Essential elements of a Valid Contract – Indian Contract

Act,1872

• Indian Contract Act,1872 was enacted on 25 April,1872. It

lays down all the provisions relating to contracts and governs all
the disputes related contracts in India. This Act is based on the
principles of English Common Law. It is applicable throughout
India.
• An Agreement is a promise or set of promises forming
consideration for each other. When this agreement becomes
legally enforceable, it is called a contract.
• Contract is basically an agreement oral or written between two or
more parties which defines rights,duties and obligations which
each party has to perform.
• Agreement + Enforceable = Contract
Definitions of Contract
• Sir Fredrik Pollock– ‘’Every agreement and promise
enforceable by law is a contract’’.
• Salmond– ‘’A contract is an agreement creating and defining
an obligation between two or more persons by which rights are
acquired by one or more to acts or forbearances on the part of
others’’.
• Anson- ‘’The law of contract is that branch of law which
determines the circumstances in which a promise shall be legally
binding on the person making it’’.
Illustration: X enters into a contract with Z to sell his house for
Rs.2,50,000. Here, X has to sell his house and Z has to pay 2,50,000.
This is an example of a valid contract.
Essentials Elements of a Valid Contract
Section 10 of the Indian Contract Act,1872 lays down conditions
which makes a contract valid. Following are some of those conditions:
1. Offer
2. Acceptance
3. Intention to Create Legal Relationship
4. Lawful Object and Lawful Consideration
5. Consideration should not be forbidden by law
6. Capacity to Contract
 7. Possibility of Performance
8. Legal Formalities
9. Free consent
Offer
• The word offer and proposal are often used interchangeably.
Offer is the first step in the formation of a contract or agreement.
• According to section 2 (a) of the Indian Contract
Act,1872 “When one person signifies to another his willingness
to do or to abstain from doing anything, with a view to obtaining
the assent of that other to such act or abstinence, he is said to
make a proposal’’
• The person who makes an offer is
called ‘’Offeror’’ or ‘’Promisor’’ and the person to whom the
offer has been made is called Offeree or Promisee.
• Offer must be definite, clear, complete and final. A proposal when
accepted becomes a promise or agreement. Offeror must
communicate his willingness to enter into a contract. Mere desire
or willingness to enter into contract is not enough. Offer and
acceptance must be ‘’consensus ad idem’’ which means both the
party must agree on the same thing and in the same manner.
• Illustration – Mr. A owns several cars. He enters into an
agreement with Mr. B to sell one of his cars. He tells Mr. B,
will you buy my car at Rs. 2,00,000/- This is not a valid offer
as Mr. A did not specify the car he is talking about. Here, the
offer is ambiguous.
Acceptance
According to section 2(b) of Indian Contract Act,1872, when a
person to whom a proposal has been made, signifies his assent thereto,
Following are some conditions of a valid Acceptance:
• Acceptance must be absolute and unqualified – Acceptance
must be absolute. There should not be any conditions attached to
acceptance.
• Example: A offers to sell his laptop to B at Rs. 35000/- B
replies that he will buy it for Rs. 30000. This is not a valid
acceptance. Here, there is a condition attached to the
acceptance.
 • Acceptance must be Communicated – Acceptance must be
communicated to the offeree in the manner prescribed. A mental
acceptance to an offer is not a valid acceptance. Acceptance must
come to the knowledge of the offeror.
• Example: A tells B to communicate his acceptance to him by
a whatsapp message. But, B sends his acceptance by post. This
will be an invalid acceptance unless B informs A that the
acceptance is not according to the manner prescribed.
• Acceptance must be communicated within a reasonable
time – Acceptance must be communicated within the time
prescribed. If no time period is prescribed, then it must be given
within reasonable time.
• Illustration: Mr. B makes an offer to C to sell his new car to
Mr C and asks him to communicate acceptance by the end of
the week. Mr. C communicates the acceptance next week.This
acceptance will not be valid because the acceptance had to be
communicated within prescribed time.
• Illustration – Mr. A wants to sell his smartphone to Mr. B.
He says to Mr B, ‘’Will you buy my smartphone at Rs.15000/-
’’? Here Mr A is making an ‘’offer’’ so he is an offeror and
Mr.B is an’’ offeree’’. If Mr. B accepts the offer, it will be
deemed as acceptance. Mr
Intention to Create Legal Relationship
• The intention of the Parties must be to create a Legal
Relationship between them. Agreement of social or domestic
nature (agreement between spouses, friends or Children) are not
enforceable by law. The parties to the agreement must make it
clear while entering into a contract that they want to create a legal
relationship. If any party to the contract fails to comply with the
terms of the agreement, then it will amount to breach of contract
and will give rise to legal consequences.
• Illustration – A Father promises his son to buy him a bicycle
if he scores 90% in his exam. Later on, father refuses to buy
his son a bicycle even after scoring 90%. This will not amount
to any breach of contract as there was not international to
create a legal relationship between a father and his son.
Lawful Object and Lawful Consideration
• Section 2(d) of Indian Contract
Act,1872 defines consideration as ‘’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;’’
• Object and consideration of an agreement must be lawful. It
must not be illegal, immoral, forbidden by any law or opposed to
public policy. Consideration means something in return.
• For a valid contract, there must always be transfer of
consideration from both sides. Both the parties to agreement must
receive something of value in return of promise. Consideration is
one of the most essential elements of a contract. Consideration
must be lawful. There cannot be a contract without consideration.
• Any agreement which has unlawful objects or consideration will
be void. According to Section 23 of the Indian Contract
Act,1872. lays down certain consideration that would make a
consideration and object unlawful.
Consideration should not be forbidden by law
• Consideration should not be of such nature, if permitted, it would
defeat the provisions of any law or, is fraudulent.
• If consideration involves or implies injury to the person or
property of another. The Court regards it as immoral or opposed
to public policy.
• Illustration A promises to sell his car to B at Rs.100000, B
promises to pay Rs. 100000 to A. This is an example of valid
consideration.
• X enters into an agreement with Z to sell narcotics substances
in exchange of Rs. 15000/- This is not a valid agreement
because the object of agreement is unlawful.
Capacity to Contract
• The parties to the contract must be competent. An agreement with
a person who is a minor will be void ab initio. Section 11 of
Indian Contract Act lays the following condition to specify
competency of parties to the contract.
 • Parties to Contract must have attained the age of majority ie.18
years in normal cases and 21 years if guardian is appointed by the
Court.
• Parties must be of sound mind while making a contract. A person
who is usually of unsound mind, but occasionally of a sound mind
can make a contract when he is of sound mind. However, if a
person is usually of a sound mind but, occasionally of unsound
mind cannot make a valid contract when he is of unsound mind.
• Parties must not be disqualified from contracting by any law to
which he is subject.
• Illustration: A enters into agreement with B who is a minor
to sell a bike. This is not a valid contract.
Possibility of Performance
• Agreement must be capable of performance. If agreement is not
capable of performance, it is void. In order to make an agreement
valid, the terms of the agreement must be clear, certain and
capable of performance. An agreement to do an impossible act is
void.
• Illustration: A enters into an agreement with B to bring back
C to life who is already dead. This agreement is void.
Legal Formalities:
According to Indian Contract Act,1872, a contract can be both in oral
or in writing. Contract involving movable property can be made orally
but contract involving immovable property must always be in writing.
However, it is advisable that the contract must always be in writing
because it will be easier to prove in the court if any dispute arises
between the parties in future. Contract must be signed and attested by
witness and registered if required by the law.

Illustration: X entered into an oral agreement with Y to sell his bike.

This is a valid agreement.
Free Consent –Sec 14
The parties must enter into an agreement with free consent. The parties
should enter into an agreement with his own wish and will and not by
coercion, undue influence, fraud, mistake or misrepresentation.
Consent will be deemed to be free only if it does not constitute the
following elements;
Coercion:
• Coercion is defined under section 15 of Indian Contract
Act,1872 as “Coercion” is the committing, or threatening to
commit, any act forbidden by the Indian Penal Code under
(45,1860), or the unlawful detaining, or threatening to detain, any
property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement.
• Illustration: X threatens Z to kill him if he does not transfer
all his money to him. Z transfers all his money to X to save his
own life.This agreement is not valid as the money was
transferred by coercion.
Undue Influence:
• According to section 16 of the Indian Contract Act, 1872, ‘’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
that position to obtain an unfair advantage over the other.
• Illustration: A sells his land to B, who is his employer at a
very low price in order to get promotion. Here, A’s consent
was not free and he was under undue influence of his
employer.
Fraud:
Section 17 of Indian Contract Act states that,’’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 or his agent, or to induce him to enter into the contract:
• the suggestion, as a fact, of that which is not true, by one who
does not believe it to be true;
• the active concealment of a fact by one having knowledge or
belief of the fact;
• a promise made without any intention of performing it;
• any other act fitted to deceive;
• any such act or omission as the law specially declares to be
fraudulent.
• Illustration: A sells his watch to B, claiming that the watch
is original and antique. Later on, B finds out that the watch is
not original and antique.
Misrepresentation:
According to section 18 of Indian Contract Act,
1872 misrepresentation means and includes:
• 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;
• any breach of duty which, without an intent to deceive, gains an
advantage of the person committing it, or any one claiming under
him, by misleading another to his prejudice, or to the prejudice of
any one claiming under him;
• causing, however innocently, a party to an agreement, to make a
mistake as to the substance of the thing which is the subject of the
agreement.
• Illustration: A enters into a contract with B to sell his horse.
B wants a horse that is ideal for racing as he wants to
participate in a horse racing competition. A sells a sick horse
to B by misrepresenting it to be an ideal horse for racing. Later
on, he finds out that the horse is sick and not capable of running
in competition. This amounts to misrepresentation and this
contract is void.

Mistake:
• According to section 20 of Indian Contract Act, 1872, Mistake
is where both the parties to an agreement are under a mistake as
to a matter of fact essential to the agreement. Mistakes can be
both unilateral (one party is under mistake as to matter of fact)
and bilateral (both parties to agreement are under mistake as to
matter of fact).
• Illustration: X enters into an agreement with Y to sell
German Shefford. At the time of agreement, the dog was
already dead. Both X and Y was not aware of it. This contract
is void due to mistake of fact.
Types of Contracts under Indian Contract Act, 1872
Indian Contract Act classifies Contracts into various types on the basis
of mode of creation, extent of execution, enforcement.
Types of Contracts on the basis of Mode of Creation
Express Contract
• According to Section 9 of Indian Contract Act If any proposal
or acceptance of any promise is made in words, the promise is
said to be expressed.
• Hence, if any offer or acceptance is made in words either orally
or in writing, it will be considered as Expressed Contract.
• Illustration: X texts his friend Y and offers him to sell his
watch. Y communicates his acceptance to buy the said watch
on a phone call. This is an example of expressed contract as
the terms of contract are in words (orally).
Implied Contract
• According to section 9 of Indian Contract Act when any
proposal or acceptance of any promise is made otherwise than in
words, the promise is said to be implied. Hence, if any offer or
acceptance is made in any manner other than in words like signs,
gesture, actions, circumstances or conduct of the parties, it will
be considered as Implied Contract.
• Illustration: A person enters a restaurant and orders food for
himself or A person orders a TV set from an online shopping
website on cash on delivery payment option. These are implied
contracts.
Quasi Contract
• Quasi Contract is a contract which is created by a court or
conduct of parties. In a Quasi Contract, there is no formal
agreement between parties but their conduct gives rise to a
contract. It is basically created to rectify circumstances where one
party benefits at the expense of the other party.
• Illustration: Mr B gets some chocolates delivered to Mrs C (his
wife). The delivery boy delivers the chocolates to Mrs. D (wrong
address). Mrs. D consumes the chocolates assuming it to be a gift.
This is a quasi-Contract and Mrs. D is liable to either return the
chocolates or pay equivalent amounts to Mr.B.
Types of Contract on the basis of extent of execution
Executed Contract
 • When both the parties to a contract have performed their
obligations under the contract, it is said to be an executed
contract.
• Illustration:
A person goes to a shop to buy vegetables. He buys the
vegetables, pays the money to the shopkeeper then and there.
Both the parties have performed their duties (the shopkeeper
sold the veggies and the person paid the money). This is an
example of an executed contract as the act of offer and
acceptance are done instantly.
Executory Contract
• Executory Contract is a contract that has not been fully
performed or fully executed. When one or both the parties to the
contract have not fulfilled their obligation, it is an executory
contract.
• Illustration: contracts entered with online shopping sites are
generally executory as delivery of goods takes some time.
Unilateral Contracts
• Unilateral contracts are one- sided contracts. In unilateral
contracts, only one party makes a promise. It is a contract in
which the offeror promises to perform its obligations after
occurrence of a specified act/event.
• Illustration: Fire insurance for houses is an example of
partially unilateral contract. Insurance companies will pay the
insurance amount only if the house is destroyed by fire.
Bilateral Contracts
• Bilateral Contract is a contract in which both the parties to
contract promises to perform its obligations.
• Illustration: contract between buyer and seller is an example
of bilateral contract.
Types of Contract on the basis of Enforcement
Valid Contract
• Valid Contract is a contract which has satisfied all essential
elements of a valid contract. Valid Contracts are enforceable in
the Court of Law. An agreement which has fulfilled all the
essentials elements like free consent, competent parties,
 lawful consideration and object etc provided under section 10
of Indian Contract Act,1872 is a valid contract.
• Illustration: A and B, both majors entered into a contract to
sell a bike for Rs. 20,000/- wherein A offers to sell his bike to
B and B accepts to buy the bike. This is a valid contract since
both the parties are major and the object and consideration of
contract is legal.
Voidable Contract
• According to section 2(i) 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. Parties to the contract have the
option to either affirm or reject it.
• Illustration: X enters into an agreement with Y who is a
minor to buy a laptop. Agreement made by A is valid but
agreement made by Y is voidable because a contract can be
valid only when parties are competent to contract. So, this is a
voidable contract.
Void Contract
• According to section 2(j) of Indian Contract Act “A contract
becomes void when it ceases to be enforceable by law’’ It does
not give rise to any mutual rights and obligation between the
parties to contract.
• Illustration: A enters into an agreement with B to traffic
children from one Kolkata to Mumbai. This is a void contract.
Unenforceable Contract
• Unenforceable Contracts are contracts which cannot be
enforced in a court of law. A contract can become unenforceable
for a number of reasons like ambiguous terms in a contract,
natural calamities, expiry of limitation period etc.
• Illustration: Mr B entered into a contract with a wholesaler
to supply him 100 tins of jam. Jam were stored in the
warehouse at the time of execution of contract. Goods stored
in the warehouse got destroyed by fire. This contract will
become unenforceable.
 Unlawful/Illegal Contracts
• When subject matter of any contract is illegal. Unlawful or Illegal
contracts have illegal/unlawful objects and consideration.
• Illustration: A enters into a Contract with B to kill C. This is
an unlawful/ illegal Contract.
All Agreement are not Contracts but All Contract Are Agreements
• Offer + Acceptance = Promise
• Promise + Consideration = Agreement
• Agreement + Enforceability = Contract
All Contracts Are Agreements because:
An Agreement can become a contract only if it is legally enforceable
by law or fulfils the conditions laid down under section 10 of Indian
Contract Act,1872. So, all contracts are definitely agreements.

All Agreements are not Contracts because:

All Agreements are not Contracts because only those agreements which
fulfill the conditions laid down under section 10 of Indian Contract
Act,1872 become contracts. It is not necessary that all the agreements
will satisfy the conditions laid down under section 10 of Indian
Contract Act,1872.

The aforementioned differences are given in the tabular manner for a

quick review:

S.
AGREEMENT CONTRACT
No.

A Contract is an
An Agreement is each and Agreement which
1. DEFINITION
every promise which is made. is legally
enforceable.

Section 2 (h) of the

Section 2 (e) of the Indian
2. SECTION(S) Indian Contracts
Contract Act, 1872.
Act, 1872.
 BASIC
3. Every Agreement is not a Every Contract is
DIFFERENCE Contract. an Agreement.

4. FIGURE

ENFORCEA- A contract is
An Agreement is not
5. BILITY enforceable by
enforceable by Law.
Law.
A Contract has
seven ingredients.
1. Agreement
2. Legal Purpose
3. Lawful
Consideration
Agreement is itself an
4. Capacity to
ingredient of a Contract and
6. INGREDIENTS Contract
has no ingredients of its own
5. Consent to
as such.
Contract
6. Lawful
Object
7. Not expressly
declared void;
etc.[3]
An Agreement is an informal A Contract is a
7. FORMALITY
document. formal document.
An Agreement could be verbal A Contract has to
8. TYPE(S)
or written. be in written.
Landmark Judgements of Law of Contracts
Balfour vs Balfour
Mr and Mrs Balfour were enjoying vacation in England. When they
were about to leave, Mrs became ill and was advised to stay back. Mr.
Balfour promised to pay her allowance every month for maintenance.
After sometime, differences arose between them and Mr. Balfour
stopped paying allowance. Mrs. Balfour brought action against Mr.
Balfour. The court held that agreement between husband and wife was
purely social and domestic in nature, there was no international to
create legal relationship. Hence, the contract was not enforceable.

Lalman Shukla vs Gauri Datt

Lalman Shukla (plaintiff) was Gauri Datt’s servant (defendant). Gauri
Datt’s nephew went missing and the plaintiff was sent out in search of
the child. After the plaintiff leaves in search of the child, Defendant
offers to give a reward of Rs 501/- to anyone who finds his nephew.
The plaintiff finds the boy and brings him back home. Lalman Shukla
discovers the reward and claims the reward. Lalman Shula filed a case
to claim the reward amount.

The court held that Llaman Shukla was entitled to the reward amount
as there was no contract between them and it was his duty as a servant
to find the missing child. Lalman Shukla had no knowledge of the offer
or contract. There cannot be an acceptance or contract without
knowledge of an offer or contract.

Carlill vs Carbolic Smoke Ball

The Carbolic Smoke Ball Co. made a product called ‘’Smoke Ball’ ’and
claimed it to cure influenza and a number of other diseases. The
company published an advertisement claiming that it would pay 100
pounds to anyone who got sick with influenza after having its product
according to the instructions provided in it. Mrs.Carlill caught
influenza even after taking smoke balls according to the instructions.

Mrs. Carlill filed a case to claim the reward amount. The court held that
when a person fulfils the conditions of an offer, it will amount to
acceptance and there is no need to communicate the acceptance in
contract of general nature. The acceptance of the general offer is given
by conduct. Hence, the court held that Carlill accepted the offer by
consuming the smoke ball as prescribed and so she was entitled to
receive the reward.

Felthouse vs Bindley
In this case, Mr. Felthouse offered to buy a horse. He wrote a letter to
Bindley stating that he wants to buy his horse at certain price and that
if he does not reply, he will assume that Mr. Felthousehas accepted the
offer. Benley could not reply to the letter because he was busy. Later
on, Mr. Bindley refused to sell the horse. Mr. Felthouse filed a case to
claim the horse. The court held that silence cannot be considered as
acceptance. Acceptance has to be expressed or implied.

Harvey vs Facey
In this case, Harvey communicated with the defendant about a Hall Pen
through Telegram.

He said, ‘’Will you sell us Bumper Hall Pen? Telegraph lowest

price’’Facey responded to this telegraph stating that the price of the Pen
to be 900 pounds. Harvey replied to this, stating that they are willing to
buy the Pen at the said amount. The defendant refuses to sell the Pen.
He contended that he never said ‘’Yes’’ to selling. He just quoted the
price. This will amount to an invitation to offer.

Boulton vs Jones
Jones (defendant) sent a written order for goods to a shop owned by
Brocklehurst. The same day Broklehurst sold his shop to Boulton.
Boulton delivered the goods to Jones without informing him that he had
bought the shop. Defendant refused to make payment of the goods.

The court held that the defendant is not liable to make payment because
there was no contract between them. The offer was between Jones and
Brocklehurst. It was held that an offer can be accepted only by the
person to whom it was made.

Chinnaya vs Ramayya
In this case, a lady transfers a certain portion of land to her sister. After
sometime the lady gives her land as a gift to her daughter on the
condition that she will pay Rs. 653/- as an annuity to her sister.

The daughter receives the gift and accepts to give her sister an annuity
of Rs. 650/- Later on, she refuses to give the annuity. The sister files a
case to claim the amount. The court held that the estate received as a
gift and the agreement to pay annuity is a simultaneous agreement and
will be considered as one transaction. Hence, the sister was entitled to
receive the consideration.

Pharmaceutical Society of Great Britain vs. Boots Cash Chemists

Ltd.
In this case, the court held that goods displayed along with a price tag
is an invitation to offer. If the buyer is willing to purchase the goods,
he can make an offer to buy the goods. The seller is not under liability
to sell it. He has the right to accept or reject the offer.

Essentials of Offer and Acceptance

Offer
According to Indian Contract Act, 1872 (Act No.9 of 1872) “Offer”
is define under
Section 2(a) : “When one person signifies to another his willingness
to do or to abstain from doing anything, with a view to obtaining the
assent of that other to such act or abstinence, he is said to make
a Proposal”.
The person who is making the proposal is called offeror or promisor
or proposer and the person to whom the proposal is made is called as
offeree or promise.
For example, “A” made an offer to” B” to buy the house. Here “A” is
the offeror or promisor or proposer and “B” is the offeree or promise.
Essentials of a valid offer
1. Offer must be communicated: -
Communication of offer is the most primary thing which is to be done
for a valid offer. The offeror must communicate offer to the offeree.
The communication can be either in oral or written form. The offer can
directly communicate to the person specific to whom it is offered or it
can be in general in nature.
For example : “A” wants to sell his car and he has published an
advertisement in newspaper which is a form to communicate the offer
to general public. Hence it is a valid offer.
In case of Lalman Shukla v. Gauri Dutta The High Court of Allahabad
that knowledge and acceptance of a proposal must be communicated to
people are the basic essentials in order to constitute a valid contract.
The person can claim reward if he gives his consent and perform the
terms of the proposal.
2. Must create legal relationship: -
A valid offer creates a legal relationship which means there must be an
intention of the offeror to work under legal obligation or to be legally
bounded by law not under social obligation.
For example: “X” (Father of Y) says to “Y”, if he passes the exam he
will get a new video game. “Y” passed the exam asked his father to
give him video game as he had promised to Y. Here X is not legally
bound as the offer doesn’t create any legal obligation against X.
In case of Balfour v. Balfour . They were married couple. Husband
promised to his wife to send £30 per month. But husband failed to do
so. Then wife filed the case against him and it was held that there was
no intention to create legal relation. Thus the agreement was not valid.
3. Definite, unambiguous and certain in nature:
Offer must be certain as specified in [Section 29], it must be
unambiguous means that the thing offered must clearly specified.
For example: Mitesh offered to sell his car to Tanmay. Mitesh is owned
two cars one is of Ford & other is of BMW and Mitesh offered his Ford
car to Tanmay but Tanmay thought Mitesh if offering him his BMW
one. As in the offer it was not definite which car Mitesh wants to sell,
thus this is not a valid offer.
4. It must be distinguished from invitation to offer: -
The offer makes a person to enter into a legally binding contract
whereas invitation to offer invites the person to enter into contract.
For example: A suit was displayed with a price tag in a shop. This is
not a offer it is invitation to offer.
5. It may be general or specific in nature: -
The offer can be given to public at large in general by advertisement in
newspaper etc. or it can be given specific person too.
6. Offer must be made with a view to obtain the assent: -
The offeror must obtain consent which should be “free” in nature as
define under Section 14 as it defines it should not be taken under
coercion [section 15], undue influence [Section 16], fraud [Section 17],
misrepresentation [Section 18] & Mistake [Section 20, 21 and 22].
Different Types Of Offers
1. GENERAL OFFER: -
When an offer made at large or in public or in general this offer is
known as General Offer. It can be accepted by any individual or public
at large whoever is interested in the offer offered. When a person
accepts the offer given then offeror and offeree enter into contract. The
reward will be given to that person who completed the task given or
fulfilled the given condition.
CASE: CARLILL v. CARBOLIC SMOKE BALLS CO. (1893)
This is the landmark judgment of general offer. In this case it held by
the Court of Appeal that whosoever fulfills the terms and condition of
the offer will be eligible for the reward of the offer.
2. SPECIFIC OFFER: -
The offer which is made to an individual or to a specific group of
individual is said to be Specific offer. It can be accepted by that
individuals or that group of individual.
Example: Sandhya offer to buy a car from Sona for Rs. 10 lakhs. Thus,
a specific offer is made to a specific person, and only Sona can accept
the offer.
3. COUNTER OFFER: -
When an offeror makes an offer to offeree and offeree with some
modification in it makes converse offer which makes initial offer void
and the other comes in existence, which reverse the party from offeror
and offeree to offeree and offeror respectively this type of offer is
known as counter offer.
CASE: HYDE v.WRENCH (1840)
Defendant(offeror) offered to sell his farm for £1000 but the
Plaintiff(offeree) offered him £950 and subsequently rejected the offer.
So, the offeree filed the case as the offeror was bind by the contract but
it was held that as soon as offeree put the condition the first offer
becomes void which means that the offeror is not bounded by the
contract as the original offer was rejected by the offeree.
4. CROSS OFFER:-
When the offeror and offeree make the same offer to one another
having same terms out of knowledge of each other is known as cross
offer. In this case there will be no contract due to acceptance of the
offer offered.
CASE: TINN v. HOFFMAN (1873)
In this case Hoffman wrote a letter to Tinn with a offer to sell 800 tons
of iron for the price of 69s per ton. On the same day without any
knowledge Tinn wrote a letter to buy the iron with the price and with
same condition as written by Hoffman. It was held by the court that it
was cross offer and no contract exist & no parties are bound by the
contract.
5. IMPLIED OFFER: -
When an offer is given by body posture, gesture or by action or by the
conduct of the offeror is known as implied offer. The offeree can accept
the offer by understanding the action of the offeror.
6. EXPRESSED OFFER: -
When an offer is express in written or in verbal form then this offer is
known as expressed offer. For example: “C” writes a letter to “D” to
buy his earphone for Rs.500. This is an expressed offer.
7. STANDING OFFER: -
When tender is submitted to supply certain goods or any quantity as
and when required it will amount to standing offer. In such a case
contract does not come into existence merely when tender is accepted,
but a contract takes place only after the order is placed. Each order in
such a case is acceptance and as soon as the offer is accepted the
contract comes into existence.

Consideration

Section 2(d) of the Indian Contract Act defines the term consideration
as follows-

When at the desire of the promisor, the promisee or any other person

• Has done, or abstained from doing something;

Or

• Does or abstains from doing something;

Or
 • Promises to do, or to abstain from doing something;

Then such act, abstinence or promise is called a consideration for the

promise.

In short, the term consideration means ‘something in return’ i.e. ‘QUID

PRO QUO’.

Pollock- “the price for which the promise of the other is bought, and
the promise thus given for value is enforceable”.

Blackstone- “the recompense given by the party contracting to the

other”

In Currie v. Misa, Lush J. define the term consideration as follows-

“A valuable consideration, in the sense of the law, may consist either

in some right, interest, profit or benefit accruing to the party, or some
forbearance, detriment, loss or responsibility given, suffered or
undertaken by other”.

Illustration- A agrees to sell his car to B for Rs. 50,000. Here, B’s
promise to pay the sum of Rs. 50,000 is the consideration for A’s
promise to sell the car, and A’s promise to sell the car is the
consideration for B’s promise to pay the Rs. 50,000.

Essential elements of consideration

In accordance with Section 2(d), the essential features of a valid

consideration are as follows:

1) It is given ‘at the desire of the promisor’;

2) It may move from any person;

3) It can be past, present or future consideration;

4) It must be real and possess value. It must not be illusory;

5) It must be something other than the Promisor’s existing

obligation;

6) It must be lawful.

1) It is given ‘at the desire of the Promisor’

The action or abstinence from action must be done at the desire of the
promisor. If the promisee has does something or abstains from doing
something at the desire of a third party or voluntarily, it is not valid
consideration. The consideration has to be done at the instance of the
promisor or the promise will not be able to enforce the same.

Illustration: At the request of the collector of the District, X spent

money and constructed some shops. Y, a shopkeeper who occupied
one of those shops, promised to pay to X commission on the sale of
goods made by him as consideration for the money X spent on the
construction. X sued Y to recover the promised commission. Since, X
had not constructed the shops at the desire of the Y (the promisor
here); there was no valid consideration as required by Section 2 (d).
Thus, the agreement was void and Y was held not liable to pay the
promised amount. The facts are similar to the case of Durga Prasad
vs. Baldeo[1]

2) It may move from any person.

It does not matter who furnishes the consideration. The consideration

may be moved by the promise himself or any other person including.

In the case of Chinnaya v Ramaya[2], X – an old woman, gave away

certain immovable property to her daughter through by a registered
deed. She also directed her daughter to pay an annuity to Y – the old
woman’s sister. The same day, the daughter executed a deed in
writing and undertook to pay annuity to Y. Subsequently, the
daughter failed to pay annuity and Y brought a suit for its recovery.
The daughter pleaded that she was not liable because no consideration
had moved from Y. The Court held that the words’ the promisee or
any other person’ in Section 2(d) made it clear that consideration need
not move from the promise only and Y was entitled to maintain the
suit for recovery.

3) It can be past, present or future consideration.

a) Past Consideration. Consideration is the price for a promise and

thus, it is usually given in response to and as an inducement for the
promise. If the consideration is given earlier than the date of promise
by the promisor, then it is known as past consideration.

For instance, the promise to pay a debt that one is already under an
obligation to pay is past consideration. Past consideration is usually
not considered to be consideration for the new promise because it has
not been given in exchange for the ‘new’ promise.

Past consideration as good consideration under Indian Law as long as

it was given at the desire of the promisor.

Illustration: X renders service to Y during months of agricultural

harvesting. Y promises to pay Rs 1000 to X for his past services when
the new crop is being sown in the fields. The past services of X
constitute valid consideration.

English law does not recognise past consideration. However, the

English law treats an act done at request to be good consideration for
a subsequent promise. In the case of Lampleigh vs. Brathwait[3], X –
guilty of committing murder, requested Y to try and get him a pardon
from the King. Y travelled at his own expense and put in effort to
secure a pardon. X promised to pay him a certain sum of money but
refused subsequently. It was held that Y had a right to enforce the
promise.
Past voluntary services. A person may render voluntary services to
another without any request or promise. In some cases, the receiving
party may subsequently make a promise to pay for the services
rendered. Such a promise in enforceable in India under Section 25(2)
that provides that “a promise to compensate, wholly or in part, a
person who has already voluntarily done something for the
promisor” is enforceable.

Illustration: X found Y’s purse on the road. He returns the same to Y

who promises to give Rs 100 to X for his services. This is a valid
contract.

Section 25(2) also covers acts done at request and for which a
promise to pay is given later. Every request for an act carries an
implied promise to pay.

In Sindha Shri Ganpatsingji vs Abraham[4], it was held that services

rendered to a minor at his request and also continued after his
majority at the same request were good consideration for the minor’s
promise to pay

b) Present Consideration. When consideration and promise take place

simultaneously, it is called present or executed consideration. For
example, in cash sales, the promise to pay the price and promise to
deliver the goods are performed at the same time. Executed
consideration is good consideration.

Illustration: X goes to a shop and buys a bottle of water from there.

He also pays the price on the spot.

c) Future Consideration. If the consideration for a promise moves

after the formation of the contract, it is called future or executory
consideration.

Illustration: X promises to deliver 10 bags of rice to Y after 10 days

and Y promises to pay for the rice 10 days after the delivery by X.
It is a promise to do, abstain or suffer which is made by one party in
return for a similar promise from the other party. Even is the promise
given for a promise is dependent on a condition, it serves as valid
consideration.

Illustration: X promises to landscape the garden of Y and Y agrees to

pay X as long as the landscape plans are approved by Z, a third party.
Y’s promise is valid consideration for X’s promise.

4) It must be real and possess value. It must not be illusory

Consideration must have some value in the eyes of law. A worthless

act cannot satisfy the spirit of the definition.

Illustration: While the consideration must be real, it does not need to

be adequate for the promise. It is for the parties to consider what is
adequate consideration for them? This principle of English Law is
also enforced in India.

Explanation 2 to Section 25 provides that a contract which is

supported by consideration is valid irrespective of the fact that the
consideration is in adequate.

A contract is not invalid merely due to inadequacy of consideration.

However, the Courts may look into inadequacy of consideration to
ascertain whether the consent of a party was free or not.
Consideration need not be adequate but it must be sufficient in the
eyes of law.

‘Forbearance to sue’ refers to a scenario where a party has a right of

action against the other party or a third person and he refrains from
bringing action in consideration of promise by the other or third party.
Forbearance to sue is valuable consideration provided such action
does not give rise to an illegal contract.

In Kasturi Devi v Chiranji Lal[5], X – the wife of Y, withdrew her

suit against Y in return for his promise to pay her maintenance. It was
held that it was good consideration.
English common law insists on real and valuable consideration.

In the case of White v Bluett[6], X – the son of Y, used to constantly

complain to his father that his brothers had received more property
than X. Y promised to release him from an outstanding debt if X
promised to stop complaining. It was held that the promise by X to
not bore Y in the future did not constitute good consideration for Y’s
promise to release him from a debt.

5) It must be something other than the Promisor’s existing

obligation;

Performance of an existing obligation or legal duty is no

consideration for a promise.

Illustration: X receives summons to appear before court of law as a

witness for Y. He is promised certain amount of money by Y for
appearing in Court. The promise to pay X is void because of lack of
consideration for Y as X was already under a legal duty to appear as a
witness before the Court. (Collins vs. Godefroa)

6) It must be lawful.

The consideration must not be unlawful or opposed to public policy.

Illustration: X offers Rs 1000 to Y for beating up Z, his enemy. Y

beats up Z but X refuses to pay him. Y cannot recover the money
promised to him because the consideration is unlawful.

Section 24. Agreement 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 manufacture of

indigo, and an illegal traffic in other articles. B promises to pay to 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.

In the Pinnel[7] case, it was held that a promise to pay less than what
is due under a contract cannot be regarded as consideration. This rule
was affirmed in Foakes v Beer[8].

X, a doctor, was ordered to pay 2000 pounds to Y, a lady, by a

judgment decree. He was unable to pay the entire amount together, so
he entered into an agreement with her that he would 200 pounds
immediately and the rest 1800 pounds in installments. After the last
installment was paid, she sued for recovery of interest on judgment
debt. It was held that Y was entitled to the payment of judgment debt
as well as the interest till the date of final payment because there was
no consideration for her promise to accept anything less than the sum
to which she was entitled.

Indian Contract Act

As per section 25 of the Indian Contract Act does not specify any
exception similar to the common law but lays down a few exceptions.
It states that an agreement without consideration is void, unless

(i.) it is in writing and registered,

(ii.) Or is a promise to compensate for past services,

(iii.) Or is a promise to pay a time debt barred.

Thus, The exceptions to the Doctrine of Consideration as per The

Indian Contract Act are:

I. Natural love and Affection

A written and registered agreement which is based on natural love and
affection between kins is enforceable without consideration.
In Rajkukhy Dabee v Bhootnath Mookerjee[2].

The defendant promised to pay his wife a fixed sum of money every
month for her separate residence and maintenance. The agreement was
a registered document in which certain quarrels and disagreement
between the two were mentioned. The Calcutta High Court refused to
regard the agreement as one falling under this exception. The court
could find no trace of affection between the parties whose quarrels had
compelled them to separate. In this exception, it is necessary that the
agreement is entered into with love and affection.

The decision of Bombay High Court in Bhiwav Shivaram[3], A sued B

his brother for a share in certain lands. But the suit was dismissed as B
solemnly affirmed that the property was not ancestral and agreed by
registers writing to give A one-half of the same property. The present
suit was born to obtain that share. The plaintiff admitted that he and
his brother had been on bad terms. But in spite of the strained relations,
the court held that this is just a case to which section 25(1) should be
applied. The defendant had such natural love and affection for his
brother that in order to be cancelled by him was willing to give him his
property

II. Past voluntary service

A promise to pay for a past voluntary service is binding and such

agreements don’t require an exception. It is necessary that services are
rendered voluntarily. For example, If A supports B’s infant son and B
promises to pay A’s expenses in so doing. This is a contract. Noting
that B was legally bound to support his infant son. As per this
exception, the promise must be to compensate a person who has
himself done something for the promisor and not to a person who has
done nothing for the promisor.
Thus, where B treated A during his illness but refused to accept
payment from A; being friendsA out of gratitude promises to pay ₹
1,000 to B’s son D, the agreement between A and D is void for want of
consideration as it is not covered under this exception.

III. Time-barred debt

A written promise to pay a debt barred by the Limitation Act is
enforceable even without consideration. The agreement must be signed
by the promisor or by his agent or any other person authorized by
him.[4] For example, A owes B Rs 1,000. The debt is time-barred by
the Limitation Act. A signs a written promise to pay B the sum of Rs
1,000. This is a valid contract and no consideration is required. A
cheque issued for a time-barred debt falls under section 138 of the
Negotiable Instruments Act[5] in the view of Sec 25(3)[6].

IV. Completed gift

The gift presented by a donor and donee by the receiver will be a valid
agreement even without consideration. Thus, in the agreements made
by way of gift, consideration is not necessary. In Vasant Rajaram
Narvekar v Ankusha Rajaram Narvekar[7] gift by mother to her minor
son under gift deed with the right to property up to her lifetime. The
son kept it with his father and did not repudiate on attaining majority.
Thus, accepted and irrevocable.

V. Contract of agency
Section 185 specifically states that no consideration is necessary to
create a contract of agency. Thus, when a person is .appointed as an
agent, his appointment agreement is valid without consideration. An
agent gets the commission as remuneration, but no consideration is
necessary at the time of appointment agreement is made.

Illustrations
 1. A offers to sell his house to B for a sum of Rs. 50,000. B
accepts the offer. In this contract, for A’s promise, the
consideration is a sum of Rs. 50,000 while for B’s promise
consideration is the house.
2. A, out of his love and affection, promises to give his wife, Rs.
10,000. This promise is put into writing and is registered. It will
be a valid contract without consideration.
3. A owes B Rs. 2,000 but the debt is barred by the Law of
Limitation. A sign written promise to pay B Rs. 1,000 on
account of the debt. This is a valid contract without
consideration.
4. X treated Y during his illness and promised to pay Rs. 1,000 to
Y’s son Z, the agreement between X and Z is void for want of
consideration as it is not covered under this exception.
5. After persistent quarrels and disagreement between husband
and his wife, the husband promised in writing to pay his wife,
a sum of money for her maintenance and separate residence.
The agreement was also registered. It was held that the promise
was not enforceable because it was not entered out of natural
love and affection.

1 Ramaswami proposed to sell his house to Ramanathan. Ramanathan

sent his acceptance by post. Next day, Ramanathan sends a telegram
withdrawing his acceptance. Examine the validity of the acceptance
according to the Indian Contract Act, 1872 in the light of the
following: a. The telegram of revocation of acceptance was received
by Ramaswami before the letter of acceptance. b. The telegram of
revocation and letter of acceptance both reached together.
Answer The problem is related with the communication and time of
acceptance and its revocation. As per Section 4 of the Indian Contract
Act, 1872, the communication of an acceptance is complete as against
the acceptor when it comes to the knowledge of the proposer. An
acceptance may be revoked at any time before the communication of
the acceptance is complete as against the acceptor, but not afterwards.
Referring to the above provisions: a. Yes, the revocation of
acceptance by Ramanathan (the acceptor) is valid. b. If Ramaswami
opens the telegram first (and this would be normally so in case of a
rational person) and reads it, the acceptance stands revoked. If he
opens the letter first and reads it, revocation of acceptance is not
possible as the contract has already been concluded.
A coolie in uniform picks up the luggage of R to be carried out of the
railway station without being asked by R and R allows him to do so.
Examine whether the coolie is entitled to receive money from R under
the Indian Contact Act, 1872? Answer Implied contracts come into
existence by implication. Most often the implication is by law and or
by action. Section 9 of the Indian Contract Act, 1872 contemplates
such implied contracts when it lays down that in so far as such
proposal or acceptance is made otherwise than in words, the promise
is said to be implied. In the present case, it is an implied contract and
R must pay for the services of the cooli

Doctrine of Privity of Contract

The Indian Contract Act clearly states that there cannot be a stranger to
a contract. What does this exactly mean? And are there any exceptions?
This is explained through the Doctrine of Privity of a Contract. Let us
see.

Doctrine of Privity of Contract

The Indian Contract Act. 1872, allows the ‘Consideration‘ for

an agreement to proceed from a third-party. However, a stranger (third-
party) to consideration is different from a stranger to a contract. The law
does not allow a stranger to file a suit on the contract. This right is
available only to a person who is a party to the contract and is called
Doctrine of Privity of Contract.

Let’s understand this with the help of an example:

• Peter has borrowed some money from John.
• Peter owns a property and decides to sell it to Arjun.
• Arjun promises to pay John on behalf of Peter.
However, if Arjun fails to pay, then John cannot sue since Arjun is a
stranger to the contract. It is important to note that the Doctrine of Privity
has exceptions which allow a stranger to enforce a claim as given below.

Exceptions to the Doctrine of Privity of Contract

A stranger or a person who is not a party to a contract can sue on a

contract in the following cases:

1. Trust
2. Family Settlement
3. Assignment of a Contract
4. Acknowledgement or Estoppel
5. A covenant running with the land
6. Contract through an agent
Essentials of a Contract

Let’s look at each of them in details:

Trust

If a contract is made between the trustee of a trust and another party, then
the beneficiary of the trust can sue by enforcing his right under the trust,
even if he is a stranger to the contract.

Arjun’s father had an illegitimate son, Ravi. Before he died, he put Arjun
in possession of his estate with a condition that Arjun would pay Ravi an
amount of Rs 500,000 and transfer half of the estate in Ravi’s name, once
he becomes 21 years old.

After attaining that age when Ravi didn’t receive the money and asked
Arjun about it, he denied giving him his share. Ravi filed a suit for
recovery. The Court held that a trust was formed with Ravi as the
beneficiary for a certain amount and share of the estate. Hence, Ravi had
the right to sue upon the contract between Arjun and his father, even
though he was not a party to it.

Family Settlement

If a contract is made under a family arrangement to benefit a stranger

(person not a party to the contract), then the stranger can sue in his own
right as a beneficiary of the contract.

Peter promised Nancy’s father that he would marry Nancy else would
pay Rs 50,000 as damages. Eventually, he married someone else, thereby
breaching the contract. Nancy filed a case against Peter which was held
by the Court since the contract was a family arrangement with Nancy as
the beneficiary.

Ritika was living in a Hindu Undivided Family (HUF). The family had
made a provision for her marriage. Eventually, the family went through
a partition and Ritika filed a suit to claim her marriage expenses. The
Court held the case because Ritika was the beneficiary of the provision
despite being a stranger to the contract.

What is a Contract?
Assignment of a Contract

If a contract is made for the benefit of a person, then he can sue upon the
contract even though he is not a party to the agreement. It is important to
note here that nominees of a life insurance policy do not have this right.

Acknowledgment or Estoppel

If a contract requires that a party pays a certain amount to a third-party

and he/she acknowledges it, then it becomes a binding obligation for the
party to pay the third-party. The acknowledgment can also be implied.

Peter gives Rs 1,000 to John to pay Arjun. John acknowledges the receipt
of funds to be paid to Arjun. However, he fails to pay him. Arjun can sue
John for recovery of the amount.

Rita sold her house to Seema. A real estate broker, Pankaj, facilitated the
deal. Out of the sale price, Pankaj was to be paid Rs 25,000 as his
professional charges. Seema promised to pay Pankaj the amount before
taking possession of the property. She made three payments of Rs 5,000
each and then stopped paying him. Pankaj filed a suit against Seema
which was held by the Court because Seema had acknowledged her
liability by conduct.

A Covenant Running with the Land

When a person purchases a piece of land with the notice that the owner
of the land will be bound by all duties and liabilities affecting the land,
then he can sue upon a contract between the previous land-owner and a
settler even if he was not a party to the contract.

Peter owned a piece of land which he sold to John under a covenant that
a certain part of the land will be maintained as a public park. John abided
by the covenant and eventually sold the land to Arjun. Though Arjun was
aware of the covenant, he built a house in the specific plot. When Peter
came to know of it, he filed a suit against Arjun. Although Arjun denied
liability since he was not a party to the contract, the Court held him
responsible for violating the covenant.

Contract through an Agent

If a person enters into a contract through an agent, where the agent acts
within the scope of his authority and in the name of the person
(principal).

Solved Example for You

Q1. Vidya purchases a property from Krishna. Rajiv is already living in

the property on a three-year lease. As a part of the purchase agreement,
Vidya takes over the lease. There are some leakages in the house that
Krishna promises to fix, as a part of the contract. A few months go by
and the leakages are still not fixed. Rajiv calls Vidya, the new owner, and
she says that it is Krishna’s responsibility. Can Rajiv file a suit for repairs
against Krishna?

Ans.

Since there is no contract between Rajiv and Krishna about repairing the
leakage, if he files a suit, it will probably be dismissed by the Court.
Krishna had agreed to carry out the repairs in his purchase contract with
Vidya. Hence, she can file a suit against Krishna to get the work done.

Rajiv, on the other hand, can sue Vidya for not performing her
obligations according to the lease contract.

VOID AGREEMENT UNDER SECTION 24 to 30 OF INDIAN

CONTRACT ACT, 1872

What is an Agreement?

“Agreement” is defined in Section 2(e) of the Indian Contract Act,

1872 as “every promise and every set of promises forming the
consideration for each other”. And a promise is defined as an
accepted proposal. And a promise is defined as an accepted proposal.
Section 2(b) of the same act says: “A proposal, when accepted,
becomes a promise.”[1]

Karta: Position, Duties and Powers:- Our Legal World

In other words an agreement is an accepted proposal. A contract is an

agreement; an agreement is a promise and a promise is an accepted
proposal. Thus every agreement, in its ultimate analysis is the result
of a proposal from one side and its acceptance by the other.

To represent the above information below, it could be sum up like

this:

Agreement = Offer + Acceptance

Example- John promises to Mona to sell his Samsung Tablet for Rs.
20,000 and Mona accepts to purchase it for the said amount, here
‘John’ and ‘Mona’ entered into an agreement.

Meaning of Void Agreement

“Void Agreement” is defined in Section 2(g) of the Indian Contract

Act, 1872 as “an agreement which is not enforceable by law is said to
be void.”[2]

Expressly Declared Void Agreement

Indian Contract Act, 1872 lay down the provisions from Section 24 to
section 30 and in section 56 relating to the Agreements, which are
declared void are explained below:

Section 24. Agreements void, if consideration and objects unlawful

in part-
If any part of a single consideration for one or more objects, or any
one or any part part of any one of several consideration of a single
object, is unlawful, the agreement is void.

In the case of Gopalrao v. Kallappa[3], a person was granted licence

for the sale of opium and ganja with this restriction that without the
permission of the collector he would not take any partner in the
opium-ganja business. Later on he admitted a partner without the
permission of the collector after receiving a fixed sum as his share of
capital from him. The new partner filed a case for the dissolution and
refund of his money due to differences arose between them but his
claim was not allowed and the court held that it is impossible to
separate the contract.

Section 25. Agreements without consideration-

This section says that an agreement made without consideration are

void, unless it is in writing and registered or is a promise to
compensate for something done or is a promise to pay a debt barred
by limitation law.

Section 26. Agreement in restraint of Marriage void-

Every agreement that restraints the marriage of a major (other than

minor) is a void agreement.

In the case of Lowe v. Peers[4], the husband contended that other than
the plaintiff if he marries to to a lady, he would give her 1000 pounds
within three months of his marriage but it was held that such an
agreement is void.

Section 27. Agreement in restraint of trade void-

Every agreement that debars any one from exercising a lawful

profession i.e., from starting or continuing his trade or business, in
return for some consideration, is to that extent is void.
The scope of the this section came up for consideration before the
Calcutta High Court first in the case of Madhub Chander v. Raj
Coomar[5].

“The classification of agreements in restraint of trade must fluid and

the categories can never be closed”[6].

This section contains one exception i.e., Sale of Goodwill- Saving of

agreement not to carry on business of which goodwill is sold.

Any restraint through which a person binds himself would be covered

under the exceptions to this section and would not be void[7].

In Firm Daulat Ram v. Firm Dharm Chand[8], the restraint was held
to be valid as in a partnership, two similar business owners, came to
an agreement that only one of their factories would work at a time and
the profit will be shared between them.

Section 28. Agreements in restraint of legal proceedings void-

a) It says that in case of breach of contract any agreement that

restricts an aggrieved party from enforcing his rights to approach a
relevant court or tribunal or limits the time within which he may to do
so, is a void agreement.

b) It further says that any agreement that extinguishes the rights of

any party or discharges either of the parties from liability is a void
agreement.

This section have three exceptions:

1) Saving of contract to refer to arbitration dispute that may arise.

2) Saving of contract to refer questions that have already arisen.

3) Saving of a guarantee agreement of a bank or a financial

institution.
In the case of Food Corporation of India v. New India Assurance
Co. Ltd[9], the Supreme Court held that the an agreement which was
made should not be so construed as to bar the other party from
seeking the remedy of the suit.

Section 29. Agreements void for uncertainty-

It says that the agreements whose meaning is not certain, or capable

of being made certain, are void.

Section 30. Agreements by way of wager, void-

According to this section an agreement to wager is a void agreement.

Exception in favour of certain prizes for horse racing.

Wager definition in a most illustrative form is given by HAWKINS J

in Carlill v. Carbolic Smoke Ball Co.[10].

Section 56. Agreement to do impossible act-

It says that an agreement to do an act impossible in itself is void. For

example- Tina agrees with Kapil to discover a treasure by magic,
being impossible of performance is void.

Conclusion

It is concluded that void agreements are the agreement which has no

legal effect as it is not enforceable by law or In other words we can
say that the agreement which does not satisfy the essential elements of
contract is void, for example, the agreement which is made by a
minor, an agreement which is made without consideration, also the
agreements which is made against the public policy.

Free Consent Under the Indian Contract Act, 1872

In the Indian Contract Act, the definition of consent is given in Section
14, which states that “it is when two or more persons agree upon the
same thing and in the same sense”.

Example

‘A’ agrees to sell his house to ‘B’. ‘A’ owns three houses and wants to
sell his house in Haridwar. ‘B’ thinks he is buying his Delhi house.
Here ‘A’ and ‘B’ have not agreed upon the same thing in the same
sense. Therefore, there is no consent and no contract afterwards.

In the case of Raffles v. Wichelhaus, two parties, ‘A’ and ‘B’, entered
into a contract for the sale of 125 cotton bales by a ship named
“peerless” from Bombay. There were two ships with the same name,
and while Party ‘A’ was thinking of one ship, Party ‘B’ was thinking
of the other ship. The court held that there was no meeting of minds by
both parties. Hence the contract was invalid.

Vitiating factors and their effect

1. Coercion (Section 15)

Section 15 of the Indian Contract Act,1872 states that coercion is

committing or threatening to commit, any act is forbidden by the Indian
Penal Code (45 of 1860) or the unlawful detaining or threatening to
detain any property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement.

Coercion means forcing an individual to enter into a contract. When

intimidation or threats are used under pressure to gain the party’s
consent, i.e. it is not free consent.
Coercion may involve the actual infliction of physical and
psychological harm in order to enhance the credibility of a threat. Then
the threat of further harm can lead to the threatened person’s
cooperation or obedience.

Example

‘A’ went out for a walk, ‘B’ approaches ‘A’ with a stranger, pulls out
his gun and asks ‘A’ to give all his possessions. The consent of ‘A’ is
obtained by coercion here.

Effect

Coercion has the effect of making the contract voidable. It implies that
at the discretion of the party whose consent was not free, the contract
is voidable. The aggravated party will, therefore, determine whether to
enforce the contract or to cancel the contract.

Techniques for causing coercion

• Threatening to commit any act which is prohibited by the

Indian Penal Code.
• Detaining not as per law or even threatening to detain any
property, with the sole intention of compelling a person to enter
into a contract.

Acts forbidden by IPC

The word act prohibited by the Indian penal code makes it necessary in
a civil action for the court to decide whether the alleged act of coercion
is amount to an offence. A threat of bringing a false charm with the
object of making another do a thing amount to blackmail or coercion. In
the case of Ranganayakamma v Alwar Sett, where the widow was
prohibited from removing the corpse of her husband until she consented
 for the adoption. The court said that her consent was not free and it was
coerced. It is clear that coercion is committing or threatening to commit
any act which is contrary to law.

Unlawful Detention of property

Consent can be said to be caused by coercion if it is induced because

of illegal confining of a property, or a danger to do as such. With a
specific goal of acknowledging the child’s due fine, the legislature
annexed the property both of him and his father having a place, the
instalment made by the father at that stage bearing in mind the ultimate
goal of saving the property from being sold was kept to be made under
coercion. Refusal by the government to discharge a temporary worker’s
instalment unless he surrenders his demand for additional rates adds up
to intimidation under the land detention class.

Burden of proof

The burden of proof lies with the party defending the coercion. The
burden of proof is heavier on him. This is because pure probability or
fear is not a threat. In order to create coercion, a person must show that
there was a risk that was prohibited by law and that forced him to enter
into a contract that he would not otherwise have.

Difference between Coercion and Duress

The term ‘duress’ corresponds to coercion in English law. However,

Coercion under the Indian Contract law has a wider amplitude than
duress under the English law.

Coercion Duress
 Duress can be employed only against the
Coercion can be employed
life or liability of the other party to the
against any person
contract or members of his family.

Immediate violence
subsequent to coercion is not Duress must cause immediate violence.
an essential element.

Unlawful detention of goods is Unlawful detention is not duress under the

a kind of coercion. English Law.

2. Undue Influence (Section 16)

According to Section 16 of the Indian Contract Act, 1872 an influence

will be considered as Undue Influence when:

• One party to the contract is in a position of trust and controls

the other party wrongfully.
• Such a person uses his dominant position to gain an unfair
advantage over the other.

There are two key elements of undue influence-

1. The relationship- trust, confidence, authority.

2. Unfair persuasion- careful examination of the terms of the
contract.

Where one party is in a fiduciary relation to the other party

Fiduciary relationship means a relationship of trust and confidence.

When a person imposes faith and confidence on the other, he expects
not to be betrayed. If the other party betrays the confidence and trust
reposed in him and gains an undue influence.
Examples of fiduciary relationship includes:

• Solicitor and client;

• Trustee and trust;
• Spiritual adviser and devotee;
• Medical attendant and patient;
• Parent and child;
• Husband and wife;
• Master and servant;
• Guardian and ward.

In other words, we can say that Undue influence occurs when the
decision of another party to the transaction can be influenced by one
party.

Example

‘A’ sold his gold ring to his teacher ‘B’ for Rs 200 after he had been
offered good grades by his teacher. Here, A’s permission is not given
freely, he was influenced by his teacher.

Effect

The effect of undue influence makes an agreement voidable at the

option of the party whose consent was caused. Any such contract can
be set aside. Only a party to the contract can avoid or rescind the
contract. This right does not lie in the hands of the third party.

Burden of Proof

If the plaintiff wants to bring an action to stop a contract entered into

on the grounds of undue influence, two issues must be kept in mind.
The law has been stated in the Indian Evidence Act, 1872 and Indian
Contract Act, 1872. The law states that in order for a plaintiff to prove
that he was under undue influence, two things must be established

1. Not only must the defendant have a dominant position but,

2. He must use it.

It states that it’s not enough for the plaintiff to show the possibility of
undue influence that may have been exercised by the dominant party.
It must be certain that a person used his position to influence the
plaintiff. A possibility of the same is not enough for the plaintiff to
avoid a contract.

Difference between Coercion and Undue Influence

Basic Coercion Undue Influence

Through coercion, by
Under the undue influence,
Nature of committing an offence or
consent is gained by
Action threatening to commit an
suppressing other party’s will.
offence, consent is gained.

Coercion is typically
physical in nature, in order Undue influence is immoral
Carried by to obtain consent, it in nature, using mental
requires a physical force of pressure to gain consent.
violent nature.
 Coercion includes a Undue Influence requires
criminal act and is unlawful act and is not
Criminal
punishable under the IPC punishable under the IPC by a
Action
by a person who commits person who has done undue
coercion. influence

Undue influence can only be

Coercion does not involve exerted if there is a
Relationship
a party’s relationship. relationship between two-
party.

When coercion induces When consent to an

consent to an agreement, agreement is caused by undue
the agreement is null and influence, it becomes null and
Agreement
void at the option of the void at the discretion of the
party whose consent is individual whose consent has
induced. been so affected.

3.Fraud (Section 17)

According to Section 17 of Indian Contract Act, Fraud includes any of

the following acts committed by a contracting party or its connivance
or its agent in order to deceive or induce a party or its agent to enter
into the contract:

• The effective concealment of a fact by one who is aware of the

fact;
• a promise made without any intention to carry it out;
• any other act fitted to deceive;
• any such act or omission as the law considers to be fraudulent.
Mere silence as to facts likely to affect a person’s willingness to enter
into a contract is not fraud unless the circumstances of the case are such
that, having regard to them, it is the obligation of the silent person to
speak or unless his or her silence is, in itself, equivalent to speech.

Example

‘A’ sells his horse to ‘B’ by auction, which ‘A’ knows to be unsound,
‘A’ tells ‘B’ nothing about the unsoundness of the horse. This is a fraud
on the part of ‘A’.

Effect

• The contract arising from fraud is a null contract.

• The misled party has the right to withdraw from the contract.
• Due to the fraudulent agreement, the party is responsible for
recovering the damages.

Evidence and Burden of proof

In a large majority of cases, fraud cannot be proved by concrete and

observable proof. It’s hidden in its movement by its definition. If the
evidence given is such as lead to wrongdoing, it is, therefore,
appropriate that fraud must have been committed. In most cases, the
only tool for dealing with fraud issues is circumstantial evidence. If this
were not allowed, the ends of justice would be constantly, if not
invariably, defeated. Simultaneously, fraud involvement is only to be
blamed on a deliberate wrongdoer. As a remedy for restitution, any real
damages arising from fraud can be recovered, even if they could not
have been reasonably foreseen subject to the defrauded party’s
mitigation law. Due to contributory negligence, the penalties would not
be diminished.

4. Misrepresentation (Section 18)

As per Section 18 of the Indian Contract:

• Misrepresentation means the truth is misrepresented.

• Misrepresentation is the release of deceiving details resulting
in the presumption that the other party will enter into a deal and
then lose. Nevertheless, the information provided by the guilty
party is the result of a genuine belief in the matter.
Misrepresentation is said to be committed.

Firstly, when the deceiving person declares that no justified data is

misleading a person is some way.

Secondly, there is a breach of an obligation that has caused the bias of

one or the other. Lastly, a mistake was committed by a person because
of the misrepresentation of the act or information.

Example

‘A’ told ‘B’ that his radio is in good condition, because of the
confidence he had in ‘A’, ‘B’ bought the radio from him. The radio did
not work properly after some time, ‘B’ thought he was misled by ‘A’,
but ‘A’ believed his radio was in good condition and had no intention
of deceiving him. So, here misrepresentation is in the part of ‘A’,
because he did not know that the radio is not working properly.

Effect

If the party that has suffered as a result of the misrepresentation when

entering into a contract may choose to terminate the contract, rescind
the contract within a reasonable time under the Specific Relief Act
1963.

Kinds of Misrepresentation
There are two types of misrepresentation:

Negligent Misrepresentation

• It is considered to be a negligent misrepresentation when the

misrepresentation happens due to lack of any reasonable
ground and carelessness;
• Negligent misrepresentation is only known when the
representative owed a duty to represented to handle carefully;
• An individual would only be liable if, in particular, he had
ignored the duty specified;
• Even when there is no fiduciary relationship, responsibility
exists between the two parties.

Innocent misrepresentation

• If the portrayal is based on a good reason to believe and there

is no error and malicious motive, then it is said to be an
innocent misrepresentation.
• When a person enters into a contract with an innocent
misrepresentation, he or she has the right to withdraw from the
contract but is not entitled to damages.
• Unless there are reasonable grounds, a contract will not be
void. It would be enough to prove innocence in
misrepresentation to prove the fact.

Burden of Proof

The burden of proof is on the defendant to show that the

misrepresentation was not rendered fraudulently by showing that “He
had reasonable grounds to believe that the evidence portrayed were
valid during the time when the contract was made.” The party making
the misrepresentation carries a heavy burden of proof.
 The distinction between fraud and misrepresentation

Basis Fraud Misrepresentation

A fraudulent act
intentionally Misrepresentation is known
committed by one as the representation of an
Meaning party to induce the innocent mistake, which
other party to enter persuades other parties to
into the contract is enter into the contract.
referred to as fraud.

Section 17 of the
Section 18 of the Indian
Section Indian Contract Act,
Contract Act, 1872
1872.

In order to mislead
Yes No
the other party
 In misrepresentation, the
In fraud, the party
party making the
making the
Variation in extent representation considers the
representation knows
of truth statement made by him to be
that the declaration is
valid, which later turned out
not true.
to be false.

The aggrieved party The aggrieved party has no

Claim is entitled to claim right to sue for damages to the
damages. other party.

The contract is
If the truth can be found with
voidable even if in
Voidable reasonable diligence, then the
usual diligence the
contract is not voidable.
truth can be found.

4. Mistake (Section 20)

There are two forms of mistake under Indian Contract Law:

1. The mistake of Fact,

2. The Mistake of Law.

Mistake of Fact

• A mistake of fact arises when one or both of the contracting

parties have misunderstood a term that is essential to the
meaning of the contract;
• Such a mistake may be done due to confusion, negligence or
omission, etc.;
• A mistake is never intentional; it is an innocent overlooking.
• Such mistakes can be either unilateral or bilateral
Bilateral Mistake (Section 21)

When both the parties to a contract are under a mistake of fact, essential
to the agreement, such a mistake is known as a bilateral mistake.
Bilateral mistakes are also sometimes referred to as mutual or common
mistakes. All the parties do not agree to the same thing and in the same
way, which is the concept of consent. Since there is no consent, the
contract is null and void.

Example

‘A’, agrees to buy a cow from ‘B’, but it turns out that the cow was
dead at the time of the deal, although the fact was not known to any
party. The arrangement is considered invalid.

Unilateral Mistake (Section 22)

A unilateral mistake occurs when only one party to the contract makes
a mistake. The contract will not be void in such a case. It is specified
in Section 22 of the Act that the contract will not be void just because
one party made the mistake. So if only one party has made a mistake
the contract remains a valid contract.

Example

‘A’ enters into an agreement with ‘B’ for the purchase of horse which
he assumes to be a racing horse. ‘A’ do not confirm from ‘B’. In actual
a horse is not a racing horse. ‘A’ cannot rescind the contract.

Mistake of law

The mistake may be related to the mistake of Indian laws, or it may be

a mistake of foreign laws. If the mistake applies to Indian laws, the
principle is that the law’s ignorance is not a sufficiently good excuse.
This means that either party cannot claim that it is not aware of the law.

The Contract Act states that, on the grounds of ignorance of Indian law,
no party can claim any relief. This will also include an incorrect
interpretation of any legal provisions.

However, similar treatment is not given to ignorance of foreign law.

Ignorance of foreign law provides some leeway, the parties are not
expected to know foreign law and its meaning. Therefore, under the
Indian Contract Act, an error of foreign law is actually treated as a
mistake of fact.

Rules Relating to an Agreement with A Minor-Law of Contract

Rules Relating to an Agreement with A Minor

Agreement is void ab initio: According to Sec. 10, an

agreement made by a person incompetent to contract is void. Hence
an agreement made by a minor is void. The agreement is void ab
initio i.e., Void from the very beginning. However, Sec. 68 of the
Contract Act lays down “if a person, incapable of entering into a
contract or any one whom he is legally bound to support, is supplied
by another person with necessaries suited to his condition in life, the
person who has furnished such supplies is entitled to be reimbursed
from the property of such incapable person.
Minor can be a promisee: An agreement is void as against a
minor but a minor can derive benefit under a contract. The privilege
of minority is available to the minor only. Another person cannot
avoid the contract because the promisee is a minor. Thus the minor
can enforce the agreement against the other party.
A Minor’s Agreement cannot be ratified: Since an agreement with
a minor is void ab initio, i.e. It does not exist in the eyes of law, it
cannot be ratified by a minor after completing the age of majority.
No Compensation is payable by a minor: Though an
agreement with a minor is void, the minor would not be called upon
to refund any benefit which he has received, under such an agreement
(i.e. Sec. 64 and Sec. 65 would not apply to a minor).
The rule of estoppel does not apply to a minor i.e. A minor
can misrepresent his age and enter into an agreement and can still
plead infancy to avoid that agreement.
No recovering back the money paid: Where an infant has
paid money under a void or voidable contract he cannot recover it,
unless there has been a total failure of consideration.
A minor can be sued in tort. If what the infant has done lies
right outside the terms of the contract, the infant can be made liable.
Agency. A minor acting as an agent cannot be held liable even
for those acts for which other agents would incur personal liability.
Negotiable Instrument: A minor can also make and
deliver negotiable instruments and can negotiate them making all
other persons except himself liable on them.
Partnership: An agreement with a minor is void. But a minor can be
admitted into the benefits of partnership with the consent of all the
partners (Partnership Act). This means that the losses of the firm can
be recovered only from his share in the firm but unlike other partners
his personal property would not be liable for firm’s losses.
Insolvency: A minor cannot be adjudicated insolvent.
Joint Agreement: Where a minor and another person make a
joint promise, the promisee cannot enforce the agreement against the
minor but he can enforce it against the other person.
Guardianship: Though an agreement made by a minor is void but an
agreement made by the guardian of a minor is binding on the minor if
it is for the benefit of the minor.
Minor’s Parents: Agreements made by a minor are not
enforceable against his parents, even through they are for the
necessaries supplied to the minor.
Persons Of Unsound Mind-Law Of Contract

According to Sec.11 only a person of sound mind can make a

contract. Sec. 12 further defines the term sound mind in these words,
“A person is said to be of sound mind for the purpose of making a
contract if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect
upon his interest…”. Thus two essentials of ‘Sound Mind’ emerge
from this definition:
Persons Of Unsound Mind

According to Sec.11 only a person of sound mind can make a

contract. Sec. 12 further defines the term sound mind in these words,
“A person is said to be of sound mind for the purpose of making a
contract if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect
upon his interest…”. Thus two essentials of ‘Sound Mind’ emerge
from this definition:

(1) Capacity to understand: and

(2) Capacity to make a rational judgment

There must be free and full consent of the parties so as to bind them to
the contract. Consent is an act of reason accompanied by
deliberations. It is due to the absence of rational and deliberate
consent that conveyance and contracts of persons of unsound mind
are deemed to be invalid. A person of unsound mind may be divided
into two broad categories:

Idiots: An Idiot is one who has lost mental powers completely, i.e.,
his brain has not developed enough to enable him, at all to understand
the contract or of forming a rational judgment of its effects upon his
interest. Hence an agreement with him is always void. However, he
can be sued for necessaries of life supplied to him or to anybody
dependent upon him.
Lunatic: Lunacy arises from the illness of the brain or mental or
bodies distress. The essential element of lunacy is that the mental
powers of the lunatic are so deranged that he cannot make a rational
judgment of any subject the period of lunacy.

Effects of agreements made by persons of unsound mind

An agreement made with a person who is suffering from lunacy at the

time of entering into the contract, is void (Sec. 10).

Other Disqualifications
Alien Enemy : A citizen of a foreign country is known as an alien.
Foreign sovereigns and their Ambassadors. Foreign sovereigns and
their Ambassadors in India can enter into contracts with Indian
citizens and can sue them in Indian courts but no suit can be filed
against them in local courts unless the permission of the Central
Government to this effect has been obtained.
Corporation: A corporation is an artificial person created by
law. Being a legal person only, it cannot act by itself. It has to act
through some agent. Its contractual capacity suffers from the
following limitations:
(a)Natural Limitation: (b) Legal Limitation:
Insolvents: When a person is adjudged insolvent, he loses
contractual powers over his property.
Convicts: A person against whom a sentence of imprisonment
is passed loses the capacity to contract.
Married women: A married woman used to suffer from
certain disabilities with regard to making of contracts under English
Law before 1935. A woman, married or single, in Indian Law, is
under no disability as regard, entering into contracts with regard to the
property that belongs to her (e.g. Stridhan of a married women). Her
contracts can be enforced against her husband’s property if he
has failed to provide necessaries of life to her and the contract relates
to necessaries of life.

Free Consent

“The term free consent consists of two requirements viz.: (i)

There should be consent: and (ii) Consent should be free.

Consent: The term consent is defined by Sec. 13 as “Two or more

persons are said to consent when they agree upon the same thing in
the same sense”

Free Consent: “Consent is said to be free when it is not caused by:

(1) Coercion, as defined in section 15, or: (2) Undue influence as
defined in section 16, or: Fraud, as defined in section 17, or: (4)
Misrepresentation, as defined in section 18, or: (5) Mistake subject to
the provisions of sections 20, 21 and 22. Consent is said to be so
caused when it would not have been given but for the existence of
such coercion, undue influence, fraud, misrepresentation or mistake.”
(Sec.14)

Coercion & Effect of Coercion-Law Of Contract

“Coercion is the committing or threatening to commit any act,

forbidden by the Indian Penal Code or the unlawful detaining or
threatening to detain any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into
agreement.”
Coercion

“Coercion is the committing or threatening to commit any

act, forbidden by the Indian Penal Code or the unlawful detaining or
threatening to detain any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into
agreement.”(Sec.15)

1. Coercion is committing any act forbidden by the Indian Penal

Code with the intention of causing any person to enter into an
agreement.
2. Coercion is the threatening to commit any act forbidden by the
Indian Penal Code, with the intention of causing any person to enter
into an agreement.
3. Coercion is the Unlawful detaining of any property to the
prejudice or any person, whatever, with the intention of causing any
person to enter into an agreement.
4. Coercion is the threatening to detain, unlawfully, any property, to
the prejudice of any person whatever, with the intention of causing
any person to enter into an agreement.

Effect of Coercion:
Sec, 19 states “When consent to an agreement is caused by
coercion… the agreement is a contract voidable at the option of the
party whose consent was so caused” i.e. The aggrieved party at its
option, may set aside the contract or may insist that the contract shall
performed. Sec. 72 further states, “A person to whom money has been
paid, or anything delivered… under coercion, must repay or return it.”

Undue Influence & Effect of Undue Influence-Law of Contract

“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 that position
to obtain an unfair advantage over the other.”
Undue Influence

[Sec. 16 (1)] “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
that position to obtain an unfair advantage over the other.” Three
conditions should be fulfilled:

1. The relation between the contracting parties should be such that

one party is in a position to dominate the will of the other; and

2. Such party has used that dominant position to enter into a contract
with the latter; and

3. Such party has obtained an unfair advantage over the other.

Effect of Undue Influence:

[Sec. 19 (A)] “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.

Pardanashin Women:
A pardanashin woman is susceptible to undue influence and therefore,
the law throws around her a “Special cloak of protection” i.e. Where
such a woman signs a sale, mortgage, gift or release, the person
obtaining her signatures has to prove that the transaction was not only
explained to her but also that she had understood the transaction and
that no undue influence was exercised on her.
Fraud and its Effect -Law of Contract

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 or his agent or to induce him to enter
into the contract:
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 or 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 and
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 (Sec. 17)

Can silence be Fraudulent? (Sec. 17) “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.”

Exception: Silence would amount to Fraud if

a. It is the duty of the person keeping silence to speak. These
are called uberrimae fidei contracts;
b. His silence is, in itself, equivalent to speech:
Effect of Fraud
Where Fraud is the cause of the contract:(i)Voidable Contract:(ii)
Damages
Where Fraud is not the cause of contract: An attempt at deceit, which
does not deceive, is no fraud.

Void Agreements

According to Section 2(g) of the Indian Contract Act, 1872

"an agreement not enforceable by law is said to be void”. Section 24
to Section 30 and Section 56 of the Act lay down the provisions
relating to the Agreements, which are declared void are as follows -

(1) Agreements void, if considerations and objects unlawful in part

(Section 24)

(2) Agreement without Consideration (Section 25)

(3) Agreement in restraint of marriage (Section 26)

(4) Agreement in restraint of trade (Section 27)

(5) Agreements in restraint of legal proceedings (Section 28)

(6) Agreements void for uncertainty ( Section 29)

(7) Agreements by way of wager (Section 30)

(8) Agreement to do impossible acts (Section 56)

1) Agreements void, if considerations and objects unlawful in part

(Section 24) :
 If any part of a single consideration for one or more objects,
or any one or any part of any one of several consideration of 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 to
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.

2) Agreement without consideration (Section 25) :

An agreement made without consideration is void, unless -

(1) it is expressed in writing and registered under the law for the
time being in force for the registration of documents, and is made on
account of natural love and affection between parties standing in a
near relation to each other; or unless.

(2) it is a promise to compensate, wholly or in part, a person

who has already voluntarily done something for the promisor, or
something which the promisor was legally compellable to do; or
unless.

(3) it is a promise, made in writing and signed by the person to

be charged therewith or by his agent generally or specially authorised
in that behalf, to pay wholly or in part debt of which the creditor
might have enforced payment but for the law for the limitation of
suits. In any of these cases, such an agreement is a contract.

Explanation 1 :
 Nothing in this section shall affect the validity, as between
the donor and donee, of any gift actually made.

Explanation 2 :

An agreement to which the consent of the promisor is freely

given is not void merely because the consideration is inadequate; but
the inadequacy of the consideration may be taken into account by the
Court in determining the question whether the consent of the promisor
was freely given.

Illustrations

(a) A promises, for no consideration, to give to B Rs. 1,000.

This is a void agreement.

(b) A, for natural love and affection, promises to give his son,
B, Rs. 1,000. A puts his promise to B into writing and registers it.
This is a contract.

(c) A finds B’s purse and gives it to him. B promises to give A

Rs. 50. This is a contract.

(d) A supports B’s infant son. B promises to pay A’s expenses

in so doing. This is a contract.

(e) A owes B Rs. 1,000, but the debt is barred by the

Limitation Act. A signs a written promise to pay B Rs. 500 on
account of the debt. This is a contract.

(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’s
consent to the agreement was freely given. The agreement is a
contract notwithstanding the inadequacy of the consideration.

(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies
that his consent to the agreement was freely given. The inadequacy of
the consideration is a fact which the Court should take into account in
considering whether or not A’s consent was freely given.

3) Agreement in restraint of marriage (Section 26)

Every agreement in restraint of the marriage of any person, other

than a minor, is void.

4) Agreement in restraint of trade (Section 27) :

Every agreement by which anyone is restrained from

exercising a lawful profession, trade or business of any kind, is to that
extent void.

Exception 1 :

Saving of agreement not to carry on business of which good will

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.

5) Agreements in restraint of legal proceedings (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 illegal any 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.

Exception 3 :

This section shall not render illegal a contract in writing by

which any bank or financial institution stipulate a term in a guarantee
or any agreement making a provision for guarantee for
extinguishment of the rights or discharge of any party thereto from
any liability under or in respect of such guarantee or agreement on the
expiry of a specified period which is not less than one year from the
date of occurring or non-occurring of a specified event for
extinguishment or discharge of such party from the said liability.

Explanation.—

(i) In Exception 3, the expression "bank" means —

(a) a "banking company" as defined in clause (c) of section

5 of the Banking Regulation Act, 1949 (10 of 1949);
 (b) "a corresponding new bank" as defined in clause (da)
of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(c) "State Bank of India" constituted under section 3 of the

State Bank of India Act, 1955 (23 of 1955);

(d) "a subsidiary bank" as defined in clause (k) of section 2

of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);

(e) "a Regional Rural Bank" established under section 3 of

the Regional Rural Banks Act, 1976 (21 of 1976);

(f) "a Co-operative Bank" as defined in clause (cci) of

section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(g) "a multi-State co-operative bank" as defined in clause

(cciiia) of section 5 of the Banking Regulation Act, 1949 (10 of
1949); and

(ii) In Exception 3, the expression "a financial institution" means

any Public financial institution within the meaning of section 4A of
the Companies Act, 1956 (1 of 1956).

6) Agreements void for uncertainty (Section 29) :

Agreements, the meaning of which is not certain, or capable

of being made certain, are void.

Illustrations :

(a) A agrees to sell B “a hundred tons of oil”. There is nothing

whatever to show what kind of oil was intended. The agreement is
void for uncertainty.
 (b) A agrees to sell B one hundred tons of oil of a specified
description, known as an article of commerce. There is no uncertainty
here to make the agreement void.

(c) A, who is a dealer in coconut-oil only, agrees to sell to B

“one hundred tons of oil”. The nature of A’s trade affords an
indication of the meaning of the words, and A has entered into a
contract for the sale of one hundred tons of coconut-oil.

(d) A agrees to sell B “all the grain in my granary at Ramnagar”.

There is no uncertainty here to make the agreement void.

(e) A agrees to sell to B “one thousand maunds of rice at a price

to be fixed by C”. As the price is capable of being made certain, there
is no uncertainty here to make the agreement void.

(f) A agrees to sell to B “my white horse for rupees five hundred
or rupees one thousand”. There is nothing to show which of the two
prices was to be given. The agreement is void.

7) Agreements by way of wager (Section 30) :

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 the result of any game or other
uncertain event on which may wager is made. Exception on 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 toward any plate,
prize or sum of money, of the value or amount of five hundred rupees
or upwards, to be rewarded to the winner or winners of any horse-
race.

8) Agreement to do impossible act (Section 56) :

 Section 56 of the Indian Contract Act 1872 says that, An
agreement to do an act impossible in itself is void. Contract to do act
afterwards becoming impossible or unlawful: A contract to do an act
which, after the contract is made, becomes impossible or, by reason of
some event which the promisor could not prevent, unlawful, becomes
void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known

to be impossible or unlawful: Where one person has promised to be
something which he knew or, with reasonable diligence, might have
known, and which the promisee did not know to be impossible or
unlawful, such promisor must make compensation to such promise for
any loss which such promisee sustains through the non-performance
of the promise.

Illustrations -

(a) A agrees with B to discover treasure by magic. The

agreement is void.
(b) A and B contract to marry each other. Before the time fixed
for the marriage, A goes mad. The contract becomes void.

(c) A contracts to marry B, being already married to C, and

being forbidden by the law to which he is subject to practise
polygamy. A must make compensation to B for the loss caused to her
by the non-performance of his promise.

(d) A contracts to take in cargo for B at a foreign port. A’s

Government afterwards declares war against the country in which the
port is situated. The contract becomes void when war is declared.

(e) A contracts to act at a theatre for six months in consideration

of a sum paid in advance by B. On several occasions A is too ill to
act. The contract to act on those occasions becomes void.
Discharge of Contract under Indian Contract Act, 1872

Introduction
A contract is said to be discharged when the object or obligations is
fulfilled, the liability of either party under the contract comes to an end.
In other words, discharge of contract means “termination of the
contractual relationship between the parties”. This is why the rights
and duties in terms of contractual obligations were set up, when the
parties originally entered into the contract. There are various modes of
discharge of contract like either in positive way i.e., by performance or
in negative way i.e., by breach.

Discharge of Contract
Discharge of contract refers to the way in which it comes to an end.
The various modes of discharge of contract or the different ways are as
follows:

• Discharge by performance
When the respective parties of the contract perform their shares of the
promises, it is said to be the contract is discharged. It is called as natural
mode of discharge.

Performance may be:

1. Actual Performance: Under the contract, when all the parties to a

contract do what they had agreed for, it is known as actual
performance.
2. Attempted Performance (tender or offer of performance): When
the promisor attempts to perform his promise, the promisee refuses
to accept the same, it is known as tender or attempted performance.

• Discharge by agreement or consent

Section 62 of the Indian contract, 1872 provides that “if the parties to a
contract agree to substitute a new contract for it, or to rescind or alter
it, the original contract need not be performed” under the heading-
Effect of novation, rescission and alteration of contract[2].

There are six types through which discharge of contract through

agreement or consent could take place are mentioned below:

• Novation
When the parties to a contract agree to substitute the existing contract
with a new contract, that is called novation[3].

In the well known case of Scarf v. Jardine[4], the meaning and effect
of novation are explained by Lord Selborne.

Hence novation is of two kinds, namely:

o A novation involving change of parties.

o A novation involving substitution of a new contract in place of the
old.

• Alteration
When one or more of the terms of the contract is/are altered by mutual
consent of the parties to the contract, is called as alteration of a
contract[5]. In the case of United India Insurance Co. Ltd v. M.K.J.
Corporation[6], it was held that even in good faith also in terms of the
contract, no material alteration can be made by a party without the
consent of the other.

In Kalianna Gounder v. Palani Gounder[7], the Supreme Court

considered the meaning of the expression “material alteration”.

• Rescission
When all or some of the terms of the contract are canceled, that is
known as rescission of a contract.

• Remission
Section 63 of the Indian Contract Act, 1872 talks about the discharge
of a contract by remission. It means the acceptance of lesser sum than
what was due from the promisor or acceptance of a lesser fulfilment of
the promise made.

• Waiver
Under an agreement, when an individual surrendering a few or the
majority of their legitimate rights, it is known as waiver. The Supreme
Court has already laid down that waiver is the abandonment of a right
which normally everybody is at liberty to waive

• Merger
When an inferior right accruing to a party under contract merges into a
superior right accruing to the same party under a new contract

• Discharge by impossibility of performance

1. Initial Impossibility: As per section 56 of the Indian Contract Act,

1872 “An agreement to do impossible act is void ab-initio.” It means
agreement which is obviously impossible cannot be binding[10].
2. Subsequent Impossibility: A contract sometimes becomes
impossible or unlawful and as a result void when capable to be
performed after formation.

• Discharge by lapse of time

Specified period for performance of a contract prescribed by The
Limitation Act, 1963. If the contract is not performed and no legal
action is taken by the promisee within the period of limitation, the
contract is discharged and he is deprived of his remedy at law.

• Discharge by operation of law

A contract can be discharged by operation of law which includes
insolvency or death, of the promisor and also merger, judgement of
court.

• Discharge by breach of a contract

Breach of contract means failure to perform contractual obligation by
either of the parties without any lawful excuse, the contract discharged
because it is a ground for discharge of a contract.

Hence breach is of two kinds, namely:

• Actual Breach: It refers to the failure to perform contractual

obligation when performance is due and during the performance of
the contract. In the case of an actual breach, the promisee retains his
right of action for damages.
• Anticipatory Breach: It takes place before the date of actual
performance. In anticipatory breach, the promisee cannot file a suit
for damages and even it discharges the promisor also from
performing his part of the contract. It may take place in two ways:
Expressly by words and Implied by the conduct.
In the case of Hochster v. De La Tour[11], the respective parties made
the contract in April, in which the defendant agreed that the claimant
on a foreign tour should act as his courier, due to begin on 1 st june but
on 11th may, the defendant informed the claimant that his services
would not be required. It was held that the claimant can sue for damages
immediately and he did not have to wait for the performance date.

In Bowdell v. Parsons[12], it was held that if a man contracted to sell

and deliver specific goods on a future day and before the day he sells
and delivers them to another, he is immediately liable to an action at
the suit of the person with whom he first contracted to sell and deliver.