Capacity and Free Consent

Capacity of Parties:
Sec.10 defines that parties to contract must be competent to contract.
Competency is defined by S.11 as, "Every person is competent to contract if he
is of the age of majority according to the law to which he is subject, is of sound
mind and is not disqualified from contracting by any law to which he is
subject"
Thus, to be competent to contract one must be of:
Age of majority i.e. 18 years in Pakistan
Sound mind
Not disqualified from contracting by any law to which he is subject
Minor: (Sec 3 of the Majority Act 1875)
A Person who has not attained the age of majority i.e.18 years is deemed to be a
minor. Once he has completed 18 years, he is of the age of majority.
In following two cases the age of majority is 21 years:
A guardian of the minor's person and property has been appointed by the
Court under the Guardians and Wards Act 1890.
A minor is under the guardianship of court of wards.
Position of Minor at Law:
Law protects minors as it is assumed that minor may not have the requisite
experience and may be unable to take proper reasoned decisions for
themselves.
Nature of Minor's Agreements:
1. Agreement imposing obligations on minors are void ab initio.
2. Minor may be a promisee or beneficiary as the law does not regard a
minor as being incapable of accepting a benefit.
3. Minor cannot become a partner nor can a new partnership be started with
minor as a partner

4. Minor can be an agent. But a minor agent is not liable for negligence to
his principal.
5. There can be no specific performance of an agreement made by a minor
un less it is for necessaries or substaintially for the benefit of the minor.
6. A minor can always plead minority.
7. A minor cannot be adjudged insolvent.
8. A minor is liable for the necessaries supplied to him or to his dependents.
9. Where a minor enters into a contract for a loan, guaranteed by an adult,
the guarantee is enforceable against the adult.
10. Normally restitution may not be allowed by where the minor himself
brings a suit for cancellation if the agreement, the courts on the principle
of equity, compel the minor to restore the money or property to the other
party. May also be applied where a minor unjustly, acquires goods under
an unenforceable contract, the court may order restitution.

What can be termed as necessary?

Basic essentials of normal every day life AND things suitable to the minors
position in life.
Nash v Inman: 11 waist coats ordered from a tailor for a student studying at
Cambridge.
Held: Necessary given the circumstances and position in life of the minor ( case
would be decided differently today)
Principle extends to services as well.
Chapple v Cooper (1844). A young widow was sued successfully for the
funeral expenses for her late husband.

Beneficial contracts of service are also enforceable if they are on the whole fOr
the benefit of the minor.

Ref: De Francesco v Barnum. (pg 80)

Persons of unsound mind
A person's soundness of mind depends on two facts:
His ability to understand the business concerned, and
His ability to form a rational judgement as to its effect on his interests.
Unsoundness of mind may arise from lunacy, or drunkeness etc. Contracts with
such persons are void when entered into at a time when the person was in an
unsound
state
of
mind.
Persons with limited capacity:
1. Ambassadors, Envoys etc. These persons can enter into contracts and
enforce them in our courts. But they cannot be sued unless they of their
own volition submit to the jurisdiction of the court.
2. Corporations: Corporations and companies are artificial persons created
by law. As such, they can enter into contracts, sue and be sued but their
capacity to do so is limited.
3. Convicts: A convict while undergoing imprisonment is incapable of
entering into a contract, except under a special licence called "Ticket of
leave".
Free Consent:
Consent is said to be free when it is not caused by:
1. Coercion
2. Undue influence
3. Fraud
4. Misrepresentation
5. Mistake
When consent to a contract is cause by coercion, undue influence, fraud or
misrepresentation, the agreement is a contract voidable at the option of the
party whose consent was not free. The party has liberty whether he uphold the

contract or reject it. If the party upholds the contract, the contract is binding on
both the parties.
When contract is caused by mistake, the contract is void, because there was no
consensus ad idem and hence, there is no contract.
Coersion:
Coersion is defined by Sec.15 as, "Committing or threatening to commit an act
forbidden by the law, or detaining or threatening to detain any property
whatever, with the intention of causing any person to enter into an agreement.
It is immaterial whether the particular law is or is not in force where the
coercion is employed."
Examples,
1. Consent obtained at gun point is caused by coersion.
2. A threats to kill B or threats to detain B's property is committing or
threatening to commit an unlawful act. Hence the consent is caused by
coersion.
Effect of coercion:
A contract induced by coercion is voidable at the option of the party whose
consent was caused by coercion.
Sec.72 states, "A person to whom money has been paid or anything
delivered by mistake or under coercion, must repay or return it."
Undue Influence:
Undue influence is defined by Sec.16(1) as, "A contract is said to be induced
by undue influence where the relations subsisting between the parties are such
that one of the parties is in position to dominate the will of other and uses that
position to obtain an unfair advantage over the other."
When a person, is deemed to be in a position to dominate the will of another, is
defined by Sec.16(2) as, "When he holds real or apparent authority over the
other. Or where he makes a contract with a person whose capacity is
temporarily or permanently affected by reason of age, illness or mental or
bodily distress."
In order to establish the presumption of undue influence, two essentials
have to be proved:

1. The relation between the parties is such that one of them is in a position
to dominate the will of the other, and
2. The party uses that position to obtain an undue influence over the other
How to rebut the presumption?
The party deemed to use the undue influence can rebut the presumption by
showing that:
1. Full disclosure was made regarding all facts of the contract
2. Consideration was adequate
3. Dominated party was in a position to receive independent advice.
Examples,
1. Father purchased a car from his son for Rs.500,000 while the actual price of
car was Rs.800,000. Later on son took the case to the court. The court annuls
the contract on the basis of undue influence used by father.
2. A, a sick old man is induced by his medical attendant to pay him an
exorbitant monthly amount for his professional services. Such a contract is
deemed to be induced by undue influence and is voidable.

Effect of undue influence:

A contract induced by undue influence is voidable at the option of the party
whose consent was caused by undue influence. The party may uphold the
contract or reject it.
Fraud:
Fraud under the contract act basically means "intentional misrepresentation".
Fraud is defined by Sec.17 as, Fraud means and includes any of the following
acts committed by a party to a contract or with his connivance or by his agent,
1. The suggestion as to a matter of fact of that which is not true by one who
does not believe it to be true.

2. The active concealment of a fact by one having knowledge or belief of

the fact.
3. A promise made without an intention of performing it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declares to be fraudlent."
In other words fraud exists if it is shown that a false representation has been
made:
1. Knowingly
2. Without belief in its truth ( Derry V Peek) (1889)
Mere silence as to facts likely to affect the willingness of a person to enter into
a contract does not give rise to a presumption that the contract was induced by
fraud.
Example: B says to A, If you do not deny it, I shall assume that the goods you
are selling me are sound. A doesnt say anything, here As silence is equivocal
to speech.
A & B are traders. A has private knowledge of a change in price which would
affect bs willingness to proceed with the contract. A is not bound to inform B.
The principle of Caveat Emptor- let the buyer beware applies.
Misrepresentation:
A misrepresentation is an untrue statement of fact, which is not a term of the
contract but has an inducing effect on it. In order to be actionable, it must not
be a mere statement of opinion or commendation.
Dimmock v Hallet (1866): An estate agents description of land as fertile and
improvable was held to be a mere commendation and not actionable.
With v O Flanagan ( 1936): a doctor wanted to sell his practice. He told a
prospective buyer the current income and then fell ill. By the time the sale
eventually took place, many of the clients had transferred to another place and
the income was much less than originally stated. As the doctor did not revise
the original statement, it was held to be a misrepresentation.

Diff from fraud: party making the statement may believe it to be true, false
statement may be made without the intention to deceive the other party,
remedies are more limited in comparison to fraud.
Mistake: it is a false assumption made by one or both parties in the formation
of a contract.
Where both parties are under a mistake as to the same facts, the contract is
deemed to be void. Galloway v Galloway (1914) Seperation agreement was
void as it was found that the couple was not originally legally married.
If only one party is mistaken as to the facts, the contract may not be void. E.g.
one party is mistaken as to the quality of the subject matter, may nOt render the
contract void.