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Capacity To Contract Case Study

Contract Law Case Study Assignment Help

Contract law is one of the major branches of legal studies. Students pursuing legal studies need to know the various aspects associated with contract law in which they need to prepare an assignment case study.

Before you embark on this mission to prepare your contract law case study, learn the most important concepts of contract law here.

What is Contract Law?

A contract refers to the voluntary agreement between two or more parties and contract law refers to the whole body of laws governing it. Every written and even oral agreement involves an exchange of goods, services, money and properties. The body of law governs the agreement and also encompasses the obligations of the parties, limitations, privities, obligation and jurisdiction and its termination (Businessdictionary.com, 2016). It also incorporates the possible remedies and legal actions in case of breach of the contract by any party. Though mainly used for commercial purposes, it also holds significance for civil purposes.
Students pursuing law are required to prepare a contract law case study assignment to exhibit their knowledge in this discipline. However, most of them do not have a firm knowledge and grip over this subject and feel helpless when they are assigned a contract law case study.

Elements of Contract

Before learning contract law, the students must have a clear idea about the different element of the contract which would help them to understand the subject better.

Offer and Acceptance

Offer and Acceptance are the most important elements for any successful contract. The offer is a statement of willingness to provide the contract on specific terms by the offerer whereas acceptance refers to the unconditional assent by the offeree with the intention of accepting the contract (Lawhandbook.org.au, 2016).

The parties of the agreement must enter into a legal agreement to make the contract effective. It creates a legal relation between the parties as the agreement gets enforced by law. It is also important that the offerer and the offeree understand the legal implications and consequences that will follow (E-lawresources.co.uk, 2016).

Consideration

To make the contract binding, it should be supported by a valuable consideration. Consideration refers to the value promised by one party to another at agreed benefits or returns. Consideration can be money, some kind of service or right. The court or any legal institution will not question the adequacy as long as consideration exists (Study.com, 2016).
The court will never interfere in any matter of dispute if one of the parties in the agreement thinks that he made a bad deal. The deciding consideration depends on the individual value and capacity of the parties. But the court can intervene if one of the parties accuses the other of influencing or forcing the former in the deal.

Legal Capacity

The parties or people who wish to enter into the legal contract must possess the legal capacity under the purview of law. As people who are mentally impaired, minors, bankrupt, prisoners and other people explicating stated cannot enter into a contract (Lawhandbook.org.au, 2016).

Consent

All the parties expressed their willingness to enter into a contract should enter it freely with a proper understanding of the contract details. They should not take their decision from external influence, intimidation, threat or false hope and misrepresentation (Contracts.uslegal.com, 2016).
To devise a strong contract law case study, the students must have a clear idea about these essential five elements. But there are many students who have several queries on different aspects of contract law. Consulting contract law case study sample or contract law case study example will help them in these circumstances.

Contract law : All Your Queries Answered

Not always a contract law case study sample is able to answer and suffice all the queries. The students have numerous questions in their mind with this vast discipline under law. Here are the most important aspects of contract law discussed in detail.

Breach of Contract

Breach of Contract refers to the legal action taken by any party when the other party does not honor the binding agreement or any of its clauses. If a person within an agreement breaks the contractual promise and does not perform the duty expected according to the contract, then it can be referred as breach of contract (Smallbusiness.findlaw.com, 2016). According to the severity and gravity of the breach, it can be classified into:

  • Minor Breaches
  • Material Breaches
  • Fundamental Breaches

While minor breaches refer to the slight violations, fundamental breaches are drastic violations ensuing legal action.

Consequences of contract breach

Firstly, both the parties can try to get into a solution through informal meetings when a dispute arises. But when they fail, the non-breaching party can seek legal remedy. This is performed through formal lawsuits and the established court system of the respective country.
The parties can also agree to hire a unanimous arbitrator who will review the contract dispute and breach and deliver a solution. But when the arbitrator too cannot provide a universally accepted remedy, it reaches the court of law.
In case of direct and proved breach of contract, the court can provide relief to the other party by awarding a remedy borne by the violator.

Damages

The violator needs to compensate the other party for the damages caused due to the breach of contract. According to the extent of the damage caused by the responsible party, the amount of compensation is decided.

Specific Performance

When the damages caused cannot be recovered through compensation then the court can ask the violator for a specific performance. Specific performance can be defined as any activity directed by the court that the breaching party must perform. But it is done when the compensation does not suffice the damages incurred. Generally, the court of law rules specific performance as a remedy when the product or service promised in the agreement is unique. Such as the real estate industry is referred to as unique where there cannot be a duplicate property with same facilities. But even the court will enforce this specific performance on the violator when the agreement made is fair and equitable without providing any undue advantage to any party.

Cancellation and Restitution

The non-breaching party can get authorization from the court of law the cancel the contract and sue for restitution when the violator get compelled to bring back the position it was before the contract was formulated.
These are the main consequences of contract breach (Contractsandagreements.co.uk, 2015). Breaching contract is a serious offence and a common reason of lawsuits.

Silence as Acceptance

Generally, silence or not responding to the offer does not get considered as a sign of acceptance. However, in some specific cases or situations, silence can be treated as acceptance. Then the question arises, when the silence of a party can be regarded as a sign of acceptance? Suppose a person X sends a packet of food to another person Y and also informs that the former expects payment for it. If person Y without agreeing eats the food then this activity can be regarded as acceptance. There are some specific requirements which when sufficed can be treated as acceptance (Legalmatch.com, 2016):

  • One party has made the offer while the other did not reject the offer
  • The offerer renders a particular service to the offeree
  • The offerer provides the service at his own free will without being influenced by any other person
  • The offerer informs the offeree as the former anticipates and expects a payment from the latter
  • The offeree has complete knowledge of all the above-mentioned events
  • The offeree should have used or accepts the service in some form which can be interpreted as acceptance under court of law.

This rule can cover other formal exchange of services other than the sale of goods. But unsolicited goods sent to people without formal acknowledgement cannot fall into this category. It would be treated as gifts.

Contract law : The basics

To make a contract viable under law it must accomplish certain requirements. It includes an offer and its acceptance, consideration, purpose, eligible parties and their consent. Other than these general rules, the associated parties, depending on the type of contract may need to fulfill additional requirements.
The term contract refers to the agreement in written form which includes the following elements. It must be verified under the court of law.

  • Introduction clauses (provisions)
  • Defining the parties and key terms
  • Statement (s) of purpose
  • Obligations of each party
  • Assurances and warranties
  • Attachments
  • Signature block
The contract can also be seen as a process which can be typically divided into three separate stages (Nolo.com, 2016).

Both the parties (can be even more) contemplate about the prospective deal by examining the arrangement and the risks associated with it.

Phase 1: Evaluate the deal

Both the parties (can be even more) contemplate about the prospective deal by examining the arrangement and the risks associated with it.

Phase 2: Reaching the agreement

In this stage, the parties negotiate and agree on the final deal with stated agreements. Then with accordance to the consent, the written contract is finalized which will act as documentary evidence.

Phase 3: Implementation and performance

The agreement after signed by all gets implemented. All the parties must remain obligatory towards their agreement and perform accordingly. If any of the party fails to perform their task, the other party can draw them into a legal suite.

Contracts and the Law

The basic contract is formed when two separate parties enter into an agreement and obliges to perform their duties responsibly. With the term party, it can refer to any organization, person or a corporation which enters into an agreement. The agreement is legally enforceable. The main laws which govern the contract law are:

The Common Law : Common laws refer to the set of laws which are developed by judges, courts and legal tribunals which provides regard and importance to every individual case. It is based on consistent principles where similar cases are deal with a similar set of laws (Legal-dictionary.thefreedictionary.com, 2016). The most crucial aspects of contract law fall under the category of common law.

The Uniform Commercial Code:

Contract Law Sample - Business and Contract Law

In order to answer this question, a discussion on the rule of Indoor management is needed. When an employee or authority from a company on behalf of the company, enters into a contract with any outsider, it is considered that the company as a whole is entering into the said contract. A noteworthy case in this regard is Bank of New Zealand v. Fiberi Pty Ltd . The outsider ....

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(a) “The law affects a business from the moment it commences until the time it isdissolved.”Discuss the above statement in the context of three (3) key functions of business lawaffecting commercial activity in Singapore. In your analysis, you should providespecific examples...

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Barry decides to hire some ladders and planks from a local equipment hiring business to enable him to paint the exterior of his house. When he collects the hired goods, he is asked to sign a hiring agreement. Barry asks the employee of the hiring firm why he has to sign an agreement, to which the employee replies, "It is just for insurance purposes" ...

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(2) CAPACITY OF PARTIES

 

Section 10 of the Contract Act requires that an agreement to be enforceable by law must be made by the parties competent to contract.

Section 11 of the contract Act provides that “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 disqualified from contracting by any law to which he is subject.”

This Section deals with personal capacity in three distinct branches:

(a)   Disqualification by infancy, i.e. minors.

(b)   Disqualification by insanity, i.e. lunaties.

(c)   Other special disqualifications by personal laws, such as insolvancy, conviction etc.

Disqualification by Infancy

Age of Majority: A valid agreement requires that both the parties to the contract should understand the legal implications of their conduct. They must have mature mind. They should be major in age.

According to Indian Majority Act, 1875, every person domiciled in India shall be deemed to have attained his majority when he shall have completed his age of eighteen years and not before. In case, guardian has been appointed to the minor or where the minor is under the guardianship of the court of wards, the person shall become major on the completion of the age of 21 years.

Law Relating to Minor’s Agreement

The Act makes it essential that all contracting parties should be competent to contract, and if a person is incompetent to contract by reason of infancy, he cannot make a contract within the meaning of the Act. Therefore, an agreement with a minor is void and a minor can neither sue nor be sued upon it. The Contract is also not capable of ratification in any manner. The parents of a minor are not legally responsible for his contracts unless he acts as their agent.

Following important provisions govern agreements made with a minor.

(i)    Agreement is absolutely void: An agreement by or with a minor is void-ab-initio. It is considered to be a nullity and non-existing from the very beginning. Thus, if a party who has parted with goods, can trace them with the minor then he can recover damages for the breach of contract or recover their price. Nor can money lent to such a minor be recovered because if that were to be allowed it would tentamount of enforcing the contract.

Leading case: Mohiri Bibi V. Dharmodus Ghosh.

In this case a minor executed a mortgage for Rs. 20,000 and received Rs.8,000 from the mortgagee.

The minor sued for setting aside the mortgage. The mortgage claimed the sum which he had actually paid, i.e. Rs. 8,000. The Privy Council held that as the minor’s contract was absolutely void, and no question of money could arise in these circumstances.

However, if the minor has carried out his obligations, he can bring a suit against the other party for the enforcement of the other party’s obligations.

Example:

A, a minor, advanced money to B against a mortgage. It was held that the mortgage was enforceable by him or by the other person on his behalf, (Satyadev V. Tribeni) (1936).

But the contract is enforceable only when the minor has performed his part, the agreement is unenforceable.

Example:

M entered into a contract on behalf of a minor with S to purchase some immovable property. On S’s non-fulfilment of his promise, the minor filled a suit against S. It was held that the agreement was void because the contract is still executory. Therefore, his plea could not be accepted. (Mir Sawargan V. Fakhrudin Md. Chowdhry) (1912).

2.    No ratification: Since the contract is void ab initio it cannot be ratifed by the minor on attaining the age of majority. However, a minor who, on attaining majority, takes up and carries on transaction commenced while he was under disability, will bind himself for the whole transaction.

Example :(A)

F, an infant speculated on the stock exchange and became liable to the stockbrokers for £547. After attaining the age of majority, he gave two bills for £50 each in satisfaction of the original debt. Held F was not liable on the bills (Smith V. King, (1892) 2 R.B. 543).

Example :(B)

A, a minor, takes a loan of Rs. 1,000 from B during his minority. After attaining age of majority, A applies for a fresh loan of Rs. 1,000 B gives the loan and obtain from A a combined promissory note of Rs.2,000. This will be taken as a new contract and will therefore, be enforceable.

3.    No restitution: When a contract becomes void, it is not to be performed by either party. But if any party has received any benefit under such a contract from the other party he must restore it or make compensation for it to the other party. This is called restitution.

A minor is not liable to repay any money or compensation for any benefit that he might have received under a void contract. Court, may however, in certain cases, while ordering for the cancellation of an instrument at the instance of the minor, require him to pay compensation to the other party to the instrument under Sec. 33 of the Specific Relief Act.

4.    No Estoppel: A minor is not bound by his mis-representations. If a minor procures a loan or enters into any other agreement by representing that he he is of full age. He cannot be prevented from pleading his minority in his defence. He will not be held liable under the contract. It was held in Sadiq Ali Khan V. Jai Kishore (1928) that a deed executed by a minor is a nullity there can be no estoppel against a statue, Thus the rule of estoppel as per S.115 of the Evidence Act, 1872 is not applied against a minor.

But this does not mean that the minors are allowed to cheat and to enjoy the fruits of their fraud. According to S.33 of the Sepcific Relief Act, 1963 Court will order, on equitable considerations for restitution if the minor is still in possession of the money or things purchased out of it. The minor shall have no liability if the money or things cannot be traced out in his hands.

Examples:

(a)   A minor borrowed Rs. 1000 on a fraudulent representation that he was a major, and he spent the whole of the money in a picnic tour of Kashmir. In this case the creditor cannot sue for the realisation of the money so advanced by him.

(b)   A minor fraudulently over states his age and takes delivery of a motor car after executing a promissory note in favour of the trader for its price, though the minor cannot be compelled to pay on the promissory note; but the court on equitable grounds may order the minor to return the car to the trader, if it is still with the minor.

3.    Mino’s liability for necessities: All contracts relating to the necessities supplied to a minor according to this status in life are valid. But only the minor’s property is liable for necessities, and no personal liability is incurred by him.

Necessities must be things which the minor actually needs; therefore it is not enough that they be of a kind which a person of his condition may reasonably want for ordinary use, they will not be necessities if he is already sufficiently supplied with things of that kind, and it is immaterial whether the other party knows this or not. Objects of mere luxury cannot be necessities nor can objects which, though of real use, are excessively costly. The fact that buttons are normal part of any kinds of clothing, but it will not make pearl or diamond buttons necessities.

Example:

A grocer supplies monthly rations for 6 months to B who is aged 17 years. On B’ failure to pay, he sues him for the realisation of his dues. In this case B’s property is liable for the payment of credit rations consumed by B during the period of his minority.

Costs incurred in successfully defending a suit on behalf of a minor in which his property was in jeopardy are “necessities”.

6.    Minor as a beneficiary: All such contracts under which the minor is to receive some benefit or which are beneficial to him are valid. These contracts include agreements which provide for the teaching, instruction or employment of a minor. It is to be noted that only his property is liable for liabilities arising out of such contracts. In no case he will be personally liable.

English law has expressly made a contract for the minor’s benefit enforceable. But in India all contracts made by minors are void. Still majority of the contracts for the benefit of minor have been held to be enforceable on the ground that it will be unjust in the circumstances to deprive a minor of a benefit which he may be entitled to get under a contract.

7.    Minor as Agent: A minor can be appointed as an agent. He can represent his principal in dealings with other parties. Since minor does not incur any personal liability, he cannot be held responsible for his any act of negligence or fault. Therefore the principal will be responsible to the third parties for the acts of his minor agent. He cannot hold the minor agent personally liable for any wrongful acts. Thus the principal runs a great risk.

8.    Minor as a partner: A minor cannot be a partner of a firm. An agreement of partnership making a minor a full-fledged partner is invalid between all partners. However, he may be admitted to the benefits of an already existing partnership firm with the unanimous express consent of all the existing partners. Such an agreement may be entered into by his guardian on his behalf with the partners.

A minor admitted to the benefits of partnership, has a right to share the property and profits of the firm in the proportion agreed upon by him with the other partners. Further, he has a right to have access to and inspect and copy any of the accounts of the firm but not the books of accounts of the firm. He liability is limited to the extent of his share in the firm.

9.    Minor as a member of a company: A minor cannot be a member of a company since he is incompetent to enter into a contract.

A minor may be allotted shares. His name may remain on a company’s register of members, but during minority he incurs no liability. On attaining majority and becoming aware of the presence of his name in the register of members, the major has the option to repudiate his shares within a reaonsable time. Where he does not do so he may safely be taken to have accepted his position. His liability as a share-holder then commences.

However, it a minor has been allotted shares through ignorance and his name has been entered in the Register of members both the compoany and the minor, can repudiate the allotment of shares during his minority.

10.  Surety for a minor: A person who stands as a surety for a loan taken by the minor will be liable to the creditor for payment of the loan, even though minor was not liable.

11.  Mortages and sales in favour of minors : A sale or mortgages of his property by a minor is void. But a duly executed transfer by way of sale or mortgage in favour of a minor who has paid the consideration money is not void and it is enforceable by him or any other person on his behalf. A minor, therefore, in whose favour a deed of sale is executed is competent to sue for the possession of the property conveyed thereby.

12.  A minor can not be declared as an insolvent even for his necessities of life. Only his property is liable even for necessities of life and he, personally, is not liable for the same.

Thus, the contract made with the minors can be under three heads.

(i)    Valid Contracts: They include (a) contracts for necessities which include goods as well as services. (b) Contracts for loans taken to purchase “necessities”.

(ii)    Voidable Contracts: This category of voidable contracts is not recognised our country. This category includes those contracts in which minor is a beneficiary. Only minor is entitled to enforce but not the other party. They can be reasonably called as contract voidable at the option of the minor.

(iii)  Void Contracts: All contracts by a minor other than those referred to above shall be void.

Salmond has defined the position of a minor in the following words:

“The law protects their persons, preserves their rights and estates, excuseth their laches and assists them in their pleadings, the judges are their counsellors, the jury are their servants and law is their guardian.”

Disqualificatioin by insanity

According to Sec.12 “A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his interests.”

A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

Example:

(a)   A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those intervals.

(b)   A sane man, who is delirous from fever, or who is so drunk that he can not understand the terms of a contract or form a rational judgement as to its effect on his interests, can not contract during such delirium or drunkness.

Thus, idiots, lunatics and drunkard are not considered to be persons of sound mind. 

(i)    Idiot : A person who is devoid of any faculties of thinking or rational judgement. All agreements, other than those for necessaries of life, with idots are absolutely void.

(ii)    Lunatic: A person whose mental powers are derange is called a lunatic. Lunatic is not a person who is continuously in state of unsoundness of mind but he may have lucid intervals. period in which he is to his senses. Agreement with lunatics are void except those made during lucid intervals and made for necessities of life. However, for necessities of life, the property of such persons is liable. He does not have personal liabilities.

(iii)  Drunkards: A person under the influence of drink or drugs, stands on the same footing as lunatic. Mere drunkenness affords no ground for resisting a suit to enforce a contract. But where the judgement of one party was, to the knowledge of the other part, seriously affected by drink, equity will generally refuse specific performance at the suit of the other. And, where the court is satisfied that a contract disadvantageous to the party affectedhas been obtained by “drawing him into drink” or that three has been real unfairness in taking advantage of his position, the contract may be set aside.

13.  Persons disqualified by any other laws: Certain types of people are specifically disqualified by special statues from entering into valid contracts.

(I)   Alien Enemies: A person who is not an Indian citizen is an alien. An alien may be either an alien friend or an alien enemy. An alien friend is one, whose state or Sovereign is at peace with India. He has full contractual capacity like an Indian Citizen subject to certain restrictions put by the Government of India, e.g., and alien can not acquire any ownership interests in any Indian ship. On the declaration of war between India and alien’s country he becomes an alien enemy. A contract with an enemy becomes unenforceable on the outbreak of war. With regard to a contract with an alien enemy following rules will apply:

(i)    Since trading with an alien enemy is considered illegal, no contract can be made with an alien enemy during the subsistence of war except with the prior approval from the Central Government.

(ii)    Contracts entered into before the outbreak of war will be suspended during the course of war. They will be performed after the war is over.

(II)  Foreign Sovreigns and Ambassadors: Foreign sovereigns and accredited representatives of foreign states, i.e., Ambassadors. High Commissioners. enjoy a special priviledge in that they can not be used in Indian courts, unless they voluntarily submit to the jurisdiction of Indian courts. Though they can enter into contracts through agents residing in India. In such cases the agent becomes personally liable for the due performance of the contracts.

(III) Corporations: A corporations is only an artificial person created by law, e.g. a company registered under the Companies Act, public bodies created by statue such as Industrial Finance Corporation of India, A corporation exists only in contemplation of law, it has no physical body or form. It can hold property, can sell or purchase goods and can sue or be sued in relation to any of the contracts entered into by it. Being a mere creature of law it cannot go beyond those objectives which have been laid down in the charter of its creation, i.e., Memorandum of Association. Further, its capacity and powers to contract are also limited by its charter. Any contract beyond such powers is ultra vires and void. Such ultravires contracts can not be ratified even by the unanimous vote of all its members.

Besides that a Company etc. can not make certain contracts at all e.g., a contract to marry. 

(IV) Convicts: While undergoing sentence a convict is incapable of entering into a contract. This inability comes to an end on the expiration of the sentence or if he has been “pardoned”.

(V)  Professionla persons: In England barristers-at law, are prohibited by the etiquette of their profession from suing for their fees. So also are the Fellow Members of the Royal College of Physicians. In our country no such professional disqualification exists.