Project of Business Law Final Copy-1

8/3/2019 Project of Business Law Final Copy-1

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INDIAN CONTRACT ACT 1872

Indian Education Society

Management College and Research Centre

Mumbai

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Project of Business Law

Submitted to Dr. DEVNANI G. N.

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ACKNOWLEDGEMENT

The factors behind the completion of our project have been the efforts of our

team who have always played very important role. Without whom the project

would not be completed. The completion of the project is a great achievement for

us.

I am very thankful to our project guide & Subject Head Dr.Devnani G.N for his

guidance. We would like to thank him for giving such wonderful opportunity.

Last but not the least I wish to thank my Director Dr.Harsolikar, Course Co-

ordinator Mrs.Vidya for their extreme, help, co-operation and all other things they

did in one or other way for successful completion of this project.

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INDEX

Sr No PARTICULAR Page No

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IntroductionOF

Indian Contract Act 1872

The Act may be called Indian Contract Act of 1872.It came in to force on1stSep.1872.

Prior to the commencement of this Act, it was the English common law which wasapplied to contract depending upon the facts and circumstances of each case.Court of Bombay and madras were empowered to decide the case

Indian Contract Act 1872 is the main source of law regulating contracts inIndian law, as subsequently amended.

It determines the circumstances in which promise made by the parties to acontract shall be legally binding on them. All of us enter into a number ofcontracts everyday knowingly or unknowingly. Each contract creates some rightand duties upon the contracting parties. Indian contract deals with theenforcement of these rights and duties upon the parties.

The Indian Contract Act 1872 sections 1-75 came into force on 1 September1872. It applies to the whole of India except the state of Jammu and Kashmir. It isnot a complete and exhaustive law on all types of contracts.

Definition

Section 2(h) of the Act defines the term contract as "an agreement enforceableby law".

Section 2(e) defines agreement as "every promise and every set of promises,forming the consideration for each other."

Again Section 2(b) defines promise in these words: "when the person to whomthe proposal is made signifies his assent thereto, the proposal is said to be

accepted. Proposal when accepted becomes a promise."

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PROPOSAL

The Indian Contract Act 1872 defines Proposal as When a person signifies toanother, his willingness to do or abstain from doing something, with a view toabstain, assent of that other person, to such act or abstain, he is said to havemade a proposal (Section 2(a)).

Meaning: - The word proposal means an offer. The person making the proposalis called as the proposer or offerer. Presence of request, express or implied is anessential element of a valid proposal. A contract comes into existence only whenparties come to some determination with a view to create some legal rights andcorresponding legal duties. As a preliminary step to this, it becomes necessaryfor the parties, to get into communication with each other.

Thus, communication of an idea or desire to do a particular act or to abstain fromdoing something with a view to obtain consent of another person, to such idea ordesire is called a Proposal.

Thus a proposal or an offer must be made with a view to obtain consent ofanother person. Mere statement of intention is not sufficient to have a proposal.If a person conveys to another that he intends to do or he is willing to do a

particular act without any intention to have consent of that another person it ismerely a statement of his intention and such an expression cannot be called asProposal or and Offer.

ESSENTIAL REQUIREMENTS OF A VALID PROPOSAL:

1. There must be communication: To have a valid proposal, communication ofintention or willingness to another person is must. Communication must be madewith a view to obtain the consent of another person to the act proposed or to thewillingness expressed for not doing a particular act. This proposal may be for apositive act or it may be for a negative act. Communication of Proposal may be in

writing; it may be oral or it may be implied which can be inferred from the

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conduct of the concern and the circumstances. Thus, implied proposal is aproposal which is neither in writing nor oral.

2. The words used in a Proposal must apply to a definite number of persons, inother words, a proposal must be made to a specific person or persons with whomthe proposer intents to enter into a contract. An advertisement, price-list,catalogue etc cannot be called an offer. These are only statements of intentionsand the persons giving the advertisement or issuing the price-list is inviting offerfrom another.

3. A person making an offer should not reserve any right with himself for anyfurther act to alter the proposal after it is accepted by the person to whom it ismade. In other words, Proposer should intend to be borne by it as soon as it isaccepted.

4. When the proposer desire to have a contract an offer made should be capableof creating and should intent to create legal relationship between the parties. Nosooner it is accepted by the person to whom the proposal is mad

DEFINITION AND MEANING OF ACCEPTANCE

The Indian Contract Act 1872 defines acceptance as, When a person to whom aproposal is made signifies his assent there to, he is said to be accepted theproposal.

Thus, acceptance means to give consent to the proposal. In other words, whenthe person to whom the proposal is made signifies his consent to the proposedperformance or non performance of the act without any condition or alteration heis said to have accepted the proposal.

The person accepting the proposal is called as an acceptor. A proposal whenaccepted creates a set of promises.

ESSENTIAL REQUIREMENTS OF A VALID ACCEPTANCE:

1. Acceptance can be made only by the person to whom the proposal made, inother words a stranger to the proposal cannot accept the proposal.

2. Acceptance must be communicated to the proposer. Communication ofacceptance may be either expressed or it may be implied, mere silence does notamount to acceptance, silence of a person to whom the proposal is made cannotbe regarded as an acceptance of the proposal, as communication of consent is amust, to have acceptance such communication may be either by words, writtenor spoken or it may be implied from the act or conduct of the party.

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Mental acceptance without communication is not sufficient to have anagreement; therefore mental acceptance without communication is noacceptance in law.

3. Acceptance must be absolute and must not be qualified. Acceptance in orderto be valid must be without any condition, modification, reservation or anyaddition to the terms and conditions of the proposal.

When the consent is given to the proposal subject to some condition oralteration, it is called qualified or conditional acceptance. Such acceptance is nota valid acceptance but it is said to be a counter offer. Therefore, there cannot beany agreement unless modified or conditional acceptance i.e., counter offer isaccepted by the original proposer.

4. Acceptance must be made in the manner prescribed by the proposer. A

proposer has a right to prescribe the manner in which the proposal should beaccepted, when he prescribes the mode of acceptance, it should be accepted inthe manner prescribed, when no mode is prescribed, acceptance should beexpressed in some usual or reasonable manner or by an appropriate way.

5. Acceptance must be made within the period prescribed by the proposer. Whenno time is prescribed, acceptance must be made within a reasonable period, butin any case acceptance must be made before the proposal is cancelled orrevoked by the proposer.

6. Acceptance of the proposal means, acceptance of all the terms and conditions

of the proposal. The acceptor cannot say that he has accepted only some of theconditions of the proposal and therefore he is not bound and liable by the otherconditions of the proposal. In other words, for a valid acceptance or proposal, asa whole, must be accepted and once the proposal is accepted, the acceptor isbound and liable by all the terms and conditions of the proposal, even when hehas ignored some of the terms and conditions, provided the terms and conditionsare in writing and reasonable notice of such terms and conditions is given to theacceptor.

COUNTER OFFER OR PROPOSAL

When a person to whom the proposal is made signifies his consent to theproposal subject to some condition or alteration it is called counter proposal.

In other words it means rejection of original offer and making of a new offer.When a counter offer is made, the original proposal comes to an end, and it isthen left to the original proposer whether to accept the counter offer or to rejectthe same.

However, under such circumstances the original proposer is not bound and liable

for the original proposal or for the terms and conditions put forward by theperson to whom the original proposal is made; by if he accepts the counter offer

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as his acceptance will create a binding agreement between him and the personmaking the counter offer.

REVOCATION OF PROPOSAL: (CANCELLATION OF PROPOSAL)

A proposal can be revoked by the person making the proposal, at any time beforethe proposal is accepted.

In other words, as soon as proposal is accepted by the person to whom it ismade, the proposal cannot be revoked as acceptance of the proposal will thencreate an agreement between the parties.

A proposal can be revoked or it stands revoked under following circumstances:-

a. A proposal can be revoked by a notice before it is accepted by the person to

whom it is made i.e. before the acceptance it is put into the course oftransmission.

b. The proposal can revoke on expiry of the time limit prescribed for acceptance,provided the acceptance is not made within the time limit prescribed. When notime limit is fixed and if the acceptance is not made within a reasonable period,the proposal stands revoked, on the expiry of the reasonable time limit.

c. A proposal stands revoked on the death, insanity or insolvency of the proposeror acceptor to the person to whom the proposal is made (takes place), providedsuch an incident takes place before the acceptance.

d. A proposal stands revoked, if the acceptor fails to fulfil a condition.

e. A proposal stands revoked when the person to whom the proposal is made,makes a counter offer or a counter proposal, similarly a proposal stands revoked,when subject matter of the proposal is destroyed before acceptance.

REVOCATION OF ACCEPTANCE:

Acceptance can be revoked by the acceptor at any time before acceptancecomes to the knowledge of the proposer.

For example: if acceptance is being communication by the letter the acceptor canrevoke the acceptance by sending a telegram which will reach before the letter ofacceptance to the proposer.

Illustration:

A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal

by a letter sent by post.

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A) May revoke his proposal at any time before or at the moment when B posts

his letter of acceptance, but not afterwards.

B) May revoke his acceptance at any time before or at the moment when the

letter communicating it reaches A, but not afterwards.

COMMUNICATION OF PROPOSAL WHEN COMPLETE:

Communication of idea or willingness is must, to have a proposal communication

of proposal is complete when if comes to knowledge of the person to whom it is

made.

COMMUNICATION OF ACCEPTANCE WHEN COMPLETE:

Communication of consent is must to have an acceptance as mental acceptance

without communication is no acceptance in law.

Under English law, communication of acceptance is complete as soon as it comes

to the knowledge of the proposer, However according to Indian law

communication of acceptance is complete at two different points of time for

acceptor and proposer.

Communication of acceptance is complete as against the proposer, no sooner it

is put into the course of transmission, irrespective of the fact whether the

proposer has received the letter or not provided the letter was correctly

addressed, duly stamped and duly posted. This provision applies when theacceptance is in writing.

Communication of acceptance is complete as against the acceptor, as soon as

acceptance comes to the knowledge of the proposer.

COMMUNICATION OF REVOCATION OF PROPOSAL OR ACCEPTANCE WHEN

COMPLETE:

Communication of revocation of proposal or acceptance is complete as against

the person making revocation as soon as it is put into course of transmission and

as against the person to whom it is made; communication is complete only when

it comes to the knowledge of the person.

Illustration:

A. A proposes, by letter, to sell a house to B at a certain price. The

communication of the proposal is complete when B receives the letter.

b. B accepts As proposal by a letter sent by post. The communication of the

acceptance is complete, as against A when the letter is posted as against B,

when the letter is received by A.

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c. A revokes his proposal by telegram.

The revocation is complete as against A when the telegram is dispatched. It is

complete as against B When B receives it.

B revokes his acceptance by telegram. Bs revocation is complete as against B

when the telegram is dispatched, and as against a when it reaches him.

PROMISE

A proposal when accepted creates a set of promises for the promise given by the

proposer. The proposer is known as a promisor and the acceptor is known as a

promise. For the promise given by the acceptor, is known as a promise. A

promise may be expressed or implied, in other words a promise may be in writing

or oral or it may be an implied promise which can be inferred from the act or

conduct of the party.

Promises which form consideration for each other are called reciprocal promiser

which gives rise to an agreement.

Thus offer and acceptance together constitute an agreement.

Consideration:

Under Indian Contract Act consideration is defines as when, at the desire of thepromisor, the promisee or any other person (I) has done or abstained from doing,or (ii) does or abstain from doing ,or (iii) promises to do to abstain from doingsomething, such act or abstinence or promise is called a consideration for the

promise

In other words consideration is the prices for which the promise of the other isbought and the promise thus given for value is enforceable

Promise: A proposal when accepted becomes a promise

Consideration is the cause of the promise. It is essential elements of contract.

Consideration also implies something in return for the promise or the prices ofthe promise.

Consideration is the back bone of any contract to create legal right and dutiesbetween the parties law ,has no means nor it offers any remedy to compel a

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party to perform his promise under an agreement which is made withoutconsideration

Every contract consist of two parts (I) promise (II) consideration for the promise.

A promise or an agreement without consideration is null & void and notenforceable at law.

Nudum- Patum Ex- Nudo-Pacto Non-Oritur Actio

It means from a bare promise no right of action can arise. Thus a promise inorder to be enforceable must have consideration. Consideration can onlyestablish legal rights between the parties. Thus as a rule an agreement without

consideration is void.

A promise to abstain from exercising an enforceable right is good consideration.However a promise to do something which a person is already bound to do by lawis no consideration at all .

E.g.: A promise to pay B Rs1000 without anything in return, this constitutes abare promise and gives no right of action.

Essential Requirement for a valid consideration:

I) Consideration must move at the desire of the promise:

Act must be done voluntarily at the desire of the promisor.

In order to have valid consideration, it is necessary that the act done or agreed tobe done by another must have consideration .consideration can only establishlegal right between the parties. Thus as a rule on agreement withoutconsideration is void.

A promise to abstain in form exercising an enforceable right is good consideration.however a promise to do something which a person is already bound to do bylaw is no consideration at all.

II) Consideration may move from the promise or any other person:

For a valid consideration, it is sufficient if the act or abstinence or the personconstituting consideration was done or given at the request of the promisor.it isnot necessary that the promisor himself should be beneficiary. A stranger to

contract act can enforce a contract in certain cases .

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Consideration must move from the promisee only buy English law.

A consideration must move from promise or any other person (third party)

E.g.: A insures his life with an insurances company and appoints B, his wife a

nominee. Now B is the beneficiary under the policy and therefore, she can suethe insurance company to recover the consideration amount mentioned in thepolicy.

III) Consideration may be past, present or future:

A valid consideration must be from past, present and future.

E.g.: Past consideration a finds Bs sons b promises to pay A Rs.10000

We observe that promise by B to pay A Is subsequent promise to the act of Aalready done, a consideration already performed. This is a subsequent for past

consideration.

Future consideration- A promise to deliver goods to B when the ship arrives and Bpromises to pay A Rs 1,000 against the receipt of the goods. This is the futureconsideration to be per formed by both the parties when the ship arrives.

IV)Considerations may be either a positive act or a negative act or a promisegiven to the effect:

Means consideration may be either to do something or not to do something or apromise to that effect.

V) Consideration must not be unlawful and illegal:

To have a valid consideration that act or the promise must be lawful. It isunlawful and illegal if it is forbidden by Indian penal code.

Consideration is void if it is for any immoral purpose

Consideration is void if it is opposed to public policy.

VI)Consideration must be real and not illusion:

Consideration is not real when it exits merely in words without any intention ofperforming it. It is an illusion when it is physically or legally impossible to perform.

Illusion it is an illusion when it is not physically or legally impossible to perform.

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E.g.: Mr. A promise to Mr. B to put life into the dead body of the father of mr. B,Mr. B promissedto pay 2,00,000/- to Mr. A

VII) Consideration need not be adequate:

Consideration need not be adequate however it should be of some value in theeyes of law.

Court will not sit and decide the adequacy of consideration. Adequacy ofconsideration so for the parties to consider at the time of making the agreementand not for the court

However under certain circumstances inadequate consideration may be taken asone of the ground or as an evidence to prove that the consent of the party wasnot free consent. (Free consent like fraud, coercion, misinterpretation or mistake)

E.g.: A agrees to sell a horse worth Rs1, 000 for Rs 10, Ss consent to agreementwas freely given. The agreement is contract not withstanding the inadequacy ofthe consideration.

Exception to the rule that the agreement without consideration is Void:

I) An agreement made out of the natural love and affection:

An agreement made out of natural love and affection between the partiesstanding in near relations to each other is valid agreement enforceable at laweven if it is without consideration provided it is in writing.

E.g.: A, for natural love and affection, promises to give his son B Rs.1000. A putshis promise to B in writing and register it. This is a contract.

II) An agreement to pay time barred debts:

A promise or an agreement without any fresh consideration to pay the debts

barred by the law of limitation is enforceable provided it is in writing and signedby the debtor or his duly authorized agent.

III) Agreement of gift:

An agreement which is entered into to give gift is valid agreement enforceable atlaw and it does not require any consideration. However when a gift is in respectof immovable property, the agreement must be in writing and must beregistered.

IV)An Agency Agreement:

An agreement whereby an agency is created is a valid agreement enforceable atlaw even when is no consideration.

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Public policy

Whenever an agreement is harmful to public interest or the welfare of the public

it is void being against public policy. When any agreement conflicts with moraleof time and violates any established interest of the society, political, economicalor social is void as it is created as against public policy.

In other words the agreement which is injurious to public welfare or against theinterest of the society is said to be opposed to public policy.

Public policy cannot be precisely defined because public policy cannot beconsidered to be always the same .It is a vague (unclear) term. Many thingswhich had been held as contrary to public policy in the past are not need now inother words public policy refer to policy and accepted principles which are in the

interest and for the welfare of the society at large.

Law refuse to recognise certain class of contract on the ground that they amischievous tendency so as to be injurious to the interest of the state or thepublic.

Agreements against Public Policy

Trading with an Enemy:

Trading with an alien enemy all agreement made between the citizens of aliencountry where such agreements are prohibited by government or when two

countries are at war considered it be void and are treated as against publicpolicy.

Similarly, all agreement s which tends to assist an alien enemy are treated asagainst public policy and therefore void.

I) Marriage brokerage agreement:

Any agreement by which parties agree to give or take breakage towardsperformances of marriage is treated as against public policy and therefore void.

II) Agreement to bribe a judge, magistrate or public officer:

An agreement whereby a person promises to pay or to give something to judgeor magistrate in consideration for a judge or magistrate to give a judgment in hisfavour, is against public policy and therefore voids .This type of agreement istreated against public policy. Similarly an agreement to bride a public officer orpublic servant is against public policy and therefore void.

III)Agreement for stifling prosecution:

Stifling prosecution means compounding or compromising prosecution.

All criminal offences are broadly classified into (me) Compoundable offences (ii)Non- compoundable offences. Compoundable offences can be settled outside the

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court without the leave of the court. An offence which is not a serious one orinvolves only private rights is compoundable, e.g.: simple assault

Non Compound able Offences cannot be compromised outside the court .E.g.:grievous hurt, criminal breach of trust.

IV) Agreement of Champerty and maintenance contract:

When a person agrees to maintain a suit or any other civil or criminal proceedingin which he has no legal interest for its prosecution or defence, the proceeding isknown as maintenance.

E.g.: A files a suit against B to recover Rs.10000 and C promises to maintain thesuit knowing fully well that B has to pay the amount to A. Such suit where C hasno interest is called maintenance.

Champerty

When a person bargains for a share in the result to be ultimate declared in a suitor proceeding in consideration for helping another to bring prosecute any actionit is called agreement of champerty.

E.g.: A files a suit against B to recover Rs 10000 C promises A the cost oflitigation and in turn demands 50 percent of the amount if A succeeds in thesuit .this is called champerty.

Both the above kind of agreement are treated as against public policy as itinterferes with administration of the justice.

I) Agreement in restraint of lawful trade business or profession

II) Agreement in restraint of the marriage

III) An agreement in restraint legal proceedings

Free consent

Free consent is one of the essential elements of a valid contract. Absence of free

consent of the parties makes the consent free.

The word consent is defined asTo agree upon the same things in same sense.

Thus consent is must to have agreement if there is no consent there is no

agreement therefore it is essential that both parties agree upon the same thingin same sense.

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Consent is said to be free when it is not caused by

a) coercionb) undue influencec) fraud

d) misrepresentatione) mistake

Coercion

The Indian Contract Act defines coercion as committing or threatening

to commit an act forbidden by Indian Penal code or unlawfully detaining or

threatening to detain the property of another to the prejudice of any person

whatever with an intention to induce another person to enter into an agreement

Coercion in simple words means force but under Indian contract act .coercion is

either actually committing an act or giving threats to commit an act which is an

offence under Indian Penal Code.

Essential of coercion

1. For an act to be forbidden by the Indian Penal Code, there must notbe merely a threat, but the act should be such as to be punishableunder the Indian Penal Code.

2. Coercion may proceed from anybody, even a person who is not aparty to the contract and may be directed against even a member ofhis household, not necessarily the other contracting party.

3. Coercion includes physical compulsion, fear and even menace togoods. Consent must be caused by unlawfully detaining orthreatening to detain any property.

4. The act must have been done or threatened with the intention ofcausing any person to enter into an agreement.

5. It does not matter whether the Indian Penal Code is or is not in forcein the place where the coercion is employed.

Effects of coercion

1. When consent to an agreement is caused by coercion, theagreement is a contract violable at the option of the party whoseconsent was so caused.

2. A person to whom money had been paid, or anything deliveredunder coercion must repay or return it.

3. He must rescind the contract within a reasonable time under the

Specific Relief Act, 1963.

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Illustration: - A threatens to shoot B if he does not let out his house to A. B agrees

to do so. This agreement has been brought about by coercion.

Undue Influence

A contract is said to be induced by undue influence where the

relations subsisting between the parties are such that one of the parties is in a

position to dominate the will of the other and uses that position to obtain an

unfair advantages over the other.

Thus consent is said to be induced by undue influence. When a person

who is in a dominating position takes undue advantage of his dominating position

by actually using that position over another. A person is seemed to be in

dominating position under the following circumstances.

Presumption as to undue influence

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

another?

A person is deemed to be in a position to dominate the will of another:-

a) where he holds a real or apparent authority over the other; orb) where he stands in a fiduciary relation to the other: orc) Where he makes a contract with a person whose mental capacity is

temporarily or permanently affected by reason of age,illness, or mentalbodily distress.

Essential of undue influence

The transaction is caused by undue influence and is unconscionable when-

a) one of the parties is in position to dominate the will of the other;b) the dominating party uses that position to obtain unfair advantage over

the other;

c) The act of undue influence must range under one or the other heads ofcoercion or fraud.

In case of inadequacy of consideration, it can be established that the consent

was not freely given, though the contact cannot be avoided.

Defences to the doctrine of undue influence

The presumption to undue influence can be defended by proving that full

disclosure of facts was made to the other party, and that the other party was in

receipt of independent and disinterested advice.

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The following should, therefore, be established in defence of the doctrine of

undue influence;

a) The person had an independent and disinterested advice.b) The person thoroughly understood the nature of the transaction.c) That he was removed from all undue influence when the transaction was

effected.The advice must not only be independent, but must be given before the

transaction, with knowledge of all relevant circumstances, and must be such as a

competent and honest adviser would give.

Effects of undue influence

a) When consent to an agreement is caused by undue influence,the agreement is a contract voidable at the option of the party

whose consent was so caused.b) Any such contract may be set aside either absolutely, or if the

party who was entitled to avoid it has received any benefitthere under, upon such terms and conditions as the court maydeem just.

c) Only a party to the contract can avoid or rescind the contract.This right does not lie in the hands of a third party.

Illustrations

As son has forged Bs name on a promissory note. B, under threat ofprosecuting As son, obtains a bond from a, for the amount of the forged note.

If B sues on this bond, the court may set it aside

Fraud

The contract act defines fraud as Fraud means and includes any of the

following acts committed by (a) a party to a contract or with his connivance by

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his agent, with an intention to deceive another party or his agent and there

induce him to enter into a contract.

1. Suggestion of a fact which is not true by one who does not believe it tobe true.

2. Active Concealment of material fact by one is having knowledge of thefact.

3. A promise may without any intention of performing it.4. Any act fitted to deceive.5. Any such act or omission which the law specifically declares to be

fraudulent.Thus fraud includes all tricks and unfair ways adopted by a person to deceive

another and thereby another to enter into an agreement.

Essentials of fraud

a) There must be an intention to deceive.b) The act must be done by a party to a contract, or with his connivance or

by his agentc) There must be a false representation of a fact,d) There must be a false promise, for example, a promise made without

any intention to perform it.e) Any other act or omission which the law considers it to be fraudulent or

fitted to deceive which is done with the obvious intention to commitfraud.

f) The party so induced must have acted upon it and suffered loss.

Effects of fraud

The following remedies are available to the party who has been induced to

enter into a contract by fraud:

a) The contract is voidable at the option of the party whose consent was socaused.

b) He may insist that the contract shall be performed and that he shall beput in the position in which he would have been if the representations

made had been true.c) He may rescind the contract within a reasonable time.d) He has a right to sue for damages.

Illustration

a) A sells, by auction, to B, a horse which A knows to be unsound. A saysnothing to b about the horses unsoundness. This is not fraud.

b) A and B, being traders, enter upon a contract. A is not bound to informB.

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Misrepresentation

Consent given under misrepresentation of facts is no consent at all. A

statement made which in fact is not true, under the belief that it is true, is

misrepresentation.

"Misrepresentation" means and includes

a) the positive assertion, in a manner not warranted by the information of theperson making it, of that which is not true, though he believes it to be true

b) any breach, of duty which, without an intent to deceive, gains anadvantage to the person committing it, or any one claiming under him, bymisleading another to his prejudice or to the prejudice of any one claiming

under him;c) Causing, however innocently, a party to an agreement to make a mistakeas to the substance of the thing which is the subject of the agreement.

Misrepresentation of fact

Consent given under misrepresentation of fact is no consent at all and

gives the right to the party whose consent is so caused to avoid the contract.

Misrepresentation of law

Misrepresentation of general rule of law gives no right to avoid a contract.

But misrepresentation of a particular right is misrepresentation of fact and,

therefore, gives right to the party to avoid the contract.

Effects of misrepresentation

The party whose consent is caused by misrepresentation can-

a) avoid contractb) rescind the contract within a reasonable time under the Specific Relief

Actc) If he thinks fit, insist that the contract shall be performed, and that he

shall be put in a position in which he would have been if therepresentations made had been true.

If default is committed, he is entitled to damages for non-performance.

Illustration

A, by a misrepresentation, leads B erroneously to believe that 500 maunds

of indigo are made annually at As factory. B examines the accounts of the

factory which shows that only 400 maunds of indigo have been made. After this B

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buys the factory. The contract is not voidable on account of As

misrepresentation.

Mistake

An erroneous belief about something is called mistake. Mistake could be of

fact or of law. When both the parties are under mistake as to the essential facts

of the agreement is void.

Mistakes can be of two types:-

a) Bilateral or Mutual mistakesb) Unilateral mistake

Bilateral mistake renders the agreement void whereas unilateral mistake

does not render the agreement void but makes the agreement.

In a bilateral mistake both the parties are under mistake whereas in

unilateral mistake only one of the party is under mistake

Similarly mistake could be in respect of identify of a person or it may be in

respect of subject matter of contract

A mistake of law not in force in India will have the same effect as mistake affect.However contracts enter into under an erroneous belief as to the law in force in

India is not a void agreement but is very much valid agreement.

Case Study

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Case No: Appeal (civil) 1575 of 2007 Bench: K.G. Bal Krishnan & R.V.Raveendran

IA No. 1 in Civil Appeal No.1575 of 2007

1. While granting leave on 26.3.2007, we made an interim order appointingDr. Narendra Trivedi, Vice-President of the Lilavati Hospital and Dr. K.Ramamurthy, Senior Consultant in that hospital, as Joint Administrators tobe in charge of the day to day running of the Hospital and the ResearchInstitute.

2. Dr. K. Ramamurthy has written a letter dated 14.6.2007 to the Registry ofthis Court, expressing his inability to function as an administrator, due to illhealth.

3. The appellant has also made this application seeking modification of theorder dated 26Th March, 2007 to appoint Dr. (Mrs.) Ketayun R. Dhunjibhoy,Chief of Laboratories in place of Dr. K. Ramamurthy, so that Dr. NarendraTrivedi and Dr. (Mrs.) Ketayun R. Dhunjibhoy can act as joint-administrators.

4. The said application has been resisted by the contesting respondents interalia on the ground that Dr. Dhunjibhoy is not senior enough for beingappointed as a Joint Administrator and her appointment may causeadministrative problems as there are more than 30 of the consultants

working in the hospital, senior to her.

5. We have considered the rival submissions. We are of the view that interestof justice would be served if Dr. K. Ramamurthy is replaced by a retiredJudge of the Bombay High Court as the Joint-administrator. Accordingly, weappoint Mr. Justice A.A. Halbe, retired Judge of Bombay High Court, No. 144,JYESHTHA, Tarangan Housing Complex, Near Cadbury Factory, Thane 400 606, Maharashtra(Tel: 022 25408849), as Joint Administrator in place of Dr. K.Ramamurthy, subject to the said modification, the interim order dated

26.3.2007 shall continue to operate.

6. The remuneration payable to Mr. Justice A.A. Halbe will be determined indue course.

7. We are sure that the City Civil Court, Mumbai, is making all efforts todispose of Suit No.1997/2006 at an early date, within the time stipulated inour order dated 26.3.2007

8. I.A. No. 1/2007 is disposed of accordingly.

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Essential Elements of a Valid Contract

According to Section 10, "All agreements are contracts, if they are made by thefree consent of the parties, competent to contract, for a lawful consideration witha lawful object, and not hereby expressly to be void."

Essential Elements of a Valid Contract are:-

1.Proper offer and proper acceptance.

2. Lawful Consideration: An agreement to form a valid contract should besupported by consideration. Consideration means something in return (quid proquo). It can be cash, kind, an act or abstinence. It can be past, present or future.However, consideration should be real and lawful.

3. Competent to Contract or Capacity.

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4. Free Consent: To constitute a valid contract there must be free and genuineconsent of the parties to the contract. It should not be obtained bymisrepresentation, fraud, coercion, undue influence or mistake.

5. Lawful Object and Agreement: The object of the agreement must not be illegalor unlawful.

6. Agreement not declared void or illegal: Agreements which have been expresslydeclared void or illegal by law are not enforceable at law; hence does notconstitute a valid contract.

7. Intention to Create Legal Relationships

8. Certainty, Possibility of Performance

9. Legal Formalities

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