts.
  • Legal maturity is defined by the age of majority (18 years in India, per Indian Majority Act 1875).
  • Minors are considered incompetent to contract; therefore, contracts with them are void ab initio.
  • The famous case, Mohori Bibi vs. Dharmo Das Ghose (1903), illustrates the void nature of contracts with minors.
  • Minors can benefit from certain contracts and may accept benefits under them.

Deep Dive

  • In certain cases, a minor’s estate can be held liable for necessaries supplied (Section 68 of Indian Contract Act).
  • Minors cannot ratify contracts upon reaching majority, as they are still void.
  • Guardians may enter valid contracts on behalf of minors under specific conditions.

Free Consent and Consensus Ad Idem

  • Consent is pivotal; it must be mutual and unequivocal among parties (Section 13).
  • Economic influence on consent can lead to coercion, undue influence, fraud, misrepresentation, and mistake.
  • Free consent is defined as consent not caused by any of the aforementioned elements (Section 14).
  • Absence of free consent can make a contract voidable (Sections 19 and 19A).
  • The distinction between different vitiating factors such as fraud and misrepresentation is crucial for contract legality.

Deep Dive

  • Coercion involves threats or unlawful acts as defined in Section 15.
  • Undue influence implies an imbalance in the relationship, where one party may dominate the decision-making of the other (Section 16).
  • Fraud includes the idea of deceit, while misrepresentation is based on an innocent statement made without intention to deceive (Section 17 and 18).

Elements Vitiating Free Consent

  • Coercion: Threats or force can vitiate consent and make contracts voidable (Section 15).
  • Undue Influence: Exploiting a dominant position to influence decisions is disallowed (Section 16).
  • Fraud is deceiving another party to obtain consent (Section 17).
  • Misrepresentation involves false statements due to mistaken belief (Section 18).
  • Errors can either be bilateral (void) or unilateral (not voidable, Section 22).

Deep Dive

  • The remedies available for fraud involve rescinding the contract or keeping it enforceable while seeking restitution.
  • Understanding the difference between fraud and misrepresentation is crucial for legal claims.
  • Mistakes in contracts can lead to different legal outcomes based on the type of mistake (law vs. fact).

Legality of Object and Consideration

  • Contracts must have lawful considerations and objects (Section 23).
  • Illegal objects include those that are prohibited by law, immoral, or against public policy.
  • Certain agreements are expressly void, such as those involving wagering, agreements in restraint of marriage or trade, and impossibility (Sections 25, 30, and 56).
  • Public policy often restricts contracts that might cause harm or injustice to the community.

Deep Dive

  • Agreements in restraint of trade are generally void unless reasonable limits apply.
  • Determining public policy involves understanding the societal and legal context of a contract.
  • Specific instances, like trafficking in public office or agreements stimulating crime, showcase how public policy informs legality.

Void Agreements

  • Agreeing to do impossible acts is void under Section 56.
  • Agreements with uncertain meaning are also invalid (Section 29).
  • Wagering agreements are void per Section 30, no recourse is available for recovery.
  • Legal frameworks categorize agreements made with incompetent parties as void.

Deep Dive

  • Impact of void agreements on collateral agreements is significant; those collateral to an illegal contract are generally considered void in many cases.
  • Understanding case law and judicial interpretations helps in grasping the nuances of void agreements.
  • Comprehension of how void agreements are treated in practice aids in recognizing their implications for business operations.

Summary

In summary, understanding the capacity of parties to contract, the significance of free consent, elements that can vitiate said consent, and the necessary legality of both object and consideration are crucial for enforcing contracts under Indian law. The Indian Contract Act, 1872, sets forth comprehensive regulations to prevent exploitation, uphold legal standards, and ensure fair dealings. Furthermore, certain agreements, often deemed void or against public policy, highlight the complexity surrounding contract formulation and enforceability, ultimately influencing both personal and business transactions.