INDIAN CONTRACT ACT ,1872

Dr. Sony Raj S. S.

 INTRODUCTION
The Indian Contract act 1872 falls under the ambit of mercantile laws (Business Laws). It
came enforced on 1 September 1872. It is private law. Its basis is English common law, but
it was passed in the Indian Parliament, which is Calcutta Parliament.

It contains XI Chapters, but Chapter VII -Sale of Goods and Chapter XI - Partnership was
repealed, the Sale of goods was repealed in 1930, and the partnership was in 1932. It
became an independent act after repealing it from its parent act, that is Indian Contract
Act 1872. It becomes imperative to study the Contract act, as today in the market sector
all the dealings are made through contract.

It covers various aspects in a much broader sense such as it describes what is an offer,
acceptance, essentials of contract, valid consideration, voidable agreements, quasi-
contracts, damages under Indian contract act 1872. Apart from it covers Contract of
Indemnity, Guarantee, bailment, pledge and Agency.
 DEFINITIONS – Section 2

Section 2(a) - Offer: An offer refers to a promise that is dependent on a

certain act, promise, or forbearance given in exchange for the initial promise.
Section 2(b) -Acceptance : When the person to whom the proposal is made,
signifies his assent there to, the proposal is said to be accepted.
Section 2(b)- Promise : A proposal when accepted becomes a promise. In
simple words, when an offer is accepted it becomes promise.

Section 2(c) Promisor and Promisee : When the proposal is accepted, the
person making the proposal is called as promisor and the person accepting the
proposal is called as promisee.
Section 2(d) Consideration : When at the desire of the promisor, the
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.
Price paid by one party for the promise of the other Technical word meaning
QUID-PRO-QUO i.e. something in return.
Section 2(e) Agreement : Every promise and every set of promises forming
the consideration for each other. In short,

Offer + Acceptance = Agreement

Section 2(g) Void agreement : An agreement not enforceable by law is void.
Section 2(h) Contract : An agreement enforceable by Law is a contract.
Therefore, there must be an agreement and it should be enforceable by law.
Section 2(i) Voidable contract : An agreement is a voidable contract if it is
enforceable by Law at the option of one or more of the parties there to (i.e.
the aggrieved party), and it is not enforceable by Law at the option of the
other or others.
Section 2(j) Void contract : A contract becomes void when it ceases to be
enforceable by law.
 Kinds of Agreement

Valid agreement
A valid agreement may be defined as an agreement that, if enforceable by law,
shall become a contract and make the parties to the agreement binding to the
conditions thereof. An agreement is defined under Section 2(e) of the Indian
Contract Act, 1872 (the Act). It states that “Every promise and every set of
promises, forming the consideration for each other, is an agreement”. Thus,
more than often, a valid agreement becomes a contract.

The essential conditions of a valid agreement include:

❖ The agreement shall have a valid consideration.

❖ The parties shall be competent to contract as per Section 11 and Section 12 of
the Act.
❖ The consent of the parties is free and uninfluenced.
❖ The object of the agreement is lawful.
 Void Agreements
A void agreement is one which is destitute of all legal effects. It cannot be
enforced andconfers no rights on either party. It is ‘void an initio’ i.e. not
exist in the eyes of law. For example an agreement without consideration is
void.
Illegal Agreement
An agreement with an unlawful object and consideration is known as illegal
agreement.
The object and consideration is said to be unlawful if –
-> it is forbidden by any law time being in force
-> it defeats the provisions of any law
-> it is fraudulent
-> it is injurious to a person or property
-> it is immoral
-> it is opposed to public policy
Parties to an unlawful agreement cannot get any help
from a Court of law, for no polluted hands shall touch the pure fountain of
justice. On the other hand, a collateral transaction is also consider as void
agreement.
 Kinds of Contracts
The Indian Contract Act classifies a contract on the basis of various criterion,
A contract, in general, is a written or spoken agreement which particularly
deals with employment, sales or tenancy that is enforceable by law. A
contract is classified on the basis of the following:

Formation

Nature of
Consideration

Execution

Validity
 Express Contract

Implied Contract
On the basis of
Formation Quasi Contract

E-Contract
Express Contract: A contract is said to be “Express” if the proposal or
acceptance of any promise is made in words, be it in the written or oral form.
The provision is subject to the condition that the offer so made gains the
acceptance of the acceptor.
Implied Contract : An implied contract is in stark contrast to an express
contract, i.e. it isn’t expressed in written or oral form.
Quasi Contract: Quasi Contracts, unlike others, hold no contractual
relations between the partners but are created by virtue of law. The court
may form a Quasi-Contract under any of the following circumstances:
➢ Upon the supply of essentials
➢ Where the expenses of one person are met by another.
➢ Where one party gains by the activity of another.
➢ In the case of the finder of lost tools.
➢ Upon mistaken payments/supply of goods
E-Contract: Electronic, Cyber or Electronic Data Interchange contracts are
formed by electronic means. The means and devices that aid in such
formation include email, telephone, digital signatures, and the likes of it.
The contractual terms here are listed by electronic means or implied by the
actions of the users.
 Bilateral Contract
On the basis of
Consideration Unilateral
Contract

Bilateral Contract: A contract is called bilateral, or in other words

reciprocal, when it comes with mutual considerations. It is formed when
two parties agree to the contractual terms of each other.

Unilateral Contract: A contract is classed as unilateral where only one

party makes a promise, which could be availed by anyone who is ready to
be committed to the same. Such a contract can only be fulfilled if someone
else fulfils the promise.
 Executed
Contract
On the basis of Executory
Execution Contract
Contingent
Contract
Executed Contract:A contract is termed as executed if the performance
stipulated under it has been completed by one, both or all parties. Most of
these contracts are performed instantaneously, such as buying of goods
and/or services.
Executory Contract: An executory contract involves the performance
of consideration at a future point of time; which means the promises of
consideration cannot be completed instantaneously as in an executed
contract.
Contingent contract: It is a contract to do or not to do something, if
some event, collateral to such contract, does or does not happen.
 Valid Contract

Void Contract

On the basis of Voidable Contract

Validity
Illegal Contract

Unenforceable
Contract
Valid Contract: Valid contracts must satisfy all the contract requirements,
making it legally binding and enforceable. These requirements include:
➢ The making of offer and its acceptance, making it eligible for registration.
➢ The existence of a legal relationship.
➢ The existence of a lawful consideration and object.
➢ The parties concerned are competent to form a contract.
➢ Free consent of the parties.
➢ Certainty in the terms of the contract.
➢ The capability of performance (of the contract).
➢ The contract hasn’t been expressly declared void under the contract laws.
Void Contract: Any contract which is not in line with the contract
requirements as highlighted above is classified as void.
Voidable Contract: A contract is considered as voidable on the existence of
an agreement which is enforceable by law at the option of one or more of the
parties concerned, but not at the option of the others. In simple terms, at least
one of the parties to the contract must be bound to the terms specified in it.
The other party, who could be a minor or is temporarily incapable of a contract
owing to other reasons, isn’t bound by it and may repudiate or accept the terms
of the contract. If the latter chooses to repudiate, the contract becomes void.
Illegal Contract: A contract is termed illegal by the court if:

➢ It allows one or all the parties to break the law or not adhere to society’s
norms.
➢ It is opposed to public policy.

All illegal contracts can be void/voidable/valid, but it cannot be the other

way around. For example, party X may have a contract to sell narcotics to
party Y, and the contract may be on par with the essentials. Such a contract
is valid on the basis of these essentials but is otherwise illegal and non-
enforceable by law. Parties in default of these contracts are legally
punishable.

Unenforceable Contract: A contract is unenforceable if it fails to

complete the required legal obligations. Such a contract can be enforced
upon completing these formalities, the likes of which mostly occur in the
form of technical defects.
 Offer or Proposal
According to the Indian Contract Act 1872, proposal is
defined in Section 2 (a) as “when one person will signify to another person his
willingness to do or not do something (abstain) with a view to obtain the
assent of such person to such an act or abstinence, he is said to make a
proposal or an offer.”

➢ The person making the offer/proposal is known as the “promisor” or the

“offerer ”. And the person who may accept such an offer will be the
“promisee ” or the “acceptor”.
➢ The offerer will have to express his willingness to do or abstain from
doing an act. Only willingness is not enough. Or simply a desire to do/not
do something will not constitute an offer.
➢ An offer can be positive or negative. It can be a promise to do some act,
and can also be a promise to abstain (not do) some act/service Both are
valid offers.
 Classification of Offer
There can be many types of offers based on their nature, timing, intention, etc.
Let us take a look at the classifications of offers.

General Offer
Specific Offer
Cross Offer
Counter Offer

General Offer
A general offer is one that is made to the public at large. It is not made any
specified parties. So any member of the public can accept the offer and be
entitled to the rewards/consideration. Say for example you put out a reward for
solving a puzzle. So if any member of the public can accept the offer and be
entitled to the reward if he finishes the act (solves the puzzle.)
 Specific Offer
A specific offer, on the other hand, is only made to specific parties, and so
only they can accept the said offer or proposal. They are also sometimes
known as special offers. Like for example, A offers to sell his horse to B for Rs
5000/-. Then only B can accept such an offer because it is specific to him.

Cross Offer
In certain circumstances, two parties can make a cross offer. This means both
make an identical offer to each other at the exact same time. However, such a
cross offer will not amount to acceptance of the offer in either case.
For example, both A and B send letters to each other offering to sell and buy
A’s horse for Rs 5000/-. This is a cross offer, but it will be considered as
acceptable for either of them.

Counter Offer
There may be times when a promise will only accept parts of an offer, and
change certain terms of the offer. This will be a qualified acceptance. He will
want changes or modifications in the terms of the original offer. This is known
as a counteroffer. A counteroffer amounts to a rejection of the original offer.
Essentials of a Valid Offer
 1. Offer must create Legal Relations
The offer must lead to a contract that creates legal relations and legal
consequences in case of non-performance. So a social contract which does not
create legal relations will not be a valid offer. Say for example a dinner
invitation extended by A to B is not a valid offer.

2. Offer must be Clear, not Vague

The terms of the offer or proposal should be very clear and definite. If the terms
are vague or unclear, it will not amount to a valid offer. Take for example the
following offer – A offers to sell B fruits worth Rs 5000/-. This is not a valid offer
since what kinds of fruits or their specific quantities are not mentioned.

3. Offer must be Communicated to the Offeree

For a proposal to be completed it must be clearly communicated to the offeree.
No offeree can accept the proposal without knowledge of the offer. The famous
case study regarding this is Lalman Shukla v. Gauri Dutt. It makes clear that
acceptance in ignorance of the proposal does not amount to acceptance.
 4. Offer may be Conditional
While acceptance cannot be conditional, an offer might be conditional. The
offeror can make the offer subject to any terms or conditions he deems
necessary. So A can offer to sell goods to B if he makes half the payment in
advance. Now B can accept these conditions or make a counteroffer.

5. Offer cannot contain a Negative Condition

The non-compliance of any terms of the offer cannot lead to automatic
acceptance of the offer. Hence it cannot say that if acceptance is not
communicated by a certain time it will be considered as accepted. Example: A
offers to sell his cow to B for 5000/-. If the offer is not rejected by Monday it will
be considered as accepted. This is not a valid offer.

6. Offer can be Specific or General

As we saw earlier the offer can be to one or more specific parties. Or the offer
could be to the public in general.
7. Offer may be Expressed or Implied
The offeror can make an offer through words or even by his conduct. An offer
which is made via words, whether such words are written or spoken (oral
contract) we call it an express contract. And when an offer is made through the
conduct and the actions of the offeror it is an implied contract.
Distinguish between offer and invitation to offer
 Acceptance
Acceptance is defined under Section 2(b) of the Indian Contract
Act, 1872 as “When the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise.” This Section states that an offer is accepted
when the offeree to whom the proposal is made accepts the offer without
any condition. When the offer is accepted then the proposal becomes a
promise and it is irrevocable. An offer does not have any legal obligation but
as soon as the offer is accepted, it creates a legal obligation on the parties
and therefore it cannot be revoked. The offer can be revoked only till the offer
is not accepted and once the offer is accepted, it can’t be revoked or
withdrawn.

Example: X offers Y to buy his horse for 1 lakh rupees and Y agrees to the
offer and gives his consent to sell his horse to X at 1 lakh rupees. This
becomes a promise.
 Valid acceptance: Section 7 and 8 of the Indian
Contract Act, 1872
For a valid acceptance of a valid offer, there are certain essentials
that are specified under the Indian Contract Act, 1872. Section 7 and Section 8
of the Indian Contract Act specify certain essentials that make an acceptance a
valid acceptance.

Section 7 talks about an acceptance to be absolute. This Section clarifies that

an acceptance must be absolute, unqualified, and be expressed explicitly or
impliedly, unless as specified in the proposal. If the manner of expression is
already mentioned in the proposal then the offeree must express his consent
in that manner.

Section 8 talks about when an offer can be accepted without communication

of such acceptance. The Section says when the offeree performs the
conditions mentioned in the offeror accepts the consideration for a reciprocal
promise then the offer is said to be accepted.
 Acceptance should be absolute and
unqualified

Acceptor has an intention to fulfill the promise

Acceptance must be communicated

Acceptance must be in the mode prescribed

Essentials of
Silence cannot be a mode of acceptance
a valid
acceptance Communication must be communicated within the time
prescribed or within a reasonable time if a time limit is
not prescribed
Acceptance of the offer and its communication must be
made by the offeree or his authorized agent

Acceptance subject to contract is no acceptance

If a proposal is made through an agent, it will be

sufficient if the acceptance is communicated to him
1. Acceptance should be absolute and unqualified: Section 7 talks about acceptance
to be absolute and unqualified. There must neither be any condition in acceptance nor any
variations to be made while accepting the offer. Any such variation or condition in the
offer can constitute a counter-offer.
Example: Mr. X offers Y to sell his house for 10 lakh rupees. Y accepts the offer and
promises to pay the amount in installments. Here, the offer made by Mr. X ceases to exist
because Y made variations in the offer. Therefore, it becomes a counter-offer.

In Trollope & Colls Ltd. v. Atomic Power Constructions Ltd., 1963 during the construction
of Atomic Power Construction the parties decided to form a contract on the points they
have agreed and continued to negotiate on which they did not agree. In this case, the
question was raised whether such a contract is valid. The Court held that since the parties
have not mutually agreed upon all the clauses of the contract and it can create problems
in the future therefore it cannot be said to be a contract.

2. Acceptor has an intention to fulfill the promise: For an acceptance to be valid, it is

necessary that the offeree is able and willing to fulfill the promise. If the offeree has no
intention to fulfill the promise then the acceptance is invalid.

Example: Mr. X agrees to sell his horse for 2 lakh rupees to Mr. Y. Later it was found that
Mr. X does not own any horse. Therefore it was an invalid acceptance because Mr. X had
no intention to fulfill the promise.
3. Acceptance must be communicated: To constitute a valid acceptance, the offeree
shall communicate his acceptance to the offerer. Mere mental acceptance cannot be a
valid acceptance. The communication can be expressed or implied. However, if the offer
is such that the offeree has to act upon then by mere acting upon the offer, the offer is
said to be accepted.

In Brogden v. Metropolitan Rly. Co., 1877 the question was raised whether the contract
between Brogden and Metropolitan Rly Co. was a valid contract. The facts of the case are
that Brogden is the complainant who used to supply coal to Metropolitan Rly Co.
(defendant). Earlier both the parties used to transact on an informal basis without any
contract. Later, the defendant decided to form a formal contract. So the defendant
drafted a contract and sent it to the complainant. The complainant made certain changes
in the contract and forwarded the draft to the defendant who filed that agreement but
never communicated the acceptance and continued the supply and purchase of coal.
When a dispute arose between the parties the question of the validity of the contract.
The Court held that there was a valid contract between the parties because even though
the acceptance of the counteroffer was not communicated still the defendant accepted it
by conduct and the coal was delivered and the payment was done according to the draft.
Therefore, it was a valid contract.
4. Acceptance must be in the mode prescribed: The mode of communication of
acceptance shall be done in the manner prescribed in the offer. If in case the mode of
acceptance is not specified then the acceptance can be communicated in a usual and
reasonable manner. If the mode of acceptance is mentioned and the offeree
communicates the acceptance in any other mode other than specified in the offer then
the proposer can reject or intimate the offer and if there is no communication from the
offeree then it is deemed to be accepted.
Example: Mr. Y makes an offer to Mr. X stating that the mode of communicating
acceptance is through WhatsApp and Mr. X sends his acceptance through telegram then
since it is not the mode specified in the offer therefore it is deemed to be not accepted.
Mr. Y need not inform Mr. X that he did not communicate through the mode specified.
5. Silence cannot be a mode of acceptance: Mere silence is not an acceptance.
The offeror cannot mention silence as a mode of communication of acceptance.
Example: Mr. Y makes an offer to Mr. X to buy his horse for 1 lakh rupees and mentions
that if Mr. X does not respond to the offer within one month then it will be presumed
that Mr. X has accepted the offer. If Mr. X does not respond to the offer within one
month then it will not be considered as an acceptance because silence is not a mode of
communication of acceptance.
Felthouse v. Bindley, 1862 The Court held that there was no contract between Felthouse
and Mr. Bindley as silence cannot be a mode of acceptance. Therefore, there was no
contract between Felthouse and Mr. Bindley.
6. Communication must be communicated within the time prescribed or
within a reasonable time if a time limit is not prescribed: The offeree must
respond to the offer within the time prescribed in the offer and if the time limit is not
prescribed then the offeree must respond within a reasonable time or before the
offer lapses or the offer is withdrawn by the offeror.
Example: Mr. X offers to buy Mr. Y’s house in July. Mr. X accepts the offer in
December. Mr. X refused to buy the house since it is beyond a reasonable time.

7. No acceptance before the communication of offer: Acceptance to an offer

cannot precede the offer. An offer needs to be presented before an acceptance. A
person without any knowledge cannot accept an offer just because he has acted in
accordance with the offer.
Laksham Shukla v. Gauri Dutt, 1913 In this case, the respondent’s nephew was
missing and he asked his servant (complainant) to search for the boy. After the
complainant left the house to search for the boy, the respondent made an
announcement that anybody who brings his nephew back home safely will be
rewarded with Rs. 500. The complainant found the boy and brought him home. When
he reached he got to know about the announcement and he asked for his reward
from the respondent. The respondent refused to give him the money so the
complainant filed a case against him. The Court held that since the complainant
wasn’t aware of the offer therefore there was no contract between both of them.
8. Acceptance of the offer and its communication must be made by the offeree
or his authorized agent: The communication of acceptance must be done only by the
offeree or his authorized agent. Anyone other than the offeree or his authorized agent
communicates the acceptance of the offer then there will not be any contract.
Powell v. Lee, 1908 In this case, Powell applied for the post of headmaster in a school
which was accepted by the School Board. The acceptance of his application was informed
to him by one of the members of the School Board. Later, the School Board rescinded his
application. Powell filed a suit of breach of contract. It was held by the Court that since the
communication was not made by someone who was authorized by the School Board
therefore there was no valid acceptance and no valid contract.

9. Acceptance subject to contract is no acceptance: Acceptance to an offer means

acceptance to all terms of the offer. If the acceptance is made by the offeree by “subject to
contract”, “subject to formal contract”, or “subject to contract to be approved by
solicitors” then it means that the agreement is in the negotiation stage and the parties are
not bound to the offer. If such acceptance is made then the parties are not legally bound
to follow the obligations of the offer unless a formal agreement has been made and signed
by both parties to the contract.

10. If a proposal is made through an agent, it will be sufficient if the acceptance

is communicated to him: If X sends the offer to buy Y’s house through an agent, Z, and
Y accepts the offer and gives his acceptance to Z then there is a valid contract even if Z
communicates the acceptance to X or not.
 Communication of Offer and Acceptance
Communication of Offer
Section 4 of the Indian Contract Act 1872 says that the communication of the offer is
complete when it comes to the knowledge of the person it has been made to. So when
the offeree (in case of a specific offer) or any member of the public (in case of a general
offer) becomes aware of the offer, the communication of the offer is said to be
complete.
So when two people are talking, face-to-face or via telephone, etc the communication
will be complete as soon as the offer is made. Example if A tells B he will fix his roof for
five thousand rupees, the communication is complete as soon as the words are spoken.
Communication of Acceptance
➢ Mode of Acceptance
In this case of communication of acceptance, there are two factors to consider, the
mode of acceptance and then the timing of it. Let us first talk about the mode of
acceptance. Acceptance can be done in two ways, namely,
1. Communication of Acceptance by an Act: This would include communication via
words, whether oral or written. So this will include communication via telephone
calls, letters, e-mails, telegraphs, etc.
2. Communication of Acceptance by Conduct: The offeree can also convey his
acceptance of the offer through some action of his, or by his conduct. So say when you
board a bus, you are accepting to pay the bus fare via your conduct
➢ Timing of Acceptance
The communication of acceptance has two parts. Let us take a look,
1. 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. So,
for example, A accepts the offer of B via a letter. He posts the letter on 10th July and the
letter reaches B on 14th For B (the proposer) the communication of the acceptance is
completed on 10th July itself.
2. As against the Acceptor: The communication in case of the acceptor is complete when
the proposer acquires knowledge of such acceptance. So in the above example, A’s
communication will be complete on 14th July, when B learns of the acceptance.

Revocation of Offer and Acceptance

The Indian Contract Act lays out the rules of revocation of an offer in Section 5. It says
the offer may be revoked anytime before the communication of the acceptance is
complete against the proposer/offeror. Once the acceptance is communicated to the
proposer, revocation of the offer is now not possible.
Section 5 also states that acceptance can be revoked until the communication of the
acceptance is completed against the acceptor. No revocation of acceptance can happen
after such date.
 Capacity to Contract (Sec 10-12)
Agreement is a wider term than contract wherein all contracts are agreements but all
agreements are not contracts. The agreements which satisfy the conditions mentioned
in Section 10 of the Indian Contract Act, 1872 become contracts.
Agreements are classified into two categories:
Agreements not enforceable by law– the agreements which do not satisfy the
essentials of a valid contract are not enforced by law, hence cannot be considered as
contracts. According to section 2(g) of the act such agreements are said to be void. For
instance, an agreement entered into by a minor is held to be void. Section 24-30 of the
act mentions about the agreements that are considered void.

Agreements enforceable by law– the agreements that satisfy the essentials of a valid
contracts are enforceable by law.
Thus, Sections 2(h) and 10 of the Act state about the essential elements of a valid
contract. If any one of those elements is not satisfied or is present in an agreement, it
will affect the validity and will not form a valid contract.
If we enter into a contract containing prescribed terms and conditions, which is a must
under the statute then that contract becomes a statutory contract. If a contract
incorporates certain terms and conditions in it, which are statutory then, the said
contract to that extent is statutory.
 What is Capacity to 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.”.
They are as follows:
❖ Attaining the age of majority
❖ Being of sound mind
❖ Not disqualified from entering into a contract by any law that he is subject to

1. Attaining the Age of Majority

According to the Indian Majority Act, 1875, the age of majority in India is defined as 18
years. For the purpose of entering into a contract, even a day less than this age
disqualifies the person from being a party to the contract. Any person, domiciled in
India, who has not attained the age of 18 years is termed as a minor.
❖ A Contract made with a Minor is Void : Since any person less than 18 years of age
does not have the capacity to contract, any agreement made with a minor is void ab-
initio (from the beginning).
Example: John is 17 years and 6 months old. He needs some money to go on vacation with his
friends. He approached a moneylender and borrows Rs 25,000. As security, he signs some papers
mortgaging his laptop and motorcycle. Six months later, when he attains the age of majority, he
files a suit declaring that the mortgage executed by him when he was a minor is void and should
be cancelled. The Court agrees and relieves John of all liability to repay the loan.
As per the Section 3 of Indian Majority Act, 1875, the age of majority in India
is specified as 18 years. Even a day short of the specified age of entering in
a contract disqualifies the individual from being a party to it.

Case: Mohiri Bibi v. Dharmodas Ghosh:

The case goes back to the year 1903 in which, for the first time, the Privy Council
held that a minor’s contract is void- ab-initio that it is void from the beginning.

Facts of the case – The plaintiff Dharmodas Ghosh, when he was a minor,
mortgaged his property to the defendant , a money lender. At that time,
defendant’s attorney had the knowledge about plaintiff’s age. The plaintiff
later paid only Rs.8000 but refused to pay rest of the money. The plaintiff’s
mother was his next friend (legal guardian) at that time, so he commenced
an action against the defendant saying that at the time of making of a
contract, he was a minor, so the contract being a void one, he is not bound
by the same. The court held that unless the parties have competence under
Section 11 of the Act, no agreement is a contract.
❖ A Minor can be a Beneficiary of a Contract: While a minor cannot enter a
contract, he can be the beneficiary of one. Section 30 of the Indian Partnership Act,
1932, also specifies that while a minor cannot become a partner in the partnership firm,
the benefits of the firm can be extended to him.
Example, Peter lends some money to his neighbor, John and asks him to mortgage his
house as security. John agrees and the mortgage deed is made favoring Peter’s 10-year-
old son – Oliver. John fails to repay the loan and Peter, as the natural guardian of Oliver,
files a suit against John to recover his money. The Court holds the case since a minor can
be a beneficiary of a contract.
❖ A Minor is always given the Benefit of being a Minor: Even if a minor falsely
represents himself as a major and takes a loan or enters into a contract, he can plead
minority. The rule of estoppel cannot be applied against a minor. He can plea his
minority in defense.
❖ Contract by Guardian: Under certain circumstances, a guardian of a minor can
enter into a valid contract on behalf of the minor. Such a contract, which the guardian
enters into, for the benefit of the minor, can also be enforced by the minor.
However, guardians cannot bind a minor by a contract for buying immovable property.
But, a contract entered into by a certified guardian of a minor, appointed by the Court,
with approval from the Court for the sale of a minor’s property can be enforced.
❖ Insolvency: A minor cannot be declared insolvent as he cannot avail debts.
Also, if some dues are pending from the properties of the minor and he is not
personally liable for the same.
.❖Joint contract by a Minor and an Adult: In case of a joint contract between
an adult and a minor, executed by the guardian on behalf of the minor, the
liability of the contract falls on the adult.
2. Person of Sound Mind
According to Section 12 of the Indian Contract Act, 1872, for the purpose of
entering into a contract, a person is said to be of sound mind if he is capable of
understanding the contract and being able to assess its effects upon his
interests.
It is important to note that a person who is usually of an unsound mind, but
occasionally of a sound mind, can enter a contract when he is of sound mind.
No person can enter a contract when he is of unsound mind, even if he is so
temporarily. A contract made by a person of an unsound mind is void held in
Amina Bibi v. Saiyid Yusuf (ILR (1922) 44 All 748)

3. Disqualified Persons
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.
 Consent
Two or more persons are said to consent when they agree upon the same thing in the
same sense. —Two or more persons are said to consent when they agree upon the
same thing in the same sense."
It is based on Principle consensus-ad-idem which means meeting the minds of all
parties to the contract in the same way in the same sense.
Illustration-“A” and “B” are the two parties enter into a contract to share total money
generated from the house rent of their ancestral home in which “A” and “B” gave
their respective consent.
COERSION- Sec 15

UNDUE INFLUENCE- Sec 16

Free
Consent FRAUD- Sec 17
(Section -14)
MISSREPRESENTATION-Sec 18

MISTAKE –Sec 20
 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.
In Chikham Amiraju v. Chikham Seshamma (1917) 41 Mad 33, the Husband Held held out a threat
of committing suicide to his wife and son if they did not execute a release deed in favor of his
brother.
For example: A threatens to hurt B if he does not sell his house to A for 5 lakh rupees. Here even if B
sells the house to A, it will not be a valid contract since B’s consent was obtained by coercion.
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.
For example : A sold his gold watch for only Rs 500/- to his teacher B after his teacher promised him
good grades. Here the consent of A (adult) is not freely given, he was under the influence of his
teacher.
 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. In P.C Chacko and Anr vs
Chairman LIC of India (2007): In this case, The court held that the insured did not disclose
all material facts of the contract, so it amounts to fraud.
For example: A bought a horse from B. B claims the horse can be used on the farm. Turns
out the horse is lame and A cannot use him on his farm. Here B knowingly deceived A and
this will amount to fraud.
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.
 Mistake (Section 20,21&22)
According to Section 20 of the Indian Contract Act, a contract is declared void when a
mistake is caused by both the parties that bilateral mistake, which violates the essentials to
an agreement.
Illustration: “A” made agreement with “B” to sell the goods and the agreement was
done. “A” was not aware of the fact that the goods are perished due to some reason. In this
case, the contract would be void because the basis on which the contract was made does
not exist.
Mistake of law
People should have minimum knowledge about the law, they should be aware of the fact
that which act they should restrain from doing and which they are ought to do. And there
would be no remedy provided or excused under the fact of mistake of law in these
circumstances.
In the case of Ram Chandra v Ganesh Chandra [39 Ind Cas 78 ], it was seen that the
complainant entered into an agreement of lease of coal mining with the respondent. As per
the agreement, the complainant made payment in advance to the respondent. But the
Privy Council and the decision of the Calcutta High Court questioned the understanding of
the law between the parties. Thus the complainant refused to continue the contract and
sued the respondent for the refund. Taking precedent of Cooper v Phibbs, it was held that
the complainant would be entitled with the refund paid by him.
 Mistake of fact
When there is a bilateral mistake causing a contract void, it is subjected to a mistake of
fact and not to mistake of law. When there is a misunderstanding between the parties
or omission of facts which leads to the mistake, is said to be a mistake of fact.
Bilateral mistake
When both parties commit a mistake in the contract under the mistake of facts, the
mistake is considered as a bilateral mistake. This happens due to the lack of meeting of
minds, which is an essential element to constitute free consent. Thus the contract is
made void.
There are two types of bilateral mistake
❖ Mutual mistake
A mistake is said to be mutual when both parties misunderstood each other. Thus it
shows that there is a breach in the principle of consensus-ad-idem in the contracts and
the contract is to be considered as void.
❖ Common mistake
A contract arising out of common mistake is considered to be void. This type of mistake
is possessed by both the parties but this mistake is not the result of mutual mistake, it
arises individually.
➢ Phillips v. Brooks Ltd is an English contract law case concerning mistake. It was held
in this case that a person is deemed to contract with the person in front of them
unless they can substantially prove that they instead of them intended to deal with
another person.
 Consideration (Section 2(d) & 25)
Section 25 of the Contract Act reads- “Agreements without consideration, void unless it
is writing and registered or is a promise to compensate for something or is a promise to
pay a debt barred by limitation law”. This section after defining consideration in
definition clause in Sec.2(d) declares that “consideration is the vital part of a valid
contract” and also states some exception to the rule that it establishes and in such
exceptions, the contract cannot be rendered void even if it is without consideration.
Exceptions
➢ When the contract is in writing and registered
➢ When it is for compensating someone for his voluntary services for the promisor in the past.
➢ When it is a promise, signed or made in writing by the person or his agent to pay whole or part of
a debt which is barred by the law of limitation.
Note:
❖ In case of transfer of any gift from one person to another, this section does not affect its validity.
❖ Mere inadequate consideration in a contract does not render it to be void under this section.
However, inadequacy may be taken into account to check whether the consent was free or not.
Promise without consideration case law
In Siqueria v Noronha [AIR 1934 PC 1934], held that “Section 25 is exhaustive; and so
it is able to cover every agreement within its ambit to qualify the enforceability of it. If it
qualifies the agreement, it will be enforceable and if does not it will be not enforceable
at all”. In addition, a mere duty which is moral in nature or a promise to take
membership or subscribe to a charitable institution is void also held in T v Kameshwar
Singh (AIR 1953 Pat 231)
 Void Agreements (Section 24 – 30)

Section 24 : Agreements void, if considerations and objects unlawful in part —

If any part of a single consideration for one or more objects, or any one or any part of any
one of several considerations for a single object, is unlawful, the agreement is void.
Illustration: A promises to superintend, on behalf of B, a legal manufacturer of Indigo, and
an illegal traffic in other articles. B promises to pay A a salary of 10,000 rupees a year. The
agreement is void, the object of A‘s promise, and the consideration for B‘s promise, being
in part unlawful.
Section 26 : Agreement in restraint of marriage void—
Every agreement in restraint of the marriage of any person, other than a minor, is void.

Section 27 : Agreement in restraint of trade void—

Every agreement by which any one is restrained from exercising a lawful profession,
trade or business of any kind, is to that extent void.
Exception —Saving of agreement not to carry on business of which goodwill is sold—
One who sells the goodwill of a business may agree with the buyer to refrain from
carrying on a similar business, within specified local limits, so long as the buyer, or any
person deriving title to the goodwill from him, carries on a like business therein:
Provided that such limits appear to the Court reasonable, regard being had to the nature
of the business.
Section 28 : Agreements in restraint of legal proceedings void—
Every agreement,—
(a) 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, or
(b) which extinguishes the rights of any party thereto, or discharges any party thereto from
any liability, under or in respect of any contract on the expiry of a specified period so as to
restrict any party from enforcing his rights , is void to that extent.
Section 29 : Agreements void for uncertainty—
Agreements, the meaning of which is not certain, or capable of being made certain, are
void.
Illustrations: (a) A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to
show what kind of oil was intended. The agreement is void for uncertainty.
Section 30 : Agreements by way of wager, void—
Agreements by way of wager are void; and no suit shall be brought for recovering anything
alleged to be won on any wager, or entrusted to any person to abide by the result of any
game or other uncertain event on which any wager is made.
Exception in favour of certain prizes for horse racing.—This section shall not be deemed
to render unlawful a subscription or contribution, or agreement to subscribe or
contribute, made or entered into for or towards any plate, prize or sum of money, of the
value or amount of five hundred rupees or upwards, to be awarded to the winner or
winners of any horse race.