3.

Agency Relationships

Under agency law, an agent acts on behalf of a principal (another person or entity). When an
agent forms a contract within the scope of their authority, the principal is considered a party to
the contract and has the rights and obligations tied to it, even though the principal did not
directly sign the contract. This creates an exception to the privity rule, allowing the principal (a
third party to the agent’s agreement) to enforce and be bound by the contract.

● Example: Suppose a real estate agent (the agent) enters into a contract with a seller on
behalf of a buyer (the principal). Although the buyer did not personally negotiate or sign
the agreement, they have the right to enforce it because of the agency relationship.

This agency relationship means that the law treats the agent’s actions as if they were done by the
principal, providing the principal with the authority to enforce the contract as if they were a
direct party to it.

4. Assignment of Contractual Rights

The assignment of rights allows one party to transfer (or assign) their contractual benefits to a
third party, who then gains the right to enforce those terms. An assignment effectively brings the
third party into the contractual relationship, giving them the authority to claim benefits or
enforce the agreement terms originally held by the assignor.

● Example: A person who has loaned money to another can assign their right to receive
repayment to a third party, such as a financial institution. This means the third party
(assignee) can then legally demand repayment of the loan, as they step into the shoes of
the assignor under the terms of the contract.

In this way, an assignee becomes part of the contract relationship, making it an exception to the
privity rule and allowing the assignee to enforce rights directly against the other original
contracting party.

5. Estoppel

Estoppel is a legal principle preventing someone from denying a fact or rights if their actions
have caused another person to reasonably rely on it. In cases where a contracting party leads a
third party to believe they have rights under a contract, they may be estopped, or legally barred,
from denying the third party’s ability to enforce those rights.

● Example: If a contractor consistently assures a supplier that they will benefit from the
terms of a contract, the supplier may rely on these assurances. If the contractor later
 denies the supplier’s rights, estoppel might prevent the contractor from doing so if the
supplier can prove they acted in reliance on those assurances.

This exception enables a third party to enforce a contract if they reasonably relied on the
conduct or promises of a contracting party, helping protect their interests from unexpected
denial.

6. Statutory Exceptions

Some statutes override the Privity of Contract doctrine, granting third parties rights to enforce
certain contracts regardless of their participation. In India and other jurisdictions, specific laws
grant consumers and other individuals legal standing to claim rights as if they were direct
parties to a contract, making it an important statutory exception.

● Example: The Consumer Protection Act in India allows consumers to sue sellers or
manufacturers for breach of terms, regardless of whether they were a party to the
contract. If a manufacturer produces defective goods, a consumer can directly claim
damages from the manufacturer, even if the consumer did not purchase directly from
them.

These statutory exceptions ensure that vulnerable parties, such as consumers, have adequate
protections and recourse, providing a pathway to justice that bypasses the restrictions of privity
in appropriate cases.

Capacity to Enter into a Contract: Detailed Notes

In contract law, the capacity to enter into a contract is a fundamental concept determining who
is legally eligible to form valid contracts. Certain individuals are considered legally
"incompetent" to form binding contracts due to their age, mental state, or specific legal
restrictions.

1. Definition and Importance of Capacity

- Capacity refers to a person's legal ability to enter into a contract. For a contract to be
enforceable, both parties must have the legal capacity to enter into the agreement.
- Legal significance: If a party lacks capacity, the contract may be voidable or unenforceable,
depending on the circumstances.

2. Key Sections under the Indian Contract Act, 1872

- Section 10: A valid contract must have competent parties, along with other elements such as
free consent, lawful consideration, and a lawful object.
- Section 11: Specifies that a person must be of the age of majority, of sound mind, and not
disqualified from contracting by law.
 3. Who is Considered Competent to Contract?
Under the Indian Contract Act, the following three categories of persons are generally
regarded as incompetent to contract:
1. Minors (persons under the age of 18 or 21 if a guardian is appointed)
2. Persons of Unsound Mind
3. Persons Disqualified by Law (includes convicts, insolvents, foreign sovereigns, etc.)

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I. Minors

A. Definition
- According to Section 3 of the Indian Majority Act, 1875, a minor is any individual under the
age of 18 (or 21 if a guardian is appointed by the court).

B. Legal Position of Contracts with Minors

- Void-ab-initio: Contracts entered into by minors are void from the beginning, meaning they
are unenforceable in court.
- Leading Case: Mohori Bibee v. Dharmodas Ghose (1903)
- Facts: A minor took a loan, misrepresenting his age.
- Ruling: The Privy Council ruled that the contract was void because a minor cannot enter
into a binding agreement. The lender could not recover the loan.
- Importance: This case firmly established that contracts with minors are void-ab-initio in
India.

C. Exceptions
- Necessities: Minors can contract for "necessaries" (food, clothing, shelter, medical aid) as
per Section68. The supplier can recover the reasonable cost, not as a debt but as reimbursement
for necessities.
- Beneficial Contracts: If a contract is wholly in favor of the minor, it may be enforceable.
- Scholarships, education, or apprenticeship: Contracts that serve educational purposes or
vocational training may be binding.
- Restitution in case of fraud: A minor can’t be asked for restitution (return of benefits) if they
misrepresented their age, as established in Mohori Bibee v. Dharmodas Ghose.

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II. Persons of Unsound Mind

 A. Definition and Requirements
- A person of unsound mind lacks the ability to understand the nature of the contract or make
rational decisions.
- Section 12: Mentions that a person is competent to contract if, at the time of entering the
contract, they can understand it and form rational judgments.

B. Legal Implications
- A contract made by a person of unsound mind is void. However, if the person was of sound
mind at the time of making the contract, it may be considered valid.

C. Important Cases
- Chirangi v. Kala Kunwar (1909): It was held that for a person to claim unsoundness of mind,
it must be proven that they could not understand the nature of the contract at the time it was
made.
- Imperial Loan Co. v. Stone (1892) (English Case): Established the principle that a contract is
only voidable if the person was incapable of understanding the nature of the transaction, and the
other party was aware of it.

D. Types of Mental Incapacity

- Idiocy: Complete lack of understanding.
- Lunacy/Insanity: Fluctuating mental condition; contracts made during lucid intervals are
valid.
- Intoxication: Voluntary intoxication may not excuse liability, but involuntary intoxication
might void the contract.

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III. Persons Disqualified by Law

Certain individuals are disqualified by law from contracting due to specific reasons:
- Alien Enemies: Foreigners from hostile nations are prohibited from contracting with Indian
nationals.
- Insolvents: Persons declared insolvent cannot enter contracts as their property is vested in an
official assignee or receiver.
- Convicts: Convicts cannot enter into contracts while serving their sentences.
- Corporations and Companies: Can contract only within the powers granted by their charter
or statutes.

Case Examples
 - Ranjit Singh v. Pritam Singh (1960): This case discusses how contracts with insolvent
individuals may be void or require the permission of a receiver.
- Kanhaya Lal v. Radha Kishan (1968): Contracts with an alien enemy during wartime were
deemed void to safeguard national interests.

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IV. Ratification of Contracts

Minors and persons of unsound mind cannot ratify contracts upon attaining majority or
becoming mentally stable, as void contracts cannot be retrospectively validated.

Case Reference
- Suraj Narain v. Sukhu Aheer (1928): In this case, it was ruled that a minor’s contract cannot
be ratified even after attaining majority as it was void from the start.

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V. Conclusion
The concept of capacity in contract law ensures that contracts are entered into by parties who
can fully understand and appreciate the consequences of their agreements. It protects vulnerable
groups from being exploited and sets guidelines for when a contract may or may not be
enforceable.

Minor’s Position and the Nature/Effect of Minor’s Agreements in Contract Law

A. Minor’s Position in Contract Law

1. Legal Definition of a Minor

- Under the Indian Majority Act, 1875, a person is considered a minor if they are below the
age of 18. If a guardian is appointed, the age of majority is 21.
- According to Section 11 of the Indian Contract Act, 1872, minors are deemed “incompetent to
contract.”

2. Legal Status of Contracts with Minors

- Any agreement with a minor is generally considered void-ab-initio (void from the beginning).
This rule is rooted in protecting minors from exploitation and ensuring they are not held
accountable for legal obligations they may not fully understand.

3. Key Case Law: Mohori Bibee v. Dharmodas Ghose (1903)

 - Facts: A minor, Dharmodas Ghose, took a loan from Brahmo Dutt and misrepresented his
age to the lender. The loan agreement included a mortgage, but upon discovering Ghose’s minor
status, his mother challenged the enforceability of the contract.
- Judgment: The Privy Council held that the contract was void-ab-initio, emphasizing that a
minor cannot enter into a binding contract under Indian law.
- Importance: This landmark case established that agreements with minors are void from
inception, meaning they have no legal effect, and neither party can sue for its enforcement.

4. Exceptions and Valid Transactions Involving Minors

- While minors cannot enter into most binding contracts, certain transactions with minors are
considered enforceable under specific conditions:
- Necessaries: As per Section 68 of the Indian Contract Act, contracts for “necessaries”
(basic needs like food, clothing, shelter, and essential medical services) are enforceable, with the
supplier having the right to be reimbursed from the minor's property.
- Educational and Apprenticeship Contracts: Contracts for a minor’s education,
apprenticeship, or other forms of beneficial training are often considered valid.

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B. Nature and Effect of Minor’s Agreements

1. Nature of Agreements with Minors

- Void-ab-initio Contracts: Any agreement a minor enters is void from the beginning. Minors
cannot legally bind themselves to contracts, and this protection ensures they are not subject to
unfair obligations.
- Non-Ratifiable Contracts: Contracts made by a minor cannot be ratified (validated) once
they reach the age of majority. Since the contract is void from the outset, it cannot be enforced by
any action taken later.

2. Effect of Minor’s Agreements

- No Legal Liability: A minor is not liable to perform any terms or conditions of the contract,
nor can they be held responsible for damages arising from non-performance.
- No Restitution for Benefits Received: A minor is generally not required to return benefits
received under a void contract. However, courts may sometimes order restitution if it’s equitable,
although this is rare in contracts.

3. Key Case Laws Illustrating the Effect of Minor’s Agreements

- Mohori Bibee v. Dharmodas Ghose (1903)

 - Effect: This case clarified that a contract with a minor is absolutely void and unenforceable
against the minor.
- Implication: The lender in this case could not recover the loan, reinforcing that any
agreement with a minor cannot be upheld in court.

- Leslie (R) Ltd. v. Sheill (1914) (English Case)

- Facts: In this case, a minor obtained goods by falsely representing himself as an adult.
When the supplier sought to recover the value of goods, the court held that no restitution could
be ordered.
- Effect: The case established the principle that even if a minor fraudulently represents their
age, they cannot be compelled to return the goods or make restitution because enforcing this
would indirectly enforce a void contract.

- Khan Gul v. Lakha Singh (1928)

- Facts: A minor executed a promissory note in favor of another party.
- Judgment: The court ruled that a minor’s agreement to pay back a loan or any similar debt
is void, and no action could be taken against the minor to enforce such agreements.
- Implication: Reinforced that contracts involving minors are void and non-enforceable.

4. Contracts of Employment or Service

- Contracts of employment or apprenticeship that are beneficial to a minor (such as training or
education-related contracts) can sometimes be enforceable. These must not impose any
significant obligations on the minor.
- Case Law: Roberts v. Gray (1913) (English Case)
- Facts: A minor entered into an apprenticeship contract to learn a trade.
- Judgment: The court upheld the contract as it was deemed beneficial to the minor.
- Implication: Contracts deemed to be for the benefit of a minor are enforceable under certain
circumstances.

5. Restitution and Equitable Remedies

- Although minors are generally not required to make restitution, courts sometimes adopt a
flexible approach if the minor holds a significant benefit from the contract.
- Case Reference: Thake and Stokes v. Maurice (1986) (English Case)
- Judgment: If a minor holds a substantial benefit without any disadvantage or burden, courts
may allow a limited restitution.
- Importance: Courts are cautious about ordering restitution, as it may indirectly enforce a
void contract.

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C. Conclusion

The Indian Contract Act and various judicial decisions clearly outline the void nature of
contracts with minors. This approach serves as a protective measure to shield minors from the
legal and financial consequences of obligations they may not fully understand. Courts ensure
that the protection of minors remains a priority, though some flexibility exists in cases where a
minor benefits directly, such as with contracts involving necessities or educational pursuits.

A. Free Consent

1. Importance of Free Consent in Contract Law

- Free consent ensures genuine agreement, which is essential to form a valid contract.
- Section 14 lists factors that can affect free consent: coercion, undue influence, fraud,
misrepresentation, and mistake.

2. Lack of Free Consent and Voidability

- If consent is caused by any of these factors, the contract is generally voidable at the option of
the aggrieved party.
- If there is a fundamental lack of free consent, the agreement may be treated as void ab initio
in certain cases.

3. Illustrative Cases
- Mackinnon Mackenzie & Co. Ltd. v. Lakshmi Chand (1969): This case emphasizes that when
consent is given under duress or pressure, the aggrieved party has the right to repudiate the
contract.
- Kanhaiyalal v. Dhirendra Nath (1954): Reinforced the principle that contracts entered
without free consent, such as through misrepresentation, can be rescinded.

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B. Coercion, Undue Influence, Misrepresentation, Fraud, Mistake

1. Coercion (Section 15)

- Coercion includes acts forbidden by law or threats, including threats to a third party.
- Coercion also covers acts like threatening suicide to induce consent, per Chikkam Ammiraju
v. Chikkam Seshayya.
- Effect: Contract is voidable; parties can seek rescission and, if necessary, compensation for
any losses.

2. Undue Influence (Section 16)

 - Relationship Dynamics: Often arises in fiduciary relationships, where one party has
dominance over another, like doctor-patient or trustee-beneficiary relationships.
- Case Reference: Allcard v. Skinner (1887) (English Case) – A nun’s gift to her convent was
voidable due to undue influence, as the convent held a position of dominance over her.

3. Misrepresentation (Section 18)

- Misrepresentation can be intentional or unintentional but involves a false statement of fact.
- Types: Misrepresentation can be affirmative or by omission if the omission is significant to
the contract’s basis.
- Case: With v. O’Flanagan (1936) (English Case) – If a representation becomes false before
the contract is finalized, the contract can be voided.

4. Fraud (Section 17)

- Fraud involves intentional deceit with the aim of inducing the other party to enter into the
contract.
- Illustrative Case: Derry v. Peek (1889) – Established that fraud requires intent to deceive, a
crucial aspect of voiding the contract based on fraudulent grounds.

5. Mistake (Sections 20–22)

- Mutual Mistake: If both parties are mistaken about a fundamental fact, the contract is void
(e.g., Raffles v. Wichelhaus).
- Unilateral Mistake: Generally, a unilateral mistake does not void a contract unless the
mistake relates to a material fact and the other party knew or ought to have known.

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C. Unlawful Consideration and Object (Section 23)

1. Definition
- The consideration or object of a contract must be lawful. If it contravenes public policy or the
law, it’s void.

2. Examples of Unlawful Considerations

- Forbidden by Law: Agreements for illegal acts, like bribery or contracts to evade taxes.
- Injurious to Public Policy: Contracts that restrain trade or promote immoral activities are
void.
- Case Reference: Shankar Singh v. Lachhmi Narain (1955) – Reinforced that a contract with
an unlawful objective (e.g., gambling) is void.

3. Public Policy and Void Contracts

 - Case: Smitha Narayana v. Gowramma (1966) – Reinforced that agreements against public
policy, such as those involving immoral activities, are void.

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D. Discharge of Contracts

1. By Performance (Section 37)

- Contracts are generally discharged upon complete and exact performance by all parties.
- Case: Startup v. Macdonald (1843) – Partial performance or defective performance can
result in discharge only if the other party waives full performance.

2. By Mutual Agreement
- Novation: Replacing an old contract with a new one (Section 62).
- Case: Scarf v. Jardine (1882) – Novation must involve consent from all parties.

3. By Breach (Actual and Anticipatory)

- Actual Breach: Occurs when a party fails to perform on the due date.
- Anticipatory Breach: One party indicates before the due date that they will not perform.
- Case: Hochster v. De La Tour – Allowed the non-breaching party to immediately terminate
and claim damages.

4. By Frustration (Section 56)

- Frustration applies when unforeseen events render performance impossible.
- Case: Satyabrata Ghose v. Mugneeram Bangur & Co. – Established that supervening
impossibility discharges the contract.

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E. Performance, Impossibility of Performance, and Frustration

1. Performance Obligations
- Complete and Exact Performance: Full completion of contractual terms discharges the
contract.
- Case Reference: Cutter v. Powell (1795) – If a contract requires complete performance,
partial performance will not suffice.

2. Frustration of Contract
- Supervening Events: The contract is frustrated when unforeseen events make the performance
impractical.
 - Case: Krell v. Henry – A contract for a specific purpose (viewing a coronation) was
frustrated when the coronation was canceled.

3. Effects of Frustration
- Both parties are relieved of their obligations under the contract, and no party can claim
damages for non-performance.

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F. Breach of Contract: Anticipatory and Present

1. Types of Breach
- Anticipatory Breach: When one party informs the other, before the performance date, that
they will not fulfill their obligations.
- Case Reference: Frost v. Knight (1872) – The innocent party may either wait until the breach
occurs or immediately sue for damages.

2. Present Breach
- Occurs when a party fails to perform on the date performance is due. The non-breaching
party may seek damages or specific performance.
- Case: Poussard v. Spiers (1876) – Established the right to terminate a contract due to an
actual breach.

3. Remedies for Breach

- Damages: Compensation to cover the loss from the breach.
- Specific Performance: Ordered when monetary damages are insufficient.
- Injunction: Prevents the breaching party from performing a particular act.
- Case Reference: Hadley v. Baxendale (1854) – Established the principle that damages should
cover losses reasonably foreseeable from the breach.