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Module 1

Definitions Classifications of Contracts Essential Elements of a Valid Contract Discharge of a Contract Contingent contracts


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 or OFFER A proposal, when accepted, becomes a PROMISE of the offeror When a person to whom the proposal is made, signifies his assent thereto, the PROPOSAL is said to be ACCEPTED The person making the proposal is called the "PROMISOR", and the person accepting the proposal is called "PROMISEE


A CONTRACT is an agreement enforceable by law

CONSIDERATION- advantage/benefit from 1 party to other - Agreement is enforceable when both parties give something & get in return

Consensus ad idem- meeting of the minds


PRESENT at the desire of the promisor, the FUTURE Consideration Consideration promisee 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;

PAST Consideration


promise and every set of promises, forming the consideration for each other, is an AGREEMENT;


An agreement enforceable by law is a CONTRACT Therefore CONTRACT = Agreement + Enforceability by Law. AGREEMENT = Offer + Acceptance + Enforceability by Law


Offer & acceptance Intention to create Legal relationship Lawful consideration Capacity of parties Free & genuine consent Lawful object Certainty & possibility of performance Legal Formalities

CLASSIFICATIONS OF CONTRACTS E.g., agreement with minor or an agreement without


consideration is void-ab-initio

VOIDABLE CONTRACT: here essential element of FREE Consent is missing, i.e. by coercion, undue influence etc VOID AGREEMENT: An agreement not enforceable by law is said to be void. A void agreement does not create any legal right or obligation. Such agreement is void-ab-initio from the beginning itself. Ex: Mr. B borrows Rs.5,000 from Mr. A and enters into a

contract with an alien to import prohibited goods. Mr. A VOID CONTRACT:knows A contract to beof enforceable by law becomes void when it of which the ceases purposes agreement. The transaction ceases to be enforceable. In this case when the contract was entered into, may valid between Mr. B and Mr. A is collateral to the be main and binding on the parties as per law, but subsequently it has become void. E.g., in the agreement. It is illegal since the but main agreement is illegal. case of import contract, the agreement is enforceable, if subsequently war brakes out
then the agreement becomes void contract. ILLEGAL AGREEMENTS: an illegal agreement is one, which transgresses (against) some basic rule of Public Policy or is of criminal in nature or is immoral. ALL ILLEGAL AGREEMENT IS VOID, BUT ALL VOID AGREEMENTS ARE NOT ILLEGAL. An illegal agreement is not only void between the immediate parties but has its further effect that even the collateral transactions to it become tinted with illegality. A collateral transaction is one, which is subsidiary, incidental or auxiliary to the principal contract. UNENFORCEABLE CONTRACT: An unenforceable contract is one which cannot be enforced in a court of law because of some technical defect such as absence of consideration or absence of contract in writing. The parties to the contract may fulfill their obligations but in the event of breach of contract the other party cannot enforce it.

Case Law: a fire broke out in Ss firm. He called upon the CLASSIFICATIONS OF CONTRACTS upton fire brigade to put out the fire which the latter did. Mr. S

firm did not come under the free service zone although he BASED ON FORMATION: believes to be so. Held, he was liable to pay for the service rendered, since the services was rendered on the implied promise to pay (Upton Rural District Council vs. Powell)

Express contracts: If the terms of the contract are expressly agreed upon (whether by words spoken or written) at the time of formation of contract. Example Trader leaves the goods at Mr. A s house by Implied contracts: in this case the contract comes into existence by the acts or conducts of the parties -E.g., Getting into a Public bus.
mistake. Mr. A treats the goods as his own. Mr. A is bound to pay for the goods.

Quasi contract: These are not contracts. A contract is one, which is entered into, with the consent of the parties to the contract. A quasi contract is one, which is created by law. It is based on the principle that a person shall not be allowed to enrich himself unjustly at the expense of another. E-commerce Contract- this contract is entered between 2 parties via internet


Example Mr. A entered into a contract with the porter for lifting his 5 bags. Porter agreed and lifts all the 5 bags for Rs. 100. So here the porter has lifted the bags and Mr. A has paid him.

Example Mr. A entered into a contract with the porter for lifting his 5 bags. Porter agreed to lift all the 5 bags Executed Contract: contract inthe which both the parties to for Rs.A 100. So here porter has not lifted the bags and Mr. A has not paid him. their share of the contract have completely performed

obligation and nothing remains to be done by either of the parties

Executory Contract: A contract in which both the parties or any one party to the contract has to still perform their share of obligation

Unilateral Contract where any one party to the contract has to still perform their share of obligation Bilateral Contract - where any both the parties to the contract has to still perform their share of obligation


All agreements are contracts if they are made with:

and Acceptance Intention to create a legal relationship Lawful Consideration Capacity of the Parties Free Consent Lawful Object Certainty and Possibility of Performance Legal formalities
If any of the above is missing, the contract becomes void.

ESSENTIAL ELEMENTS OF A E.g., Mr. A has 3 cars. He asked Mr. B are you ready VALID CONTRACT - OFFER AND to purchase my car for Rs. 2 lakhs.

must be minimum two parties to an agreement.

one party making the offer (also called as offerer/proposer/promisor) and the other accepting it (also called as offeree/proposee/promisee/acceptor)

terms of offer must be definite must be unconditional.



An offer is a proposal by one party to another to enter into a legally binding contract with him A says to B-will you buy my House Here _____is making a Offer? Person making the offer-offeror/ Proposer/promisor Person to whom offer madeOfferee/Proposee

E.g., When to B, Will you purchase my house OFFER -A says KINDS OF OFFER:

at Chennai for Rs. 3 lakhs. . E.g., When a transport company runs a bus on a particular route, there is an implied offer by the transport co. to carry passengers for a certain fare. The acceptance of the offer Expressed offer-as When offer is made by express is complete soon as a passenger boards the bus. spoken

or written words

Implied offer - An offer may also be implied E.g., If Mr. A asks to B, for his blue car for from Rs. the conduct of the 2,00,000/-, parties or the circumstances of the case. Mr. C cannot accept the offer. Specific offer - When an offer is made to a definite person, it is said to be Specific Offer. It can accepted by the E.g., Information aboutbe thief of a certain shop. person to whom it is made. General offer When an offer is made to the world at large

Case Law: A hotel put a notice in a bed room, exempting the proprietor from liability Case Lalmann E.g., Mr. v/s A Gauri has 3 Duttcars. E.g. He asked G sent Mr. his Bservant are you L in ready search to of for loss of Law: clients goods. Held, the notice was not effective as it came tohis the missing nephew. purchase Subsequently my car for G announced 2 lakhs. aoffer reward is not for definite. information knowledge of the client only when theRs. contract to The take a room had already been The offer must be given with an intention to create legal relationship concerning the boy. L brought back the missing boy, without the knowledge entered into. A social invitation even if it is accepted, does not create a legal relationship of reward. It was held that there was no contract between L & G and the because it is not intended so. reward cannot be claimed. P deposited a bag in the cloak room of a railway station. On the face of the ticket, issued to him, was written see back. One of the printed conditions limited the The terms of the offer must be definite : the terms of the offer must be liability of the company for loss a be package to Rs.10/The definite and certain and must of not ambiguous or vague. bag was lost and P claimed Rs. 24.50/- as its value. Held, P was bound by the conditions on the back of the ticket even if he had not read.


Offer must be communicated: an offer to be complete must be communicated to the person to whom the offer is made. Mere by acting to the terms of the his offer without knowledge, cannot be treated accepted. Eg: A offers black kinetic to B for the Rs. offer 20,000/and tells him as that if I An acceptance of offerFrom in ignorance of offer is no acceptance and does not dont here anything. you within 15 days, I will assume that you confer any right on the acceptor.

have accepted my offer. This offer is not valid

Offer may be conditional: When the offer is subject to conditions, they must be clearly communicated to the offeree. If the person accepts the offer without the knowledge of the conditions the offeror cant claim the fulfillment of conditions. But the conditions are clearly expressed, then offeree can plead ignorance. Offer must not contain a term that non-compliance of which may be assumed to amount to acceptance: the person making the offer cannot say that if acceptance is not communicated by a certain time, the offer would be considered as accepted statement of price is not an offer: a mere declaration of intention or a a


There is a clear difference between offer, invitation to offer or an announcement: An announcement: a declaration by a person that he intends to do something gives no right of action to another. Such a declaration only means that an offer will be made or invited in the future and not that an offer is made now. E.g., Auction sale, will, etc.

Eg: A invites tenders for the supply of 100 bricks. X, Y, and Z Eg; a railway Co. invited tender for certain Iron articles which the offer Tender. A accepts the tender by X. There is An invitationsubmit to make : display by thegiven shopkeeper with a it might require over of a goods year. Ws tender was accepted. He contract between Agives and X price marked on it does not binding make an offer, but merely an invitation to supplied goods for some time. He refused to supply at a later the public to make an offer to buy the goods at the price marked on it. E.g., time. But the contract is binding onissued W quotations, catalogues, advertisements, prospectus by the company,

Tender is an offer to the invitation of an offer. (public ad).

Tender can be definite offer to supply specified goods and services. Tender can be standing offer- continuing offer. The acceptance of standing offer means that as & when G & s are needed, an order is placed with person who submitted tender & each time a distinct contract is made



a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be accepted.

proposal, when accepted, becomes a promise may be implied or expressed. In express acceptance, while that given by conduct is termed as implied acceptance.



Eg; A offers his car to B for Rs. 50,000/- B accepted the offer and paid Rs.46,000/-. This is no acceptance Case Law: on 08th June, Mr. M offered to take shares in R Co. He received a letter of acceptance from R Co. on November 23. He refuses to take the shares. Eg: a makes an offer to Bhis and says iflapsed you accept the offer Held, Mr. M, was entitled to refuse, as offer has as the reasonable Unconditional - An acceptance in order to be binding must be reply by wire. be B sends the reply by post. It is not a valid period during which it unconditional. could accepted had elapsed (Ramsgate Victoria absolute/complete and The acceptance must be to all terms acceptance. Hotel Co., vs. Monteflore) of offer.

Communicated to the offeror Must be given in the prescribed mode - if the acceptance is not according to mode prescribed, or some usual or reasonable, there is no contract. Company allotted the shares to a person who had not Given in a reasonable time - iffor any timeSubsequently, limit is specified, the applied them. when he applied for acceptance must be given within If no time previous limit is specified by Thus, shares he that was time. unaware about allotment. the offeror, then it must be given within a reasonable time and it depends allotment previous to application is invalid on the facts of the case Must be given by the parties, to whom the offer is made - When an offer is made to a particular person, it can be accepted by him alone. If it is accepted by another person, there is no valid acceptance Must be given before the offer lapses or withdrawn It cannot precede an offer, if acceptance precedes offer it is not vald. Once the offer is rejected it cannot be accepted by the offeree, unless the offeror renews the offer It cannot be implied for the silence - the acceptance of an offer cannot


I. By communicating the notice of revocation - Offeror can give notice of revocation to offeree but before the acceptance is complete as against him.

e.g., At an auction sale, A makes the highest bid of Bs goods. He withdraws the bid before the fall of the hammer. The offer has been revoked before its acceptance.

II. Lapse of Time - If the time is fixed in the offer then offer revokes at a fixed time is over, otherwise after the reasonable time.

e.g., A seller on Thursday offered wool to a purchaser and gave him 3 days time to accept. The purchaser accepted the offer on Monday, by that time A had sold the wool. Held, the offer had lapsed.

III. By non-fulfillment by the offeree of a condition precedent to acceptance

E.g., S a seller agrees to sell certain goods subject to the condition that B, the buyer, pays the agreed price before a certain date. S had sold the wool. If before the date buyer did not pay then the offer is revoked.

IV. By death or insanity of the offeror provided the offeree comes to know it before acceptance. But If he accepts an offer

V. By counter offer - When offer is accepted with some modifications in the terms of the offer, then it amounts to counter offer. By putting counter offer the original offer comes to an end.

E.g. A asks B, Are you ready to purchase my flat for 10 lakhs. B asks A, Are you ready to sell it to Rs. 8 lakhs. Bs question to A is a counter offer. E.g. An offeree agreed to accept half the quantity of goods offered by the offeror on the terms and conditions as would have applied to the full contract. Held, there was no contract as there was a counter offer to the offer.

VI. If the law is changed. An offer comes to an end if the law is changed so as to make the contract contemplated by the offer illegal or incapable of performance. VII. Destruction of subject matter: - A offers B his cow for Rs. 4500/- In the mean time, the cow dies due to snake bite. The offer is lapsed. Rejection of offer: - An offeree may reject the offer. Once he does that he cannot subsequently accept it. Rejection of the offer may be express or implied.

Express Rejection: The offeree may reject the offer expressly, i.e., by words written or spoken. This is effective only when notice of rejection reaches the offeror. Implied Rejection: Rejection of the offer is implied by law- where the offeree
makes a counter-offer or where the offeree gives a conditional acceptance


E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 10th July. It reaches B on 12th July. The communication of the offer is complete when B receives the letter, i.e., on 12th July.

The communication of a proposal is complete- when it comes to the knowledge of the person toby whom itsent is by post on E.g., in the above case, when B accepts As Proposal, a letter made. 13th instant. The letter reaches on 15th instant. The communication of acceptance
is complete, as against A, when the letter is posted, i.e., on 13th, as against B, when the letter is received by A, i.e., on 15th.

The communication of an acceptance is complete as against the Proposer, when it is put in a course of transmission to him so at to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the Proposer

Revocation means taking back or Withdrawal or cancellation.



E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 15th May. It reaches B on 20th May. A revokes his offer by a telegram on 19th May. The telegram reaches B on 21st May. The revocation is complete as against A when the telegram is dispatched, i.e., on 19th May. It is complete as against B when he receives it, i.e., on 21st May.

communication of a revocation is complete -as against the person who makes it (i.e. for the revoking party), when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; (i.e. when the letter of revocation is posted.) the opposite party) as against the person to whom it is made, when it comes to his knowledge (when the letter


TIME FOR REVOCATION OF PROPOSALS AND Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. the letter is posted on the 1st of the month. Mr. B accepts the proposal by a ACCEPTANCE
letter sent by post on the 4th. The letter reaches Mr. A on the 6th.

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not Mr. afterwards. A may revoke his offer at any time before Mr. B posts his letter of

acceptance, i.e., 4th but not afterwards Mr. B may revoke his acceptance at any time before the letter of acceptance An acceptance reaches Mr. A, i.e., 6th, butmay not afterwards be revoked at any time

before the communication of the acceptance is complete as against the acceptor, but not afterwards.



is complete as against the offeror as soon as the letter of acceptance is posted. contract is complete even if the letter of acceptance goes astray or is lost through an accident in the post. in order to bind the offeror, it is important that the letter of acceptance is correctly addressed, adequately stamped and posted, the acceptance is not complete





A proposal is revoked (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 fulfill a condition precedent to acceptance; or (4) by the death or insanity of the Proposer, if the fact of the death or insanity comes to the knowledge of the acceptor before acceptance.


When a party to an agreement promises to do something, he must get something in return.

E.g., A agrees to sell his car to B for Rs.15000/-, for As promise the consideration is Rs.15000/- in and for Bs promise the consideration is the car. This something return is defined as

consideration. .


Move at the desire or request of promisor - An act constituting consideration must have been done at the desire or request of the promisor, if it is done at the desire of the third party or without the of the promisor it will not be a good consideration. E.g., A desire borrows Rs. 20,000/from B at a rate of 10% p.a. but A fails to pay the amount.

B is now about to file a suit and A agrees now to pay a higher rate of interest. B agrees for It maya move from the Promisee is ora any other Person This means that as long as there is a not filing suit.for This forbearance valid consideration. consideration a promise it is immaterial who has furnished it. But a stranger to the consideration
will be able to sue only if he is a party to the contract

It may consist of an Act or Abstinence (means not doing something) Consideration can be past, present or future It need not be adequate - Consideration as said something in return and something this something in return need not be equal in value to Something given. The law requires that the contract must be supported by consideration and not the adequate consideration. Must be real & not illusionary - There is no real consideration in the following cases: Physical impossibility: A promises to put life into Bs dead wife on the consideration of Rs.999. As promise is physically impossible to perform. Legal impossibility: A owes Rs.500 to B, he promises to pay Rs.50 to C, the servant of B, who CL: There was ato promise to pay the This vakil an additional sum ifC the suit was inreturn promise discharge A from theto liability. is legally impossible, because cannot dischargeE.g., A from the debt due to B.was void for the want of consideration. The vakil supari to kill someone. successful. Held, the promise Uncertain consideration: A engages B for doing certain work and promises to pay a some. There is no recognized obligation method of ascertaining the the Reasonable Some. The was Reasonable under a pre-existing contractual to render best of his services promise is unenforceable due to uncertainty. under the original contract. (Ramachandra Chintaman vs. Kalu Raju) Should not be illegal - the consideration given for an agreement must not be unlawful. A consideration to the contract must not be against Public Policy, Immoral and illegal It must be something which the promisor is not already bound to do: a promise to do what one is already bound to do, either by general law or under an existing contract, is not a good consideration for the new promise, since it adds nothing to the pre-existing legal or contractual obligation.

EXCEPTION TO THE RULES OF Eg: On a birthday party of A, his father Mr. B promises to give him Rs. 10000/-. Mr. B puts his promise in writing and gets it registered it. It is a CONSIDERATION
valid consideration.

Where an agreement is expressed in writing and registered under the law for the time being in force for the registration of the documents and is made on account of natural law and affection between parties standing to the near relation to each other, it is enforceable even if there is no consideration Promise to pay a time-bared debt: A promise to pay a time-bared debt by the debtor is enforceable provided it is made in writing and signed by the person to be charged therewith or by his agent. The debt must be such of which the creditor might have enforced payment but for the law for the limitation of suits Completed gifts Compensation for the past voluntary services Charitable subscription


Completed gifts

rule No consideration, no contract does not apply to completed gifts. In order to attract this exception there need not be natural love and affection or nearness of relationship between donor and donee. The gift must, however, be complete.

Compensation for the past voluntary services - is binding.


P finds Ss purse and gives it to him. S promises to give P Rs. 100/- This is a contract i.e., A promise, to compensate, wholly or in part, a person, who has already voluntarily done something for the promisor, is enforceable, even though without consideration.


Contribution to Charity:

A person to contribute to charity , though gratuitous, would be enforceable, if on the faith of the promised subscription, the promisee takes definite steps in furtherance of the object and undertakes a liability, to the extent of liability incurred, not exceeding the promised amount of subscription. E.g. The defendant had agreed to subscribe Rs. 100/towards the construction of a Town hall at Howrah. The plaintiff (secretary of the town hall) on the faith of the promise entrusted the work to a contractor and undertook liability to pay him. The defendant was held liable. But where the promisee had done nothing on the promise, a promised subscription is not legally recoverable. E.g. The defendant promised to subscribe Rs. 500/- to a fund started for rebuilding a Mosque but no steps had been taken to carry out the repairs. The defendant was held not liable and the suit was dismissed.


Every person is competent to contract who is of:

the age of majority according to the law to which he is subject, sound mind, and is not disqualified from contracting by any law to which he is subject.

Section 11 declares the following persons to be incompetent to contract.

Minors Persons of unsound mind Persons disqualified by any law for the time being in force. Idiot Lunatic with unsound mind Alien enemy Convicts

MINOR - MEANING Minors: according to Section 3 of the Indian Majorities Act, 1875, a
Where a guardian of a minors person or property has been appointed under the guardian and wards Act, 1890, or

minor is a person who has not completed eighteen years of age. In the following two cases, he attains majority after twenty one years of age:

Where the superintendence of a minors property is assumed to be court of wards.

The rules governing minors agreements are based on two fundamental rules:

The first rule is that the law protects minors against their own inexperience and against the possible improper designs of those more experienced. The second rule is that, in pursuing the above object, the law should not cause unnecessary hardship to person who deals with minors.

contract, though M may, if he likes. (Sharafat v/s Noor Mohd) An agreement with minor is void-Ali ab-inito: Case law: M, A minor, borrowed Rs.5000/- from L and executed a Promissory He can be a Promisee or a Beneficiary: incapacity of note in favour of L. into after a attaining the majority, he executed another Promissory minor to enter contract means incapacity to bind himnote in settlement of the first note. The second Promissory note is void for the self by a contract. There is nothing that debars him from want of consideration. (Indran Rama Swamy v/s Anthiappa being a beneficiary. Such contract may be enforcedChettiar) at the option of the minor and not the other party. Minor cannot ratify his contract, on attaining majority: Consideration which passed under earlier contract cannot be implied into the contract which the minor enter on attaining the majority. Thus consideration given during the minority is no consideration. If it is necessary a fresh contract may be entered into by the minor on attaining the majority provided it is supported by a fresh consideration He can always plead minority: even if he has, by misrepresenting his age, induced the other party to contract with him, he cannot be sued either in contract or in tort for fraud because if the injured party were allowed to sue for fraud, it would be giving him an indirect means of enforcing the void agreement.

Remember in the case we discussed, a minor mortgaged his house in favour of a money lender to secure a loan of Rs.20, 000/- Subsequently the minor sued for Case law: M, Aged 17, agreed tothat purchase a second hand scooter setting a side the mortgage, stating he was underage when he executed the for Rs.5000/mortgage. Held, the mortgage was void and, was cancelled. Further the next day from N. he paid Rs.200/as advance andtherefore, agreedit to pay the balance the money lender requested repayment the amount advanced the day, N told him and collect the scooter. When for hethe came with of the balance moneyto next minor as part of the consideration for the mortgage was also not accepted (Mohiri that he has changed his mind and offered to return the advance. N cannot avoid the Bibi vs. Dharamodas Ghose)



Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable to refund the loan not only that, even his mortgaged property cannot be made liable to pay the debt.

If he has received any benefit under a void agreement, he cannot be asked to compensate or pay for it : section 65 which provides for restitution in case of agreements discovered to be void does not apply to the minor There can be no specific performance of the contract with minor, since agreement with minor is void-abinito: Cant file a suit for specific non performance . But if a contract is entered into on his behalf by his Parents / guardian then the same can be enforced by or against the minor provided the contract is (a) within the scope of the authority of the Parent / guardian, and (b) for the benefit of the minor. He cannot enter into a contract of Partnership: a minor can be admitted as a beneficiary of Profits of a Partnership firm already in existence, with the consent of all the existing Partners. But he cannot be admitted as a Partner He can be an agent: an agent is merely connecting link between Principal and third Party. The movement the Principal and third party comes into contract with each other, the agent drops out with any personal liability, hence a minor can act as agent.


His Parents / guardian are / is not liable for the contracts of the minor: the exemption to this rule is that where the minor act as an agent of his Parent / guardian, the Parent / guardian shall be liable for his acts. He cannot be as an insolvent. Case law: G, a adjudged minor, entered into a contract

with R, a noted billiards player, to pay him certain sum of money to learn the game and play matches with him during his tour. spent time and money in making arrangements for billiards Heworld cannot be R a shareholder in a Company. matches. Held, G was liable to pay as the agreement was one for necessaries as it was in effect for teaching, instructions and employment and was reasonable He can be member in a Trade union: A Person who attained the age of and thecan benefit of the infant. (Robarts v/s Gray) 14 for years be admitted as a member.

Minors liability for necessaries: a minor is liable to pay out of his property for necessaries supplied to him or to anyone whom he is legally bound to support (Section 68). The claim arises not out of contract but out of what are called Quasi-Contracts. Again it is only the property of the minor, which is liable for meeting the liability arising out of such contracts. He is not personally liable.


A person is said to be of sound mind for the propose of making a contract, if, at the time when he makes it, he is capable of understanding the terms of the contract and To form a rational judgment as to its effect upon his interest. Therefore, if both of the above is not satisfied, then is a person suffering of unsound mind.Eg: Idiots Lunatics Drunkards A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind


Lunatic is a person who suffers from intermittent intervals of sanity and insanity. All agreements made by lunatics during intervals of sanity are valid Property of lunatic is liable for necessities of life contracts but a lunatic cannot be held personally liable


Idiot is a person who has completely lost his mental balance. An agreement with an idiot is absolutely void.


A high level of intoxication make a drunkards contract void A contract made by a person so intoxicated as not to know the consequences of his act is not binding on him


Alien Enemy. Insolvent. Foreign Sovereigns, their diplomatic staff and accredited representatives of the foreign states. Convicts


Alien enemy Contracts with an alien enemy (who is a citizen of a foreign country which is not in peaceful terms with India) are void on the grounds of public policy. Contracts may be suspended during the war and may be revived after the war is over, provided they are not time-barred. I Position of Contracts during War An alien enemy can neither enter into contract nor can be sued in an Indian Court except by the license by the Government. II Position of contracts during the war:

If such contracts are against the public policy or are such that may benefit the enemy, then such contracts are dissolved. If such contracts are not against public policy, then such contracts are merely suspended for the duration of the war and revived after the war is over unless they have already become time barred under the Law of Limitation.

E.g. X, an Indian citizen, carries on a business in Pakistan. He enters into a contract with Y who carries on business in India. Immediately after the formation of the contract, a war broke out between India and Pakistan. In this case, X becomes an alien enemy though he is Indian and contract between x and y (if not against the public policy) will be suspended for the duration of the war and revived after the war is over.


Foreign Sovereign and Ambassadors: - They can enter contract and enforce those contracts in our courts but they cannot be sued in our courts without the sanction of the Central Govt. Insolvents - When a person is declared insolvent, it is only the Official Receiver or Official Assignee who can enter into contracts relating to his property and sue and be sued on his behalf. Thus, as soon as a person is declared insolvent, he looses his contractual capacity. Convicts: A convict cannot enter into a contract while he is undergoing imprisonment. Thus, this incapacity is only during the period of sentence. Insolvent after the order of discharge he is competent to enter into contracts.


The consent of parties are said to be free when they are of same mind on all material terms of contract. The parties are said to be of same mind when they agree on 3s Same subject matter Same sense Same time If any one of the following elements are in agreement, we can say that there is absence of free consent Coercion Undue Influence Fraud Mistake Misrepresentation

COERCION E.g. A threatens B to shoot him if he does not release him from

Coercion" is the

debt which A owes to B. This is coercion.

act/crime or the unlawful detaining, or threatening to detain, any property or any act forbidden by the Indian Penal Code 1860 with the intention of causing any person to enter into an agreement.

or threatening to commit, any

Threat to commit Suicide amount to Coercion


Undue Influence means: When a special kind of relationship exists between the parties such that one party is in a position to exercise undue influence over the other. And such party uses his position to dominate the will of the other party to obtain an unfair advantage over the other party Essentials: There must be two persons. The relationship should satisfy between them. One should dominate the other. There must be unfair advantage. It is a moral character

of the examples where undue influence exists between the following relations: Superior and subordinate Principal and agent Doctor and Patent Case Laws: A Spiritual guru induced his devotee to gift him the whole of Promoter and Company his property in turn of a promise of salvation of the devotee. Held, the consent of the devotee was given under the undue influence. (Mannu Solicitor and Client Singh v/s Umadat Panday) Father and Son Teacher and Student Spiritual guru and devotee


Under the following relationship there is no assumption of undue influence.


and Wife Landlord and tenant Debtor and Creditor

Consent is given under threat

The consent is given by a person who is so situated in relation to another that the other person is in a position to dominate his will

Coercion need not proceed Undue influence is between from parties to the contract the parties to the agreement but can be done thro/by a stranger Contract is voidable at the The contract is either voidable option of one of the parties of or the court may enforce it in the contract a modified form Coercion is mainly of physical Undue influence is of moral nature and psychological nature


must be a representation There must be two persons There must be an active concealment of the fact The person making the representation does not believe it to be true There must be an intention of the proposer or the promiser to deceive the other person The other person must have relied upon the representation and must have been deceived and suffered loss The representation must have been made before the Commencement of the contract The representation must relate to a material fact which exists now or existed in the past


The party defrauded has the following remedies:


contract can be rescinded within reasonable time limit He can insist on the performance of the contract on the condition that he shall be put in the position in which he would have been if the representation made had been true He can sue for damages



prospectus contains a representation that it has statutory powers run its tramways by steam provide It must be to representation of material fact that the consent of the government was obtained. The directors issued prospects stating It that therein the company the right use steam power. They honestly must be made had before theto conclusion of the believe that the permission for the use of steam power would be granted. contract was refused. The company was that wound up. Held, the The permission directors were be guilty of misrepresentation (Derry vs. Peek) It must wrong but the person making it

Essentials: A companys

believes it to be true It must have been made without any intention of deceiving the other Person It need not be made directly made to the Plaintiff

MISREPRESENTATION FRAUD It is a false statement It is a false statement without any intention deliberately, or to deceive recklessly made to deceive another It is also called It is also called innocent intentional misrepresentation misrepresentation It makes the contract It besides avoiding the voidable at the option contract. The of the party injured aggrieved party also has right to sue for damages


Mistake may be defined as an erroneous belief about something.

It may be of two kinds mistake of law

Mistake of own country Mistake of foreign country

mistake of fact
A bilateral mistake Unilateral mistake


believing that a house can be constructed over it. Actually in Dublin house cannot be constructed on a plot less than 200 sq.mts. The contract can be avoided.

Mistake of law of the country is no excuse, is a well-settled rule of law. A Party to the contract cannot be allowed to ask for relief on the ground that the act was done in ignorance of law. E.g. A & B purchases and sells a plot of land of 195 sq.mts. in Dublin, Mistake of law of a foreign country: such mistake is treated as mistake of fact, and such agreement is treated as void.


E.g. A person was induced to sign a gift deed (will), on the presentation that it was a power attorney. Unilateral Mistake - Unilateral means only one party to a contract is under a E.g. X tocontract a shop and introduces himself as Y and purchases some if goods mistake ofgoes fact. A can be avoided on the ground of unilateral mistake, it can be shown that mistake was caused by Fraud or misrepresentation. on credit. The contract is void.
A unilateral mistake may be

Mistake as to the nature of transaction Mistake as to identity of party


X goes to a shop and introduces himself as Y and purchases some Mistake - Where both the parties to an agreement are under a goods on credit. The contract void. mistake as to a matter of fact, is the agreement is void.
Bilateral Types

Mistake as to existence of subject-matter Identity of subject-matter Title of subject-matter Quality of subject-matter Quantity of subject-matter Price of subject-matter E.g. A agrees to buy a horse from B at certain price. The horse was dead at the time of bargain and neither party was aware about the fact. Held, the agreement is void.


consideration or object of an agreement is lawful, unless

is forbidden by law; or is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; of involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy


agreement of which the object or consideration is unlawful is void.


It is forbidden by law - An act is forbidden by law when it is punishable under the criminal law or is prohibited by special legislation or regulations made by the competent authority. is of such nature that, if permitted it would defeat the provisions of any law is fraudulent - an agreement if any made for any fraudulent purpose is void. Thus, an agreement with an intention of fraud of creditors with a view to defeat their right is void. of involves or implies, injury to the person or property of another - injury means wrong, harm or damage. Person means ones body, property includes both movable and immovable. the Court regards it as immoral - an agreement, the consideration or object of which is immoral, e.g., agreement between husband and wife for future separation, is unlawful (Sumitra Devi v/s Sulekha Kundu) opposed to public policy An agreement which is injurious to the general public or is against the interest of the society


Agreement of trade with enemy: an agreement made with alien enemy in the time of war is illegal on the ground of public policy. This is base upon one of the following two reasons: either that the further performance involves commercial transactions with the enemy, or that the continued existence of agreement would confer upon the enemy immediate or future benefit. Agreement to commit crime: where the consideration in an agreement is to commit a crime, the agreement cannot be enforced in the court of law, and such agreement is against public policy. The court will not enforce such an agreement. Likewise an agreement to indemnify a person against consequences of his criminal act is opposed to public policy and hence unenforceable Mr. A promises to indemnify Mr. B in consideration of his beating Mr. C. the agreement is opposed to public policy Agreement which interfere with the administration of justice: an agreement the object of which is to interfere with the administration of justice is unlawful, being opposed to public policy. It may take any of the following forms: Interference with the course of justice: an agreement which obstructs the ordinary process of justice is unlawful. Thus an agreement for using improper influence of any kind with the judges or officers of the justice is unlawful. Stifling prosecution: it is in public interest that if a person has committed a crime, he must be prosecuted and punished. Hence an agreement not to prosecute an offender is an agreement for stifling prosecution is unlawful. That is in the case of non


Maintenance and Champerty: Maintenance is an agreement to give assistance, financial or otherwise, to another to enable him to bring or defend legal proceedings when the person giving assistance has got no legal interest of his own in the subject matter. Champerty is an agreement whereby one party is to assist another to bring an action for recovering money or property, and is to share in the proceeds of the action. Under English law both the agreement are void. Under Indian law, however does not make them absolutely void. Agreements in restrain of legal proceedings, void(Section 28) Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to the extent. Exception 1: Saving of contract to refer to arbitration dispute that may arise. This section shall not render illegal contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subject shall be referred to arbitration, and that only and amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Exception 2: Saving of contract to refer question that have already arisen - Nor shall this section render any illegal contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to reference to arbitration. trafficking in public offices and titles: agreement of the sale or transfer of public offices and titles or for the procurement of a public recognition like Param Veer Chakra for monetary consideration are unlawful, being opposed to public policy. Such agreements, if enforced


Agreements tending to create interest opposed to duty: if a person enters into an agreement whereby he is bound to do something which is against his public or professional duty, the agreement is void on the ground of public policy. CL: An agreement by a newspaper proprietor not to comment on the conduct of a particular person is unlawful being opposed to Public Policy (Neville vs. Dominion of Canada News Co., Limited) Agreement in restraint of parental rights: a father or in his absence his mother is the legal guardian of a minor child. This right cannot be bartered away of an agreement. A father cannot enter into agreement which is inconsistent with his duties arising out of such custody. If he enters into any such agreement such agreement is void on the ground of public policy. Agreement restriction personal liberty: agreements that unduly restrict the personal freedom of the parties to it are void as being against public policy. Agreement in restraint of marriage: every agreement in restraint of the marriage of any person, other than a minor, is void.


Marriage brokerage or brokerage agreement: an agreement by which a person, for a monetary consideration, promises in return to procure the marriage of another is void, being oppose to public policy. Similarly, an agreement to pay money to the parent of a minor child in consideration of his/ her consenting to give the minor in marriage is void, being opposed to public policy. Agreement interfering with marital rights: any agreement which interferes with the performance of marital duties is void, being opposed to public policy. CL: An agreement to lend money to a women in consideration of her getting a divorce and marrying the lender, is against public policy (Tikyat vs. Manohar) Agreement to defraud creditor or revenue authorities: an agreement the object of which is to defraud the creditors or revenue authorities is not enforceable, being oppose to public policy. A contract by which an employee gets an expense allowance grossly in excess of the expenses actually incurred by him is illegal and a fraud on revenue authorities. Agreement in restraint of trade: an agreement which interfere with the liberty of a person to engage him-self in


Agreements by incompetent parties Agreements under mutual mistake of fact material to the agreement Agreement with unlawful consideration or object (a) immoral & illegal agreements (b) agreements opposed to public policy Agreements unlawful in part Agreements without consideration Agreements in restraint of marriage Agreements in restraint of legal proceedings Agreements which are uncertain and ambiguous Agreement by way of wager or wagering agreements Agreements to do impossible acts


between two parties One promises to pay money or moneys worth On happening of some uncertain event In consideration of other partys promise to pay If that event does or does not happen

P and Q enter into an agreement that if Australias team wins the test match, P will pay Rs. 100 and if it loses Q will pay Rs. 100 to P

Its a contract to do or not to do something, if some event, collateral to such contract does or does not happen - A contracts B to pay Rs 10,000/- if Bs house is burnt

By IMPOSSIBILITY - Destruction of subject matter - Death/ disablement of party - Declaration of war - Difficulty of performance By LAPSE OF TIME By OPERATION OF LAW By BREACH OF CONTRACT