THEREAREVARIOUSSOURCESFROMWHERECOMPILERHASCOLLECTED

THEMATERIALHENCECOMPILERACKNOWLEDGESALLTHOSEKNOWNAND

UNKNOWNSOURCESANDTHISMATERIALISONLYFORACADEMICHELPAND

COMPILERNEVERINTENDEDTODISTRIBUTEORSELL

TheoreticalBasisofContract

Theory based on morality Fulfilling contractual obligation is ones moral duty Theory based
on expectation Failing ones expectation creates pain and performance creates pleasure
Theory based on Utility Actswhichleadtogreatesthappinessofgreatestnumberare
moral generally and should only be encouraged Theory of certainty Withoutcertaintyno
businessorsocialactivitiesinthesocietyarepossible.

TheoreticalBasisofContract

I ought to keep my promises Why? because my conscience bids me to do it How do

you know your conscience bids you to do it? because I have an interior feeling to that
effect Why ought you to obey your conscience? because GOD is author of my nature, and
to obey my conscience is to obey GOD Why ought you obey GOD? because it is my first
duty How do you know that it is your first duty? because my conscience tells me that
Bentham, Principles of Morals & Legislations

BREACHOFCONTRACT:WHYITSHOULDBEREMEDIED

(1)Contract abiding person suffers pain and disappointment

(2)Notonlyhimbuthisfamilyandotherrelativesgetdisappointed

(3)Encouragepersonswhohavetendencytotakesuchadvantages

So enforce the promises What promises ought to be enforced

Enforceallpromises:Allpromisesmadewith
intentionandPromisesbasedonSelection
SelectionofPromisesbyLawSetofPromises:Agreement:

TestofLegalValidity

1Capacityoftheparties
2Legallynotharmful
3ValidConsideration

4Freemindoftheparties
5NospecificbarbyLaw
6ApprovedFormat/LegalFormalities

CONTRACTSOMERELEVANTTHINGS:

ContractmaybeinwritingororalnospecificmandatebyICA,butsometimeswriting
become mandatory vide other laws. Sometimes not only writing other formalities are to be
observed.

IMPORTANCETOLAWOFCONTRACT

1 This law has widest application (nootherlawcanboastofsuchawideapplicability)

2 It provides the very basis of formal cooperationinthesociety,withoutittheveryfabric

of societywillbecomeweak

1 Contract is a means of social solidarity asatoolofcooperation,lawofcontracthelps

alot inrenderingsocietymorehappy

CONTRACTANDSOCIETYsociety is nothing but network of relationships between the

individuals.Everygroupofindividualsisnotasociety.Toformasocietyindividualsmustbe
wovenintonetworkofrelationships.Cooperationturnsascatterednumberofindividualsinto
societyandcontractisanimportanttoolforsuchcooperation.ThelawofcontractinIndiais
governedbytheIndianContractAct,1872.Itisbasedontheprinciplesofcommonlaw
andmoreparticularlytheEnglishlawofcontact.ThemainobjectoftheActistointroduce
definitenessincommercialtransactions.Itdealswithcertaingeneralprinciplesregarding
contracts. According to Sir William Anson, A contract is anagreementenforceablebylaw
madebetweentwoormorepersonsbywhomrightsareacquiredbyoneormoretoactsor
forebearences on the part of the other or others.

INTRODUCTION

Weenterintocontractsdayafterday.Takingaseatinabusamountstoenteringintoacontract.
Whenyouputacoinintheslotofaweighingmachine,youhaveenteredintoacontract.Yougo
toarestaurantandtakesnacks,youhaveenteredintoacontract.Insuchcases,wedonoteven
realisethatwearemakingacontract.Inthecaseofpeopleengagedintrade,commerceand
industry,theycarryonbusinessbyenteringintocontracts.Thelawrelatingtocontractsistobe
foundintheIndianContractAct,1872.Thelawofcontractsdiffersfromotherbranchesoflaw
inaveryimportantrespect.Itdoesnotlaydownsomanypreciserightsanddutieswhichthelaw
willprotectandenforce;itcontainsratheranumberoflimitingprinciples,subjecttowhichthe
partiesmaycreaterightsanddutiesforthemselves,andthelawwillupholdthoserightsand
duties.Thus,wecansaythatthepartiestoacontract,inasensemakethelawforthemselves.So
longastheydonottransgresssomelegalprohibition,theycanframeanyrulestheylikeinregard
tothesubjectmatteroftheircontractandthelawwillgiveeffecttotheircontract..

WHATISACONTRACT?Section2(h)oftheIndianContractAct,1872definesacontract
as an agreement enforceable by law. Section 2(e) defines agreement as every promise andevery
set of promises forming consideration for each other. Section 2(b) defines promise in these
words: When the person to whom the proposal is made signifies his assent thereto, the proposal
is said to be accepted. A proposal when accepted, becomes a promise. From the above
definitionofpromise,itisobviousthatanagreementisanacceptedproposal.Thetwoelements
ofanagreementare:(i)offeroraproposal;and(ii)anacceptanceofthatofferorproposal.What
agreementsarecontracts?AllagreementsarenotstudiedundertheIndianContractAct,as
some of them are not contracts. Only those agreements which are enforceable at law are
contracts.TheContractActisthelawofthoseagreementswhichcreateobligations,andincase
ofabreachofapromisebyonepartytotheagreement,theotherhasalegalremedy.Thus,a
contractconsistsoftwoelements:(i)anagreement;and(ii)legalobligation,i.e.,itshouldbe
enforceableatlaw.However,therearesomeagreementswhicharenotenforceableinalaw
court.Suchagreementsdonotgiverisetocontractualobligationsandarenotcontracts.

Examples(1)AinvitesBfordinnerinarestaurant.Bacceptstheinvitation.Ontheappointed
day, B goestotherestaurant.Tohisuttersurprise Aisnotthere.OrAistherebutrefusesto
entertainB.BhasnoremedyagainstA.IncaseAispresentintherestaurantbutBfailstoturn
up,then A hasnoremedyagainst B.(2) A givesapromisetohissontogivehimapocket
allowanceofRupeesonehundredeverymonth.Incase A failsorrefusestogivehissonthe
promisedamount,hissonhasnoremedyagainst A.Intheaboveexamplespromisesarenot
enforceableatlawastherewasnointentiontocreatelegalobligations.Suchagreementsare
socialagreementswhichdonotgiverisetolegalconsequences.Thisshowsthatanagreementis
abroadertermthanacontract.And,therefore,acontractisanagreementbutanagreementisnot
necessarilyacontract.

Whatobligationsarecontractualinnature?Wehaveseenabovethatthelawofcontractsisnot
thewholelawofagreements.Similarly,alllegalobligationsarenotcontractualinnature.Alegal
obligationhavingitssourceinanagreementonlywillgiverisetoacontract.ExampleAagrees
tosellhismotorbicycletoBforRs.5,000.Theagreementgivesrisetoalegalobligationonthe
partof A todeliverthemotorbicycleto B andonthepartof B topayRs.5,000to A.The
agreementisacontract.IfAdoesnotdeliverthemotorbicycle,thenBcangotoacourtoflaw
andfileasuitagainstAfornonperformanceofthepromiseonthepartofA.Ontheotherhand,
ifAhasalreadygiventhedeliveryofthemotorbicycleandBrefusestomakethepaymentof
price, A cangotothecourtoflawandfileasuitagainst B fornonperformanceofpromise.
Similarly, agreements to do an unlawful, immoral or illegal act, for example, smuggling or
murdering a person, cannot be enforceable at law. Besides, certain agreements have been
specifically declared void or unenforceable under the Indian Contract Act. For instance, an
agreementtobet(Wageringagreement)(S.30),anagreementinrestraintoftrade(S.27),an
agreementtodoanimpossibleact(S.56).Anobligationwhichdoesnothaveitsorigininan
agreementdoesnotgiverisetoacontract.
Someofsuchobligationsare

1. Tortsorcivilwrongs;

2. Quasicontract;

3. Judgementsofcourts,i.e.,ContractsofRecords;

4. Relationshipbetweenhusbandandwife,trusteeandbeneficiary,i.e.,statusobligations.These
obligationsarenotcontractualinnature,butareenforceableinacourtoflaw.

Thus, Salmond has rightly observed: The law of Contracts is not the whole law of agreements
norisitthewholelawofobligations.Itisthelawofthoseagreementswhichcreateobligations,
and those obligations which have, their source in agreements. Law of Contracts creates rights in
personam asdistinguishedfromrightsin rem. Rightsin rem aregenerallyinregardtosome
propertyasforinstancetorecoverlandinanactionofejectment.Suchrightsareavailable
againstthewholeworld.Rightsinpersonamareagainstorinrespectofaspecificpersonandnot
againsttheworldatlarge. Examples (1) A ownsaplotofland.Hehasarighttohavequiet
possessionandenjoymentofthesame.Inotherwordseverymemberofthepublicisunder
obligationnottodisturbhisquietpossessionandenjoyment.ThisrightofAagainstthewhole
worldisknownasrightinrem.(2)AisindebtedtoBforRs.100.ItistherightofBtorecover
theamountfromA.ThisrightofBagainstAisknownasrightinpersonam.Itmaybenotedthat
no one else (except B) has a right to recover the amount from A. The law of contracts is
concernedwithrightsinpersonamonlyandnotwithrightsinrem.

ESSENTIALELEMENTSOFAVALIDCONTRACT Wehaveseenabovethatthetwo
elementsofacontractare:(1)anagreement;(2)legalobligation.Section10oftheActprovides
forsomemoreelementswhichareessentialinordertoconstituteavalidcontract.Itreadsas
follows: All agreements are contracts if they are made by free consent of parties, competent to
contract,foralawfulconsiderationandwithalawfulobjectandarenotherebyexpressly
declared to be void. Thus, theessentialelementsofavalidcontract canbesummedupas
follows1.Agreement.2.Intentiontocreatelegalrelationship.3.Freeandgenuineconsent.4.
Parties competent tocontract.5.Lawful consideration.6.Lawful object.7.Agreements not
declaredvoidorillegal.8.Certaintyofmeaning.9.Possibilityofperformance.10.Necessary
LegalFormalities.Theseessentialelementsareexplainedbriefly.

1. Agreement
Asalreadymentioned,toconstituteacontracttheremustbeanagreement.Anagreementis
composedoftwoelementsofferandacceptance.Thepartymakingtheofferisknownas
theofferor,thepartytowhomtheofferismadeisknownastheofferee.Thus,thereare
essentiallytobetwopartiestoanagreement.Theybothmustbethinkingofthesamething
inthesamesense.Inotherwords,theremustbeconsensusadidem.Thus, where A who
owns2carsxandywishes to sell car x for Rs. 30,000. B, an acquaintance of A doesnot
know that A owns car x also. He thinks that A owns only car y andis offering to sell
thesameforthestatedprice.Hegiveshisacceptancetobuythesame.Thereisnocontract
becausethecontractingpartieshavenotagreedonthesamethingatthesametime,
A offering to sell his car x and B agreeing to buy car y. Thereisno consensusad
idem.
2. Intentiontocreatelegalrelationship
Asalreadymentionedthereshouldbeanintentiononthepartofthepartiestotheagreement
tocreatealegalrelationship.Anagreementofapurelysocialordomesticnatureisnota
contract. Example Ahusbandagreedtopay30tohis wifeeverymonthwhilehewas
abroad.Ashefailedtopaythepromisedamount,hiswifesuedhimfortherecoveryofthe
amount. Held: Shecouldnotrecoverasitwasasocialagreementandthepartiesdidnot
intendtocreateanylegalrelations[Balfourv.Balfour(1919)2K.B.571].However,evenin
thecaseofagreementsofpurelysocialordomesticnature,theremaybeintentionofthe
partiestocreatelegalobligations.Inthatcase,thesocialagreementisintendedtohavelegal
consequences and, therefore, becomes a contract. Whether or not such an agreement is
intendedtohavelegalconsequenceswillbedeterminedwithreferencetothefactsofthe
case.Incommercialandbusinessagreementsthelawwillpresumethatthepartiesentering
into agreement intend those agreements to have legal consequences. However, this
presumptionmaybenegativedbyexpresstermstothecontrary.Similarly,inthecaseof
agreementsofpurelydomesticandsocialnature,thepresumptionisthattheydonotgive
 risetolegalconsequences.However,thispresumptionisrebuttablebygivingevidenceto
thecontrary,i.e.,byshowingthattheintentionofthepartieswastocreatelegalobligations.
Examples (1)TherewasanagreementbetweenRoseCompanyandCromptonCompany,
whereoftheformerwereappointedsellingagentsinNorthAmericaforthelatter.Oneof
the clauses included in the agreement was: This arrangement is not... a formal or legal
agreement and shall not be subject to legal jurisdiction in the law courts. Heldthat: This
agreement was not a legally binding contract as the parties intended not to have legal
consequences[RoseandFrankCo.v.J.R.CromptonandBros.Ltd.(1925)A.C.445].(2)

An agreement contained a clause that it shall not give rise to any legal relationships, or be
legally enforceable, but binding in honour only. Held: Theagreementdidnotgiveriseto
legalrelationsand,therefore,wasnotacontract.[Jonesv.Vernons Pools Ltd.(1938)2All
E.R.626].(3)Anagedcouple(C andhiswife)heldoutapromisebycorrespondenceto
theirnieceandherhusband(Mrs.andMr.P.)thatCwouldleavethemaportionofhisestate
inhiswill,ifMrs.andMr.Pwouldselltheircottageandcometolivewiththeagedcouple
andtosharethehouseholdandotherexpenses.Theyoungcouplesoldtheircottageand
startedlivingwiththeagedcouple.Butthetwocouplessubsequentlyquaralledandtheaged
couplerepudiatedtheagreementbyrequiringtheyoungcoupletostaysomewhereelse.The
youngcouplefiledasuitagainsttheagedcoupleforthebreachofpromise.Held:Thatthere
wasintentiontocreatelegalrelationsandtheyoungcouplecouldrecoverdamages[Parker
v.Clark(1960)1W.L.R.286].
3. Freeandgenuineconsent
Theconsentofthepartiestotheagreementmustbefreeandgenuine.Theconsentofthe
partiesshouldnotbeobtainedbymisrepresentation,fraud,undueinfluence,coercionor
mistake.Iftheconsentisobtainedbyanyoftheseflaws,thenthecontractisnotvalid.
Section13 definesthattwoormorepeoplearesaidtoconsentwhentheyagreeuponthe
samethinginthesamesense.However,manyatimes,aconsentmaynotreflectthetrue
intentionsofaparty.Forexample,onepartymaygiveconsentbecauseofbeingfinancially
pressuredorcriminallythreatened.Thus,suchaconsentshouldnotmaketheagreement
 enforceable.Section14determineswhatfactorscanvitiateaconsentandwhenaconsentis
consideredfreeofanycomplicationthataffectstheenforceabilityofanagreement.Itstates
thataconsentthatisnotobtainedthroughcoercion,undueinfluence,fraud,
misrepresentation,ormistakesubjecttosection20,21,and22,isafreeconsent.

a.Coercion(Sec15):Coercioniscommittingorthreateningtocommitanyactforbiddenby
theIndianPenalCode,orunlawfuldetainingorthreateningtodetaintheproperty,tothe
prejudiceofanyotherperson,withanintentiontocausethatotherpersontoenterintoan
agreement.ItisimmaterialwhetherIPCisorisnotinforcewherecoercionisapplied.Thus,
anactthatisunlawfulasperIPCbutnotasperEnglandlawandthathasbeenusedto
inducetheconsent,willbeconsideredcoercion.Aclearexamplewouldbeforcesomeoneto
consent on gun point or by hurting or threatening to hurt. In Chikham Amiraju vs
ChikhamSeshammaMadrasHC1912heldthatthreateningtocommitsuicideiscoercion.
InthecaseofAstleyvsReynolds1771,theplaintiffhadpledgedhisplatefor20andwhen
hewenttoclaimitback,thedefendantaskedformoreasinterest.Toredeemhisplate,the
plaintiffpaidthemoneybutlatersuedtorecoverThecourtallowedit.

b.UndueInfluence(Sec16): Undueinfluenceoccurswhenbecauseofthenatureofthe
relationshipthatexistsbetweentheparties,onepartyisabletodominatethewilloftheother
andusesthisdominancetoobtainunfairadvantageovertheother.Apersonisinadominant
position when he holds a real or apparent position of authority for example manager
employee,orstandsinafiduciaryrelationshipwiththeotherforexamplemoneylenderand
loanee.Apersoncouldalsobeinadominantpositionifthementalcapacityofotherpartyis
temporarilyorpermanentlyeffecteddueorillness,age,ordistress.Theburdenofproofthat
undueinfluencehasnotoccurredisonthepersonwhoisinthedominantposition,ifthe
agreementisunconscionableotherwiseitisonthepartythatallegesundueinfluence.

Examples:
Father(A)givesomemoneytoson(B)whenBwasaminor.Uponmajority,AmakesB
executeabondforamuchlargeramount.
Aperson(A)whoisoldandsickisinducedintopayinganunreasonablylargeamountof
sumtohisdoctor(B).
Avillagemoneylender(A)lendsmoneytoavillager(B),whoisalreadyindebt,atavery
high interest. It lies on A to prove that he has not used undue influence to induce the
contract.
Atatimeoffinancialcrises,abankmanagergivesloantoapersonatasubstantially
higherrate.Thisisnotconsideredtobeundueinfluencebutasimplebusinesstransaction.In
Mannusingh vsUmadatPandey AllahbadHC1890,aguruinducedhis devoteeinto
givingallthedevotee'spropertytohimself.Thiswasconsideredundueinfluence.

c.Fraud(Sec17):Whenapersonintentionallytriestocheatanotherperson,itiscalledas
fraudinageneralsense.Section17defines fraudpreciselyassuchFraudmeans and
includesanyofthefollowingactivitiesdonebyapartyorbyhisconnivanceorbyhisagent,
withanintenttodeceiveanotherpartyorhisagent,orastoinducetheotherpartytoenter
intothecontract.thesuggestionofafact,ofthatwhichisnottrue,bytheonewhodoesnot
believeittobetrue.activeconcealmentofafactbyonewhoknowledgeorbeliefofthefact.
makingapromisewithoutanintentiontoperform.anyactfittedtodeceiveanysuchactor
omissionthatthelawdeclarestobefraudulent.Meresilenceastofactslikelytoaffectthe
willingness of a person to enter into the contract is not fraud unless, according to the
circumstancesofthecase,itisthedutyofthepersonkeepingsilencetospeakorunlesshis
silenceitselfisconsideredasspeech.
Examples:
AsellsahorsetoBbyauctionwithouttellingBthathorseisunsound.Thisisnotfraud.Bis
A'sdaughterwhohasjustcomeoffage,thenitisA'sdutytotellBaboutthefact.Sothisis
fraud.

BsaystoA,"ifyoudonotdenyit,Iwillassumethathorseissound".Here,silenceis
consideredasspeechsothisisfraud.
AandB,beingtraders,enterintoacontract.Ahasprivatepricinginformationthatwill
causeBtonotenterthecontract.AisnotboundtoinformthistoB.Thisisnotfraud.
Concealingthediseasehistorywhileobtaininginsuranceisfraudbecauseitisthedutyofthe
insuredtogivethisinformationtotheinsurer.DerryvsPeek1889wasnotfraud,because
thecompanyhonestlybelievedinwhattheysaidandtherewasnointentional
misrepresentation, which is the essence of fraud.
SriKrishanvs.KurukshetraUniv.,AIR1976SCthestudentwasnotfoundtobefraud.
Eventhoughheknewthathewasshortonattendance,hedidnotdiscloseitonexamination
form. He was let off because 'mere silence'is not fraud.

d.Misrepresentation(Sec18):Whenapersonmakesanunwarrantedstatement,however
innocently, which the person believes to be true, and which turns out to be false, it is
misrepresentation. Any breach of duty, without an intention to deceive, that gains an
advantagetothepersoncommittingitortothepersonclaimingunderhim,bymisleading
theotherpersontohisprejudiceortopersonclaimingunderhim,isalsomisrepresentation.
Further,causingapartytoanagreementtomakeamistakeregardingthesubjectmatterof
the agreement, however innocently, is also misrepresentation.

Examples:
A claimed to Bthat the ship being considered under an agreement was below 2800
tonnage. But in reality it turned out to be more than 3000 tonnage. It was held to be
misrepresentationandBwasentitledtoavoidthecontract.OceanicSteamNavigationvs
SoonderdasDharmasey.BomHC1980.
Alandwaspurchasedexpresslyforconstructingduplexes.Thesellerclaimedthathesawno
permissioningproblems.However,lateronthepermissionwasdenied.Thiswasheldtobe
misrepresentationandeventhoughtheclaimwasinnocent,thebuyerwasallowedtoavoid
thesale.Wherethesellerofacarstatedthemileageofthecartobe20000,whichturnedout
to be wrong, the buyer of the car was allowed to recover compensation for
misrepresentation.

Section19 declaresthatacontractinducedduetocoercion,fraud,ormisrepresentationis
voidableattheoptionorthepartywhoseconsentwasobtainedbycoercion.Anexceptionis
thatwhentheconsentisobtainedbysilencefraudulentundersec17,andwhentheaffected
partyhadthemeansofdiscoveringthetruthwithordinarydiligence.Inthiscase,the
 contractisnotvoidable.Further,ifthefraudormisrepresentationdidnotcausethepartyon
whichtheywerepracticedtogiveconsent,thenthecontractwillnotbevoidable.
Section19Adeclaresthatthepartywhoseconsentwasobtainedbyundueinfluencehasthe
optiontoavoidthecontract.
4. Partiescompetenttocontract
Thepartiestoacontractshouldbecompetenttoenterintoacontract.AccordingtoSection
11,everypersoniscompetenttocontractifhe(i)isoftheageofmajority,(ii)isofsound
mind,and(iii)isnotdisqualifiedfromcontractingbyanylawtowhichheissubject.Thus,
theremaybeaflawincapacityofpartiestothecontract.Theflawincapacitymaybedueto
minority,lunacy,idiocy,drunkennessorstatus.Ifapartytoacontractsuffersfromanyof
theseflaws,thecontractisunenforceableexceptincertainexceptionalcircumstances.Inthe
caseofMohoribibeevsDharmodasGhoshin1903,aminorhadtakenaloanandthenhe

suedtoavoidthecontract.PrivyCouncilcouncilheldthatanycontractwithaminorisvoid
abinitioandsotheloanercannotgetanymoneythathegaveasadvanceback.Thisruleis
adoptedalloverIndiawhetherornotitbenefitstheminor.
In the case of Mir Sarwarjan vs Fakhruddin Mohd. Chaudhary 1912, a contract to
purchaseapropertywasdoneonbehalfofminor.Itwasheldthattheminorcouldnotsue
forgettingthepossessionofproperty.

However,sinceintoday'stimesminorsarecomingalotinpubliclife,itisnotalways
possibletoconsideranagreementwithaminortobealwaysvoid.Therefore,inthecaseof
SrikakulamSbhramanyamvsKurraSabhaRao1949,PrivyCouncilheldthatasaleof
inheritedpropertyofaminortopayoffinheriteddebteffectedbytheguardianwasbinding
ontheminor.

Protectionsofferedtominors:
NoestoppelagainstminorIthasnowbeensettledthataminorwhoentersintoacontract
bymisrepresentinghisagecanlaterontellhiscorrectageandavoidthecontract.
Noliabilityintortorincontractarisingout
ofacontractIfaminorentersintoa
contract,hecanneitherbeheldliableincontractnorintorts.Inthecaseof Jenningsvs
Rundall1799,whenaninfanthiredahorseforridingshortdistancebutrodeitforlong
distanceresultingininjurytohorse,hewasnotheldliablebecauseitwasacontractual
obligation.Inthecaseof HariMohanvsDuluMia1934,CalcuttaHC heldminornot
liable intortformoneylentonbond.However,inabsenceofacontract,aminormaybe
liableintort.Thus,inthecaseofBurnardvsHaggis1863,whenaminor"borrowed"amare
onlyforridingandthenlentittoafriendwhojumpedherandkilledher,hewasheldliable
intort.

DoctrineofrestitutionIfaminorobtainspropertyorgoodsbymisrepresentinghisage,he
can be forced to return it but only as long as the goods are traceable in the minor's
possession.Thisiscalleddoctrineofequitablerestitution.Iftheminorsellsorconvertsthe
property,thevalueofthegoodscannotberetrievedbecausethatwouldamounttoenforcing
avoidcontract.InthecaseofLeslievsSheill,aminorgot400poundsfrommoneylenders
bymisrepresentinghisage.Themoneylenderscouldnotrecoveritunderanyoffraud,
quasicontract,ordoctrineofrestitution.ThiswasfollowedinthecaseofMohoribibeevs
DharmodasGhoshaswell..

BeneficialContracts Incontractwhereaminorhasalreadysuppliedconsideration,the
minorcanenforcethecontract.Thus,inthecaseofUlfatRaivsGauriShakar1911,itwas
heldthataminorcansuetotakepossessionofapropertyforwhichhehasalreadypaid.But
where the contract is still executor and consideration has not been given, the principle
adoptedinMohoribibeewillprevail.Thus,inthecaseofRajRanivsPremAdib1949,it
washeldthatthefilmproducerwasnotboundbyacontractwithminor'sfathertogivea
roletominorinhismovie.Thisisbecauseminorcouldnotbeforcedtogiveconsideration
andfatherhadnotgivenanyconsideration.However,acontractofmarriageofaminorenter
intobythefatherisnotvoidforwantofconsiderationbecauseitisforthebenefitofthe
minor.Liabilitiesfornecessities(Section68)Ifaminorissuppliedwithnecessariesthat
areinaccordancewithhislivingstandard,thesuppliercangetpaidthroughtheminors
property.
 Personsofunsoundmind
Section12saysthatapersonisofsoundmindforthepurposeofcontractingifatthetimeof
contracting,heiscapableofunderstandingthecontractandcapableofmakingarational
judgementastotheeffectsofthecontractuponhisinterests.Apersonwhoisusuallyof
soundmindbutsometimesofunsoundmindmaynotmakeacontractwhenheisofunsound
mind,whileapersonwhoisusuallyofunsoundmindbutsometimeofsoundmindmay
makeacontractwhenheisofsoundmind.Thus,aperson,whoistoodrunk,orwhois
temporarilydeliriousduetosicknesssuchashighfever,maynotmakeacontractatthat
time.Apatientinalunaticasylum,whoisatintervalsofsoundmindmaymakeacontract
when he is of sound mind. In India, a contract done by a person of unsound mind is
absolutelyvoidabinitio.InthecaseofIndersinghvsParmeshwardhariSinghPatnaHC
in1957heldthatacontracttosellpropertyworth25000in7000,wasvoidablebecausethe
motherclaimedthathersonwasofunsoundmindanddidnotunderstandtheimplications.

5.LawfulconsiderationTheagreementmustbesupportedbyconsiderationonbothsides.
Eachpartytotheagreementmustgiveorpromisesomethingandreceivesomethingora
promiseinreturn.Considerationisthepriceforwhichthepromiseoftheotherissought.
However,thispriceneednotbeintermsofmoney.Incasethepromiseisnotsupportedby
consideration,thepromisewillbenudumpactum(abarepromise)andisnotenforceableat
law.Moreover,theconsiderationmustberealandlawful.

5. Lawfulobject Theobjectoftheagreementmustbelawfulandnotonewhichthelaw
disapproves.Whenfourdacoitsenterintoanagreementtosharethelootequallyandiftwo
ofthemtakemoresharethantheothertwo,thereisnothingthatlawcando,exceptarrest
them for dacoity. Needless to say, the objects and considerations involved in the the
agreementhavetobelegallyvalid.Section24declaresthatagreementsarevoidif
considerationandobjectareunlawfulinpart.If anypartofasingleconsiderationforoneor
moreobjects,oranyoneoranypartofoneof unlawful, the agreement is
severalconsiderationsforasingleobject,is void.
Thus,iftheunlawfulpartcannotbeseveredfromtheobjectorconsideration,thewhole
agreementbecomesvoid.However,iftheunlawfulpartcanbesevered,theremainingpart
canstillbeenforced.Forexample,AentersintoanagreementwithBtoget1Gramof
Cocainwith1KgorRicefor10Rsforriceand1000RsforCocain,thenapartoftheobject
thatis1gmofcocainand1000Rsisseverablefromtheagreementwithoutaffectingthe
lawfulpart.Inthiscase,theagreementcanbeenforcedpartially.Inanotherexample,Aman
entersintoanagreementwithamarriedwomentocleanhishouseandlivewithhimin
adultery,whichisunlawful,forasumpermonth,thewholeagreementisvoidbecauseitis
notpossibletodividethesumproperlybetweenlawfulandunlawfulobjects.

Whatobjectsorconsiderationsareunlawful
Section23declaresthatanyobjectorconsiderationislawful,unlessitisforbiddenbylaw,
orisofthenaturethatifpermitted,defeatstheprovisionsofanylaw,orisfraudulent,or
impliesorinvolvesinjurytothepersonorpropertyofanother,orisdeterminedbythecourt
to be immoral or against public policy. Thus, an agreement to rent an apartment for
prostitutionorgamblingisvoid.

Agreementsnotdeclaredillegalorvoid Therearecertainagreementswhichhavebeen
expresslydeclaredillegalorvoidbythelaw.Insuchcases,eveniftheagreementpossesses
alltheelementsofavalidagreement,theagreementwillnotbeenforceableatlaw.
CertaintyofmeaningThemeaningoftheagreementmustbecertainorcapableofbeing
madecertainotherwisetheagreementwillnotbeenforceableatlaw.Forinstance,Aagrees
to sell 10 metres of cloth. There is nothing whatever to show what type of cloth was
intended.Theagreementisnotenforceableforwantofcertaintyofmeaning.If,ontheother
hand,thespecialdescriptionoftheclothisexpresslystated,sayTerrycot(80:20),the
agreementwouldbeenforceableasthereisnouncertainlyastoitsmeaning.However,an
agreementtoagreeisnotaconcludedcontract [PunitBeriwala v. SuvaSanyal AIR1998
Cal.44].
PossibilityofperformanceThetermsoftheagreementshouldbecapableofperformance.
Anagreementtodoanactimpossibleinitselfcannotbeenforced.Forinstance,Aagrees
withBtodiscovertreasurebymagic.Theagreementcannotbeenforced.
NecessarylegalformalitiesAcontractmaybeoralorinwriting.If,however,aparticular
typeofcontractisrequiredbylawtobeinwriting,itmustcomplywiththenecessary
formalitiesastowriting,registrationandattestation,ifnecessary.Iftheselegalformalities
arenotcarriedout,thenthecontractisnotenforceableatlaw.1.2
CLASSIFICATIONOFCONTRACTS Contractsmaybeclassifiedintermsoftheir(1)
validity or enforceability, (2) mode of formation, or (3) performance. 1. Classification
accordingtovalidityorenforceabilityContractsmaybeclassifiedaccordingtotheirvalidity
as(i)valid,(ii)voidable,(iii)voidcontractsoragreements,(iv)illegal,or(v)unenforceable.

A contract to constitute a valid contract must have all the essential elements discussed
earlier.Ifoneormoreoftheseelementsis/aremissing,thecontractisvoidable,void,illegal
orunenforceable.
AsperSection2(i)avoidablecontractisonewhichmayberepudiatedatthewillofoneof
theparties,butuntilitissorepudiateditremainsvalidandbinding.Itisaffectedbyaflaw
(e.g., simple misrepresentation, fraud, coercion, undue influence), and the presence of
anyoneofthesedefectsenablesthepartyaggrievedtotakestepstorepudiatethecontract.It
showsthattheconsentofthepartywhohasthediscretiontorepudiateitwasnotfree.
Example A, a man enfeebled by disease or age, is induced by Bs influence over him as his
medicalattendanttoagreetopayBanunreasonablesumforhisprofessionalservices.B
employs undue influence. As consent is not free; he can take steps to set the contract aside.
Anagreementwhichisnotenforceablebyeitherofthepartiestoitisvoid[Section2(i)].
Suchanagreementiswithoutanylegaleffectabinitio(fromtheverybeginning).Underthe
law,anagreementwithaminorisvoid(Section11).
A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable[Section2(i)].Examples(1)AandBcontracttomarryeachother.Beforethe
limefixedforthemarriage,Agoesmad.Thecontractbecomesvoid.(2)Acontractstotake
indigo for B to a foreign port. As government afterwards declares war against the country in
whichtheportissituated.Thecontractbecomesvoidwhenwarisdeclared.
Other instances of void agreements are: (a) Agreements entered into through a mutual
mistakeoffactbetweentheparties(Section20).(b)Agreements,theobjectorconsideration
ofwhichisunlawful(Section23).(c)Agreements,partoftheconsiderationorobjectof
whichisunlawful(Section21).(d)Agreementsmadewithoutconsideration(Section25).(e)
Agreements in restraint of marriage (Section 26). (f) Agreements in restraint or trade
(Section27).(g)Agreementsinrestraintoflegalproceedings(Section28).(h)Uncertain
agreements(Section29).(i)Wageringagreements(Section30).(j)Impossibleagreements
(Section56).(k)Anagreementtoenterintoanagreementinthefuture.Intheabovetwo
examples,thecontractswerevalidatthetimeofformation.Theybecamevoidafterwards.In
example(1)thecontractbecamevoidbysubsequentimpossibility.Inexample(2)the

contract became void by subsequent illegality.* It is misnomer to use a void contract as

originallyenteredinto.Infact,inthatcasethereisnocontractatall.Itmaybecalledavoid
agreement. However, a contract originally valid may become void later. An illegal
agreementisonetheconsiderationorobjectofwhich(1)isforbiddenbylaw;or(2)defeats
theprovisionsofanylaw;or(3)isfraudulent;or(4)involvesorimpliesinjurytotheperson
orpropertyofanother;or(5)thecourtregardsitasimmoral,oropposedtopublicpolicy.
AllillegalcontractsarehenceVoidalsobecauseoftheillegalityoftheirnaturetheycannot
beenforcedbyanyCourtofLaw.Theabovediscussionshowsthatillegalcontractsareat
parwithVoidContracts.TheActspecifiesseveralfactorswhichrenderanagreementVoid.
Onesuchfactorisunlawfulnatureofcontractortheconsiderationmeantforit.Though
illegal agreements and Void agreement similar there are certain differences Scope: All
illegalagreementsareVoid.HoweverVoidagreementsmightnotbeillegalatthetimeof
enteringbutwouldhavebecomevoidbecauseofsomeotherfactors.Forexample,wherethe
termsoftheagreementareuncertaintheagreementwouldnotbeillegalbutmightbetrated
asVoid.AnillegalContractwouldencompassavoidContractwhereasavoidcontractmay
notincludeinitsscopeillegalcontracts2NatureandCharacter:IllegalAgreementsare
voidsincetheverybeginningtheyareinvariablydescribedasvoidabinitio,Asalready
emphasizedunderthescope,acontractbynature,whichisvalid,cansubsequentlychange
itsCharacterandcanbecomeVoid.

Effect on Colleteral Transactions: In the case of illegal contract, even the collateral
transactions namely transactions which are to be compiled with before or after or
concurrentlyalongwithmaincontractalsobecomenotenforceable.Incontrastinthecaseof
voidablecontractsthecollateraltransactionscanbeenforceddespitethefactthatthemain
contractmayhavebecomevoidable,totheextentthecollateraltransactionsarecapableof
beingperformedindependtlyPenaltyorPunishment:Allillegalagreementsarepunishable
underdifferentLawssaylikeIndianPenalCodeetc.WhereaspartiestoVoidAgreements
do not face such penalities or punishments. Examples (1) A, B and C enter into an
agreementforthedivisionamongthemofgainsacquiredortobeacquired,bythemby
fraud.Theagreementisillegal.(2)ApromisestoobtainforBanemploymentinthepublic
service,andBpromisestopayRs.1,000toA.Theagreementisillegal.Everyagreementof
whichtheobjectorconsiderationisunlawfulisnotonlyvoidasbetweenimmediateparties
but also taints the collateral transactions with illegality. In Bombay, the wagering
agreementshavebeendeclaredunlawfulbystatute.ExampleAbetswithBinBombayand

loses; makes a request to C for a loan, who pays B in settlement of As losses. C cannot
recover from A because this is money paid under or in respect of a wagering transaction
whichisillegalinBombay.Anunenforceablecontractisneithervoidnorvoidable,butit
cannotbeenforcedinthecourtbecauseitlackssomeitemofevidencesuchaswriting,
registrationorstamping.Forinstance,anagreementwhichisrequiredtobestampedwillbe
unenforceableifthesameisnotstampedatallorisunderstamped.Insuchacase,ifthe
stampisrequiredmerelyforrevenuepurposes,asinthecaseofareceiptforpaymentof
cash,therequiredstampmaybeaffixedonpaymentofpenaltyandthedefectisthencured
andthecontractbecomesenforceable.If,however,thetechnicaldefectcannotbecuredthe
contract remains unenforceable, e.g., in the case of an unstamped bill of exchange or
promissorynote.Contractswhichmustbeinwriting.Thefollowingmustbeinwriting,a
requirementlaiddownbystatuteineachcase:(a)Anegotiableinstrument,suchasabillof
exchange, cheque, promissory note (The Negotiable Instruments Act, 1881). (b) A
Memorandum and Articles of Association of a company, an application for shares in a
company;anapplicationfortransferofsharesinacompany(TheCompaniesAct,1956).(c)
Apromisetopayatimebarreddebt(Section25oftheIndianContractAct,1872).*Other
examples of contracts becoming void are: (a) A contingent contract to do or not to do
anythingifanuncertainfutureeventhappensbecomesvoidiftheeventbecomesimpossible
(Section32).(b)Acontractvoidableattheoptionofthepromisee,becomesvoidwhenthe
promiseeexerciseshisoptionbyavoidingthecontract.(Sections19;19A).(d)Alease,gift,
saleormortgageofimmovableproperty(TheTransferofPropertyAct,1882).Someofthe
contractsanddocumentsevidencingcontractsare,inadditiontobeinwriting,requiredtobe
registeredalso.Theseare:
1. DocumentscomingwithinthepurviewofSection17oftheRegistrationAct,1908.
2. TransferofimmovablepropertyundertheTransferofPropertyAct,1882.
3. Contracts without consideration but made on account of natural love and affection
betweenpartiesstandinginanearrelationtoeachother(Section25,TheIndianContract
Act,1872).
4. MemorandumofAssociation,andArticlesofAssociationofaCompany,Mortgagesand
Charges(TheCompaniesAct,1956).

ClassificationaccordingtomodeofformationTherearedifferentmodesofformationof
acontract.
Thetermsofacontractmaybestatedinwords(writtenorspoken).This isanexpress
contract.Alsothetermsofacontractmaybeinferredfromtheconductofthepartiesorfrom
thecircumstancesofthecase.Thisisanimpliedcontract(Section9).ExampleIfAenters
intoabusforgoingtohisdestinationandtakesaseat,thelawwillimplyacontractfromthe
verynatureofthecircumstances,andthecommuterwillbeobligedtopayforthejourney.

TacitContract:TacitContrcatsarethosethatareinferredthroughtheconductofparties.A
classicalexampleofIndianContractwouldbewhenCashiswithdrawnbyaCustomerofa
bankfromtheautomatedtellingmachine(ATM).Anotherexampleoftacitcontractiswhere
acontractisassumedtohavebeenenteredwhenasaleisgiveneffecttoatthefaalof
hammerinauctionsale.Wehaveseenthattheessenceofavalidcontractisthatitisbased
onagreementoftheparties.Sometimes,however,obligationsarecreatedbylaw(regardless
ofagreement)wherebyanobligationisimposedonapartyandanactionisallowedtobe
brought by another party. These obligations are known as quasicontracts. The Indian
Contract Act, 1872 (Chapter V Sections 6872) describes them as certain relations
resembling those created by contract. Examples (1) A supplies B, a minor, with necessaries
suitable to his condition in life. A is entitled to be reimbursed from Bs property. (2) A
suppliesthewifeandchildrenofB,aminor,withnecessariessuitabletotheirconditionin
life. A is entitled to be reimbursed from Bs property. (3) A, a tradesman, leaves goods at Bs
house by mistake. B treats the goods as his own. B is bound to pay A for them. In all the
above cases, the law implies a contract and a person who has got benefit is under an
obligationtoreimbursetheother.
3.ClassificationaccordingtoperformanceAnothermethodofclassifyingcontractsisin
terms oftheextent towhichthey havebeen performed. Accordingly,contracts are:(1)
executed,and(2)executoryor(1)unilateral,and(2)bilateral.
Anexecutedcontractisonewhollyperformed.Nothingremainstobedoneintermsofthe
contract.ExampleAcontractstobuyabicyclefromBforcash.Apayscash.Bdeliversthe
bicycle. An executory contract is one which is wholly unperformed, or in which there
remainssomethingfurthertobedone.ExampleOnJune1,Aagreestobuyabicyclefrom
B.ThecontractistobeperformedonJune15.

Theexecutorycontractbecomesanexecutedonewhencompletelyperformed.Forinstance,
intheaboveexample,ifbothAandBperformtheirobligationsonJune15,thecontract
becomesexecuted.However,ifintermsofthecontractperformanceofpromisebyoneparty
istoprecedeperformancebyanotherpartythenthecontractisstillexecutory,thoughithas
beenperformedbyoneparty.ExampleOnJune1,AagreestobuyabicyclefromB.Bhas
todeliverthebicycleonJune15andAhastopaypriceonJuly1.Bdeliversthebicycleon
June15.Thecontractisexecutoryassomethingremainstobedoneintermsofthecontract.
Partlyexecutedandpartlyexecutory:Acontractinwhichoneofthepartieshasfulfilledhis
obligationbuttheotherpartyisyettofulfillhisobligation.Example:AsellshiscartoB
andAhasdeliveredthecarbutBisyettopaytheprice.ForA,itisexcutedcontract
whereasitisexecutorycontractonthepartofBsincethepriceisyettobepaid.Onthebasis
ofliabilityforperformance:AUnilateralContractisonewhereinatthetimethecontractis
concludedthereisanobligationtoperformonthepartofonepartyonly.ExampleAmakes
paymentforbusfareforhisjourneyfromBombaytoPune.Hehasperformedhispromise.It
is now for the transport company to perform the promise. A Bilateral Contract is one
whereinthereisanobligationonthepartofbothtodoortorefrainfromdoingaparticular
thing. In this sense, Bilateral contracts are similar to executory contracts. An important
corollarycanbededucedfromthedistinctionbetweenExecutedandExecutoryContracts
andbetweenUnilateralandBilateralcontracts.Itisthatacontractisacontractfromthetime
itismadeandnotfromthetimeitsperformanceisdue.The
performanceofthecontractcanbemadeatthetimewhenthecontractismadeoritcanbe
postponedalso.SeeexamplesaboveunderExecutoryContract.

Classification/Types of Contracts. From the point of view of enforceability (a) Valid

contracts(b)Voidablecontracts(c)Voidcontractsoragreements(d)Illegalagreements(e)
UnenforceableAgreements(Certaincontractsmustbeinwriting)2.AccordingtoModeof
Formation(a) Express contract (b)Impliedcontract (c)Quasicontracts 3.Accordingto
Performance (a) Executed (b) Executory (c) Unilateral (d) Bilateral Classification of
Contracts in the English Law In English Law, contracts are classified into (a) Formal
Contractsand(b)SimpleContracts.Formalcontractsarethosewhosevalidityorlegalforce
isbaseduponformalone.FormalContractscanbeeither(a)contractsofrecordor(b)
contractsundersealorby(deedorspecialitycontracts.Noconsiderationisnecessaryinthe
case of Formal Contracts. Such contracts do not find any place under Indian Law as
considerationisnecessaryunderSection25(ofcoursetherearesomeexceptionstothe
principlethatacontractwithoutconsiderationisvoid).ContractsofRecordarenotcontracts
intherealsenseastheconsensusadidemislacking.Theyareonlyobligationsimposedby
thecourtuponapartytodoorrefrainfromdoingsomething.AContractofRecordiseither

(i)ajudgementofacourtor(ii)recognizance.Anobligationimposedbythejudgementofa
court and entered upon its records is often called a Contract of Record. Example A is
indebtedtoBforRs.500underacontract,Afailstopay.BsuesAandgetsajudgementin
hisfavour.ThepreviousrightofBtoobtainRs.500fromAisreplacedbythejudgementin
his favour and execution may be levied upon A to enforce payment, if need be. A
Recognizanceisawrittenacknowledgementtothecrownbyacriminalthatondefaultby
himtoappearinthecourtortokeeppeaceortobeofgoodconduct,heisboundtopayto
thecrownacertainsumofmoney.Thisisalsoanobligationimposeduponhimbythecourt.
Acontractwiththefollowingcharacteristicsisknownasacontractundersealorbydeedor
acontractofspeciality;(i)Itisinwriting,(ii)Itissigned,(iii)Itissealed,and(iv)Itis
deliveredbythepartiestothecontract.ThesecontractsareusedinEnglishLawforvarious
transactionssuchasconveyancesofland,aleaseofpropertyformorethanthreeyears,
contractsmadebycorporations,contractsmadewithoutconsideration.
Under the Indian Contract Act also, a speciality contract is recognised if the following
conditions are satisfied: (1) the contract must be in writing (2) it must be registered
accordingtothelawofregistrationofdocuments,(3)itmustbebetweenpartiesstandingin
near relation to each other, and (4) it should proceed out of natural love and affection
betweentheparties(Section25oftheIndianContractAct,1872).
Allcontractsotherthantheformalcontractsarecalledsimpleorparolcontracts.Theymay
bemade:(i)orally,(ii)inwriting,or(iii)impliedbyconduct.