1.

Competent to Contract

[Sec-11 & 12]

Competent to Contract means:

Capacity - to enter into a valid contract
Legal ability - to enter into a contract
Only competent persons can make a legally valid
contract.
Broadly speaking, there are three categories of
- Incompetent Persons
Minors (or) Infants (18 /21 years of age)
Persons of Unsound Mind
Persons, though competent, declared by Law as
incompetent. [disqualified to contract]
Thus, Not all Adults of Sound Mind can make Valid Contracts
Examples: Insolvent; Alien enemy; Foreign Diplomat;
Person under the influence of Alcohol; Life
Convict.

2. Consent - Defined

[Sec -13]

The term Consent means:

Parties to the contract must agree

- upon the same thing
- in the same sense.
That means: There should be
consensus ad idem.
i.e. There should be meeting of minds.
Consent involves identity of mind in respect
of subject matter of the contract.
Consent presupposes a free, fair and serious
- exercise of reasoning faculty. [Benefit/Burden]
Hence, Competent Persons are declared eligible to enter
into contracts.

Free Consent

[Sec 14]

Consent is said to be free, when not caused by:

Coercion [Sec 15]
Undue influence [Sec 16]
Fraud [Sec 17]
Misrepresentation [Sec 18]
Mistake [Sections - 20, 21 and 22]
Consent is said to have been caused when it
would not have been given - but for the
existence of such vitiating factors - Coercion
- undue influence,
- fraud,
- misrepresentation
or - mistake.

Coercion

[Sec 15]

Coercion means
forcibly compelling a person to enter
into a contract.
Consent of the party is obtained by
use of force or under a threat.
Coercion includes:
Fear, physical compulsion and menace
to goods.
Definition: Coercion is
the committing, or threatening to
commit, any act forbidden by the
Indian Penal Code (45 of 1860), or

Consequences of Coercion:

When consent is caused by coercion,

- the contract is voidable at the
option of the
party whose consent was so
obtained.

2. Undue influence:

(Sec 16)

Where
- a person who is in a position to
dominate the will of another enters
into a contract with him; and
- the transaction appears on the face
of it, or on the evidence, to be
unconscionable,
the burden of proving
that such contract was not induced by undue
influence shall lie upon the person in the
position to dominate the will of the other."

Undue influence means: improper or unfair use of

ones superior status in order to obtain the consent
of a person who is in a weaker position.
Here, the relations subsisting between the parties
is such that
(i) One of the parties is in a position to
dominate the will of the other, and
(ii) by using that position, obtains an unfair &
undue advantage from the other.
In their relationship, the person dominating may
hold (i) a real or apparent authority, or
(ii) authority derived from a fiduciary
relationship. [Trust & Confidence based]

 Undue influence - usually

involves an abuse of the existing
relationship between the parties.

A person has real authority

when he definitely holds some
power over the other.
A person will have apparent
authority when in spite of
having no actual authority, the
person can approach others as

In nutshell, a contract is said to be

caused
(induced)
(vitiated) by undue influence where
(i) One party to the contract is in a
position to dominate the
will of the
other; and
(ii) thereby, he is in a position to
obtain unfair advantage
over the
other.

1. Dominator holds real or apparent authority

over the other:
Eg. Master Servant;
Tax assessing Officer Assessee
Police Inspector Peron under custody
2. Dominator stands in fiduciary relation with

to other.
Trust and confidence are the foundation for
fiduciary relations.
Ex:

Father Son
Trustee Beneficiary
Solicitor Client
Doctor Patient
Fianc fiance
Between Partners of a Business Firm

3. Dominator makes a contract with a person:

contract with a person whose mental capacity is
temporarily or permanently affected by the
reason of age, illness or mental or bodily
distress
E.g.: Attendant to critically ill patient
Nurse Illiterate old patient

Consequences of Undue Influence:

When consent is caused by undue influence, the
contract is voidable at the option of the party
whose consent was so obtained.

Fraud

[Sec 17]

Essential Ingredients of Fraud:

Misrepresentation of fact relating to the
subject matter of the contract by one person.
Made to another person to induce him to
enter into a contract
The intention is to deceive or cheat the other
innocent party.
Suppressio veri - Suggestio falsi
Promise made without intention of performing
it.
Any other act fitted to deceive.
Any such act or omission which law declares
to be fraudulent.

 Suggestio falsi.

A statement of a falsehood - amounts to fraud

whenever the party making it was bound to
disclose the truth.
Example.
A purchaser applied to the seller
- to purchase a lot of wild land and
- represented to him it was worth nothing,
- except for a sheep pasture,
when he (the purchaser) knew
- there was a valuable mine
on the lot,
- of which the seller was ignorant.
The sale was set aside.

 Suppressio veri.
Suppression of the truth.
A concealment of truth, when a party is bound to
disclose it, vitiates a contract.
In the contract of insurance

- knowledge of the facts is required

- to enable the underwriter
- to calculate the chances
and
- to form a due estimate of the risk; and,
in insurance contract, perhaps more than any other the parties are required to represent
every thing with fairness.

 Suppressio veri

as well

as

suggestio falsi
- is a ground to rescind an
agreement, or
- at least not to carry
it into execution.
The contract is voidable.
Damages can be claimed.

Misrepresentation
Innocentmisrepresentation as
distinguished from Fraudulent
misrepresentation.
An innocent-misstatement of fact to the
contract made by one party to induce
the other to enter into a contract.
There is no desire of deceiving or
defraud here.
Misrepresentation may fall into any one
or more of the following three (3) broad
categories:

1. A positive assertion, in a manner not

warranted, of the subject matter of the
contract, which is not true, though
believes it to be true.
2. Any breach of duty which gives
advantage to the person committing it,
by misleading another to his prejudice.
No intent to deceive but gives
advantage for such breach of duty.
3. Causing, however innocently, a party
to an agreement to make mistake as to
the substance of thing which is subject
of agreement.

Consequences of
Misrepresentation
Party wronged can
Avoid the agreement
Insist the contract be

and

performed,
he be put in
position in which he would
have been, if the
representation made is true.

Exceptional cases - Where

damages are allowed
Only in some exceptional cases damages are
allowed even though it is case of an innocent
misrepresentation.

Example.
In the business of an agency,
if the agent believes that he has authority
to represent his principal,
while he has no such authority.
Agent is liable to damages because
he is guilty of innocent representation.

Most Important Point

If the Party
whose consent was caused
- by
misrepresentation
had means of discovering truth
- with ordinary
diligence,
he has no

remedy.

Distinguish Fraud and

Misrepresentation
S.N
o

Fraud.

Misrepresentatio
n.

1.

Fraud is
committed with
an intention to
deceive while
entering into
contract.

Misrepresentation is
due to innocence.
There is no
intention to deceive
or gain advantage.

2.

Though voidable, It is also voidable,

the party wronged but claim for

S.No
3.

Fraud.

Misrepresentat
ion.
The Contract can be Contract cannot
avoided and
be avoided, in
damages can be
case the party
claimed.
wronged has a
means of
discovering truth
with ordinary
diligence.

Mistake
[Sections - 20, 21 and 22]

Mistake: Means Error.

Mistake is another element/factor which
- vitiates free consent and
- renders the contract not necessarily
void.
Mistake may be mistake of law
or mistake of fact
Mistake of Law may be
mistake of Indian Law (Law of Land)
or mistake of Foreign law (Not Indian law)

Mistake -1
Mistake of Fact includes
Mistake of Private Rights of Individuals
Mistake of Quality of Promise
and a mixed question of Fact and Law
Mistake of Fact may be unilateral mistake
or bilateral mistake.
1. Unilateral Mistake
Where only one party to a contract
is mistaken
as to the terms of the contract.
2. Bilateral Mistake
Where both the parties to a contract are mistaken as to
the terms of the contract.

Consequences of Mistake of Law

A mistake as to a law in force in India
does not render a contract voidable. The
contract is valid and enforceable at law.
Reason: One should not be ignorant of law of his
land.

A mistake as to law not in force in India is

treated as a mistake of fact, and a mistake
as to such a law not in force in India would
render the contract void.
Reason: One need not necessarily know law not in
force
in India i.e. Foreign Law.

Consequences of Mistake
Mistake of Fact Bilateral Mistake [Sec 20]
Where both the parties to an agreement
are under a mistake
that mistake is as to a matter of fact
that fact is essential to the agreement
Then the agreement is void.
The consequences of mistake is that
consensus ad idem i.e. identity of minds is absent.
Example: A has two houses namely H-1 & h-2 and wants to
sell h-2 to B. Where as B was thinking that he is going to
purchase As house H-1. Here there is no consent because
both the parties are mistaken about the subject matter of the
contract. Hence, no valid contract is formed. The agreement
is void ab initio.

Mistake of Fact Unilateral Mistake

[Sec 22]

Rule-1: A Contract is not voidable merely because

it was caused by one of the parties to it
being under a mistake as to a fact.
Example.
If, A while intending to sell house to B for Rs.
30,000/- tells him that the price of his house is Rs.
13,000/- and if B accepts it, the contract between
them will be valid and enforceable for Rs. 13,000/only. A cannot argue that he was mistaken while
speaking out the price correctly and the contract
must be set-a-side.
This cannot be treated as an error of mind
consensus ad idem. There are certain
exceptions to this Rule, which follow next e.

Exceptions to this rule under Section 22

A). Where there is a mistake as to the identity of the
person with whom the agreement is being entered
into and the other party is aware of the first partys
mistake.
Result: Such a mistake will defeat consent.
Render the contract invalid
only when
- A party has a specific person in mind
with whom the party intends that the
contract should be executed.

And, - This identity must be material to the

party when entering into the contract.

Example:
S wants to contract with K for the
supply of bricks.
A represents himself as K, and
enters into a contract with S.
Here, the contract between A and S
shall be void
because S intended to contract with K,
- of whose existence he was aware, and
- whose existence was material to S
at the time he was entering into the
contract.

Exceptions to this rule under Section 22

B). The contract will not be void, where the
mistake is - one of attributes, and
- not one of identity of the person.

Example:

A enters into a contract

for the supply of water with S - thinking herself to be
Matadi - a fictitious person whose identity S
has assumed for the purpose of the agreement.

 Here, S has assumed the name

of another person Matadi, of
whose existence A is unaware
and moreover, his intention was to
contract with the person who
was representing herself to be
Matadi, and not Matadi,
specifically.
Thus, in this second situation, the
contract will not be void, since the
mistake is

C). There are also instances where the plea of

non est factum is taken.
Non est factum means It is not his Deed.
When a person signs a document under the honest
belief that it is what they wished and intended to sign
when actually it is something else. The document is
essentially different from the deed that they intended
to sign.
In such a situation, the law presumes that
the mind of the person did not accompany the
signature.
Therefore - the execution of the document is
invalid and that - it is not their deed.

Note:
The the plea of non est factum is a very
narrow area, and to fall within it, one should have some
genuine reason why one did not read the document that
one signed.
Reason: The law usually assumes that the person signing
a document has - read,
- understood,
and - agreed to it.

A good example of a
genuine reason is where
- the party in question is illiterate, and
- the person who reads the document to them
made a mistake in reading the document out
aloud.

 Rule-2: An erroneous opinion about value of the

object of an agreement is - deemed not to
be a mistake as to a fact.
Example::

- A agrees to buy a car from B

for a certain price.
- A assumes that B will hand over possession
of the car with a full tank of petrol.
- Whereas B refuses to add more petrol.
Since the quantity of petrol in the tank is not
essential to their contract. The contract is not void.
It is a valid and enforceable contract.

Consequences of Mistake
1. Mistake of Indian Law:
Agreement is enforceable
Contract is not voidable
Ignorance of Law is no excuse
[Ignorantia juris non excusat].

Agreement is enforceable as contract.

2. Mistake of Foreign Law: (Not Indian Law)
Mistake as to a law not in force in India has
the same effect as a mistake of fact [Sec
21] The Contract is Voidable or Void.

Doctrine of Unjust Enrichment

Restitution under
Void Agreements

[Sec

65]

- Voidable Agreements
[Sec 64]

Remedy under Specific Relief Act

[Sec - ....]

Section 64 as to Voidable Contract

Section 64 of the Indian Contract Act reads
thus:
When a person, at whose option a contract is
voidable, rescinds it
- - The other party thereto - need not
perform any
promise therein contained of which he is promisor.
- The party
rescinding a voidable contract shall,
if he received any benefit there under from
another party to such contract, restore such
benefit, so far as may be, to the person from
whom it was received.

Section 65 as to Void Contract

Section 65 of the Indian Contract Act reads
as under :
When
- an agreement is discovered to be void or
- when a contract becomes void,
any person who has received any
advantage under such agreement or contract
- is bound to
restore it, or
- to make compensation for it,
to the person from whom he received
it.

Remedy under Specific Relief

Act, 1877.

Section 41, Specific Relief Act, 1877 reads

as follows:
On adjudging the cancellation of an
instrument, the Court may require the
party to whom such relief is granted to
make any compensation to the other
which justice may require.
This section gives discretion to the court
to order compensation, depending upon
the circumstances of each case - which
justice may require.
Hence, no body can claim
it as a matter of right.

Distinction between
1.
2.
3.

or
or
or
or

Void Agreements.
It cannot be enforced by
any of the parties to it.
It is void ab initio i.e. from
the beginning.
It implies an agreement
which does not satisfy the
requirements of Sec-10 i.e.
a) it is made without
consideration;
b) by incompetent
persons;
c) its consideration or
object is not lawful;
d) the consent of the
parties is not free
e) it is expressly declared

void.

1. It is a contract
Voidable at
Contracts.
voidable
the option
of one of the parties
thereto.
2. It does not become
void unless the party
at whose option it is
voidable repudiates
it.
3. It implies a contract
in which the consent
of one of the parties
to it is not free, i.e. it
has been obtained
either by
a) coercion
or b) undue influence
or c) misrepresentation