THE INDIAN CONTRACT ACT, 1872

CONTRACT Sec.2 (h) an agreement enforceable by law give rise to legal obligation.
Social obligation, no contract.
AGREEMENT Sec.2 (e) - every promise and set of promises, forming consideration for each
other. Proposal assent thereto proposal accepted - promise agreement.
CONSENSUS AD IDEM: meeting of minds in full and final agreement agree upon the
subject matter of the agreement in same sense and at the same time. No consensus ad idem - no
contract.
Example: A offers to sell his old Fiat car to B. B thinks that he is purchasing As new Scoda car.
There is no consensus ad idem and consequently no contract.
ESSENTIAL CHARACTERISTICS OF A VALID CONTRACT:
1. OFFER AND ACCEPTANCE two parties, one making the offer and other
accepting it offer must be definite acceptance must be absolute and unconditional
acceptance must be communicated to the offeror.
2. INTENTION TO CREATE LEGAL RELATIONSHIP intention of parties to
the agreement to create legal relationship must no such intention, no contract social or
domestic agreements do not contemplate legal relationship, as such no contract.
Balfour v Balfour husband promises to pay household allowance to wife separated
wife sues for allowance domestic agreement no contract.
V.Rao Vs. A. Rao old widow asked her niece to move in with her - promised to will
some property in exchange niece moved in and stayed till widows death Held,
intention to create a legal relationship niece entitled to share in property.
Rose & Frank Co. v Crompton Bros. agency agreement between R and C - clause in
agreement stated that agreement not entered into as formal or legal not subject matter of
legal jurisdiction no intention to create legal relationship - no contract.
3. LAWFUL CONSIDERATION - both parties give and get something in return no
consideration, no contract - consideration may be past, present or future in cash or in
kind must be real and lawful.
4. COMPETENT PARTIES must have attained age of majority of sound mind not
disqualified by any law so, minor, lunatic, idiot, drunkard, etc not competent to
contract.
5. FREE AND GENUINE CONSENT parties are of same mind when they agree
about the subject matter in same sense and at the same time if induced by coercion,
undue influence, fraud, misrepresentation, etc, there is no free consent - no contract.
6. LAWFUL OBJECT object must not be illegal, immoral or opposed to public policy
if any legal flaw, not enforceable by law.

7. AGREEMENT NOT DECLARED VOID must not have been declared void by
any law in force.
8. CERTAINTY AND POSSIBILITY OF PERFORMANCE terms must be
certain and not vague not possible to ascertain the meaning, it cannot be enforced
must be capable of being performed agreement to do impossible act, no contract.
Example : (a) A agrees to sell 100 bales of cloth to B. There is nothing to indicate the
kind of cloth intended to be sold. The agreement is void for uncertainty.
Scammel v Ouston purchase of motor van on hire purchase hire
purchase price payable over two years - no rate of interest or mode of
payment indicated Held, the word hire purchase has not been precisely
defined no contract.
9. LEGAL FORMALITIES essential to complete legal formalities to make the
agreement binding e.g. agreement may require payment of stamp duty, require
registration, etc.
CONSIDERATION: Sec.2 (d) when at the desire of the promisor, the promisee or any other
person has done/abstained from doing or promises to do or abstain from doing something - such
act or abstinence or promise is called consideration for the promise.
It means price for which the promise of the other is bought - a valuable consideration as a price
of the promise some of value received by the promisee as an inducement of the promise quid
pro quo ( something in return) may be of some benefit to the plaintiff or some detriment to the
defendant. Contract without consideration Neudem Pactum( Neudem-empty Pactum-contract)
Abdul Aziz Vs. Masum Ali a promise to subscribe Rs.500 for re-building a mosque
fulfilled secretary of mosque committee filed a suit for enforcement of promise Held,
promise no enforceable as no consideration in the sense of benefit for the promisor
secretary of the committee suffered no detriment as nothing has been done to carry out
repairs no contract.
CONTRACT
THERETO:

WITHOUT

CONSIDERATION

IS

VOID

not
the
the
the

EXCEPTIONS

Sec.25 Agreement made without consideration is void, unless

(1) it is expressed in writing and registered under the law for the time being in force, and is
made on account of natural love and affection between parties standing in near relation to
each other, or unless
(2) it is 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 so charged or his agent, to pay
wholly or in part a debt which cannot be enforced for payment under the law for the
limitation of suits.

1. LOVE AND AFFECTION - agreement has to be in writing registered under law

out of natural love and affection parties standing in near relation to each other.
Venkataswamy Vs. Rangaswamy - Out of natural love and affection for his brother R, V
promises to discharge Rs debt to B registered agreement V fails to discharge the debt
R discharges it and sue V to recover the amount Held, valid agreement covered under
Sec.25.
2. COMPENSATION FOR PAST VOLUNTARY SERVICE : a promise to wholly
or partly compensate a person who has already voluntarily done something for
promisor enforceable
Karam Chand Vs. Basant Kaur - goods supplied to minor - promise made after attaining
majority to pay for the supplies Held, enforceable.
3. PROMISE TO PAY A TIME-BARRED DEBT must be in writing signed by
the debtor or his specially or generally authorised agent for payment of whole or part of
the debt the debt must have been recoverable but for the law of limitation not
necessary that new promise should expressly mention the time-barred debt.
Debi Prasad Vs. Bhagwati Prasad acknowledgement of debt promise to pay with
interest Held, agreement with promise to pay within the meaning of Sec.25.
A takeover of the assets and liabilities of a business house does not amount to a promise
to pay a time-barred debt.
4. COMPLETED GIFT Sec. 25 shall not affect the validity of any gift actually made.
5. AGENCY - No consideration is necessary to create an agency.
6. CHARITABLE SUBSCRIPTION where promisee on the strength of the promise
makes commitments. E.g. Kedar Nath Vs. Gauri Mohamed
FREE CONSENT: Sec 14 consent said to be free when not caused by
(1)
coercion as defined in Sec.15, or
(2)
undue influence, as defined in Sec.16, or
(3)
fraud, as defined in Sec.17, or
(4)
misrepresentation, as defined in Sec.18, or
(5)
mistake, subject to provisions of Sec.20-22.
When consent to an agreement caused by coercion, undue influence, fraud or misrepresentation
agreement is contract, voidable at the option of the party whose consent was so caused (Sec.19)
If he confirms it, contract is binding on both parties.
Where consent caused by mistake agreement is void.

Bala Devi Vs. S. Majumdar illiterate woman executed deed of gift in favour of nephew
under impression that it was deed authorising nephew to manage the lands Evidence adduced
that woman never intended to execute such deed nor deed read or explained to her Held, deed
void and inoperative.
COERCION: Sec.15 coercion is committing or threatening to commit - any act forbidden by
IPC - or unlawfully detaining or threatening to detain any property - to the prejudice of any
person with intention to causing such person to enter into an agreement.
It is immaterial whether IPC (Indian Penal Code) is or is not in force in the place where the
coercion is employed.
Examples:
(1) A threatens to shoot B if B does not release him (A) from debt which A owes to B - B
releases A under the threat - The release brought about by coercion.
(2) Chikham Amiraju Vs. Chikham Seshamma By threat of suicide, a Hindu induced his
wife and son to execute a release in favour of his brother in respect of certain properties
which they claimed as their own Held, the threat of suicide amounted to coercion
release deed was voidable.
Sec.72 a person to whom money has been paid or anything delivered by mistake or under
coercion, must repay or return it.
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 in a position to
dominate the will of the other and uses that position to obtain an unfair advantage over the other.
A person is deemed to be in a position to dominate the will of another
(a) Where he holds a real or apparent authority over the other e.g. relationship between doctor
and patient, master and servant.
(b) Where he stands in a fiduciary relation (relation of trust and confidence) to the other e.g.
between father and son, solicitor and client, trustee and beneficiary and promoter and
company.
(c) Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by age, illness or mental or bodily distress e.g. relationship between
medical attendant and his patient.
The principle applies to every case where influence is acquired and abused, where confidence
is reposed and betrayed. Contracts entered into by undue influence are voidable at the option
of the person whose consent is so obtained.
Example:

(1) During minority of his son (B), A advanced money to him - upon Bs coming of age, misuses
parental influence obtains a bond from B for a greater amount than the sum due in respect
of the advance Held, A employs undue influence.
MISREPRESENTATION Sec.18 - false statement made honestly believing it to be true
or not knowing it to be false includes non-disclosure of material fact without intent to deceive
the other party.
Example:
1. A offers to sell his horse to B telling him that the horse is sound. A genuinely believes
the horse to be sound though he has no sufficient ground for the belief. Later, B finds the
horse to be unsound. The statement made by A is misrepresentation.
FRAUD Sec.17 Fraud exists when (1) a false representation made
(a) knowingly, or
(b) without belief in its truth, or
(c) Recklessly careless whether it be true or false.
(2) concealment of a material fact or partial statement of fact, so that the withholding of fact
makes the statement made false
(3) promise is made without any intention of performing it.
(4) any other act to deceive.
(5) any act or omission specially declared to be fraudulent.
A false statement must have been made intentionally with an intention to deceive the other party
or to induce him to enter into a contract.
MISTAKE : an erroneous belief about something - may be mistake of law or a mistake of fact.
Sec.20 where both parties are under mistake as to matter of fact essential to the agreement
the agreement is void.
Sec.20 will come into play when
(1) both the parties to an agreement are mistaken;
(2) their mistake is as to a matter of fact;
(3) The fact about which they are mistaken is essential to the agreement.
CONTINGENT CONTRACTS : Sec.31: A contract to do or not to do something, if some
event which is collateral to such contract, does not happen conditional one condition is of
uncertain nature e.g. contracts of insurance, indemnity and guarantee.
Example: A contract to pay a sum of money on the destruction of a premises by fire is contingent
contract. however, contract to pay a sum of money on the expiry of a term or on the death of a
person is not a contingent contract because these events are of a certain nature.

These are Observations of the Guest Lecture(27th July, 2016)and the topics covered by the
speaker .