Legal Aspects Of Business.

(Assignment)

I1. Define a contract. Explain the essential elements of a valid contract.

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The Law of Contract constitutes the most important branch of
mercantile or commercial law.It affects everybody, more so
,trade,commerce and industry.It may be said that the contract is the
foundation of the civilized world .
DEFINITION
Section 2(h) of the Indian Contract Act 1872 “ as an agreement
enforceable by law”
Section 2(e) defines an agreement as “every promise and every set of
promises,forming the consideration for each other”.
According to Anson”A contract is an agreement enforceable at
law,made between two or more persons,by which rights are acquired
by one or more to acts or forbearances on the part of the other or
others”
A contract therefore is a combination of the two elements(1)an
agreement (2)an obligation
ESSENTIALS OF VALID CONTRACT

From the above definition following elements of a valid contract cab

be derived.They are as follows:

1.OFFER OR PRORPOSAL AND ACCEPTANCE/AGREEMENT

One of the early steps in the formation of a contract lies in arriving at
an agreement between the contracting pariies by means of an offer
and accepatance.Thus .when one party(the offeror) makes a definite
proposal to another party(the Offeree) and the (the offeoree} accept it
in its entirely and without any qualification,there is a merting of the
minds of the parties,and contract comes into being,assuming that all
other elements are also present.From the above it is obvious that an
agreement is a promise or a set of reciprocal promises,that a promise
is the acceptance of a proposal.
2.CREATION OF LEGAL RELATIONSHIP
When two parties enter into an agreement,there intention must be to
create legal relationship between them.Agreement of a social or
domestic nature do not create legal obligation
Eg If A agrees to come to the house of B and if A fails to do B will not
be able to enforce the agreement and it does not create legal
obligation
3.IDENTITY OF MIND(CONSENSUD AD IDEM)
The two parties of the contract should agree upon the subject matter
in the same sense.
In other words there must be identity of minds.
Eg:If A offers to sell his house to B thinking that the house is situated
at Calcutta and B accepts the offer thinking that it the house at
Chennai,there is no contract.
4.FREE CONSENT
The consent of the parties to the contract should be free and it is not
caused by coercion,undue influence,fraud,misrepresentationor
mistake.
Eg:A asks B to sign an agreement and B refuses to do it.So A threatens
B to severe consequences if B is not signing the document.So B finally
agrees,fearing consequences.The consent thus shown by B is not free.
5.LAWFUL CONSIDERATION
The object of the agreement must be lawful.It must not be illegal as
per existing laws.The object and consideration should not be opposed
to public policy
6.LAWFUL CONSIDERATION
The agreement to be enforceable by law must be consideration.It
means somethinn in return.The agreement is legally enforceable only
when both the parties give something in return.Consideration is a
technical word meaning thereby quid pro quo i.e something in return.
7.Not expressily declared to be void
The agreement must not be expressly declared to be void.The
agreement must not be one one,which the law dwclares to be either
illegal or void.A void agreement is one,which is without any legal
effects.
Eg:An agreement in restraint of marriage or trade or an agreement
by way of wagering are declared void
8.POSSIBILITY OF PERFORMANCE
The term of contract should be certain and precise.They should not
be vague and they should not create any confusion in the mind of
the parties.Similarly the term of agreement must be capable for
performance.
9.CAPACITY OF PARTIES
The parties to the agreement must be capable to enter into a valid
contract.Every person who is a major and possesses sound mind is
competent to enter into a contract.A minor ,person of unsound
mind,and disqualifies persons are incompetent to enter into
contract.In every case there must be assent of the parties.The assent
presupposes a free and fair,and serious exercise of the reasoning
faculty.
 2. What do you understand by “capacity to Contract”? Who are the
persons

disqualified by law from entering into a contract?

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According to Sec 10 if the Indian Contract Act 1872 “An agreement in

order to be a contract,must satisfy the following conditions:
1It must be made by the free consent of the parties
2The parties must be competent to contract
3It must be made for a lawful consideration and with lawful object
4It should not have been expressly declared as void by law.
It has also been observed that the agreement must import an
intention to create a legal relationship between the paryies,and
that agreements relating to social matters are enforceable by
law.
Section 11 lays down that “every person is competent to
contract who is of the gae of majority to the law which he is
subject,and who is of sound mind and is not disqualified from
contracting by any law to which he is subject”
Hence now as per the above statement “who is competent to
contract”?
Every person whos has (a) attained the age of majority(b)is of
sound mind and (c)is not otherwise disquqlified from
contracting is competent to contract.
The analysis of above definition shows that following persona
are not competent to contract:
I壱Minor
I弐Person of unsound mind
I参Disqualified person’
MINOR’S AGREEMENT
According to sec 3 of Indian Majority Act 1875,”a minor is a person who
has not attained age of 18.But if a guardian is appointed by court or if
property of minor is under the management of court of wards a person
becomes major only at the age of 21”
Minors agreement
I壱An agreement by or with minor is void ab intio;An agreement with a
minor is void ab intio,I e absolutely void from the very beginning.An
agreement with a minor does not create any legal right and oligation
between parties to the contract.So an agreement with minor is absolutely
void and in operative as against him,but he can derive benefit out of it.
I弐Eg:Mohoribibi Vs Dharmodas ghosh:A minor has executed a mortgage
for Rs 20000.The moneylender has paid rs 8000 on the security of the
mortgage.The minor sued for setting aside the mortgage.It was held that
a contract by a minor was void that the amount advanced by the lender
could not be recovered under sec 64 and sec65 of the Indian Contract
Act.
I参Rules of estoppel doed not apply to a minor:The general principle of
estoppel is that when one person by his false and fraudlent
representation,makes another person to believe a thing to be true,such a
person in subsequent proceedings will not be allowed to deny the truth
of that thing.This general principal .both in English and Indian law is not
applicable to minor.When a minor fraudulently enters into a contract
representing that he was amajor,but in reality he is minor,then later on he
plead his majority as a defense before the court of law and cannot be
estopped (presented)from doing so.
I四No ratification;The term ratification may be defined as the act of
conforming or approving.An agremment with minor is absolutely void
and has no existenace in the eyes of law.His agreement cannot be ratified
by him on attaianing the age of majority.If the minor wants to carry out
the agreement,a fresh agreement should be made on attaining majority.It
may be noted that the new agreement will require fresh
consideration.Eg:Indran Ramaswami Vs Anthiaooa chettiar:A minor
borrowed Rs 5000 fromB,a money lender.A executed a new promissory
note in favour of B for repayment of the amount borrowed earlier.The
second promissory note was also void because there was no fresh
consideration for it.B could not recover money from A on the basis of the
secondary promissory note.Here A ‘s act of executing a fresh note will not
ratify his agreement made during this period of minority.
I伍Minor can promiseee or beneficiary:A minor can be a beneficiary or a
promise,if a contract is beneficial to minor,it can be enforced by him.For
eg;M aged 17 years,agreed to purchase a second hand scooter for rs
15000 from S.He paid Rs 2000 as advance and agreed to pay the balance
on the next day and collect scooter.When he came with money the next
day,S told him that he had changed the mind and offered to return the
advance.S cannot avoid the contract though M may of he likes
I六Doctrine of restitution and minor:The doctrine of restitution implies
tahat when a person obtains property or goods by false representation,he
can be compelled to restore it to the person from whom he has received
it.This doctrine also applies to minor.In short when a minor receives some
property or good or money by falsely representing his age,the minor can
be askes to restore such property or goods or money,so long as the same
is traceable in his possession.Eg:A minor sold his property to B and
received Rs 10000 as part of sales price.Later A applied the court that the
sale should be cancelled and should be allowed to recover the possession
of the property,as he was a minor at the time of sale.The court of law
allowed A the minor to recover the possession of the property sold by
him to B,and A was asked to return the sale price received by him from B.
I七Minors liability for necessaries;According to sec 68 of the contract
act,if a person supplies necessaries supplied tp a person who is incapable
of entering into contract,then he can claim reimbursement from the
property of such incapable peson.It may be noted that the liability of
minor is not personal i e he is not personally liable.
I八Minor as an agent:Aminor can be appointes as an agent.He can
represent his principal in dealing with other parties.The principal will be
responsible to the third party for the act of his minor agents.But he
cannot recover any compensation from his minor agent for loss caused to
him due to the act of minor.In short the minor can act as an agent.
I九Minor as partner.A minor cannot be a partner.But he may br admitted
as the benefit of partnership.He has no right to take part the
management of the firm.But his liabilities are limited to the extent of his
interest in the partnership.
I壱零Minor as insolvent:A minor cannot be declared as as insolvent
becaouse eben for necessaries he is not personally liable but his estate is
liable.
I壱壱Minor and negotiable instrument:Minor is competent to
draw,endorse and negotiate the negotiable instrument.It may be noted
that the minor will not incur any personal liability under such
instrument.BUt negotiable instrumrnt executed in favour of the minor
can be enforced by him.
I壱弐Person of unsound mind
I壱参According to sec 11 ,the person entering into a contract must have a
sound mind.According to sec 12 'a person is said to be of sound mind for
the purpose of making contract,if at the time when he makes it ,he is
capable of understandinng it and forming rational judgement as to its
effect upon his interest”.The person of diot,lunatic,drunkness or mental
decay on account of old age is not competent to enter into a valid
contract
I壱四Disqualified person
I壱伍Following are the persons disqualified by law from entering into
contract.
1Align enemy:A citizen of a foreign country living in India cannot enter
into contract during war time
2Convict:A convict is one whi is imprisoned.During the period of
imprisonment a convict is incompetent to enter into a contract
3Insolvent:An undischarged inslovent is not competent to enter into
contract.After the order of discharge he is just like an ordinary citizen
4Foregn sovereigns and ambassadors:Foreign ambasasadors are in a
privileged position are incompetent to contract.They cannot be sued but
they cas sue others to enforce the contract.
5Married women
6Similarly a statutory corporation cannot enter into acontract which is
ultra vires its memorandum.Like wise ,muncipal bodies are disqualified
from entering into contracts which are not within their statutory powers.

IAttempt the follo;wing problems giving reasons for your answers.

IIA minor fraudulently represented to a money lender that he was a
major and a mortgage deed for Rs 20,000/-. Has the moneylender any
right of action against the minor for the money lent?
(5)
No

1A tells his wife that he would commit suicide, if she did not transfer her
personal assets to him. She does so under this threat. Can the wife avoid
the contract? (5)