contract Law

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					Law of contract.

  Capacity to contract
      free consent
    legality of object
Definition of Consideration:
Sec 2 (d) defines consideration as follows : “when
     at the desire of promisor, the promisee
a)   has done/does or abstained from doing or
b)   Promises to do or abstain from doing
     something, such an act, or promise or
     abstinence is called a consideration.
Consideration means some thing in return
Other Definition : According to Justice Patterson
     consideration means something which is of
     some value in the eye of law. It may be some
     benefit to the plaintiff or some detriment to the
A consideration
1. Must move at the desire of promisor.                 The Act of
     Consideration must have been done at the desire or request of
     the promiser
2.   It may move from promisee (as per English law) or
     even any other person As per Indian law.
3.   It may be past present or future.( as given in the
4.   It need not be adequate. (the adequacy of the
     consideration is for the parties to consider at the time of making
     the agreement.)
5.   It must be real and not illusory.( physical or legal
6.   It must be something which the promiser is not
     already bound to do Ex. Promise to perform a public duty
     by a public servant is not a consideration.
7.   It must not be illegal, immoral or opposed to
     public policy.
A contract without consideration is void with the
    following exception ( As per sec 25 & 185)
1. Love and affection Agreement made on account of natural
     love and affection between parties in near relation to each other is
     enforceable even if there is no consideration. Ex. By a registered
     agreement V on account of natural love and affection for his brother R
     promises to discharge his debt to B. In case V fails R can discharge & sue V
     for recovery.
2.   Compensation for voluntary services.              A promise to
     compensate a person who has already voluntarily done something
     for the promisor is enforceable.
3.   Promise to pay a time barred debt                     by a debtor is
4.   Completed gift     Nothing in Sec 25 shall affect the validity
     between the donor and donee for a gift actually made.
5.   Agency No consideration is required to create an Agency.
                Capacity to contract
Sec 11 declares the following persons to be
    incompetent to contract i.e. Minor, lunatic or
    disqualified by law.
1. Minor A minor can not enter into an agreement.
a.  An agreement with minor is void. But he can be beneficiary. If he
    has received any benefits under a void agreement he cannot be
    asked to pay for it but he is liable for “necessaries” supplied to him.
b.  He cannot enter into contract of partnership but he can be an
c.  He cannot be adjusted insolvent since he is incapable of
    contracting debts. His parents and guardians are not liable for the
    contracts entered by him.
d.  A minor is liable in tort( a civil wrong) but if the tort arises out of a
    contract minor is not liable.
Where as law gives protection to the minors. It does not given them
    liberty to cheat people.
Minors’ liability for necessaries: As per Sec 68 A minor is liable to pay out
     of his property for “necessaries” supplied to him or to whom he is
     legally bound to support.
A loan taken by a minor to obtain necessaries also bind him and is
     recoverable by the lender from out of his property.
The term necessaries is not defined in the Indian contract Act.
    Person of unsound mind                 Sec 12 lays down a test for
     soundness of mind. A person is said to be of sound mind if
     a. he is able to understand the agreement &
     b. is capable of forming a rational judgment as to its effect upon his
The following types of persons are considered to be of unsound mind.
     a) Lunatic (Person who is mentally deranged) b) Idiot (person who does
     not exhibit understanding of even ordinary matters. c) drunken or
    Persons disqualified by law              such as Insolvents, convicts
                    Free Consent.
According to Sec 13 two or more persons are said to
   consent when they agree upon the same thing
   in the same sense.
Consent is said to be free when it is not caused by
   a) coercion or b) undue influence or c) Fraud or
   d) Misrepresentation or e) Mistake.
 Coercion : As per Sec 15 a consent is said to be caused by
     coercion when it is obtained by
     i) committing or threatening to commit any act forbidden by IPC
     ii) Unlawful detaining or threatening to detain any property.
When consent is caused by coercion the agreement so formed is voidable
     at the option of the part whose consent was so obtained.
Threat to commit suicide amounts to coersion.
b.   Undue influence or          Sec 16(1) When relations between the
     parties are such that one party is in a position to dominate the will of
     the other and uses that to obtain the unfair advantage. Undue
     influence is sometimes called moral coercion.
     A person is deemed to be in a position to dominate the will of other
     a) when he holds a real or apparent authority.
     b) when he stands in a fiduciary relation ( relation of trust and cofidence
     between father & son, solicitor & client)
c. Fraud or        Is an intentional, deliberate and willful misrepresentation
     with an intent to deceive or defraud the other party.
     According to Sec 17 “fraud” means any of the following acts
     committed by a party with intent to deceive or induce a person to
     enter into contract.
     1. suggestion that a fact is true when it is not true
     2. the active concealment of fact with the knowledge of the fact
     3. A promise made without the intention of following it.
     4. Any other act fitted to deceive
     5. Any such act or omission as the law declares as fraudulent.
d.    Misrepresentation              According to Sec 18 this exists when
     1.   When person positively asserts that a fact is true when his
          information does not warrant it to be so.
     2. When a party causes the other party to make a mistake as to
          the substance of a thing which is the subject of agreement.
     The aggrieved party in case of misrepresentation or Fraud may
       a) avoid (provided it was not possible to know the truth with ordinary
          diligence) or rescind (withdraw or cancel) the contract ( if he takes
            the benefit under the contract or when a third party has acquired rights
            in the subject matter in good faith & for value) or
          b) accept the contract but insist that he must be placed in a
             position, had the representation be true.
e.    Mistake.        Mistake is defined as erroneous belief. It could be

      1. Ignorance of law : The contract made cannot be avoided.
      2. Mistake as to a matter of fact. This could be bilateral or unilateral.
             Legality of the Object.
As per section 23 the consideration or object of an
    agreement is unlawful if
1. it is forbidden by law consideration is an act forbidden
2. It is fraudulent
3. It involves or implies injury to the person or
4. It is opposed to public policy. i.e. injurious to welfare
    of society. The following are some of the agreements of this type
    a. trading with enemy b. commit crime c. interfering with administration
    of justice d. sale of public offices e. creating interest opposed to duty
    f.restraing personal rights g. parental rights h. agreement interfering
    with marital duties. i. marriage brokerage agreement j. restraining a
    person from lawful trade, business or profession etc.

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