By Rahul P Reghunath

Legal aspect





Lawful Consideration

Offer
+
Acceptance
Contract
Offer and acceptance
Genuine assent (Free Consent)
Legality
Consideration
Capacity
Writing

What distinguishes a contract from other
agreements?
-Contracts are enforceable by law.

What two actions are necessary to form an
agreement which may result in a contract?
-An offer and an acceptance

Offeror one who makes the offer
Offeree the one whom it is made to.

Terms must be definite and accepted
without change by the party to whom
it was intended to be offered.

Without offer and acceptance the
courts would not have an agreement
that could be enforced.
`
An Offer is :

An expression of willingness to contract on
certain terms, made with the intention
that it shall become binding as soon as it
is accepted by the person to whom it is
addressed.
Offers require verbal or written acceptance
(forming what are known as bilateral contracts),
with the general offers the performance of some
act may be valid acceptance (forming a
unilateral contract)

An offer may be:

q Express either verbal or written, or

q Implied from conduct or circumstances.
Sometimes, nothing is said at all but an offer is
obvious from the actions.

Offer must be communicated to the
offeree
There must be a common intention
There should be a reference to the
legal relations between parties.
Terms must be complete and defined
clearly
Preliminary negotiations should be
done to avoid cross offer.
Conditions if any must be clearly
indicated.
Refusal
Death of the either of party
Lapse of the time duration
Failure of the pre conditions mentioned/
applied
Revocation of
Acceptance of offer entering into contract
This will normally mean that the offer is no
longer available to anyone else.

Offer can be defined as:

Once the offeree signifies his approval
unconditionally, proposal is said to be
accepted.
A proposal once accepted becomes a
proposal.
Communication of acceptance
Acceptance must be absolute and
unqualified
Mentan accpetance is not
sufficient(Silnece)
Acceptance of a proposal with the terms
and conditions mentioned and implied
Need not be expressed in words always
Ignorance of a proposal, is no acceptance
Acceptance must be given within a
reasonable time.
Acceptance must be given before lapse or
revocation or withdrawal.
Free consent of all the parties to a contract
is an essential of a valid contract as per
requirement of section 10.
When there is no consent at all, the
agreement is void ab-initio, i.e. it is not
enforceable at the option of either party.
Consent defined: two or more person are
said to consent when they agree upon the
same thing in same sense ( sec 13).

COERCION
UNDUE INFLUENCE
FRAUD
MIS REPRESENTATION
MISTAKE
In simple words, coercion is threat or force used by one party
against another for compelling him to enter into an
agreement.

Section 15 of Indian Contract Act defines coercion as the
committing or threatening to commit any act forbidden by the
Indian Penal Code or an unlawful detaining or threatening to
detain, any property to the prejudice of any person with the
intention of inducing any person to enter into an agreement.

Consent obtained at the point of pistol or intimidation, threat of
imprisonment and threat to commit suicide with the intention of
causing a person to enter into an agreement is an act of coercion.

There must be clear threat.
The threat should be to commit an act
forbidden by law.
It must be uttered with the intention of
causing the other party to enter into an
agreement.

Threat to file a suit-A threat to file a suit does not amount
to coercion unless the suit is on false charge. Threat to
file a suit on false charge is an forbidden by the Indian
Penal Code and thus will amount to ant act of coercion.
Threat to commit Suicide.
Effect of Coercion
Section 19 provides that an agreement consent to which is
obtained by coercion is voidable at the option of the party
whose consent is so obtained.
Burden of proof : it lies on the party who wants to set aside
the contract on the plea of coercion.



Section 16(1) provides that a contract is
said to be induced by undue influence where
the relations subsisting between the parties
are such that one of the parties is in a
position to dominate the will of the other
and uses the position to obtain an unfair
advantage over the other.

Where he holds a real or apparent authority over
the other e.g. relationship between master and
servant, public officer and accused, income tax
officer in relation an assessee.
Where he stands in a fiduciary relationship to
the other. Fiduciary relation means a relation of
mutual trust and confidence. like father and son,
guardian and ward, solicitor and client, doctor
and patient, trustee and beneficiary.
Where he makes a contract with a person whose
mental capacity is temporarily or permanently
affected by reason of age, illness or mental or
bodily distress.
When consent to an agreement is caused by undue influence
, the agreement is a contract voidable at the option of the
party whose consent was so caused. Such contract may be
set aside either absolutely or subject to restitution of the
benefit there under or upon such condition as the court may
deem just.(section 19 (A)).
Pardanashin Ladies-A paranashin women is one who lives in
seclusion having no communication except from behind the
pardah with any male person except a few privileged
relations.
Law provides special protection to them on the ground of
their being ignorant so far as the worldly knowledge goes. A
contract with them is presumed to have been induced by
undue influence unless the other party show that it was her
intelligent and voluntary act.

Inequality between
the parties
Inadequacy of
consideration
Fiduciary relationship
Unfair bargain
Pardanashin Women
Basis Coercion Undue influence
Obtaining the
consent
By committing or
threatening to
commit an
offence
By dominating
the other party
Type of force Physical Mental or moral
Presumption Not presumed by
court, party have
prove it.
It can be
presumed as
other party is in
dominating
position
Nature of
liability
Criminal liability Not criminal
liability
Section 17 of Indian Contract Act, 1872 defines Fraud'.
"Fraud" means and includes any of the following acts committed
by a party to a contract, or with his connivance, or by his agent,
with intent to deceive another party thereto of his agent, or to
induce him to enter into the contract:-
(1) the suggestion, as a fact, of that which is not true, by one who
does not believe it to be true ;
(2) the active concealment of a fact by one having knowledge or
belief of the fact ;
(3) a promise made without any intention of performing it
(4) any other act fitted to deceive ;
(5) any such act or omission as the law specially declares to be
fraudulent.
Mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless the
circumstances of the case are such that, regard being had to
them, it is the duty of the person keeping silence to speak, or
unless his silence is, in itself, equivalent to speech.

1.The suggestion, as a fact, of that which is not true, by one
who does not believe it to be true. The leading case: Peek V.
Gurney.
The prospectus of a company did not refer to the existence
of a document disclosing liabilities. This created an
impression that the company was prosperous. It was held
that there was suppression of truth and suggestion of false
statement amounting to fraud.
2. The active concealment of a fact by one having knowledge
or belief of the fact-If a person conceals a fat which is
material to the contract will be a case of fraud. Mere non
disclosure is not fraud, where there is no duty to
disclose.Caveat Emptor or Buyer Beware is the rule,
but in contracts of absolute faith mere silence about material
facts will be taken as fraud.
E.g. A, horse dealer sold a mare to B.A knew that the mare
had a cracked hoof, which he filled up in such a way as to
defy detection. The defect was subsequently discovered by
B. It was held that the agreement could be avoided by B as
his consent was obtained by fraud.
A promise made without any intention of performing it is
fraud.
Any other act fitted to deceive. E.g. Where a party, who by
false impersonation induces another to enter into a
contract with him under the belief that he is somebody
else, commits fraud.
Any such act or omission as the law specially declares to
be fraudulent.


A party to the contract is under no obligation to
disclose the whole truth to the other party. Caveat
Emptor i.e. let the buyer beware is the rule
applicable to contracts. There is no duty to speak in
such cases and silence does not amount to fraud.
Silence is treated as Fraud in:
Fiduciary relationship
Contract of insurance
Contract of marriage
Contract of Family settlement
Share allotment contracts.
When the consent to an agreement is caused
by fraud, the agreement is a voidable
contract at the option of the party whose
consent was so caused.
A party whose consent to an agreement is so
obtained has two remedies, namely:
He may rescind the contract or
He may insist that the contract shall be
performed and that he shall be put in the
position in which he would have been, if the
representation made had been true.
The term Misrepresentation means a false
representation of fact made innocently or non-
disclosure of a material fact without any intention to
deceive the other party.
According to Section 18 the term misrepresentation
means:
1. The positive assertion, in a manner not warranted by
the information of the person making it, of that which
is not true, though he believes it to be true.
E.g. A on the strength of hearsay information
positively asserted to B that certain third party is
going to be the Director of the co. to be incorporated,
bought the shares on faith of such a statement. This is
case of misrepresentation by A.(Mohanlal V Shri Ganga
Ji Cotton Mills co.)



2.Any breach of duty, which ,without an intention to
deceive gains an advantage to the person
committing it or anyone claiming under him, by
misleading another to his prejudice or to the
prejudice of anyone claiming under him. This is
known as Constructive fraud".
3.It also covers those cases where a statement when
made was true but subsequently before it was acted
upon, it became false to the knowledge of the
person making it .In such a case , the person making
the statement comes under an obligation to inform
the other party of the true facts.
There should be a representation or assertion.
Such representation must relate to a matter of fact
which has become untrue ; and It was made before
the finalization of transaction with a view to induce
the other party to enter into a contract.
It must actually have been acted upon by the party.
It must have been made either by the party himself
or by his duly authorized agent.
Consequences of Misrepresentation- The aggrieved
party may avoid the contract, or May affirm the
contract and insist on the misrepresentation being
made good.
When consent is induced by misrepresentation &
aggrieved party has the means of discovering the
truth with ordinary diligence, the contract cannot be
set aside.

Mistake may be defined as an erroneous belief
concerning something. It means that parties
intending to do one thing have by intentional
error done something else.

Mistake
of Law
Mistake
Of Fact
MISTAKE
Mistake of Indian Law: The contract is binding
because everybody is supposed to know the law
of the country. A contract is not voidable
because it was caused by a mistake as to any law
in force in India(section 21).
Mistake of Foreign Law and Mistake of Private
rights of Parties are treated as mistake of facts.
Mistake of facts:


Bilateral
Mistake
Unilateral
Mistake
Mistake as to subject matter. It falls into six heads namely
1.Existence 2.Identity 3. Title 4. Price 5. Quantity 6.Quality

When both the parties to an agreement are under a
mistake as to a matter of fact, which are essential to
the agreement, and this agreement shall be Void.
Thus this mistake shall be termed as bilateral mistake
of facts.

It should be committed by both the parties

It should be related to a matter of fact which are
essential to the agreement.

Section 22 provides that if one party alone is
under mistake of fact. Unilateral mistakes do
not affect the validity of contract unless they
concern some fundamental fact and the
other party is aware of the mistake.
1.Mistake as to identity of the person or party:
Mistake as to the identity of a person may also
avoid a contract. Where A intends to contract
only with B, but enters into a contract with C
believing him to be B, the contract is vitiated.
2.Mistake as to the nature of transaction: A blind
man signing a document, read over to him
wrongly, will not bind him.
Case ; Foster V. Mackinnon.
A an illiterate old man, was made to put his
signature on a document which was a
pronote .A thought the document to be a will
where his signature was required as a
witness. Under this presumption hr signed
the document which was in fact a pronote.
Subsequently B endorsed the pronote to C
who paid value for it in good faith. C sued A
on the pronote. It was held that A was not
bound by it.