CHAPTER I

All agreements are not enforceable by law and, therefore, all

agreements are not contracts. Some agreements may be
enforceable by law and others not. For example, an agreement
to sell a radio set may be a contract but an agreement to go see
a movie may be a mere agreement not enforceable by law. Thus,
all agreements are not contracts. Only those agreements which
satisfy the essentials mentioned in section 10 1 becomes
contracts. However, all contracts are agreements.
Thus, an agreement becomes a contract when the following
essentials are satisfied:
1. There is some consideration for it.
2. The parties are competent to contract.
3. Their consent is free.
4. Their object is lawful.

1. LAWFUL CONSIDERATION

Therefore, in this particular chapter the essential of lawful

consideration will be discussed in detail.
1.1RELEVANT SECTIONS

As per section 2(d)2,

1 All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object,
and are not hereby expressly declared to be void. Nothing herein contained shall
affect any law in force in India, and not hereby expressly repealed, by which any
contract is required to be made in writing or in the presence of witnesses, or any
law relating to the registration of documents.

2 Indian Contract Act, 1872

1
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 to do or to abstain from doing,
something, such act or abstinence or promise is called a
consideration for the promise;
As per section 233, the consideration or object of an agreement
is lawful, unless

It is forbidden by law; or is of such nature that, if permitted it

would defeat the provisions of any law or is fraudulent; of
involves or implies, injury to the person or property of another;
or the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of which the
object or consideration is unlawful is void.

The definition of consideration given in section 2(d) of the Indian

Contract Act, 1872 is rather a practical definition. The purpose
is to emphasise the simple fact that consideration is some act,
done or promised to be done, at the desire of the promisor. It
also avoids the practical difficulties caused by the theory of
consideration as consisting of some act which is beneficial to one
party or detrimental to the other. This antithesis has been
described to be not altogether happy. The Act simplifies the
matter by saying that any kind of act or abstinence which is done

3 Ibid.

2
or undertaken to be done at the desire of the promisor is a
sufficient consideration.4

1.2ANALYSIS

1.2.1. At The Desire Of The Promisor

The definition of consideration in Section 2(d) clearly

emphasizes that an act5 shall not be good consideration for a
promise unless it is done at the desire of the promisor.

In Durga Prasad v. Baldeo6, the plaintiff, on the order of the

collector of a town, built at his own expense, certain shops in a
bazaar. The shops came to be occupied by the defendants who,
in consideration of the plaintiff having expended money in the
construction, promised to pay him commission on articles sold
through their agency in the bazaar. The plaintiffs action to
recover the commission was rejected.

The only ground for making of the promise is the expense

incurred by the plaintiff in establishing the Ganj(market) but it is
clear than anything done in that way was not at the desire of
the defendants so as to constitute consideration 7. The act was
the result of not the promise but of the collectors order.
4 Avtar Singh, Law of Contract and Specific Relief, 9th Edition, Eastern Book
Company, p. 85.

5 The word act, for the purpose of this definition, includes abstinence also. Bank
of Baroda v. Kayenkay Agencies, (2003) 1 BC 59 (Delhi DB), in connection with the
grant of overdraft facility, fee of Rs 5000 for execution of documents was held to be
valuable consideration.

6 (1880) 3 ALL 221, OLDFIELD J at P. 228.

3
1.2.2. Acts Done at Request

On the other hand, an act done at the promisors desire is good

consideration for his promise even if it is of no personal
significance or benefit to him. The decision of the Calcutta High
court in Kedar Nath v. Gorie Mohamed8 has become well known
in this connection.

It was thought advisable to erect a town hall at Howrah

provided sufficient subscription could be got together for the
purpose. To this end, the Commissioners of Howrah municipality
set out to work to obtain necessary funds by public subscription.
The defendant was a subscriber to this fund for Rs. 100 having
signed his name in the subscription book for that amount. On the
faith of the promised subscription, the plaintiff entered into a
contract with a contractor for the purpose of building the hall.
But the defendant failed to pay the amount necessary for the
purpose of building the hall. But the defendant failed to pay the
amount and contended that there was no consideration for his
promise.

He was, however, held liable: persons were asked to subscribe

knowing the purpose for which the money was to be applied;

7 Refer to Raja of Venkatagiri v. Krishnayya, AIR 1948 PC 150 and Adaitya Das v
Prem Chand Mondal, AIR 1929 Cal 369. In this case, the defendant promised to
bring a thakur to the plaintiffs house to preside over a dinner to be given to the
plaintiffs guests. The defendant failed to bring the Thakur and consequently the
dinner was wholly wasted as no guest partook of it in the absence of the Thakur. The
plaintiffs action for damages was dismissed as he had done nothing on the desire of
the promisor.

8 1886 ILR 14 Cal 64.

4
they knew that on faith of their subscription, an obligation was
to be incurred to pay the contractor for the work. The promise
is: in consideration of your agreeing to enter into a contract to
erect, I undertake to supply money for it. The act of the plaintiff
in entering into contract with the contractor was done at the
desire of the defendant (the promisor) so as to constitute
consideration within the meaning of Section 2(d).
It was indeed a promise to pay for the performance of an act and
it could not have been revoked once the promise entered
performance. In England, also the law for centuries has been
that an act done at the request of another, express or implied, is
sufficient consideration to support a promise.9

1.2.3. Promisee or any other person

The second notable feature of the definition in section 2(d) is
that the act which is done is to constitute a consideration may be
done by the promise or any other person. It means therefore,
that as long as there is a consideration for a promise, it is
immaterial who has furnished it. It may move from the promise
or if the promisor has no objection, from any other person. This
principle has it genesis in the English common law, having been
adopted by the Court of Kings Bench as early as 1677 in Dutton
v. Poole:10

9 Rt. Hon. Sir Alfred Denning, Recent Developments in the

Doctrine of Consideration, (1952) 15 Modern Law Review, p. 1.
Following authorities are sited in support of the proposition:
Lamleigh v. Braithwait, 1615 Hobb, 105:80 ER 255.

10 Court of Kings Bench, (1677) 2 Levinz 210:83 ER 523.

5
A person had a daughter to marry and in order to provide her a
marriage portion he intended to sell a wood of which he was
possessed at the time. His son (the defendant) promised that if
the father would forebear to sell at his request, he would pay
the daughter 1,000. The father accordingly forbore but the
defendant did not pay. The daughter and her husband sued the
defendant for the amount.
It is clear that the defendant gave his promise to his father and
it was the father alone who, by abstaining from selling the wood,
had furnished consideration for the promise. The plaintiff was
neither privy to the contract nor interested in the consideration.
But it is equally clear that the whole object of the agreement
was to provide a portion to the plaintiff. It would have been
highly inequitable to allow the son to keep the wood and yet to
deprive his sister of her portion. He was accordingly held liable.

1.2.4. Position of Beneficiary who is not a Party

Fundamental propositions of English law referred to by his
Lordship Viscount Haldane are:
a. Consideration must move from the promisee and the
promisee only. If it be furnished by any other person, the
promisee becomes a stranger to the consideration and
therefore, cannot enforce the promise.11

11 Anson, Principles of the English Law of Contract, 23rd Edition

by A G Guest, (1971) p. 89; Cheshire and Fifoot, Law of
Contract, 8th Edition, 1972, p. 64.

6
 b. A contract cannot be enforced by a person who is not a
party to it even though it is made for his benefit. He is a
stranger to the contract and can claim no rights under it.
These propositions were formed as a result of the Tweedle v.
Atkinson12 case, which laid the foundation of what subsequently
came to be known as privity of contract, which means that a
contract is a contract between the parties only and no third
person can sue upon it even when avowedly he is benefited.
Whitman J. considered it to be an established principle that no
stranger to the consideration can take advantage of a contract,
although made for his benefit.
Thus, although the sole object of the contract was to secure a
benefit to the plaintiff, he was not allowed to sue as the contract
was made with his father and not with him. This principle was
affirmed by the House of Lords in Dunlop Pneumatic Tyre Co. v
Selfridge & Co.:13
Plaintiffs (Dunlop & Co.) sold certain goods to one Dew & Co.
and secured an agreement from them not to sell the goods below
the list price and that if they sold the goods to another trader,
they would obtain a similar undertaking to maintain the price
list. Dew & Co. sold the motor tyres to the defendants (Selfridge

12 123 ER 762: 1 B&S 23, 393:30 LJ QB 218: 4 LT 468; The

plaintiff was to be married to the daughter of Mr. G and in
consideration of this impending marriage, G and the plaintiffs
father entered into a written agreement by which it was agreed
that each would pay the plaintiff a sum of money. G failed to do
so and the plaintiff sued his executors.

13 (1915) AC 847.

7
& Co.) who agreed not to sell the tyres to any private customer
at less than the list prices. The plaintiffs sued the defendants for
breach of contract. It was held that assuming the plaintiffs were
undisclosed principals, no consideration moved from them to the
defendants and that the contract was unenforceable by them.

1.2.5. Privity Of Consideration

In India, the two propositions mentioned above are not at all
applicable. Here, in view of the clear language used in Section
2(d), it is not necessary that consideration should be furnished
by the promise. A promise is not enforceable if there is some
consideration for it and it is quite immaterial whether it moves
from the promise or any other person. The leading authority in
the decision of the Madras High Court in Chinnaya v. Ramayya14:
An old lady, by deed of gift, made over certain landed property to
the defendant, her daughter. By the terms of the deed, which
was registered, it was stipulated that an annuity of Rs. 653
should be paid every year to the plaintiff, who was the sister of
the old woman. The defendant on the same day executed in
plaintiffs favour an Iqrarnama (agreement) promising to give
effect to the stipulation. The annuity was, however, not paid
and the plaintiff sued to recover it. It was clear that the only
consideration for the defendants promise to pay the annuity was
the gift of certain lands by the old woman to the defendant, the
defendant, therefore, tried to defend herself on the ground that
the promise (the plaintiff) had furnished no consideration for the

14 (1882) 4 Mad. 137:6 Ind Jur 402.

8
same. Briefly, the whole situation was: the defendants promise
was given to the plaintiff, but consideration was furnished by the
plaintiffs sister. The court could have easily allowed the plaintiff
to recover the annuity, as consideration can be given by any
other person and is equally effective. The court reached the
same result but on a somewhat different ground. Innes J. tried to
equate the situation with the facts of Dutton v. Poole. In that
case, the defendants sister would have gotten the marriage
portion but for the defendants promise. In this present case also
it appeared that the plaintiff was already receiving from her
sister an annuity of like amount out of the estate and when the
estate was handed over to the defendant, it was stipulated that
the payment to the plaintiff should be continued and she
promised accordingly. That means that the failure to keep the
promise would have deprived the plaintiff of an amount which
she was already receiving and it is a legal commonplace that if a
promise causes some loss to the promise, that is sufficient
consideration for the promise. Thus, the plaintiff had given
consideration.15

15 Avtar Singh, Law of Contract and Specific Relief, 9th Edition, Eastern Book
Company, p. 94.

9
 CHAPTER II

2. COMPETENT TO CONTRACT

In this particular chapter the essential of parties competent to a

contract has been discussed in detail.

2.1. RELEVANT SECTIONS

As per 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
sound mind and is not disqualified from contracting by any law
to which he is subject.
As per 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. A person who is usually of unsound
mind, but occasionally of sound mind, may make a contract
when he is of sound mind. A person who is usually of sound
mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.

2.2. ANALYSIS

2.2.1. Position of a Minor

A person who has not attained the age of majority is a minor.
Section 3 of the Indian Majority Act, 1875 provides about the
age of majority16. It states that a person is deemed to have

16 3. Age of majority of persons domiciled in India.Subject as aforesaid, every

minor of whose person or property, or both, a guardian, other than a guardian for a
suit within the meaning of 1[Chapter XXXI of the Code of Civil Procedure], has been
or shall be appointed or declared by any Court as Justice before the minor has

10
attained the age of majority when he completes the age of 18
years, except in case of a person of whose person or property or
guardian has been appointed by the Court in which case the age
of majority is 21 years. In such cases, the majority does not arise
till the completion of 21years of age by the ward, and it is
immaterial whether the guardian dies or is removed or
otherwise ceases to act.17 In England, the age of majority is 18
years.18
It may be noted that the Indian Majority Act is being amended to
make the age of majority as 18 years for every person,
irrespective of the fact that in respect of them, any guardian has
been appointed.

2.2.2. Nature of a Minors Agreement

Section 10 requires that the parties to a contract must be
competent and Section 11 declares that a minor is not
competent. But neither Section makes it clear whether, if a

attained the age of eighteen years, and every minor of whose property the
superintendence has been or shall be assumed by any Court of Wards before the
minor has attained that age shall, notwithstanding anything contained in the Indian
Succession Act or in any other enactment, be deemed to have attained his majority
when he shall have completed his age of twenty-one years and not before.

Subject as aforesaid every other person domiciled in India shall be deemed to have
attained his majority when he shall have completed his age of eighteen years and
not before.

17

Jaogana Ram Marwari v. Mahadeo Prasad Sahu, I.L.R. (1909) 36

Cal. 768, p. 794.
18

Family Law Reform Act, 1969.

11
minor enters into agreement, it would be voidable at his option
or altogether void. These provisions had, therefore, quite
naturally given rise to a controversy about the nature of minors
agreement.19 The controversy was finally settled in 1903 by the
Judicial Committee of the Privy Council, in their well-known
pronouncement in Mohoribibi v. Dharmodas Ghose.20
The plaintiff, Dharmodas Ghose, while he was a minor,
mortgaged his property in favour of the defendant, Brahmo Dutt,
who was a money lender to secure a loan. At the time of the
transaction the attorney who acted on behalf of the money
lender, had the knowledge that the plaintiff was a minor. The
minor brought an action against the money lender stating that
he was a minor when the mortgage was executed by him and
therefore, the mortgage was void and inoperative and the same
should be cancelled. By the time of appeal to the Privy Council,
Brahmo Dutt died and the Appeal was prosecuted by his
executors.
The defendant (money lender), amongst other points,
contended that:-
i) The minor had fraudulently misrepresented his
age, the law of estoppel should be applied against
him. Basically, he should not be allowed to plead
that he was a minor at the time of transaction and

19

Raj Coomari v. Pero Madhub Nandi, 1 CWN 453; Boide Nath

Dey v. Ram Kishore Dey, 10 Bengal Law Reports 326.
20

(1903) 30 IA 114: 30 Cal 539

12
 hence, no relief should be given to the minor in
case;
ii) If the mortgage is cancelled as requested by the
minor, the minor should be asked to refund the
loan of Rs. 10,500 which had been taken.
However, the defendants contentions were rejected and the
minors agreement was held void. Hence, the minor could not be
asked to pay back the loan. Sir Lord North observed:
Looking at section 11, their lordships are satisfied that the
Act makes it essential that all contracting parties should be
competent to contract and expressly provides that a person who
by reason of infancy is incompetent to contract cannot make a
contract within the meaning of the Act. The question whether a
contract is void or voidable presupposes the existence of a
contract within the meaning of the Act, and cannot arise in case
of an infant.
Ever since this decision it has not been doubted that a minors
agreement is absolutely void. The ruling of the Privy Council in
the Mohoribibi v. Dharmodas Ghose case has generally been
followed by the courts in India and applied both to the
advantage and disadvantage of minors. Another decision of the
Privy Councl in line is Mir Sawarjan v. Fakhruddin Mohd
Chowdhury21.
A contract to purchase certain immovable property had been
made by a guardian on behalf of a minor and the minor sued the

21

(1912) 39 Cal 232 (PC). Also followed in Ma Hn It v. Hashim,

(1920) 22 Bom LR 531 PC.

13
other party for a decree of specific performance to recover
possession. His action was rejected.
The court said that it was not within the competence either of
the manager of the minors estate or of the guardian of the
minor, to bind the minor or the minors estate by a contract for
the purchase of immovable property; that as the minor was not
bound by the contract, there was no mutuality and that
consequently the minor could not obtain specific performance of
the contract.
However, in todays world it is not very feasible to declare
minors agreement absolutely void- minors are appearing in
public life more frequently than ever before. He/she has to travel
and deal with educational institutions and purchase so many
things for the facilities of life. In such cases, if the other party to
the contract could brush aside the minor on the ground that the
agreement is void, the legal protection against contractual
liability would be too dear to minors. The Privy Council,
therefore, modified its earlier decisions in Srikakulam
Subrahmanyam v Kurra Subba Rao.22 In order to pay off the
promissory note and mortgage debt of his father, the minor son
and his mother sold a piece of land to the holders of the
promissory note in satisfaction of the note and he also was to
pay off the mortgage debt. He paid off the mortgagee
accordingly and the possession of the land was given over to
him. Afterwards, the minor brought an action to recover back
the land. It was found a fact that the transaction was for the

22

(1949) 75 IA 115: ILR 1949 Mad 141 PC.

14
benefit of the minor and the guardian had the capacity to
contract on his behalf. The contract, being for the benefit of the
minor and within the power of his mother, was set to be binding
on him.

2.2.3. Persons of Unsound Mind

In India, the agreement of a person of unsound mind is
absolutely void, like that of a minor, as per section 12 of the
Indian Contract Act, 1872.
Illustrations:
a. A patient in a lunatic asylum, who is at intervals of sound
mind, may contract during those intervals.
b. A sane man, 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 effects on his interests,
cannot contract whilst such delirium or drunkenness lasts.
An illustration is the decision of the Patna High Court in Inder
Singh v. Parmeshwardhari Singh23.
A property worth about Rs. 25000 was agreed to be sold by a
person for Rs. 7000. His mother proved that he was a congenital
idiot, incapable of understanding the transaction and that he
mostly wandered about.

23

AIR 1957 Pat 491.Also Jyotirinda Bhattacharya v. Sona Bala

Bora, AIR 1994 Gau 99. In this case, the person in question filed
cases against family members, remained away for long period of
time, transferred family properties to the extent of making the
family homeless and the court said that all this is sufficient to
indicate the vendor was not normal and was not mentally sound
at the time of sale.

15
Illustration (b) appended to section 12 shows that a drunken
person is in the same category as a person of unsound mind.

CHAPTER III

3. FREE CONSENT

In this particular chapter the essential of free consent between

parties has been discussed in detail.

3.1. RELEVANT SECTIONS

As per section 13 of the Indian Contract Act, 1872,"Consent" is

defined:

Two or more person are said to consent when they agree

upon the same thing in the same sense.

16
This section has also to be read with Section 14 of the Indian
Contract Act, 1872.

3.2. ANALYSIS

3.2.1. Coercion
As per section 1524, "Coercion" includes the follwing:
i) Act forbidden by the Indian Penal Code
For instance, if A threatens to shoot B if B does not sell his
property to A at a stated price, Bs consent in this case has
been obtained by coercion.

In Ranganayakamma v. Alwar Setti25, the question before the

court was regarding the validity of the adoption of a boy by a
widow aged 13 years. On the death of the husband, his dead
body was not allowed to be removed from her house for
cremation, by the relatives of the adopted boy until she adopted
the boy. It was held that the adoption was not binding on the
widow as her consent had been obtained by coercion. 26

In Chikkan Ammiraju v. Chikkan Seshama27, the question before

the Madras high court was whether coercion could be caused by
24

Indian Contract Act, 1872.

25

ILR (1889) 13 Mad. 214.

26

As per Pollock and Mulla, Indian Contract and Specific Relief

Acts, 9th Edition, p. 134, by obstructing the removal of the corpse
the possible offence tried to be committed was under section
297, Indian Penal Code. Also, the authors think that the case
could have well been tried under section 16 of the Indian
Contract Act since the consent was obtained by undue influence.

17
threat to commit suicide. The main consideration in this case
revolved around the answer on whether the threat to commit
suicide could be considered as an act forbidden by the Indian
Penal Code. It was held by Wallis, C.J. and Seshagiri Ayyar, that a
threat to commit suicide was under the meaning of section 15 of
the Indian Penal Code and therefore, the release deed signed by
the plaintiff was voidable.

There has been dissent on this particular view by mostly, the

majority view that threat to commit suicide is a punishable
offence under section 15 of the IPC is held to be valid.

ii) Unlawful detaining of property

As per section 15 of the Indian Contract Act, 1872, coercion
can also be caused by unlawful detaining or threat to detain
any property of any person with the intention of causing any
person to enter into an agreement.

In Union of India v. M V Damodar28, a bank loan was taken by the

defendants from the plaintiff for purchase of vessels. Purchase of
vessel was required to be made through Shipping Development
Fund Committee. Loan was advanced at subsidized rate of
interest. Defendants had entered into agreement willingly and
plea by defendants subsequently that they were forced to enter
into contract with plaintiff because of economic duress due to
monopolistic character of committee was not tenable.

27

ILR (1918) 41 Mad. 33.

28

AIR 2005 Bom. 137.

18
In Workmen of Appin Tea Estate v. Industrial Tribunal 29, the
demand of the workers for bonus was accepted after a threat to
strike. The question arisen was whether such a decision between
the Union of workers and the tea association could be declared
void due to coercion. It was held that under the doctrine of
collective bargaining under the Indian Disputes Act, the demand
of threat of strike by the workers is valid action and hence, such
a threat was not an offence under the IPC, hence did not amount
to coercion.

If a person is dispossessed of his property under illegal threat

that unless he parts with the possession, he would be detained
under MISA (maintenance of internal security), parting such
possession amounts to coercion, under section 15 of Indian
Contract Act. Krishan Lal Kalra v. NDMC30 is an example of
persons affected by the excesses of Emergency period
proclaimed in 1975.

3.2.2. Undue Influence

As per section 16, Undue influence" includes:

i) the relations subsisting between the parties are such

that one of the parties is in position to dominate the will
of the other and;

29

AIR 1966 Assam 115.

30

AIR 2001 Del. 402.

19
 ii) such a person uses his dominant position to obtain an
unfair advantage over the other.

Sometimes a person party in a contract may be in such a

position as to have the opportunity of exercising a dominant
position over the other. If the dominant party takes an undue
advantage of his position in procuring a contract that is to the
detriment of the other party, the contract is voidable at the
option of the party whose will is so dominated.

A person is said to be in a position to dominate the will of

another when-

a) He holds a real or apparent authority over the other-

employer over his employee, tax officer over assesee etc,

b) He stands in a fiduciary relationship to the other-

solicitor and client, trustee and beneficiary, spiritual
adviser and devotee

In Mannu Singh v. Umadat Pande31, the plaintiff, an aged

person executed a deed of gift in respect of the whole of his
property in favour of the defendant who was the plaintiffs
spiritual adviser. The only reason for the gft was to secure
benefits to his soul in the next world. Soon after the execution
of the said deed, the plaintiff applied for cancellation of the
same by a suit brought under section 39 of the Specific Relief
Act, 1877.

31

(1890) 12 All. 523

20
 Section 111 of the Indian Evidence Act applies to this
situation and the burden of proof lies with the defendant to
prove he did not exercise any undue influence. It was held
that the fiduciary relation between the parties and the
absurdity of the reasons given by the plaintiff for the
transaction and since the defendant failed to prove the same,
the plaintiff is liable to obtain cancellation of the same.

c) He makes a contract with a person whose mental

condition is temporarily or permanently affected by
reason of age, illness or mental or bodily distress.

In Merci Celine DSouza v. Renie Fernandez32 the plaintiff a

mentally infirm person incapable of protecting his interest
and totally dependant for his existence gifted his property in
favour of the defendants. It was found that defendants had
obtained an unfair advantage and the gift deed was not
attested by the two witnesses as required by law. It was held
that the settlement deed of the property was liable to be set
aside on the ground of undue influence.

3.2.3. Fraud

The essentials of fraud33 are:

32

AIR 1998 Kerala 280.

21
 i) there should be a false statement of fact by a person
who himself does not believe the statement to be true;

Mere expression of opinion does not constitute as fraud.

Representation as to untrue facts may be made by positively
stating certain facts or by conduct. In Edington v.
Fitzmaurice34, a company was in great financial difficulties
and needed funds to pay some pressing liabilities. The
company raised the amount by issue of debentures. While
raising the loan, the directors stated that the amount was
needed by the company for its development, purchasing
assets and completing buildings. It was held the directors had
committed fraud.

Also, as proved in the case of Shri Krishan v. Kurukshetra

University,35 mere silence is not fraud.

ii) the statement should be made with a wrongful

intention of deceiving another party thereto and
inducing him to enter into the contract on that basis.

In Derry v. Peek36, the directors of a company issued a

prospectus stating that they had got the authority to run

33

Section 17, Indian Contract Act, 1872.

34

(1885) 29 Ch. 459.

35

AIR 1976 SC 376.

36

(1889) 14 AC 337.

22
 tramways with steam instead of animal power. In fact, a plan
had been submitted for the same and the directors honestly
believed that the Board of Trade would do so as a matter of
course. However, the said board refused the sanction and the
company had to wound up. The respondent, who had taken
shares in the company on faith of the representation by the
directors in the prospectus, brought an action for the tort of
deceit. It was held by the House of Lords that since the
statement had not been with the intention to deceive, there
was no fraud.

3.2.4. Misrepresentation

Section 18 of the Indian Contract Act includes the following

types:

i) Unwarranted Statements

When a person positively asserts that a fact is true when his

information does not warrant it to be so, though he believes it to
be true, this is misrepresentation. In the case of Oceanic Steam
Navigation Co v. Soonderdas Dharamsey37, the defendants
chartered a ship from the plaintiffs, who stated that the ship was
certainly not more than 2800 tonnage register. As a matter of
fact, the ship had never been in Bombay and was unknown to the
plaintiff. She turned out to have a registered tonnage of over
3600 tonnes. It was held that the defendants were liable to avoid
the charterparty.

37

(1890) 14 ILR Bom 241.

23
A statement is said to be unwarranted by the information of the
person making it when he receives the information from a
trustworthy source. It should not be a mere hearsay. In Mohanlal
v. Sri Gungaji Cotton Mills Co. 38, a certain B told the plaintiff that
one C would be the director of a company. B had obtained this
information not from C direct but from another person L. the
information proved untrue. B was held not liable since if he
relied on second-hand information he derived from L, he was
warranted in making the positive assertion that C would be
director.

ii) Breach of Duty

Any breach of duty which brings an advantage to the person

committing it by misleading the other to his prejudice is a
misrepresentation. In the case of Oriental Bank Corporation v.
John Fleming39, the plaintiff, having no time to read the contents
of a deed, signed it as he was given the impression by the
defendant that it contained nothing but formal matters already
settled by them. The deed, however, contained a release in
favour of the defendants. Accordingly, the plaintiff was allowed
to set aside the deed. Since the plaintiff had placed confidence in
them, it was their duty to state fully without concealment, all
that was essential to the knowledge of the contents of the
document.

38

(1900) 4 Cal WN 369.

39

(1879) 3 Bom 242

24
 iii) Inducing Mistake About Subject Matter

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 is also misrepresentation.40

In the case of Nursey Spg Wvg. Co., Re41, the directors of a

company, while acting within their authority, sold on the
companys behalf a bill of exchange to a bank. The company
denied liability on the bill. But the bank was entitled to recover
the amount of the bill from the company as money received to
the use of the bank. The bill was different from what it was
expressly represented to be by agents the company.

3.2.5. Mistake

When the consent of the parties to a contract may be caused by

mistake, it is not a free consent. One or both of the parties may
be working under some misunderstanding or misapprehension of
some fact relating to the agreement. If such a misunderstanding
or misapprehension had not been there, probably they would not
have entered into the agreement.

Mistake may work in two ways:

40

Section 18(3) of the Indian Contract Act, 1872.

41

ILR (1880) 5 Bom 92.

25
 i) Mistake in the mind of the parties is such that there is
no genuine agreement at all. There may be no
consensus ad idem, ie, meeting fo the two minds. The
offer and acceptance do not coincide in such cases.

In Tarsem Singh v Sukhminder Singh 42, the parties to the

agreement for the sale of land were not ad idem with respect to
the unit of measuring land, the case was held to have been
covered by section 20 of the Indian Contract Act, making the
agreement void. In this case, the seller intended to sell land in
terms of kanals whereas the buyer intended to purchase it in
terms of bighas. It was held to be mistake relating to a matter
essential to the agreement. The agreement was, therefore, held
void.

ii) There may be a genuine agreement but there may be

mistake as to a matter of fact relating to that
agreement.

In Ayekam Angahal Singh v. The Union of India 43, there was an

auction for the sale of fishery rights and the plaintiff was the
highest bidder making a bid of Rs. 40,000. The fishery rights had
been auctioned for 3 years. The rent, in fact, was Rs. 40,000 per
year. The plaintiff sought to avoid the contract on the ground
that he was working under a mistake and he thought that he
made a bid of Rs. 40,000 being the rent for all 3 years. It was

42

AIR 1998 SC 1400.

43

AIR 1970 Manipur 16.

26
held that since the mistake was unilateral, the contract was not
at all affected thereby and the same could not be avoided.

CHAPTER IV

4. LAWFUL OBJECT AND VOID AGREEMENTS

In this particular chapter the essential of lawful object between

parties and what constitutes a void agreement has been
discussed in detail.

4.1. RELEVANT SECTIONS

As per section 23 of the Indian Contract Act, 1872:

The consideration or object of an agreement is lawful, unless -It

is forbidden by law; or is of such nature that, if permitted it
would defeat the provisions of any law or is fraudulent; of
involves or implies, injury to the person or property of another;
or the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of which the
object or consideration is unlawful is void.

This chapter also refers to sections 24-29 of the Indian Contract

Act, 1872, when dealing with the subject of void agreements as
per Indian law.

4.2. ANALYSIS

27
4.2.1. Section 24: Agreement void, if considerations and
objects unlawful in part.
In the case of Pickering v Illfracombe44, a license was granted to
a person for sale of opium and ganja with this restriction that he
would not take any partner in the ganja business without the
permission of collector. Without such permission he admitted a
partner in both the business on receiving from him a fixed sum
as his share of capital. Different arose between them. The new
entrant filed a case for dissolution and refund of his money. His
claim was not allowed. The court said that it is impossible to
separate the contract or to say how much capital was advanced
for the opium and how much for the ganja.
In Gopalrao Vs Kallappa ,45 a municipality Corporation granted
to a contractor for alum sum the lincece to collect toll from
pilgrims and vehicle and animals. It had no power to authorise
collection of fees from pilgrims.The whole transaction was held
to be void.

4.2.2. Section 25: Agreement Made Without Consideration.

In the case of Rajlukhy Devee v. Bhoothnath Mukharjee46
the defendant promised to pay his wife a fix sum of money every
month for her separate resident and maintenance. The

44

1868 LR CP 235,250
45

(1901)3 Bom LR 164

46

(1900) 4 Cal WN 488.

28
agreement was contain in a registered document which contain
certain quarrel and disagreement between two.
The Calcutta high court refused to regard the agreement as one
covered by the exception. The court could find no trace of love
and affection between the parties whose quarrel had compelled
them separate.

4.2.3. Section 26: Agreements in Restraint of Marriage.

The restraint may be general or partial but the agreement is
void, and therefore, an agreement agreeing not to marry at all
for a fixed period, is void. However, an agreement restraint of
the marriage of a minor is valid under the section. It is
interesting to note that a promise to marry a particular person
does not imply any restraint of marriage and is, therefore, a
valid contract.
The law
(a) Prevents improvident, ill-advised, and often fraudulent
matches;
(b) Avoids all such contracts as tend to the deceit and injury, or
encourage artifices and improper attempts to control the
exercise of free judgment;
(c) Discountenances secret contracts made with prevents and
guardians, whereby on a marriage, they to receive a benefits
(d) Renders invalid certain agreements in restraint of
marriage.

29
In Hermann v. Charlesworth47, Charlesworth promised to
introduce young men to Ms Hermann and in return she was to
pay 52 in advance and 250 on the day of marriage. He made
his efforts to procure the marriage but he was unsuccessful. Ms
Hermann who had paid the advance brought an action against
him to recover back that money and she was successful. If,
however, the marriage had been solemnized, the money already
paid would not have been recovered back.

4.2.4. Section 27: Agreement in Restraint of Trade.

The constitution of India guarantees that the freedom of trade
and commerce to every citizen. Thus no person is at liberty to
deprive another of the fruit of his labour, skill or talent, by any
contracts that he enters into. It is to be noted that whether
restraint is responsible or not, if it is in the nature of restraint of
trade, the agreement is void always, subject to certain
exceptions provided for statutorily.

4.2.4. Section 28: Agreement in restraint of legal

proceedings.
Every agreement, by which any party thereto is restricted
absolutely from enforcing his right under or in respect of any
contract, by the usual legal proceedings in the ordinary
tribunals, or which limits the time within which he may thus
enforce his rights, is void to that extent.

47

(1905) 2 KB 123

30
 In Baroda Spinning Ltd. vs. Satyanarayan Marine and Fire
Ins. Co. Ltd48, in the contract of fire insurance, it was provided
that if a claim is rejected and a suit is not filed within three
months after such rejection, all benefits under the policy shall be
forfeited. The provision was held valid and binding and the suit
filed after three months was dismissed.

4.2.5. Section 29: Uncertain Agreement is Void.

Agreements, the meaning of which is not certain, or capable of
being made certain, are void. Through Section 29 of the Indian
Contract Act, the law aims to ensure that the parties to a
contract should be aware of the precise nature and scope of
their mutual rights and obligation under the contract. Thus, if
the words used by the parties are indefinite, the law cannot
enforce the agreement.
Further, an agreement to enter into an agreement in future is
void for uncertainty unless all the terms of the proposed
agreement are agreed expressly or implicitly. Thus, an
agreement to engage a servant sometime next year, at a salary
to be mutually agreed upon is a void agreement.

48

(1914) 38 Bom 344.

31
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