Sahil’s notes - Law of Contracts

Law of Contract:

 Indian Contract Act,1872.

 Before 1930 the above mentioned act also contained the provisions relating to contracts of
sale of goods and partnership.
 “to consummate a contract there must be mutuality as well as the meeting of the minds of
the parties.”
 Mutuality means equality of the rights of the parties.
 Consensus ad idem (meeting of minds).
 Section 2(h) of the Indian Contract Act,1872, defines term ‘contract’ as:
“an agreement enforceable by law.”
 Every contract is an agreement but every agreement is not contract.
 According to Section 10 requirements of a contract :
1. Consideration.
2. Parties competent to contract.
3. Free consent.
4. Lawful object.
5. Agreement must not be declared void.
6. Terms must not be vague or uncertain.
7. Agreement acceptable of performance.
 Contract may be oral or in writing in some cases it must be registered.(Sec 25)
 Test of the contractual intention is objective and not subjective.
 Carlill v. Carbolic smokeball co. (1893) 1 QB 256 : the company offered 100 pounds reward
to anyone who caught influenza after using their smoke ball according to printed directions .
the plaintiff, who used the smoke ball, caught influenza. She was held entitled to recover the
promised reward. The court noted that as the transaction is also advantageous to the
company as it would lead to an increase in their sales hence it was enough as a
consideration to bring a valid contract into being. Merely because the promisor says
contends that there was no intention to create the legal obligation he cannot be exempted
from the liability.
 McGregor v. McGregor (1888) 21 QBD 424: a couple withdrew their complaints on the
condition that the husband shall pay allowances to the wife . this is held to be a binding
contract. But, Blafour v. Blafour (1919) 2 K.B. 571, the husband was to shift to England for
work but the wife owing to her health issues wasn,t able to accompany him to his workplace
e said that he shall give her 30 pounds per month as maintenance, husband fails. The
husband was not held liable because there was no intention to create a legally binding
agreement.
 Types of Contracts:
A. ENFORCEABILITY:
1. Valid contract: enforceable by law (Sec 2(h))
2. Voidable contract: enforceable by law at the option of one parties or more of
parties thereto but not enforceable by the other or others.(Sec. 2(i)).
3. Void contract: ceases to be enforceable by law.(Sec 2(j)).
 Void ab initio: no agreement at all from its very inception.

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 A contract cannot be void ab initio. A valid contract becomes void because of supervening
illegality or impossibility. (Sec. 56) or repudiation of a voidable contract, or the event in the
contract becomes impossible.(Sec 32).
4. Unenforceable contract: valid in itself but cant be enforces by law due lack of
certain technicalities or due to absence in writing etc.
5. Illegal or Unlawful Contract: illegal agreement narrower in scope than a void
agreement. For example an agreement with a minor will be void against him but
not illegal.
B. MODE OF CREATION:
1. Express contract: offer and acceptance both made in express words or writing .
2. Implied contract: offer and acceptance made through the acts and conduct of the
parties.
3. Contracts of mixed character: offer expressed in words- acceptance implied via acts
and circumstances.
4. Constructive or quasi contract: “certain relations resembling those created by
contract”(Sec 68-72). For example liability of person to whom the money is paid by
mistake to repay it back
C. EXTENT OF EXECUTION:
1. Executed contract: when all the duties by both the parties have been respectively
performed, eg a bookseller selling a book after taking the price of the book from the
customer.
2. In the contracts where only one party has executed its share of obligations and the
other one has not yet done so this type of a contract is called a Unilateral Contract.
For eg advertisement that offers a reward to someone who finds a certain missing
person.
3. Executory contract: there remains something to be done in the contract by both the
parties to the contract. They are also called bilateral contracts or Future contracts.
 The special terms and conditions are to be abided by the acceptor only if they were brought
to the knowledge of the contractor before or at the time of making a contract.
 Certain rules to protect the interests of the weaker party to the contract:
1. Reasonable notice
2. Notice should be contemporaneous with the contract
3. The terms of the contract should be reasonable
4. Fundamental breach of contract: no exemption clause allowed to disobey the core
construction of the agreement for eg if a dry cleaner loses the clothes of a customer
he owes a liability for the same no matter what the exemption clauses say.
5. Strict construction: any ambiguity in the contract is to be accorded to the favour of
the weaker party.
6. Statutory protection: Indian Airlines v. Madhuri Chowdhury (AIR 1965 Cal 252)
highlights the failure of the Indian constitution in providing a relief to the weaker
party of the contract against the exemption clauses.

 BASIC ELEMENTS OF A CONTRACT: offer, acceptance, consideration and contractual

capacity.

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OFFER:
 Called proposal as per indian law.
 Sec 2(a) puts down the ingredients of an offer:
(a) one person signifies to another
(b) his willingness to do or abstain from doing something
(c) with a view to obtaining the assent of that other.
 By words or by conduct both okay for a proposal (sec 9).
 Boarding a taxi or eating at a restaurant both imply that you are ready to pay for the
benefits.
 Upton rural district council v powell (1942) 1 AII ER 220 : a person engaged a fire brigade
supposing that it was to offer free of cost services to him but this was not the case, taking
services implies that you will pay for it.
 the terms of the offer must be certain and not vague (sec 29).
 The offer is said to be communicated only when it comes to the knowledge of the person
whom it was addressed to.(sec 4)
 R v Clarke (1927) 40 CLR 227: if an acceptor has once known of the offer but had completely
forgotten about it at the time of acceptance he would then be in no better position than a
person who has not heard of the offer at all.
 General offers are the once made to the public at large whereas the special offers are made
to the specific persons.
 if two people make an offer to each other at the same time without the knowledge of
eachother that offer shall be called as a cross-offer, making a cross-offer does not imply its
acceptance.(tinn v Hoffman & co. (1873) 29 LT 271.)
 a party which expresses certain terms to negotiate upon it does not mean that it is making
an offer it is rather making a proposal for offers for example a bookseller keeping his books
marked with a price tag this is an invitation to treat. He may reject or accept the offer.

 Mcpherson v Appana (AIR 1951 SC 184): On receiving an offer from A for the purchase of a
house belonging to B, Y who was looking after the house, cabled to B that there was an
offer of Rs. 6,000 for the house. B sent a cable in reply on the 5th August, 1944, that he
would not accept less than Rs. 10,000. Y conveyed this information to A on the 9th and on
the 14th A wrote a letter to Y stating that he thereby confirmed the oral offer of
Rs.10,000 that he had made to Y on the 11th. On the 26th Y cabled to B as follows:
"Offered Rs. 10,000. May I sell". On the same day, W, another friend of B, with whom also
B was in correspondence, sent an offer for Rs. 11,000 and B accepted it. A sued for specific
performance alleging that
B's cable ofthe 5th was a counter-offer and as he had
accepted it on the 14th, there was a concluded contract for
sale in his favour on that day.
Held, that the cable sent by B on the 5th was a mere
statement of the lowest price at which he would sell and
contained no implied contract to sell at that price. A's
letter of the 14th was under the circumstances only a fresh
offer; and as B had not accepted it there was no concluded
contract in favour of A.
Harvey v. Facey [1803] A.C. 552 applied.

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 mere statement of the lowest price at which an offeror would sell contains no implied
contract to sell at that price. The supreme court relied on the principle enunciated in Harvey
v. Facey (1893) AC 552 (lowest price of a pen asked for and then tried to be bought at that
lowest rate but the court ruled against defendants)
 Pharmaceutical Society of Great Britain v. Boots Cash Chemists (southern) Ltd. (1952) 2 QB
795: On April 13, 1951, two customers took drugs from a shelf in pharmacy, put it in their
basket and paid at the cash register at the exit. The pharmacist station was near the poisons
section so they were able to oversee all transactions but the pharmacist took no part in the
transaction. The Pharmaceutical Society, as the organization responsible for enforcing
provisions of the Pharmacy and Poisons Act, 1933, brought this action as a test case against
this type of retailing. At the lower court they found this type of retailing was not in
contravention of the Act and the Society appealed.
Boots Cash Chemists introduced a new method of purchasing drugs from their store- the
drugs would be on display, shoppers would pick them from the shelves, and pay for them at
the till. The Pharmaceutical Society of Great Britain objected to this method, claiming that
S.18(1) of the Pharmacy and Poisons Act 1933 mandated the presence of a pharmacist
during the sale of a product listed under the Act's schedule of poisons.
The Society alleged that the display of goods constituted an offer and a customer, upon
choosing a product/drug, had accepted the offer. Due to lack of supervision of a pharmacist,
the Boots Cash Chemists had, according to the Pharmaceutical Society, violated the terms of
the Pharmacy and Poisons Act of 1933. Matter was taken to court.
Held that the display of goods in a sop with the price tags attached is not an offer even if
there is a “self-service” system in the shop. The customer by picking up makes an offer to
buy which is subjected to the acceptance by the shopkeeper.
 Dickinson v. Dodds (1876) 2 ChD 463:
1. Synopsis of Rule of Law. Promises to keep an offer open until a certain time will be
only a promise unless made by binding by consideration and acceptance necessary
to form a binding agreement.
2. Facts. Plaintiff believed he had the power to accept until 9am on Friday. He learned
that Defendant was negotiating with another party and immediately brought his
acceptance to the house where Defendant was known to be staying and left written
acceptance with his mother-in law. Defendant had sold the property to Allen on the
day before, Thursday. Defendant, found him before 9am on Friday at the train station
and handed him a copy of the acceptance.
3. Issue. Whether the promise to keep the offer “left over until Friday 9 o’clock” was a
binding contract without consideration and before complete acceptance by Plaintiff.
4. Held. The offer to be held open until Friday 9 o’clock was only an offer that was not
supported by consideration or acceptance by Plaintiff. There was no binding
agreement to keep the property unsold until 9 o’clock Friday morning.
Concurrence. The other party was free to make a more favorable offer to Defendant
which he was free to accept. There was no binding agreement between Defendant
and Plaintiff since Plaintiff had not accepted the offer. In addition, it was questionable
whether Plaintiff could accept at all once he had knowledge that the person had sold
the property to someone else.
 Leonard v. Pepsico, 88 F. Supp. 2d (1999):
1. Facts. Defendant ran an advertisement for a promotion in which people could obtain
“Pepsi points” by drinking Pepsi and then use them to purchase items from a catalog.

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The back of the order form stated that a person could purchase Pepsi points for ten
cents a point. The advertisement featured a Harrier Jet and said it cost 7,000,000
Pepsi points. Plaintiff filled out an order form, asked for the Harrier Jet, sent in fifteen
Pepsi points and approximately $700,000.00 in a check drafted from his attorney’s
trust account. Defendant sent a letter to Plaintiff saying the Harrier Jet is not part of
the promotion. After some heated correspondence, between Plaintiffs attorney,
Defendant and the advertising agency that produce the advertisement, Plaintiff filed
suit in state court.
2. Issue. Was the advertisement an offer for a Harrier Jet?
3. Held. No.
The commercial was not an offer because it referred to the catalog. The Harrier Jet
was not in the catalog.
The attitude of the advertisement would not lead a reasonable person to believe there
was an offer.
There was not writing to satisfy the Statute of Frauds.

ACCEPTANCE:

 When the person to whom the proposal is made signifies his assent thereto the proposal
is said to be accepted (sec 2(b)).
 Two requirements: firstly the acceptance should be communicated. secondly, it should
be absolute and unqualified.
 Mere mental determination to accept is not enough. The acceptance may be made
through words or actions or gesture. (brogden v metropolitan rail co. (1877) 2 AC 666).
 The performance of the conditions of the proposal is an acceptance of the proposal.
(carllil v carbolic smokeball co.).
 Communication of the acceptance has to be made to the offeror himself.
 Communication should be made by the acceptor himself. Any other information offered
to the offeror about the acceptance of the offer then by the acceptor it shall be totally
ineffective. (powell v lee (1908) 24 TLR 606).
 If parties are making a contract by sitting away from eachother then as and when the
communication of the acceptance is put in the mode of transmission the proposer
becomes bound by that acceptance. (sec 4.)
 When the acceptance is by telephone or telex the contract is complete only when the
acceptance is received by the offeror. (bhagwandas kedia v girdharilal & co. AIR 1966
SC 543.)
 The acceptor is not bound until and unless the acceptance letter has reached the
offeror.
 Counter proposals : acceptance with variations is no acceptance. I a counter proposal
the party to the proposal is made makes back another proposal with the amendments to
the already made proposal this makes the already made proposal by to be null and
void(hyde v wrench (1840) 3 Beav 334).
 Provisional acceptance: here none of the parties is bound until the final acceptance to
an offer has been given.(uoi v. Narain singh AIR 1953 Punj 274).

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REVOCATION:
 REVOCATION OF A PROPOSAL:
1. Notice of revocation : a proposal maybe revoked anytime by the offeror but before
the contract has come into existence. No question of revocation may arise in the
case of a telephonic conversation. An offeror may revoke the offer but he has to
bring it to the due knowledge of the offeree ( henthorn v fraser (1892) 2 Ch 27).
2. The notice of revocation shall deemed to have been served when itreaches the
acceptor.
3. Lapse of time: if the stipulated time within which the offer was to be accepted has
elaped then the offer itself stands to be withdrawn. But if no time has been
mentioned then a reasonable time is taken into consideration depending upon the
type of article taken into account for eg the reasonable time for a fluctuatingly
priced gold might be less then land.
4. By failure to fulfil the condition precedent for eg. Deposit of the earnest money.
5. By death or insanity of the offeror: the offer in this case lapsesonly if the fact about
the death or insanity of the offeror comes to knowledge of the acceptor before the
acceptance has actually been made .
 REVOCATION OF AN ACCEPTANCE: an acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor, but not afterwards.

CONSDERATION:
 Absence of the consideration makes an agreement void (sec 25, contract act).
 Consideration is “quid pro quo”(something for something).
 At the desire of the promisor (promissory estoppel)
 Absence of consideration makes the promise abare promise ( nudum pactum).
 Section 2 (d) : “ when at the desire of the promisor, the promise or any other person has
done or abstained from doing, or does or abstain from doing, or promises to do or abstain
from doing something, such act or abstinence or promise is called a consideration for the
promise.”
 Ingredients of consideration:
1. At desire of the promisor
2. By promise or by another person
3. The act or abstinence may have been already executed or is in the process of being
done or may be executor i.e. it is promised to be done.
 (A)AT THE DESIRE OF THE PROMISOR:
1. An act shall not be good consideration for a promise unless it is done at the desire of
the promisor.
 (B)PROMISEE OR ANY OTHER PERSON:
1. A promise is enforceable if there is some consideration for it and it is quite
immaterial that it moves from the promise or any other person. This is sometimes
called as ‘Doctrine of constructive consideration’.
2. Under English law however, there is a privity of the consideration i.e. the
consideration must move from the promise and promisor only, a stranger or third
person cannot furnish consideration. ( Tweedle v. Atkinson (1861) 1 AII ER 762)

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3. In Chinnaya v. Ramaya (1882) 4 Mad 137, A, a landlord, executed a gift deed of

certain lands in favour of his son B, with a direction that he should pay to his uncle C
an annuity of Rs. 8,000 for a period of three years. On the same day, B, also
executed a separate undertaking in favour of C agreeing to pay the annuity. B
subsequently refused to keep his promise. C sue B to recover the amount due under
the agreement. Held that the consideration ( gift of lands) furnished by A is enough
to enforce the agreement between B and C . if there was no agreement between B
and C, though B agreed with A to pay the annuity to C, then the case falls under the
‘privity of contract’: a stranger or a third person cannot sue upon a contract
between the two parties unless the contract benefits a third person (by way of trust,
charge or under a family arrangement). Thus, C will succeed in this situation also.

PRIVITY OF THE CONTRACT:

 Contract is a contract between the parties only and no stranger to the contract can sue upon
it even if the contract is made avowedly for his benefit.
 The authority of the application of the rule in India is the decision of the privy council in
Jamma Das v Ram Avtar (1911) 30 I.A. 7. In that case , A had mortgaged some property to X.
A then sold this property to B , B having agreed with A to pay off the mortgaged debt to X. X
brought an action against B to recover , but failed as there was no contract between X and B.
 “ where all that appears is that a person transfers property to another and stipulates for the
payment of money to a third person, a suit to enforce that stipulation by the third party will
not lie.” ( Subbu Chetti v. Arunachalam Chettiar (AIR 1930 Mad 382)).

EXCEPTION TO PRIVITY RULE:

 Rule of privity does not prevent a person from enforcing a contract, which has been made
for his benefit but without his being a party to it (Beswick v. Beswick (1966) 3 ALL ER 1).
1. Trust or Charge : A trust is a property held by a person or a grup of persons
for another’s benefit.
 Khawaja Muhammad Khan v. Hussaini Begum (1910) 37 IA 152 : there was an agreement
between the lady’s father in law and her father that in consideration of her marriage with
his son , he would pay to her rupees 5oo per month in perpetuity for the betel-leaf
expenses. Some immovable property was specifically charged for the above purpose. A suit
by wife (not a party to the agreement ) for the recovery of the arrears of annuity was
upheld.
 when a girl’s father entered into an agreement for her marriage with the defendant, it was
held that the girl could sue the defendant for damages for the breach of the promise of the
marriage even though she was not a party to the agreement (Rose v. Joseph AIR 1925 Bom
97).

(C) HAS DONE OR ABSTAINED FROM DOING :

 consideration may be a past, present or future act.
 Past Consideration:
1. Act done before any promise has been made
2. A past consideration is no consideration in English law

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3. A promise to pay time-bared debt and a negotiable instrument issued for past
consideration are both valid.
4. In India, Sec. 25(2) adequately covers a past voluntary service i.e. a service rendered
without any request or promise and there is a subsequent promise to pay for the
same.

(D) SUCH ACT, ABSTNENCE OR PROMISE IS CALLED CONSIDERATION:

 Consideration must be real and not illusionary

 Consideration need not be adequate : thus is A agrees to sell a horse worth Rs. 1,000 for Rs.
10 and A’s consent to the agreement was freely given , the agreement is a contract
notwithstanding the inadequacy of the consideration.
 Forbearance to sue (or compromise of a pending suit) has always been regarded as a
valuable consideration. It is a kind of abstinence. Thus , in Kastoori Devi v. Chiranji Lal (AIR
1960 AII 446), the withdrawal of the pending suit by a wife against her husband was held to
be good consideration for his promise to pay her maintenance.

PERFORMANCE OF EXISTING DUTIES:

1. Performance of legal obligation – there should be a promise to do something more
than what a person is already legally bound to do. Where a person having received
summons to give the evidence in a case; a promise to pay such a person for
appearing in case is no consideration (Collins v. Godefroy). If the police authority
provides a special kind of protection at request they may demand payment of it.
2. Performance of contractual obligations:
(a) Pre-existing contract with a promisor : if A is already bound to perform a
particular contractual duty owed to B , B’s promise to pay something additional
for the same promise is no consideration.
On the same principle, a promise to pay less than what is due under a contract
cannot be regarded as consideration (Pinnel’s Case, 1602). In India, the promise
may accept in satisfaction of the whole debt an amount smaller than that. No
consideration is needed for such a promise (Sec 63, contract act).
(b) Pre – existing contract with the third party: In Shadwell v. Shadwell (1860) 9CB
(NS) 159, the plaintiff A had already promised to marry one Miss Nicholl. A’s
uncle sent him a letter : “I am glad to hear of your intended marriage with
Nicholl; and as I promised to assist you at starting, I will pay you 150 pounds
yearly during my life...” Thereafter, A married Nicholl. The majority judgement
was that there is a sufficient consideration for the promise. The promise of the
annuity might have intended as an inducement to the marriage.
1. Scotson v. Pegg (1861) 30 LJ Ex 225
2. Gopal Co. Ltd v. Hazarilal Co. (AIR 1963 M.P. 37)

In India, if A contracts with B to build a fence between their premises; C, a

neighbour , also interested in the idea of fence, promises B that if he will
carry out his contract with A, he will pay him Rs. 1000. B can recover Rs.1000
from C.

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EXCEPTIONS TO CONSIDERATION:

Contracts

contracts under
simple contracts seal, or in form
of a deed


 Consideration is required only as regards simple contracts . a contract under seal ( which is
in writing and which is signed , sealed and delivered ) is enforceable without
consideration.(English Law)

 In Indian Law, Sec 25 of the contract act lays down a few exceptions:

(1) Natural Love and affection: A written and registered agreement based on natural
love and affection between near relatives is enforceable without consideration. The
expression ‘near realtive’ will include parties related by blood or marriage. In
Rajlucky Dabee v. Bhotnath Mookerjee (1900) 4Cal WN 488, held that the near
relation between the two parties does not inply natural love and affection between
them. In this case, the defendant promised to pay his wife a fixed sum of money
every month for her separate residence and maintenance. The court could find no
trace o love and affection between the parties . the agreement was held to be void
for the lack of consideration.
(2) Past voluntary Service : A promise to compensate a person , who has already
voluntarily done something for the promisor, or something which the promisor was
legally compellable to do , is enforceable. Service should have been rendered
voluntarily and without promisor’s knowledge, and for the promisor only. In Karan
Chand v. Basant Kaur (1911) PR 31, a promise made after attaining majority to pay
for goods supplied to the promisor during minority was held to be within the
exception. The promise must be to compensate a person who has himself done
something for the promisor and not the person who has done nothing for the
promisor.
(3) Time-barred Debt : a promise to pay a time-barred debt is enforceable. The promise
referred to in Sec 25 (3) must be express.
the following letter :
“to come and receive” what was due to him (invalid)
“i shall send the rent by the end of the vysakh month” (valid).

CAPACITY TO CONTRACT:

 Sec. 10 of the contract act requires that the parties must be competent to contract.

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 Sec. 11 defines who are competent to contract : “Every person is competent to contract who
is the age majority according to the law to which he is subject, and who is of sound mind,
and is not disqualified from contracting by any law to which he is subject.”.
 Amendment in 1999 to the Indian majority act, 1875, age of the majority is fixed as 18 for
every person (irrespective of the fact of appointment of guardian).

NATURE OF MINOR’S AGREEMENT:

 Neither Sec. 10 nor Sec.11 makes it clear whether, if a minor enters into an
agreement, it would be voidable at his option or altogether void.
 In Moharibibi Case, it is now well settled that a minor’s agreement is absolutely
void.
 A minor cannot make a promise enforceable in law (Raj Rani Case).

EFFECTS OF MINOR’S AGREEMENT:

1. No estoppels against Minor : when a minor misrepresents at the time of the

contract that he is a major, there is no such Estoppel against the minor even if he
acted fraudulently. In Khan Gul v. Lakha Singh (AIR 1928 Lah 609), held that the law
of estoppels , which is the rule of evidence , is a general law and this has to be read
subject to the special aw contained in the Indian contract act.
2. No liability in Contract or in Tort arising out of Contract: the minor will not be liable
for a tort arising out of the contract, for the reason that such liability is an indirect
way of enforcing his agreement. But where the Tort is Independent of the contract
the mere fact that a contract is also involved , will not absolve the minor from the
liability. Thus where an infant borrowed a mare for riding only, he was held liable
when he lent her to one of his friends who jumped and killed her (Burnard v. Haggis
(1863) 4 C BNS 45). Here the defendant was liable on the ground that the act
resulting into the injury was quite outside the contract. In Jennings v. Rundall (1799)
8 TR 335, on the other hand , where an infant had hired a horse to be ridden for a
short journey and took it on a much longer journey, with the result it was injured ,
the court held him not liable on the ground that the action was founded in the
contract.

3. Doctrine of Restitution: The proposition that “the lack of capacity goes to the root
of the contract and invalidates it completely” is subject to the equitable doctrine of
restitution and beneficial contracts in the case of a minor.

English Law: If a minor has unjustly enriched himself , equity demands that such
property o goods be restored . the English courts developed an equitable ‘doctrine
of restitution’ to deal with the matter. In Leslie(R) ltd. V. Sheill (1914) 3 KB 607, the
court laid down three main propositions of this doctrine :
i) If an infant obtains property or goods by misrepresenting his age , he can be compelled
to restore it, but so long as the same is traceable in his possession.

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ii) Where the infant has sold the goods or converted them, he cannot be made to repay the
value of the goods because that would amount to enforcing a void contract.
iii) The doctrine of restitution is not applied where the infant has obtained cash instead of
goods , for ‘restitution stopped where repayment began’.

Indian Law: the English doctrine of restitution is contained in the Indian law ,
though with some modifications :
i) Moharibibi v. Dharmodas Ghose (1903) 30 Cal 539 : in this case , a minor executed a
mortgage for Rs. 20,000 and received Rs. 8,000 from the mortgagee. The mortgagee
filed a suite for the recovery of his mortgage money and for the sale of property is the
case of default. The Privy Council held that an agreement by a minor was absolutely void
against him, thus the mortgagee could not recover the mortgage money nor could he
have the minor’s property sold under his mortgage. The court observed that Secs. 64
and 65 of the contract act (‘restorstion of the benfits received under a voidable or void
contract’) starts from the basis of there being a contract between competent parties ,
while in a minor’s case there never was and never could have been any contract.
ii) Khan Gul v. Lakha Singh (AIR 1928 Lah 609) : In this case, the court observed that the
doctrine of restitution would not be of any help unless it was extended in india to cover
moey cases also.
iii) Sec. 33, The Specific Relief Act, 1963 clears the position : The Law Commission of India
(9th report) preferred the view enunciated in Khan Gul case and accordingly the
controversy has now been set at the rest by the new Specific Relief Act, 1963. The
principle of restitution is contained in Sec.33 of the new act:
(1) Where a void or voidable contract has beencancelled at the instance of a party
thereto (i.e. minor goes to the court as plaintiff for cancellation of contract), the
court may require him to restore such benefits as he has received under the
contract and to make any compensation to the other party which justice may
require.
(2) Where the minr is defendant in a case and he resists the enforcement of the suit on
the ground that he is incompetent to contract , the court may ask him to restore
such benefits to the other party, to the extent he or his estate has benefitted
thereby (clause b).
The object of sub-sec. (1) is to restore the parties to their original position, as far as
possible. But the court will not compel any restitution by a minor even if he is a
plaintiff, where the other party was aware of the infancy so that he was not
deceived , or where the other party has been unscrupulous in is dealings with the
minor , or where, thought he minor has misrepresented his age , the other party was
so zealous to enter into the transaction that the false representation exerted no
influence on him.

Through sub-sec. (2) the parties are tried to be put to the pre-contract position.
Moreover, compensation in the terms of the money (excluding intrest) is also
permitted. A minor (as a defendant) can be compelled to account for such portion of
money or anything else received by him as has gone to benefit him personaly, such
as education or training, or has resulted in an accretion to his estate (viz. Buying the

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assets, or deposit in a bank account). The phrase ‘estate has benefited’ means some
permanent benefit as opposed to a transient one (viz. Entertainment, eating, gifts to
friends, etc.). thus money spent by the minor on watching film cannot be said to
benefit the estate.

BENEFICIAL CONTRACTS:


 Where a minor and an adult jointly enter into an agreement with another person, the minor
has no liability but the contract as a whole can be enforced against the adult (Jamna Bai v.
Vasanta Rao (1916) 39 Mad 409 (PC)).

RATIFICATION OF A MINOR’S AGREEMENT :

 A person cannot on attaining majority ratify an agreement made by him during his minority.
 In Suraj Narayan v. Sukhu Aheer (AIR 1928 AII 440) , it was held that the consideration
received by a person during his minority cannot be called consideration withn the meaning
of Sec. 2(d), and there is no question of that consideration being considered valid for a fresh
promise.

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 Sahil’s notes - Law of Contracts

PERSONS OF UNSOUND MIND:

 Sec.12, “ a person is said to be of a 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
judgement as to its effects upon his interests. A person who is usually of an unsound mind ,
but occasionally of sound mind, may make a contract when he is of sound mind. A person
who is usually of sound mind , but occasionally of unsound mind , may not make a contract
when he is of unsound mind.”

DISQUALIFIED PERSONS:
 As per Sec. 11, “incompetent persons are those who are disqualifies from contracting by any
law to which they are subject.”

FACTORS VITIATING THE CONSENT :

 Sec.10 puts it down that the valid contract should consist of a fair consent.
 according to Sec.14, consent is said to be free when it is not caused by:
1. Coercion (Sec. 15), or
2. Undue influence (Sec. 16), or
3. Fraud (Sec. 17), or
4. Misrepresentation (Sec. 18), or
5. Mistake, subject to the provisions of Secs. 20, 21 and 22.
 If the consent is caused by the above mentioned reasons then it is voidable at the choice of
the party whose consent was caused so.

COERCION:
 Contract voidable

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 Sec. 15 : “ consent is said to be coerced when it is taken by exerting pressure by either of the
following techniques : - committing or threatening to commit any act forbidden by the
Indian penal code , or unlawfully detaining or threatening to detain any property.”
 The threat of suicide amounts to coercion according to Sec 15.
 Where a contract was made in lieu of avoiding criminal proceedings to be proceeded against
oneself it was said to be no coercion here because initiation of criminal proceedings is
nothing unlawful ( Askari Mirza v. Bibi Jai Kishori (1912) 16 IC 344)
 Under English contract act unlike Indian contract act any threat to goods and property is not
regarded to be coercion.

UNDUE INFLUENCE:

RELATIONS WHICH INVOLVE DOMINATION:

 Fiduciary relationships
 Active trust and confidence
 Position of authority
 Undue influence by a person who is not a party to the contract , may make the contract
voidable, it is not necessary that the reason in a position to dominate the will of the other
party must himself be benefitted. If the third person in whom he is interested is benefitted
(Chinnamma v. Devenga Sangha AIR 1973 Mys 338)
 Distress- when his or her mental condition is temporarily or permanently affected.

PRESEUMPTION OF UNDUE INFLUENCE (Unconscionable bargains)

 Examples of unconscionable bargains :

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1. A person without having the means f subsistence, in order to prefer an appeal

against a judgment , borrowed rs 3700 on a bond promising to pay rs. 25,000 within
the year from the recovery of the possession of an estate ( Chunni Kaur v. Rup Singh
(1899) 11 AII 57)
2. A presumption of undue influence arises in the case of contract by or with a
pardanashin woman.

FRAUD:
 Contract becomes voidable
 Sec. 17 says “Fraud” means and includes any of the following acts done with “intent to
deceive” or to induce a person to enter into a contract-
a. The suggestion that a fact is true even when it is not true and the person
making the suggestion does not believe it to be true.
b. Active concealment of a fact by a person who has knowledge or belief of the
fact.
c. Promise made without any intention of performing it
d. Any other act fitted to deceive, or
e. Any such act or omission as the law specially declares t be fraudulent”
 Ingredients of fraud:
1. “false statement of fact”
2. Wrongful intention
 Intentional misrepresentation is the essence of fraud hence if the suggestion giver himself
believes the fact to be true he shall not be held liable .( Derry v. Peek (1889) 14 App Cas
337).

SILENCE (Mere silence is noFraud):

 The first such case is when the person keeping silence is under ‘duty to speak’. A contract of
insurance is therefore called the contract of absolute or utmost good faith, uberrima fides.
Similarly, a father, selling a horse to his son must tell him if the horse is unsound , as the son
is likely to rely upon his father .
 Sometimes silence is itself equivalent to speech . for example , a medical practitioner, who
wants to sell his busssiness , states that his average practise is 2000 pounds per annum, but
before the transaction is finalised his practise is considerably reduced due to his illness, it is
his duty to inform about this fact to the other party (Wit v. O’Flangan (1936) Ch. 575).
 Lastly, a person may keep silence , but if he speaks a duty arises to disclose the whole truth.
‘half-truths’ amount to fraud.

MISREPRESENTATION:
 Voidable at the option of the deceived party
 Misstatement of a fact material to the contract
 Difference between fraud and misrepresentation is : when a person makes a false
statement which he himself believes to be true, and does not intend to deceive the other
party, there is ‘misrepresentation’.
 Sec18. Includes following types of misrepresentation:

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1. Unwarranted statements: where the directors of a company mentioned in the

prospectus that they had got the authority to run tramways with steam power; the
permission had not yet been granted but the directors believed that it will be
granted . the permission was refused. The directors were held liable not for fraud
but for misrepresentation (Derry v. Peek)
2. Breach of Duty: any breach of duty which brings advantage to the person
committing it by misleading the other to his prejudice is a misrepresentation
(‘constructive fraud’).
 Oriental Banking Corporation v. John Fleming (1873) 3 Bom 242
3. Inducing mistake about subject-matter

RIGHT OF RESCISSION OF CONTRACT:

 Sec. 19 and Sec. 19-A makes a contract voidable whose consent has been obtained by the
means of coercion , misrepresentation , fraud , and undue influence respectively.
 Lost due to affirmation to contract and lapse of time .
 Still further, rescission is subject to the condition that the party seeking rescission must be in
a position to restore the benefits (restitution) (status quo ante ) he may have obtained
under the contract (Sec.64)
 Apart from right to rescind the contract, the aggrieved party also has a right to claim
compensation for any damage which he has sustained through the non fulfilment of the
contract ( sec. 75)
 Exception to sec. 19 is that if the party whose consent has been taken by misrepresentation
or falsity had the means to discover the truth the contract cannot be rescinded .

MISTAKE:
 Mistake or error makes the contract void
 Firstly a mistake might fall under the ambit of Sec.13 where consensus ad idem fails to exist
altogether
 Secondly the mistake might fall in the ambit of Sec.20 where there is mistake as to a
matter of fact that is essential to the contract.

MISTAKE AS TO IDENTITY:

 In Boulton v. Jones (1857) 27LJ Ex 117 , Jones sent an order to Brocklehurst for the
purchase of certain goods. By the time this order reached , Brocklehurst has sold his
business to Boulton. Boulton supplied the goods to Jones. Jones refused to pay on the
ground that he never made an agreement with Boulton. Held that Jones had never made
any agreement with Boulton and he was not to pay for the goods.
 In Cundy v. Lindsay (1878) 3 AC 459 , the defendants who had secured goods from the
plaintiffs by fraudulently imitating signatures of a well-known firm (Blenkarn & Co.) known
to the plaintiffs , were bound to return the goods to be plaintiffs.
 In Ingram v. Little (1961) 1 QB 31, X offered to buy a car from Y and to pay by cheque. Y
refused the offer and the cheque , since she did not know him . X then convinced her that he

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was a well known person , and being convinced , she accepted his cheque and let him take
the car. He sold the car to L and the cheque proved worthless. Y filed a suit to recover the
car from L. The court held that the X’s right to the car was no more then that of a thief or a
finder (as the lady intended to contract with real or well known X) and he could not convey a
good title to the defendant .
 In Lewis v Arvey (1972) 1 QB 198 it was held that if the parties are present face to face
while the contract is made, and one of the parties gives his wrong identity, there arises a
valid contract . The presumption in such cases is that the contract is made with person
actually present , even though there is a fraudulent impersonation.

MISTAKE AS TO SUBJECT-MATTER :
 Where the parties , due to reasonable mistake of fact , have different subject matters in
mind , the agreement will be void for the want of true consent. In Raffles v. Wichelhaus
Exch (864) 2 H & C 906, the defendant bought of the plaintiff a quantity of Surat Cotton “to
arrive ex Peerless from Bombay”. Two shipped name Peerless sailed from Bombay, onein
October, which the defendant had in mind and the other in December which the plaintiff
had in mind.

MISTAKE AS TO NATURE OF PROMISE :

 When a deed of one character is executed under the mistaken impression that it is of a
different character , then it is wholly void or inoperative .
 In Ningawa v. Byrappa Hirekurabar (AIR 1968 SC 956) the husband obtained his wife’s
signature to a gift deed without making any misrepresentation as to its character, but later
included two more plots in the deed , it was held that the transaction was only voidable
and not void .
 The defence non est factum enables a person who has signed a contract to say that it is
not his document because he signed it under some mistake .

LIMITATIONS :
 Mistake operates to avoid an agreement subject to the following conditions or limitations :
1. Mistake of both parties – To make an agreement void on account of the
mistake , the mistake must be common or mutual. Sec.22 says that a
contract is not voidable merely because of the mistake by one of the parties
(unilateral mistake ). Thus, where the government sold by auction the right
of fishery and the plaintiff offered the highest bid under the impression that
the right was sold for 3 years , when in fact it was sold for one year only, he
could not avoid the agreement because it was his unilateral mistake (A.A.
Singh v. Union of Indian AIR 1970 Mani 16).
2. Erroneous opinion - the explanation to Sec. 20 provides that an erroneous
opinion as to the value of thing (subject-matter of agreement ) is not a
mistake.

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3. Mistake of fact not of law- Sec.21 declares that a contract is not voidable
because it is caused by a mistake as to any law in force in India, viz. A and B
makes a contract grounded on the erroneous belief that a particular debt is
barred by Indian law of Limitation . But a mistake as to a foreign law will
avoid .

UNLAWFUL AGREEMENTS:

 According to Sec. 23, the consideration or obect of an agreement are lawful unless :
i. It is forbidden by law
ii. Is of such a nature that it would defeat the provision of law
iii. It is fraudulent
iv. It involves or implies injury to other person or property of another
v. Court regards it immoral or opposed to public policy
A. FORBIDDEN BY LAW:
 merely because a person does not observe statutory requirements does not mean that a
contract is void , especially when the intention of the legislature is to regulate an act by
prescribing certain terms and conditions.
 Where a sub-lease is as such not forbidden by law , but can be made only with the consent
of the land lord, the agreement of sublease would not be void and the person making the
sub-lease without the land lord’s consent will be entitled to recover the rent from the tenant
(Banarsi Das v. Shakuntala AIR 1989 Del 184)
 In Abdul Jabbar v. Abdul Muthaliff (AIR 1983 P & H 180), where a rice mill had been
constructed with the monies remitted by the plaintiff in the contravention with FERA, it was
held that although the remittances were illegal, the construction of rice mill by itself didot
involve the execution of any unlawful object.
B. DEFEATS THE PROVISIONS OF LAW :
 Sometimes the object of, or the consideration for , an agreement is such that though not
directly forbidden by law , it would, if permitted, defeat the provisions of any law (Ram
Sewak v. Ram Charan AIR 1982 AII 177).
C. FRADULENT PURPOSE:
 If two persons agree not to compete with eachother , and one of them in the consideration
for the other not competing in the submission o tenders agrees to pay a certain sum of
money, the agreement does not aim at defrauding anybody, and the same is enforceable
(Jai Ram v. Kahna Ram AIR 1963 HP 3)
 However, if the object of the agreement is to manage to procure a contract for one party
which would otherwise be refused , the object is fraudulent.
D. INJURIOUS TO PERSON OR PROPERTY:
 An agreement to commit a crime or civil wrong shall be deemed to be unlawful.
E. IMMORAL:
 The law does not allow an agreement tainted with (sexual)immorality to be enforced .
 A promise to marry a married woman after the death of her husband or after she obtains a
divorce from him is regarded to be immoral.

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
F. OPPOSED TO PUBLIC POLICY:

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CONSIDERATION AND OBJECT UNLAWFUL IN PART:

 Sec 24
 If the consideration and object is unlawful partly then the court would accept only the part
of the object and consideration that is lawful and will declare the remaining object and
consideration i.e. unlawful to be void
 If any such abovementioned severance is impossible than the whole contract shall be
declared void.

VOID AGREEMENTS:

 Sec 2(g) says: “ an agreement not enforceable by law is void”. These are:
1. Agreements of which the consideration or object is unlawful (Ss. 23 and 24)
2. “ without consideration (Sec. 25)
3. “ in restraint of marriage (Sec. 26)
4. “ “ “ “ trade (Sec. 27)
5. “ “ “ “ legal proceedings (Sec. 28)
6. Agreements which are uncertain and ambiguous (Sec. 30)
7. Agreements to do impossible acts (Sec. 56)

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I. RESTRAINT OF MARRIAGE:
 Every agreement in restraint of marriage of any person , other than minor , be it partially or
wholly, is void (Sec. 26)
 If the agreement is not in a form of promise to marry a particular lady, but it stipulates that
the promisor will not marry any other lady other than the promisee, the agreement is void
(Lowe v. Peers (1768)n4 Burr. 2225)
 Sec. 73 , If A and B make family arrangements for the intermarriage of their sons and
daughters then the contract shall be declared void under Sec. 26 being restraint of marriage.
II. RESTRAINT OF TRADE
 An agreement by which anyone is restrained from exercising a lawful profession , trade or
business of any kind . (Sec. 27)
 Not to trade within an area or for a certain duration is void.
 In Gujrat Bottling Co. Ltd. v. Coca Cola (AIR 1995 SC 2372), an agreement by coca cola
company with the licensee for use of certain trademarks like Thumps Up , Limca, etc. With a
condition that the licensee will not deal with the competing goods was held to be valid .
 It recognises only exceptions through statutes and judicial decisions .
 Statutory Exceptions:
1. Sale of goodwill : the only exceptions mentioned in Sec. 27 is that relating to sale of
goodwill. An agreement by a person , who sells the goodwill of his business not to
carry on a similar business within specified local limits , so long as the buyer carries
on a similar business , is valid provided that the restrictions are reasonable. Where
the aim of an agreement is provided of competition , it will be void .
Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co. Ltd. (1894)AC 535
2. Partnership Act: there are four provisions in Partnership Act which validates
agreements in restraint of trade . Sec. 11 enables partners during the continuance of
the firm to restrict their mutual liberty by agreeing that none of them shall carry on
any business other than that of firm . Sec. 36 enables them to restrain an outgoing
partner from carrying on a similar business within a specified period/ local limits . a
similar agreement may be made by the partners under Sec. 54 upon or in
anticipation of dissolution by which they may restrain each other from carrying on a
similar business like that if the firm. Sec.55 relates to the sale of goodwill of the firm.
 Judicially Recognised Exceptions:
1. Trade combinations: sometimes the traders and manufacturers combine together
(eg. Via an Association) to eliminate competition as between themselves and make
agreements fixing minimum price regulating the supply of goods and putting profits
in a common pool and then dividing the same amongst themselves .
2. Solus or exclusive dealing agreements: in such a case one party agrees to deal with
the other party and none else. In a common business practice that a producer or
manufacturer like to market his goods through a sole agent and latter agrees not to
deal with the goods of any other manufacturer.
if the object is to corner goods or to monopolise trade , or restraint is for unduly
long time , it is declared to be unlawful.

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3. Contract of service: an agreement of service by which an employee agrees that he

will serve a particular employer for a certain duration , and that he will not serve any
body else during that period, is a valid agreement.
III. RESTRAINT OF LEGAL PROCEEDINGS:
 Sec.28 states that an agreement absolutely restraining a party from enforcing his rights
through a court of law , or an agreement which places a limit as to the time within which a
right can be enforced, is void. Further , a right to appeal does not come within the purview
of the section. A party to a suit may agree not to appeal against the decision.
 a partial restriction is perfectly valid hence if a statute reads that the jurisdiction to decide
the cases falling within a particular area shall be decided by only by the Delhi court, is valid .
 an agreement where attempt made by parties to restrict time within which an action may be
brought so as to make it shorter than that prescribed by the Law of Limitation.
IV. UNCERTAIN AGREEMENTS:
 Agreements , the meaning of which is not certain, or capable of being made certain, are void
(Sec.29).
 A, agrees to sell to B “a hundred tons of oil”. There is nothing to show what kind of oil was
intended. However, A who is a dealer in coconut oil only, agrees to sell B “one hundred tons
of oil”, then there is a certainty in the agreement.
 In Guthing v. Lynn 1831(2 B Ad 232), a horse was brought for a certain price coupled with a
promise to give 5 pounds more if the horse proved lucky. The agreement was held to be void
for uncertainty . where goods are sold ‘at such price as should be agreed upon between the
parties’ , the agreement were held to be void for uncertainty as to price.
 There cannot be a contract to make a contract.
 If the agreement is totally silent as to price, it will be valid , for, in that case, Sec.2 of the
sales of goods act, 1932, will apply and the reasonable price shall be payable .

DISTINCTION BETWEEN ILLEAGAL AND VOID AGREEMENTS:

 An illegal transaction is one which is actually forbidden by law (Sec.23), but a void
agreement may not be forbidden , “ the law may merely say that if it is made, the courts will
not enforce it”(Sec. 25 to30).

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RESTORING BENEFITS RECIEVED UNDER THE VOID CONTRACT:

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