The Contract Act, 1872
Act (ix) of 1872
Application: 1st September, 1872
Contract Act is divided into two parts
● General principles of contract (Section 1-75) (Chapter i-vi)
● Special kinds of contract (Section 124-238) (Chapter viii-x)
○ Contracts of indemnity and guarantee (Section 124-147)
○ Contracts of bailment and pledge (Section 148-181)
○ Contract of agency (Section 182-238)
According to section 10, there are 4 conditions of enforceability:
1) There must be free consent of the parties:
Consent is not free if it is obtained by-
● Coercion - committing a crime under threat or being forced to consent.
(S15-voidable)
Scenario example: A, a local mastan, threatens B to sell his house for 2 lacs. B agrees,the
consent is obtained by coercion.
● Undue influence - dominate the will of others and misuse that position. (Doctor-
patient, Advocate-chent) (S16-voidable)
Scenario example: A doctor falsely leads X to believe that he is suffering from a deathly disease
and induces him to pay taka 5 lacs for the treatment. The doctor has exercised u.i.
** There's no blood relationship.
** Moral or mental pressure is used between parties, whose relations are such that one person
is in a position to dominate the will of the other person.
● Fraud - giving false statement of facts intentionally (S17-voidable) (intentionally
misrepresentation)
Scenario example: A, by false representation of facts, led X to purchase the Bongobhobon for
250 crores, it is fraud, since the intention was to deceive the aggrieved party.
● Unintentionally misrepresentation - false representation of facts made innocently
and without any intention to deceive the other party. (S18-voidable)
Scenario example: A is the owner of a sweet shop. B, a customer, requests for sugar- free
sweets. However, A innocently packs sweets containing less sugar. B, who had acute diabetes,
fell ill after consuming the sweets. It is a case of misrepresentation, as there was no intention to
cheat or deceive the aggrieved party.
● Mistake - erroneous belief concerning something (S20-void/ voidable/ valid)
Scenario example: X agrees to sell a horse to Y, but unknown to both the parties, the horse died
in the stable. The agreement is void, as there is a mistake of subject- matter.
2) Capacity of the parties:
The agreement must be made by the parties who are competents to contract.
Persons not competent to contract-
● Minor (S11,S12)
● Persons of unsound mind- idiot, lunatics, drunken, intoxicated person (S12)
● Persons disqualified by law. It includes those who are convicted of offenses or
those who have been imprisoned for certain offenses.
3) Lawful consideration and lawful object/ purpose:
The agreement must be made for a lawful consideration and with a lawful object. (S23)
Object or consideration of agreement is not lawful if-
● It is forbidden by law (theft murder)
● It defeats the provisions of any law (minor's consent)
● It is fraudulent
● It is opposed to public policy (renting house for gambling)
● It is injurious to any person or his property (to publish a defamatory statement)
Scenario example:
● X promises Y to allow employment in a public office and Y promises to pay taka 5 lacs to
X, the agreement is void as consideration is unlawful.
● A offers to sell drugs to B for taka 25k. Contract is not valid as the object is forbidden by
law.
4) Agreement must not be declared void:
Examples of agreements expressly declared void–
*S26: Agreements in restraint of marriage.
*S27: Agreements in restraint of trade.
*S28: Agreements in restraint of legal proceedings.
*S30: Agreements in nature of wages (bet)
3 golden rules to enter a contract
1) Offer (proposal)+ Acceptance = Promise
2) Promise + Consideration = Agreement
3) Agreement + Enforceability = Contract
Before Muhuri Bibi v. Dharmodas Ghosh – a minor’s contract was voidable.
After the case – a minor cannot enter into a contract, so it is void.
Section 25 of the Contract Act, 1872 –
“Agreement without consideration, void, unless it is in writing and registered, or is a promise to
compensate for something done, or is a promise to pay a debt barred by limitation law.”
Meaning:
Normally, an agreement without consideration is void. But Section 25 gives three exceptions
where such agreements are valid even without consideration:
1. Written and Registered Agreement based on Natural Love and Affection – Between parties
standing in near relation.
2. Promise to Compensate for Past Voluntary Service – For something already done for the
promisor voluntarily.
3. Promise to Pay a Time-Barred Debt – If it is in writing and signed by the debtor.
Contract of Utmost Good Faith (Uberrimae Fidei):
A contract where both parties are bound to disclose all material facts honestly and fully. If one
party knows something important and hides it (or lies), the contract can be void.
● Requires complete honesty from both sides.
● Common in insurance contracts, partnership, family settlements, etc.
● If a party knowingly gives false information or conceals the truth so that the other party
believes it, it is a breach of utmost good faith.
Example: Life insurance – if the proposer hides a serious illness, the insurer can cancel the
policy.
(informally, the person knows that it is not true, but wants the other party believe it to be true)
Some short information –
*** First frustration case in India- Satyabrata Ghose v Mugneeram Bangur
*** Rescission – Cancellation of a contract, restoring parties to their pre-contract position.
Remission – Acceptance by the promisee of a lesser fulfillment than originally agreed.
Alteration – Mutual change in one or more terms of a contract without substituting a new one.
Novation – Substitution of a new contract or party in place of the old, with the consent of all.
*** Difference between Section 62 and 63
62 requires an agreement and consideration, 63 does not; 62 cannot happen after breach, 63
can happen even after breach.
*** Quasi contract
68 – Claim for necessaries supplied to a person incapable of contracting.
69 – Reimbursement of a person who pays money on another’s behalf to protect their interest.
70 – Compensation for non-gratuitous acts done for another person.
71 – Duties and rights of a finder of goods.
72 – Refund of money or goods received by mistake or under coercion.
*** Garden leave – Period during which an employee, after resigning or being terminated, is
paid but asked not to work, usually to prevent access to sensitive information or influence over
clients. It ensures a smooth transition while keeping the employee away from the workplace.
*** English law- consideration always comes from a promisee. Past consideration is not valid.
Our law - consideration can come from a promise or any other person.
Past consideration is valid and enforceable (Section 2(d) of the Contract Act).
*** Acceptance must be unqualified ( mirror image of the offer)
*** Counter offer amounts to rejection of the original offer. It's also called “conditional
acceptance”.
***
