CAPACITY TO CONTRACT

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Who Are Competent to Contract

(Section 11, Indian Contract Act, 1872)

Introduction

For a valid contract, it is essential that the parties involved are competent to contract.
Section 11 of the Indian Contract Act, 1872, lays down the criteria for determining the
competency of parties. It states that every person is competent to contract who is:

●​ Of the age of majority,

●​ Of sound mind,

●​ Not disqualified from contracting by any law to which he is subject.

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1. Capacity by Age

As per Section 3 of the Indian Majority Act, 1875, a person is said to have attained the age
of majority upon completing 18 years.

However, if a guardian is appointed by the court for a minor or if the minor's property is under
the court of wards, then majority is attained at 21 years.

A person below the age of majority (minor) is not competent to contract. Contracts entered
into by minors are void ab initio (invalid from the beginning).
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2. Capacity by Soundness of Mind

According to Section 12 of the Indian Contract Act, 1872, a person is of sound mind if:
●​ He can understand the terms of the contract.
●​ He can form a rational judgment regarding its impact on his interests.

Persons of Unsound Mind:

a) Idiots: Individuals with permanent mental incapacity cannot enter into contracts at any
time.
b) Lunatics: Individuals with intermittent mental illness can enter into contracts only during
periods of sanity.
c) Drunkards: Persons intoxicated due to alcohol or drugs are considered incapable during
intoxication. Contracts can only be valid if entered into when sober.
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3. Disqualification by Law

Certain persons, though they may be of age and sound mind, are disqualified by specific
laws from entering into contracts:

1. Alien Enemies: Citizens of a country at war with India cannot enter into contracts during
the period of hostility. Contracts during peacetime may be valid.

2. Married Women: Generally competent to contract, but cannot contract in relation to their
husband’s property without proper authority.

3. Pardanashin Women: Considered under special protection due to social and educational
constraints; contracts with them must be made with caution and clear understanding.

4. State Ambassadors and Diplomats: Immune from certain contracts due to diplomatic
privileges.

5.Convicts: Persons serving a sentence are incompetent to contract. However, they may
contract once the sentence is served or they are released on bail.

6. Insolvents: An undischarged insolvent cannot dispose of property but may purchase

property. Contracts involving his property rights are restricted.

7. Legal Professionals: Judges, advocates, and public prosecutors cannot contract in

matters where they have a professional conflict of interest.

8. Patent Officers: Restricted from entering into contracts that misuse their monopoly rights
or conflict with their official duties.

9. Companies: As artificial legal persons, companies can only enter into contracts within the
scope of their Memorandum of Association and Articles of Association. Contracts beyond
their powers are ultra vires (beyond legal authority) and void.
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MINOR’S AGREEMENT – INDIAN CONTRACT LAW

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I. Who is a Minor?

According to Section 3 of the Indian Majority Act, 1875, a person attains majority at 18 years,
or at 21 years if a court-appointed guardian is involved.

Under Section 11 of the Indian Contract Act, 1872, a minor is not competent to contract.
Hence, any agreement with a minor is void ab initio, meaning it is void from the very
beginning.
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II. Nature of Minor’s Agreement

A minor's agreement is not merely voidable but absolutely void from the beginning.

A minor cannot legally enter into a contract.

Landmark Case:
Mohiri Bibi v. Dharmodas Ghose (1903)

Minor mortgaged property for a loan.

Court held the contract void as the minor was not competent to contract.

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Position under English Law

Earlier, contracts with minors were voidable at minor’s option.

Infants Relief Act, 1874 made certain contracts absolutely void:

1. Repayment of loans,
2. Supply of non-necessary goods,
3. Accounts stated.
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II. Key Legal Effects of Minor’s Agreement

1. Void Ab Initio

A contract with a minor is absolutely void and unenforceable in law.

This means no legal obligations arise from such a contract.

Case Law: Mohiri Bibi v. Dharmodas Ghose – A minor mortgaged property; the court held
the contract void as he was underage.

2. No Estoppel Against Minor

A minor is not bound by any misrepresentation about their age.

Even if a minor falsely claims to be a major, they can still plead minority as a defense.

Case Law: Leslie (R.) Ltd. v. Sheill – A minor who took money by misrepresenting his age
was not held liable.
3. No Ratification After Majority

A contract made during minority cannot be ratified (validated) after attaining majority.

A fresh contract with new consideration is required to create any liability.

Suraj Narain v. Sukhu Aheer: Fresh promissory note post-majority was invalid as
consideration was void.

4. No Specific Performance

A minor cannot be compelled to specifically perform a contract.

Specific performance is not allowed for void agreements.

5. Restitution Doctrine (Equity-Based)

If a minor has received goods or property, the supplier can only recover them if they are still
traceable.

No monetary compensation can be demanded as it amounts to enforcing a void contract.

6. Minor's Liability for Necessaries

A minor is liable for “necessaries” supplied to him, such as food, clothing, education, and
shelter.

However, only the minor’s property, not the person, is liable.

Necessaries – Section 68 of Indian Contract Act

A person supplying necessaries can claim reimbursement from minor’s property, not from
the minor personally.

Definition includes:
●​ Food, shelter, clothing,
●​ Education, marriage of dependent,
●​ Expenses for necessary litigation,
●​ Payment of taxes or property repairs.

Nash v. Inman: Clothes supplied to minor not considered necessaries if already

well-stocked.

Case Law: Kuwarlal v. Surajmal – Rent for a house used for education considered a
necessary.
A minor cannot be declared insolvent, even if debts arise from the supply of necessaries.

They are not personally liable for debts.

8. Minor as an Agent

A minor can act as an agent and bind the principal.

However, the minor himself cannot be held personally liable for his actions as an agent.

9. Minor and Partnership

As per Section 30 of the Indian Partnership Act, 1932, a minor cannot be a full partner but
can be admitted to the benefits of partnership.

The minor can share profits but not losses and is not personally liable.

10. Exception: Beneficial Contracts

Contracts beneficial to a minor can be enforced by the minor.

Examples include:

●​ A mortgage or promissory note in favour of the minor.

●​ Marriage contracts deemed for the benefit of the minor.
●​ Supply of necessaries.

Case Law: Kundan Bibee v. Sree Narayan – A bond executed after attaining majority with
new consideration was held valid.

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III. Conclusion

The Indian Contract Act safeguards the interests of minors by rendering their agreements
void and unenforceable. However, exceptions exist to protect them from exploitation and to
enforce contracts that are beneficial. While minors enjoy certain protections, they also carry
limited liabilities, particularly through their property for necessaries.

★ The case of Mohori Bibee v. Dharmodas Ghose (1903) is a landmark judgment by the
Privy Council that laid down key principles regarding the contractual capacity of minors
under Indian Contract Law.

Here are the MAIN PRINCIPLES LAID DOWN IN THE CASE:

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1. Minor’s Contract is Absolutely Void (Void ab initio)

An agreement entered into by a minor is void from the very beginning and not merely
voidable. It creates no legal obligations on the part of the minor.
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2. No Estoppel Against a Minor

A minor is not estopped from pleading minority even if he had fraudulently misrepresented
his age at the time of contract.

Law prioritizes protection of minors over consequences of misrepresentation.

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3. Sections 10 and 11 of the Indian Contract Act Must Be Read Together

Section 10 states that only those who are competent can enter into a valid contract.

Section 11 makes it clear that a minor is not competent to contract.

Therefore, any agreement with a minor is void and unenforceable
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4. No Ratification on Attaining Majority

A minor cannot ratify a contract after attaining majority, because something that is void from
the beginning cannot be validated later.
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5. No Refund or Restitution of Money (General Rule)

Since the contract is void, the lender cannot recover money advanced to a minor, unless the
property or goods are traceable and returnable.

This limits the doctrine of restitution under equity.

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Facts of the Case in Brief:

Dharmodas Ghose, a minor, mortgaged property to Mohori Bibee’s agent to secure a loan.

At the time of agreement, the lender’s agent knew he was a minor.

The court held the contract void as Dharmodas was a minor and hence not competent to
contract.
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Significance:
This case is the foundation of Indian contract law regarding minor's capacity. It protects
minors from contractual liability while ensuring justice based on statutory competence.

PERSON OF UNSOUND MIND – INDIAN CONTRACT ACT, 1872

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I. Legal Provision: Section 12 of the Indian Contract Act, 1872

Section 12 states:
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 interests.
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II. Test of Soundness of Mind

A person is of sound mind only if:

1. He understands the nature and terms of the contract, and

2. He is able to form a rational judgment regarding the effect of the contract on his own
interests.

If either of the two is absent, the person is considered of unsound mind, and any contract
made by him is void.
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III. Types of Persons Considered Unsound in Mind

1. Idiots

Congenital and permanent mental incapacity.

No lucid intervals.

Cannot make any valid contract at any time.

2. Lunatics

Suffer from mental illness but have lucid intervals (temporary periods of sanity).

Contracts made during unsound periods are void.

Contracts made during lucid intervals are valid and binding.

3. Drunken or Intoxicated Persons

Treated similarly to lunatics.

If intoxication prevents understanding and rational judgment, the contract is void.

Mere consumption of alcohol is not sufficient; the drunkenness must be excessive.

4. Delirium or Mental Decay (Old Age, High Fever, Hypnotism, etc.)

Temporary or permanent unsoundness of mind arising from other physical or medical

conditions.
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IV. Key Rules Regarding Contractual Capacity

1. A person usually of unsound mind but occasionally of sound mind:

Can enter into a valid contract during periods of sanity.

2. A person usually of sound mind but occasionally of unsound mind:

Cannot contract during unsound periods.

3. The burden of proof lies on the person who alleges unsoundness at the time of
contract.
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V. Legal Status of Contracts by Unsound Persons

Void if made during a period of unsound mind.

Cannot be ratified even after regaining sanity (similar to a minor’s agreement).

Specific performance of such a contract cannot be enforced.

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VI. Exceptions – Beneficial Contracts

Despite being of unsound mind, the following exceptions apply:

1. A person of unsound mind can enforce a contract made for his benefit.

2. As per Section 68 of the Indian Contract Act, the property of an unsound person is liable
for payment of necessaries supplied to him or his dependents.

Case Example:
If food, shelter, clothing, medical treatment, or education is provided, the supplier can
recover the cost from the estate/property of the person, but not from the person personally.
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PERSONS DISQUALIFIED BY LAW – INDIAN CONTRACT ACT, 1872

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I. Meaning

While a person may be of the age of majority and of sound mind, they may still be
disqualified from entering into contracts due to legal or political restrictions. These
disqualifications are imposed in the interest of public policy, national security, or professional
ethics.
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II. Categories of Disqualified Persons

1. Alien Enemies

An alien is a person who is not a citizen of India.

●​ Alien Friend: A citizen of a country at peace with India can contract legally.

●​ Alien Enemy: A citizen of a country at war with India is disqualified from contracting.

Rules:

No contract can be made with an alien enemy during war, unless permitted by the
Government.

Existing contracts (made before the war) are suspended during war and may be resumed
post-war, subject to government approval.

Example: A Pakistani national entering India without a valid visa cannot enter into valid
contracts.
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2. Insolvents

An undischarged insolvent (one who has been declared insolvent but not yet released by
court) cannot transfer or manage property and is disqualified from certain contracts.

Once discharged by the court, he regains full contractual capacity.

May still enter into non-property contracts during proceedings before adjudication.
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3. Convicts
A person undergoing a criminal sentence is incompetent to contract during the period of
imprisonment.

The disqualification is temporary and ends once the sentence is served or bail is granted.
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4. Foreign Sovereigns and Ambassadors

Though legally competent, they are protected by diplomatic immunity.

They cannot be sued or forced to perform a contract in Indian courts without the consent of
the Central Government.
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5. Pardanashin Women

Socially and educationally disadvantaged women under strict seclusion.

Contracts made with them are valid only if consent is free and fully informed.

The other party must prove that she understood the contract and was not misled.
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6. Married Women

Generally competent to contract in their own name.

Cannot bind their husband's property without proper legal or personal authority.
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7. Legal Professionals (Judges, Lawyers, Public Prosecutors)

Cannot enter into contracts that conflict with their official or professional duties.

Example: A judge cannot buy disputed property in a case under his jurisdiction.
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8. Patent Officers and Public Servants

Restricted from contracts that create a conflict of interest or misuse monopoly powers.

Such contracts are unenforceable if found to be against the public interest.

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9. Companies and Corporations

Being artificial legal persons, companies can only contract within the powers granted by
their:

●​ Memorandum of Association (MOA), and

●​ Articles of Association (AOA).

Contracts ultra vires (beyond their legal capacity) are void.

FREE CONSENT
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1. Introduction to Consent and Free Consent

Consent is a crucial element in forming a valid contract. As per Section 13 of the Indian
Contract Act, 1872, consent means when two or more persons agree upon the same thing in
the same sense, also known as consensus-ad-idem. However, mere consent is not enough
for a valid contract—it must also be free consent.

According to Section 14, consent is free when it is not caused by:

●​ Coercion
●​ Undue Influence
●​ Fraud
●​ Misrepresentation
●​ Mistake

A contract made without free consent is voidable at the option of the party whose consent
was not free.
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2. Difference Between Consent and Free Consent

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3. Legal Provisions

Section 10: Free consent is a necessary element for a valid contract.

Section 13: Defines “consent”.

Section 14: Defines “free consent”.

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4. Circumstances When Consent is Not Free

a) Coercion [Section 15]

Involves using force or unlawful threats to compel a person to enter into a contract.

Defined as committing or threatening to commit any act forbidden by the Indian Penal Code.

Effect: Contract is voidable at the option of the coerced party.

b) Undue Influence [Section 16]

Occurs when one party is in a position to dominate the will of the other and uses that
position unfairly.

Common in relationships like doctor-patient, lawyer-client, parent-child.

Effect: Contract is voidable; burden of proof lies on the dominant party.

c) Fraud [Section 17]

Intentional misrepresentation or concealment of a material fact to deceive the other party.

Examples: false promises, active concealment, or use of deceptive documents.

Effect: Aggrieved party can rescind the contract and claim damages.

d) Misrepresentation [Section 18]

False statement made innocently or without intent to deceive.

Can be innocent or negligent misrepresentation.

Effect: Contract is voidable; rescission available but damages not always granted.

e) Mistake [Section 20-22]

Bilateral mistake (both parties mistaken on facts): Contract is void.

Unilateral mistake (only one party mistaken): Contract is usually valid unless mistake relates
to nature of the contract or identity of the person.
 ●​ Mistake of Indian law: Not excusable.

●​ Mistake of foreign law: Treated as mistake of fact and may be excused.

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5. Example of Free Consent

If A, facing financial hardship, proposes a contract to B, and B, after understanding all facts,
accepts it voluntarily, the consent is mutual and free. But if A forced B or misled him with
false facts, the consent would not be free.
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6. Legal Consequences of Lack of Free Consent

Contracts lacking free consent are voidable, i.e., they can be cancelled by the aggrieved
party.

In case of coercion, fraud, undue influence, or misrepresentation, the party whose consent
was not free can either:

●​ Rescind the contract, or

●​ Insist on performance and claim damages.

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COERCION – Section 15 of the Indian Contract Act, 1872
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1. Meaning of Coercion

Coercion means compelling a person to enter into an agreement by using force or threat. As
per Section 15 of the Indian Contract Act, coercion is:

Committing or threatening to commit any act forbidden by the Indian Penal Code (IPC), or

Unlawful detaining or threatening to detain any property,

With the intention of causing any person to enter into an agreement.

It is immaterial whether the IPC is or is not in force at the place where coercion is employed.

Example: If A, aboard a British ship on the high seas, threatens B with criminal intimidation
(as per IPC) to make him sign a contract, and later sues him in Calcutta, coercion is said to
have been employed.
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2. Essential Elements of Coercion

1. An act forbidden by IPC: The act committed or threatened must be illegal under IPC.

2. Unlawful detention of property: This includes wrongful holding or threat to hold

someone's property.

3. Intention to cause entry into an agreement: The act or threat must be with the objective
of compelling consent.

4. Against any person: The act may be directed towards the party or a third person.

5. Voidable agreement: A contract entered into by coercion is voidable at the option of the
aggrieved party (Section 19).

6. Burden of proof: Lies on the party alleging coercion.

7. Violent character: Coercion implies physical or mental pressure.

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3. Case Laws on Coercion

●​ Chikkam Ammiraju v. Chikkam Seshamma (1917)

The husband threatened to commit suicide to force his wife and son to sign a release deed.
The court held that such a threat, although not punishable, amounted to coercion, as attempt
to commit suicide is punishable under IPC.

●​ Ranganayakamma v. Alwar Setti (1889)

A widow was prevented from performing her husband’s funeral rites unless she adopted a
boy. The court ruled that the consent was not free, as it was obtained by coercion.

●​ Keshavji v. Harjivan (Privy Council)

A father paid a forged debt by his son under the bank's threat of criminal prosecution. The
court held the payment was made under coercion and could be recovered.
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5. Important Clarifications

Threat to Prosecute: Mere threat to prosecute someone or to file a lawsuit is not coercion.

High Prices or Interest: Charging high interest or price is not coercion, unless it involves
illegal means or threats.

Threat to Commit Suicide: Although not explicitly punishable under IPC, it is treated as
coercion because attempt to commit suicide is punishable, indicating that the act is
forbidden.
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6. Legal Consequences (Section 19)

If consent is caused by coercion:

The agreement is voidable at the option of the party whose consent was so caused.

The aggrieved party can rescind (cancel) the contract.

Upon rescission, the party must restore the benefits received under the contract.

UNDUE INFLUENCE

Section 16 of the Indian Contract Act, 1872

Meaning

A contract is said to be induced by undue influence when:

●​ The relationship between the parties is such that one is in a position to dominate the
will of the other, and

●​ Such dominant party uses that position to gain an unfair advantage.

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Essentials of Undue Influence

1. Existence of a dominating position

One party must be in a position to dominate the will of the other.

2. Misuse of position
The dominant party must misuse the position.

3. Unfair advantage obtained

The contract must benefit the dominant party unfairly.
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When a Person is Deemed to be in a Position to Dominate the Will of Another (Sec. 16(2)):

a) Real or apparent authority (e.g., employer and employee, master and servant)

b) Fiduciary relationship based on trust (e.g., doctor-patient, lawyer-client)

c) Weakened mental condition due to age, illness, or

bodily/mental distress

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Presumption of Undue Influence
Presumed by courts when:

●​ Contract appears unconscionable (unfair) and

●​ One party is in a position of dominance (e.g., pardanashin woman, old or illiterate

individuals).

Examples of presumed undue influence relationships:

●​ Parent and child

●​ Guardian and ward
●​ Doctor and patient
●​ Solicitor and client
●​ Religious guru and disciple
●​ Trustee and beneficiary
●​ Fiancé and fiancée
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Burden of Proof

Normally, the burden is on the plaintiff to prove undue influence.

However, it shifts to the defendant if:

The defendant had a dominating position, and

The transaction appears unconscionable.

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Effect of Undue Influence (Section 19A)

A contract caused by undue influence is voidable at the option of the aggrieved party.

Court may:

●​ Set aside the contract absolutely, or

●​ Impose conditions if benefits have already been received.
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Illustrative Examples

Undue influence exists:

A father forces his son to sign a contract under threat of disowning him.

A tribal, blind woman sells land under pressure by a trusted acquaintance (Sethani v.
Bhana).

A lawyer demands excessive fees without disclosure.

No undue influence:
A banker charges high interest during a money crunch – it is a business transaction, not
undue influence.

FRAUD (Section 17, Indian Contract Act, 1872)

Definition:
According to Section 17 of the Indian Contract Act, 1872, fraud includes any act committed
by a party to a contract (or his agent), with intent to deceive the other party or to induce him
to enter into the contract.
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Acts Constituting Fraud:

1. False Suggestion of Fact

Suggesting something as a fact which is not true, by someone who does not believe it to be
true.

2. Active Concealment of Fact

Deliberate hiding of a material fact by someone who has knowledge or belief of it (suppresio
veri).

3. Promise Without Intention to Perform

Making a promise without any intention of fulfilling it at the time of making the contract.

4. Any Act Fitted to Deceive

General clause to include deceptive acts not specifically covered above.

5. Acts or Omissions Declared Fraudulent by Law

Any act or omission that the law specifically regards as fraudulent.
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Explanation:

Mere silence as to facts affecting the contract is not fraud unless:

●​ There is a duty to speak, or

●​ Silence is equivalent to speech.
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Essential Elements of Fraud:

●​ False representation of fact.

●​ Knowledge that the fact is false.
●​ Intention to deceive.
●​ The other party must rely on the representation.
 ●​ Loss or damage must result from such reliance
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Exceptions:

Fraud by silence occurs when:

●​ There is a duty to disclose (e.g., contracts of uberrimae fidei such as insurance).

●​ Silence is misleading in context, and amounts to implied representation.

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Key Case Laws:

Edgington v. Fitzmaurice: Misstatement of intention held as fraud.

Keates v. Lord Cadogan: Mere silence was held not to be fraud.

Srinivasa Pillai v. LIC of India: Duty to disclose material facts in insurance contracts.

Akhtar Jahan Begam v. Hazarilal: Fraud by omission of earlier transaction of the same
property.

Shri Krishan v. Kurukshetra University: No fraud when omission is not deliberate and duty
lies on the authority to verify.
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Effect of Fraud:

A contract induced by fraud is voidable at the option of the party defrauded.

The aggrieved party may rescind the contract or insist on performance and be placed in the
position as if the representation were true.

If the party had the means of discovering the truth with ordinary diligence, the contract is not
voidable.
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Damages:

The party defrauded may claim compensation for loss directly arising from the fraud.

Restitution is available (return of what was given under the contract).

Must take steps to mitigate loss upon discovering the fraud.

MISREPRESENTATION
[Section 18 of the Indian Contract Act, 1872]
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I. Meaning and Definition:

Misrepresentation refers to a false statement of fact made innocently by one party to

another, which induces the other party to enter into a contract. It is a representation believed
to be true by the person making it, though in fact, it is false. Misrepresentation lacks
fraudulent or dishonest intent.

When made intentionally, it is termed as fraud.

When made innocently, it is termed as misrepresentation.

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II. Types / Classification under Section 18:

1. Positive Assertion (Unwarranted Statement):

A statement that is not true, made without verifying facts, but believed to be true by the
person making it.

2. Breach of Duty Without Intent to Deceive:

A breach of duty that, though not intended to deceive, gives an unfair advantage to one party
and misleads the other to their prejudice. This includes situations of non-disclosure of
material facts where disclosure is required.

3. Inducing Mistake about Subject Matter (Innocently Causing Mistake):

Causing, even innocently, the other party to make a mistake regarding the nature, quality, or
substance of the subject matter of the agreement.
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III. Essential Elements of Misrepresentation:

1. It must be a false statement of fact, not opinion or intention.

2. The person making the statement must believe it to be true.

3. The statement must be material to the contract, i.e., it should influence the decision to
contract.

4. It must be made with an intent to induce the other party to enter into a contract.

5. The other party must have acted upon the misrepresentation.

6. There should be no fraudulent or dishonest intent.

7. The misled party must not have discovered the truth by ordinary diligence.
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IV. Effect of Misrepresentation [Section 19]:

When consent to a contract is caused by misrepresentation:

1. The agreement becomes voidable at the option of the aggrieved party.

2. The aggrieved party may:

●​ Rescind (cancel) the contract, or

●​ Affirm the contract and insist on performance as if the representation were true.
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V. Loss of Right to Rescind:

The right to rescind the contract is lost in the following cases:

1. If the truth could have been discovered by ordinary diligence.

2. If no actual inducement to contract occurred.

3. If, after discovering the truth, the aggrieved party expressly affirms or accepts benefits
under the contract.

4. If third-party rights have intervened before rescission.

5. If restoration to the original position is no longer possible.

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VI. Types of Misrepresentation (Based on Nature):

1. Innocent Misrepresentation:
False statement made without knowledge of its falsity and without intent to deceive. Only
rescission is possible, no damages.

2. Negligent Misrepresentation:
A careless statement without reasonable grounds for belief. Damages may be claimed.
Example: Esso Petroleum Co. Ltd. v. Mardon.

3. Fraudulent Misrepresentation (crosses into Fraud):

Deliberate false statement with intent to deceive. Actionable under fraud laws.
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VII. Distinction between Misrepresentation and Fraud:

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VIII. Illustrative Case Laws:

Noorudeen v. Umairathu Beevi:

A blind man was misled into signing a sale deed instead of a hypothecation deed. The court
set aside the transaction based on fraud and misrepresentation.

Esso Petroleum Co. Ltd v. Mardon:

Negligent misrepresentation about expected petrol sales led to damages being awarded to
the aggrieved party.
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IX. Conclusion:

Misrepresentation is a significant vitiating factor in contract law. Although made without intent
to deceive, it affects the validity of consent. The law provides remedies to the aggrieved
party, including rescission or specific performance, to protect contractual fairness.

MISTAKE UNDER INDIAN CONTRACT LAW

Definition:
Mistake refers to an erroneous belief concerning something. When an agreement is made
under a mistake, it may affect the validity of consent, which is essential for a valid contract.
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TYPES OF MISTAKE

1. Mistake of Law (Section 21)

Mistake relating to law can be classified as:

●​ Mistake of Indian Law:

Not excusable. Everyone is presumed to know the law of the land. Contracts based on such
mistakes are not voidable.

●​ Mistake of Foreign Law:

Treated as a mistake of fact, as parties cannot be expected to know foreign laws. If it is
essential to the agreement, it may render the contract void.

2. Mistake of Fact (Section 20)

Mistake of fact can be:

(a) Bilateral Mistake:

Both parties are under a mistake regarding a matter of fact essential to the contract. Such
agreements are void. Conditions:

1. Both parties must be mistaken.

2. Mistake must be about a fact, not law.
3. The fact must be essential to the agreement.

Examples of Bilateral Mistake:

●​ Mistake as to existence: Subject-matter no longer exists (e.g., goods already

destroyed).

●​ Mistake as to identity: Parties think of different subject-matters.

●​ Mistake as to title: Buyer already owns the property.

●​ Mistake as to quantity or price: Errors in amount or cost.

●​ Mistake as to quality: Item is fundamentally different from what was believed.

●​ Mistake as to possibility of performance:

●​ Physical Impossibility: Subject-matter/event doesn't exist (e.g., coronation case).

●​ Legal Impossibility: The act cannot legally be done.

(b) Unilateral Mistake (Section 22):

When only one party is under a mistake. As a general rule, such contracts are not voidable.
However, they can be void when:

Mistake defeats consent or the very nature of the contract.

Mistake as to identity of contracting party (e.g., person impersonating another).

Mistake as to nature of the contract (e.g., signing a different type of document than
understood).

Notable Cases:

SMITH V. HUGHES: Buyer mistook the oats’ age—held liable.

FOSTER V. MACKINNON: Illiterate man misled into signing a bill—contract void.
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OTHER CLASSIFICATIONS OF MISTAKE

1. Common Mistake:
Both parties make the same mistake about a fundamental fact.

Example: Subject-matter already perished.

2. Mutual Mistake:
Parties misunderstand each other—there is no meeting of minds.

Example: One offers an 8 H.P. car, the other thinks it’s 10 H.P.

3. Absence of Consent (Section 13):

Consent must be "consensus ad idem" (agreement on the same thing in the same sense).

Mistake as to identity or nature of the transaction nullifies consent.

4. Mistaken Assumption:
Based on ignorance or misconception of essential facts.

Example: Belief in a non-existent debt.

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EFFECT OF MISTAKE

1. Bilateral mistake of fact (essential to the agreement): Agreement is void.

2. Unilateral mistake: Generally not void, unless it affects consent or identity.

3. Restitution: Any advantage gained must be returned or compensated.

4. Mistake of law (Indian): Does not make contract voidable.

5. Mistake of foreign law: Treated like mistake of fact.

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RECTIFICATION OF MISTAKE

When a written contract does not reflect the true intention of the parties due to mutual
mistake, courts can rectify the document to align with the actual agreement.

Differences between Fraud and Misrepresentation under the Indian Contract Act:
Differences between coercion and undue influence
VOID AGREEMENTS –
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Introduction

As per Section 2(h) of the Indian Contract Act, a contract is an agreement enforceable by
law.

However, not all agreements are contracts—some are declared void due to illegality or
public policy.

A void agreement is one that is not legally enforceable, either from the beginning or due to
subsequent illegality or impossibility.

Void agreements create no legal rights or obligations and cannot be enforced in a court of
law.
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1. Unlawful Agreements (Section 23 & 24)

An agreement is void if its consideration or object is unlawful.

Unlawful considerations/objects include:

1. Forbidden by law
2. Defeats the purpose of law
3. Fraudulent in nature
4. Involves injury to person/property
5. Immoral or against public policy

Case: Pearce v. Brooks

A hired vehicle for immoral purposes (to aid prostitution) was held void due to immoral
object.

Example:
Agreement to manage illegal business
Promise to pay for suppressing criminal prosecution
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2. Agreement Without Consideration (Section 25)

General Rule: No consideration, no contract.

Agreements made without consideration are void, except when:

1. Made out of natural love and affection, in writing and registered

2. Made to compensate for a past voluntary service

3. Promise to pay a time-barred deb

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3. Agreement in Restraint of Marriage (Section 26)

Any agreement that restrains a person (not a minor) from marrying is void.

The restraint can be total or partial.

Case: Lowe v. Peers

Promise to marry only a specific person with a penalty for breach was held void.

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4. Agreement in Restraint of Trade (Section 27)

Agreements that restrict a person from carrying on a lawful profession, trade, or business
are void.

Case: Sheikh Kalu v. Ramasaran Bhugat – Exclusive supply restriction was held void.

Exceptions:

A. Statutory Exceptions (Indian Contract Act & Partnership Act):

Sale of goodwill: Reasonable restrictions are valid.

Partners not to carry on competing business during partnership (Sec 11(2))

Post-retirement/dissolution restrictions (Sec 36(2), 54)

B. Judicial Exceptions:

Employment contracts during employment are valid.

Case: Charlesworth v. MacDonald

Trade combinations that regulate (not restrain) trade are valid.

Case: Bholanath Shankardas v. Lachminarain

Solus agreements (exclusive dealing) are valid if not one-sided or oppressive.

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5. Agreement in Restraint of Legal Proceedings (Section 28)

Agreements that restrict parties from enforcing their legal rights in court or that limit the time
to do so are void.

Example: Clause limiting right to sue after 2 years (when law allows 3) is void.

Exceptions:

Arbitration agreements for settling disputes are valid.

Statutory references to arbitration are recognized.

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6. Agreements Void for Uncertainty (Section 29)

Agreements with ambiguous, vague, or uncertain terms are void.

Examples:

“A agrees to sell 100 tons of oil” – Void if the type of oil isn’t specified.

“A agrees to sell all grain in his granary at Ramanagar” – Valid as object is certain.
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7. Wagering Agreements (Section 30)

Agreements based purely on chance, with mutual gain/loss, and no real interest in the
subject matter are void.

Essentials of a Wager:
1. Future uncertain event
2. Equal chance of gain or loss
3. No genuine or proprietary interest
4. Based on mutual bets or stakes

Example: A and B bet on rainfall – a void wagering agreement.

Exception:
Horse races where the prize is Rs. 500 or more.
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8. Agreements to Do Impossible Acts (Section 56)

Agreements to perform acts that are impossible in themselves are void from the beginning.

Example: Promise to bring a dead person back to life.

If a contract becomes impossible due to supervening event, it becomes void (doctrine of

frustration).
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Conclusion

Void agreements are non-binding and have no legal force under the Indian Contract Act,
1872. It is essential to distinguish valid contracts from void ones to ensure enforceability and
legal compliance. Understanding these provisions helps in drafting lawful and enforceable
agreements.

3. Agreement in Restraint of Marriage (Section 26)

Legal Provision:

Section 26 of the Indian Contract Act, 1872 states that “Every agreement in restraint of the
marriage of any person, other than a minor, is void.” This applies whether the restraint is
total or partial, and whether it relates to marrying at all, marrying a particular person, or
marrying within a specific time frame.
---

Key Principles:

Absolute and Partial Restraint: Both total and partial restraints are void. A restraint can be:

●​ General (not to marry at all),

●​ Partial (not to marry a particular person/class or within a specific time)

Exception: Agreements restraining the marriage of minors are valid.

Public Policy: These agreements are void as they are against public policy, which promotes
marriage as a personal and societal necessity.
---

Important Case Laws:

1. Lowe v. Peers: A man promised to marry only a specific woman and pay Rs. 2,000 if he
married someone else. Held: the agreement was in restraint of marriage and void.

2. Rao Rani v. Gulab Rani / Suryanarayana Murthi v. P. Krishna Murthy: Co-widows

agreed to forfeit their share in deceased husband’s property upon remarriage. Held: Valid – it
did not restrain marriage but only imposed a consequence.

3. Tulshiram v. Roopchand: A betrothal contract (promise to marry in future) was held

neither in restraint of marriage nor against public policy.

4. Abbas Khan v. Nur Khan: A customary payment of rogha (bride-price) under

Muhammadan law was declared unenforceable as it was immoral and against public policy.

5. Badu v. Badarannessa: A provision in Nikah Nama allowing a Muslim wife to divorce

herself if the husband marries again was upheld. Such a clause is not considered restraint
on marriage.

6. Air India v. Nergesh Meerza:

Restriction on marriage during the first 4 years of service for air hostesses was upheld as
reasonable.

However, termination on first pregnancy was struck down as unconstitutional (violative of

Article 14).
---

Law Commission’s Recommendations:

Agreements in total restraint of marriage (except for minors) should remain void.

Agreements in partial restraint should be void if they are unreasonable in the context of the
case.
—

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AGREEMENT IN RESTRAINT OF TRADE

1. Meaning and General Rule:

As per Section 27 of the Indian Contract Act, 1872, every agreement by which anyone is
restrained from exercising a lawful profession, trade or business of any kind is void.

The rationale is that freedom of trade and commerce is a fundamental right under Article
19(1)(g) of the Constitution.

Public policy ensures that a person should not contract away their right to use their skills and
labour
---

2. Judicial Interpretation:

All agreements, whether total or partial, qualified or unqualified, in restraint of trade are void,
unless covered under the exceptions.

Case Law:

Sheikh Kalu v. Ramasaran Bhagat – Agreement between 29 out of 30 comb

manufacturers to deal only with one person was held void.

Madhub Chunder v. Raj Coomar Dass – Agreement to stop business for compensation
held void.
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3. Statutory Exceptions (Valid Restraints):

A. Sale of Goodwill [Proviso to Section 27]:

A seller of goodwill may agree not to carry on a similar business within specified reasonable
limits.

Valid only if the restrictions are reasonable in area, time, and nature of business.

Example: Restraint from dealing in imitation jewellery in England for 2 years was held valid.

B. Indian Partnership Act, 1932:

Section 11(2): A partner may agree not to carry on any other business while being a partner.

Section 36(2): Retiring partner may agree not to start similar business within reasonable
limits.

Section 54: Partners may agree not to start similar business upon or in anticipation of
dissolution.

Section 55(3): Partner selling goodwill may agree not to start similar business within
reasonable limits.
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4. Exceptions by Judicial Decisions:

A. Trade Combinations:

Combinations formed for regulating trade, fixing prices, pooling profits, etc., are valid if they
do not create monopolies or unduly restrain trade.

Haribhai v. Sharef Ali: Agreement among ginning factories to fix rates and pool earnings was
held valid.

Bholanath Shankardas v. Lachminarain: Validity upheld for trade restriction within a local
trader association.

B. Exclusive Dealing Agreements (Solus Agreements):

Agreements to deal with a single manufacturer/seller exclusively are valid if reasonable.

Carlile’s Nephew v. Ricknauth: Validated exclusive supply of goods with conditions.

Shaikh Kalu v. Ramasaran: Supplier can sell surplus goods to others if buyer’s needs are
met.

C. Service Agreements:

Valid if an employee agrees not to compete during the term of employment.

Charlesworth v. MacDonald: Court restrained a medical assistant from private practice

during employment.

However, post-employment restraints are generally invalid unless reasonable and

necessary.

WAGERING AGREEMENTS –

1. Meaning of Wagering Agreement

A wagering agreement is a contract where two parties agree that a sum of money or
money’s worth will be paid by one to the other depending upon the outcome of an uncertain
future event. The outcome must be unknown to both at the time of agreement, and each
party stands to either win or lose based purely on that outcome. The essence of such an
agreement is mutual chance of gain or loss with no other interest in the event.

> Example: A and B agree that if it rains tomorrow, A will pay Rs.100 to B, and if it doesn’t, B
will pay Rs.100 to A. This is a wagering agreement.
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2. Legal Status Under Indian Law

As per Section 30 of the Indian Contract Act, 1872, wagering agreements are:

●​ Void, i.e., they are not enforceable in a court of law.

●​ No suit can be brought for recovery of any amount won through a wager.
●​ However, wagering agreements are not unlawful, i.e., collateral transactions (like a
loan to pay a wager) are enforceable.

Exception: In Gujarat and Maharashtra, wagering agreements are unlawful and hence even
collateral agreements are void.
--
3. Essential Elements of a Wagering Agreement

To be classified as a wager, an agreement must include the following:

Uncertain Event: The agreement must be based on an uncertain future, present or past
event unknown to both parties.

Mutual Chance of Gain or Loss: Both parties must have a reciprocal chance of winning or
losing depending on the event’s outcome.

No Other Interest: Parties should have no legitimate interest in the subject matter other
than the amount they may win or lose.

No Control Over the Event: Neither party should have control over the happening of the
event.

Reciprocal Promises: Both parties should promise to pay based on the outcome.

Two Parties: At least two parties are required to form such an agreement.
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4. Transactions that are NOT Wagers

Some transactions resemble wagering agreements but are not considered wagers under
law:

a) Insurance Contracts

These are contracts of indemnity, not wagers.

Parties have insurable interest in the subject matter.

Entered to safeguard against loss, not to make speculative gains.

b) Skill-Based Competitions
Where skill predominates over chance, such as crossword puzzles or sports like football,
cricket, etc.

If chance is the main factor, it becomes a lottery and a wager.

> Example: A crossword puzzle where the prize is awarded based on a solution matching
the editor’s key is a game of chance and hence a wager.

c) Horse Racing

Permissible by law if the prize money exceeds Rs. 500 and is authorized by the State
Government.

Agreements to contribute prize money are valid and enforceable.

d) Share Market Transactions

Genuine purchase and sale transactions with delivery intention are not wagers.

If only price difference is settled without intent to deliver shares, it becomes a wager.

e) Sports Competitions

Games based on physical or mental skill are not wagers (e.g., wrestling, athletics).
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6. Effects of Wagering Agreements

Wagering agreements are void but not illegal, except in states like Maharashtra and Gujarat.

●​ No recovery of money won on wagers.

●​ Collateral transactions are valid where the wager is not unlawful.

> Example: If X lends money to Y to place a bet, and the wager is not unlawful in the State,
X can recover the money.
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7. Agreements Related to Lotteries

Lotteries are considered games of chance and hence wagers.

Even if state-authorized, lotteries do not attain the status of trade.

State-authorized lotteries may have limited legal sanction, but are not enforceable as regular
contracts.
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Conclusion
Wagering agreements promote speculation without productive contribution and are hence
considered void under Indian law. However, they are not illegal unless expressly declared so
by a state law. Distinguishing wagering agreements from insurance contracts and skill-based
competitions is vital for understanding their legal implications.

CONTINGENT CONTRACTS (Section 31 – 36 of the Indian Contract Act, 1872)

Definition (Section 31)

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.

Example:
A agrees to pay B Rs. 10,000 if B’s house is burnt. This is a contingent contract.
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Nature and Characteristics

1. Dependence on Future Event:

The performance depends on the happening or non-happening of a future uncertain event.

2. Collateral Event:
The event must be collateral (independent) to the main contract — not part of the promise or
consideration.

3. Uncertainty of Event:
The event must be uncertain at the time of the contract’s formation.

4. Not Mere Will of Promisor:

The event should not be solely dependent on the promisor’s will. If it is, it’s not a valid
contingent contract.
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Examples of Contingent Contracts

●​ Insurance Contracts

●​ Contracts of Guarantee

●​ Contracts of Indemnity
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Illustrations

●​ A agrees to sell goods to B if a certain ship arrives.

●​ A promises to pay B Rs. 5,000 if he gets married before 30.
●​ A contracts to buy goods if they pass inspection.
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Rules Regarding Enforcement of Contingent Contracts (Sections 32 to 36)

1. On Happening of an Event (Section 32)

Contracts contingent upon the happening of a future uncertain event can only be enforced
when the event happens. If it becomes impossible, the contract is void.
Example:
A agrees to buy B’s land if it rains tomorrow. If it doesn’t rain, the contract is void.
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2. On Non-Happening of an Event (Section 33)

Contracts contingent upon the non-happening of an event can be enforced only when the
event becomes impossible.

Example:
A agrees to pay B Rs. 5,000 if a ship does not return. If the ship sinks, the contract is
enforceable.
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3. Future Conduct of a Living Person (Section 34)

If the contract is contingent on how a person will act, it becomes impossible when the person
does something inconsistent with the contract.

Example:
A agrees to pay B if B marries C. If C marries D, contract becomes void (impossible to
perform).
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4. Happening of an Event Within Fixed Time (Section 35 - Part 1)

If the event doesn’t happen within the fixed time, or becomes impossible before time expires,
the contract becomes void.

Example:
A promises to pay B if a ship returns within a year. If the ship sinks, contract is void.
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5. Non-Happening of an Event Within Fixed Time (Section 35 - Part 2)

If the event does not happen within the specified time, or it becomes certain that it won’t
happen, contract is enforceable.

Example:
A agrees to pay B if a ship does not return within a year. If it does not return or sinks,
contract is enforceable.
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6. Impossible Events (Section 36)

If a contract is based on an impossible event, it is void — regardless of the parties’

knowledge.

Example:
A agrees to pay B if two straight lines enclose a space. Contract is void.
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Conclusion
Contingent contracts help in managing future uncertainties by providing legal enforceability
to obligations that arise only on the occurrence or non-occurrence of specified events. They
play a key role in contracts like insurance, guarantees, and indemnities.

Difference Between Contingent Contract and Wagering Agreement

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