Paper-I: LAW OF CONTRACT-I Unit-II

Paper-I: LAW OF CONTRACT-I Unit-II

1. Legal Provisions Regarding Capacity of Parties to Contract under the Indian Contract Act, 1872 – Who are Competent to Contract.

Introduction

The Indian Contract Act, 1872, lays down the framework governing contracts in India. One of the essential elements for the formation of a valid contract is the capacity of the parties entering into the agreement. If parties to a contract are not legally competent, the contract is void or voidable. The capacity to contract is defined under Section 11 of the Indian Contract Act, 1872.

Legal Provision: Section 11 of the Indian Contract Act, 1872

“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 sound mind, and is not disqualified from contracting by any law to which he is subject.”

Thus, the Act identifies three primary conditions for competency to contract:

The person must be of the age of majority.
The person must be of sound mind.
The person must not be disqualified by any law.

1. Age of Majority

As per Indian Majority Act, 1875, a person attains majority on completion of 18 years of age.
If the person is under a court of wards or guardian, majority is attained at 21 years.
A minor’s agreement is void ab initio, i.e., from the beginning.

Leading Case: Mohori Bibee v. Dharmodas Ghose (1903)

A minor mortgaged his property and received a loan.
Privy Council held: The contract was void ab initio and the minor could not be held liable to return the money.

Key Points Regarding Minor’s Agreements

Minor cannot be a promisor, but can be a beneficiary.
A minor cannot ratify a contract after attaining majority.
Minor is not liable even if he misrepresents his age (no estoppel).
A minor’s property may be liable for necessaries supplied to him.

2. Soundness of Mind

Section 12 of the Indian Contract Act defines soundness of mind:

“A person is said to be of 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 judgment as to its effect upon his interest.”

Examples

Lunatics: Contracts during lucid intervals are valid.
Drunken persons: If incapable of understanding the nature of the agreement, the contract is void.

3. Persons Disqualified by Law

Certain persons are legally disqualified from entering into contracts:

(a) Alien Enemy

A contract with an alien enemy is void during the time of war.

(b) Foreign Sovereigns and Ambassadors

Can enter into contracts, but enjoy immunity from being sued unless with the consent of the Central Government.

(c) Convicts

Convicts cannot contract while undergoing imprisonment, though this incapacity is suspended during the imprisonment only.

(d) Insolvents

Once adjudged insolvent, a person loses capacity to deal with property.

(e) Corporations/Companies

Being artificial persons, companies can only contract through authorized agents and within the scope of their Memorandum of Association (ultra vires doctrine applies).

General Rule: Presumption of Competency

Law presumes a person is competent unless proven otherwise.
Burden of proof lies on the person who alleges incapacity.

Consequences of Incapacity to Contract

Type of Party	Legal Effect
Minor	Contract is void ab initio
Unsound Mind	Contract is void (except during lucid intervals)
Disqualified by law	Contract is void or unenforceable

Important Judicial Observations

Mohori Bibee v. Dharmodas Ghose – Minor’s contract is void.
Inder Singh v. Parmeshwardhari Singh – Minor’s property can be held liable for necessaries.
Chacko v. Mahadevan – Mental incapacity must be proved at the time of contract.

Conclusion

In conclusion, under the Indian Contract Act, 1872, only those persons who are majors, of sound mind, and not legally disqualified are competent to contract. Contracts made in violation of these provisions are either void or voidable, depending upon the nature of incapacity. This legal requirement ensures fairness, accountability, and enforceability in contractual obligations and protects the rights of incapable individuals from exploitation.

2. Effect of a Minor’s Agreement under the Indian Contract Act, 1872 – Can a Minor Ratify an Agreement on Attaining Majority?

Introduction

One of the foundational principles of contract law is that only competent parties can enter into a legally enforceable agreement. According to Section 11 of the Indian Contract Act, 1872, a person must be of the age of majority to be competent to contract. Therefore, an agreement entered into by a minor (a person below 18 years of age) is treated differently under Indian law.

This answer explores the effect of a minor’s agreement, the legal incapacity of minors, and whether such an agreement can be ratified upon attaining majority, supported by leading judicial pronouncements.

1. Who is a Minor?

Under the Indian Majority Act, 1875, a person attains the age of majority at:

18 years, or
21 years, if a guardian is appointed by the court.

A person below this age is a minor and is not competent to contract.

2. Effect of a Minor’s Agreement

(a) Minor’s Agreement is Void Ab Initio

A contract entered into by a minor is absolutely void from the very beginning.
This principle was firmly established by the landmark case:

⚖️ Case Law: Mohori Bibee v. Dharmodas Ghose (1903)

A minor mortgaged his property and took a loan.
Later, he refused to repay, stating minority at the time of contract.
The Privy Council held:

“A minor’s agreement is void ab initio (void from the outset) and hence not enforceable.”

This case is the cornerstone of minor’s contract law in India.

(b) No Estoppel Against Minor

Even if the minor falsely represents himself as a major, he cannot be stopped from taking the defense of minority.

⚖️ Case: Leslie v. Sheill (1914)

A minor fraudulently misrepresented his age and took a loan.
Court held: The loan cannot be recovered even though fraud was involved.

(c) No Liability in Contract

A minor cannot be held liable for breach of contract.
He cannot be a promisor, though he may be a beneficiary.

(d) Contract for Necessaries – Exception

Under Section 68 of the Indian Contract Act:

If necessaries suited to the minor’s condition in life are supplied to him, the supplier is entitled to be reimbursed from the minor’s property, not personally.

⚖️ Case: Nash v. Inman (1908)

A minor bought clothes and refused to pay.
Court held: Only items necessary to his station in life may be recovered.

3. Can a Minor Ratify an Agreement Upon Attaining Majority?

✅ No. A minor cannot ratify an agreement made during his minority even after attaining majority.

Ratification means giving legal force to a previous agreement that was void or unauthorized.

Since a minor’s agreement is void ab initio, there is nothing to ratify.
The ratification would require the existence of a valid contract, which was never there.

⚖️ Case: Suraj Narain v. Sukhu Aheer (1928)

Minor executed a promissory note and, after attaining majority, executed a second one in continuation of the old debt.
Court held: The second promissory note was invalid, as it was based on an earlier void transaction.

⚖️ Case: Indran Ramaswamy v. Anthappa (1895)

A person executed a fresh bond after majority to confirm a contract made during minority.
Held: Fresh bond is invalid unless fresh consideration is given.

4. When Can a Valid Contract be Made by a Minor After Majority?

A new, independent contract made after attaining majority, supported by fresh consideration, is valid.
However, if it is simply an affirmation of the previous (void) agreement, it is not enforceable.

5. Minor as a Beneficiary

A minor can be a promisee or beneficiary of a contract.
If a contract is made for the benefit of a minor, he can enforce it through a guardian.

⚖️ Case: Raj Rani v. Prem Adib (1949)

A film actress agreed to work with a producer who was a minor.
Held: A minor can be a beneficiary, but not personally bound.

6. Practical Implications and Summary

Rule	Legal Effect
Minor’s Agreement	Void ab initio
Ratification after Majority	Not allowed
Minor as Promisee	Allowed
Misrepresentation by Minor	No estoppel; still not liable
Necessaries Supplied	Reimbursement from minor’s property only

Conclusion

Under Indian law, a minor is incapable of entering into a valid contract, and any such agreement is void ab initio. He cannot ratify the agreement upon attaining majority because the original contract never had legal standing. The Indian courts have consistently protected minors from contractual liability to prevent exploitation and abuse. However, a minor can benefit under a contract and be liable for necessaries out of his property, offering a limited scope of contractual engagement.

3. Legal Rules Relating to Contracts Made by Persons of Unsound Mind and Persons Disqualified by Law under the Indian Contract Act, 1872.

Introduction

Under the Indian Contract Act, 1872, only persons who are legally competent can enter into a valid and enforceable contract. Section 11 of the Act lays down that a person is competent to contract if he:

Has attained the age of majority,
Is of sound mind,
Is not disqualified from contracting by any law to which he is subject.

Thus, this answer deals in detail with the legal incapacity to contract in case of:

Persons of unsound mind, and
Persons disqualified by law.

Relevant sections, principles, judicial pronouncements, and illustrations are included to explain the topic comprehensively.

I. Contracts by Persons of Unsound Mind

Section 12 of the Indian Contract Act, 1872

“A person is said to be of 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 judgment as to its effect upon his interest.”

Thus, the focus is on mental capacity at the time of contract.

A. Categories of Persons of Unsound Mind

1. Idiots

A person who is mentally defective from birth and permanently incapable of forming a rational judgment.
Contracts with idiots are void.

Example: A mentally challenged person from birth enters into a land sale contract. It is void.

2. Lunatics

A person who occasionally becomes of unsound mind.
Such persons may enter into contracts during lucid intervals (when they are of sound mind).
Contracts during lucid intervals are valid.

Case Law: Inder Singh v. Parmeshwardhari Singh (1957)

A lunatic executed a gift deed. Court examined whether he was of sound mind at the time.
Held: Contract valid if made during lucid interval.

3. Drunken or Intoxicated Persons

A person under the influence of alcohol or drugs is considered to be of unsound mind if he cannot:
- Understand the contract,
- Form rational judgment.

Example: If a person signs a contract while completely intoxicated and unaware, the contract is void.

B. Legal Principles and Effects

Legal Position	Effect
Unsound mind at the time of contract	Contract is void
Sound mind during lucid interval	Contract is valid
Burden of Proof	Lies on the person claiming unsoundness
Contracts for necessaries	Valid under Section 68 – reimbursement from property

II. Contracts by Persons Disqualified by Law

Apart from minors and persons of unsound mind, some persons are disqualified from contracting by law due to public policy, legal status, or incapacity. Such contracts are void or unenforceable.

A. Categories of Persons Disqualified by Law

1. Alien Enemies

A person who is a citizen of a country at war with India.
Contracts with alien enemies are either:
- Suspended during war, or
- Void if against national interest.

Example: If India is at war with Country X, any trade contract with a citizen of Country X is void.

2. Foreign Sovereigns, Diplomats, and Ambassadors

These persons enjoy diplomatic immunity.
They can contract but cannot be sued in Indian courts unless they waive their privilege or get government permission.

Example: A diplomat enters a lease agreement in Delhi but violates the terms. He cannot be sued unless the Central Government permits.

3. Convicts

A person convicted and undergoing imprisonment loses contractual capacity.
This incapacity is temporary and revives after sentence ends or is suspended.

Example: A person sentenced to 5 years cannot make a valid contract during that time but can after release.

4. Insolvents

An undischarged insolvent loses capacity to deal with or dispose of his property.
He can still contract for personal matters (e.g., marriage), but not in matters involving his estate.

Example: An undischarged insolvent cannot sell his property or enter into commercial agreements.

5. Corporations and Companies

Being artificial persons, companies can only contract:
- Through authorized agents, and
- Within the scope of their Memorandum of Association (MOA).

Doctrine of Ultra Vires:

If a company enters a contract beyond its objects clause, it is ultra vires and void.

Case: Ashbury Railway Carriage Co. Ltd. v. Riche (1875)

Contract outside MOA declared void.

III. Summary Table

Category	Capacity to Contract	Legal Effect
Idiots	No	Contract is void
Lunatics	Yes (during lucid interval)	Valid
Drunkards	No (if intoxicated)	Void
Alien Enemies	No	Void or suspended
Foreign Sovereigns	Yes (limited)	Can’t be sued without consent
Convicts	No (temporary)	Void during sentence
Insolvents	Limited	Can’t contract about estate
Corporations	Limited	Subject to MOA; ultra vires void

Conclusion

The Indian Contract Act, 1872, seeks to ensure that parties to a contract possess legal competence and mental capacity. A contract by a person of unsound mind is void, unless made during a lucid interval. Similarly, persons disqualified by law due to political, legal, or personal status are either wholly or partially barred from contracting. These legal restrictions are designed to protect both the disqualified persons and public interest from unfair or invalid obligations.

4. Definition of ‘Free Consent’ under the Indian Contract Act, 1872 and Factors Vitiating It

Introduction

One of the essential elements of a valid contract under the Indian Contract Act, 1872 is that it must be made with the “free consent” of the parties. Even if all other elements of a contract are present—such as lawful object, consideration, and capacity—lack of free consent renders the contract voidable or void.

This answer explores the meaning of free consent, the statutory provisions under the Act, and the factors that vitiate it, with the help of illustrations and landmark case laws.

I. Meaning and Definition of Consent and Free Consent

Section 13 – Consent

“Two or more persons are said to consent when they agree upon the same thing in the same sense.”

Also known as “consensus ad idem” – agreement upon the same thing in the same way.

Section 14 – Free Consent

“Consent is said to be free when it is not caused by:
(a) Coercion,
(b) Undue influence,
(c) Fraud,
(d) Misrepresentation, or
(e) Mistake, subject to Sections 20, 21, and 22.”

If consent is obtained through any of the above, the contract is voidable at the option of the party whose consent was not free.

II. Factors That Vitiate Free Consent

Let’s examine each of the five elements mentioned in Section 14 in detail:

1. Coercion (Section 15)

“Coercion is 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 compel a person to enter into an agreement.”

Key Features:

Use or threat of criminal force or illegal acts.
Can be against a person or property.
The act must be intended to obtain consent.

Illustration:

A threatens to kill B if B does not sign a contract to sell his house. B signs.
Consent is not free, and the contract is voidable by B.

⚖️ Case Law: Chikham Ammiraju v. Chikham Seshamma (1917)

A man threatened suicide to compel his wife and son to transfer property.
Held: Threat to commit suicide amounts to coercion.

2. Undue Influence (Section 16)

“When the relations between the parties are such that one party is in a position to dominate the will of the other, and uses that position to obtain an unfair advantage, the consent is said to be induced by undue influence.”

Presumption of Dominance Exists In:

Fiduciary relationships (e.g., doctor-patient, lawyer-client),
Parent-child, teacher-student,
Mental weakness, old age, or illness.

Illustration:

A poor old woman is advised by her spiritual guru to donate her property.
If it is shown that the guru influenced her decision, the contract is voidable.

⚖️ Case Law: Rani Annpurna v. Swaminathan (1910)

Old widow gifted property to a manager without independent advice.
Held: Presumption of undue influence, gift set aside.

3. Fraud (Section 17)

“Fraud includes any act committed by a party to a contract with the intent to deceive the other party or induce him to enter the contract.”

Acts Constituting Fraud:

Suggesting false facts,
Concealing facts,
Making a promise without intent to perform,
Acts declared fraudulent by law.

Key Elements:

Knowledge of falsehood, and
Intention to deceive.

Illustration:

A sells land to B stating it’s free from debt while it is mortgaged. This is fraud.
B may rescind the contract.

⚖️ Case Law: Derry v. Peek (1889)

False statement made in good faith without intent to deceive is not fraud.
Held: Mere negligence is not fraud.

4. Misrepresentation (Section 18)

“Misrepresentation is a false statement made innocently, believing it to be true, which induces the other party to enter into a contract.”

Types of Misrepresentation:

Positive assertion not warranted by facts.
Breach of duty without intent to deceive.
Causing a party to make a mistake unknowingly.

Difference Between Fraud and Misrepresentation:

Basis	Fraud	Misrepresentation
Intention	Deliberate	Innocent
Knowledge	Knows it is false	Believes it to be true
Legal Effect	Voidable + damages	Voidable only

Illustration:

A sells a horse saying it’s healthy, but he honestly believes it. Horse turns out to be sick.
It is misrepresentation, and B can rescind the contract.

5. Mistake (Sections 20, 21, and 22)

A. Bilateral Mistake (Section 20)

Both parties are under a mistake as to a matter of fact essential to the agreement.

Such contracts are void.

Example: A agrees to sell B a ship believed to be at sea, but it had already sunk.
The contract is void.

B. Unilateral Mistake (Section 22)

One party is under a mistake.

Contract is generally not voidable, unless the other party is aware and takes advantage.

C. Mistake of Law (Section 21)

Mistake of Indian law: Not excusable.
Mistake of foreign law: Treated as mistake of fact.

III. Legal Consequences of Absence of Free Consent

Factor	Legal Effect
Coercion	Voidable
Undue Influence	Voidable
Fraud	Voidable + damages
Misrepresentation	Voidable
Bilateral Mistake	Void
Unilateral Mistake	Generally valid

IV. Summary Table of Vitiating Factors

Vitiating Factor	Section	Key Element	Legal Effect
Coercion	15	IPC violation or threat	Voidable
Undue Influence	16	Dominance + unfair advantage	Voidable
Fraud	17	Intentional deception	Voidable + damages
Misrepresentation	18	Innocent falsehood	Voidable
Mistake	20–22	Error in essential facts/law	Void/Valid

Conclusion

Free consent is the heart of a valid contract. The Indian Contract Act, 1872, clearly provides that consent must not be influenced by coercion, undue influence, fraud, misrepresentation, or mistake. If any of these elements are present, the contract becomes void or voidable, depending on the nature of the flaw. Courts look into the facts and circumstances of each case to determine whether the consent was truly free.

5. Coercion under the Indian Contract Act, 1872 – Meaning, Essentials, and Legal Effect on Contracts

Introduction

In the formation of a valid contract, free consent of the parties is a fundamental requirement. If consent is obtained through wrongful means, such as coercion, the contract loses its legitimacy. The Indian Contract Act, 1872, recognizes coercion as a vitiating factor of consent under Section 15, and a contract made under coercion is voidable at the option of the aggrieved party.

This answer explains the statutory definition of coercion, its essential elements, legal consequences, and relevant case laws, illustrating its impact on the validity of contracts.

I. Definition of Coercion

Section 15 of the Indian Contract Act, 1872

“Coercion is 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 whatever, with the intention of causing any person to enter into an agreement.”

Key Points of the Definition

Coercion includes:
- Committing or threatening to commit an act forbidden by the IPC.
- Unlawful detaining or threatening to detain property.
The act must be done with the intention of inducing someone to enter into an agreement.
The coercion may be directed against any person, not necessarily a party to the contract.
The act may be committed within or outside India, as long as it violates the Indian Penal Code.

II. Essentials of Coercion

To prove coercion under the Indian Contract Act, the following essential elements must be present:

1. Committing or Threatening an Act Forbidden by IPC

The act must fall within the ambit of criminal offenses under the Indian Penal Code (IPC).
Example: Threatening to commit murder, assault, or kidnapping.

⚖️ Case: Chikham Ammiraju v. Chikham Seshamma (1917)

A man threatened to commit suicide unless his wife and son transferred property to his brother.
The wife and son executed the deed under pressure.
Held: Threat of suicide amounts to coercion under Section 15, even though suicide is not punishable under IPC, it is still forbidden.

2. Unlawful Detention or Threat to Detain Property

This includes holding someone’s goods unlawfully or threatening to do so to force a contract.

⚖️ Case: Ranganayakamma v. Alwar Setti (1889)

A widow was forced to adopt a boy by relatives who refused to allow the cremation of her husband’s body until she agreed.
Held: Consent was obtained by coercion.

3. Intention to Cause a Person to Enter Into an Agreement

There must be a direct connection between the act of coercion and the contract.
The coercion must be used specifically to obtain consent for entering into the agreement.

4. Coercion May Be Employed Against Any Person

The threat need not be against the party entering into the contract. It can be directed at any third party.

Example: A threatens B’s daughter that he will harm her unless B signs a property agreement. B signs.
Here, coercion exists even though the threat was not against B directly.

5. Coercion Can Occur Even Outside India

If an act is forbidden by IPC, coercion is established even if committed outside Indian territory.

⚖️ Example Case: The case of Ammiraju (1917) also supports this rule.

III. Legal Consequences of Coercion

1. Contract is Voidable (Section 19)

A contract caused by coercion is voidable at the option of the party whose consent was obtained through coercion.

The aggrieved party may choose to:
- Rescind the contract, or
- Accept and perform it.

2. Burden of Proof

Lies on the party alleging coercion to prove it.

3. Duty to Restore Benefit Received (Section 64)

If a party rescinds the contract, any benefit received must be restored.

4. Coercion Does Not Render the Contract Void Ab Initio

It only makes it voidable, meaning it is valid unless avoided by the aggrieved party.

IV. Distinction Between Coercion and Other Factors

Basis	Coercion	Undue Influence	Fraud
Source	Physical or unlawful threat	Moral or mental pressure	Intentional deception
Act	Forbidden by IPC	Fiduciary relationship misused	False statement with intent
Involves Property?	Yes	No	Possibly

V. Illustrations of Coercion

A threatens to shoot B if B does not sell his land. B signs the agreement.
→ Coercion exists; contract voidable by B.
A detains B’s luggage unlawfully and refuses to return unless B pays excess fare.
→ Coercion through unlawful detaining of property.
A holds B’s son hostage until B signs a gift deed.
→ Threat to third party; still coercion.

VI. Summary Table

Element	Description
Definition	Section 15 of the Indian Contract Act
Basis	Act forbidden by IPC or unlawful detention of property
Object	To obtain consent to enter a contract
Effect on Contract	Voidable under Section 19
Restitution	Benefit must be returned under Section 64
Scope	Includes acts inside or outside India

Conclusion

Coercion, as defined under the Indian Contract Act, 1872, refers to obtaining consent through force, threat, or unlawful pressure. A contract induced by coercion is voidable at the option of the coerced party. Indian courts have consistently upheld the principle that consent obtained through wrongful means vitiates the very foundation of a contract. The law ensures protection of individual will and prevents exploitation by making such contracts unenforceable at the discretion of the aggrieved party.

6. Define Undue Influence. Distinguish it from Coercion. Explain how courts determine whether a contract was induced by undue influence.
[Very Long Answer with Legal Analysis, Case Laws, and Illustrations]

I. Definition of Undue Influence:

Under Section 16 of the Indian Contract Act, 1872, “Undue Influence” is defined as follows:

“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.”

II. Essentials of Undue Influence:

To establish undue influence, the following three elements must be present:

Existence of a Dominating Position:
One party must be in a position to dominate the will of the other. This could arise due to:
- Real or apparent authority (e.g., master and servant).
- Fiduciary relationship (e.g., parent-child, doctor-patient, solicitor-client).
- Mental distress, illness, or age-related dependency.
Use of that Position:
The dominating party must have used that position improperly to influence the decision of the other.
Unfair Advantage:
The influence must result in an unfair advantage to the dominant party.

III. Presumption of Undue Influence [Section 16(2) & (3)]:

When a party dominates the will of the other (as in fiduciary relationships), the court may presume that undue influence was exercised.
The burden of proof then shifts to the dominant party to disprove undue influence.

IV. Distinction between Coercion and Undue Influence:

Point of Difference	Coercion	Undue Influence
Definition	As per Section 15, coercion involves using or threatening to use physical force or unlawful acts.	As per Section 16, undue influence involves moral or psychological pressure.
Nature of Pressure	Physical force or unlawful threats.	Mental or emotional pressure.
Who applies pressure	May be a stranger or party to the contract.	Must be a party to the contract.
Legality	Acts involve illegality or threat of illegal acts.	Acts may be legally permissible but morally unfair.
Burden of Proof	Lies on the party alleging coercion.	If a fiduciary or dominant relationship exists, the burden shifts to the other party.

V. Leading Case Laws:

1. Rani Annpurna v. Swaminathan (1910)

Facts: A poor, illiterate widow gave a mortgage of her property to her managing agent for a large amount at an exorbitant interest.
Held: The Court set aside the transaction as it was induced by undue influence. The managing agent was in a dominant position and used that to gain an unfair advantage.

2. Allcard v. Skinner (1887)

Facts: A young woman joined a religious sisterhood and transferred her property to the religious superior under emotional and spiritual influence.
Held: The transaction was set aside due to undue influence arising from a fiduciary and spiritual relationship.

3. Mannu Singh v. Umadat Pande (1890)

Facts: A Hindu devotee gifted all his property to his guru.
Held: The guru was in a position of dominance. The gift was presumed to be under undue influence unless the guru could prove otherwise.

VI. How Courts Determine Undue Influence:

Courts generally examine the following indicators:

Existence of fiduciary or unequal relationship (e.g., guardian-ward, spiritual adviser-disciple).
Mental weakness or dependency of the influenced party (age, illness, emotional vulnerability).
Unfairness of the contract — Whether the terms are so one-sided that they shock conscience.
Independent legal advice — If the influenced party acted without legal advice, that may support the inference of undue influence.
Presumption and Burden of Proof — If the presumption arises, the onus shifts on the stronger party to rebut it.

VII. Remedies and Legal Consequences:

Voidable Contract:
A contract induced by undue influence is voidable at the option of the influenced party under Section 19A.
Court’s Discretion:
The court may:
- Set aside the contract entirely, or
- Enforce it subject to reasonable conditions (e.g., restitution or compensation).

VIII. Illustrations:

Illustration A:
A doctor induces his chronically ill patient to sell land for 10% of market value. This may be set aside on grounds of undue influence.
Illustration B:
An elderly, illiterate man under the care of his nephew executes a gift deed in nephew’s favour. Presumption of undue influence applies, and the nephew must prove fairness.

IX. Conclusion:

Undue influence undermines the principle of free consent, which is the bedrock of a valid contract. The Indian Contract Act, through Section 16, seeks to protect the weak and vulnerable from exploitation in fiduciary or influential relationships. While coercion involves unlawful compulsion, undue influence is more subtle but equally coercive in its effect.

“Law seeks not only to punish wrong, but to prevent exploitation.” – Thus, equity demands that contracts procured through manipulation of confidence or dominance be rendered voidable.

Q.7. Differentiate between Misrepresentation and Fraud under the Indian Contract Act. What are their effects on the validity of a contract?

🔹 Introduction:

In any contract, free consent of parties is a fundamental requirement under Section 10 of the Indian Contract Act, 1872. A consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake as per Section 14.
Among these, fraud and misrepresentation are closely related but legally distinct concepts that affect the validity of contracts.

🔹 Meaning of Misrepresentation [Section 18]:

Misrepresentation refers to an innocent or unintentional false statement made by one party which induces the other to enter into a contract. The party making it believes it to be true.

✅ Legal Definition [Section 18, ICA]:

Misrepresentation means and includes:

Positive assertion made without intent to deceive but not true.
Breach of duty which brings an advantage to the person committing it.
Innocent causing of a party to make a mistake as to the subject matter of the agreement.

🔹 Meaning of Fraud [Section 17]:

Fraud refers to a deliberate and intentional false statement made by a party, knowing it to be false, or without belief in its truth, with the intention to deceive the other party.

✅ Legal Definition [Section 17, ICA]:

Fraud includes:

Suggestion as a fact, of that which is not true, by a person who does not believe it to be true.
Active concealment of a fact.
A promise made without intention to perform it.
Any other act fitted to deceive.
Any such act or omission as the law declares to be fraudulent.

🔹 Key Differences Between Misrepresentation and Fraud:

Basis	Misrepresentation	Fraud
Intent	No intention to deceive.	Clear intention to deceive.
Knowledge of falsity	Believes the statement to be true.	Knows the statement is false.
Effect on contract	Contract is voidable at the option of the party misled.	Contract is voidable, and party can also claim damages.
Remedy	Rescission only (no damages).	Rescission + Damages.
Nature	Innocent or negligent misstatement.	Willful and deliberate misstatement.
Example	A says his land yields 10 quintals, thinking it is true.	A says land yields 10 quintals, knowing it yields only 4.

🔹 Legal Effects on Contract:

✅ In Case of Misrepresentation:

The contract is voidable under Section 19.
The aggrieved party may rescind the contract.
If the party had means of discovering the truth, the contract is not voidable.
No damages are generally awarded.

✅ In Case of Fraud:

Contract is voidable under Section 19.
The aggrieved party can rescind the contract.
Damages can be claimed for losses due to fraud.
Concealment or deliberate misstatement leads to civil and possibly criminal liability.

🔹 Important Case Laws:

📌 1. Derry v. Peek (1889)

Facts: A company stated in its prospectus it had authority to run trams by steam power. The permission was later denied.
Held: It was misrepresentation, not fraud, as there was no intention to deceive.
Principle: Mere belief in the truth of a statement, even if false, is not fraud.

📌 2. Hari Krishna v. Shankar (AIR 1954 Nag 32)

Where a party makes a representation without verifying facts, knowing he had no basis, it was held to be fraud.

📌 3. Peek v. Gurney (1873)

If a material fact is concealed in a prospectus, it amounts to fraud.

📌 4. Rajshree Sugars Ltd. v. AXIS Bank Ltd. (2011)

The Court held that intent to deceive is the key ingredient in establishing fraud.

🔹 Illustrations:

➤ Misrepresentation:

A sells a horse to B, telling him it is perfectly sound, believing it to be so. The horse turns out to be lame. This is misrepresentation.

➤ Fraud:

A sells a horse to B, knowing the horse is lame, but states it is perfectly sound. This is fraud.

🔹 Conclusion:

While both fraud and misrepresentation involve false statements, the critical distinction lies in intention and knowledge. Fraud is a deliberate falsehood, whereas misrepresentation is innocent or negligent. The Indian Contract Act provides remedies in both situations but allows for damages only in fraud, reflecting the seriousness of intentional deception.

Understanding this distinction is crucial to assessing the validity of contracts and ensuring justice in contractual dealings.

Q.8. Explain the concept of ‘Mistake’ under the Indian Contract Act. Distinguish between mistake of fact and mistake of law with examples.

I. Introduction

In contract law, “consent” of the parties is essential for the formation of a valid contract. However, consent must be free and informed. A mistake refers to an erroneous belief about something at the time of the contract, which prevents a true meeting of minds between the parties. The Indian Contract Act, 1872, acknowledges that a contract entered into under mistake may either be void or valid, depending on the nature and gravity of the mistake.

II. Definition of Mistake

Under the Indian Contract Act, 1872:

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 means a wrong belief about something, due to which the parties enter into an agreement that lacks proper consent.

III. Types of Mistake

Mistakes under the Indian Contract Act can be broadly categorized into:

Mistake of Fact
Mistake of Law

IV. Mistake of Fact

A. Meaning

A mistake of fact arises when one or both parties to a contract are under a wrong belief about a fact essential to the agreement.

B. Classification of Mistake of Fact

1. Bilateral Mistake (Both Parties are Mistaken)

Definition: When both parties are under a mistake as to a matter of fact essential to the agreement.
Effect: The contract becomes void under Section 20.

Examples:

Example 1: A agrees to sell to B a cargo of goods supposed to be on the way from England. Unknown to both, the ship carrying the cargo has already sunk. The agreement is void due to mutual mistake.
Example 2: A contracts to sell B his horse, which both believe to be alive. Unknown to both, the horse was dead at the time of the agreement. The contract is void.

Case Law:

Courtney & Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd. (1975) – Held: Where there is no agreement at all due to mutual mistake, the contract is void.

2. Unilateral Mistake (Mistake by One Party Only)

Definition: When only one party is under a mistake as to a matter of fact.
Effect: The contract is not voidable merely because one party is under a mistake, except in certain exceptional cases.

Examples:

Example 1: A intends to buy B’s red car but wrongly mentions the model number of B’s white car in the agreement. B accepts thinking A wants the white car. A’s unilateral mistake does not void the contract unless B knew about the mistake.

Exceptions where Unilateral Mistake can void the contract:

Identity of the Party: If the mistake is about the identity of the person contracted with.
Nature of the Contract: If one party is mistaken about the very nature of the contract due to fraud or misrepresentation.

Case Law:

Dularia Devi v. Janardan Singh, AIR 1990 Pat 13 – If one party commits a mistake which the other party knew or ought to have known, the contract can be held void.

V. Mistake of Law

A. Meaning

Mistake of law means a misunderstanding or ignorance about the legal provisions or consequences of a contract.

B. Classification

1. Mistake of Indian Law

General Rule: Ignorance of Indian law is not an excuse.
Effect: The contract is valid, even if it was entered into under a mistake of Indian law.

Legal Maxim: Ignorantia juris non excusat – Ignorance of the law is not an excuse.

Example:

A transfers property to B, mistakenly believing he is legally bound to do so. The agreement remains valid even though A made a mistake of law.

2. Mistake of Foreign Law

General Rule: Treated as mistake of fact, not law.
Effect: A contract may be void if both parties are under a mistake of foreign law, as they are not presumed to know it.

Example:

A and B, Indian residents, enter into a contract regarding property in England, assuming English law permits certain transfers. Later, they find such transfers are illegal in English law. The contract is void as both made a mistake of foreign law (treated as mistake of fact).

VI. Key Differences Between Mistake of Fact and Mistake of Law

Basis	Mistake of Fact	Mistake of Law
Meaning	Mistake about facts related to the contract	Mistake about legal provisions
Parties Involved	Can be bilateral or unilateral	Usually arises in unilateral situations
Legal Effect	Bilateral mistake makes contract void (Sec. 20); unilateral mistake usually valid	Mistake of Indian law does not render a contract void
Treated As	Important for determining validity	Ignorance of Indian law is not a defense
Exception	Mistake of foreign law treated as mistake of fact	Only foreign law mistake can affect contract
Example	Both parties believe a subject-matter exists but it does not	One party transfers property thinking it is required under Indian law

VII. Conclusion

The concept of “mistake” plays a vital role in determining the validity and enforceability of a contract. While bilateral mistakes of fact render a contract void, unilateral mistakes do not unless involving identity or nature of contract. On the other hand, mistake of Indian law does not excuse parties from performance, but a mistake of foreign law is treated like a mistake of fact, and may make a contract void. Thus, a clear understanding of the type and impact of mistake is essential to assess the enforceability of a contract under Indian law.

Q.9. What is a lawful object and lawful consideration? Explain with examples the types of agreements that are considered immoral or opposed to public policy.

I. Introduction

For a contract to be valid and enforceable, it must satisfy certain essential elements under Section 10 of the Indian Contract Act, 1872. One of the most critical elements is that the object and consideration must be lawful. If either the object or the consideration is unlawful, the agreement becomes void and unenforceable in law.

II. Meaning of Lawful Consideration and Lawful Object

1. Consideration

Under Section 2(d) of the Indian Contract Act, consideration is defined as:

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, or does or abstains from doing something, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration.”

2. Object

The object refers to the purpose or design of the contract. It is the end goal that the parties intend to achieve through the agreement.

3. Lawful Object and Consideration

As per Section 23 of the Indian Contract Act:

*“The consideration or object of an agreement is lawful, unless –

it is forbidden by law;
or is of such a nature that, if permitted, it would defeat the provisions of any law;
or is fraudulent;
or involves or implies injury to the person or property of another;
or the court regards it as immoral, or opposed to public policy.”*

If the object or consideration of an agreement falls under any of the above categories, the agreement is void.

III. Agreements with Unlawful Object or Consideration: When Void

A. Forbidden by Law

If the object or consideration is expressly prohibited by law (statutory provisions), the agreement is void.

Example:

A agrees to sell narcotics to B. The object (sale of narcotics) is forbidden by law; thus, the agreement is void.

B. Defeats the Provisions of Any Law

If the agreement is not directly forbidden but its performance would defeat the intention of the law, it is void.

Example:

A contract to pay money to a public servant to influence a decision is not directly illegal but defeats the law; hence void.

C. Fraudulent Object or Consideration

If the purpose of the agreement is to commit fraud, such agreement is void.

Example:

A agrees to help B to forge a will in exchange for money. This is fraudulent and hence void.

D. Involves or Implies Injury

If the object or consideration involves injury to person or property, the agreement is void.

Example:

A hires B to beat up C. The object involves injury to person and is void.

E. Immoral Agreements

If the object or consideration is considered immoral by the court, the agreement is void. Morality depends on the prevailing social values and judicial discretion.

IV. Immoral Agreements – Examples & Case Law

1. Agreements for Sexual Favors or Illicit Cohabitation

Any agreement involving sexual immorality, like concubinage, extramarital affairs, prostitution, etc., is void.

Case Law:

Pearce v. Brooks (1866)
A prostitute hired a coach to attract customers. The court held the agreement void as the object was immoral.

Example:

A promises to maintain B (a mistress) in return for sexual companionship. This agreement is immoral and void.

V. Agreements Opposed to Public Policy – Meaning and Types

A. Meaning of Public Policy

“Public Policy” refers to those principles and values that the law seeks to uphold for the public good. Courts refuse to enforce contracts that harm the public interest, even if they are not specifically illegal.

Justice Burrough (Egerton v. Brownlow):
“Public policy is a very unruly horse, and when you get upon it, you never know where it will carry you.”

B. Types of Agreements Opposed to Public Policy

Trading with the Enemy
- Contracts with enemies during war are opposed to national interest.
- Void due to threat to national security.
Agreements in Restraint of Legal Proceedings
- If a contract prevents a person from enforcing their legal rights in court.
- Example: A agrees never to sue B under any circumstances. Void.
Agreements in Restraint of Marriage
- Any contract preventing a person from marrying is void.
- Example: A pays B ₹1,00,000 to not marry C. Void.
Agreements in Restraint of Trade
- Agreements that restrict one’s freedom to trade or practice a profession are void, subject to exceptions under Section 27.
- Case: Madhub Chander v. Raj Coomar (1874) – An agreement to not compete at all was held void.
Agreements for Stifling Prosecution
- Agreements to suppress criminal charges in exchange for money or other gains.
- Example: A agrees to pay B if B withdraws an FIR. This is opposed to justice.
Agreements to Influence Public Servants
- Bribing or influencing government officers for personal gain.
- Case Law: Gherulal Parakh v. Mahadeodas Maiya (1959) – Contracts involving betting held void as against public policy.
Marriage Brokerage Agreements
- Paying money for arranging or promoting a marriage is considered immoral and against public policy.
Agreements for Fraud on Revenue
- Any contract made to defraud the government, such as to avoid taxes, is void.

VI. Distinction Between Immorality and Public Policy

Particulars	Immorality	Public Policy
Nature	Based on moral standards	Based on public interest
Test	Social norms, morality	Welfare of the state and citizens
Examples	Prostitution, illicit cohabitation	Bribery, stifling prosecution
Judicial Role	Courts interpret immorality based on facts	Courts apply evolving notions of public policy

VII. Legal Consequences of Unlawful Object or Consideration

The agreement is void.
No rights or obligations arise out of such contract.
No party can claim damages or enforcement.
Even if partial object is unlawful and cannot be severed, entire contract is void.

VIII. Conclusion

The requirement of lawful object and consideration ensures that contracts promote justice, morality, and the public good. The Indian Contract Act, 1872, through Section 23, prohibits the enforcement of agreements that are illegal, immoral, or opposed to public policy. The judiciary plays a vital role in evolving and interpreting the scope of public policy in accordance with changing social values. While freedom of contract is respected, it cannot override the interest of society and the state.

Q.10. Write short notes on the following:
(a) Illegal Agreements
(b) Wagering Agreements
(c) Contingent Contracts
(d) Uncertain Agreements
(e) Void and Voidable Contract

(a) Illegal Agreements

Meaning:
An illegal agreement is one that involves doing something that is against the law, immoral, or opposed to public policy. Such agreements are not enforceable by law, and even collateral transactions connected to them are tainted with illegality.

Legal Provision:
Section 23 of the Indian Contract Act, 1872 declares that agreements involving unlawful consideration or object are void.

Examples of illegal agreements:

Agreement to commit a crime (like murder or theft)
Agreement involving fraud or misrepresentation
Agreements for trafficking drugs or humans
Agreements with an object against public policy (e.g., agreement to influence public servants through bribes)

Effect of illegality:

The agreement is void ab initio (from the beginning)
No legal remedy is available to any party
Even collateral transactions are void (e.g., if A borrows money to bet illegally, the lender cannot recover the loan)

Case Law:
Gherulal Parakh v. Mahadeodas Maiya (1959) – Supreme Court held that wagering contracts are void but not necessarily illegal in all states unless specifically prohibited.

(b) Wagering Agreements

Meaning:
A wagering agreement is one in which two parties agree that upon the occurrence or non-occurrence of an uncertain future event, one will pay the other a sum of money. It is essentially a bet.

Legal Provision:
Section 30 of the Indian Contract Act, 1872 declares that wagering agreements are void. They are not illegal unless declared so by a specific state legislation (e.g., Maharashtra, Gujarat).

Essential features of a wagering agreement:

There must be mutual chance of gain or loss.
Uncertain future event must be the basis.
Neither party should have control over the event.
The only interest of the parties is the outcome.

Not considered wager:

Insurance contracts (as they involve insurable interest)
Skill-based competitions (e.g., cricket match, chess tournament)

Effect:

Wagering contracts are void (no party can enforce it)
Collateral agreements are valid in states where wagering is not illegal

Example:

A and B bet ₹10,000 on the outcome of a cricket match. This is a wagering agreement, hence void.

(c) Contingent Contracts

Meaning:
A contingent contract is a contract to do or not to do something if some event, collateral to such contract, does or does not happen.

Legal Provision:
Defined under Section 31 to 36 of the Indian Contract Act, 1872.

Essentials of a contingent contract:

Performance is dependent on a future uncertain event
That event must be collateral (not a part of the contract itself)
Contract becomes enforceable only when the event occurs

Examples:

A agrees to pay B ₹1,00,000 if B’s house is destroyed by fire.
Insurance contracts are classic examples of contingent contracts.

Effect:

The contract cannot be enforced unless and until the event occurs
If the event becomes impossible, the contract becomes void

Case Law:
N. Ponnuswamy v. Madurai Municipality – The contract was held contingent on approval of higher authorities and hence not enforceable until the event occurred.

(d) Uncertain Agreements

Meaning:
An uncertain agreement is one whose terms are vague or ambiguous, such that the meaning is not clear or cannot be made certain.

Legal Provision:
Section 29 of the Indian Contract Act, 1872: “Agreements, the meaning of which is not certain, or capable of being made certain, are void.”

Example:

A agrees to sell B “a hundred tons of oil” without specifying the type (mustard oil, coconut oil, etc.). This is uncertain and hence void.
“I will pay you a reasonable amount” – unless the amount can be determined by external means or custom, this is too vague.

Effect:

Such agreements are void due to uncertainty
The law requires contracts to be clear and definite

Exception: If the uncertainty can be resolved by reference to past dealings or trade custom, the agreement may be valid.

(e) Void and Voidable Contracts

Void Contract

Meaning:
A void contract is one that ceases to be enforceable by law. It was valid at the time of formation but becomes unenforceable later due to certain reasons.

Legal Provision:
Defined under Section 2(j) of the Indian Contract Act, 1872.

Examples:

Contract becomes void due to impossibility (supervening impossibility)
Contract made with a minor or illegal consideration
A contingent contract becomes void if the event becomes impossible

Effect:

No legal rights or obligations arise
Neither party can sue the other for performance

Voidable Contract

Meaning:
A voidable contract is a contract that is enforceable by law at the option of one party but not at the option of the other. It arises from defect in consent, such as coercion, undue influence, fraud, or misrepresentation.

Legal Provision:
Defined under Section 2(i) of the Indian Contract Act, 1872.

Examples:

A contract obtained through fraud is voidable at the option of the deceived party
If a person is forced to sign an agreement under coercion, they may later rescind it

Effect:

Valid unless avoided by the aggrieved party
If not avoided within a reasonable time, it may become binding

Comparison Table: Void vs Voidable Contracts

Basis	Void Contract	Voidable Contract
Definition	Not enforceable by law	Enforceable by one party only
Enforceability	Never enforceable	Enforceable until rescinded
Arises due to	Illegal or impossible performance	Defective consent
Rights of parties	No legal rights	Aggrieved party has choice to enforce
Examples	Agreement with minor, illegal object	Agreement under coercion or fraud

Conclusion:
These concepts are essential to understanding the validity and enforceability of contracts under Indian Contract Law. While illegal, wagering, and uncertain agreements are void, contingent contracts may become enforceable based on events. Similarly, void and voidable contracts differ in their legal consequences and enforceability depending on the circumstances of their formation.