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Excellence and Service

 CHRIST
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 CHRIST
Deemed to be University

COURSE DESCRIPTION:

Basic proficiency in Excel has become a prerequisite skill in most of the organizations.
This course intends to make the students familiar with the basics of Microsoft
excel. The course introduces the students to financial and statistical
analysis, further the course also deals with practical application of Microsoft
excel in day to day business activities. As a prerequisite, the students should
have basic knowledge about computers and MS Office.

Excellence and Service

 Unit 1: The Indian Contract Act, 1872: General Principle of Law
of Contract Hours: 24

a) Contract – meaning, characteristics and kinds b) Essentials of a valid

contract - Offer and acceptance, consideration, contractual capacity,

free consent, legality of objects. c) Void agreements d) Discharge of a

contract – modes of discharge, breach and remedies against breach of

contract. e) Contingent contracts f) Quasi - contracts

 MEANING OF LAW

• It refers to the rules of conduct enforced by the State to

maintain peace and order in the society.
• Their objective is to provide security and uniformity by regulating
human actions.
• In absence of law, life and business will become a matter of survival
not only of the fittest but also of the most ruthless.
• Since law is backed by authority and the power of state, they are
enforceable against all individuals irrespective of their social
status.
 MEANING OF BUSINESS LAW

• Business law is sometimes called mercantile law or commercial law and

refers to the laws that govern the dealings between people and
commercial matters.
• There are two distinct areas of business law; regulation of
commercial entities through laws of partnership, company,
bankruptcy, and agency and the second is regulation of the
commercial transactions through the laws of contract.
 SOURCES OF INDIAN BUSINESS LAW

• English Mercantile Law

• Statutes of Indian Legislatures

• Judicial Decisions

• Customs and Usage

 WHY CONTRACTS ARE IMPORTANT IN
BUSINESS?

• It is the foundation upon which the superstructure of modern business is

built.
• As we all are aware that in business transactions quite often promises
are made at one time and performance follows later.
• In such situation if either of the parties fail to perform their promises, this will
create endless complications and it would be impossible to carry trade and
commerce.
• Hence law of contract was enacted which lays down the legal rules
relating to promises; their formation, their performance and their
enforceability.
 INDIAN CONTRACT ACT, 1872

• The object of the act is to introduce definiteness in

business transactions.
• Scheme of the Act:
• General Principles of Law of Contract (Sec 1 to 75)
• Specific kinds of Contract, viz:
- Contracts of Indemnity and Guarantee (Sec 124 to 147)
- Contracts of Bailment & Pledge (Sec 148 to 181)
- Contracts of agency (Sec 182 to 238)
 WHAT IS LAW OF CONTRACT?

• The Indian Contract Act, 1872 is the law relating

to Contracts in India. It came into force on September 1,
1872 and is extended to the whole of India.

• Contract law is a body of law that governs, enforces,

and interprets agreements related to an exchange of
goods, services, properties, or money.
 LAW OF CONTRACT

• Law of Contract creates right-in-personam and not right-in-

rem

• Right-in-personam means right against a particular person or

group of persons.

• Right-in-rem implies right against the whole world.

 WHAT IS A CONTRACT?

• The word contract is derived from the Latin word “contractum”

which means “drawn together”.

• It denotes a drawing together the minds of two or more persons

to form a common intention giving rise to an agreement.

• A contract is an agreement enforceable by law.

 DEFINITION OF A CONTRACT

• According to Sec 2(h) of Indian Contract Act, 1872, “An agreement

enforceable by law is a contract.”

• Contract= Agreement + Enforceability of an

agreement

• Now the question arises what is an agreement and

what is enforceability of agreement?
 WHAT IS AN AGREEMENT?

• Every promise or set of promises forming consideration for each other

is an agreement.

• A proposal when accepted becomes a promise.

• Thus Agreement = Offer + Acceptance

• Section 2(e) of Indian Contract Act states that every promise and every set

of promises, forming the consideration for each other, is an agreement.

 ENFORCEABLE AT LAW

• An agreement to become a contract must give rise to legal

obligation.

• The common acceptance formed and communicated

between the two parties create legal relations and not

merely social or domestic nature.

 ESSENTIAL ELEMENTS OF A VALID
CONTRACT

A contract is a legally binding or valid agreement

between two parties. The law will consider a
contract to be valid if the agreement contains all of the
following elements:
 OFFER AND ACCEPTANCE:

• There must be a ‘lawful offer’ and ‘lawful acceptance’ of the offer, thus

resulting in an agreement.

• For example: If X offers to sell his Maruti Car to Y for Rs. 2,25,000 and Y

agrees to pay X Rs. 2,25,000 for the Maruti Car. Here ** is called the offeror

or promisor and ** is the offeree or promisee.

 CONSENSUS AD IDEM:

• For a valid agreement, there must be a complete identity of minds between the
contracting parties.

• For example: A has two buffaloes but B is aware of only one of these. B

proposes to buy the buffalo of which he is aware. A’s Consents to sell the other

buffalo. Since there is confusion in the minds of the parties, there is no

consensus and hence no agreement follows.

 FREE CONSENT:

• The contracting parties must give their consent freely. It must not be given
due to coercion, undue influence, fraud, misrepresentation or mistake.
• The absence of free consent would affect the legal enforceability of a
contract.
• For example: An illiterate woman executes a deed of gift under the
impression that she is executing a deed authorizing her nephew to manage
her agricultural land. The deed is not read or explained to her. Here, there
is no consent, therefore no contract.
 CAPACITY OF THE PARTIES:

• Capacity of parties refers to each party who is entering a contract being

required by law to have the mental and intellectual capacity to understand
the terms of the contract and to make the decision to enter it.

• An agreement by incompetent parties shall be a legal nullity.

• For example: sell an insurance plan with Rs. 5,000 monthly premiums to a
ten-year-old or to someone who has a severe mental illness.

• Creation of agreement with drunkard, minor, lunatic, etc.

 LAWFUL CONSIDERATION:

• An agreement to be enforceable by law must be supported by consideration.

Without consideration, a contract is regarded as a nudum pactum.

• Each of the contracting parties must give as well as get something. Moreover,

the consideration must be lawful.

• For example: X lets his house for being used as a gambling den. The

agreement is illegal as the object of agreement is unlawful.

LAWFUL OBJECT:

• The object of the agreement must be lawful. It is considered unlawful if it is

(i) illegal (ii) immoral, (iii) fraudulent, (iv) of a nature that, if permitted, it
would defeat the provisions of any law, (v) causes injury to the person or
property of another, or (vi) opposed to public policy.

• For example: A promises to obtain a job for B in government service in

consideration of Rs.50,000. The agreement is void because it is forbidden
by law.
SHOULD NOT BE EXPRESSLY DECLARED
AS VOID:

• The agreement must not have been declared void by any law in

force in India. The Act has itself declared void certain types of

agreements such as those in restraint of marriage, or

trade, or legal proceedings as well as wagering

agreements.
INTENTION TO CREATE LEGAL
RELATIONS:

• There must be an intention among the parties that the agreement

should be attached by legal consequences and create legal obligations.

• For example: A wife withdraws a complaint against her husband

under an agreement that husband will pay her allowance. Court held it

as a binding contract.
 CERTAINTY OF MEANING:

• The terms of the agreement must be certain and unambiguous. Section 29 of

the Act, “agreements the meaning of which is not certain or capable

of being made certain are void”.

• For example: A agrees to sell a car to B out of his 5 cars. There is nothing

whatever to show which car was intended. The agreement is void for

uncertainty.
LEGAL FORMALITIES:

• The agreement must comply with the necessary formalities

as to writing, registration, stamping etc.

• If any required in order to make it enforceable by law.

 CLASSIFICATION OF CONTRACTS

1. On the basis of Enforceability

2. On the basis of mode of creation

3. On the basis of execution

1. ON THE BASIS OF ENFORCEABILITY

a) Valid Contract:

b) Void Agreement:

c) Void Contract:

d) Voidable Contract:

E) Unenforceable Contract:

f) Illegal agreement:
• Valid Contract: A contract which satisfies all the legal

requirements laid down in Section 10 of the Act, is a valid

contract.

• Such a contract creates rights in personem and is legally enforceable.

b)Void Agreement: Section 2(g) defines it as, “an agreement not
enforceable by law is said to be void”. Such agreements are void ab
initio which means that they are unenforceable right from the time they are
made.

• For example: X agrees with Y, in consideration of Rs. 100, to draw two

parallel lines in such a way as to cross each other. The agreement is
impossible to perform and, therefore void.

• An agreement between drug dealers and buyers is a void

agreement simply because the terms of the contract are illegal.
c) Void Contract: Section 2(j) provides that "a contract which ceases
to be enforceable by law becomes void when it ceases to be
enforceable.“

• This makes all those contracts that are not enforceable by a court of law
as void.

• A agrees to pay B a sum of Rs 10,000 after 5 years against a loan of Rs.

8,000. A dies of natural causes in 4 years. The contract is no longer valid
and becomes void due to the non-enforceability of the agreed terms.
Following are the examples of such circumstances which render
A contract void:

(i) Supervening impossibility or illegality as described in Section 56.

(ii) In the case of a voidable contract when the party whose consent is not free,
repudiates the contract.

(iii) A contingent contract to do or not to do something on the happening of an event

becomes void when the event becomes impossible (Section 32).

The contracts of insurance, indemnity, and guarantee are

some examples of contingent contracts. Illustration:- A contracts to pay to B Rs.
20,000 if B's house is burnt.
• For Example: A agrees to sell 1000 tonnes of wheat to B @ Rs. 500

per tonne in case his ship reaches the port safely by 15th February.

The ship fails to reach by the stipulated date. The contract between A

and B is void.
d) Voidable Contract: According to Section 2(i), "An

agreement which is enforceable by law at the option of one

or more of the parties thereto, but not at the option of other

or others, is a voidable contract."

• In a voidable contract, a right or option is open to the

aggrieved party i.e., the party whose consent is not

free that either to reject the contract or to accept by

it.

• Thus, a voidable contract continues to be valid and

enforceable till it is repudiated by the aggrieved party.

e) Illegal agreement: An agreement which is either prohibited by law

or otherwise against the policy of law is an illegal agreement. Such an

agreement is a nullity and is void ab initio.

• f) Unenforceable Contract: An unenforceable contract is that which is valid

and enforceable, but for certain technical defects such as want of proof, expiry

of the period within which enforceable, absence of writing, registration and

attestation, insufficient stamp etc., it becomes unenforceable.

• For example: If a document embodying a contract is under stamped, the

contract is unenforceable, but if the requisite stamp is affixed (if allowed), the

contract becomes enforceable.

2. ON THE BASIS OF MODE OF CREATION

a) Express Contract: An express contract is that which is made in writing or by

the words of mouth.

For example:

• Sale of real estate,

• Employment contracts

• Contract to perform a service

b) Implied Contract: An implied contract is one which arises out of acts

or conduct of the parties or out of the dealings between them.

For example: A takes a seat in a bus. There is an implied contract that

he will pay the prescribed fare for taking him to his destination.
• An implied contract works differently. This type of contract evolves when
no written contract is present, but circumstances may cause one person to
become unjustly enriched as a result of their actions or an understanding
exists.

• There are two types of implied contracts:

a) Implied in fact

b) Implied in law

a) When you arrive at the hair salon for your usual cut, it is expected that
you will pay for the services rendered. That is an implied in
fact contract.

• The common understanding based on the conduct of the parties serves as

a contract to pay for your new 'do!
b) Quasi Contract: Under certain circumstances, law itself creates legal

rights and obligations against the parties. These obligations are known as

quasi contracts.

For example: A supplies B, a lunatic with necessaries suitable to his

condition in life. A is entitled to be reimbursed from B’s property.

• There is no contract or agreement between the parties, they are put

in the same position as if there were a contract between them.

• A quasi-contract rests on the ground of equity that a person shall

not be allowed to enrich himself unjustly at the expense of another.

• A supplies B, a lunatic, some necessaries suitable to the maintenance of his life.
A is entitled to be reimbursed from B’s property.
• X is bound by law to make a certain payment. Y is interested in such a payment,
and he makes it, there will be a quasi contractual obligation of X to reimburse Y.
• If I make payment on behalf of my house owner. (Payment by an interested
person)
• A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his
own. He is bound to pay A for them.
• A paid some money to B by mistake which was in fact due to C. In this case, B
must repay the money to C as it had been paid under a bonafide mistake.
• Responsibility of a finder of goods
3. ON THE BASIS OF EXECUTION

a) Executed Contract: When a contract has been completely

performed, it is termed as executed contract, i.e., it is a contract where,

under the terms of a contract, nothing remains to be done by either

party.

For example: X sells a radio set to Y for Rs. 300. Y pays the price. Both

the parties have performed their respective obligations, and therefore, it

is an executed contract.
b) Executory Contract: Where one or both the parties to the contract have

still to perform their obligations in future, the contract is termed as executory

contract.

For example: A agrees to paint a picture for B and B in consideration

promises to pay A, a sum of rupees one hundred. The contract is executory.

c) Unilateral Contract: A unilateral contract is one sided contract in which

only one party has to perform his promise or obligation to do or forebear.

For example: A, a coolie, puts B’s luggage in the carriage. The contract

comes into existence as soon as the luggage is put. It is now for B to perform

his obligation by paying the charges to the coolie.

d) Bilateral Contract: A bilateral contract is one in which

both the parties have to perform their respective promises or

obligations to do or forbear.
DISTINCTION BETWEEN VOID AGREEMENT AND VOIDABLE CONTRACT
 Unit 1: The Indian Contract Act, 1872: General Principle of Law
of Contract Hours: 24

a) Contract – meaning, characteristics and kinds b) Essentials of a valid

contract - Offer and Acceptance, Consideration, Contractual Capacity,

Free Consent, Legality of Objects. c) Void agreements d) Discharge of a

contract – modes of discharge, breach and remedies against breach of

contract. e) Contingent contracts f) Quasi - contracts

 OFFER AND ACCEPTANCE

• It is an established principle that an agreement arises only when an offer is

made by one person and is accepted by the other person.

OFFER OR PROPOSAL

• According to Section 2 (a) of the Indian Contract Act, 1872 defines a

proposal as follows: “When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to
obtaining the assent of that other to such act or abstinence, he is
said to make a proposal”.
• The person making the proposal is called the ‘promisor or

offeror’. The person to whom the proposal is made is

called the ‘promisee or offeree’.

• X says to Y, “I want to sell my car to you for Rs. 1, 00,000”. Here, “to

sell car” is an offer or proposal.

• X who has made the offer is called offeror or promisor. Y to whom

the offer has been made is called the offeree or promisee.

ESSENTIALS CHARACTERISTICS OF A
VALID OFFER
1. The offer must be capable of creating legal relations:
An offer must intend to create legal relationship among the parties. If the parties
have agreed that the breach of the agreement would not confer any right on
either party to go to the court of law for enforcing the agreement, it will not be a
valid offer.
2. The offer must be certain, definite and not vague:
The terms of the offer must be certain and unambiguous and not vague. If the
terms of the offer are vague, no contract can be entered into because it is not
clear as to what exactly the parties intended to do.
3. The offer must be communicated to the other party: (an offer accepted
without its knowledge, does not confer any legal rights on the acceptor.)
4. The offer must be made with a view to obtaining the consent of the
offeree:

If a person merely makes a statement without any intention to be bound by it, then it
is not a valid offer. Merely making an enquiry does not constitute an offer.

5. The offer must be distinguished from an answer to a question:

The terms of an offer should be clear so that there is no confusion whether it is a

valid offer or an answer to a question. An answer to a question cannot be taken as
an offer.
6. Invitation to an offer is not an offer:
• Price lists, catalogues, display of goods in a show window, tenders,
advertisements, prospectus of a company, an auctioneer's request for bids, etc.,
are instances of invitation to offer. In case of an invitation for an offer, there is no
intention on the part of the person sending out the invitation to obtain the assent
of the other persons to such an invitation.

7. The offer must be distinguished from mere statement of intention:

• The terms of an offer should be clear so that there is no confusion whether it is a
valid offer or a mere statement of intention. Such statement or declaration merely
indicates that an offer may be made or invited in future.
• An offer becomes an agreement when accepted. On the other hand,

an invitation to offer become as an offer when the public responds to it.

• The main objective of making an offer is to enter into the contract, whereas

the main objective of an invitation to offer is to negotiate the terms on

which the contract can be made.

8. Special conditions attached to an offer must also be communicated:
• In such cases the rule is that the party shall not be bound by the conditions unless
conditions printed are properly communicated.

9. The offer may be positive or negative:

An offer to do something is a positive offer. And an offer not to do something is a negative

offer.

10. The offer may be express or implied:

11. The offer may be specific or general: When an offer is addressed to a specific
individual or a group of individuals, called it as specific offer. When an offer is addressed to an
unascertained body of individuals or to the public at large, it is said to be a general offer.
12. The offer should not contain a term the non-compliance of

which would amount to acceptance: One cannot say while

making the offer that if the offer is not accepted by a certain time, it

will be presumed to have been accepted.

DIFFERENT KINDS OF OFFERS

1. Express offer:

2. Implied offer:

3. Specific offer:

4. General offer:

5. Standing or Open or Continuing offer: An offer for a continuous

supply of certain goods and services in any quantity at a certain price
as and when required it will be termed as a standing or open offer.
Example

• When X requires a large quantity of certain goods during the 24

months period and gives an advertisement inviting offer in the leading
newspaper Z submitted the offer to supply those goods at a specific
rate. Z’s offer is accepted or approved. Now, Z’s offer becomes a
standing offer. Each order given by X will be an acceptance of the offer.
• A standing offer or continuing offer may be revoked before acceptance
or before order is placed once order is placed the contract takes place,
therefore, after placing order offer cannot be revoked.
6. Counter offer: A Counter offer is rejecting the original offer and

making a new offer. The new offer is the counter offer.

7. Cross offer: Where identical offers are made by parties in ignorance

of each other, the offers are said to be cross offers.

 LAPSES OF OFFER [WHEN DOES AN
OFFER COME TO AN END]

1. By communication of notice of revocation by the proposer: The

proposer can revoke or withdraw his offer at any time before the
acceptor posts his letters of acceptance.

2. By lapse of prescribed time:

3. By non-fulfillment of a condition by acceptor:

4. By the death or insanity of the offeror:

5. By counter offer: A proposal lapses if it has been rejected by the other
party or a counter offer is made. The counteroffer gives the original
offerer three options: accept the counteroffer, reject it, or make another
offer.

For example, Ms. X decides to put her house on the market for $300,000. Mr.
Y views it and makes an offer of $285,000 instead. Ms. X decides to make
a counteroffer of $295,000 instead, thus putting the onus on Mr. Y to
accept, reject, or counter that offer and continue negotiations again.
• There is no limit to the number of times each party can counter during
negotiations.

• For example, a seller wants to sell a vehicle for $20,000. A buyer

arrives and offers $15,000 for the vehicle. The offerer provides a
counteroffer, asking for $16,000 with the objective of obtaining a
higher price. If the offeree declines, the offerer cannot force the
buyer to purchase the vehicle at $15,000, even though the
buyer suggested that price.
6. By subsequent illegality or destruction of subject matter:
• An offer lapses if it becomes illegal after it is made or which the subject matter is
destroyed or substantially impaired before acceptance.

7. By rejection: An offer lapses if it has been rejected by the offeree. The rejection
may be express i.e., by words spoken or written, or implied. Implied rejection is
one;

(a) where either the offeree makes a counter offer, or

(b) where the offeree gives a conditional acceptance.

 ACCEPTANCE

• An acceptance is the expression by the offeree of his willingness to be bound

by the terms of the offer.

• According to Section 2 (b) of the Act, “When the person to whom the offer is

made signifies his assent thereto, the proposal is said to be accepted. A

proposal when accepted becomes a promise”.

 ESSENTIAL AND LEGAL RULES FOR A
VALID ACCEPTANCE
1. The acceptance must be communicated:
2. Acceptance must be absolute or unqualified:
3. Acceptance may be express or implied:
4. The acceptance must be given in some usual and reasonable manner:
5. The acceptance must be given before the lapse of offer:
6. The acceptance cannot be implied from silence:
7. Acceptance means acceptance of all the terms of the offer:
8. If acceptance has been given conditional there will be no contract:
When is Communication Complete [Sec. 4]
1. Communication of Offer
The communication of an offer is complete when it comes to the
knowledge of the person to whom it is made.
2. Communication of Acceptance

Communication of an acceptance is complete:

a) as against the proposer, when it is put in course of transmission to

him so as to be out of the power of the acceptor to withdraw the
same; and

b) as against the acceptor, when it comes to the knowledge of the

proposer.
• 3. Communication of Revocation
• Revocation means “taking back” or “withdrawal”. It may be a
revocation of offer or acceptance. The communication of a revocation is
complete:
• a) as against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of the power
of the person who makes it; and
• b) as against the person to whom it is made, when it comes to his
knowledge.
 CONSIDERATION

• The consideration is one of the essential elements of a valid contract.

• The term ‘consideration’ may be defined as the price of the promise.

• This term is used in the sense of quid pro quo (i.e.,something in return).

• Accordingly, an agreement which is not supported by consideration is

a nudum pactum (a nude or a bare agreement).

 DEFINITION

• Section 2 (d) of the Act defines consideration as under:

"When at the desire of the promisor, the promisee or any other person

has done or abstained from doing, or does or abstains from doing, or

promises or to do or abstain from doing something, such act or

abstinence or promise is called a consideration for the promise".

 ESSENTIALS OF CONSIDERATION

1. Consideration must move at the desire of the promisor:

2. Consideration may move from the promisee or any other person: It is

not necessary that the consideration should proceed only from the promisee.

Consideration furnished by a third party will also be valid if it has been done at

the desire of the promisor. This is termed as ‘Doctrine of Constructive

Consideration”.
3. Consideration may be past, present or future: The words, has done or abstained from doing, does or abstains from
doing, or promises to do or to abstain from doing; indicate that the consideration may be past, present or future.

a) Past consideration: When the present promise is based on the consideration already taken place
(i.e., before the date of the promise), it is termed as consideration. “What I have done before but I get
payment right now”

b) Present consideration: When the promisor receives consideration simultaneously with his

promise, it is termed as present consideration.

c) Future consideration: When the consideration for a promise is rendered in future it is

termed as future or executory consideration.

4. Consideration need not be adequate:

The consideration need not be adequate to the promise but it must be

of some value in the eye of the law.

According to explanation 2 to Section 25, an agreement to which the

consent of the promisor is freely given is not void merely because the
consideration is inadequate; but the inadequacy of the consideration
may be taken into account by the Court in determining the
question whether the consent of the promisor was freely given.
 5. CONSIDERATION MUST BE REAL AND NOT
ILLUSORY:
Consideration must be real and be of some value in the eyes of law. Consideration of the following

type are not real:

(a) Physical impossibility: For instance As promising to put life into B's dead wife should

B pay him Rs. 500, is void for lack of physical possibility.

(b) Legal impossibility: If consideration consists of something illegal, the agreement will

be void.

(c) Uncertain consideration: An uncertain or vague consideration will make the

agreement void.
(d) Illusory consideration: It consists of a promise to do something which a person is
already bound to do by law or contract. It must be something more than what a promisee is
6. Consideration must be lawful:
7. Consideration must not be illegal, immoral or opposed to public policy:
The consideration of an agreement is unlawful if:
a) it is forbidden by law; or
b) it is of such a nature that if permitted it would defeat the provisions of any law; or
c) it is fraudulent; or
d) it involves or implies injury to the person or property of another; or
e) the court regard it as immoral or opposed to public policy.
 PRIVITY OF CONSIDERATION OR
STRANGER TO CONSIDERATION

• The term ‘privity of consideration’ means stranger to the

consideration, or consideration given by any other person other than

the promisee.

• A promise is enforceable so long as there is some consideration for it, and it is

immaterial whether it is furnished by the promisee or other person

even a stranger.
ASYNCHRONOUS ASSIGNMENT 08-09-2021

• Chinniya V. Ramaya [(1882) 4 Mad 137].

PRIVITY OF CONTRACT OR STRANGER TO
CONTRACT

• The term ‘privity of contract’ means stranger to a contract. As per

the doctrine of privity of contract, a person, who is not a party to

the contract, cannot sue for carrying out the promise made by

the parties to the contract.

• Example: In Dunlop Pneumatic Tyre Co. Ltd. vs. Selfridge & Co. (1915),

• S bought tyres from the Dunlop Rubber Co. and sold them to D, a sub-dealer who

agreed with S not to sell below Dunlop's list price and to pay to Dunlop £5 as

damages on every tyre undersold.

• D sold two tyres at less than the list price and thereupon Dunlop sued him for

breach. Held, Dunlop cannot maintain the suit as it was a stranger to the contract.
1. Dunlop Pneumatic Tyre Co. Ltd. vs. Selfridge & Co. (1915),

2. Samuel Pillai v. Anathan Pillai

3. M.C. Chacko v. State Bank of Travancore 1970 AIR 500

4. Chappell & Co. Ltd. v. Nestle Co. Ltd. [1960] AC 87

According to Sec. 11 of the Contract Act, “Every person is

competent to contract who is of the age of majority

according to the law to which he is subject, and who is

of a sound mind, and is not disqualified from

contracting by any law to which he is subject”.

 CAPACITY TO CONTRACT

One of the essential conditions for the enforceability of an

agreement is that the concerned parties must be competent to enter

into an agreement. The ‘capacity to contract’ means the

competence (i.e., capability) of the parties to enter into a valid

contract.
PERSONS NOT COMPETENT TO
CONTRACT

As per the statement of Section 11 of the Indian Contract Act,

the following persons are NOT COMPETENT TO CONTRACT.

(i) Minors;

(ii) Persons of unsound mind; and

(iii) Persons disqualified for contracting by any other law.

(I) MINORS

• According to Section 3 of the Indian Majority Act, 1875, a

person who has not completed his age of 18 years

(majority), is considered to be a minor.

RULES REGARDING MINOR'S
AGREEMENTS

• The law protects minor’s rights because they are not

mature and may not possess the capacity to judge

what is good and what is bad for them.

 The position of a minor as regards his agreements
may be stated as under:

1. An agreement with or by a minor is void ab initio:

2. A minor can be a promisee or a beneficiary:

A promissory note executed in favour of the minor can be enforced. He can

draw, negotiate or endorse a negotiable instrument so as not to incur any
liability upon himself.
3. No ratification:

Ratification implies approval or confirmation. A minor cannot confirm an

agreement made by him during minority on attaining majority. This is
because ratification relates back to the date of making of the contract
and therefore a contract which was void from the very beginning can not
be made valid by subsequent ratification.
4. No restitution: Sometimes, the minor receives some property or money

by falsely representing his age. In such cases, the minor can be asked to

restore such property or money so long as the same is traceable in his

possession.

5. The liability of Minor’s parents or guardian: Minor’s contract do not

impose any liability on his parents or guardian even if the contracts are for

necessaries.
6. No Estoppel: A minor is not bound by his misrepresentations. But if a minor

enters into a contract by fraudulently representing himself to be a

major, he cannot be prevented from pleading minority as defense. The

rule of estoppel cannot be applied against the minor.

7. Minor’s property liable for necessaries: Sometimes, a person supplies

necessaries to a minor. In such cases, the supplier of necessaries can claim

reimbursement from the property of minor.

• Minor as an agent: Minor can act as an agent and bind his principal
by his acts without incurring any personal liability.

• Minor as a partner: A minor cannot be a partner in a firm. But under

Section 30 of the Partnership Act, he can be admitted to the benefits of
partnership with the consent of all the members.

• Minor as an insolvent: A minor cannot be declared insolvent

because he is not competent to contract.
 (II) PERSONS OF UNSOUND MIND

• According to Section 12 of the Indian Contract Act, defines the term

‘Sound Mind’ as follows:

“A person is said to be sound mind for the purpose of

making a contract if at the time when he makes it, he
is capable of understanding it, and of forming a
rational judgement as to its effects upon his
interests”.
(II) PERSONS OF UNSOUND MIND

The following persons are also considered to be the persons

of unsound mind.
1. Idiot:
2. Lunatics:
3. Drunken or intoxicated person:
1. Idiot:

An idiot is a person who has completely lost his mental

abilities of thinking for rational judgement. All agreements,

other than those for necessities of life, with idiots are

absolutely void.
2. Lunatics:

A lunatic is a person who is mentally deranged (disordered)

due to some mental strain or other personal experience but

who has some lucid intervals of sound mind.

3. Drunken or intoxicated person:

A drunken or intoxicated person is a sane person who is delirious from

fever or who is so drunk that he cannot understand the terms of a

contract or form a rational judgement as to its effect on his interest.

 PERSONS DISQUALIFIED BY ANY LAW

1. Alien enemy: "Alien" means a person who is not a citizen

of India. During the continuance of war with the country to
which an alien belongs, he becomes an alien enemy. In that
situation, he can neither contract with an Indian subject nor
can he file a suit in an Indian court. He can do so only after
obtaining the permission of the Central Government.
Contracts made before war may either be suspended or
dissolved. They are dissolved if found to be against public
policy or of benefit to the enemy.
2. Insolvent: When a person is declared as an insolvent, his

property vests in the Official Receiver or Assignee. And the

insolvent is deprived of his power to deal with the property,

and sue and be sued on his behalf.

3. Foreign Sovereigns, their Diplomatic Staff and Accredited

representatives of Foreign States:

Such persons can enter into valid contracts and can enforce them in

Indian courts. However, a suit cannot be filed again them, in the Indian

courts, without the prior sanction of the central government.

4. Joint Stock Company and Corporations incorporated under Special

Acts: A corporation or company, being an artificial person, and having a

separate legal entity, can hold property; can purchase or sell property; and

can sue or be sued in the Courts of Law. But it cannot enter into

contracts which are strictly of personal nature.

5. Felons or Convicts:

A convict cannot enter into a contract while he is undergoing

imprisonment. This inability comes to an end on the expiration

of the period of imprisonment or if he has been pardoned.

 FREE CONSENT

Section 10 of the Indian Contract Act laid down in clear terms

free consent is one of the essentials of a valid contract.

According to Section 13 of the Act has defined consent as “two or more

persons are said to consent when they agree upon the same thing in

the same sense”.

According to this section which has laid down the basic principle of consensus

ad idem on which the law of contract is based, the parties to an agreement

should have identity of minds regarding the subject matter of the

agreement.
 FREE CONSENT

• If the consent is there but it is not free or real, then the contract will be

voidable at the option of the contracting parties whose consent is not

free. The word “free consent” is defined in Section 14 of the Contract

Act as follows –
“CONSENT IS SAID TO BE FREE WHEN IT IS
NOT CAUSED BY…

1. Coercion, as defined in Section 15; or

2. Undue influence as defined in Section 16; or

3. Fraud, as defined in Section 17; or

4. Misrepresentation, as defined in Section 18; or

5. Mistake, subject to the provisions of Sections 20, 21 and 22.

COERCION [SEC. 15]

• Coercion means compelling or forcing a person to enter into a

contract under a pressure or threat.

• Section 15 of the Indian Contract Act defines coercion as “the

committing or threatening to commit, any act forbidden by the
Indian Penal Code, or the unlawful detaining, or threatening to
detain, any property, to the prejudice of any person
whatsoever, with the intention of causing any person to enter
into an agreement”.
 ESSENTIALS CHARACTERISTICS OF
COERCION

(a) The committing of any act forbidden by Indian Penal Code:

When the consent of a person is obtained by committing any act which is

forbidden by the Indian Penal Code, the consent is said to be obtained by
coercion.

(b) The threatening to commit any act forbidden by Indian Penal Code:

If a person attempts to commit an act which is punishable under the Indian

Penal Code, it leads to coercion, e.g., consent obtained at the pistol point, or by
threatening to cause death or by intimidation.
(c) The unlawful detaining of any property:

If a person unlawfully detains the property of another person and forces him to
enter into a contract, the consent is said to be induced by coercion.

(d) The threatening to detain any property unlawfully:

If a threat is given to detain any property of another person, this amount to

coercion.

(e) The act of coercion:

It must be done with the object of inducing or compelling any person to enter into
an agreement.
 EFFECTS OF COERCION

• According to Section 19 states that, ‘when the consent of a party to

an agreement is obtained by coercion, the contract becomes
voidable at the option of the party, i.e., such party can put an end
to the contract if he so chooses’.

• According to Section 72 of the Act, which is based on the principle of

equitable restitution, a person to whom anything has been
delivered or money paid under coercion must return or repay it.
 UNDUE INFLUENCE [SEC. 16]

When a party enters into a contract under any kind of mental

pressure, unfair influence or persuasion by the superior

party, the undue influence is said to be employed.

According to Section 16 (1) of the Act, 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”.
PRESUMPTION OF UNDUE INFLUENCE

Section 16 (2), a person is deemed to be in a position to dominate the will of the other is the
following cases:

a) Real or apparent authority: Where he holds a real or apparent authority over the other,
e.g., master and the servant, parent and child, Income Tax officer and assessee, etc.

b) Fiduciary relationship: Fiduciary relation means a relation of mutual trust and

confidence, e.g., guardian and the ward, solicitor and client, doctor and patient, guru and
disciple, trustees and beneficiaries, etc.

c) Mental distress: Where he contracts with a person whose mental capacity is

temporarily or permanently affected by reason of age, illness, or mental or bodily
distress.
 FRAUD [SEC. 17]

• The term ‘fraud’ may be defined as an intentional,

deliberate or wilful misstatement of facts, which are

material for the formation of a contract.

According to Section 17, “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 into the contract:
(a) the suggestion, as to a fact, of that which is not true, by one
who does not believe it to be true;
(b) the active concealment of a fact by one having knowledge or
belief of the fact;
(c) a promise made without any intention of performing it;
(d) any other act fitted to deceive;
(e) any such act or omission as the law specially declares to be
fraudulent”.
ELEMENTS OF FRAUD

• ???????????????????????????
• Mere silence is not a fraud
• Exceptions
• Nielsen v. Adams (1986).
• Iridium India Telecom Limited vs Motorola Inc. A Corporation
And ... on 8 August, 2003
• Example: A sells, by auction, to B a horse which A knows to be unsound. A
says nothing to B about the horse’s unsoundness.

• This is not fraud by A.

Example: A fraudulently informs B that A’s estate is free from encumbrance. B

buys the estate. The estate is subject to mortgage. B may avoid the contract
or may insist on its being carried out and the mortgage debt repaid by A.
 EFFECT OF FRAUD

1. Right to rescind the contract: The party whose consent was

caused by fraud can rescind (cancel) the contract

2. Right to insist upon performance: The party whose consent was

caused by fraud may, if he thinks fit, insist that the contract shall be
performed and that he shall be put in the position in which he would
have been if the representation made had been true.

3. Right to claim damages: The party whose consent was caused by

fraud, can claim damage if he suffers some loss.
 MISREPRESENTATION [SEC. 18]

The term “misrepresentation” is ordinarily used to connote both “innocent

misrepresentation” and “dishonest misrepresentation”. Misrepresentation

may, therefore, be either (i) Innocent misrepresentation, or (ii) Wilful

misrepresentation with intent to deceive and is called fraud.

Tom agrees to a contract with Real Man Magazine Company. The details of

the contract state that, if Tom subscribes to the magazine for a year, he will

receive a gift worth over $100. After signing the contract, Tom realizes that

the gift is not actually free, but the company has instead incorporated the

price of the gift into the contract for the magazine subscription.
Had Tom known that beforehand, he would never have subscribed. Now,

he is out over $100 because he has both an expensive magazine

subscription and a “free” gift that he ultimately ended up paying for

anyway.
If a person is selling a car and knows there is a problem with

the transmission, yet advertises it in perfect mechanical

condition, they have committed

fraudulent misrepresentation.
“MISREPRESENTATION” MEANS AND INCLUDES –

i) 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;

ii) any breach of duty which, without any intent 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 any one claiming
under him;

iii) 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.
ESSENTIALS OF MISREPRESENTATION

1. There must be a representation or breach of duty.

2. The representation must be of facts material to the contract.

3. The representation must be untrue.

4. The representation must be made with a view to inducing the other

party to enter into contract.

5. The other party must have acted on the faith of the representation.

6. The person making the representation honestly believes it to be true.

EFFECTS OF MISREPRESENTATION

The effect of misrepresentation is that it makes the contract voidable

the option of the party whose consent is so obtained. And such

party may put an end to the contract if he so chooses.

EXCEPTIONS

1. Where the other party had the means of discovering the truth with
ordinary diligence: The party cannot complain of misrepresentation if he
had the means of discovering the truth with ordinary means.

2. Where the misrepresentation does not induce the other party to

enter into contract, the contract is not voidable: If the consent is given
independently in spite of misrepresentation, the contract is not voidable.
 MISTAKE

A mistake is said to have occurred where the parties

intending to do one thing by error do something else.

Mistake is an erroneous belief concerning something.

X engages Y as a teacher for his son appearing for IAS Preliminary. Y

agrees to come daily 7. X think 7 a.m. but Y means 7 p.m. This is a

bilateral mistake of fact but not essential and can be rectified. Therefore

the agreement is valid.

KINDS OF MISTAKE

Mistake may be of two kinds:

(I) Mistake of Law; and

(II) Mistake of Fact.

 (I) MISTAKE OF LAW:

It may be of the following types:

a) Mistake of law of the country: It does not render the agreement

void. This is based on the well established rule of law namely,
ignorantia juris non excusat (i.e., ignorance of law is no excuse).

Section 21 lays down that "a contract is not voidable because it was
caused by a mistake as to any law in force in India".
b) Mistake of foreign law: The mistake of the foreign law has the

same effect as a mistake of fact. Therefore, it renders the

agreement void.

Section 21 lays down that “a mistake as to a law not in force in

India has the same effect as a mistake of fact”.

 (II) MISTAKE OF FACT:

Mistake of fact may be of two types –

(1) Bilateral mistake; and

(2) Unilateral mistake.

(1) BILATERAL MISTAKE:

Where both the parties to an agreement are under a mistake as

to matter of fact essential to the agreement, the agreement is
void. An agreement shall be void if the following conditions are satisfied:

(i) Both the parties must be under a mistake: This means the
mistake must be mutual or common.

(ii) Mistake must relate to an essential fact: It is necessary that the

mistake must relate to a matter of fact which is essential to the
agreement.
 TYPES OF BILATERAL MISTAKE

The following types of bilateral mistake, which render the agreement void, are
important from the subject point of view:
a) Mistake as to subject matter :The contract is void. It may be of the following
types:
(i) Mistake regarding existence of the subject matter:
(ii) Mistake regarding identity of the subject matter:
(iii) Regarding the title to the subject matter:
(iv) Regarding the quantity of the subject matter:
(v) Regarding the quality of the subject matter:
(vi) Regarding the price of the subject matter:
b) Mistake as to the possibility of performance

Where the parties to an agreement believe that the agreement is

capable of performance, while in fact it is not so, the agreement is

treated as void. The impossibility may either be physical or legal.

 (2)UNILATERAL MISTAKE

• The term unilateral mistake means where only one party to the

agreement is under a mistake.

• A contract is not voidable merely because it was caused by one

of the parties to it being under a mistake as to matter of fact.

TYPES OF UNILATERAL MISTAKE

1. Mistake about the identity of the parties to an agreement: If

there is a mistake regarding the identity of the person contracted with,
even if the mistake is caused by fraud or misrepresentation of another
party, the contract will be void.

2. Mistake about the nature of the agreement: If a party does not

disclose the true nature of the document but fraudulently induces the
other party to sign it who believes that he is signing some other
document, in such a case there is no real agreement.
Thank You All...!!!
 LEGALITY OF CONSIDERATION AND
OBJECT
1. Trading with an alien enemy:
2. Agreement for stifling prosecution:
3. Agreement for sale of public offices and titles:
4. Marriage brokerage agreements:
5. Agreement in restraint of personal liberty:
6. Agreement in restraint of parental rights:
7. Agreements tending to create interest opposed to duty: An
agreement with a public servant which obliges him to do something which is
inconsistent with his official duty, shall be void as being opposed to public
policy.
• Agreements interfering with marital duties: For example, an
agreement that the husband shall always live at the wife’s house was
held to be void.
• Agreements to vary the period of limitation:
• Agreements to defraud creditors or revenue authorities:
• Agreement tending to create monopoly:
• Agreement to commit a crime:
EXCEPTIONS TO THE RULE OF STRANGER
TO CONTRACT
• In case of Trusts:
• In case of marriage settlement, partition or other family
arrangements:
• Acknowledgement of payment:
• In case of agency:
• In case of assignment of rights under a contract: etc.
RULE OF “NO CONSIDERATION, NO
CONTRACT”
 EXCEPTIONS TO THE GENERAL RULE OF
“NO CONSIDERATION, NO CONTRACT”
• Agreements made on account of natural love and affection
[Sec. 25 (1)]:
• Promise to compensate for past voluntary services [Sec. 25
(2)]:
• Promise to pay time-barred debt [Sec. 25 (3)]:
• Contracts of agency [Sec. 185]:
• Remission [Sec. 63]: etc.