Detailed Study Notes for Unit II

Unit-II: Capacity, Free Consent, Legality of Object, Wagering & Contingent Contracts

1. Capacity of Parties (Competency to Contract)

A. Statutory Rule (Section 11)

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.”
Three Pillars of Competency:
1. Age of Majority (sound age, generally 18 years under the Indian Majority Act, 1875).
2. Soundness of mind.
3. Not disqualified from contracting by any applicable law (e.g., alien enemies, convicts, insolvents).

B. Effect of Minor’s Agreement

Minor Defined: Any person under the age of 18 years.
Legal Status: An agreement entered into by a minor is void ab initio (void from the very beginning) (Mohori Bibee v. Dhurmodas Ghose).
Key Principles Governing Minor’s Agreements:
- No Estoppel against a Minor: A minor cannot be stopped from pleading minority even if they fraudulently misrepresented their age at the time of entering the agreement.
- Beneficial Contracts Valid: A minor can be a promisee or beneficiary (e.g., a promissory note executed in favor of a minor can be enforced by them).
- No Specific Performance: Minor’s contracts cannot be specifically enforced since they are void.
- Ratification on Attaining Majority: A promise made by a person upon attaining majority to pay for a debt incurred during minority is without consideration and void.
- Liability for Necessaries (Section 68): If a person incapable of entering into a contract (such as a minor) is supplied with necessaries suited to their condition in life, the supplier is entitled to be reimbursed from the minor’s property, creating a quasi-contractual liability.

C. Contracts with Insane Persons and Persons Disqualified by Law

Soundness of Mind (Section 12): A person is of sound mind for the purpose of making a contract if, at the time he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.
- Idiots, Lunatics, and Intoxicated Persons: Agreements made while of unsound mind or intoxicated are void. However, a person of unsound mind can make a contract during lucid intervals.
Disqualified Persons: Convicts undergoing sentence, alien enemies during wartime, and insolvents are disqualified by law from entering valid contracts.

2. Free Consent (Sections 14 to 22)

A. Meaning of Consent and Free Consent

Consent (Section 13): Two or more persons are said to consent when they agree upon the same thing in the same sense (consensus ad idem).
Free Consent (Section 14): Consent is free when it is not caused by:
1. Coercion (Section 15)
2. Undue Influence (Section 16)
3. Fraud (Section 17)
4. Misrepresentation (Section 18)
5. Mistake (Sections 20, 21, 22)
Effect: An agreement caused by coercion, fraud, misrepresentation, or undue influence is voidable at the option of the party whose consent was so caused. An agreement caused by a mutual mistake of fact material to the agreement is void ab initio.

B. Detailed Breakdown of Vitiating Elements

Coercion (Section 15): Committing or threatening to commit any act forbidden by the Penal Code, or the unlawful detaining or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
Undue Influence (Section 16): Where a relation subsisting between the parties is 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. (Presumed in relationships of doctor-patient, solicitor-client, parent-child, spiritual guru-disciple).
Fraud (Section 17): Includes active concealment of a fact, a promise made without any intention of performing it, any other act fitted to deceive, or any such act or omission as the law specially declares to be fraudulent. Mere silence is not fraud unless there is a duty to speak or silence is equivalent to speech.
Misrepresentation (Section 18): A positive assertion, warranted by the information of the person making it, of that which is not true, though he believes it to be true (innocent misrepresentation), or any breach of duty which gains an advantage to the person committing it by misleading another.
Mistake (Sections 20-22):
- Mistake of Fact (Section 20): Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.
- Mistake of Law: A mistake of Indian law does not render a contract void, but a mistake of foreign law is treated as a mistake of fact.

3. Lawful Object and Consideration (Sections 23 & 24)

A. Unlawful Objects and Considerations (Section 23)

The consideration or object of an agreement is lawful, unless:

It is forbidden by law; or
Is of such a nature that, if permitted, it would defeat the provisions of any law; or
Is fraudulent; or
Involves or implies injury to the person or property of another; or
The Court regards it as immoral or opposed to public policy.

B. Heads of Public Policy

Agreements opposed to public policy are void. Recognized heads include:

Trading with an enemy.
Stifling criminal prosecution.
Maintenance and Champerty (unreasonable intermeddling in litigation for profit).
Agreements in restraint of parental rights or personal freedom.
Marriage brokerage agreements.
Agreements in restraint of trade (Section 27 – absolute restraints are void, with narrow exceptions for sale of goodwill and partnership agreements).
Agreements in restraint of legal proceedings (Section 28).

4. Void, Voidable, Uncertain and Wagering Agreements

Void Agreement (Section 2(g)): An agreement not enforceable by law from its inception.
Voidable Contract (Section 2(i)): An agreement enforceable by law at the option of one or more of the parties thereto, but not at the option of the other(s).
Uncertain Agreements (Section 29): Agreements the meaning of which is not certain, or capable of being made certain, are void.
Wagering Agreements (Section 30): Agreements by way of wager are void; no suit can be brought for recovering anything alleged to be won on any wager. (A wager involves mutual promises dependent on an uncertain future event where each party stands to win or lose). Note: Horse racing and cross-word competitions involving skill are exempted.

5. Contingent Contracts (Sections 31 to 36)

Definition (Section 31): A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.
Rules Governing Contingent Contracts:
- Contracts contingent upon the happening of a future uncertain event cannot be enforced by law unless and until that event has happened (Section 32).
- If the event becomes impossible, such contracts become void (Section 33).
- Contracts contingent upon the non-happening of a future uncertain event can be enforced when the happening of that event becomes impossible (Section 34).

6. In-Depth Landmark Case Studies

Case Study 1: Minor’s Capacity and Voidness of Minor’s Agreement

Case Title: Mohori Bibee v. Dhurmodas Ghose
Citation & Court: (1903) ILR 30 Cal 539 (Privy Council)
Related Statutory Sections: Sections 10, 11, and 68 of the Indian Contract Act, 1872.
The Story & Real-Life Background: A minor executed a mortgage of his property in favor of a moneylender to secure a loan of Rs. 20,000. The minor’s mother had notified the moneylender of her son’s minority prior to the transaction. Later, the minor sued to have the mortgage declared void. The moneylender argued that the minor misrepresented his age and sought restitution of the money advanced.
Legal Issues Involved:
- Whether a contract entered into by a minor is void or voidable.
- Whether a minor can be compelled to refund money received under a void agreement.
Final Judgement & Ratio Decidendi:
- Ruling: The Privy Council held that under the Indian Contract Act, competency to contract is a mandatory requirement. Consequently, a contract entered into by a minor is void ab initio. Furthermore, the equitable doctrine of restitution does not apply to minors to compel them to refund money received under a void contract.
- Ratio: Minor agreements lack legal existence; contractual obligations cannot be enforced against minors, and restitution cannot be ordered when doing so would indirectly enforce a void agreement.

Case Study 2: Undue Influence and Unconscionable Transactions

Case Title: Allcard v. Skinner
Citation & Court: (1887) 38 Ch.D. 145 (Court of Appeal, UK)
Related Statutory Sections: Section 16 of the Indian Contract Act (Undue Influence).
The Story & Real-Life Background: Miss Allcard joined a religious sisterhood led by Miss Skinner. Over time, under the spiritual influence and rules of obedience of the sisterhood, she transferred substantial stocks and property to the mother superior for the use of the convent. Years later, she left the sisterhood and sued to recover the remaining property, alleging undue influence.
Legal Issues Involved: Whether spiritual dominance and fiduciary relationships create a presumption of undue influence, and whether delay in filing a suit bars relief.
Final Judgement & Ratio Decidendi:
- Ruling: The Court of Appeal accepted that a fiduciary and spiritual relationship of dominance existed, creating a presumption of undue influence when gifts or transfers of high value are made without independent advice. However, the court held that the plaintiff’s claim failed due to extreme laches (unreasonable delay) in asserting her rights after leaving the convent.
- Ratio: Where a position of dominance exists, transactions can be set aside as voidable due to undue influence, provided the aggrieved party acts promptly upon escaping the influence.

Quick Reference Guide: Unit-II Contract Act

Unit Number	Act / Subject Name	Relevant Sections Range	Core Description / Subject Matter
Unit-II	Indian Contract Act, 1872	Sections 11 to 36	Minor capacity, free consent (coercion, fraud, undue influence, mistake), unlawful objects, wagering, and contingent contracts.