Indian contract act notes

1. Topics
1. Contract Act (1872) Meaning and Definition of Contract
2. Nature of Contract
3. Classification of Contract
4. Offer and Acceptance
5. Capacity of Parties to Contract
6. Free Consent
7. Consideration
8. Remedies for breach of Contract.
Definition and Meaning of the term ‘Law’
It is very difficult to state a single and accurate definition of the term ‘Law’, as it is a general term and has different
connotations for different people. For example, a common man may think of law as a set of rules he has to obey
whereas for a judge, it is nothing but a set ofguiding principles to be applied in deciding the cases. A lawyer who
practices law may think of law as a vocation.
‘Law’ in simple terms implies ‘rules’ and as such includes different sets of rules, which govern or regulate various
external human actions and conduct of individuals, institutions and the Government with each other. However, merely
rules or sets of rules do not mean law, but they must be enforced by the sovereign state and must receive due recognition.
Thus, Law is the command of the sovereign (fully self-governing/ Independent).
Definitions of Law
Some other important definitions of the term ‘Law’ in order to understand its meaning.
(1) “Law is the body of principles recognized and applied by the state in the administration of justice.”
--Salmond
(2) “Law in its most general and comprehensive sense
Signifies a rule of action and is applied indiscriminately to all kinds of actions whether animate or inanimate,
rational or irrational.”
--Blackstone
From the above-mentioned definitions, we come to know certain characteristics of law, whichare as follows:
1. Law is related to external human actions. Many times, internal human actions can also be the subject of law.
For example: if A is killed in an accident caused by the action of B and if it is proved that B purposely killed A, he can
be prosecuted under Section 302 of the Indian Penal Code. But if it is proved that B had no intention to kill A, the law
may take lenient view. Thus, the cognizance of both actions, external as well as internal, is taken by the law.
2. Law is rule of conduct imposed and enforced by the sovereign. The Government regulates the conduct of the
citizens by passing necessary acts. It ordains a general course of conduct to be followed by the citizens of the country.
Such rules or Acts enforced by the Government are termed as ‘Law’.
3. These rules of conduct are very essential for peaceful and prosperous living of the people in the country. In a sense,
they help all people to have maximum freedom.
4. Law is supreme and is applicable to all. It is the same for the poor and for the rich, for the rulers as well as for the
subjects of the country.

2. Thus, law includes all the rules or Acts enforced by the sovereign, which regulate the relations between the citizens and
also the relations with the Government or State. It is the body of principles with regard to human behavior as determined
by the legislature from time to time. All these principles are interpreted and enforced by the judiciary of the country.
The Nature of Law of Contracts:
The law of contracts is one of the important branches of Law. It determines the circumstances in which promises given by
the parties to a contract shall be legally binding on them. It also throws light on the remedies, which are available to an
aggrieved person in a court of law against a person who fails to perform his contract. This law affects every person living
in a society, as every one of us has to enter into contracts virtually every day. One enters into contract, when one
purchases a commodity either by paying cash or on credits or by depositing his money into his bank account or by
keeping his luggage in a State Transports luggage room. Thus, every day, a person, knowingly or unknowingly, enter into
many types of contracts and performs them. The Law of Contract is of a great importance to people engaged in trade,
commerce, business and industry as bulk of their trade or business transactions are based on the contracts. In India, the
law relating to contracts is contained in the Indian Contract Act, 1872, and this Contract Act came into force from
1st day of September 1872. It extends to the whole of India except the State of Jammu and Kashmir.
In modern days, there is a fundamental change in this respect. The Law interferes at various points with the freedom of
parties to make whatever contracts they like. The Government has enacted various Acts in order to protect consumers,
employees, tenants etc. Of course, it is very essential to do so to protect the interest of the public at large. Moreover,
standardized forms of contracts are used while entering into contracts. Therefore, several contracts entered into by
concerned people are not the result of individual negotiations and many people who want to enter into contracts do not get
an opportunity to discuss or negotiate the clauses included in such contracts. They have either to accept all the standard
terms or go without them. Thus, absolute freedom of contract has now become an illusion or a myth to a great extent.
1. CONTRACT ACT. 1872
The Scope of the Indian Contract Act, 1872
The Indian Contract Act of 1872 is the most important part of business or Mercantile Law because every business or
commercial transaction basically starts from an agreement between two or more persons or parties. It codifies the main
principles of contract and as such, it is the legal foundation of all transaction relating to contracts. Following important
points should be noted so far as the Indian Contract Act of 1872 is concerned.
(a) The Indian Contract Act is based on the English Law of Contracts, which is unwritten law.
(b) In India, the law relating to contracts is contained in the Indian Contract Act of 1872 which came into force from 1st
day of September 1872 and it extends to the whole of India except the State of Jammu and Kashmir.
(c) The Indian Contract Act is not applicable only to business community alone but also to others. However, this Act is
not exhaustive. It basically deals with the general principles of the law of contracts and with certain special contracts such
as contracts of indemnity and guarantee, contract of agency. It does not deal with the contracts relating to sale of goods,
partnership, negotiable instruments, bills of lading, insurance, railways etc. as there are separate Acts which deal with
such contracts. However, all these separate Acts are based on the rules relating to contracts contained in the Indian
Contract Act of 1872 and therefore, without the knowledge of those legal rules, no businessman can enter into a valid
business transaction. It is, intact, one of the basic objects of the Indian Contract Act to introduce definiteness in business
and commercial transactions.

3. Suppose: Mr. Dineshbhai enters into a contract with a paper mill to purchase 10 tons of white quality paper on a certain
date. Then, Mr. Dineshbhai can plan his commercial activities on the basis of contract of receiving the paper on the
definite date. If, by chance, the paper mill breaks the contract, Mr. Dineshbhai can claim damages from the court and will
not suffer any loss. Thus, the Act helps to bring definiteness in the business or other transactions.
(d) The Indian Contract Act is not retrospective in the sense that it is not applicable to the contracts entered into before 1st
September 1872, which was the date of commencement of the Act.
(e) The Act does not cover all those obligations, which are not contractual in nature and also those agreements, which are
social in nature. There are many agreements which do not give rise to any legal obligations and hence, they are not treated
as contracts. Furthermore, there are certain obligations, which are not contractual in nature. e.g. quasi-contracts, judgment
of courts etc. but even then they are legally enforceable. Salmond rightly remarked in this connection that “the law of
contracts is not the whole law of agreements, nor it is the whole law of obligations. It is the law of those agreements
which create obligations and those obligations which have their sources in agreements”. Therefore, it should be noted that
the law of contracts is neither the whole law of agreements nor the whole law of obligations. It is the law of those
agreements, which create obligations and those obligations, which have sources in agreements.
The Main Structure of the Indian Contract Act of 1872
2. MEANING AND NATURE OF A CONTRACT
The term contract is defined by different authorities in different ways. Let us consider a few definitions.
(1) According to Sir William Anson, “a contract is an agreement enforceable at law made between two or more
persons, by which rights are acquired by one or more to act or forbearance on the part of the other or others.”
(2) Salmond defines a contract as, “An agreement creating and defining obligations between the parties.”
(3) Sir Fedric Pollock says. “Every agreement and Promise enforceable at law is a contract.”
Section 2 (h) of Indian Contract Act defines a contract “an agre ement enforceable by law is a contract.”
From these definitions of the term ‘Contract’, we come to know that every contract is the result of the combination of two
important elements i.e. agreement and obligation. A contract creates rights and obligations between the parties entering

4. into a contract. Refusal by any one party to a contract to honor contracted obligations gives right of action to another
party.
Following are the essential requirements of a contract:
(a) Two parties: For formation of a contract, there must be two parties i.e. promisor and promisee. The person who
makes the proposal is called the promisor and the person to whom the proposal is made called the promisee. [2 (c)]. When
the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise [2 (b)] and when one person signifies to another his willingness to do or to abstain form
doing anything, with a view to obtaining the assent of that order to such act or abstinence, he is said to make a proposal. [
2 (a)].
As a matter of fact, in a contract, each party is a promisor as well as a promisee
For example X promises to sell his motor-cycle to V for Rs. 5000/- X is the promisor as he has given the promise to sell
his motor-cycle to V but at the same time, he is the promisee also as there is a promise from V to pay the price of the
motor-cycle to him. This is also applicable to V.
(b) An agreement: According to Section 2 (e), every promise and every set of promises, forming the consideration for
each other, is an agreement. And when, at the desire of the promisor, the promisee or any other person has done or
abstained from doing something, such act or abstinence or promise is called consideration for the promise [2 (e)].
An agreement implies an offer and its acceptance. When an offer is accepted, it becomes an agreement. The word ‘Offer
implies the willingness of a person either to do something or not to do something and its communication to the other
person or party and acceptance means giving assents by the person or party to whom the offer has been made.
For example if Mr. X tells Mr. V that he is willing to sell his motorcycle to Mr. V for Rs. 5000/-, it is nothing but an offer
made by Mr. X to Mr. V. If Mr. V agrees to that and gives his-assent to the offer made by Mr. X, it is said that Mr. V has
accepted the offer and there is the agreement between Mr. X and Mr. V. Of course, agreements are a much wider concept
than a contract. It is not necessary that every agreement must give rise to legal obligation. If an agreement does not create
any legal obligation, there cannot be any contract. Agreements which are not binding on the parties do not constitute a
contract. Thus, all agreements are not contracts. For example, if Mr. X agrees to go to Mr. Y’s house for a lunch at Y’s
request, there is an agreement, but this is not a contract, as it does not carry any legal obligation.
(C) Legal Obligation: As a matter of fact, for formation of any contract, an agreement should give rise to a legal
obligation and the obligation must be enforceable at law. Thus, here an obligation means the legal duty to do or abstain
from doing something. The agreements, which give rise to religious, social and/or domestic obligations only cannot be
termed as contracts. For example, if X agrees to sell his motorcycle to Mr. V for Rs. 5,000/-. Here, legal obligations have
been created i.e. Mr. X must sell his motor cycle to V for I 5,000/- & Mr. V must pay the price of motor cycle to Mr. X.
But a moral, religious or social obligation has no such monetary value. Promises like taking of a lunch, going for a walk
are not contracts, as they do not create any duty or obligation enforceable by law. Thus, as all agreements are not
contracts, all obligations also do not constitute contracts. Sir John Salmond aptly puts it in the following words.
“The law of contract is not the whole law of agreements nor it is the whole law of obligations. It is the law of those
agreements which create obligations, and those obligations which have their sources in agreements”.
Distinction between an Agreement and a Contract:
From the above discussion, we come to know that an agreement and a contract are not one and the same thing. Important
points making clear the distinction between them are stated below.

5. Agreement is a wider term than contract where as all contracts are agreements. All agreements are not contracts.
The various agreements may be classified into two categories:
Agreement not enforceable by law Agreement enforceable by law
Any essential of a valid contract is not available.
Offer + acceptance = Promise
+
consideration
=
Agreement
+

6. enforceability By Law
Contract
Section 10 of the Indian Contract Act, 1872 states that all agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be
void. Thus, an agreement must
Possess certain elements in order to constitute / form a contract. Following are the essential elements of a valid contract.
(a) There must be an agreement,
(b) Parties to a contract must be competent,
(c)There should be an intention to create a legal relationship,
(d)There must be free consent of parties to the agreement,
(e)Lawful consideration,
(f)Legal or lawful object,
(g)Agreement not expressly declared void by law,
(h)Compliance with legal formalities.
(i)Certainty and possibility of performance.
For proper understanding, the essential elements of a valid contract are shown by the following diagram.
a) There must be an agreement: An agreement is very essential condition of a contract. Every promise and every set of
promises, forming the consideration for each other, is an agreement. At least, there must be two parties to an agreement.
One party makes a proposal or an offer and the other party accepts or rejects the same. If he rejects, no question rises of
entering into a contract. A proposal from the side of the party making it do or abstain from doing a particular act and its
acceptance by the other party are the two very essential conditions of an agreement. The proposal as well as acceptance
should be definite. The acceptance of the proposal must also be in the mode prescribed and it must be communicated to the
offerer. Moreover, the intention of making an agreement should be to create legal relationship with clear and certain terms.
An agreement not enforceable by law is said to be void [ 2 (g)] whereas an agreement enforceable by law is a contract [ 2
(h)]. An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of
the other or others, is a voidable contract [ 2 (i) ].
b) Parties to a contract must be competent: As already mentioned that there must be at least two parties for every contract
and parties to a valid contract must be competent. Every person is competent to contract (i) who is of the age of majority
according to law to which he is subject, and (ii) who is sound mind; and (iii) who is not disqualified from contracting by any
law to which he is subject [11].
c) There should be an intention to create a legal relationship: This is very important condition of a valid contract. If there is
no intention to create any legal relationship that contract is not valid. Agreements of social, moral, religious nature do not
contemplate legal relations.
Creation of legal relationship implies the desire of the parties to the contract to seek for the help of Court in the case of
breach of a contract. Thus, if Mr. Nilesh Keniya agrees to Mr. Munde’s offer to dine with him tonight, there is no intention of
Mr. Munde to enforce this agreement in the court of law if Mr. Nilesh Keniya fails to dine. This agreement is not entered into to
create any legal relationship and hence, it is not a contract in the eyes of the law. But any agreement to buy or sell goods or
purchase and sell building is an agreement intended to create legal relationship and is therefore, a contract, provided the other
essential elements are present.
In Rose and Frank Company Vs Crompton Brothers Ltd. Case [A.C.445)], RE. Company entered into an agreement with C.B.
Ltd. In the agreement, a clause was as follows:

7. ‘This agreement is not entered into as a formal or a legal agreement and shall not be subject to legal jurisdiction in the law
courts”. It was held in the case that there was never any intention to create any legal relationship and therefore, there was no
contract between the parties. In another case, a company agreed with a person that on expiration of the existing contract with
that person, the company would favorably consider the renewal of his contract. It was held in the case that there was no legal
obligation to renew the existing contract of the company.
(d) There should be free consent ofparties to the agreement: For the purpose of creating a valid contract, the consent of the
parties of the agreement must be free. The term ‘consent’ is defined in Section 13, which states that two or more persons are
said to have consent when they agree upon the same thing in the same sense. Thus, the parties to an agreement must be of the
same mind upon the same subject. ‘Ad idem’. (Same mind)
The consent is said to be free when it is not caused by:
(i) Coercion; (Section 15)
(ii) Undue influence; (Section 16)
(Vi) Fraud; (Section 17)
(iv) Misrepresentation; (Section 18)
(v) Mistake; (Section 20, 21 & 22).
(e) Lawful consideration: Consideration is an act done or to be done at the request of the promisor by the promisee or by any
other person. For a valid contract, such consideration must be lawful. Consideration is really an essence of a bargain. The
agreement is enforceable legally only when both the parties to it give something and receive something in return. Consideration
need not be necessarily in cash or kind, but it can be an act or even abstinence or refraining from doing something or promise to
do or not to do something.
(f) Legal or Lawful object: The object of the agreement must be legal. The agreement to be entered into, must relate to a thing,
which must not be contrary to the provisions of any law in existence.
(g) Agreement not expressly declared void by law: The agreement to be entered into must not have been expressly declared
void by any law in force in the country.
Under the Indian Contract Act, there are certain categories of agreements, which are expressly declared to be void. e.g.
agreements in restraint of marriage (Section 26), agreements in restraint of trade (Section 27), agreement in restraint of
proceedings (Section 28), agreements having uncertain meaning (Section 29), Wagering agreements (Section 30) etc.
(h) Compliance with legal formalities: It is not necessary that a contract must be in writing. It can be made by word of mouth.
However, in the interest of the parties to a contract, it should be in writing. Of course, there are certain formalities to be
complied with in order to make an agreement legally enforceable e.g. certain documents are required to be stamped properly;
certain documents are required to be registered, and in such cases, the contracts must be in writing.

8. Classification of Contracts
Contracts can be classified on different basis. Following chart gives us an idea of various types of contracts:
(I) On the basis of mode of formation or creation of contracts:
Contracts may be express contracts, implied contracts or quasi contracts.
Express contracts: When contracts are made by the parties thereto in writing or by word of mouth, they are called express
contracts. Section 9 of the act says that when the proposal or acceptance is made in words (written or spoken), the promise is
said to be express.

9. For example: if Mr. X makes a proposal to sell his house to Mr. Y for Rs. 50,000 and Mr. Y accepts this offer, the contract
entered into by Mr. X and Mr. Y is called as express contract.
Implied contracts: In so far as the proposal or acceptance is made otherwise than in words, the promise is said to be implied
[9]. Contracts which are the outcome of any act or conduct of the parties to the contract are called as implied contracts.
Following are the examples of implied contracts.
(i)If Mr. X gets into a bus and occupies a seat; there is an implied contract that he will pay for his ticket.
(ii) If someone enters a hotel and takes a cup of coffee or tea, there is an implied contract that he will pay for that.
An express promise results in an express contract whereas an implied promise results in an implied contract.
Quasi contracts: There is yet another type of contract known as quasi-contract. Such type of contract is created by law. It
stands on the ground of equity that a person will not be allowed to enrich himself unjustly at the expense of someone. The quasi
contract is actually a constructive contract. In the real sense, it is not a contract at all. Let us make clear the concept of a quasi
contract with the help of an example. Suppose, Mr. X who is businessman, forgot some articles he sells at Mr. V’s residence.
Mr. V utilized the articles as if owned by himself. Here Mr. Y must pay to Mr. X for the articles he utilized. This is nothing but
the quasi contract.
(II) Types on the basis of extent of execution or performance:
Executed contracts: When both the parties to the contract fulfill their respective obligations such contract is called as executed
contract. Suppose, Mr. X agrees to sell his motor-cycle to Mr. Y for Rs. 5000 and Mr. Y accepts the proposal and accordingly
Mr. Y pays Rs. 5000 to Mr. X and purchases his motor-cycle. Here both the parties have performed their respective obligations
and hence, this is an executed contract. In executed contract, all the parties fulfill their promises and nothing is left to be done.
Executory contracts: When one or both the parties to the contract do not perform their obligations fully and something is
remained to be done, such contracts are called executory contracts.
For example: suppose in the above example if Mr. Y agrees to pay Rs. 5000/ towards the price of the motor-cycle and Mr. X
also agrees to sell the same at this agreed price of Rs. 5,000/- but Mr. Y has yet to pay the price of the motor-cycle and Mr. X
has yet to hand over the motor-cycle to Mr. Y, the contract is said to be executory.
Partly executed and partly executory contracts: Contracts may be partly executed and partly executory. In such a contracts,
certain parties perform their obligations while others have yet to perform their part. Suppose there is a contract entered into
between Mr. X and Mr. Y to paint Mr. X’s house. Mr. X in consideration pays Rs. 3000/- to Mr. Y. The contract is executed as
regards Mr. X but executory as regards Mr. Y.
Unilateral and Bilateral contracts: The contracts can also be classified as unilateral contracts and bilateral contracts. A
unilateral contract is one where one party performs his obligations either before the contract comes into existence or at the time
when it comes into existence and the obligation of the other party remains to be fulfilled at the time of formation of the contract.
Example: If Mr. X a coolie puts Mr. Y's hold-all in his vehicles, the contract comes into existence on putting Y's hold-all in his
vehicle by Mr. X. Now Y's obligation will be complete on paying coolie charges to Mr. X. This is the unilateral contract. Such
contracts are also called as one-sided contracts or contracts with executed consideration. A contract is said to be bilateral when
the obligations of both the parties remain outstanding at the time of the formation of the contract. Bilateral contracts are very
similar to that of executory contracts and therefore they are also called as contracts with executory consideration.
Illustration of bilateral contract: Mr. Y promises Mr. X that he will purchase X's house after 10 months and Mr. X also
promises to pay the value of Y's house to Mr. Y sale-deed. This contract is bilateral because the performances of the obligations
of Mr. X and Mr. Y, who are the parties of the contract, are outstanding at the time of formation of the contract.
(III) Classification of contracts on the basis of the form of contracts:

10. According to this classification of contracts, contracts can be formal or simple.
Formal contracts and Simple contracts: Formal contracts have been recognized under English Law. The Indian Law does not
recognise this type of contracts. The validity of formal contracts depends upon their form only and no consideration is required
in such contracts. In order to be valid and binding, these contracts are required to satisfy certain legal formalities. All contracts
other than formal contracts are termed as simple contracts. They are valid only when they are supported by consideration and
are made by words, spoken or written. Indian law recognises simple contracts which are supported by consideration except in
circumstances specifically laid down in the Act.
(IV) Classification of contracts on the basis of validity of enforceability:
Valid contracts: We have already considered the essential elements of a valid contract. All contracts which satisfy all these
essential elements are enforceable in a court of law and are termed as valid contracts. When any one or more of the essential
elements are missed, then the contract becomes void, voidable, illegal or unenforceable.
Void contracts: A contract which ceases to be enforceable by law becomes void. [Section 2 (j)]. A contract may be valid at the
time when it was originally entered into but it may subsequently become void, because of either impossibility of its performance
due to outbreak of war or any natural calamity or change of law or any other reason. When a contract becomes void, it ceases to
have any legal effect.
A contract becomes voidable in the following cases.
(a) When a contract contains reciprocal promises and anyone party to the contract prevents the other party from performing his
promise, then the contract becomes voidable at the option of the party so prevented [Section 53]. Suppose X and Y enter into a
contract and accordingly Y is to transport X's luggage from one place to another for Rs. 200/- Y is ready to do so but X prevents
Y from doing so. Here the contract is voidable at the option of Y. If Y decides to rescind the contract, he is entitled to recover
compensation from X for any loss caused to him because of non-performance of the contract.
(b) When a party to contract promises to do a certain thing at or before a specified time, or certain things at or before specified
times, but fails to do so, then the contract becomes voidable at the option of the promisee, provided that at the time of entering
into contract, the intention of the parties was to keep the time as the essence of the contract [Section 55]. Suppose X enters into a
contract with Y that X will make available goods required by Y within fifteen days, but X has not sent the same within the
specified time. Here the contract is voidable at the option of Y.
(c) If the consent given to the contract is not free i.e. if it is caused by coercion, misrepresentation, undue influence or fraud, the
contract is voidable at the option of the party whose consent has been so obtained. It must be remembered that a voidable
contract continues to be enforceable till it is rescinded by the party who is entitled to do so. For example: X agrees to sell his
horse to Y for Rs. 5000. Here if Y's consent is obtained by undue influence then contract is voidable at the option of Y who may
elect to be bound by the contract or may rescind or avoid the same.
Illegal or unlawful contracts:
The word 'illegal' means contrary to law and the term contract refers to an agreement which is enforceable by law. Therefore
when we use the term illegal contract, it involves a contradiction. It amounts to saying that an agreement which is contrary to
law is enforceable by law. Hence it is appropriate to use the term illegal agreement instead of illegal contract.
An illegal agreement is one, which is against the law enforceable in India. Illegal agreement has a wider import or conception
than void agreement. All illegal agreements are definitely void but all void agreements are not necessarily illegal. e.g. an

11. agreement entered into with a minor is void but not illegal, wagering agreement is not only void but illegal. An illegal
agreement is illegal ab initio [i.e. from the very beginning] but a contract may become void subsequently on happening of
particular event, which may make it illegal.
Difference between illegal and void agreement:
(1) All illegal agreements are void but all void agreements are not illegal.
(2) Illegal agreements are void ab initio but a contract may become void subsequently.
(3) There is no punishment to the parties to a void agreement but parties to illegal agreements are punished as provided in the
law.
(4) Agreements which are collateral to void agreements are valid but to illegal agreements are void ab initio.
Unenforceable contracts:
Certain contracts cannot be enforced in a court of law because of some technical defect such as lack of attestation, registration or
affixing of certain amount of Court fee stamps or absence of writing or where the remedy has been barred by the lapse of time
etc. Such contracts are called as unenforceable contracts. Of course, if the technical defect is removed, the contracts can be
enforced e.g. if a document which embodies a contract is under stamped, the contract is not enforceable, but if the requisite
stamp is allowed to be affixed, the contract becomes enforceable.
3. OFFER AND ACCEPTANCE
Offer or Proposal- Definition, Meaning and Types:
An offer involves the making of a proposal. An offer or proposal is the starting point in the formation of an agreement. A
proposal is called an offer. These words are synonymous and are used interchangeably. A proposal is a starting point in any
contract.
Every contract is made by the process of a lawful offer by one party and the lawful acceptance 'of the offer or proposal by the
another party. Mr. Damodar Gaud says to Mr. Nilesh Keniya, "Will you buy my flat for Rs. 10,00,000?" This is nothing but an
offer made by Mr. Damodar Gaud. If Mr. Nilesh Keniya says, "Yes, I will buy your flat for Rs. 10,00,000", then the offer is said
to be accepted and a contract is formed. But the statements like "We are prepared to die for our country" or "We should like to
serve your" are not the proposals as they are not made with the view of obtaining the assent of other party to whom they are
addressed.
Definition of a Proposal:
Section 2 (a) defines a proposal as "When one person signifies to another his willingness to do or to abstain from doing
anything with a viewto obtaining the assent of that other to such an act or abstinence, he is said to make a proposal'.
When the person to whom the proposal is made signifies his assent thereto to the proposal is said to be accepted. A proposal
when accepted becomes a promise [Section 2 (b)]. The person making the proposal is called the promisor. He is also called

12. offerer or proposer. The person who accepts the proposal or offer is called the promisee or the offeree or proposee or acceptor of
proposal.
An offer or a proposal consists of two parts which are as follows:
(a) A promise by the promisor to do or abstain from doing something, and.
(b) A request to the promisee for giving his acceptance. Until and unless the promisee accepts the promise unconditionally, the
promisor is not bound by his promise.
Following three conditions must be fulfilled to become an offer to be a lawful offer.
(1) There must be at least two persons or parties who are competent to contract.
(2) One of them must express or signify his willingness to another to do or to abstain from doing a particular thing.
(3) The another person or party expressing willingness must have an intention to get the consent of the person to such act or
abstinence.
Illustration:
X offers to sell his motor car to Y for Rs. 1 lakh. This is nothing but a proposal, X is the promisor or the offerer and Y is the
offeree. When Y accepts the proposal and agrees to purchase the car at the price quoted by X, Y becomes the promisee or the
acceptor and the contract is said to be entered into between X and Y. Here all the three conditions are fulfilled and hence an
offer of X to sell his motor car to Y for Rs. 1 lakh is a lawful offer.
Types of Proposals or Offers:
An offer may be express or implied and specific or general.
When an offer is made by express words, written or spoken, it is called as an express offer. e.g. if X says to Y, "Will you
purchase my car for Rs. One lakh?" there is an express offer. When an offer is implied from the conduct of a person or persons
or from the circumstances of the case, it is known as an implied offer. e.g. a transport company runs buses on particular routes.
There is always an offer by the company to carry passengers at scheduled times and fares. The acceptance of the offer is
complete as soon as a passenger gets into the bus.
A specific offer refers to an offer made by an offerer to a definite person or a definite class of persons. When the offer is made
to the world at large, it is termed as a general offer.
Illustrations:
(1) When a transport company runs buses or cars on particular routes, there is always a general offer by the company to carry
passengers at scheduled times and fares. The acceptance of the offer is complete as soon as a passenger gets into the bus or car,
as the case may be.
(2) Mr. A offers to sell his furniture to Mr. B at the price of Rs. 7,500. This is an offer or proposal. Here, Mr. A is the promisor
or the offerer while Mr. B is the offeree. If Mr. B accepts the proposal of purchasing the furniture of Mr. A at the said price, Mr.
B becomes the acceptor or the promisee and there is a contract. This is the example of specific offer.

13. When two parties make identical offers to each other, not knowing about each others' offers, such offers are called cross offers.
In such cases the court does not construe one offer as the other offer and the other as the acceptance and as such there cannot be
any concluded contract.
The types of the proposals or offers are shown below in the chart.
Essentials or rules of a valid offer:
The Indian Contract Act, 1872 contains certain legal rules or essentials regarding proposals or offers, which are as under:
(a) Terms of an offer must be clear, specific or definite, certain and it
should not be loose or vague.
(b) An offer must create legal relationship.
(c) An offer must be communicated to the person to whom it is made.
(d) Intention of offer must be to obtain the consent or assent.
(e) Offer may be express or implied; general or specific. It may also
be positive or negative.
(f) An offer should not include any term or terms of non-compliance
which may be assumed to lead acceptance.
(g) A statement of price is not an offer.
(h) An offer is different from an invitation to an offer.
(i) Two identical cross-offers do not constitute a contract.
(j) An offer can be made subject to any terms and conditions.
Now, let us discuss the above mentioned points in detail.
(a) Terms ofan offer must be clear, specific or definite, certain and not loose or vague: The terms of an offer made must be
clear and specific and must not be based on the condition which is not certain or not capable of performance.
E.g. A promise to purchase one more lucky-stone if the previously bought lucky-stone proves lucky, cannot be binding and
therefore enforceable for being vague and also loose. Thus, if the terms of an offer are loose, vague or indefinite, the acceptance

14. of such offer cannot create contractual relationship. However,if there is some machinery to ascertain vague terms or terms of an
agreement, such agreement cannot be considered as void on the ground of its being vague or loose or indefinite.
(b) An offer must create legal relationship: An offer must be such that it would create a valid contract if accepted. An offer to
perform social, moral or religious acts, without any intention to create legal relations, will not be a valid offer e.g. an invitation
to a dinner or to attend some cultural program me without any intention to create legal relationship is not an offer.
(c) An offer must be communicated to the person to whom it is made: An offer made by the proposer must be
communicated to the proposee. Unless it is communicated, there can be no acceptance of the offer and it will not confer any
right on the acceptor. An offer may be communicated to the offeree by words of mouth, by writing or even by conduct.
(d) Intention ofoffer must be to obtain the consent or assent: The offer must be made with a view to secure the assent of the
party to which the offer is made and its intention should not be mere to disclose particular thing.
(e) Offer may be express or implied; general or specific. It may also be positive or negative: As already noted, an offer may
be expressed by words spoken or written or may be implied by conduct. When it is made only to a particular person or persons,
it is a specific offer and when made to the world at large, it is called a general offer. When a person expresses his willingness to
do something or to abstain from doing something it is termed as a positive or negative offer as the case may be.
(f) An offer should not include any term or terms of noncompliance which may be assumed to lead to acceptance: We
have already seen that an offer must be certain and unambiguous and not loose or vague. It should not contain any term because
of which it may be assumed to amount to acceptance. Thus, it should not include a term that if the acceptance is not
communicated within a certain period, the offer would be considered as accepted.
Example: If X informs Y by writing a letter that "I will sell my car to you for Rs. 50,000; and if you don't reply within ten days,
I will assume that you have accepted this offer". It is obvious that there cannot be any contract if Y does not reply.
(g) A statement of price is not an offer: In the case of Harvey V. Facey, it was held that I a mere statement or quotation of
price is not construed as an offer to sell. In that case, Harvey sent a telegram to Facey, enquiring "Will you sell us Bumper Hall
Pen? Telegraph
lowest cash price". Facey replied, "Lowest price for Bumper Hall pen is $900". Harvey, on receipt of the telegram from Facey,
again sent telegram, "We agree to buy Bumper Hall Pen for $900 asked by you". Facey neither replied the telegram nor supplied
Bumper Hall Pen.
Harvey filed a suit in the court of law for non-delivery of the pen. It was held that there was no contract between the parties as
Facey only stated the price of the pen and replied the inquiry made by Harvey, but did not state anything regarding the offer.
There was only a , proposal or offer but no acceptance of the same. Thus, mere answer to a question or query or an inquiry is not
an offer.
(h) An offer is different from an invitation to an offer: Mere invitation to an offer is not an offer. Quotations, catalogues of
goods to be sold, advertisements for tenders, "a prospectus of a company, advertisements inviting applications for various jobs,
display of goods with printed price thereon are mere invitations to offer and not actual offers. Newspaper advertisements are
also not offers. There is an exception to this rule. When a general offer of reward to the public is made by giving advertisement
in a newspaper, it amounts to an offer in the eyes of law. Thus, when somebody gives advertisement in the newspaper that he
would give some prize to any person who finds and returns the lost commodity to the owner, obviously this is the offer made to
the first person who acts on it with the knowledge of the offer of prize and an agreements get created.
When a tender is submitted in response to an invitation of submitting a tender and it becomes an offer. Such an offer or a tender
can be of two types:

15. (1) A definite offer, and (2) A standing offer.
1. A definite offer: Many times, tenders are invited for the supply of certain or specified goods and/or services, each such
tender submitted in response is considered as an offer. Of course, it is left to the party who invites the tenders whether to accept
such offers or not. But if the concerned party accepts any tender, it becomes a binding contract.
Example: Ramesh invites tenders for supplying 200 tables and 400 chairs. Pravin, Arvind, Rama and Govinda submit their
tenders in response to the invitation. But Ramesh accepts the tender submitted by Rama rejecting other tenders. Here, there is a
binding contract between Rama and Ramesh.
2. Standing Offer: A standing offer is a continuing offer as the tenders are invited for the supply of goods or services over a
certain period of time on the condition that the goods or services will be supplied as and when required. Therefore, an order is
placed with the supplier of goods or services whose tender was accepted whenever
goods or services are required, and each time a separate contract is entered into. In Great Northern Railway Company Vis
Witham Case [1873, LR 9 C.P. 16], the railway company accepted the tender submitted by Witham for supplying certain goods
which the company might require over a period of year. Accordingly he supplied goods to the company as per orders placed by
the company for some months. But later on, he refused to supply the goods as per orders placed during the remaining period of
the tender. It was held in that case that Witham could not so refuse to supply the goods. Thus, it was binding on him to supply
the goods as per contract during the currency of the tender.
(i) Two identical cross-offers do not constitute a contract: When identical offers are made by two parties to one another
without knowing anything about each other's offer, such offers are called cross-offers.
Example: X offers B to sell him his building for Rs. 2 lakhs on 1 st August, 1999 by dropping a letter and on the same day, B
also writes a letter to X and offers to buy X's building for Rs. 2 lakhs. They do not know anything about each other's offer. The
offers by X and B are cross-offers. The cross-offers are not considered as the acceptance of one's offer by the other and
therefore, there cannot be any agreement merely because of the cross-offer.
(j) An offer can be made subject to any terms and conditions: An offeror is always at liberty to state his own terms and
conditions while making an offer. Even he may prescribe the mode of accepting the offer. Unless offeree accepts all the terms
and conditions stipulated by the offeror, there cannot be a valid acceptance. According to Section 7, in order to convert a
proposal into a promise, the acceptance must be absolute and unqualified. Section 7 further states that, "if the proposal
prescribes a manner in which it is to be accepted and the acceptance is not made in such manner, the proposer may insist that his
proposal shall be accepted in the prescribed manner."
Thus, an offer can be made subject to certain conditions and all such conditions must be clearly communicated to the offeree.
But if a person accepts an offer without the knowledge of conditions, which are clearly expressed or written and have been made
known to the offeree and he accepts them, he cannot plead ignorance of the conditions.
Thus, when all the above mentioned essentials or legal rules are satisfied, an offer or a proposal is said to be valid.
Lapse of an Offer:
Many times an offer lapses and therefore, becomes invalid under various circumstances following are some of such
circumstances in which an offer lapses and becomes invalid.
(a) An offer lapses ifnot accepted in the mode prescribed by an offer: If an offeree does not accept the offer according to the
mode prescribed by an offeror, it may lapse. However, it does not lapse automatically. If an offeror does not insist that the offer
made by him must be accepted in the particular manner or mode, the offer does not lapse. Suppose, if the offeror asks to accepts
the offer by sending the telegram and the offeree accepts the same by sending him a letter, the offeror may reject that acceptance

16. by giving the offeree due notice within a reasonable time. But if he does not do so, he is deemed to have accepted the deviated
acceptance.
(b) An offer lapses after stipulated or reasonable time:
Section 6 (2) lays down that 'a proposal is revoked by the lapse of the time prescribed in such proposal for its acceptance or, if
no time is so prescribed, by the lapse of a reasonable time, without communication of acceptance.'
Thus, if an acceptance is not communicated, it is obvious that an offer is lapsed. But such acceptance must be communicated
within the time prescribed in the offer by the offeror and if no such time is prescribed then it must be communicated within a
reasonable time. Of course, what is a reasonable time is always a question of fact and depends upon the circumstances of each
case.
(c) An offer lapses by revocation:
Section 6 (1), (3) and (4) makes provisions so far as the lapse of an offer by revocation. A proposal is lapsed on account of
following reasons.
1. If the proposer communicates or gives the notice of revocation of an offer to the party concerned, the offer is lapsed.
[Section 6 (1)]. But if it is agreed to keep the offer open for a particular period, it can be lapsed only after the expiry of
such period.
Example: Suresh offers to buy Milind's flat for Rs. 2 lakhs on the condition that Suresh will pay the price of the flat to
Milind within one month and if Milind agrees to it, Milind cannot revoke the offer before the expiry of prescribed / fixed
period. If Milind does so, he can be sued for the breach of condition of the contract.
2. If the offeree or acceptor fails to fulfill conditions, if any, precedent to acceptance, the offer stands lapsed. [Section 6
(3)].
Example: Milind offers to sell his flat to Suresh for Rs. 2 lakhs on the condition that Suresh will donate Rs. 50,000 to the
Relief Fund within a week. If Suresh does not donate Rs. 50,000 to that fund within a week, the offer is lapsed.
3. In the case of the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the
acceptor before acceptance, the offer is lapsed. [Section 6 (4)]. Thus, the death or insanity of the proposer or offeror puts
an end to the offer and even his heirs cannot be held liable for such offer.
(d) An offer lapses because of subsequence illegality or distruction of subject matter:
It is obvious that if an offer, becomes illegal after it is made but before it is accepted either because of passing new
enactment or other such reason or even because of the destruction of subject matter, such offers lapses.
Example: Madhav offers to sell his flat to Milind for Rs. 2 lakhs. But before Milind accepts the offer, there was
earthquake and the flat is destroyed or the Government bans the sale of the flat, the offer automatically lapses.

17. (e) Lapse of an offer by rejection: If the offeree himself neglects the offer, it is lapsed. Even if the offeree makes any
counter offer or conditional one, the offer made by the offeror is lapsed. In Hyde V/s Wrench case, H offered to sell his
farm for £1 000 which was rejected by W. but W offered £950 for the same. This was not accepted by H. Subsequently W
agreed to pay £1000 to H for the farm. In that case, the court held that H was not bound by such acceptance. Thus the
original offer lapses on account of either its rejection or because of counter offer.
ACCEPTANCE
Acceptance of a proposal is a very important stage in the formation of a contract. Acceptance is a consent given by the
promisee or proposee of the proposal and it has the effect of converting the proposal into promise.
Section 2 (b) states, "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be
accepted. a proposal, when accepted, becomes a promise."
While section 2 (e) states, "Every promise and every set of promises, forming the consideration for each other, is an
agreement" and "An agreement enforceable by law is a contract [Section 2 (h)]. Thus, a contract emerges from the
acceptance of an offer and an acceptance is nothing but an expression by the acceptor or offeree of his willingness to be
bound by the terms of the offer.
Who can accept an offer?
An offer can be accepted by the person or persons to whom it is made. If it is accepted by someone else, the acceptance is
not valid. Of course, when an offer is made to the world at large, it can be accepted by any person and when it is made to
a particular group of persons, ' anyone from the group is entitled to accept the offer. In one case, X sold his business to Y
without giving notice to his customers. M, the customer of X placed an order for purchasing I the goods to X by name. Y
received the same and acted accordingly. It was held in the case that there was no contract between Y and M as M never
made any offer to Y. [Boulton V Jonnes (1857) ER 232].
Example : X makes a proposal of selling his car to Y for Rs. 50,000/- and Y accepts the same. Since Y accepts X's
proposal, an agreement is formed between X and Y regarding the sale of X's car to Y for Rs. 50,000/-. Here, X is the
promisor and Y is the promisee. Once the proposal is accepted, it becomes a promise and is binding upon both the parties.
Legal rules or essentials of a valid acceptance:
Following are the essentials of a valid acceptance.
(a) Acceptance must be qualified:
Section 7 (i) of the Indian Contract Act, 1872 states that in order to convert a proposal into a promise, the acceptance must
be absolute and unqualified, Conditional acceptance is no acceptance and will not give rise to any contract. A proposal
must be accepted as it is and unconditionally.
Example: X makes a proposal to sell his factory to Y for Rs. one lakh. Y accepts the proposal but ready to pay Rs.
75,000/-. This is not the acceptance of the proposal. As a matter of fact it is a counter proposal made by Y, which X may
refuse to accept. In Neale V. Merret case, M made a proposal to sell his land to N at £280, which N accepted and sent a
cheque of £280 with a promise to pay the remaining amount by certain monthly installments. It was held that there was no
contract between M and N as the acceptance was qualified.

18. (b) Acceptance may be express or implied:
Acceptance can be express or implied. When an acceptance is communicated by words spoken or written or performing
certain act, it is called express. It is implied when it is to be inferred from the conduct or behavior of the party or parties or
from the circumstances e.g. in an auction sale, if someone gives highest bid and the auctioneer accepts his offer by
striking the hammer, it is an implied acceptance.
(c) Acceptance must be communicated to the offeror :
An acceptance of an offer must be communicated to the offeror in the same perceptible form so that a' binding contract
may be created. Mere mental acceptance is no acceptance in the eyes of law but it must be expressed or implied.
Thus, mental acceptance or excommunicated assent does not result in a contract. If an offeree remains silent and does
nothing in order to show that he has accepted the offer, no contract can be formed. Acceptance cannot be implied from the
silence of an offeree. In Felthouse V. Bindley case [(1862) II C. B. N. S. 869], F offered to buy N's horse for 30 pounds,
saying, "If I hear no more about him, I shall consider that the horse is mine at $0 pounds". He agreed but did not reply to
the offer and the horse was sold to somebody else by mistake. F filed a suit in the court of law. It was held that there was
no communication of acceptance. Mere mental acceptance is not enough.
(d) Acceptance may be given for the offer which has been communicated:
Acceptance cannot precede an offer. A person not knowing anything about the offer cannot be said to have accepted the
same merely because he acted just by chance in the manner prescribed by the offerer. Counter offers made in ignorance of
each other's offer do not amount to acceptance. Thus, in the eyes of law, that acceptance is valid which is given for the
offer which is communicated.
(e) Acceptance must be in the mode prescribed or usual and reasonable mode:
Section 7 (2) states, "In order to convert a proposal into a promise, the acceptance must be expressed in some usual and
reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribed a
manner in which it is to be accepted and the acceptance is not made in such manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed
manner, and not otherwise; but if he fails to do so, he accepts the acceptance."
(f) Acceptance must be communicated within a reasonable time:
If for accepting the proposal, certain time limit is specified, the acceptance must be communicated within that period. If
no such time limit is prescribed, it must be communicated within a reasonable time. What is reasonable time will depend
upon the circumstances & facts of each case. Prolonged delay will lapse the offer. In Ramsgate I Victoria Hotel Company
V. Monteflore case [(1886) L. R. 1 Ex. log], M offered to take shares in R company on 8th June and he received the letter
of allotment i.e. acceptance on 23rd November. But M refused to take the shares as his offer lapsed by delay in
acceptance. It clearly shows that if no time limit is specified, the acceptance must be
given within a reasonable time.
(g) Silence is not considered as a mode of acceptance:

19. Acceptance cannot be implied from silence. e.g. X makes a proposal of selling his car to Y for Rs. 50,000/- by writing a
letter to him and writes further, "If I do not hear anything from you regarding the purchase of my car for Rs. 50,000/-
within ten days, I will assume that you have accepted my proposal." If Y does not reply at all, there can be no contract.
(h) Acceptance of the proposal means acceptance of all terms of the offer made by the proposer.
(i) If a principal makes a proposal through his agent, it is enough if the acceptance is communicated to the agent. e.g. X
who is the businessman, send the offer to Y through his agent M. If Y communicates his acceptance to M, the acceptance
is complete.
(j) Acceptance must be communicated before the offer lapses or before it is withdrawn.
(k) Acceptance must always be given by the party or parties to whom the offer is made.
(I) Acceptance must make clear an intention on the part of the promisee to fulfill the terms of the promise given. An
acceptance to do something which a person (promisee) has not intention to perform is not a valid acceptance.
(m) If an acceptance is given by a person which is subject to certain condition e.g. subject to formal contract or subject to
contract to be approved by Solicitors or subjects to contract, no contract can be formed till a formal contract is entered
into with a permission of the
Concerned person is obtained.
Provisions of Contract Act regarding communication of offer (Proposal); Acceptance and Revocation:
A proposal, an acceptance of a proposal and their revocation to be complete, must be communicated properly, as per
provisions made in law. These provisions are contained in Sections 3 to 6 of the Indian Contract Act 1872.
Communication, acceptance and revocation of proposals:
Communication of proposals, their acceptance, revocation and acceptance, respectively, are deemed to be made by an act
or omission of the party proposing, accepting or revoking, by which that the party intends to communicate such proposals,
acceptance or revocation or which has the effect of communicating it [Section 3]. Thus a proposal, its acceptance or
revocation may be communicated by conduct or by words written or spoken.
When is the communication of a proposal, acceptance and revocation complete?
Communication of a proposal:
The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made [Section
4 (part 4)].
Example: X proposes, by writing a letter to Y, to sell his factory for As. 2 lakhs. The letter is posted on 1 st June 1999.
The letter reaches to Y on 4th June 1999. The communication of the proposal in this case is complete when Y receives the
letter sent by X i.e. on 4th June 1999. Thus when a proposal is communicated by the post, it is complete when the letter of
the proposal is received by the proposee and not mere posting of the letter makes the communication complete.
Communication of an acceptance:
The communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to
him, as to be out of the control of the acceptor, and as against the acceptor, when it comes to the knowledge of the

20. proposer [Section 4 (Para. 2)]. Suppose in the above case Y accepts the proposal made by X by sending a letter on 4th
June 1999. X receives the letter of acceptance by Y on 6th June 1999. The communication of acceptance as against X is
complete when the letter is posted by Y on 4th June 1999 and as against Y when X receives the same on 6th June 1999.
Communication of a revocation:
The communication of a revocation is complete as against the person who make it, when the same is put into a course of
transmission to the person to whom it is made, so as to be out of the control of the person who makes it; and as against the
person to whom it is made, when it comes to his knowledge. [Section 4 (Para 3)].
Revocation of proposals and acceptances [Section 5]:
A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer
but not afterwards and the acceptance may be revoked at any time before its communication is complete as against the
acceptor but not afterwards.
Example: X proposes to Y to sell his factory by sending a letter by post and Y also sending a letter by post accepts the
proposal made by X. X can revoke his proposal at any time before Y posts his letter of acceptance but in no case
afterwards. Y is also entitled to revoke his acceptance at any time before his letter of acceptance reaches X but not
afterwards.
Revocation of a proposal how made [Section 6]
A proposal is revoked in any of the following ways:
(1) By the communication of the notice of revocation by the proposer
to the other party.
(2) By the lapse of time prescribed in such proposal for its acceptance, or if no such time is prescribed, by the lapse of a
reasonable time, without communicating the acceptance.
(3) By the failure of the acceptor to fulfill a I condition precedent to accept e.g. X, the producer of the goods, proposes to
sell to Y the
Goods on the condition that Y pays the price of the goods before a particular date. If Y does not pay the price before that
date, the offer stands revoked.
(4) By the death or insanity (becoming lunatic) of the proposer, if the fact of his death or insanity comes to the knowledge
of the acceptor before his acceptance to the proposal.
4. CAPACITY OF PARTIES
All agreements are contracts provided that:
(a) They are made by the free consent of parties.
(b) These parties must be competent to contract.
(c) The contract must be for a lawful consideration and with a lawful object.
(d) They must not be expressly declared to be void.

21. Thus, any agreement, if fulfills the above mentioned conditions, becomes a contract. The parties who want to enter into a
contract must have a capacity to do so. Here 'capacity' refers to competency of the parties to enter into a valid contract.
Section 11 of the Indian Contract Act speaks about the competency of the parties to contract. It states that every person is
competent to contract who is of the age of majority according to law to which he is subject and who is of sound mind, and
is not disqualified from entering into contract by any law to which he is subject.
Thus, the Section 11 declares the following persons to be incompetent to enter into a contract:
(a) Minors.
(b) Persons of unsound mind, and
(c) Persons disqualified from contracting by the law to which they are
subject.
Minors:
A person who has not completed his 18th year of age is considered to be minor in the eyes of law [Section 3 of the Indian
Minority Act, 1875] and his minority continues in the following two cases:
(a) Where a guardian of a minor's person or property is appointed by the Court under the Guardians and Wards Act, 1890
or
(b) Where the property of a minor is taken over by the Court of Wards for management under the Court of Wards Act.
Agreement with the minors:
The Indian Contract Act, 1872 protect and safeguards the interest of the minor through special provision. A minor can
plead his minority while deciding the validity of contract. He neither incurs any liability / obligations nor he is held
responsible for any wrong. Legal action cannot be taken against a minor for false promises or wrong doings. Even
guardians or parents cannot be held, legally responsible for the contracts entered into by a minor unless he acts as their
agent. Following important provisions made in the Indian Contract Act, 1872 regarding the agreements or contracts with a
minor.
(a) Agreement with or by a minor is absolutely void: An agreement with a minor is not voidable but absolutely void ab
initio. The Privi council while interpreting the provisions of Section 11 of the Indian Contract Act stated in the famous
case of Mohori Bibi V. Dharmodas Ghose that a contract with a minor is void and not voidable. In this case of Mohori
Bibi V. Dharmodas Ghose, a minor took a loan of Rs. 8,000/- and mortgaged his own house worth Rs. 20,000/- in favour
of a mortgagee who was the money lender. There after the minor sued for setting aside the mortgage on the ground of his
minority and the money lender wanted to get his amount of Rs. 8,000/- which he actually paid to the minor. The Privi
Council declared that an agreement with the minor was void, hence the mortgage was not valid and hence it was cancelled
and therefore the question of refund of the loan did not arise.
(b) No Ratification of Minor's contract: A minor's agreement or contract cannot be ratified by him when he becomes a
major. A consideration given by a person when he was a minor is no consideration in the eyes of law and therefore a
consideration given under earlier contract cannot be implied into the contract which the minor enters on attaining
majority.
However, a minor can enter into a fresh contract, if it is necessary, on attaining majority if supported by a fresh
consideration and not by past consideration. For example X, a minor borrows Rs. 10,000 from Y for which he executes a
promissory note in favor of Y. After becoming a major, X executes a fresh promissory note in settlement of the first
promissory note in favor of Y for Rs. 10,000/-. Y cannot bring a suit on the second promissory note as the second note is
void for lack of consideration. But if X obtains further loan of Rs. 10,000/- from Y on attaining majority and executes a

22. promissory note of Rs. 20,000/- for both the loans, this will be taken as a new contract entered into by X and he will be
liable on the promissory note and the contract will be valid.
(c) A minor can be a promisee: A contract entered into by a minor is void but not unlawful. However, if a person on
attaining majority pays a debt already incurred during his minority, cannot subsequently file a suit for the purpose of
recovering the amount. But a minor can become a beneficiary e.g. payee, endorsee or a promisee. Nothing debars him
from entering into a contract as a beneficiary. Thus, if a minor has carried out his obligations on entering into a contract,
he gets every right to bring a suit against the other party for the enforcement of the other party's obligation. Suppose if a
minor delivers some goods under a contract of sale to Mr. X, a purchaser and if Mr. X does not pay, the minor is entitled
to bring a suit for the recovery of the price of the goods sold.
(d) No restitution in agreements with a minor: if a minor receives any benefit or advantage under an agreement or a
contract which is void, he cannot be asked or compelled to pay the amount or compensate any loss caused to the other
party to such void contract e.g. suppose a minor gets a loan from a money-lender, by mortgaging his property neither a
minor nor his property can be held liable for recovering the loan given to him.
(e) Minor's Insolvency: A minor cannot be declared as an insolvent because of his or her incapacity to enter into a
contract. He cannot be held personally liable even for the supply of basic necessities of life.
(f) No estoppels in the case of a minor: A minor can always plead his minority and is not bound by his misrepresentation
or fraudulent behavior. The rule of estoppels is not applicable as against a minor.
Example: X who was a minor pretended to be a major and induced Y to lend some amount. Subsequently X refused to
repay the same and therefore Y filed a suit against him in the Court of Law. It was held that the contract with X being a
minor, was void and X was not liable to repay the sum. Thus, though the law provides protection to the minors under the
Contract Act, it does not give them the liberty to cheat the people. The court can direct the minor to restore money or
property to the other party on equitable consideration where a loan or any property is obtained by mis repsentation and the
agreement is set aside.
(g) Minor as a partner: A minor cannot be a partner or he cannot enter into a partnership contract as a partner. However,
he can be admitted to the benefit of the partnership firm already in the existence with the prior consent of other partners.
Even though he is admitted to the benefit of the partnership firm, he does not get any right to participate in the
management of the firm or inspect the books of the firm.
(h) A minor as an agent: Though a minor cannot be admitted as a partner or a contract with a minor is void, he can be
appointed as an agent. He can represent his principal while dealing with other party. He can bind his principal by his act
without any personal liability. Here, it must be remembered that the principal cannot recover the loss if caused as a result
of any act of a minor who works as his agent.
(i) A person working as a surety for a minor: Any person may stand as a surety for any Liability incurred by a minor.
Such person is held responsible to a minor's creditor but not a minor.
(j) Liability of a minor for necessities: If the contracts are entered into for the supply of the necessities of life and other
necessary services, all such contracts are valid and a minor is liable to pay out his property for the same.
(k) Responsibility of parents or guardians of a minor: Parents and Guardians are not held liable for any contract
entered into by a minor. Even though the contracts entered into are for the supply of necessities and essential services to a
minor.
(I) Liability of a minor for torts (Civil wrong) : If a minor is guilty of any civil wrong, he can be held liable.

23. Thus, the contracts entered into with a minor are void except the contracts for necessities of life etc. Considering the
privileges made available to a minor under the Contract Act, it can be said that the minority is a shield that offers
necessary protection to minors. It is given to them because the law considers them as immature who can easily be misled
or misguided.
Salmond puts it very rightly in the following words:
'The law protects the minors, preserves their rights and estates; assists them in their pleadings. The judges are their
counselors and the juries are the servant and the law is their guardian."
Persons of unsound mind:
Drunkards when under the influence of drugs are considered as the persons of unsound mind. Section 12 of the Indian
Contract Act, 1872 defines the term 'sound mind'. According to Section 12 "A person is said to be of sound mind for the
purpose of making a contract if, at the time when he makes a contract, he is capable of understanding it and of forming a
rational judgment as to its effect upon his interest. A person, who is usually of unsound mind; but occasionally of sound
mind, may make contract when he is of sound mind. A person usually of sound mind, but occasionally of unsound mind,
may not make a contract when he is of unsound mind,"
Thus, like that of a minor, an agreement or a contract entered into with a person of unsound mind is absolutely void.
From the definition of unsound mind stated in Section 12, we come to know that the tests of soundness of mind are (1) the
capacity of a concerned person to understand the content and consequences and (2) his ability to form or make a rational
judgment. If any person lacks these tests, he may be called a person of an unsound mind. Unsoundness of mind may result
from insanity, idiocy, lunacy, old age, accident, drunkenness or some such other reasons. A person under the influence of
drugs or drinks is considered temporarily of unsound mind.
Idiots:
Idiots are persons who are devoid of any thinking power and not in a position to take rational judgments. As the idiots
cannot understand even the ordinary matters, the contracts with them are void.
Example: A person agreed to sell his property worth about Rs. 55,000/- for Rs. 17,000/-. But when it came to know to his
mother, she filed a case and proved that the person was a congenital idiot and demanded for cancellation of the contract. It
was held that the agreement was null and void. There are, in fact, basically two important types of unsoundness of mind
i.e. (1) permanent in nature implying incurable mental diseases and (2) temporary in nature, the diseases which can be
cured. These types are shown below:
Lunatic:
A lunatic is a person whose mental powers are deranged because of some mental strain or fatigue. These persons
generally suffer from intermittent intervals of sanity and insanity and therefore contracts entered into with such persons
during lucid intervals are valid. Lunacy denotes periodical insanity with lucid intervals while idiocy is always permanent.
Drunkards:
Drunkards stand on the same footing as lunatics when they are under the influence of drugs or alcoholic drinks and
therefore agreements or contracts made with them during drunkenness
are void.

24. Persons disqualified from contracting by the law:
Besides minors, idiots, lunatics when they suffer from the attacks, drunkards when they are under the influence of any
drug or drink; following persons are also disqualified from contracting by the law to which they are subject.
(a) Alien enemies.
(b) Foreign sovereigns their diplomatic staff and accredited representatives;.
(c) Insolvents (d) Convicts, (e) Corporations.
5.FREE CONSENT
According to Section 10, "All agreements are contracts if they are made by the free consent of the parties competent to
contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be void." Thus, a
free consent is one of the essentials of valid contract. Sections 13 and 14 define the words 'consent' and 'free consent'
respectively.
According to Section 13, "Two or more persons are said to consent when they agree upon the same thing in the same
sense" and Section 14 defines 'Free consent' as follows:
Consent is said to be free when it is not caused by:
(1) Coercion.
(2) Undue influence
(3) Fraud.
(4) Misrepresentation.
(5) Mistake.
If there is no consent, there is no contract. But if there is a consent but not a free consent and is caused by undue
influence, coercion, fraud etc. and a contract is entered into, such contract is always voidable at the option of the party
whose consent is so obtained.
Thus, because of coercion, undue influence, misrepresentation, fraud or mistake, consent is not said to be free. Let us now
discuss these flaws in consent.
Coercion:
The definition of coercion is given in Section 15 of the Indian Contract Act which is as follows: "Coercion" is the
committing, or threatening to commit, any act forbidden by the Indian Penal Code or the unlawful detaining, or

25. threatening to detain, any property, to the prejudice of any person Whatever, with the intention of causing any person to
enter into an agreement.
It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed.
From the above definition, we come to know the following important characteristics of coercion.
Characteristics of Coercion:
(a) Coercion implies committing or threatening to commit any act forbidden by the Indian Penal Code.
Examples, (1) X threatens to beat Y if Y does not execute a promissory note of Rs. 10,000/- and Y does so. The threat
amounts to coercion. (2) after giving a good beating to Y, X makes Y agree to sell the goods of Rs. 50,000/- on credit.
This beating amounts to coercion.
(b) Coercion also implies the unlawful detaining or threatening to detain the property of another person.
(c) The act of coercion must have been performed with the intention of causing any person to enter into an agreement.
(d) It is not necessary that the coercion must be applied by a party to the contract. It also can be applied by a stranger, e.g.
if X threatens to kill Y if Y does not sell his valuable plot to C who is X's friend and therefore Y agrees to do so and signs
the contract accordingly. Y is not bound by this contract as it is induced by coercion.
(e) It is not necessary that the Indian Penal Code should be in force at the place where the coercion is applied.
Effect of coercion on a contract:
Section 19 states that when the consent of a party to an agreement is caused by coercion, the agreement is a contract
voidable at the option of the party whose consent was so obtained. Thus an aggrieved party may set aside the contract.
However, if he so desires, may abide by the contract and insist the other party to perform the same. The burden of proving
that the consent was obtained by coercion lies upon the party who wants to set aside the contract on the ground of
coercion e.g. if X compels Y to execute a transfer bond for his factory in the name of M under the fear of assault, such
contract is voidable at the option of Y as his consent is obtained by coercion. Of course, the burden of proving that his
consent is obtained by Coercion lies on Y. Section 72 of the Act also provides that a person to whom anything has been
delivered or any amount is paid under coercion, he is bound to return or repay the same. Coercion includes so many things
such as fear, a threat to beat, physical compulsion, menace to goods, a threat to commit suicide etc.
Undue Influence:
In coercion, element of physical pressure, some sort of threatening or physical compulsion is present while undue
influence results in mental pressure which is put upon the other party to the contract. This may happen when there exists a
special kind of relationship between the parties to the contract so that one party is in a position to exercise undue influence
over the other party. Sometimes, undue influence is called moral coercions.
Section 16 of the Act defines the term 'undue influence' and makes clear certain aspects related to 'undue influence'.
Section 16 is as follows:
(1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that
one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over
the other.

26. (2) In particular and without prejudice to the generality of the 'foregoing principle, 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 or where he stands in a fiduciary relation to the other; or
(b) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of
age, illness, or mental or bodily distress.
(3) 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 adduced, to be unconscionable, the burden of proving that such
contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.
Contracts with pardanashin woman:
A pardanashin woman is one who observes complete seclusion because of the custom or the usage of the particular
community and a contract with such woman is presumed to have been entered by undue influence. Following facts are
required to be proved in order to prove that the contract entered into with a paradanshin woman has not been induced by
undue influence.
(a) The terms of the contract made are reasonable, fair and equitable.
(b) The transaction performed is real and bonafide.
(c) The deed when executed was fully explained to the paradanashin woman.
(d) The woman received an independent and disinterested advice in the regard.
(e) The woman had complete knowledge of the nature and the effect of the transaction.
The protection which is given to a paradanashin woman is also made available to illiterate and ignorant women who are
also exposed to the risk and danger of an unfair deal caused by undue influence.
Important points of Distinction between Coercion and Undue Influence:
S.N. Coercion Undue Influence
1 In coercion some criminal act is involved. While in undue influence, criminal act is not
involved.
2 Coercion is mainly of a physical
character
Whereas undue influence is of a moral Character.
Therefore,sometimesundue influence is called as
moral coercion.
3 In coercion, the consent of an aggrieved
party is obtained by committing or
threatening to commit an act forbidden
by the Indian Penal Code or detaining or
threatening to detain properly
unlawfully.
In undue influence, the consent of an aggrieved
party is obtained under moral influence. Person
obtaining the consent takes the undue advantage
of his position.
4 In coercion, intention is always there to
induce someone to enter into an
agreement.
In undue influence, the party which uses his
influence uses his position to obtain certain
advantage at the cost of other party.
5 In coercion, it is not necessary that there But in undue influence, there always exists some

27. Fraud:
According
to Section
17 of the Indian Contract Act, 1872: "Fraud" means and includes any of the following acts committed by a party to a
contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him
to enter the contract:
(1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true.
(2) The active concealment of a fact by one having knowledge or belief of the fact.
(3) A promise made without any intention of performing it.
(4) Any other act fitted to deceive.
(5) Any such act or omission as the law specially declares to be fraudulent.
Can Silence amounts to Fraud?
Mere silence as to facts which may likely to affect the willingness of a person to make a contract is not fraud, unless the
circumstances of the case are such that it is the duty of the person observing silence to speak or unless his silence is
equivalent to speech. Suppose X sells a horse to Y which X knows to be unsound, but X keeps quiet and tells nothing to Y
about the unsoundness of the horse. This does not lead to any fraud.
But if Y suggests X that. "If you do not deny it, I will assume that the horse is sound", X says nothing but keeps silence.
Here X's silence is equivalent to speech. Thus in fraud, the intention of the party must be to deceive the other party to
enter into a contract.
Essential elements of Fraud:
Following are the essential elements of fraud:
(a) There must be a false representation: Representation means a statement of fact made by one of the parties to the
contract in the course of the negotiations with a view to induce the other party to enter into a contract. This can be done by
words spoken or written or it can be even implied from the acts and conduct of the party and it must relate to some fact
which is material to the contract. When a representation is wrongly made with an intention to deceive another party
thereto or his agent or to induce him to enter into a contract, it is called a fraud. Thus, to constitute a fraud, there must be a
false representation.
(b) It must be done by the party or his agent: The act must have been done by a party to the contract or by his agent. It
should have not been committed by a stranger.
(c) The representation must relate to a fact: An opinion is not considered as a representation of a fact e.g. if a Salesman
says that the goods he is selling are as good as that of XYZ Company. It is not an intentional misrepresentation but a mere
statement of opinion and therefore can not constitute any fraud. So also if he says, "the goods are the best available in the
market for the price" is not a misrepresentation amounting to fraud but a puffing statement.
(d) The other party must have been attracted to act upon the representation leading to a fraud: This implies that the
assertion should be such that it would invariably influence and attract the other party to enter into a contract. Mere
falsehood is not sufficient to give a right of action. In one case [Smith V. Chadwick (1884)], Mr. X purchased some shares
should be some relationship between the
promisesor and the promisee.
sort of relationship between the parties to the
agreement. Such relationship can be fiduciary or
paternal.

28. on the faith of the prospectus which contained that Mr. Y was one of the Directors of the company, but in reality he was
not the Director, subsequently X filed a suit for damages against the company for the false representation made in the
prospectus that Y was the director. X's claim for damages was dismissed as X never heard of Y and therefore the
concerned statement was not material from the point of view of X, the statement did not induce X to buy shares of the
company.
(e) The representation intentionally done to commit a fraud must have been done before the conclusion of the
contract: The representation should not be merely false, but its intention must be to deceive the other party and that must
be done before the conclusion of the contract.
(f)The other party must have relied upon the representation intentionally done to commit a fraud and thereby
must have been deceived: A mere false representation is not enough to constitute a fraud but the other party must be
actually deceived because of such false representation. Not only must this but the other party which acts on the false
representation have suffered a loss. Fraud without damage or damage without fraud does not give any right to a, party
who, acts on the false representation.
Effects of Fraud and Remedies
The party defrauded can exercise any of the following rights:
(a) As a contract induced by fraud is voidable at the option of the party defrauded, he can avoid or rescind the contract but
he must do so within a reasonable time.
(b) The party defrauded can sue for the damages suffered or ask for the restitution.
(c) The party can insist for the performance of the contract on the condition that the other party shall take necessary steps
to put the defrauded party in a position in which it would have been if the representation made had been true.
Mr. Suresh fraudulently tells Mr. Ramesh that his flat is completely free from encumbrances. Mr. Ramesh purchases the
flat. But subsequently it is found that the flat is mortgaged. Mr. Ramesh may, in this case, avoid the contract or may insist
on it being carried out and the mortgage debt gets redeemed.
Misrepresentation:
We have already seen that a statement of fact which one of the parties makes in the course of the negotiation with an
intention to induce the other party to enter into a contract is known as a representation and this must relate to some fact
which is related to the contract.
When it is wrongly made unintentionally or innocently, it is known as misrepresentation. In other words,
misrepresentation is a false statement which the party to a contract making it honestly believes it to be true. For example:
X informs Y about his horse that is very sound and useful for any race and sells the same to Y. X really believes that the
horse he is selling to Y is sound although X does not posses sufficient knowledge to believe so. In due course, if Y finds
that the horse he has purchased from X is not sound and is useless for the race. Here the representation made by X is a
misrepresentation.
Section 18, of the Indian Contract Act, 1872 defines the term 'misrepresentation' as follows:
"Misrepresentation" means and includes:
(1) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true,
though he believes it to be true.

29. (2) Any breach of duty which, without an intention to deceive, gains an advantage to the person committing it, or anyone
claiming under him, by misleading another to his prejudice, or to the prejudice of anyone claiming under him.
(3) Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the
subject of the agreement.
From the above definition of misrepresentation, we come to know the following important essentials of misrepresentation:
a) A mere expression of opinion or any statement, even if it is wrong, does not lead to misrepresentation. It must be a
representation of some material fact related to the contract.
b) It must be made before the concerned party enters into a contract.
c) A person making wrong or false representation must really believe that the representation he is making is true. In other
words, it must be innocent or unintentional.
d) Misrepresentation may be committed in any of the following ways:
(1) By positive statement.
(2) By breach of duty.
(3) By causing a mistake by innocent misrepresentation.
An aggrieved party suffering any loss as a result of misrepresentation can either rescind or avoid the contract altogether or
can accept the contract but insist that he will be placed in such position in which he should have been- if the
representation made had been true [Section 19].
However, the aggrieved party loses the right of avoiding the contract for misrepresentation in following circumstances:
(a)If the aggrieved party takes any benefit under the contract after becoming aware of the misrepresentation. Thus, the
party is not allowed to enjoy any benefit of misrepresentation and also to avoid the contract.
(b) If a third party has already purchased the goods or acquired the rights in the subject matter of the contract paying
necessary price or value in good faith.
(c)If the concerned parties cannot be restored to their original positions.
Distinction between fraud and misrepresentation:
S.N. Fraud Misrepresentation
1 in fraud, a false statement or
representation is deliberately or
intentionally made to deceive the other
party or to induce him to make a contract.
In misrepresentation, there is no intention to
deceive or gain any advantage by making a false
statement or representation
fraud is intentional or deliberate while misrepresentation is innocent or
unintentional.
in the case of fraud, besides avoiding the
contract, an aggrieved party can claim the
damages suffered as result of fraud.
but in misrepresentation, a contract is voidable at
the option of the aggrieved party
in a fraud, he purposely and knowingly
makes a false statement or gives a false
opinion.
In misrepresentation, a person doing so believes
the presentation made by him is true

30. Mistake
of Law:
Mistake is
one of the causes because of which the consent is said not be free and it can be defined as an erroneous belief about
something. According to Section 20, "where both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void.
Mistake of Law and Mistake of Fact:
From the above mentioned provisions of the Act, we can broadly classify the mistake as (a) Mistake of law and (b)
Mistake of fact.
As mistake of law is concerned, we have to remember one important maxim which is the well settled rule of law. It says,
"Ignorantia juris not excusat". This means ignorance of law is no excuse. A party cannot get any relief on the ground that
he had done a particular thing or performed a particular act in ignorance of law. A contract cannot by avoided merely on
the ground of mistake. For example, Mr. Amit buys a watch thinking that it is worth Rs. 1,500/- but its actual price is Rs.
500/- only. The agreement cannot be avoided on this ground of mistake only.
So far as mistake of fact is concerned we must remember following two principles which are contained in Sections 20 and
22.
(1) Where both the parties to an agreement are under a mistake as to a matter of fact essential to an agreement, the
agreement is void. Thus, both the parties to an agreement must be under mistake and the mistake must relate to a matter of
fact essential to the contract and
(2) A mistake by one of the parties also not affects the validity of a contract
Following Chart shows the classification of mistake
Unilateral Mistake:
Where one of the parties to a contract is at mistake about the value or quality of the subject matter and about
understanding the terms and conditions or legal effects of the agreement, such mistake is known as 'unilateral mistake'.
Generally, unilateral mistake is not allowed as a defense to avoid the contract e.g., X sells his motor car to Y for an
intended amount of Rs. 95,000/- but by mistake, he informs Y in writing the price of a car as Rs. 85,000/-. X cannot plead
mistake as his defense to avoid the agreement. But in following cases, a unilateral mistake makes the contract void.
(a) Mistake as to the identity of the person contracted with.
(b) Mistake as to the nature of contract.
Bilateral Mistake:
When both the parties to an agreement are under a mistake, there is said to be the bilateral mistake and if a mistake is
bilateral, the agreement is void. For a bilateral mistake, mistake must be mutual and must relate to a matter of fact
essential to an agreement.
Bilateral mistakes may be mutual mistakes or common mistakes. Bilateral mistakes also can be (a) as to possibility of
performance, and (b) as to the subject matter.
Fraud leads to a criminal offence it may not be a case in respect of
misrepresentation.

31. (a) Mistake as to the possibility of performance:
If for performance of a contract, certain conditions or circumstances are essential to be in the existence and in fact they are
not in existence and parties to the contract are also ignorant about that, such contract is void on the ground of mistake.
Such impossibility can be legal impossibility and physical impossibility, e.g. G hired a room from B for coronation
procession of Edward King. It was not known to G as well as B that the procession was already cancelled and therefore
the contract was declared void.
(b) Mistakes as to the subject matter:
When both the parties to a contract are working under a mistake relating to the subject matter, such contract is void.
Mistake as to subject matter may be of the following type:
(1) Mistake regarding the existence of the subject matter: When both the parties to a contract believe that the subject
matter of the contract is in existence, but in fact at the time of contract it is not so, the contract is void. e.g., X purchased
from Y a cow which was dead at the time of the contract.
(2) Mistake regarding identity of the subject matter: This happens when one of the parties to an agreement intends to deal
in one thing while the other party in another thing. Example: X agreed to purchase from Y a cargo of certain goods to
arrive from Bombay. In fact there were two ships of the same name sailing about the same time from Bombay and both X
and Y had a different ship in mind. It was held that there was mutual or bilateral mistake and therefore the contract was
void.
(3)Mistake regarding the quantity of the subject matter: An agreement is void if both the parties are under mistake as to
the quantity of the subject matter e.g., X wanted to buy T.V. sets and so he enquired about the price stating that he might
purchase eleven. On receipt of the reply to the enquiry, he placed on order to 2 T. V. sets by telegram. The person sending
the telegram sent the telegram as "Supply T.V, sets" by mistake. On the basis of this telegram, the seller of the T.V. sets
supplied eleven T.V. sets. X accepted only two T.V. sets and returned the remaining. The seller filed a suit against X for
non-acceptance of all the T.V, sets. It was held that on account of the mistake of the third party (the person sending the
telegram), the loss was caused and X was not responsible for that and therefore there was no contract.
(4) Mistake regarding the quality of the subject matter: When both the parties under mistake regarding the quality of the
subject matter, the agreement is void. In Nicholson V Smith case, table napkins were sold in an auction sale by describing
the same as "With the crest of Charles I and the authentic property of that monarch" but in fact the table napkins were
Georgian and both the parties were not knowing this. It was held that there was the mistake regarding the quality of the
subject matter and therefore the agreement was void.
(5) Mistake regarding the price of the subject matter: If there is a mutual mistake regarding the price of the subject matter
of a contract, the contract is void. E.g., X wants to purchase the house of Y. Y quotes the value of his house as Rs. 13
lakhs but in the Sale-Deed by mistake it is written as Rs. 3 lakhs only. The contract is void.
(6) Mistake regarding the title of the subject matter: When a seller sells a commodity which does not belong to him and
both the parties to the contract work under the mistake, the contract is void. e.g.,X agrees to purchase a piece of land from
Y. It is not known to X as well as Y that the piece of land belongs to X and thus there is a mistake as to the title of the
subject matter. Therefore the agreement between X and Y is void.
Various flaws so far as free consent is concerned are shown in the following chart to know them at a glance

32. Legality of Object and Consideration
Besides mutual consent of the competent parties to a contract, it must have a lawful object too. An agreement is not
enforceable if its object is unlawful. Thus consideration for an agreement is lawful but if the purpose of the agreement is
not lawful, the agreement is void and therefore the object and the consideration of an agreement must be lawful.
"Section 23 of the Act makes clear as to what considerations and objects are lawful and what are not. Section 23 states
that "the consideration or an object of an agreement is lawful, unless:
(i) It is forbidden by law; or
(ii)It is of such nature that, if permitted, it would defeat the provisions of any law; or
(iii) It is fraudulent; or
(iv) It involves or implies injury to the person or property of another; or
(v) The court regards it as immoral; or
(vi) The court regards it as opposed to public policy.
Details of the above mentioned points.
(I)The object or consideration of an agreement is unlawful if it is forbidden by law:
Any object or consideration is considered to be forbidden by the law if it is punishable under any Act of the country for
the time being in force e.g., if X agrees to provide an employment to Y in the public service provided Y pays Rs. 5,000/-
to X. This agreement is void because the consideration is not lawful; or if X agrees to sell the motor car to Y for Rs. 1
lakh knowing that the car is stolen, the contract is unlawful.
(II) The object or consideration of an agreement is unlawful if it would defeat the provisions of any law:
The object or consideration of an agreement is unlawful if it is of such nature that it would defeat the provisions of any
law if permitted and therefore such agreement is void. In one case, X agreed to enter corporation's services in
consideration of a daily wage of Rs. 50/- and a daily expenses of Rs. 25/-. X and the corporation new that the expense
allowance was the way to evade the taxes and also to concealthe incomes. The agreement was declared as unlawful as the
efforts were made to defeat the provisions of the Income Tax Act.
(III) The object or consideration of an agreement is considered as unlawful if it is fraudulent:
If the object of an agreement is to deceive or cheat the other party by concealing any material fact related to an agreement,
such agreement is unlawful. For example, suppose X and Y enter into a partnership and have decided to acquire certain
goods by fraud and distribute the profits thus earned. The agreement is void as its object is not lawful.
(IV) The objective or consideration of an agreement is unlawful if it implies injury to any person or property of
someone:
If there is an agreement to damage or to cause any damage to the property or cause any harm to any person, such
agreement is void. For example, if the owner of a newspaper enters into an agreement with the printer to indemnify him
against any claim arising from libel printed in the newspaper, such agreement is void.
(V) If the court regards a consideration or an object immoral, such agreement is unlawful:
(VI) When the court regards a consideration or an object of an agreement as opposed to public policy, such
agreement is unlawful:
Public policy is that principle of law which states that nobody can lawfully do something or anything which may be
injurious to the public or to the public good or public welfare. An agreement is considered to be opposed to public policy
when it causes harm to the public welfare or public good. All agreements causing harm to public good are unlawful.
Following are some of the agreements which are opposed to the public policy and therefore are void.