FINAL PROJECT

Section 10 Of Indian Contract Act

A study on concepts, techniques, provisions

and cases

Submitted to: Vijay

Kumar Vimal

Submitted by: Inzmamul

Haque

Student, 1st year, 2nd

semester, Roll-933

Chanakya National

Law University

Table Of Contents

Chapter

Page No

Acknowledgement------------------------------------------

1. Introduction-------------------------------------------

a)Objective --------------------------------------

b)Research methodology---------------------------

2. Agreements -------------------------

3. Consent----------------------------------------------

4. Competency of contract-----------------------

5. Conclusion-------------------------------------------

Bibliography -------------------------------------

ACKNOWLEDGEMENT

I am feeling highly elated to work on the topic “Section 10 Of Indian Contract Act”

under the guidance of my law of contract teacher Vijay Kumar Vimal. I am very grateful

to him for his exemplary guidance. I would like to enlighten my readers regarding

this topic and I hope I have tried my best to pave the way for bringing more

luminosity to this topic.

I also want to thank all of my friends, without whose cooperation this project was

not possible. Apart from all these, I want to give special thanks to the librarian of

my university who made every relevant materials regarding to my topic available to

me at the time of my busy research work and gave me assistance. And at last I am

very much obliged to the God who provided me the potential for the rigorous

research work.

At finally yet importantly I would like to thank my parents for the financial support.

-----------------Thanking You

IntroductionSection 10 of Indian Contract Act which came into force on the first day of

September, 1872 is What agreements are contracts which says that “ All agreements

are contracts if they are made by the free consent of the parties competent to

contract, for a lawful consideration of 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expressly repealed by which any contract is required to be made in writing or in the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.”1

Relation between Agreement and Contract-

“The most common way of making of a contract is through an agreement. The two

parties may agree to something through mutual negotiations. When one party makes

an offer and the other accepts the same, there arises an agreement enforceable by

law.”2

Section 2(h) defines a contract as “ an agreement enforceable by law” thus to make a

contract there must be

1. An agreement

2. The agreement shall be enforceable by law.

1 From the act, http://www.lawnotes.in/Section_10_of_Indian_Contract_Act,_1872#ixzz2z58J18DU, accessed on 17/04/2014 at 01:41 IST2 Dr R K Bangia,1(2012)

3. All agreements are not enforceable by law and therefore, all agreements are not

contracts.

It has been noted above that an agreement enforceable by law is a contract. All such

agreements which satisfy the conditions mentioned in Section 10 of the act 1872.

Agreement is a wider term than contract where as all contracts are agreements. All

agreements are not contracts. All Contracts are Agreements, but all Agreements are not

Contracts.

The various agreements may be classified into two categories:-

1. Agreement not enforceable by law- Any essentials of a valid contract is not

available.

2. Agreement enforceable by law- All essentials of a valid contract are available.

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 to sell aradio set

may be a contract, but an agreement to go to 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 10 of Indian Contract Act, 1872 become contracts.

However all contracts are agreements.

Case

“Union of India v. Maddala Thathaiah”3

Fact- The dominion of India as the owner of a Railway invited tenders for the supply of

14,000 maunds of cane jaggery to the railway grain shops. Although the dates by which the

supplies were to be made had been mentioned, yet orders for the supply had to be made from

time to time. One of the conditions stipulated in tender form was that the “Administration

reserves the right to cancel the contract at any stage during the tenure of the contract without

calling up the outstanding on the unexpired portion of the contract.”

Judgement- It was held that the stipulation whereby the appellant could cancel the

agreement(revoke the offers in the strict sense) as regards the supplier of jiggery about which

no formal order had been placed was a valid one, and the appellants were bound only for the

supply of such quantities for which specific orders had already been placed.

What agreements are Contract

3 Dr R K Bangia, 18(2012)

If entering into a contract containing prescribed terms and conditions is a must under the

statute then that contract becomes a statutory contract. If contract incorporates certain terms

and conditions in it, which are statutory then, the said contract to that extent is statutory;

Thermal Power Ltd. v. State of Madhya Pradesh, AIR 2000 SC 1005.

In order to constitute a contract, both the parties must consent to the agreement; Steel

Authority of India Ltd. v. Salem Stainless Steel Suppliers, AIR 1994 SC 1415.

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 the case of an

infant; Mohoribibi v. Dharmodas Ghose, (1903) 30 IA 114.

What agreements are not Contract

Agreement subject to ratification by others who are not parties to it is not a conclusive

contract; M.V. Shankar Bhat v. Claude Pinto (Deceased) by LRs, (2003) 4 SCC 86.

Objectives:-

To know about the agreements and contracts relation

To know the cases related to section 10

To study about the provisions of section 10

To know about the agreements and its types

To know about the validity of contract with essential element

To know about the parties who are competent to contract

Research Methodology:-

For the purpose of research the researcher has relied on primary sources to look for

information relating to laws and statutes relating to ‘Section 10 of Indian Contract

Act, 1872’. The researcher has aimed at doctrinal research and tries to critically

analyse and provide an unbiased account. Researcher has used various books, journals

and online websites for gathering required information used in research.

Agreement

According to section 2(e) of Indian contract act the term agreement is defined as “Every

promise and every set of promises, forming the consideration for each other, is an

agreement. An agreement consists of reciprocal promises between the two parties. In an

agreement there is a promise from both sides.

For example, A promise to deliver his watch to B and in return B promises to pay a sum

of Rs. 2,000 to A. There is said to be an agreement between A and B. Thus we can say

that when there is a proposal from one side and the acceptance of that proposal by the

other side, it results in promise. This promise from the two parties to one another is

known as an agreement. “As already mentioned, to constitute a contract there must be an

agreement. An agreement is composed of two elements—offer and acceptance. The party

making the offer is known as the offeror, the party to whom the offer is made is known as

the offeree. Thus, there are essentially to be two parties to an agreement. They both must

be thinking of the same thing in the same sense. In other words, there must be consensus-

ad-idem.”4

From the point of view of the legality, there are different types of agreements.

1. Contracts

According to Section 2(h), of the Indian contract act 1872, contract is an agreement which

is enforceable by law. It is an agreement or set of promises giving rise to obligations

which can be enforced or are recognised by law. It has been noted above that in order that

an agreement becomes a contract, it has to satisfy all the essentials of a valid contract as

mentioned in section 10.

2. Void agreements

According to section 2(g), of the act 1872, an agreement not enforceable by law is said to

be void. For instance, an agreement by a minor has been held to void. Sections 24-30 of

the Indian contract act 1872, make a specific mention of agreements which are void.

Those agreements include an agreement without consideration, an agreement in restraint

of marriage, and an agreement in restraint of trade.

4 Agreement, http://www.newagepublishers.com/samplechapter/001048.pdf, last accessed on 17/04/2014 at 12:41 IST

Section 24- Agreements void if considerations and objects are unlawful in

their part If any part of a single consideration for one or more objects, or any one or any

part of any one of several consideration of a single object, is unlawful, the agreement is void.

“Non-compoundable offences, which are a matter of public concern, cannot be subject matter

of private bargains and administration of criminal justice should not be allowed to pass from

the hands of judges to private individuals. Where the offence is of public nature, no

agreement can be valid that is founded on the consideration of stifling of a prosecution for it.

The payment of 470 million US dollars by the Union Carbide Corporation to Union of India

was held not to be stifling of prosecution and the payment not unlawful”5

Section 25- agreement without consideration, void unless it is in writing

and registered or is a promise to compensate for something done or is a

promise to pay debt barred by limitation law

An agreement made without consideration is void, unless -

(1) it is expressed in writing and registered under the law for the time being in force for the

registration of1documents, and is made on account of natural love and affection between

parties standing in a near relation to each other; or unless.

(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily

done something for the promisor, or something which the promisor was legally compellable

to do; or unless.

(3) it is a promise, made in writing and signed by the person to be charged therewith or by his

agent generally or specially authorised in that behalf, to pay wholly or in part debt of which

the creditor might have enforced payment but for the law for the limitation of suits. In any of

these cases, such an agreement is a contract.

Section 26- Agreement in restraint of marriage is void

Every agreement in restraint of the marriage of any person, other than a minor, is void. An

agreement between two co-widows that if any of them remarried, she should forfeit her right

to her share in the deceased husband’s property is not in restraint of marriage5 Section 24, http://www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html, last accessed on 17/04/2014 at 23:20 ist

Section 27- Agreement in restraint of trade is void

Every agreement by which anyone is restrained from exercising a lawful profession, trade or

business of any kind, is to that extent void.

Exception 1: Saving of agreement not to carry on business of which good will is sold – One

who sells the goodwill of a business may agree with the buyer to refrain from carrying on a

similar business, within specified local limits, so long as the buyer, or any person deriving

title to the goodwill from him, carries on a like business therein, provided that such limits

appear to the court reasonable, regard being had to the nature of the business.

Section 28- Agreement in restraint of legal proceeding is void

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights

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 the extent.

Section 29- agreement void for uncertainty

Agreements, the meaning of which is not certain, or capable of being made certain, are void.

A agrees to sell B “a hundred tons of oil”. There is nothing whatever to show what kind of oil

was intended. The agreement is void for uncertainty.

Section 30-Agreement by way of wager void

Agreements by way of wager are void; and no suit shall be brought for recovering anything

alleged to be won on any wager, or entrusted to any person to abide the result of any game or

other uncertain event on which may wager is made. Exception on favour of certain prizes for

horse-racing: This section shall not be deemed to render unlawful a subscription or

contribution, or agreement to subscribe or contribute, made or entered into for or toward any

plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be

rewarded to the winner or winners of any horse-race.

Voidable contracts

According to section 2(i), of the act 1872, an agreement which is enforceable by law at the

option of one or more of the parties thereto, but not at the option of the other, is a voidable

contract. Thus, a voidable contract is one which could be avoided by one of the parties to

contract at his option. If such a party does not avoid the contract, the contract remains valid,

but if it prefers to avoid the contract, then the contract becomes void. For instance, when the

consent of a party to a contract has been obtained by coercion, undue influence, fraud or

misrepresentation, the contract is voidable at the option of the party whose consent has been

so obtained. Once an innocent party exercises the option and rescinds te contract, the contract

becomes void.

3. Illegal agreements

There are certain agreements which are “illegal” in the xsense that the law forbids the

very act, the doing of which is contemplated by the agreement. For example, an

agreement to commit a crime or a tort, or an agreement which tends to corrupt public life,

or an agreement to defraud public revenue, is illegal. Such an agreement is patently

opposed to public policy. The law forbids making of such agreements. An illegal

agreement may be distinguished from a mere “void” agreement which may not be

opposed to public policy. For example, an agreement to do an impossible act is void,

although there may be nothing in such an agreement which is opposed to public policy.

The law does not forbid making of such agreements, although if the parties have made

such an agreement, the same is not enforceable in a court of law. Whether an agreement

can be termed as illegal or not may depend on the degree to which it is opposed to public

policy. For example, an agreement in restraint of trade is void but we may not term it as

an “illegal” agreement as we do when it is an agreement to commit a crime.

An illegal agreement is that agreement which is actually forbidden by law. It is a void

agreement. To distinguish an illegal agreement from other void agreement, it is stated that

while in case of a void agreement a collateral transaction may not also be void, but in

case of an illegal agreement, the collateral transaction is also held void. For example, A

gives money to B to enable him to pay his wagering debt. The wager is the main

transaction which is void, but loan given by a A is subsidiary to it, which is not void and

A can recover his money from B. On the other hand, where A gives loan to B to smuggle

goods. Smuggling is the main transaction and loan is subsidiary to it. But, loan

transaction is also said to be tainted with the same illegality and A will not be able to

recover his money.

Case –

“Gherulal parakh v. Mahadeodass”6

Fact -The appellant and the respondent entered into partnership for carrying on

wagering transactions. The respondents, who incurred some loss on behalf of the firm,

brought an action against the appellant to recover his share of the loss. The claim was

allowed by the Supreme Court.

Judgement – It was held that when two partners make a contract, even of a wagering

nature and one of the parties satisfies his and his co-partner’s liability, such a partner can

legally claim indemnity from each other.

Consent:-

According to Section 13 Two or more person are said to consent when they agree upon

the same thing in the same sense. In next section it is mentioned about free consent, it is

one of the essentials of a valid contract and is that parties should enter into the contract

with their free consent. Consent is said to be free when it is not caused by

(1) Coercion, as defined in section 15, or

(2) Undue influence, as defined in section 16, or

(3) Fraud, as defined in section 17, or

(4) Misrepresentation, as defined in section 18, or

(5) Mistake, subject to the provisions of section 20, 21, and 22.

Consent is said to be so caused when it would not have been given but for the existence of

such coercion, undue influence, fraud, misrepresentation, or mistake. If the consent of one of

the parties is not free consent, i.e., it has been caused by one or the other of the above stated

factors, the contract is not valid one. “When consent to an agreement is caused by coercion,

undue influence, fraud or misrepresentation, the agreement is a contract voidable at the

option of the party whose consent was so caused.”7 “If however, the consent is caused by

mistake, the agreement is void.”8 Now discussing separately above mentioned factors.

Starting with the Coercion is defined in Section 15. “Coercion” is the committing, or

threaten to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the unlawful

detaining, or threatening to detain, any property, to the prejudice of any person whatever,

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

6 Dr R K Bangia, 251 (2012)7 Section 19, the Indian contract act, 1872, bare act8 Section 20, the Indian contract act, 1872, bare act

For coercion, it is not necessary that the Indian Penal Code should be applicable at the place

where the consent has been so caused. Explanation to section 15 makes it clear that to

constitute coercion, “it is immaterial whether the Indian Penal Code is or is not in force in the

place where the coercion is employed.” 9As for example, A, on board an English ship on the

high seas, causes B to enter into an agreement by an act amounting to criminal intimidation

under the Indian Penal Code (45 of 1860). A afterwards sues B for breach of contract at

Calcutta. A has employed coercion, although his act is not an offence by the law of England,

and although section 506 of the Indian Penal Code (45 of 1860) was not in force at the time

when or place where the act was done.

Case

Ranganayakamma v. Alwar Setti

Fact

On the death of a women’s husband, the husband’s dead body was not allowed to be

removed from her house for cremation, by the relatives of the adopted boy until she

adopted of the boy.

Issue- The question before the Court was regarding the validity of the adoption of a boy

by a widow, aged 13 years.

Judgement- It was held that the adoption was not binding on the widow as her consent

had been obtained by coercion.

Undue influence- Section 16 defines undue influence as under

(1) A contract is said to be induced by "under 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 advantage over the other.

(2) In particular and without prejudice to the generally of the foregoing principle, a

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

9 Coercion, Dr R K Bangia, 133(2012)

(a) where he hold a real or apparent authority over the other, or where he stands in a

fiduciary relation to the other; or

(b)  Where he makes a contract with a person whose mental capacity is temporarily or

permanently affected by reason of age, illness, or mental or bodily distress.

(3) Where a person who is in a position to dominate the will of another, enters into a

contract with him, and the transaction appears, on the face of it or on the evidence

adduced, to be unconscionable, the burden of proving that such contract was not

induced by undue influence shall be upon the person in a position to dominate the will

of the other.

Fraud – section 17 defines fraud

“Fraud” means and includes any of the following acts committed by a party to a contract, or

with his connivance, or by his agents, with intent to deceive another party thereto his agent,

or to induce him to enter into the contract;

(1) The suggestion as a fact, of that which is not true, by one who does not believe it to be true;

(2) The active concealment of a fact by one having knowledge or belief of the fact;

(3) A promise made without any intention of performing it;

(4) Any other act fitted to deceive;

(5) Any such act or omission as the law specially declares to be fraudulent.

“Mere silence as to facts likely to affect the willingness of a person to enter into a

contract is not fraud, unless the circumstances of the case are such that, regard being had

to them, it is the duty of the person keeping silence to speak2, or unless his silence, is, in

itself, equivalent to speech.”10

Fraud is a conduct either by letter or words, which induces the other person or authority

to take a definite determinative stand as a response to the conduct of the former either by

words or letter. It is an act of deliberate deception with the design of securing something

by taking unfair advantage of another. It is a deception in order to gain by another’s loss.

Case

10 Fraud http://www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html, last accessed on 18/04/2014 at 03:58 IST

State of Andhra Pradesh v. T. Suryachandra Rao

Fact- the respondent surrender certain land as found surplus under the A.P. Land

Reforms (Ceiling of agricultural holdings) Act, 1973. It was noticed that the land which

was surrendered had already been acquired in proceedings under the land acquisition act,

1898. Holding it a case of fraud on the part of the respondent the apex court held that by

fraud is meant an intention to deceive; whether it is from any expectation of advantage to

the party himself or expression fraud involves two element, deceit and injuruy to the

person deceived. Injury is something other than economic loss, that is, deprivation of

property, whether movable or immovable or of money and it will include any harm

whatever caused to any person in body, mind, reputation or such others.

Misrepresentation – under section 18 it means and includes:-

(1) the positive assertion, in a manner not warranted by the information of the person

making it, of that which is not true, though he believes it to be true

(2) any breach of duty which, without an intent to deceive, gains an advantage to the

person committing it, or anyone claiming under him; by misleading another to his

prejudice, or to the prejudice of any one claiming under him;

(3) Causing, however innocently, a party to an agreement, to make a mistake as to the

substance of the thing which is subject of the agreement.

Case

Noorudeen v. Umairathu Beevi

Fact- the defendant who was plaintiff’s son got a document executed from the

plaintiff describing it as hypothecation deed of the plaintiff’s property. In fact, by

fraud and misrepresentation the document executed was a sale deed of plaintiff’s

property. The plaintiff was a blind man and the sale was for an inadequate

consideration. The possession of the property was also not given to the defendant.

Judgement- It was held that such a deed, which was got executed by fraud and

misrepresentation, was rightly set aside.

If above mentioned factors are used as means of obtaining consent from the parties to

enter into a contract then under Section 19 agreements are voidable. “When consent

to an agreement is caused by coercion, 1fraud or misrepresentation, the agreement is a

contract voidable at the option of the party whose consent was so caused. A party to

contract, whose consent was caused by fraud or misrepresentation, may, if he thinks

fit, insist that the contract shall be performed, and that he shall be put on the position

in which he would have been if the representations made had been true.”11

Competency of contract

“The parties to a contract should be competent to enter into a contract. According to Section

11, every person is competent to contract if he (i) is of the age of majority, (ii) is of sound

mind, and (iii) is not disqualified from contracting by any law to which he is subject. Thus,

there may be a flaw in capacity of parties to the contract. The flaw in capacity may be due to

minority, lunacy, idiocy, drunkenness or status. If a party to a contract suffers from any of

these flaws, the contract is unenforceable except in certain exceptional circumstances.”12 A

valid contract may be made by any person recognised by law as having legal personality, that

is natural persons, corporations and the Crown.

However, the following classes of persons are in law incompetent to contract, or are only

capable of contracting to a limited extent or in a particular manner.

1. bankrupts;

2. minors;

3. persons of unsound mind;

4. alien enemies;

5. drunkards; corporations; 

11 Section 19, the Indian contract act, 1872, bare act12Anonymous, http://www.newagepublishers.com/samplechapter/001048.pdf, last accessed on 18-04-2014 at 04:46 IST

6. companies;

7. partnerships; and

8. Receivers of companies.

Case

“Mohoribibee v. Dharmodas Ghose”13

Facts- 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 transaction the attorney, who acted on behalf of the money-lender, had the

knowledge that the plaintiff was a minor.

Held- It was held that the defendant’s contentions were rejected. Minor’s agreement was

held void, and it was held that the minor could not be asked to repay the loan taken by

him.

Conclusion

A contract is a legally binding agreement or relationship that exists between two or more

parties to do or abstain from performing certain acts. A contract can also be defined as a

legally binding exchange of promises between two or more parties that the law will enforce.

For a contract to be formed an offer made must backed acceptance of which there must be

consideration. Both parties involved must intend to create legal relation on a lawful matter

which must be entered into freely and should be possible to perform. An agreement is a form

of cross reference between different parties, which may be written, oral and lies upon the

honor of the parties for its fulfilment rather than being in any way enforceable. All contracts

are agreement because there must be mutual understanding between two parties for a contract

to be formed. All parties should agree and adhere to the terms and conditions of an offer. The

above cases illustrate ways in which all contracts are agreements; In the case of invitation to

13 Case, Dr R K Bangia, 135(2012)

treat, where an invitation to treat is merely an invitation to make an offer. When a firm's offer

is accepted it results into a contract provided other elements of contracts are accepted.

Considering person A buying a radio on hire purchase from person B who deals with

electronics and its appliances. Both parties must come to an agreement on payment of

monthly instalment within specified period of time. Such an agreement result to specialty

contract which a contract under seal. All contracts are agreement until avoided for example,

avoidable contract where one of the parties can withdraw from it if s/he wishes. This occurs

due to minor agreement and misrepresentation or undue influence. Considering a case where

person A make contract with person B but during the contract period B realizes that he was

engaged to perform an agreement under undue influence. After the above discussion, it is

found that the first and main condition of valid contract is lawful agreement. If the above

mentioned elements exist in a lawful agreement, then that agreement turned into a contract. In

the absence of above elements or in the presence of defective elements (i.e. unlawful

consideration/unlawful object) illegal or void contract can be formed/ constituted. But illegal

or void contract has no legal status/existence, they are proper to say illegal or void

agreements. Finally we can say that all agreements are not contract, the agreements which are

constituted under/ within the frame of the law of contract, that are treated as a contract. On

the other hand, in all contracts there must be agreement as no contract can be formed without

an agreement. So it can undoubtly be said that – “All contracts are agreement but all

agreements are not contract”. Many people use the terms "contract" and "agreement"

interchangeably, but they are not precisely the same thing. Black's Law Dictionary defines an

agreement as "a mutual understanding between...parties about their relative rights and

responsibilities." It defines a contract as "An agreement between...parties creating obligations

that are enforceable." So, you can come to a mutual agreement with someone, put it in

writing, but if it doesn't satisfy the requirements of an enforceable contract (as described

below), it is not enforceable in court. The agreement must be supported by consideration on

both sides. Each party to the agreement must give or promise something and receive

something or a promise in return. Consideration is the price for which the promise of the

other is sought. However, this price need not be in terms of money. In case the promise is not

supported by consideration, the promise will be nudum pactum (a bare promise) and is not

enforceable at law. The object of the agreement must be lawful and not one which the law

disapproves.

Bibliography

Books

Dr R K Bangia, Contract I, 2012, Allahabad Law Agency

Avatar Singh, Contract And Specific Relief, 2013, Eastern Book

Company

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D. http://www.vakilno1.com/bareacts/indiancontractact/

indiancontractact.html

E. http://www.lawnotes.in/Indian_Contract_Act,_1872

F. http://icai.org/resource_file/

19698ipcc_blec_law_vol1_chapter1.pdf

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contract-act-1872-40294143.html

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