CONTRACTUAL

CAPACITY
 PERSONS NOT COMPETENT TO CONTRACT
 

As per the
statement of • the following persons are not
competent to contract,
Section 11 of • I.e., they are incapable of entering into
the Indian a valid contract.
Contract Act,
 NOT
COMPETANT
TO
CONTRACT

Minor Unsound Mind Disqualified by any Law

Foreign Sovereigns
Idiots Alien Enemies

Corporations (Companies)
Professionals
Lunatics
Convicts

Insolvents
Drunken
Persons Women
 According to
Section 3 of the • a person who has not completed his age of 18
Indian Majority Act, years (majority), is considered to be a minor.
1875,
In the following two cases, a person becomes major on
completing the age of 21 years:
• Where a guardian of a minor’s person or property has
been appointed under the
• Guardians and Wards Act, 1890; and
• Where the superintendence of minor’s property is
assumed by a Court of Wards.
LAW REGARDING MINORS AGREEMENT
1.Agreement with minor is void

2..A minor cannot ratify his act

3.No Restitution

4.No estoppel

5.Minors liability for tort

LAW REGARDING MINORS AGREEMENT
6..Minor is liable for necessaries supplied
7.The liability of Minor’s parents or
guardian
8. Minor as a promisee /beneficiary

9. Minor-as Agent

10.Minor –as Partner

11.Minor-as Insolvent
2.Minor is not bound to return the benefits
received
4.Restitution of property from a minor in case
of fraud
8.Minor as Promisee
/Beneficiary
LUNATIC
Joint Stock Companies
of Corporations
incorporated under
Special Acts
FREE CONSENT
 INTRODUCTION OF CONSENT

A contract without free consent is voidable contract

Free consent is defined in Section 14 of Contract Act
1.COERCION -MEANING

Coercion means compelling or forcing a person to enter into a contract under a

pressure or threat
person with the intension of causing any person to enter into an
agreement.
 ESSENTIAL CHARACTERISTICS OF COERCION

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EFFECT OF COERCION

• when the consent of a party to an agreement is obtained by coercion,

Section 19 • the contract becomes voidable at the option of the party,
• i.e., such party can put an end to the contract if he so chooses
2.UNDUE INFLUENCE
Definition of Undue Influence
EXAMPLE

Regard to
A who is his own
B due
Induces
to A
weak due remunerati
his
to enter
on and
to his
influence
into an him
makes
disease is
overadvantag
A aspay an
being unreasonab
hiseous
attended le sum for
medical
contract
by B ,his his
attendant
with
doctor professiona
 EXAMPLE

In this case B employs his undue influence over A

 According to Section 16(2) of the Contract
Act

Following cases a person is deemed to be in a position to dominate the will of

another
MEANINGS

Real and •Relationship between

Apparent
Authority the master and Servant
 MEANINGS

Relationship between Advocate and his client.

BURDEN OF PROOF [SEC. 16 (3)]

Where a person who is in a position to dominate the will of another, makes

a contract and the transaction appears to be unconscionable, the burden of
proving that the contract has not been induced by undue influence shall lie
on the person who is in a position to dominate the will of the other.
 The presumption of undue influence can be rebutted or opposed by
showing the following:

1.That full disclosure of all material facts was made;

2. That the consideration was adequate; and

3.That the other party was in receipt of competent independent advice

and his consent was free.
There is no criminal act in
undue influence
DIFFERENCE BETWEEN COERCION AND UNDUE
INFLUENCE
FRAUD
Meanin •It is a wilful representation made by
a party to a contract with the

g of intention to deceive the other party

or
•To induce such party to enter into a
Fraud contract
1.A false suggestion as to a fact known to be a false

2.The active concealment of fact with knowledge of the fact

3.A promise made without any intention of performing it

4.Doing any other act filled to deceive

5.Doing any such act as the law specifically declares to be fraudulent

ESSENTIAL ELEMENTS OF FRAUD
 A
never
had
Prospe
A
EXAMPLE OF FRAUD
ctus
- [SMITH VS CHADWICK]
heard
of B
brough had an
and
t untrue A’s claim
theref for
shares statem
ore damages in
in a ent this was
the dismissed
compa that B because
statem
ny on was the untrue
ent statement
the the had not
was induced A
faith directo to buy the
immat
of a r of shares
erial
prospe the
from
ctus compa
 FRAUD

Person Person May

suppre making be
ssing a false Guilty
the statem of
truth ent fraud
EXAMPLE 2 -FRAUD

A with
the view
A who is
to sell
selling
About the
the house
the house
crack inHe will be
repairs
need
thenotwallsguilty of
the
draw the
Or fraud by
cracks
active
attention
Bad state
andconcealment
roof
of of
B the
to
(purchase
roof
conceal
MERE SILENCE IS NOT A FRAUD

According to explanation to Section 17, “mere

silence as to facts likely to affect the willingness
of a person to enter into a contract is not
fraud”.
 EXAMPLE

A sells, A says hors This

by
auction, nothi e’s is
to B a ng to
horse
which A B
unso not
knows to
about undn fraud
be
unsound. the ess. by A.
 EXCEPTIONS

Duty to Speak

• Contracts uberrimae fidei

• Contracts of partnership
• Contracts of guarantee
• Where the parties stand in fiduciary relationship to each other.
• Contracts to marry.

Where silence is equivalent to speech

Change of circumstances
EFFECT OF FRAUD

3.Right to 1.Right to
claim rescind the
damages contract

2.Right to insist
upon
performance
MISREPRESENTATION
 MEANING OF REPRESENTATION

He makes
A is a Repre
statemen
going t about senta
to sell the area tion is
or
his foundatio made
Meaning of •The term ‘Misrepresentation’ means
Misreprese a false representation of fact made
innocently or nondisclosure of a
ntation(Se material fact without any intention
to deceive the other party
c 18)
 Misrepresntation

Innocent /Unintentional Intentional or wilful or deliberate

without any with the intention

intention of of deceiving the
deceiving the party. party.
EXAMPLE OF INNOCENT MISREPRESENTATION
DEFINITION OF MISREPRESENTATION
UNWANTED ASSERTION
EXAMPLE
BREACH OF DUTY
INNOCENT MISTAKE
Acts Which Constitute Misrepresentation

Thus misrepresentation may be committed in any of the following ways:

•If a person makes a statement of fact which

1.Unwarranted is not warranted by his information, he is
Statements: said to make a misrepresentation.

2.Breach of •When a person commits a breach of duty

• without any intention to deceive the other party and thereby
gains something while the other party loses,
Duty: •it will be termed as misrepresentation.
Acts Which Constitute Misrepresentation

Thus misrepresentation may be committed in any of the following ways:

• If a party to an agreement induces

the other party,
3.Inducing •although innocently to commit a
Mistake about mistake as to the nature or quality of
Subject Matter: the subject matter of the agreement,
• he becomes guilty of
 ESSENTIALS OF MISREPRESENTATION

The representation
There must be a
must be of facts
representation or
material to the
breach of duty. contract.

The The representation must

 EFFECT OF MISREPRESENTATION

The effect of misrepresentation is that it makes the contract voidable the

option of the party whose consent is so obtained.

And such party may put an end to the contract if he so chooses.

 1.Where the other 2.Where the
misrepresentation does
party had the means of
not induce the other party
discovering the
to truth
enter into contract, the
with ordinary diligence
contract is not voidable

Exceptio
ns
MISREPRESENTATION VS FRAUD
 MISREPRESENTATION VS FRAUD

FRAUD MISREPRESENTATION

4.A fraud is a criminal act 4. It is not a criminal act.

too
5. Not only is the contract voidable
but it also gives rise to an
independent action in tort for
damages.
6. The aggrieved party in addition to
the normal remedies can claim also
damages.
5. It makes the contract voidable
at the option of the party
misrepresented.
6. The aggrieved party cannot
claim to damages.
MISTAKE

•A mistake is said to have occurred

MEANI where the parties intending to do

one thing by error do something
else.
NG •Mistake is an erroneous belief
concerning something.
 EXAMPLE

X engages Y as
a teacher for Y agrees X think 7
his son a.m. but Y
appearing for to come means 7
IAS
Preliminary. daily 7. p.m.

This is a bilateral mistake of fact but not

essential and can be rectified.
Therefore the agreement is valid.
MISTAKE
 Classification of Mistake

Mistake of fact Mistake of law

Mistake of Law of the

Country

Bilateral
Mistake
Mistake of foreign Law

Unilateral
Mistake
MISTAKE OF FACT

Unilateral
Bilateral Mistake
Mistake
BILATERAL MISTAKE

•It is one where both the

Meanin parties are under a mistake as
to a matter of fact essential
g to the agreement the
agreement is void.
BILATERAL MISTAKE [SECTION 20- 22]

An agreement shall be void if the following conditions are satisfied:

 MISTAKE COMMITTED BY BOTH THE PARTIES

A is having Two houses – 1- A agrees to sell the house

Thrissur 2-Kollam at Kollam to B

B who knows about A’s house only A thinking that it is for the
at Thrissur offers to purchase the house at Kollam accepts B’s
house at Thrissur
offer
 Types of Bilateral Mistake

Mistake as to subject Mistake as to the possibility

matter of performance
 Types of Bilateral Mistake

Mistake as to subject matter

existence

identity

title

quantity

quality

price
2.UNILATERAL MISTAKE

•The term unilateral mistake means where

Meanin only one party to the agreement is under a

mistake.
•A contract is not voidable merely because

g it was caused by one of the parties to it

being under a mistake as to matter of fact.
 2.UNILATERAL MISTAKE

B by mistake
A proposes to
offers Rs.3 lakhs This was
sell his house to
instead to Rs.2 accepted by A
B
lakhs .

After words B cannot avoid the contract

on ground of mistake.
 Types of Unilateral
Mistake

Mistake about the

Mistake about the
identity of the
nature of the
parties to an
agreement
agreement
LEGALITY OF CONSIDERATION AND OBJECT

For a valid contract it is essential

that the object or consideration
of the agreement must be
lawful.
LEGALITY OF CONSIDERATION AND OBJECT

According to Sec. 23 of the Indian Contract Act, the objects and the
consideration of an agreement shall be unlawful in the following cases:

Where it Where it is
Where it is
defeats the Where it is injurious either
forbidden by
provision of any fraudulent to the person or
law
law his property

Where it is Where it is
regarded as opposed to
immoral public policy
 UNCERTAIN AGREEMENTS

• An agreement the meaning of

which is not certain or not capable
of being made certain is void
• When the term in an agreement is
MEANING vague and may be interpreted in
many ways then the agreement is
void because of uncertainity.
• such cases, courts may not give a
practical meaning to the contract.
 EXAMPLE

There is nothing in
Agreement is void
A agrees to sell 5 the agreement to
for uncertainity
kgs of oil to B show what kind of
(Section 29)
oil was intended
WAGERING AND
CONTINGENT
CONTRACT
AGREEMENTS BY WAY OF WAGER [SECTION
30]

Term • may be defined as an agreement in

‘wagering which one person agrees to pay
certain amount of money to the other
agreement person
’ or • on the happening or non-happening of
a specified uncertain event.
‘wager’
AGREEMENTS BY WAY OF WAGER [SECTION
30]

Sir • “a promise to give money or

William money’s worth upon the
Anson determination or
defines a ascertainment of an
uncertain event”
wager as
 EXAMPLE

X agrees with Y
that if there is rain If there is no rain Y Agreement is of a
on a certain day X will pay X Rs. 1000 wagering nature.
will pay Y Rs. 1000.
 EXAMPLE

A test match between India and Australia has ended in

Kolkata today. Both A and B are ignorant of the result.

A agrees with B to B agrees to pay A

Agreement is of a
pay 1000 in case Rs.1000 in case
India wins wagering nature.
India does not win
No control over the event: Neither party should have control over the
happening or nonhappening of the event.

Stake as the only interest: Neither party should have any interest other
than the sum or stake that he stands to win or lose.
 EFFECTS OF WAGERING AGREEMENT
a)Agreements by way of wager are void in India.

b)Agreements by way of wager have been declared illegal in the states of Maharashtra
and Gujarat.

c)No suit can be filed to recover the amount won on any wager.

d)Transactions which are collateral to wagering agreements are not void in India except
the states of Maharashtra and Gujarat (Wagering agreements which are illegal).
 Exceptions to Wager
 

Crossword Games of
Horse race
competitions skill:

Share
Contracts of
market Chit Fund
insurance
transactions
CONTRACT OF WAGERING CONTRACT
INSURANCE
1.It is a contract of indemnity in 1.The amount to be paid is decided
the event of loss only actual loss is to beforehand.
be made good
2.In insurance contract there is no 2.A wager will arise only if one
winning or losing party losses and another party
gains
3.There is insurable interest in the 3.There is no insurable interest
subject matter parties have no interest in the
agreement except the stake.
4.Contract of insurance is legal 4.Wagering Contract is void
and enforceable Valid and can be section 30, without any legal
enforced in court of law effect
CONTRACT OF WAGERING CONTRACT
INSURANCE
5.Based on scientific actuarial 5.Pure gamble or game of chance
calculation of risks

6. Insurance contracts are social 6. wagering transactions do not

security measures which are promote public welfare in any way,
beneficial to the public rather they encourage gambling
which is injurious to the interest of
public.
 Wager and commercial
transactions
An agreement for actual purchase and sale of any commodity is not a
wagering contract.

It becomes difficult to determine whether a particular transaction is by way

of wager or a genuine business transaction.
 LOTTERIES
A lottery is a game of chance, therefore, an agreement to buy a
lottery ticket, is a wagering agreement.

If the lottery is authorized by Government, it does not cease to be a

wagering transaction,

the only effect of such sanction is that the persons conducting the
lottery will not be prosecuted under the penal law.
CONTIGENT CONTRACT
 Contract
can be

Absolute Contingent
Absolute Contract
• It is one in which the
promisor binds himself to
performance independent
of any condition of
Meaning contingency.
• Promisor must perform the
contract in all events.
EXAMPLE OF ABSOLUTE
CONTRACT
The sum of car is
A promise to sell Rs.50000 without This is absolute
his car to B any conditions to agreement
be fulfilled
EXAMPLE OF CONTIGENT
CONTRACT
X promises if Y’s house
to pay Y is destroyed
Rs.10000 by fire
This is a contingent contract as its performance is dependent upon
an uncertain event (i.e., burning of Y’s house).
Essentials of a Contingent Contract

There must be a valid contract:

The performance of the contract must be

conditional

The event must be uncertain

The event must be collateral to the contract

The event should not be the discretion of the

promisor
RULES REGARDING CONTINGENT
CONTRACTS
Contingent contracts
dependent on the happening of
future uncertain event

Contingent contracts
dependent on the non-
happening of future uncertain
event:

Contingent contracts
dependent on the future
conduct of a living person
RULES REGARDING CONTINGENT
CONTRACTS
Contingent contracts
dependent on the happening of
specified uncertain event
within a fixed time

Contingent contracts
dependent on the non-
happening of specified
uncertain event within a fixed
time

Contingent contracts
dependent on the happening of
an impossible event
Difference between Wager and Contingent
Contract
Contingent Contract
It is perfectly valid and can be  
 
  enforced in a Court of Law.  
  The parties have insurable  
interest in the happening or
 
non-happening of the event.
 
  In this case, the future
uncertain event is merely
collateral or incidental.
Wagering Contract
It is absolutely void and cannot be
enforced in a Court of Law.
The parties do not have insurable
interest in the happening or non-
happening of the event as such. Their
main interest is in winning or losing.
 In this case, the uncertain event is
the only determining factor.
 Difference between Wager and
Contingent Contract
Contingent Contract Wagering Contract
 There may not be It consists of reciprocal promises
reciprocal promises.

All contingent contracts are All wagering agreements are also

not of a wagering nature, contingent contracts because they
because all the contingent are dependent on uncertain event.
contracts are not void.
 Difference between Wager and
Contingent Contract
Contingent Contract Wagering Contract
In a contingent contract, the In a wagering agreement, the
parties are interested in the parties are interested only
occurrence or non- for the stake.
occurrence of the event.
 • Public policy is that principle of law
which holds that no citizen can lawfully
do that which has a tendency to be
MEANI injurious to the public.
NG • An agreement is said to be opposed to
public policy when it is injurious to the
welfare of the society or it tends to
prejudice the welfare of the society.
Agreement for sale of public offices and titles
Agreement in restraint of parental rights

Agreements to vary the period of limitation

Agreements to defraud creditors or revenue
authorities
Agreement to commit a crime
• Agreements in restraint of marriage [Section 26].
• Agreements in restraint of trade [Section 27].
• Agreements in restraint of legal proceedings [Section 28].
 VOID AGREEMENTS

DEFINITIO • According to Section 2 (g) of the Indian Contract

Act, 1872, a void agreement is an agreement
N which is not enforceable by law

• . A void agreement does not create any legal rights and obligations.
• It is void-ab- initio (i.e., void from the very beginning) and without any

Meaning legal effect.

• Agreements, which possess all the essential elements of a valid contract
laid down in Section 10, must not have been expressly declares as void
by any law in force in any country.
 The following agreements have been expressly declared as void by the Indian Contract
Act:

Agreements, the object Agreements, the object

Agreements by Agreements made
or consideration of or consideration is
incompetent persons under a mutual mistake
which is unlawful partly unlawful
[Section 11]. [Section 20].
[Section 23]. [Section 24].

Agreements made Agreements in restraint Agreements in restraint

Agreements in restraint
without consideration of marriage [Section of legal proceedings
of trade [Section 27].
[Section 25]. 26]. [Section 28].

Agreements the Agreements to do

Agreements by way of
meaning of which is impossible acts
wager [Section 30].
uncertain [Section 29]. [Section 56].
 AGREEMENTS IN RESTRAINT OF
MARRIAGE [SECTION 26]

• According to Sec. 26 of the Act,

DEFINITI “every agreement in restraint of
ON the marriage of any person,
other than a minor, is void”.

The law regards the marriage as the right of every person.

Restriction on the freedom of people shall be against public policy and, therefore, void.
 EXAMPLE [Lowe vs. Peers]

It was held that B

A promised to marry B
A married C and B could not recover
only and none else,
sued A for recovery of anything because the
and to pay Rs.2000 in
Rs.2000. agreement was in
default.
restraint of marriage

It may be noted that an agreement which provides for a penalty

upon remarriage may not be considered as a restraint of marriage.
AGREEMENTS IN RESTRAINT OF
TRADE [SECTION 27]

• According to Sec. 27 of Indian

Contract Act, 1872, “every
Definitio agreement by which anyone is
n restrained from exercising a lawful
profession, trade or business of any
kind, is to that extent void”.
 AGREEMENTS IN RESTRAINT OF
TRADE [SECTION 27]

This is because Article 19 (g) of the Constitution of India regards the

freedom of trade and commerce as a right of every individual.

Therefore, no agreement can deprive or restrain a person from

exercising such a right.
 Madhub Chander vs Raj Coomar

On A’s refusal
A agreed to to pay the
A and B were
pay a sum of amount, the
rival
money to B if B closes his court held that
shopkeepers
he would close shop. the agreement
in a locality of
his business in was void
Calcutta.
that locality. under Sec. 27
of the Act.
 Exceptions

Statutory Under Judicial

Exceptions Interpretations

Sale of Trade
Goodwill Combinations

Restrictions
Service
under
Agreements
Partnership Act

Sole Dealing
Agreements
STATUTORY EXCEPTIONS
• The sellershould be restrained only from

Sale of carrying on a similar business;

• The restriction shall apply so long as the buyer
or any person deriving title from him is
Goodwi carrying on a similar business;
• The restraint should apply only within

ll specified local limits.

• The restraint must be reasonable having regard
to the nature of the business.
STATUTORY EXCEPTIONS
Restrictions under
Restriction on outgoing
Partnership Act:
partner [Section 36(2)]

Restriction in
Restriction on existing
anticipation of
partner
dissolution [Section 54]
Restriction in case of sale
of goodwill of the firm
[Section 55 (3)]
 Judicial Interpretations

Trade Service
Combinations Agreements

Sole Dealing
Agreements
AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS [SECTION 28]

An agreement by which any party is restricted

absolutely from enforcing his legal rights under or
in respect of any contract is void to that extent.

An agreement which interferes with the course of

justice is void on account of its being opposed to
public policy.
 Kinds of
Agreements

4 Kinds

Absolute An agreement An agreement

Agreements
restrictions from which extinguishes which discharges a
curtailing the
enforcing legal the rights of a party from
limitation period
rights party. liability.
 Exceptions

Restraints for Restraints for

referring the future referring the existing
disputes to or present disputes to
arbitration. arbitration