Law of contract-III

In the last article I had discussed the question of the age of the parties considered competent to enter into legally valid agreements. In that context I had noted that according to the contract law only those who had attained the age of majority possessed the legal capacity to enter such agreements.
In addition to the criterion of age, the law also provides that only those persons are competent to enter legally enforceable agreements who are sound of mind and are not prevented under any law, to which they are subject, from doing so. We now propose to discuss both of these issues, and some others, in the ensuing paragraphs.
SOUNDNESS OF MIND: The general criteria of soundness of mind for the purpose of a legal agreement are:
a) That at the time of entering the agreement the parties should be able to understand it's contents; and,
b) That the parties should be able to form a "rational judgment" as to the effects of the agreement on their respective interests.
An agreement made with a person of unsound mind is void ab-initio (from the beginning). The law, however, recognises the possibility that a person who is usually of unsound mind can, on occasions, be of sound mind. During the period that he is of sound mind he possesses the legal capacity to enter into an agreement.
Such an agreement will be considered lawful. The fact of the soundness of his mind is a matter of evidence.
Similarly, a person who is usually of sound mind can, on occasions, be of unsound mind. During the period that he is of unsound mind he lacks the capacity to enter into a legally valid agreement. Any agreement made by him during such a period will not be recognised in law. When he is out of the state of unsoundness of mind he would possess the capacity to enter into a legally enforceable agreement.
The occasional unsoundness of mind can be caused by deep drunkenness when a person may lose his normal senses; it can be caused by delirium, by severe emotional trauma or by any other temporary mental disability.
The burden of proof of unsoundness of mind is on the party that claims it.
Disqualification to contract under other laws
As in the case of minors, agreements made by disqualified persons are void. For example, if a person enters an agreement while he is under a statutory disability to do so, but executes the sale deed after the disability ceases, the agreement would still be void. The reason is that it was made while the disability subsisted.
We have so far discussed two essential conditions that an agreement must fulfil before it can be legally enforced. These conditions are a) that the consent of the parties to the agreement should be free and, b) that the parties should have the competence to enter the agreement. We shall now discuss two more of those basic conditions that an agreement must meet before it can become a legal contract. These conditions are that the consideration and the object of an agreement must be lawful. Since the criteria to determine the lawful nature or otherwise of the consideration and the object of an agreement are the same, we shall discuss them together.
LAWFUL CONSIDERATION AND OBJECT: The Contract Act lays down that the consideration or the object of an agreement would be lawful unless:
i) Is forbidden by law; or
ii) It would defeat the provisions of any law; or
iii) It is fraudulent; or
iv) It involves actual or implied injury to the person or property of another party; or
v) The court considers it immoral or against public policy.
An agreement containing any of the above disabilities would be void.
Finally, all those agreements would be void that have been expressly so declared by the Contract Act. They are briefly discussed below.
Agreements Expressly Declared to be Void:
a) An agreement whose object or consideration is unlawful in part is void;
b) An agreement without consideration is void, unless:
i) It is made on account of natural love and affection between parties standing in close relationship with each other, is in writing and is registered under the relevant law in force;
ii) It is a promise to compensate for something done by one party for the other; or
iii) It is a promise to pay a debt barred by the law of limitation.
c) An agreement in restraint of marriage, except in the case of a minor, is void;
d) An agreement that restrains a party absolutely from taking recourse to normal legal proceedings in regard to any rights flowing from the agreement would be void. It would also be void if it limits the time within which a party (in disregard of what the law of limitation may provide) may have such legal recourse. This provision of law, however, makes an exception for cases where parties have agreed to refer their future disputes or questions that have already arisen between them, to arbitration;
e) An agreement meanings of which are not clear is void;
f) An agreement by way of a wager is void;
g) Agreement that restrains a party from pursuing a lawful profession, trade or business is void to the extent of the restraint. This provision, however, does not apply in cases where a sale of goodwill may be involved. For example, A sell his laundry business located in a part of Karachi and also sells the goodwill of the business. In the agreement he agrees that he will not run a similar business anywhere in Pakistan so long as the buyer, or any beneficiary of goodwill claiming through the buyer, is carrying on that business. The agreement is void because what the law recognises is a restraint on locating a similar business within such limits as may appear reasonable to a court of law. It would, indeed, be hard to find a court to whom the above stipulation would appear reasonable.
It is worth noting here that under the Partnership Act the law recognises agreements imposing restraints on business in terms of location and time in a variety of situations. For example, a partner may legally agree that he would not carry on a business similar to that of the partnership, while he is a partner. He may also agree with other partners that on retiring he will not carry on a similar business within specified limits or within a specified time-period. The partners may also legitimately agree that on the dissolution of the firm some or all of them will not run similar businesses within specified territorial limits and for a specified period of time.
h) Another category of agreements that is void consists of those agreements that are impossible to perform. For instance, A offers to pay a sum of money to B if B walks on water. B accepts the offer. The agreement is void ab-initio because it was impossible to perform, to begin with.
i) Agreements that are valid to begin with, but before they are performed, become unlawful or impossible to perform, would be rendered void.
Example: A offers to marry B. Before the marriage takes place A goes mad. The agreement would become void.
Example: A offers a sum of money to B to marry C. B agrees. Before, however, the marriage could take place C dies. The agreement would become void.
The above discussion would show that some agreements are void to begin with. Those are agreements that are either illegal or are expressly declared by law to be void ab-initio. There are, however, other agreements that are valid to begin with, but become void subsequent to their formation. All other agreements that are neither void ab-initio nor are rendered void through later developments are enforceable by law and are, therefore, legally valid contracts. Among such contracts there is a distinct class known as "voidable contracts". Let us see have a brief look at these contracts.
VOIDABLE CONTRACTS: These are agreements that are voidable at the option of one party (or parties) on one side of the agreement, but not at the option of the other party (or parties) on the opposite side. These are generally agreements where consent of one party is not given freely or the agreement has been vitiated by any other circumstances.
In such agreements the aggrieved party has the option to "avoid" the agreement (refuse to abide by it's terms) or to affirm it ((carry on with the agreement). In the former case (avoidance) the avoiding party is entitled to compensation. In the latter case (affirmation) the other party remains bound to perform the contract.
(CONCLUDED)