INDIAN CONTRACT ACT, 1872

The Indian Contract Act, 1872 came into force on 1st September 1872. It extends
to the whole of India except the state of Jammu & Kashmir.

DEFINITION, MEANING AND NATURE OF CONTRACT

The term Contract has been defined under Section 2(h) of Indian Contract Act,
1872 as, “an agreement enforceable by law is a contract” A Contract therefore,
is an agreement the object of which is to create a legal obligation, i.e. a duty
enforceable by law.

Section 2(e) of the Indian Contract Act, 1872 defines an agreement as “every
promise and every set of promises forming consideration for each other”. An
agreement which is enforceable by law is called a contract.

Two main elements:

1. Agreement‐ As per Sec 2 (e) “ Every promise and every set of promises,
forming the consideration for each other, is an agreement”

2. Legal Obligation‐ An agreement to become a contract must give rise to a

legal obligation that is duty enforceable by law.

Offer + Acceptance = Promise

Promise+ Consideration= Agreement

Agreement+ Enforceability by law = Contract

Example: Aman agrees with Varsha to sell a car for 2 lacs to Varsha. Here Aman
is under an obligation to give a car to Varsha and Varsha has the right to receive
the car on payment of 2 lacs and also Varsha is under an obligation to pay 2 lacs
to Aman and Aman has a right to receive 2 lacs.
Types of Contracts on the basis of its enforcement

A. Valid Contract
An agreement enforceable by the law is a contract (Section 2(h)). To be
enforceable it has to satisfy the requirements under Section 10 of the Indian
Contract, 1872.

B. Voidable Contract
Section 2(i) of the Act defines a voidable contract. An agreement which is
enforceable by law at the option of one or more of the parties thereto, but not at
the option of the other, is a voidable contract.

As mentioned above, free consent which is defined in Section 14 of the Act is an

essential element of a valid contract. Consent is free when it is not obtained by
coercion, undue influence, fraud misrepresentation or mistake. Where consent to
an agreement is caused by coercion, undue influence, fraud or
misrepresentation, the agreement is a contract voidable at the option of the party
whose consent was so caused.
A voidable contract remains valid until rescinded.

C. Void Contract
A void agreement is not enforceable at the option of either party. Section 2(g) of
the Act explains the meaning of a void agreement.

Section 2(j) of the Act speaks about a valid contract which subsequently becomes
void. “A contract which ceases to be enforceable by the law becomes void when
it ceases to be enforceable”.

No obligation or right arises from a void contract. They are not covered by the
law. Such contracts cannot be made valid by the parties to the contract by giving
their consent.

If consent to a contract is caused by mistake, the agreement is void as

provided in Section 20 of the Act. If the parties to a contract are under a mistake
as to a matter of fact essential to the agreement, the agreement is void.

Sections 24-30 of the Act deals with void agreements. The following types of
Agreements are declared to be void:
• Agreements unlawful in part(S. 24)[7]
• Agreements without consideration(S. 25)
• Agreements in restraint of marriage(S. 26)
• Agreements in restraint of trade(S.27)
• Agreements in restraint of legal proceedings(S. 28)
 • Unmeaning agreements(S. 29)
• Wagering agreements(S. 30)

D. Unenforceable Contract
It is one which is good in substance, but because of some technical defect, one or
both parties cannot be sued on it. These defect may be the absence of writing,
registration, time-barred by the law of limitation, etc.

E. Illegal/unlawful Contract
Section 23 of the Act describes some condition’s when an agreement may be
unlawful or illegal. A distinction has to be made between void contracts and
illegal contacts. Agreements whose object or consideration is forbidden by law
are called illegal contracts. In the case of void agreements, the law may merely
say that if it is made, the courts will not enforce it. Thus all illegal agreements or
contracts are void, but all void agreements are not illegal.

Types of Contracts on the basis of mode of creation

A. Express Contracts
The first part of Section 9 of the Indian Contract deals with promises which are
expressly made. Contracts arising from expressly made promises are called
express contracts.
According to Section 9 “insofar as the proposal or acceptance of any promise is
made in words, the promise is said to be express”. Thus contracts entered into
between the parties by words, spoken or written, are known as express contracts.

B. Implied Contracts
The second part of Section 9 of the Act deals with implied contracts. It says
“insofar as such proposal or acceptance is made otherwise than in words, the
promise is said to be implied.” Thus contracts entered into between parties by
virtue of their conduct are called implied contracts.
The terms of the agreement are not expressed in written or oral form but are
inferred from their conduct.

C. Quasi-Contract
A contract which does not arise by virtue of any agreement between the parties,
but due to certain special circumstances, the law recognizes it as a contract. Such
contracts come into existence because of interference from courts in the interest
of justice. There are many several situations in which law, as well as justice,
require that a certain person is required to conform to an obligation, although he
has neither broken any contract nor committed any tort. The principle is that there
should not be “unjust enrichment” i.e., enrichment of one at the cost of another.[
Types of Contracts on the basis of the extent of execution

A. Executed Contracts
When both the parties have completely performed their respective obligations
under the contract, it is said to be executed contract. It means that whatever was
the object of the contract has been carried out. In most executed contracts the
promises are made and then immediately completed.
The buying of goods and/or services usually falls under this category. There is no
confusion about the date of execution of the contract since in most cases it is
instantaneous.

B. Executory Contract
An executory contract is one which is one in which one or both parties are still to
perform their obligations. Such controls are future contracts. In such contracts,
the consideration is the promise of performance or obligation. In executory
contracts, the consideration for the promise made is carried out sometime in the
future.
For example – Delivery and payment are to be made after 15 days. The contract
is executory. Another good example of an executory contract is that of a lease.

C. Unilateral Contract
They are one-sided contracts. A unilateral promise is a promise from one side
only and intended to induce some action by the other party. The promisee is not
bound to act, for he gives no promise from his side. But if he carries out the act
desired by the promisor, he can hold the promisor to his promise. His act is
simultaneously acceptance of and consideration for the promise. “An act done at
the request of the offeror in response to his promise is a consideration, and
consideration in its essence is nothing else but the response to such a request.”

D. Bilateral Contracts
A bilateral contract is a legally binding contract formed by the exchange of
reciprocal promises. Here both parties are outstanding at the time of formation of
the contract. In such a case, each party is a promisor and promise. They are also
known as reciprocal contracts because mutuality of obligation is essential for their
enforceability. In the case of bilateral contracts, an offer made is accepted in the
form of a counter-promise. They are very common in everyday life.
Essentials of a Valid Contract under the Indian Contract Act

1. Offer and Acceptance:

There must be a ‘lawful offer’ and a ‘lawful acceptance’. In other words there are
some legal rules governing offer and acceptance.

2. Intention to Create Legal obligation:

Both the parties, to a contract, must contemplate legal consequences. For
example, a husband offering to take his wife out for a movie is not an agreement
intended to create legal relations.

3. Lawful Consideration:
Consideration is the price paid for the promise of the other. Consideration may
be an act / abstinence or a promise. It may be past, present or future.
For example, Robert promises to supply 10 quintals of wheat for a consideration
of Rs.5000/-

4. Capacity of Parties:
The parties, to an agreement, must be competent to contract. That is to say
• The parties must be major
• The parties must be mentally sound
• The parties must not be disqualified from contracting by law.

5. Free Consent
Both parties, to a contract must enter it out of their free will and consent. Consent
is said to be “free”, when it is not affected by reasons such as
• Coercion
• Undueinfluence
• Fraud
• Misrepresentation
• Mistake

6. Lawful Object:
• Object means purpose
• The Act lays down that the object for which the agreement has been entered into
must not be fraudulent / illegal / immoral or opposed to public policy.

7. Writing and Registration:

i. It must be clearly understood that contracts need not necessarily be in writing.
ii. It may be oral
iii. It may even be implied
However, Indian Contract Act lays down that in certain special cases, for a
contract to be valid, it must only be in writing. Besides, it also needs to be
registered. Thus, for example: An agreement for a sale of immovable property
must be in writing and registered.

8. Certainty:
To ensure that a contract is valid, the terms of it must be certain. In other words
“agreements, the meaning of which is not certain or capable of being made certain
are void”. For example, Mr. Sharma agrees to sell his car to Mr. Mukesh at “best
competitive price”, since the price is not clearly ascertainable in this case, the
agreement is void.

9. Possibility of Performance:
The Contract Act lays down that “Agreement to do an impossible act is void”.
For example: Nagabushan agrees to bring a dead body alive in return for a crore
of rupees. The agreement is not enforceable.

10. Not Expressly Declared Void:

The Contract Act has ‘expressly declared’ certain agreements to be void.
Following are the cases:-
• Agreement in restraint of marriage
• Agreement in restraint of trade
• Agreement in absolute restraint of legal proceedings.
Thus, an agreement should not be expressly declared void by the Act.
 Offer: Meaning, Types and Invitation to offer

A proposal or an offer is like the beginning of a contract.

Section 2(a) of the Indian Contract Act is very explicit in defining the term
proposal as:
When one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal;

The person who makes the proposal is called the promisor and the person
accepting it called the promisee (Section 2(c)).

As per the definition, a valid proposal has two main parts. Firstly, an expression
of offeror’s willingness to do or abstain from doing something and secondly it is
made with a view to obtaining the assent of the offeree to the proposed act or
abstinence.

Essentials of a Valid Offer

While making a contract, it is essential that the offer should be communicated to
the other party. A proposal is complete when it is communicated. (Section 3).

Communication of proposal
Section 4 provides that the communication of a proposal is complete when it
comes to the knowledge of the person to whom it is made. When such an offer is
accepted with knowledge of the reward, the fact that an informer was influenced
by some other motives other than the reward will be immaterial.

Knowledge of a proposal is a must, the proposal must be communicated or the

acceptor should have the knowledge of the proposal in order to accept. In Lalman
Shukla v Gauri Datt the nephew of the defendant was absconded and the
defendant had sent his servants to different places to search for his nephew. The
plaintiff was one of the servants; meanwhile the search was going on, the
defendant made an offer that anyone who would find his nephew would be
awarded with money. This was not communicated to the plaintiff or neither did
he have the knowledge of such a proposal. Plaintiff found the nephew and tried
to claim the money to which he was refused. He filed a case in Allahabad HC
wherein the suit was declared in favour of the defendant. The court held that there
was never an enforceable agreement as the acceptor never had the knowledge of
such an offer and without which he could never give his assent.
Intention to contract
In order to create a valid contract, every offer must be made with the intention to
create a legal obligation. Under English law, the position was well settled in the
case of Balfour v. Balfour, where it was held that “to create a contract there must
be a common intention of the parties to enter into legal obligations”.

Kinds of Offer
1. Express Offer
It is clearly evident from the examples quoted above whereby the communication of the offer
is clear and unequivocal. It is being expressly made and conveyed to the other party. Hence, an
express offer is the most usual form of offer.

2. Implied Offer
When the communication is not through words and it becomes part of the conduct, then it can
be termed as an implied offer.

3. Counter Offer
When the initial offer is being communicated to the other party, the respective person jumps
back with modified or newer terms in which he/ she wants the formation of the contract to take
place.

4. Cross Offer
When two people can make simultaneous and similar offers to each other. This situation
resembles that of the double coincidence of wants as used to happen in the system of Barter
System of Exchange.

In the classic case of Tinn v. Hoffmann, the offers to buy the iron on similar terms were being
placed against the same parties by the same parties respectively. The court held that the offer
so made by the second party against the first one would not constitute to be an offer. It is
because the party was not aware of the initial offer so made by the first party and secondly,
only an offer from the other party would not make it an acceptance at any costs. Also, it cannot
be treated as any mutual acceptance. No binding effect would accrue on either party.

5. General Offer
Pamphlets and TV announcements are the common example whereby bold offers are being
thrown at the public for giving say, a reward. In such cases, where offers are being circulated
at a larger public platform and open to acceptance to anyone, it amounts to a general offer.

The most common case used to explain this offer is that Carlill v Carbolic Smoke Ball
Company. The respective company famously produced a smoke ball. It also advertised to give
reward of 100 pounds if somebody using the smoke ball catches influenza. When the appellant
developed influenza, the court considered that the terms mentioned in the unilateral offer stand
fulfilled. After all, that generally offer had conditions to be fulfilled, which was duly done.

6. Specific Offer
As the name itself suggests, the communication of proposal happens towards a particular
individual. The offer would fructify with a contract only at the assent being signified by that
particular individual. This stands for a specific offer.

7. Standing or Open Offer

It is like a general offer made to the public at large. But it is being kept open for a certain period
of time. In that frame, people can continue applying as it is also called a continuing offer. When
the offer is accepted by the other part, the contract stands concluded in this case as well.

Acceptance
A proposal becomes a promise when it is accepted. Section 2(b) of the Act defines
“acceptance” as “when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted.”

Acceptance may be express or implied – According to section 3 and 9, if

acceptance is made with words spoken or written, it is an express acceptance, and
if acceptance is made otherwise than in words, it is implied. What is necessary is
that there should be some external manifestation of acceptance. A mere mental
determination to accept unaccompanied by any external indication will not
be sufficient.

Communication must be communicated to offeror himself

Communication of acceptance of a proposal should be communicated to the
offerer himself. If it is made to any other person, it will be ineffectual as if there
was no communication. Moreover, as held in the case of Felthouse v Bindley, an
offeror cannot say that if no answer is received within a certain time, the offer
shall be deemed to have been accepted.
It is also pertinent that the communication of acceptance should be from a person
who has authority to accept. In Powel v Lee, it was held that information from an
unauthorized person is of no value.

Facts of Felthouse v Bindley

The complainant, Paul Felthouse, had a conversation with his nephew, John
Felthouse, about buying his horse. After their discussion, the uncle replied by
letter stating that if he didn’t hear anymore from his nephew concerning the horse,
he would consider acceptance of the order done and he would own the horse. His
nephew did not reply to this letter and was busy at auctions. The defendant, Mr
Bindley, ran the auctions and the nephew advised him not to sell the horse.
However, by accident he ended up selling the horse to someone else.

Issues in Felthouse v Bindley

Paul Felthouse sued Mr Bindley in the tort of conversion, with it necessary to
show that the horse was his property, in order to prove there was a valid contract.
Mr Bindley argued there was no valid contract for the horse, since the nephew
had not communicated his acceptance of the complainant’s offer. The issue in
this case was whether silence or a failure to reject an offer amount to acceptance.

Decision / Outcome of Felthouse v Bindley

It was held that there was no contract for the horse between the complainant and
his nephew. There had not been an acceptance of the offer; silence did not amount
to acceptance and an obligation cannot be imposed by another. Any acceptance
of an offer must be communicated clearly. Although the nephew had intended to
sell the horse to the complainant and showed this interest, there was no contract
of sale. Thus, the nephew’s failure to respond to the complainant did not amount
to an acceptance of his offer.

Facts of the case (Powell v Lee)

The plaintiff (Powell) was a candidate for the position of headmaster of a school.
The managers appointed him by passing a resolution, but the decision was not
conveyed to him. However, another applicant was notified that he had not been
chosen. One of the members of the managing committee, without authority,
informed the plaintiff of his appointment in his individual capacity. The managers
later rescinded their decision and hired somebody else, and the plaintiff filed a
suit for breach of contract.

Judgement of the Court in “Powell v Lee”

It was held that the school was not liable for breach of contract.

The Court determined that no contract had been formed since the information
from an unauthorized source is just as insufficient as overhearing from behind a
closed door. According to the Court, “When six persons with the capacity to
appoint someone for a post, vote on the matter and decide to designate someone,
they do not establish a concluded contract immediately.” There needs to be
something more to it. The group of persons must reach out (i.e., communicate
their acceptance) to the selected candidate in some way.

Necessity of communication
In case of a specific offer, communication of acceptance must be made by the
acceptor, and to the offerer himself. But in all cases of general offers, it can be
accepted by anyone, who fulfils the condition of the offer.

Acceptance must be absolute and unqualified

Section 7 of the Act provides that ‘In order to convert a proposal into a promise,
the acceptance must be absolute and unqualified. An acceptance with variation
is no acceptance, but simply a counter-proposal which has to be accepted by
original promisor before a contract is made. Partial acceptance of an offer is
only a counter-proposal.

Elements of a Valid Acceptance

1] Acceptance can only be given to whom the offer was made

2] It has to be absolute and unqualified

3] Acceptance must be communicated to the person who made the offer

4] It must be in the prescribed mode

The communication of acceptance has two parts.

A. As against the Offeror: For the proposer, the communication

of the acceptance is complete when he puts such acceptance
in the course of transmission. After this it is out of his hand
to revoke such acceptance, so his communication will be
completed then..
B. As against the Acceptor: The communication in case of the
acceptor is complete when the proposer acquires knowledge
of such acceptance.

Revocation
Instead of attaining the finality of the relationship of a promisor and a promisee,
the contract can come to an end in between only. This action is called the
revocation. In simplest terminology, in the simplest terms means withdrawal.

As per section 5 of ICA,

A proposal may be revoked at any time before the communication of its

acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the

acceptance is complete as against the acceptor, but not afterwards.
Section 6 of the Indian Contract Act, 1872 is about the ways in which a proposal
may be revoked. It can be revoked by:
1. By the communication of notice of revocation by the proposer to the other
party;
2. By the lapse of the time prescribed in such proposal for its acceptance, or,
if no time is so prescribed, by the lapse of a reasonable time, without
communication of the acceptance;
3. By the failure of the acceptor to fulfil a condition precedent to acceptance;
or
4. By the death or insanity of the proposer, if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance.

*********
 Capacity of Contract

According to Section 11, “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 not disqualified from
contracting by any law to which he is subject.”

A person can be disqualified from entering a contractual relationship on the basis of the
following:

1. Disqualification because of infancy

2. Disqualification because of insanity
3. Other methods of disqualification as prescribed by law

Minority

In India, a minor is an Indian citizen who has not completed the age of eighteen years. A minor
is incapable of understanding the nature of the liabilities arising out of an agreement. Hence a
contract with a minor is void ab initio (void from the beginning) and cannot be enforced in a
court of law.

Mohori Bibee vs. Dharmodas Ghose

The respondent, Dharmodas Ghose, a minor, had mortgaged his property in favor of the
moneylender, Brahmo Dutt for securing a loan amounting to INR 20,000/-. Mr. Brahmo Dutt
had authorized Kedar Nath to enter into the transaction through a power of attorney. Mr. Kedar
Nath was informed of the fact that Dharmodas Ghose was a minor through a letter sent by his
mother. However, the deed of mortgage contained a declaration that Dharmodas Ghose was
of the age of majority. The respondent’s mother brought a suit on the ground that the mortgage
executed by his son is void on the ground that her son is a minor.

The relief sought by the respondent was granted and an appeal was preferred by the executors
of Brahmo Dutt before the Calcutta high court. The same was dismissed.An appeal was then
made to the Privy council. The Privy council held that-

a. A contract with a minor is void-ab-initio.

b. Sec.7 of the Transfer of Property Act, 1882 states that a person competent
to contract is competent to transfer a property.
c. Hence, the mortgage executed by the respondent is void.
However, if a minor enters into a contract and performs his part of obligations, the other
party can be compelled to perform and fulfill its obligations, and, in such instances, the
contract becomes legally enforceable.

*Necessities: This aspect is further supplemented through section 68 of the Indian Contract
Act, which deals with the supply of necessities to a person incapable of entering of contract
on their own. Now a minor is unable to enter into a contract of their own and therefore minor
property shall be used in paying the cost of necessities but no personal liability shall be
incurred by the minor. The scope of necessity includes things which minor actually needs and
luxury items can’t be considered as necessary.

Person of unsound mind

Idiots- An idiot, in medical terms, is a condition of mental retardation where a person has a
mental age of less than a 3-year-old child. Hence, idiots are incapable of understanding the
nature of the contract and it will be void since the very beginning.

Lunatic- A person who is of sound mind for certain duration of time and unsound for the
remaining duration is known as a lunatic. When a lunatic enters into a contract while he is of
sound mind, i.e. capable of understanding the nature of the contract, it is a valid contract.
Otherwise, it is void.

Disqualification prescribed by law

Apart from minors and people with unsound minds, there are other people who cannot enter into
a contract. i.e. do not have the capacity to contract. The reasons for disqualification can include,
political status, legal status, etc. Some such persons are foreign sovereigns and ambassadors,
alien enemy, convicts, insolvents, etc.

******
 Consideration
Section 2(d) of The Indian Contract Act, 1872 defines it as follows: “when at the
desire of the promisor, the promise or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is called a consideration for
the promise.”

• Consideration should move at the desire of the promisor: It should be

made at the desire of the promisor and the parties involved in
the agreement. It should not be formed at the desire of the third party.

• Consideration should move from the promisee or any other person:

The contract should move from the promisee in English law but here, in
Indian law, it can move from promisee or any other person. In Chinnayya
v. Ramayya4, A by gift deed transferred some property to her daughter B
whereas she also asked B to pay annuity to A’s brother C. B made in
writing in favour of C giving an annuity. B denied to fulfil her promise and
sued C. As there was no consideration for the C’s words, the court held that
C should maintain the suit.

• Consideration should be real consideration not an illusionary

consideration: The consideration of contract should be real not any
illusionary consideration should be accepted. It should have some value in
the eye of the law and should be legally possible, physically possible and
should be certain consideration.

• Consideration must be either past or present or future:

o Past consideration – The consideration of a contract should be
given in past that is before the date of promise. For ex. A gave some
goods to B on the latter’s desire. After a month, B promised to
compensate A for the goods given to him. This is a past
consideration.
 o Present consideration – The consideration of a contract should be
given at the same point in time while making the promise. For ex.
When a person buys the product and pays at the same time, it will
be considered as present consideration.

o Future Consideration – The consideration of a contract is to pass

subsequently for the making of a contract. For ex. A promised B to
deliver his car after a week and B promised to pay A after 2 days.
Both promises are subsequent here. This will be considered as
Future consideration.

Privity Of contract

It is a general rule that only the parties to a contract can sue or be sued. This rule
is called the privity of contract. The rule of Privity of contract means, that a
relationship subsisting between two parties who have entered into contractual
obligations. Lord Justice Denning has criticized the rule in a number of cases and
has observed that “the privity principle has never been able to supplant another
principle whose roots go much deeper.”

This rule has the following two consequences.

• A person who is not a party to a contract cannot sue upon it even though
the contract is for his benefit and he provided consideration.
• A contract cannot confer rights or impose obligations under it on any other
person other than the parties to it.
 Free Consent
The definition of Consent is given in Section 13, which states that “it is when two
or more persons agree upon the same thing and in the same sense”. So the two
people must agree to something in the same sense as well.

Free Consent has been defined in Section 14 of the Act. The section says that
consent is considered free consent when it is not caused or affected by the following,

(Can U Find Miss Madhuri)

1. Coercion
2. Undue Influence
3. Fraud
4. Misrepresentation
5. Mistake

Elements Vitiating Free Consent

1] Coercion (Section 15)

Coercion means using force to compel a person to enter into a contract. So force or
threats are used to obtain the consent of the party under coercion, i.e it is not free
consent. Section 15 of the Act describes coercion as

• committing or threatening to commit any act forbidden by the law in

the IPC
• unlawfully detaining or threatening to detain any property with the
intention of causing any person to enter into a contract

2] Undue Influence (Section 16)

Section 16 of the Act contains the definition of undue influence. It states that when
the relations between the two parties are such that one party is in a position to
dominate the other party, and uses such influence to obtain an unfair advantage of
the other party it will be undue influence.
The section also further describes how the person can abuse his authority in the
following two ways,

• When a person holds real or even apparent authority over the other
person. Or if he is in a fiduciary relationship with the other person
• He makes a contract with a person whose mental capacity is affected
by age, illness or distress. The unsoundness of mind can be temporary
or permanent

3. Fraud (Section 17)

Fraud means deceit by one of the parties, i.e. when one of the parties deliberately
makes false statements. So the misrepresentation is done with full knowledge that
it is not true, or recklessly without checking for the trueness, this is said to be
fraudulent. It absolutely impairs free consent.

So according to Section 17, a fraud is when a party convinces another to enter into
an agreement by making statements that are

• suggesting a fact that is not true, and he does not believe it to be true
• the active concealment of facts
• a promise made without any intention of performing it
• any other such act fitted to deceive
4] Misrepresentation (Section 18)
Misrepresentation is also when a party makes a representation that is false,
inaccurate, incorrect, etc. The difference here is the misrepresentation is innocent,
i.e. not intentional. The party making the statement believes it to be true.
Misrepresentation can be of three types

• A person makes a positive assertion believing it to be true

• Any breach of duty gives the person committing it an advantage by
misleading another. But the breach of duty is without any intent to
deceive
• when one party causes the other party to make a mistake as to the
subject matter of the contract. But this is done innocently and not
intentionally.

5.Mistake

a. Mistake of Law
When legal provisions are the subject matter of misunderstanding between
contracting parties, it is referred to as Mistake of Law. Now, the party can be
confused regarding the law of the home land or law of a foreign land. In the cases
where any contracting party pleads no knowledge of the laws of the home land,
the contract cannot be avoided for such an excuse is not considered to be valid.
However, if the subject matter of confusion is foreign laws, the contracting party
can be excused from the contract in the case of lack of knowledge of such laws.

b. Mistake of Fact
When the subject matter of misapprehension are the clauses or terms of the
contract, it is said to be a mistake of fact. The misunderstanding can be on the
part of one party or both.

Bilateral Mistake: When a matter of fact is the subject matter of

misunderstanding for both the contracting parties, the agreement is said to be
void.
Unilateral Mistake: When a matter of fact is the subject matter of
misunderstanding for one of the contracting parties, the agreement stands to be
valid. Only when the party is mistaken about the parties to agreement or nature
of the transaction, the agreement becomes void.
 Void Agreements

1. Agreements which have unlawful consideration and/or

objectives in whole or in part [Sec 24]
2. Agreement without consideration [Sec 25]
3. Agreement which is in restraint of marriage [Sec 26]
4. Agreement which is in restraint of trade [Sec 27]
5. Agreement which in restraint of legal proceeding [Sec 28]
6. Unmeaning agreement [Sec 29]
7. Agreements which are wagering in nature [Sec 30]
8. Agreement to do impossible act [Sec 56]

Section 24

This section states that if the consideration or the objective of the contract in
whole or in part is unlawful then the agreement shall be considered as void
agreement. The working philosophy behind this section is that if the unlawful
clause can be severed out from the contract, then the whole contract is not
regarded as void but only the unlawful part shall be regarded as void and the
rest of contract is deemed as valid, but if the unlawful clause cannot be
separated from the legal part then the whole contract shall be deemed as
illegal.

Eg: If A promise to B to pay Rs 5000 in return of having an adulterous

relationship with him and also working as a maid in his house. So in this case,
the unlawful part-having adultery relationship with A shall be considered a void
agreement and since it can be severed from the rest of the contract of working
as a maid, so the rest of the contract shall be deemed as a valid one.

Section 25

An agreement without consideration is void unless

1. it is in writing and registered and the promise has been made due to natural
love and affection between the parties standing in near relation to each other.
2. it is a promise to compensate, wholely or in part, a person who has voluntarily
done something for the promisor or something that the promisor was legally
bound to do.
 3. it is a promise to pay for a time-barred debt.

Section 26
This section states that any agreement which interferes with the marital life any
other person shall be considered as avoid agreement. This restraint can either be
partial or general in sense, a party may be restraint from marrying for a particular
period of time, or from marrying class of person or particular person or from
marrying at all or he may be restraint from.

Section 27
This section states that any agreement which obstructs any person from
exercising his right to undertake any profession or trade, then that
agreement shall be considered as a void agreement. The freedom of
trade and commerce is a fundamental right given by the constitution
under Art 19(1).

So just like legislature can’t take away any individuals right to

undertake any profession similarly no individual can take ay the right
through the medium of any agreement. The basic principle of law is
that every person shall have the freedom to work for his self-fulfilment
and no contract shall deprive him of his right & liberty to work for
himself.

In the case of Madhub Chander v Raj Commar, the plaintiff and the defendant were
the rival business. The defendant wanted to reduce the competition offered a certain
amount of money to the plaintiff so that he would close the business in that locality.
So the plaintiff agreed to do so and once he has closed his shop that the defendant
declined to pay any sort of money.
So plaintiff has filed suit against the defendant for the recovery of the amount stating
this case won’t come under section 27 of the Act as the restraint was only partial as
he was asked to stop business in one locality only where else the Act talks about
complete restraint.

The court held that the agreement was void and said that the restraint as stated in the
section doesn’t always mean absolute restraint but also implies partial restriction a
restriction limited to a place.

There were two exceptions to this rule: –

Sale of goodwill
This principle states that the person when one person sells goodwill of his
business to another person, then that person can impose certain restrictions to
the seller like restricting him from carrying business of similar nature in the
same locality.

Partnership Act

There are 3 provisions in partnership Act which allows for the agreement which
restrains the trade. Section 11 of the partnership Act, states that none of the
partners shall carry on any business until the continuity of the partnership.

Section 36 of the Partnership Act allows the remaining partners to restrict the
outgoing partner from opening business of similar nature within specified locality
provided that the restrictions are reasonable. Similarly, section 54 of the
Partnership Act states that in the event of the dissolution of the partnership, a
similar agreement may be entered into by all the partners by which they may
restrict themselves from opening business of a similar nature to that of the
dissolved partnership firm.

This section states that any contract which either absolutely restricts any party
from enforcing his right to a legal proceeding or which restricts the person right
to a legal proceeding after the expiry of a certain time period shall be considered
as a void agreement. Right to appeal doesn’t come under the purview of this
section.

Any agreement which restricts the time period within which claim can be filed in
the court so as to shorten the period than what has been prescribed by the
Limitation Act 1963 shall be deemed as a void agreement.

Exception:Future disputes to arbitrations

This section won’t render any agreement as void if it has a clause by which both the
parties come to the conclusion that any future disputes shall be resolved by referring
the case to the arbitration and any amount awarded shall be recovered from the
contesting party.

Section 29 of the act

This section states that any unclear or ambiguous agreement whose meaning can’t
be made certain of then such agreements shall be deemed as void agreement. For
example, if A enters into an agreement with B where he says that deliver a certain
amount of wheat to his place of business.

Now contract shall be deemed as a void one in case B has multiple places of business
then it creates confusion on the mind of B regarding the delivery place. Another case
is where a car was brought from the seller for a Rs 1, 00,000 with provision to earn
more if the car is found to be lucky. The agreement was deemed as void as “lucky” is
a very subjective term and its impact can’t be assessed objectively
Section 30 of the Act
The section stipulates that when two people enter into an agreement that if some
future uncertain events happen then the first party will pay the pre-decided
amount to the second person and if the future event doesn’t happen then the
second person will pay the pre-decided amount to the first person.

It’s basically a “bet” between two parties where the first party predict that
situation A will happen and the other party denies that outcome. For example, if
a cricket match is going on between India & Pakistan, A says that India will win
and B says that Pakistan will win.

So in this case, both are predicting the happening of some future uncertain events
and if A wins B have to pay and vice versa. So contracts like these are termed
as the wagering contracts which are deemed as void.

The essential characteristics of a wagering contract are as follows:-

Uncertain events
The first and foremost feature of a wagering contract is that it’s based on a future
uncertain event. It may also be regarding any past event which has already
happened but parties to the contract are unaware of it.

Mutual chances of loss or gain

In a wagering contract, each party shall have the chance to either win or lose the
bet. If there is no such mutual chance of gain or loss then there is no wager.

Neither party to have control over the event

None of the parties shall have any control over the outcome of the event. If one
of the parties can control the outcome, then the control no longer is deemed as a
wagering contract.

No other interest in the event

Neither party should have any other interest except for the stake to win or lose.

The section also provides for some exceptions which are as follows:-

Horse race
Any wagering contract relating to the horse race shall not be deemed as a void
agreement as per the exception provided in the section.

Crossword & lottery competitions

If any game requires skill or if skill plays a substantial part in the results and
prizes are awarded as per it then the competition is not a lottery, but otherwise it
is. So a literary competition which requires skill shall not be considered as a
wagering contract. But competitions where the winner is decided upon a chance
then that is a lottery and it shall be regarded as the wager.

Section 56 of the Act

This section stipulates that any contract which has been entered to undertake any
impossible activity shall be considered as a void contract. The act further states
that if when the contract was entered objective of the agreement wasn’t
impossible but with the due course of time the objective became impossible then
also the fulfilment of the contract isn’t necessary.

This section, in essence, talks about the “Frustration” of contract. It stipulates that the
performance of the contracts becomes impossible because of the disappearances of
the subject matter. In the case of Krell v Henry, the defendant hired a room from
plaintiff for 2 days as the coronation possession of the king would pass along that
road. And in that effect certain part of the rent was pre-paid. But the possession was
cancelled as the king fell sick. So the defendant refused to pay the full amount of the
contract.
It was held that the main object of entering into the contract was to have the view of
the coronation possession. So happening of the possession was the foundation of the
contract. The objective of the contract was frustrated as the possession was
cancelled so the defendant wasn’t liable to pay the rest of the rent.

So the contract can be frustrated in two types of situations:-

1. First, where the performances are physically impossible

2. Second, where the objective of the contract has failed.
3.
The Supreme Court of India has stated that this doctrine shall be applicable in both
types of frustration. In the case of Satyabrata Ghosh v. Mugneeram Bangur, the court
held that “…the performance of an act may not be literally impossible but it may be
impracticable and useless from the point of view of the object and the purpose which
the parties had in view & if the untoward event of circumstances totally upsets the
very foundation upon which the parties rested their bargain then it can be very well
said that the promisor finds it impossible to do the act which he promised to do.”
 Contingent Contracts

Contingent contracts as defined in section 32 of the Act, states

“A contingent contract is a contract to do or not to do something if some event
collateral to such contract does or does not happen.”
So the section states that contingent contracts are those contracts whose fulfilment
depends upon the occurrence of some event, which is collateral to the contract.
The contracts like A shall pay B if his horse dies. Now, this contract depends
upon the happening of the even (dying of the horse) which is collateral to the
fulfilment of the contract. B shall get the money only when his horse dies not
before that. So since the fulfilment of the contract is dependent on some event,
so this will be a contingent contract.
Eg:
Contract of Insurance;
Contract of Indemnity; and
Contract of Guarantee.

Essential Elements of Contingent Contract

• There must be two persons/parties.

• There must be an uncertain future event, which must be collateral to the
contract.
• The parties may have some control over the event, but not absolute
control.
• There may or may not be reciprocal promises between the persons.
• Third persons may be interested in the contract, for example, as
beneficiaries.

Enforceability of Contingent contract

Contingent contracts become enforceable and valid when the event conditional
to it occurs. If such event does not occur within the specified time or becomes
impossible to occur, it ceases to be enforceable.
Quasi-contract
Quasi-contract, also known as an implied contract, is a concept in the law of
contracts that allows the court to enforce an agreement between parties even
though they have not entered into an express contract.

Quasi-contracts are created to do justice and prevent one party from unjust
enrichment. They are based on the principle of nemo debet locupletari ex aliena
jactura which translates to “no man should grow rich out of another person’s
loss”. This type of contract is not created by mutual agreement between the
parties but rather is imposed by law to prevent one party from being unjustly
enriched at the expense of another.

Breach of contract

The breach of contract may be either of the two types:

Actual breach – i.e. non-performance of the contract on the due date of

performance; or
Anticipatory breach – i.e. before the due date of performance
1. Rescission of the Contract
Example

A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for
two nights in every week during the next two months, and B engages to pay her
Rs. 100 for each night’s performance. On the sixth night, A wilfully absents
herself from the theatre, and B in consequence, rescinds the contract. B is entitled
to claim compensation for the damage which he has sustained through the non-
fulfilment of the contract.

2. Damages for the loss sustained or suffered

Example

A railway passenger’s wife caught cold and fell ill due to her being asked to get
down at a place other than the Railway Station. In a suit by the plaintiff against
the railway company, held that damages for the personal inconvenience of the
plaintiff alone could be granted, but not for the sickness of the plaintiff’s wife,
because it was a very remote consequence.

3. A decree for specific performance

Specific performance will not be granted where:

• Monetary compensation is an adequate relief.

• The contract is of a personal nature, e.g., a contract to marry.
• Where it is not possible for the Court to supervise the performance of the
contract, e.g., a building contract.
• The contract is made by a company beyond its objects as laid down in its
Memorandum of Association.

4. An injunction
Examples

(1) G agreed to buy the whole of the electric energy required for his house from
a certain company. He was therefore, restrained by an injunction from buying
electricity from any other person.

5. Suit on Quantum Meruit

A argument on quantum merit is a redress for a breach of contract open to an
injured party against the guilty party. Literally, the term quantum merit means “as
much as is earned” or “in proportion to the job done.” A right to use on quantum
merit typically occurs if there is a breach of contract after part performance of the
contract by one party, or the contract is considered invalid or becomes void. This
remedy for breach of a contract will be used either without claiming damages (i.e.
claiming fair compensation only for the work done) or in addition to claiming
damages for the violation (i.e. claiming reasonable compensation for the
performance of the part and damages for the remaining part not performed).