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 101 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 Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.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 or

3 Ibid.

2

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 plaintiff’s 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

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

consideration7. The act was the result of not the promise

but of the collector’s order.

1.2.2. “Acts Done at Request”

On the other hand, an act done at the promisor’s 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.

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 plaintiff’s house to preside over a dinner to be given to the plaintiff’s 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 plaintiff’s action for damages was dismissed as he had done nothing on the desire of the promisor.

8 1886 ILR 14 Cal 64.

4

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

subscribe knowing the purpose for which the money was to

be applied; 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

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.

5

English common law, having been adopted by the Court of

King’s Bench as early as 1677 in Dutton v. Poole:10

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

10 Court of King’s Bench, (1677) 2 Levinz 210:83 ER 523.11 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 & Co.) who agreed

not to sell the tyres to any private customer at less than the

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 plaintiff’s 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

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 plaintiff’s 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 defendant’s 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

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

8

furnished no consideration for the same. Briefly, the whole

situation was: the defendant’s promise was given to the

plaintiff, but consideration was furnished by the plaintiff’s

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 defendant’s 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

16 3. Age of majority of persons domiciled in India.

10

is deemed to have 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 Minor’s 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

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 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 minor’s 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 hence, no relief

should be given to the minor in case;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

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 defendant’s contentions were rejected and

the minor’s 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

minor’s 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 other party for a decree of specific

21 (1912) 39 Cal 232 (PC). Also followed in Ma Hn It v. Hashim, (1920) 22 Bom LR 531 PC.

13

performance to recover possession. His action was

rejected.

The court said that it was not within the competence either

of the manager of the minor’s estate or of the guardian of

the minor, to bind the minor or the minor’s 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 today’s world it is not very feasible to

declare minor’s 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 benefit of the minor and the guardian had the capacity 22 (1949) 75 IA 115: ILR 1949 Mad 141 PC.

14

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.

Illustration (b) appended to section 12 shows that a

drunken person is in the same category as a person of

unsound mind.

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

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.

This section has also to be read with Section 14 of the

Indian Contract Act, 1872.

16

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, B’s 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 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

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.27 ILR (1918) 41 Mad. 33.

17

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.

In Workmen of Appin Tea Estate v. Industrial Tribunal29,

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

28 AIR 2005 Bom. 137.29 AIR 1966 Assam 115.

18

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;

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.30 AIR 2001 Del. 402.

19

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 plaintiff’s 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.

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.

31 (1890) 12 All. 523

20

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 D’Souza 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:

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

32 AIR 1998 Kerala 280.33 Section 17, Indian Contract Act, 1872.34 (1885) 29 Ch. 459.

21

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

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”

35 AIR 1976 SC 376.36 (1889) 14 AC 337.

22

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.

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

37 (1890) 14 ILR Bom 241.38 (1900) 4 Cal WN 369.

23

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.

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

company’s 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.

39 (1879) 3 Bom 24240 Section 18(3) of the Indian Contract Act, 1872.41 ILR (1880) 5 Bom 92.

24

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:

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 Singh42, 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.

42 AIR 1998 SC 1400.

25

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 India43, 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 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 43 AIR 1970 Manipur 16.

26

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

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

44 1868 LR CP 235,25045 (1901)3 Bom LR 164

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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 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—

46 (1900) 4 Cal WN 488.

28

(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.

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.  47 (1905) 2 KB 123

29

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.

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

48 (1914) 38 Bom 344.

30

year, at a salary to be mutually agreed upon is a void

agreement.

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