Other Essential Elements of a Contract (Part-6) CA Foundation Notes | EduRev

Business Laws for CA Foundation

Created by: Sushil Kumar

CA Foundation : Other Essential Elements of a Contract (Part-6) CA Foundation Notes | EduRev

The document Other Essential Elements of a Contract (Part-6) CA Foundation Notes | EduRev is a part of the CA Foundation Course Business Laws for CA Foundation.
All you need of CA Foundation at this link: CA Foundation

SUMMARY:

The following persons are incompetent to contract:
(a) minor,
(b) persons of unsound mind,
(c) other disqualified persons.
(a) Minor: Agreement with a minor is altogether void but his property is liable for necessaries supplied to him. He cannot be a partner but can be admitted to benefits of partnership with the consent of all partners. He can always plead minority and cannot be asked to compensate for any benefit received under a void agreement. Under certain circumstances, a guardian can enter into valid contract on behalf of minor. Minor cannot ratify a contract on attaining majority.
(b) Persons of unsound mind: Persons of unsound mind such as idiots, lunatics and drunkers cannot enter into a contract, but a lunatic can enter into a valid contract when he is in a sound state of mind. The liability for necessities of life supplied to persons of unsound mind is the same as in case of minors. (Section 68).
(c) Certain other persons are disqualified due to their status.

Free Consent:
Two or more persons are said to consent when they agree upon the same thing in the same sense (Section 13). Consent is free when it is not caused by mistake, misrepresentation, undue inuence, fraud or coercion. When consent is caused by any of above said elements, the contract is voidable at the option of the party whose consent was so caused (Sections 19 and 19A)

(a) 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 with the intention of causing any person to enter into an agreement (Section 15). A contract induced by coercion is voidable at the option of the aggrieved party.
(b) Undue influence: When one party to a contract is able to dominate the will of the other and uses the position to obtain an unfair advantage, the contract is said to be induced by undue influence. (Section 16). Such contract is voidable, not void.
(c) Fraud: Fraud exists when a false representation has been made knowingly with an intention to deceive the other party, or to induce him to enter a contract (Section 17). Contract in the case is voidable.
(d) Misrepresentation: Means a misstatement of a material fact made believing it to be true, without an intent to deceive the other party (Section 18). Contract will be voidable in this case.
(e) Mistake: When both the parties are at a mistake to a matter of fact to the agreement, the agreement is altogether void.

Lawful Object and Consideration:
An agreement where the object or the consideration is unlawful, is void. Object or consideration is unlawful if it is forbidden by law, it defeats the provisions of law; or is fraudulent, or involves injury to the person or property of another; or is immoral; or is opposed to public policy.

Besides the above said agreements, certain agreements have been expressly declared to be void by the Contract Act such as wagering agreements, agreement with uncertain meaning, agreements where consideration is unlawful in part etc.

TEST YOUR KNOWLEDGE:

Multiple Choice Questions
1. Ordinarily, a minor’s agreement is
(a) Void ab initio
(b) Voidable
(c) Valid
(d) Unlawful
2. Consent is not said to be free when it is caused by
(a) Coercion

(b) Undue influence
(c) Fraud
(d) All of these
3. When the consent of a party is obtained by fraud, the contract is;
(a) Void
(b) Voidable
(c) Valid
(d) Illegal
4. The threat to commit suicide amounts to
(a) Coercion
(b) Undue influence
(c) Misrepresentation
(d) Fraud
5. Moral pressure is involved in the case of
(a) Coercion
(b) Undue Influence
(c) Misrepresentation
(d) Fraud
6. A wrong representation when made without any intention to deceive the other party amounts to
(a) Coercion
(b) Undue influence
(c)  Misrepresentation
(d)  Fraud
7. Which of the following statement is true?
(a) A threat to commit suicide does not amount to coercion
(b) Undue influence involves use of physical pressure
(c) Ignorance of law is no excuse
(d)  Silence always amounts to fraud
8. In case of illegal agreement the collateral agreements are:
(a) Valid
(b) Void
(c) Voidable
(d) Any of these
9. An agreement the object or consideration of which is unlawful, is
(a) Void
(b) Valid
(c) Voidable
(d) Contingent

10. An agreement is void if it is opposed to public policy. Which of the following is not covered by heads of public policy.
(a) Trading with an enemy
(b) Trafficking in public offices
(c) Marriage brokerage contracts
(d) Contracts to do impossible acts

Answers: to MCQs
1 (a)                6 (c)

2 (d)               7 (c)

3 (b)               8 (b)

4 (a)               9 (a)

5 (b)               10 (d)


Theoretical Questions
Question 1: “Mere silence does not amount to fraud”. Discuss.

Question 2: “Though a minor is not competent to contract, nothing in the Contract Act prevents him from making the other party bound to the minor”. Discuss.

Question 3: “An agreement, the meaning of which is not certain, is void”. Discuss.

Question 4: Who are disqualified persons to do the contract?

Answer to the Theoretical Questions
1. Mere silence not amounting to fraud: Mere silence as to facts likely to affect the willingness of a person to enter into a contract is no fraud; but where it is the duty of a person to speak, or his silence is equivalent to speech, silence amounts to fraud.
It is a rule of law that mere silence does not amount to fraud. A contracting party is not duty bound to disclose the whole truth to the other party or to give him the whole information in his possession affecting the subject matter of the contract.

The rule is contained in explanation to Section 17 of the Indian Contract Act which clearly states the position that mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud.

Exceptions to this rule:
(i) Where the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak. Duty to speak arises when one contracting party reposes trust and confidence in the other or where one party has to depend upon the good sense of the other (e.g. Insurance Contract).
(ii) Where the silence is, in itself, equivalent to speech.
2. Minor can be a beneficiary or can take benefit out of a contract: Though a minor is not competent to contract, nothing in the Contract Act prevents him from making the other party bound to the minor. Thus, a promissory note duly executed in favour of a minor is not void and can be sued upon by him, because he though incompetent to contract, may yet accept a benefit.

A minor cannot become partner in a partnership firm. However, he may with the consent of all the partners, be admitted to the benefits of partnership (Section 30 of the Indian Partnership Act, 1932).

Example: A mortgage was executed in favour of a minor. Held, he can get a decree for the enforcement of the mortgage.
3. 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.

For example: A agrees to sell B “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. But the agreement would be valid if A was dealer only in coconut oil; because in such a case its meaning would be capable of being made certain.
4. Contract by disqualified persons: Besides minors and persons of unsound mind, there are also other persons who are disqualified from contracting, partially or wholly, so that the contracts by such person are void. Incompetency to contract may arise from political status, corporate status, legal status, etc.

The following persons fall in this category: Foreign Soverigns and Ambassadors, Alien enemy, Corporations, Convicts, Insolvent etc.

Offer running on EduRev: Apply code STAYHOME200 to get INR 200 off on our premium plan EduRev Infinity!

Complete Syllabus of CA Foundation

Dynamic Test

Content Category

Related Searches

MCQs

,

Exam

,

ppt

,

Viva Questions

,

Summary

,

study material

,

mock tests for examination

,

Other Essential Elements of a Contract (Part-6) CA Foundation Notes | EduRev

,

Extra Questions

,

shortcuts and tricks

,

Other Essential Elements of a Contract (Part-6) CA Foundation Notes | EduRev

,

Free

,

Important questions

,

past year papers

,

pdf

,

Sample Paper

,

practice quizzes

,

video lectures

,

Objective type Questions

,

Other Essential Elements of a Contract (Part-6) CA Foundation Notes | EduRev

,

Previous Year Questions with Solutions

,

Semester Notes

;