CHAPTER I

All agreements are not enforceable by law and, therefore,

all agreements are not contracts. Some agreements may be
enforceable by law and others not. For example, an
agreement to sell a radio set may be a contract but an
agreement to go see a movie may be a mere agreement not
enforceable by law. Thus, all agreements are not contracts.
Only those agreements which satisfy the essentials
mentioned in section 101 becomes contracts. However, all
contracts are agreements.
Thus, an agreement becomes a contract when the following
essentials are satisfied:
1. There is some consideration for it.
2. The parties are competent to contract.
3. Their consent is free.
4. Their object is lawful.

1. LAWFUL CONSIDERATION

Therefore, in this particular chapter the essential of lawful

consideration will be discussed in detail.
1.1RELEVANT SECTIONS

As per section 2(d)2,

1
All agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby expressly declared to be void. Nothing
herein contained shall affect any law in force in India, and not hereby
expressly repealed, by which any contract is required to be made in writing
or in the presence of witnesses, or any law relating to the registration of
documents.
2
Indian Contract Act, 1872

1
 “When, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is
called a consideration for the promise;”
As per section 233, the consideration or object of an
agreement is lawful, unless –

“It is forbidden by law; or is of such nature that, if

permitted it would defeat the provisions of any law or is
fraudulent; of involves or implies, injury to the person or
property of another; or the Court regards it as immoral, or
opposed to public policy.
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of
which the object or consideration is unlawful is void.”

The definition of consideration given in section 2(d) of the

Indian Contract Act, 1872 is rather a practical definition.
The purpose is to emphasise the simple fact that
consideration is some act, done or promised to be done, at
the desire of the promisor. It also avoids the practical
difficulties caused by the theory of consideration as
consisting of some act which is beneficial to one party or
detrimental to the other. This antithesis has been described
to be not altogether happy. The Act simplifies the matter by
saying that any kind of act or abstinence which is done or

3
Ibid.

2
undertaken to be done at the desire of the promisor is a
sufficient consideration.4

1.2ANALYSIS

1.2.1. “At The Desire Of The Promisor”

The definition of consideration in Section 2(d) clearly

emphasizes that an act5 shall not be good consideration for
a promise unless it is done at the desire of the promisor.

In Durga Prasad v. Baldeo6, the plaintiff, on the order of the

collector of a town, built at his own expense, certain shops
in a bazaar. The shops came to be occupied by the
defendants who, in consideration of the plaintiff having
expended money in the construction, promised to pay him
commission on articles sold through their agency in the
bazaar. The plaintiff’s action to recover the commission
was rejected.

The only ground for making of the promise is the expense

incurred by the plaintiff in establishing the Ganj(market)
but it is clear than anything done in that way was not ‘at
the desire’ of the defendants so as to constitute

4
Avtar Singh, Law of Contract and Specific Relief, 9th Edition, Eastern Book
Company, p. 85.
5
The word ‘act’, for the purpose of this definition, includes ‘abstinence’ also.
Bank of Baroda v. Kayenkay Agencies, (2003) 1 BC 59 (Delhi DB), in
connection with the grant of overdraft facility, fee of Rs 5000 for execution of
documents was held to be valuable consideration.
6
(1880) 3 ALL 221, OLDFIELD J at P. 228.

3
consideration7. The act was the result of not the promise
but of the collector’s order.

1.2.2. “Acts Done at Request”

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

good consideration for his promise even if it is of no
personal significance or benefit to him. The decision of the
Calcutta High court in Kedar Nath v. Gorie Mohamed8 has
become well known in this connection.

It was thought advisable to erect a town hall at

Howrah provided sufficient subscription could be got
together for the purpose. To this end, the Commissioners of
Howrah municipality set out to work to obtain necessary
funds by public subscription. The defendant was a
subscriber to this fund for Rs. 100 having signed his name
in the subscription book for that amount. On the faith of
the promised subscription, the plaintiff entered into a
contract with a contractor for the purpose of building the
hall. But the defendant failed to pay the amount necessary
for the purpose of building the hall. But the defendant
failed to pay the amount and contended that there was no
consideration for his promise.

7
Refer to Raja of Venkatagiri v. Krishnayya, AIR 1948 PC 150 and Adaitya
Das v Prem Chand Mondal, AIR 1929 Cal 369. In this case, the defendant
promised to bring a thakur to the plaintiff’s house to preside over a dinner to
be given to the plaintiff’s guests. The defendant failed to bring the Thakur
and consequently the dinner was wholly wasted as no guest partook of it in
the absence of the Thakur. The plaintiff’s action for damages was dismissed
as he had done nothing on the desire of the promisor.
8
1886 ILR 14 Cal 64.

4
He was, however, held liable: persons were asked to
subscribe knowing the purpose for which the money was to
be applied; they knew that on faith of their subscription, an
obligation was to be incurred to pay the contractor for the
work. The promise is: ‘in consideration of your agreeing to
enter into a contract to erect, I undertake to supply money
for it.’ The act of the plaintiff in entering into contract with
the contractor was done at the desire of the defendant (the
promisor) so as to constitute consideration within the
meaning of Section 2(d).
It was indeed a promise to pay for the performance of an
act and it could not have been revoked once the promise
entered performance. In England, also the ‘law for
centuries has been that an act done at the request of
another, express or implied, is sufficient consideration to
support a promise’.9

1.2.3. “Promisee or any other person”

The second notable feature of the definition in section 2(d)
is that the act which is done is to constitute a consideration
may be done by the “promise or any other person”. It
means therefore, that as long as there is a consideration
for a promise, it is immaterial who has furnished it. It may
move from the promise or if the promisor has no objection,
from any other person. This principle has it genesis in the

9
Rt. Hon. Sir Alfred Denning, Recent Developments in the Doctrine of
Consideration, (1952) 15 Modern Law Review, p. 1. Following authorities are
sited in support of the proposition: Lamleigh v. Braithwait, 1615 Hobb,
105:80 ER 255.

5
English common law, having been adopted by the Court of
King’s Bench as early as 1677 in Dutton v. Poole:10
A person had a daughter to marry and in order to
provide her a marriage portion he intended to sell a wood
of which he was possessed at the time. His son (the
defendant) promised that if “the father would forebear to
sell at his request, he would pay the daughter £ 1,000.”
The father accordingly forbore but the defendant did not
pay. The daughter and her husband sued the defendant for
the amount.
It is clear that the defendant gave his promise to his father
and it was the father alone who, by abstaining from selling
the wood, had furnished consideration for the promise. The
plaintiff was neither privy to the contract nor interested in
the consideration. But it is equally clear that the whole
object of the agreement was to provide a portion to the
plaintiff. It would have been highly inequitable to allow the
son to keep the wood and yet to deprive his sister of her
portion. He was accordingly held liable.

1.2.4. “Position of Beneficiary who is not a Party”

Fundamental propositions of English law referred to by his
Lordship Viscount Haldane are:
a. Consideration must move from the promisee and the
promisee only. If it be furnished by any other person,
the promisee becomes a stranger to the consideration
and therefore, cannot enforce the promise. 11
10
Court of King’s Bench, (1677) 2 Levinz 210:83 ER 523.
11
Anson, Principles of the English Law of Contract, 23rd Edition by A G Guest,
(1971) p. 89; Cheshire and Fifoot, Law of Contract, 8th Edition, 1972, p. 64.

6
 b. A contract cannot be enforced by a person who is not
a party to it even though it is made for his benefit. He
is a stranger to the contract and can claim no rights
under it.
These propositions were formed as a result of the Tweedle
v. Atkinson12 case, which laid the foundation of what
subsequently came to be known as ‘privity of contract’,
which means that a contract is a contract between the
parties only and no third person can sue upon it even when
avowedly he is benefited. Whitman J. considered it to be an
established principle “that no stranger to the consideration
can take advantage of a contract, although made for his
benefit”.
Thus, although the sole object of the contract was to secure
a benefit to the plaintiff, he was not allowed to sue as the
contract was made with his father and not with him. This
principle was affirmed by the House of Lords in Dunlop
Pneumatic Tyre Co. v Selfridge & Co.:13
Plaintiffs (Dunlop & Co.) sold certain goods to one
Dew & Co. and secured an agreement from them not to sell
the goods below the list price and that if they sold the
goods to another trader, they would obtain a similar
undertaking to maintain the price list. Dew & Co. sold the
motor tyres to the defendants (Selfridge & Co.) who agreed
not to sell the tyres to any private customer at less than the

12
123 ER 762: 1 B&S 23, 393:30 LJ QB 218: 4 LT 468; The plaintiff was to be
married to the daughter of Mr. G and in consideration of this impending
marriage, G and the plaintiff’s father entered into a written agreement by
which it was agreed that each would pay the plaintiff a sum of money. G
failed to do so and the plaintiff sued his executors.
13
(1915) AC 847.

7
list prices. The plaintiffs sued the defendants for breach of
contract. It was held that assuming the plaintiffs were
undisclosed principals, no consideration moved from them
to the defendants and that the contract was unenforceable
by them.

1.2.5. “Privity Of Consideration”

In India, the two propositions mentioned above are not at
all applicable. Here, in view of the clear language used in
Section 2(d), it is not necessary that consideration should
be furnished by the promise. A promise is not enforceable
if there is some consideration for it and it is quite
immaterial whether it moves from the promise or any other
person. The leading authority in the decision of the Madras
High Court in Chinnaya v. Ramayya14:
An old lady, by deed of gift, made over certain landed
property to the defendant, her daughter. By the terms of
the deed, which was registered, it was stipulated that an
annuity of Rs. 653 should be paid every year to the
plaintiff, who was the sister of the old woman. The
defendant on the same day executed in plaintiff’s favour an
Iqrarnama (agreement) promising to give effect to the
stipulation. The annuity was, however, not paid and
the plaintiff sued to recover it. It was clear that the only
consideration for the defendant’s promise to pay the
annuity was the gift of certain lands by the old woman to
the defendant, the defendant, therefore, tried to defend
herself on the ground that the promise (the plaintiff) had
14
(1882) 4 Mad. 137:6 Ind Jur 402.

8
furnished no consideration for the same. Briefly, the whole
situation was: the defendant’s promise was given to the
plaintiff, but consideration was furnished by the plaintiff’s
sister. The court could have easily allowed the plaintiff to
recover the annuity, as consideration can be given by “any
other person” and is equally effective. The court reached
the same result but on a somewhat different ground. Innes
J. tried to equate the situation with the facts of Dutton v.
Poole. In that case, the defendants sister would have gotten
the marriage portion but for the defendant’s promise. In
this present case also it appeared that the plaintiff was
already receiving from her sister an annuity of like amount
out of the estate and when the estate was handed over to
the defendant, it was stipulated that the payment to the
plaintiff should be continued and she promised accordingly.
That means that the failure to keep the promise would have
deprived the plaintiff of an amount which she was already
receiving and it is a legal commonplace that if a promise
causes some loss to the promise, that is sufficient
consideration for the promise. Thus, the plaintiff had given
consideration.15

15
Avtar Singh, Law of Contract and Specific Relief, 9th Edition, Eastern Book
Company, p. 94.

9
 CHAPTER II

2. COMPETENT TO CONTRACT

In this particular chapter the essential of parties competent

to a contract has been discussed in detail.

2.1. RELEVANT SECTIONS

As per section 11 of the Indian Contract Act, 1872,

“Every person is competent to contract who is of the age of
majority according to the law to which he is subject, and
who is sound mind and is not disqualified from contracting
by any law to which he is subject.”
As per section 12 of the Indian Contract Act, 1872,

“A person is said to be of sound mind for the purpose of

making a contract, if, at the time when he makes it, he is
capable of understanding it and of forming a rational
judgment as to its effect upon his interest. A person who is
usually of unsound mind, but occasionally of sound mind,
may make a contract when he is of sound mind. A person
who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound
mind.”

2.2. ANALYSIS

2.2.1. “Position of a Minor”

A person who has not attained the age of majority is a
minor. Section 3 of the Indian Majority Act, 1875
provides about the age of majority 16. It states that a person
16
3. Age of majority of persons domiciled in India.

10
is deemed to have attained the age of majority when he
completes the age of 18 years, except in case of a person of
whose person or property or guardian has been appointed
by the Court in which case the age of majority is 21 years.
In such cases, the majority does not arise till the
completion of 21years of age by the ward, and it is
immaterial whether the guardian dies or is removed or
otherwise ceases to act.17 In England, the age of majority is
18 years.18
It may be noted that the Indian Majority Act is being
amended to make the age of majority as 18 years for every
person, irrespective of the fact that in respect of them, any
guardian has been appointed.

2.2.2. “Nature of a Minor’s Agreement”

Section 10 requires that the parties to a contract must be
competent and Section 11 declares that a minor is not
competent. But neither Section makes it clear whether, if a

Subject as aforesaid, every minor of whose person or property, or both, a

guardian, other than a guardian for a suit within the meaning of 1[Chapter
XXXI of the Code of Civil Procedure], has been or shall be appointed or
declared by any Court as Justice before the minor has attained the age of
eighteen years, and every minor of whose property the superintendence has
been or shall be assumed by any Court of Wards before the minor has
attained that age shall, notwithstanding anything contained in the Indian
Succession Act or in any other enactment, be deemed to have attained his
majority when he shall have completed his age of twenty-one years and not
before.

Subject as aforesaid every other person domiciled in India shall be deemed to

have attained his majority when he shall have completed his age of eighteen
years and not before.

17
Jaogana Ram Marwari v. Mahadeo Prasad Sahu, I.L.R. (1909) 36 Cal. 768,
p. 794.
18
Family Law Reform Act, 1969.

11
minor enters into agreement, it would be voidable at his
option or altogether void. These provisions had, therefore,
quite naturally given rise to a controversy about the nature
of minor’s agreement.19 The controversy was finally settled
in 1903 by the Judicial Committee of the Privy Council, in
their well-known pronouncement in Mohoribibi v.
Dharmodas Ghose.20
The plaintiff, Dharmodas Ghose, while he was a
minor, mortgaged his property in favour of the defendant,
Brahmo Dutt, who was a money lender to secure a loan. At
the time of the transaction the attorney who acted on
behalf of the money lender, had the knowledge that the
plaintiff was a minor. The minor brought an action against
the money lender stating that he was a minor when the
mortgage was executed by him and therefore, the
mortgage was void and inoperative and the same should be
cancelled. By the time of appeal to the Privy Council,
Brahmo Dutt died and the Appeal was prosecuted by his
executors.
The defendant (money lender), amongst other points,
contended that:-
i) The minor had fraudulently misrepresented
his age, the law of estoppel should be applied
against him. Basically, he should not be
allowed to plead that he was a minor at the
time of transaction and hence, no relief
should be given to the minor in case;
19
Raj Coomari v. Pero Madhub Nandi, 1 CWN 453; Boide Nath Dey v. Ram
Kishore Dey, 10 Bengal Law Reports 326.
20
(1903) 30 IA 114: 30 Cal 539

12
 ii) If the mortgage is cancelled as requested by
the minor, the minor should be asked to
refund the loan of Rs. 10,500 which had been
taken.
However, the defendant’s contentions were rejected and
the minor’s agreement was held void. Hence, the minor
could not be asked to pay back the loan. Sir Lord North
observed:
“Looking at section 11, their lordships are satisfied
that the Act makes it essential that all contracting parties
should be competent to contract and expressly provides
that a person who by reason of infancy is incompetent to
contract cannot make a contract within the meaning of the
Act. The question whether a contract is void or voidable
presupposes the existence of a contract within the meaning
of the Act, and cannot arise in case of an infant.”
Ever since this decision it has not been doubted that a
minor’s agreement is absolutely void. The ruling of the
Privy Council in the Mohoribibi v. Dharmodas Ghose case
has generally been followed by the courts in India and
applied both to the advantage and disadvantage of minors.
Another decision of the Privy Councl in line is Mir
Sawarjan v. Fakhruddin Mohd Chowdhury21.
A contract to purchase certain immovable property
had been made by a guardian on behalf of a minor and the
minor sued the other party for a decree of specific

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

13
performance to recover possession. His action was
rejected.
The court said that it was not within the competence either
of the manager of the minor’s estate or of the guardian of
the minor, to bind the minor or the minor’s estate by a
contract for the purchase of immovable property; that as
the minor was not bound by the contract, there was no
mutuality and that consequently the minor could not obtain
specific performance of the contract.
However, in today’s world it is not very feasible to
declare minor’s agreement absolutely void- minors are
appearing in public life more frequently than ever before.
He/she has to travel and deal with educational institutions
and purchase so many things for the facilities of life. In
such cases, if the other party to the contract could brush
aside the minor on the ground that the agreement is void,
the legal protection against contractual liability would be
too dear to minors. The Privy Council, therefore, modified
its earlier decisions in Srikakulam Subrahmanyam v Kurra
Subba Rao.22 In order to pay off the promissory note and
mortgage debt of his father, the minor son and his mother
sold a piece of land to the holders of the promissory note in
satisfaction of the note and he also was to pay off the
mortgage debt. He paid off the mortgagee accordingly and
the possession of the land was given over to him.
Afterwards, the minor brought an action to recover back
the land. It was found a fact that the transaction was for
the benefit of the minor and the guardian had the capacity
22
(1949) 75 IA 115: ILR 1949 Mad 141 PC.

14
to contract on his behalf. The contract, being for the
benefit of the minor and within the power of his mother,
was set to be binding on him.

2.2.3. “Persons of Unsound Mind”

In India, the agreement of a person of unsound mind is
absolutely void, like that of a minor, as per section 12 of the
Indian Contract Act, 1872.
Illustrations:
a. A patient in a lunatic asylum, who is at intervals of
sound mind, may contract during those intervals.
b. A sane man, who is delirious from fever, or who is so
drunk that he cannot understand the terms of a
contract, or form a rational judgement as to its effects
on his interests, cannot contract whilst such delirium
or drunkenness lasts.
An illustration is the decision of the Patna High Court in
Inder Singh v. Parmeshwardhari Singh23.
A property worth about Rs. 25000 was agreed to be
sold by a person for Rs. 7000. His mother proved that he
was a congenital idiot, incapable of understanding the
transaction and that he mostly wandered about.
Illustration (b) appended to section 12 shows that a
drunken person is in the same category as a person of
unsound mind.

23
AIR 1957 Pat 491.Also Jyotirinda Bhattacharya v. Sona Bala Bora, AIR 1994
Gau 99. In this case, the person in question filed cases against family
members, remained away for long period of time, transferred family
properties to the extent of making the family homeless and the court said
that all this is sufficient to indicate the vendor was not normal and was not
mentally sound at the time of sale.

15
 CHAPTER III

3. FREE CONSENT

In this particular chapter the essential of free consent

between parties has been discussed in detail.

3.1. RELEVANT SECTIONS

As per section 13 of the Indian Contract Act,

1872,"Consent" is defined:

Two or more person are said to consent when they

agree upon the same thing in the same sense.

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

Indian Contract Act, 1872.

16
3.2. ANALYSIS

3.2.1. “Coercion”
As per section 1524, "Coercion" includes the follwing:
i) Act forbidden by the Indian Penal Code
For instance, if A threatens to shoot B if B does not sell
his property to A at a stated price, B’s consent in this
case has been obtained by coercion.

In Ranganayakamma v. Alwar Setti 25, the question before

the court was regarding the validity of the adoption of a
boy by a widow aged 13 years. On the death of the
husband, his dead body was not allowed to be removed
from her house for cremation, by the relatives of the
adopted boy until she adopted the boy. It was held that the
adoption was not binding on the widow as her consent had
been obtained by coercion.26

In Chikkan Ammiraju v. Chikkan Seshama27, the question

before the Madras high court was whether coercion could
be caused by threat to commit suicide. The main
consideration in this case revolved around the answer on
whether the threat to commit suicide could be considered
as an act forbidden by the Indian Penal Code. It was held
by Wallis, C.J. and Seshagiri Ayyar, that a threat to commit
suicide was under the meaning of section 15 of the Indian

24
Indian Contract Act, 1872.
25
ILR (1889) 13 Mad. 214.
26
As per Pollock and Mulla, Indian Contract and Specific Relief Acts, 9 th
Edition, p. 134, by obstructing the removal of the corpse the possible offence
tried to be committed was under section 297, Indian Penal Code. Also, the
authors think that the case could have well been tried under section 16 of the
Indian Contract Act since the consent was obtained by undue influence.
27
ILR (1918) 41 Mad. 33.

17
Penal Code and therefore, the release deed signed by the
plaintiff was voidable.

There has been dissent on this particular view by mostly,

the majority view that threat to commit suicide is a
punishable offence under section 15 of the IPC is held to be
valid.

ii) Unlawful detaining of property

As per section 15 of the Indian Contract Act, 1872,
coercion can also be caused by unlawful detaining or
threat to detain any property of any person with the
intention of causing any person to enter into an
agreement.

In Union of India v. M V Damodar 28, a bank loan was taken

by the defendants from the plaintiff for purchase of vessels.
Purchase of vessel was required to be made through
Shipping Development Fund Committee. Loan was
advanced at subsidized rate of interest. Defendants had
entered into agreement willingly and plea by defendants
subsequently that they were forced to enter into contract
with plaintiff because of economic duress due to
monopolistic character of committee was not tenable.

In Workmen of Appin Tea Estate v. Industrial Tribunal 29, the

demand of the workers for bonus was accepted after a
threat to strike. The question arisen was whether such a
decision between the Union of workers and the tea
association could be declared void due to coercion. It was
28
AIR 2005 Bom. 137.
29
AIR 1966 Assam 115.

18
held that under the doctrine of collective bargaining under
the Indian Disputes Act, the demand of threat of strike by
the workers is valid action and hence, such a threat was
not an offence under the IPC, hence did not amount to
coercion.

If a person is dispossessed of his property under illegal

threat that unless he parts with the possession, he would
be detained under MISA (maintenance of internal security),
parting such possession amounts to coercion, under section
15 of Indian Contract Act. Krishan Lal Kalra v. NDMC30 is
an example of persons affected by the excesses of
Emergency period proclaimed in 1975.

3.2.2. “Undue Influence”

As per section 16, “Undue influence" includes:

i) the relations subsisting between the parties are

such that one of the parties is in position to
dominate the will of the other and;

ii) such a person uses his dominant position to obtain

an unfair advantage over the other.

Sometimes a person party in a contract may be in such a

position as to have the opportunity of exercising a
dominant position over the other. If the dominant party
takes an undue advantage of his position in procuring a
contract that is to the detriment of the other party, the
contract is voidable at the option of the party whose will
is so dominated.
30
AIR 2001 Del. 402.

19
A person is said to be in a position to dominate the will of
another when-

a) He holds a real or apparent authority over the

other- employer over his employee, tax officer over
assesee etc,

b) He stands in a fiduciary relationship to the other-

solicitor and client, trustee and beneficiary,
spiritual adviser and devotee

In Mannu Singh v. Umadat Pande31, the plaintiff, an aged

person executed a deed of gift in respect of the whole of
his property in favour of the defendant who was the
plaintiff’s spiritual adviser. The only reason for the gft
was to secure benefits to his soul in the next world. Soon
after the execution of the said deed, the plaintiff applied
for cancellation of the same by a suit brought under
section 39 of the Specific Relief Act, 1877.

Section 111 of the Indian Evidence Act applies to this

situation and the burden of proof lies with the defendant
to prove he did not exercise any undue influence. It was
held that the fiduciary relation between the parties and
the absurdity of the reasons given by the plaintiff for the
transaction and since the defendant failed to prove the
same, the plaintiff is liable to obtain cancellation of the
same.

31
(1890) 12 All. 523

20
 c) He makes a contract with a person whose mental
condition is temporarily or permanently affected by
reason of age, illness or mental or bodily distress.

In Merci Celine D’Souza v. Renie Fernandez32 the

plaintiff a mentally infirm person incapable of protecting
his interest and totally dependant for his existence
gifted his property in favour of the defendants. It was
found that defendants had obtained an unfair advantage
and the gift deed was not attested by the two witnesses
as required by law. It was held that the settlement deed
of the property was liable to be set aside on the ground
of undue influence.

3.2.3. “Fraud”

The essentials of fraud33 are:

i) there should be a false statement of fact by a

person who himself does not believe the
statement to be true;

Mere expression of opinion does not constitute as fraud.

Representation as to untrue facts may be made by
positively stating certain facts or by conduct. In
Edington v. Fitzmaurice34, a company was in great

32
AIR 1998 Kerala 280.
33
Section 17, Indian Contract Act, 1872.
34
(1885) 29 Ch. 459.

21
 financial difficulties and needed funds to pay some
pressing liabilities. The company raised the amount by
issue of debentures. While raising the loan, the directors
stated that the amount was needed by the company for
its development, purchasing assets and completing
buildings. It was held the directors had committed fraud.

Also, as proved in the case of Shri Krishan v.

Kurukshetra University,35 mere silence is not fraud.

ii) the statement should be made with a wrongful

intention of deceiving another party thereto and
inducing him to enter into the contract on that
basis.

In Derry v. Peek36, the directors of a company issued a

prospectus stating that they had got the authority to run
tramways with steam instead of animal power. In fact, a
plan had been submitted for the same and the directors
honestly believed that the Board of Trade would do so as
a matter of course. However, the said board refused the
sanction and the company had to wound up. The
respondent, who had taken shares in the company on
faith of the representation by the directors in the
prospectus, brought an action for the tort of deceit. It
was held by the House of Lords that since the statement
had not been with the intention to deceive, there was no
fraud.

3.2.4. “Misrepresentation”

35
AIR 1976 SC 376.
36
(1889) 14 AC 337.

22
Section 18 of the Indian Contract Act includes the
following types:

i) Unwarranted Statements

When a person positively asserts that a fact is true when

his information does not warrant it to be so, though he
believes it to be true, this is misrepresentation. In the case
of Oceanic Steam Navigation Co v. Soonderdas
Dharamsey37, the defendants chartered a ship from the
plaintiffs, who stated that the ship was certainly not more
than 2800 tonnage register. As a matter of fact, the ship
had never been in Bombay and was unknown to the
plaintiff. She turned out to have a registered tonnage of
over 3600 tonnes. It was held that the defendants were
liable to avoid the charterparty.

A statement is said to be unwarranted by the information of

the person making it when he receives the information
from a trustworthy source. It should not be a mere hearsay.
In Mohanlal v. Sri Gungaji Cotton Mills Co. 38, a certain B
told the plaintiff that one C would be the director of a
company. B had obtained this information not from C direct
but from another person L. the information proved untrue.
B was held not liable since if he relied on second-hand
information he derived from L, he was warranted in making
the positive assertion that C would be director.

ii) Breach of Duty

37
(1890) 14 ILR Bom 241.
38
(1900) 4 Cal WN 369.

23
Any breach of duty which brings an advantage to the
person committing it by misleading the other to his
prejudice is a misrepresentation. In the case of Oriental
Bank Corporation v. John Fleming 39, the plaintiff, having no
time to read the contents of a deed, signed it as he was
given the impression by the defendant that it contained
nothing but formal matters already settled by them. The
deed, however, contained a release in favour of the
defendants. Accordingly, the plaintiff was allowed to set
aside the deed. Since the plaintiff had placed confidence in
them, it was their duty to state fully without concealment,
all that was essential to the knowledge of the contents of
the document.

iii) Inducing Mistake About Subject Matter

Causing, however innocently, a party to an agreement to

make a mistake as to the substance of the thing which is
the subject of the agreement is also misrepresentation. 40

In the case of Nursey Spg Wvg. Co., Re41, the directors of a

company, while acting within their authority, sold on the
company’s behalf a bill of exchange to a bank. The
company denied liability on the bill. But the bank was
entitled to recover the amount of the bill from the company
as money received to the use of the bank. The bill was
different from what it was expressly represented to be by
agents the company.

39
(1879) 3 Bom 242
40
Section 18(3) of the Indian Contract Act, 1872.
41
ILR (1880) 5 Bom 92.

24
3.2.5. “Mistake”

When the consent of the parties to a contract may be

caused by mistake, it is not a free consent. One or both of
the parties may be working under some misunderstanding
or misapprehension of some fact relating to the agreement.
If such a misunderstanding or misapprehension had not
been there, probably they would not have entered into the
agreement.

Mistake may work in two ways:

i) Mistake in the mind of the parties is such that

there is no genuine agreement at all. There may be
no consensus ad idem, ie, meeting fo the two
minds. The offer and acceptance do not coincide in
such cases.

In Tarsem Singh v Sukhminder Singh 42, the parties to the

agreement for the sale of land were not ad idem with
respect to the unit of measuring land, the case was held to
have been covered by section 20 of the Indian Contract
Act, making the agreement void. In this case, the seller
intended to sell land in terms of “kanals” whereas the
buyer intended to purchase it in terms of “bighas”. It was
held to be mistake relating to a matter essential to the
agreement. The agreement was, therefore, held void.

42
AIR 1998 SC 1400.

25
 ii) There may be a genuine agreement but there may
be mistake as to a matter of fact relating to that
agreement.

In Ayekam Angahal Singh v. The Union of India 43, there was

an auction for the sale of fishery rights and the plaintiff
was the highest bidder making a bid of Rs. 40,000. The
fishery rights had been auctioned for 3 years. The rent, in
fact, was Rs. 40,000 per year. The plaintiff sought to avoid
the contract on the ground that he was working under a
mistake and he thought that he made a bid of Rs. 40,000
being the rent for all 3 years. It was held that since the
mistake was unilateral, the contract was not at all affected
thereby and the same could not be avoided.

CHAPTER IV

4. LAWFUL OBJECT AND VOID AGREEMENTS

In this particular chapter the essential of lawful object

between parties and what constitutes a void agreement has
been discussed in detail.

4.1. RELEVANT SECTIONS

As per section 23 of the Indian Contract Act, 1872:

“The consideration or object of an agreement is lawful,

unless -It is forbidden by law; or is of such nature that, if
43
AIR 1970 Manipur 16.

26
permitted it would defeat the provisions of any law or is
fraudulent; of involves or implies, injury to the person or
property of another; or the Court regards it as immoral, or
opposed to public policy.
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of
which the object or consideration is unlawful is void.”

This chapter also refers to sections 24-29 of the Indian

Contract Act, 1872, when dealing with the subject of void
agreements as per Indian law.

4.2. ANALYSIS

4.2.1. Section 24: Agreement void, if considerations and

objects unlawful in part.
In the case of Pickering v Illfracombe44, a license was
granted to a person for sale of opium and ganja with this
restriction that he would not take any partner in the ganja
business without the permission of collector. Without such
permission he admitted a partner in both the business on
receiving from him a fixed sum as his share of capital.
Different arose between them. The new entrant filed a case
for dissolution and refund of his money. His claim was not
allowed. The court said that “it is impossible to separate
the contract or to say how much capital was advanced for
the opium and how much for the ganja”.
In Gopalrao Vs Kallappa ,45 a municipality Corporation
granted to a contractor for alum sum the lincece to collect
44
1868 LR CP 235,250
45
(1901)3 Bom LR 164

27
toll from pilgrims and vehicle and animals. It had no power
to authorise collection of fees from pilgrims.The whole
transaction was held to be void.

4.2.2. Section 25: Agreement Made Without Consideration.

In the case of Rajlukhy Devee v. Bhoothnath
Mukharjee46 the defendant promised to pay his wife a fix
sum of money every month for her separate resident and
maintenance. The agreement was contain in a registered
document which contain certain quarrel and disagreement
between two.
The Calcutta high court refused to regard the agreement
as one covered by the exception. The court could find no
trace of love and affection between the parties whose
quarrel had compelled them separate.

4.2.3. Section 26: Agreements in Restraint of Marriage.

The restraint may be general or partial but the agreement
is void, and therefore, an agreement agreeing not to marry
at all for a fixed period, is void. However, an agreement
restraint of the marriage of a minor is valid under the
section. It is interesting to note that a promise to marry a
particular person does not imply any restraint of marriage
and is, therefore, a valid contract.
The law—
(a) Prevents improvident, ill-advised, and often
fraudulent matches;

46
(1900) 4 Cal WN 488.

28
(b) Avoids all such contracts as tend to the deceit and
injury, or encourage artifices and improper attempts to
control the exercise of free judgment;
(c) Discountenances secret contracts made with prevents
and guardians, whereby on a marriage, they to receive a
benefits
(d) Renders invalid certain agreements in restraint of
marriage.
In Hermann v. Charlesworth47, Charlesworth
promised to introduce young men to Ms Hermann and in
return she was to pay £52 in advance and £250 on the day
of marriage. He made his efforts to procure the marriage
but he was unsuccessful. Ms Hermann who had paid the
advance brought an action against him to recover back that
money and she was successful. If, however, the marriage
had been solemnized, the money already paid would not
have been recovered back.

4.2.4. Section 27: Agreement in Restraint of Trade.

The constitution of India guarantees that the freedom of
trade and commerce to every citizen. Thus no person is at
liberty to deprive another of the fruit of his labour, skill or
talent, by any contracts that he enters into. It is to be noted
that whether restraint is responsible or not, if it is in the
nature of restraint of trade, the agreement is void always,
subject to certain exceptions provided for statutorily.

47
(1905) 2 KB 123

29
4.2.4. Section 28: Agreement in restraint of legal
proceedings.
Every agreement, by which any party thereto is restricted
absolutely from enforcing his right under or in respect of
any contract, by the usual legal proceedings in the ordinary
tribunals, or which limits the time within which he may
thus enforce his rights, is void to that extent.
In Baroda Spinning Ltd. vs. Satyanarayan Marine and
Fire Ins. Co. Ltd48, in the contract of fire insurance, it was
provided that if a claim is rejected and a suit is not filed
within three months after such rejection, all benefits under
the policy shall be forfeited. The provision was held valid
and binding and the suit filed after three months was
dismissed.

4.2.5. Section 29: Uncertain Agreement is Void.

Agreements, the meaning of which is not certain, or
capable of being made certain, are void”. Through Section
29 of the Indian Contract Act, the law aims to ensure that
the parties to a contract should be aware of the precise
nature and scope of their mutual rights and obligation
under the contract. Thus, if the words used by the parties
are indefinite, the law cannot enforce the agreement.
Further, an agreement “to enter into an agreement in
future” is void for uncertainty unless all the terms of the
proposed agreement are agreed expressly or implicitly.
Thus, an agreement to engage a servant sometime next

48
(1914) 38 Bom 344.

30
year, at a salary to be mutually agreed upon is a void
agreement.

31