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Published by Enhelion, 2019-12-10 09:24:03





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1.1 WHAT IS A CONTRACT? So as to simply explain a contract in a process:

A contract can be defined as a promise or set of A contract An Promise is
promise that are legally enforceable and if violated, is an agreement an accepted
allow the injured party to avail remedy available to
him/her in law. agreement is a proposal
Definition of contract as per The Indian Contract Act,
1872 The process of definition comes down to: a contract is
The term contract is defined under section 2 (h) of an agreement; an agreement is a promise and a
The Indian Contract Act, 1872, as follows: “An promise is an accepted proposal.
agreement enforceable by law is a contract.”i So there
are two main components for formation of a contact: Proposal

(1) an agreement Promise
(2) the agreement should be enforceable by law.
Since agreement is one of the components of contract
we need to understand what an agreement is. An Agreement
agreement as defined under section 2 (e) of the Indian
Contract Act, 1872 is “every promise and every set of Legally Legally not
promises forming the consideration for each other.”ii enforceable enforceable
Agreement uses the word promise in its definition it
is important to understand what a promise is. Section Contract Voidable Void
2 (b) of the Indian Contract Act, 1872 states “A agreement agreement
proposal, when accepted, becomes a promise”iii

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ii) Undue influence
In terms of Section 10 of the Act, “all agreements are iii) Fraud
contracts if they are made by the free consent of the iv) Misrepresentation
parties competent to contract, for a lawful v) Mistake.
consideration and with a lawful object and are not
expressly declared to be void”. Wherever the consent of any party is not free, the
contract is voidable at the option of that party.
All Agreements are not contracts. An agreement is
regarded as a contract when it is enforceable by law. i) “Coercion” is the committing, or
For an agreement to become enforceable i.e. to threatening to commit, any act forbidden
become a contract it has to consist of following: by the Indian Penal Code (45 of 1860) or
the unlawful detaining, or threatening to
1. FREE CONSENT OF PARTIES detain, any property, to the prejudice of
2. INTENTION TO CREATE LEGAL any person whatever, with the intention
of causing any person to enter into an
ACCEPTANCE Illustration: A threatened to shoot B if he
3. PARTIES COMPETENT TO CONTRACT (B) does not lend him 5000 and B agreed
4. LAWFUL CONSIDERATION AND LAWFUL to it. Here the agreement is entered into
OBJECT under coercion and hence voidable at the

1.2.1. FREE CONSENT OF PARTIES: ‘Consent’iv ii) “Undue influence” (1) A contract is said to
means ‘knowledge and approval’ of the be induced by “undue influence” where
parties concerned. This can also be the relations subsisting between the
understood as identity of minds in parties are such that one of the parties is
understanding the term viz consensus ad in a position to dominate the will of the
idem (meeting of minds). Further such other and uses that position to obtain an
consent must be free. Consent would be unfair advantage over the other.
considered as free consent if it is not
vitiated by:

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(2) In particular and without prejudice to the agent , with intent to deceive another
generality of the foregoing principle, a party thereto of his agent, or to induce
person is deemed to be in a position to him to enter into the contract:
dominate the will of another— (a) where
he holds a real or apparent authority over a. the suggestion, as a fact, of that which
the other, or where he stands in a is not true, by one who does not
fiduciary relation to the other; or (b) believe it to be true;
where he makes a contract with a person
whose mental capacity is temporarily or b. the active concealment of a fact by
permanently affected by reason of age, one having knowledge or belief of the
illness, or mental or bodily distress. fact;

(3) Where a person who is in a position to c. a promise made without any intention
dominate the will of another, enters into a of performing it;
contract with him, and the transaction
appears, on the face of it or on the d. any other act fitted to deceive;
evidence adduced, to be unconscionable, e. any such act or omission as the law
the burden of proving that such contract
was not induced by undue influence shall specially declares to be fraudulent.
lie upon the person in a position to
dominate the will of the Mere silence as regards to matters which
Illustration: A, a man enfeebled by disease may affect a party’s willingness to enter
or age, is induced, by B‟s influence over into contract is not fraud unless there is
him as his medical attendant, to agree to duty to speak under the circumstances, or
pay B an unreasonable sum for his unless silence is equivalent to speech.
professional services, B employs undue Illustration: A and B, being traders, enter
influence. upon a contract. A has private information
of a change in prices which would affect
iii) “Fraud”vii means and includes any of the B’s willingness to proceed with the
following acts committed by a party to a contract. A is not bound to inform B.
contract, or with his connivance, or by his
iv) “Misrepresentation” means and
includes— (a) the positive assertion, in a
manner not warranted by the information
of the person making it, of that which is

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not true, though he believes it to be true; nullify, consent. The contract will then be
(b) any breach of duty which, without an void ab initio.
intent to deceive, gains an advantage to
the person committing it, or any one 1.2.2. INTENTION TO CREATE LEGAL
claiming under him; by misleading OBLIGATION THROUGH OFFER AND
another to his prejudice, or to the ACCEPTANCE: There must be an offer
prejudice of any one claiming under him; and the said offer must have been
(c) causing, however innocently, a party to accepted. Such offer and acceptance
an agreement, to make a mistake as to the should create legal obligations between
substance of the thing which is the subject parties. This should result in a moral duty
of the agreement.viii on the person who promises or offers to
do something. Similarly this should also
v) Mistake, may operate upon a contract in give a right to the promise to claim its
two ways, firstly, defeat the consent fulfillment. Such duties and rights should
altogether that the parties are supposed be legal and not merely moral.
to have given, that is to say, the consent is
unreal. Secondly, the mistake may mislead Illustration: If A‘s willingness to sell his radio set
the parties as to the purpose which they to B for Rs. 1000/- if B accepts to purchase the
contemplated. same, amounts to proposal by a for the sale of
Where the mistake does not defeat radio set. Suppose if the proposal is not made with
consent, but only misleads the parties, an intention to enter into contract such proposal
Section 20 shall apply. It says, where both may be concluded as invalid proposal.
the parties to an agreement are under a
mistake as to a matter of fact essential to 1.2.3. PARTIES COMPETENT TO CONTRACT:
the agreement, the agreement is void.ix Capacity or incapacity of a person could
Mistake in the law of contract may have be decided only after reckoning various
several different effects. At common law factors. Section 11 of the Indian Contract
and Indian law, it is usually said to operate Act, 1872 elaborates on the issue by
so as to negative, or in some cases to providing that a person who-

i) has not attained the age of majority,

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ii) is of unsound mind and delirium or drunkenness lasts.
iii) is disqualified from entering into a contract
by any law to which he is subject, should be LAWFUL OBJECT
considered as not competent to enter into
any contract. LAWFUL CONSIDERATION: When, at the desire
of the promisor, the promisee or any other person
Therefore law prohibits (a) Minors (b) persons of has done or abstained from doing, or does or
unsound mind and (c) person who are otherwise abstains from doing, or promises to do or to
disqualified like an alien enemy, insolvents, abstain from doing, something, such act or
convicts etc from entering into any contract. abstinence or promise is called a consideration
Unsound Mind: A person is said to be of sound for the promise.x
mind for the purpose of making a contract, if, at From the definition of following features of
the time when he makes it, he is capable of consideration:
understanding it and of forming a rational
judgment as to its effect upon his interests. A i) Consideration only at the desire of the
person who is usually of unsound mind, but promisor
occasionally of sound mind, may make a contract
when he is of sound mind. A person who is usually ii) Consideration by Promisee or any other
of sound mind, but occasionally of unsound mind, person (Privity of Consideration)
may not make a contract when he is of unsound
mind. iii) Consideration may be Past,
Illustrations Present (Executed) or Future
a. A patient in a lunatic asylum, who is at
intervals of sound mind, may contract iv) Something, i.e. an Act, Abstinence or
during those intervals. Promise

b. A sane man, who is delirious from fever or Consideration would generally mean
who is so drunk that he cannot ‘compensation’ for doing or omitting to do an act
understand the terms of a contract, or or deed. It is also referred to as ‘quid pro quo’ viz
form a rational judgment as to its effect on ‘something in return for another thing’. Such a
his interests, cannot contract whilst such consideration should be a lawful consideration.

Illustration: A agrees to sell his books to B for Rs.
100, B promise to pay. Rs. 100 is the

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consideration for A’s promise to sell his books and iii. Involves or implies, injury to the person or
A’s promise to sell the books is the consideration property of another; or
for B’s promise to pay Rs. 100.
Section 25 of the Indian Contract Act opens with iv. The Court regards it as immoral, or
the declaration that an agreement made without v. Opposed to public policy.
consideration is void, except in cases:
In each of these cases, the consideration or
a. Promise due to natural love and affection object of an agreement is said to be unlawful.
b. Compensation for voluntary services Every agreement of which the object or
c. Promise to pay a time barred debt consideration is unlawful is void.

Illustrations: Illustration:
a. A promises, for no consideration, to give a. A agrees to sell his house to B for 10,000
to B Rs. 1,000. This is a void agreement. rupees. Here B‟s promise to pay the sum
b. A, for natural love and affection, promises of 10,000 rupees is the consideration for
to give his son, B, Rs. 1,000. A puts his A‟s promise to sell the house, and A‟s
promise to B into writing and registers it. promise to sell the house is the
This is a contract. consideration for B‟s promise to pay the
10,000 rupees. These are lawful
LAWFUL OBJECT: An agreement the object considerations.
of which is opposed to the law of the land may b. A, B and C enter into an agreement for
be either unlawful or simply void, depending the division among them of gains
upon the provision of the law to which it is acquired or to be acquired, by them by
opposed. fraud. The agreement is void, as its
object is unlawful.
Section 23 of the Indian Contract act
provides for what consideration or object of i. Forbidden by law: The object of a contract
an agreement is lawful, unless— will be treated as unlawful is when it is
forbidden by law. It may be something
i. It is forbidden by law; or violating a prohibitory enactment of the
ii. Is of such nature that, if permitted it legislature or a principle of unwritten law. A
statute may not prohibit a contract but it
would defeat the provisions of any law or
is fraudulent; or

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may impose penalties on the parties for agrees for money, without the
entering into it. In each case it would depend knowledge of his principal, to obtain for
upon the construction of the provisions of B a lease of land belonging to his
the statute. principal. The agreement between A and
ii. Defeat the provisions of any law or is B is void, as it implies a fraud, by
fraudulent: Section 23 refers to cases concealment by A, on his principal.
where, there being no express statutory iii. Injury to Person or Property: An agreement
prohibition against a particular type of between two persons to injure the person or
contract, the nature of the contract is such property of another is unlawful. In the same
that it would be against the spirit of a way, if the object of an agreement is such
particular law, whether enacted or that it involves or implies injury to the
otherwise. In a contract to give a son in person or property of another, the
adoption in consideration of an annual agreement is unlawful and void. A person
allowance to the natural parents a suit will borrowed a sum of hundred rupees and
not lie to recover any allowance on such a executed a bond promising to work for the
contract, though the adoption may have plaintiff without pay for a period of two
been made.xi An agreement between the years. In case of default, the borrower was
partners of a firm to conceal income in to pay exorbitant interest and the principal
certain respect so as to evade income tax sum once. The court held that what
has been held to be unlawful.xii If the contained in the bond was indistinguishable
consideration or object of an agreement is from slavery, which involves injury to the
to commit fraud, the agreement is void. person and was, therefore void.xiii An
Illustrations: agreement to commit a crime or a civil
a) A, B, and C enter into an agreement for wrong, for example, to assault or beat a
person or to deceive him or to publish a libel
the division among them of gains against him, all fall in this category.
acquired, or to be acquired by them by iv. Immoral: The law does not allow an
fraud. The agreement is void, as its agreement tainted with immorality to be
object is unlawful. enforced. Consequently, every agreement
b) A, being agent for a land proprietor,

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the object of or consideration for which is unlawful in part.—If any part of a single
immoral, is unlawful. consideration for one or more objects, or any one
v. Public Policy: An agreement is unlawful if or any part of any one of several considerations
the court regards it as opposed to public for a single object, is unlawful, the agreement is
policy. Contracts which are opposed to void.
public policy may be grouped as follows:
● Trading with Enemy Illustration:
● Stifling Prosecution ‘A’ promises to superintend, on behalf of ‘B’, a
● Maintenance and Champerty legal manufacture of indigo, and an illegal traffic
● Interference with Course of Justice in other articles. ‘B’ promises to pay to ‘A’ salary
● Marriage Brokerage Contracts of 10,000 rupees a year. The agreement is void,
● Interest against Duty the object of A‟s promise, and the consideration
● Trade Ethics for B‟s promise, being in part unlawful.

The agreement entered into for this purpose
must not be which the law declares to be either Types of Contracts on
illegal or void. An illegal agreement is an the basis of
agreement expressly or impliedly prohibited by
law. A void agreement is one without any legal Validity Form Perform
effects. Threat to commit murder or Valid contract ation ance
making/publishing defamatory statements or
entering into agreements which are opposed to Express contract Executed contract
public policy are illegal in nature. Similarly any
agreement in restraint of trade, marriage, legal Void contract Implied contract Executory
proceedings etc. are classic examples of void Voidable contract Ouasi contract contract
agreements. Illegal agreement
Section 24 of the Indian Contract Act provides Unilateral
Agreement void, if considerations and objects Unenforceable contract


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1. Void Contract: Section 2 (j) states as follows: “A 3. Illegal Contract: Illegal contract are those that are
contract which ceases to be enforceable by law forbidden by law. All illegal contracts are hence
becomes void when it ceases to be enforceable”. void also. Because of the illegality of their nature
Thus a void contract is one which cannot be they cannot be enforced by any court of law. In
enforced by a court of law. Example: Mr. X agrees fact even associated contracts cannot be
to write a book with a publisher. After few days, X enforced. Contracts which are opposed to public
dies in an accident. Here the contract becomes policy or immoral are illegal. Similarly contracts to
void due to the impossibility of performance of commit crime are illegal contracts.
the contract. It may be added by way of
clarification here that when a contract is void, it is 4. Express Contracts: A contract would be an
not a contract at all but for the purpose of express contract if the terms are expressed by
identifying it, it has to be called a [void] contract. words or in writing. Section 9 of the Act provides
that if a proposal or acceptance of any promise is
2. Voidable Contract: Section 2(i) defines that an made in words the promise is said to be express.
agreement which is enforceable by law at the
option of one or more parties but not at the 5. Implied Contracts: Implied contracts in contrast
option of the other or others is a voidable come into existence by implication. Most often
contract. This in fact means where one of the the implication is by law and or by action. Section
parties to the agreement is in a position or is 9 of the Act contemplates such implied contracts
legally entitled or authorized to avoid performing when it lays down that in so far as such proposal
his part, then the agreement is treated and or acceptance is made otherwise than in words,
becomes voidable. Such a right might arise from the promise is said to be implied. For instance ‘A’
the fact that the contract may have been brought delivers goods by mistake at the warehouse of ‘B’
about by one of the parties by coercion, undue instead of that of ‘C’. Here ‘B’ not being entitled to
influence, fraud or misrepresentation and hence receive the goods is obliged to return the goods to
the other party has a right to treat it as a voidable ‘A’ although there was no such contract to that
contract. effect.

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6. Tacit Contracts: Tacit contracts are those that are 8. Executory Contract: In an executory contract the
inferred through the conduct of parties. A classic consideration is reciprocal promise or obligation.
example of tacit contract would be when cash is Such consideration is to be performed in future
withdrawn by a customer of a bank from the only and therefore these contracts are described
automatic teller machine [ATM]. Another as executory contracts.
example of tacit contract is where a contract is
assumed to have been entered when a sale is 9. Unilateral Contract: Unilateral contract is a one
given effect to at the fall of hammer in an auction sided contract in which only one party has to
sale. perform his duty or obligation.

7. Executed Contract: The consideration in a given 10. Bilateral Contract: A Bilateral contract is one
contract could be an act or forbearance. When where the obligation or promise is outstanding on
the act is done or executed or the forbearance is the part of both the parties.
brought on record, then the contract is an
executed contract.

i Section 2 (h) of the Indian Contract Act, 1872 vii Section 17 of Indian Contract Act, 1986.
ii section 2 (e) of the Indian Contract Act, 1872 viii Section 18 of Indian Contract Act, 1986.
iii Section 2 (b) of the Indian Contract Act, 1872 ix Section 20 of Indian Contract Act, 1986
iv Section 13 of Indian Contract Act, 1872: Consent: Two or x Section 2 (d) of Indian Contract Act, 1986`
more persons are said to consent when they agree upon the same xi Narayen v. Gopalrao, (1922) 24 Bom LR 414
thing in the same sense. xii Ram Sewak v. Ram Charan, AIR 1962 All 177
v Section 15 of Indian Contract Act, 1872 xiii Ram Sarup v. Bansi Mandar, (1915) 42 Cal 742
vi Section 16 of Indian Contract Act, 1872

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