The document discusses the essential elements of a valid contract under Indian contract law. It outlines 10 essential elements: 1) offer and acceptance, 2) intention to create a legal relationship, 3) lawful consideration, 4) capacity of parties, 5) free consent, 6) lawful object, 7) certainty of meaning, 8) possibility of performance, 9) not declared void or illegal, and 10) legal formalities if required. It then provides further details on the elements of free consent, outlining the definitions and essentials of coercion, undue influence, and fraud as they relate to free consent in contract formation.

1. Contract and essential elements of a valid contract
Details about free consent
202026/10/2020
Contract law
Assignment-1
Nirav H Bhatt
School of law Rai University
Semester - 1

2. 1
Assignment – 1
Q1). What isa contract? What are the Essential elementsof validcontract?
Contract:-
The term Contract isdefinedinsection2(h) of the IndianContractAct 1872.
 Contract: - AnagreementenforceablebyLaw isa contract.
 Contract = An Agreement+Enforceability
 Definitionshowsthatacontract must have the followingtwoelements:
o An Agreementand
o An Agreementmustbe enforceable bylaw.
 If one partyfailsto performaspromisedthe otherpartycan use the court systemto
enforce the contract andrecoverdamagesor otherremedy.
Essential Elements of a Valid Contract:-
1). Offerand Acceptance: - Inorder to create a validcontract,there mustbe a 'lawful offer'
by one partyand 'lawful acceptance'of the same by the otherparty.
Proposal or Offer(sec2c): -
Whensomeone expresseshisorherwillingnesstoenterintoacontract oncertain
termsand intendstoforma bindingcontractif the otherparty acceptsit,such
expressionof willingnessiscalledanoffer orproposal.
 The expressionof willingnesscanbe invariousformslike aletter,email,fax,oreven
conduct.However,itisimportantthatthe personcommunicatesthe termsonwhich
he is willingtoenterintoa contract.
 Whetheror notthe personmakinganofferhasthe intentionof enteringintoa
contract is judgedobjectively.Itdoesn'tmatterwhetherthe personhasreal
intentions.It'senoughif,baseduponthe circumstancesof the case,itcan be
reasonablymade outthathe intendedtoformabindingcontract.
 A party can eitherexpresslymake anoffer,oritcan evenbe impliedbyitsconduct.
An offercanbe made to a specificperson,agroupof persons,oreventhe worldat
large (forexample,announcementtoofferareward).
 An offerisdifferentfromaninvitationtotreat,where apartymerelyinvitesoffers,
whichcan be acceptedor rejectedbyit.For example,anadvertisementisnotan
offer;it'sonlyan invitationtotreat.If itwere an offer,thenthe advertiserwould
have to supplythe productto everyone acceptingthe “offer”,irrespectiveof the
stock he holds.Similarly,anauctionisalsoan invitationtotreat,where eachbid
receivedbythe auctioneerisanoffer.

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Acceptance:-
If a personagreestoall the conditionsof an offermade tohimwithoutplacingany
counter-condition,the communicationof suchassenttothe offereriscalledan
acceptance,providedit'sdone withthe intentionof acceptingthe offer.
Sometimes,the conductof the offeree mayconstitute expressionof acceptance.In
such cases,itwouldbe no defence tosaythat the party didnotintendtoenterinto
a legallybindingagreement. Courtsoftenrefertothe correspondencebetweenthe
partieswhile decidingwhetheranacceptance hasoccurred.
It's importantthatthe offeree acceptsthe offerunconditionally.If he makesa
counteroffer,the original offerbecomesirrelevant.
For example,whenyoulistanitemoneBaywitha “buy now”price,withan option
to sell itforthe bestoffer,everybidplacedonyouritemconstitutesacounteroffer.
If you accept a counteroffer,thisbecomesthe basisof the contractof sale.
A contract doesnotbecome effective unlessthe offererreceivesacommunication
of acceptance fromthe offeree.The communicationmaybe instantorat a later
pointintime,sayfor instance,throughemail orpost.
Althoughsigningacontractis a commonway of acceptingan offer,there are various
otherwaysof acceptance.Forexample,if youofferacontractor topaint yourhome
for a certainsumof moneyandmake some advance paymenttohim, the receiving
of advance paymentitself amountstoanacceptance by the contractor.
2). Intentionto Create Legal Relationship:- In case,there isno such intentiononthe partof
parties,there isnocontract. Agreementsof social ordomesticnature donotcontemplate
legal relations.
o Example:A husbandpromisedtopayhiswife ahouse holdallowance of Rs
10000 permonths.Laterthe partiesseparatedandthe husbandfailedto
pay the amount.The wife suedforthe allowance.Heldagreementssuchas
these were outside the realmof contract.
3). Lawful Consideration(sec2d, 23 & 25):- Considerationhasbeendefinedinvariousways.
Considerationmeansanadvantage orbenefitmovingfromone partyto the other.It isthe
essence of abargain.In simple wordsconsiderationisknownasquidpro-quoorsomething
inreturn.[section2(d) 23 and25 ]
4). Capacity of parties (sec11 & 12):-The partiesto an agreementmustbe competentto
contract. If eitherof the partiesdoesnothave the capacity to contract, the contract isnot
valid.
Accordingthe followingpersonisincompetenttocontract.(sec.11 and 12)
(a) Minority,
(b) Personsof unsoundmind,lunacy,idiocy,drunkennessand
(c) Personsdisqualifiedbylaw towhichtheyare subject.
5). Free Consent(sec13&14):- 'Consent'meansthe partiesmusthave agreeduponthe
same thinginthe same sense.AccordingtoSection14,Consentissaidto be free whenitis
not causedby-

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 Coercion,or
 Undue influence,or
 Fraud,or
 Misrepresentation,or
 Mistake.
An agreementshouldbe made bythe free consentof the parties.
6). Lawful Object(sec.23):- The objectof an agreementmustbe valid.Objecthasnothingto
do withconsideration.Itmeansthe purpose ordesignof the contract.
Example:Thus,whenone hiresahouse foruse as a gamblinghouse,the objectof the
contract is to runa gamblinghouse.
The Objectis said to be unlawful if: -
(a) it isforbiddenbylaw;
(b) it isof such nature that if permitteditwoulddefeatthe provisionof anylaw;
(c) it isfraudulent;
(d) it involvesaninjurytothe personor propertyof any other;
(e) the court regardsit as immoral oropposedtopublicpolicy.
7). Certaintyof Meaning(sec 29):- Accordingto Section29,"Agreementmustbe certainand
not vague or indefinite”.If itisvague andit isnot possible toascertainitsmeaningitcannot
be enforced.
8). PossibilityofPerformance:- If the act isimpossibleinitself,physicallyorlegally,if
cannot be enforcedatlaw.
Example:- Mr A agreeswithB to discovertreasure bymagic.
Such Agreementsisnotenforceable.
9). Not Declaredto be void or Illegal (sec24 to 30 ):-The agreementthoughsatisfyingall the
conditionsfora validcontractmustnot have beenexpresslydeclaredvoidbyanylaw in
force in the country.AgreementsmentionedinSection24to 30 of the Act have been
expresslydeclaredtobe voidforexampleagreementsinrestraintof trade,marriage,legal
proceedingsetc.
10). Legal Formalities(sec.10):- An oral Contract isa perfectlyvalidcontract,expectin
those caseswhere writing,registrationetc.isrequiredbysome statute.InIndiawritingis
requiredincasesof sale,mortgage,lease andgiftof immovableproperty,negotiable
instruments;memorandumandarticlesof associationof acompany,etc.Registrationis
requiredincasesof documentscomingwithinthe scope of section17of the Registration
Act.

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Q2). Explainfree consentindetail?
Free Consent(sec13&14):- 'Consent'meansthe partiesmusthave agreeduponthe same
thinginthe same sense.AccordingtoSection14,Consentissaidto be free whenitisnot
causedby-
 Coercion,or
 Undue influence,or
 Fraud,or
 Misrepresentation,or
 Mistake.
An agreementshouldbe made by the free consentof the parties.
COERCION (Section 15)
Coercionmeanscompellingapersontoenterintoa contract undera pressure ora threat.
Accordingto sec-15,a contract issaidto be causedbycoercionwhenitis obtainedby-
o Committinganyact whichisforbiddenbythe Indianpenal code.
o Threateningtocommitanyact whichisforbiddenbythe Indianpenal code.
o Unlawful detainingof any property.
o Threateningtodetainanyproperty.
o Threat to sue onthe basisof falls.
o Threat to commitsuicide.
 Example;Xbeatsy and compelshimtosell hiscar forRs 50000. Here y is
consenthasbeenobtainedbycoercionbecause beatingsomeone isan
offence underthe Indianpenal code.
UNDUE INFLUENCE (Section 16)
The termundue influence meansdominatingthe will of the otherpersontoobtainanunfair
advantage overthe other.Where the relationsbetweenthe partiesare suchthatone of themisin a
positiontodominate the will of the other.The dominantpartyusesthatpositiontoobtainanunfair
advantage overthe other.
 Presumptionof dominationof will
o Where one party holdsa real authorityoverthe other.
o Example - Police officerandcriminal, - Income tax officerandassesses.
o Guardianand ward. -Trustee andbeneficiary.
 Where a one party have a fiduciaryrelationshipwiththe otherparty.
o Example -fathersonrelationship, -doctorpatientrelationship. etc
 Where one personor a party makesa contract withotherpersonor partywho isin mental
distress.
o Example - widow, -oldperson, -fatherof deathson. etc

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FRAUD (Section 17)
Fraud isfalse representationof factsmade will fullytodeceive anotherperson.Section17of the
IndianContractAct statesthat if any of the followingactsare committedbyanyparty to a
contract or withhisagent’sconnivance,willfullywithintenttodeceiveorinduce another
personor hisagentto enterthe contract it will resultintofraud.
1. It isa suggestionof afact whichisnot true by a personwhodoesnot believe thatitis
true.
2. It is an active concealmentof factsbya personwhohas knowledge orbelief of the facts.
3. It is a promise inwhichthere isnointentionof performance of the contract.
4. Any otheractionwhichhas the intentof deceivingthe otherperson.
5. Any act or omissionwhichisdeclaredfraudulentbylaw.
Essentials of Fraud
The above descriptionof definitionof fraudcanbe explainedthroughthe essentialsof fraud.
1. False Suggestions:Fraudmuststate factswhichare false andthe personmakingthe
Suggestionknowsthathe ismakinga false representationorfalse statementof facts.
The false suggestionismade intentionallytoinduce ordeceive the otherpartytoenter
intoa contract. This issupportedbythe followingcase law:
2. Active Concealmentof aFact: Active concealmentiswhenapersonhasthe knowledge
or belief of the factwhichhe knowsisnot true.Thisamountsto fraud.Passive
concealmentiswhenapersonmakesanincorrectstatementthinkingthatthe
statementiscorrect.
3. Making a Promise withoutIntentionof fulfillingit:If a personmakesapromise buthe
doesnotintendtokeepit.It isa clearcase of fraud because atthe outsetthe intention
was to make a false promise.
4. Anyotheract fittedto deceive:Anactusedtotrick or chit someone byunfairmeansis
consideredtobe fraud.Thisisan act whichisdone withthe intentionof committinga
fraud.
5. Anyotheract consideredbylaw tobe fraudulent:Accordingtothe law itis obligatory
that all material factsare disclosedwhilesellinganimmovableproperty.Otherwise it
amountsto fraud.
6. The Party that ismisledbyFraudshouldhave sufferedsomeloss:There cannotbe fraud
withoutanydamage.The lossmustbe intermsof moneyormoney’sworth,orlossof
some tangible assets.Fraudwithoutdamage doesnotgive rise toanydeceit.
7. Half Truths: Whena personspeaksa half truth,it meansdisclosingsome portionsof
relevantmaterial leavingthe otherportionundisclosed.Accordingtolaw a half truth is
worse thanfull falsehoodasitmisleadsthe otherperson.Therefore if apersonspeaks
he must give all the factsand not justhalf-truth.Otherwisesilence amountstofraud.
8. Change inSituation:Sometimeswhenastatementismade itisthe truth but
circumstancesbringa change insituationandwhenitisactuallyacted upon,itbecomes
false.Itbecomesthe dutyof the personto immediatelycommunicate the change in
situation.Thisissupportedbythe followingcase.
MISREPRESENTATION (Section 18)
 MISREPRESENTATION:Misrepresentationisafalse ormisleadingstatementthata person
honestlybelievesittobe true.He makesthisstatementwithoutanyintentiontocheator
misleadanotherperson.The falsestatementisseriousbutnotasseriousasfraud.According

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to Section18 of the contract act misrepresentationthe meaningof themisrepresentationis
givenbelow:
o It isa positive assertionof informationbya personwhichisnottrue but the person
believesittobe true.
o It isa breachof dutywithoutanyintentiontodeceive.However,the persongainsan
advantage bymisleadinganotherperson.
The statementinnocentlycausesapartyto an agreementtomake a mistake tothe subjectof the
agreement.
Essentials of Misrepresentation
Misrepresentationasalreadystatedisafalse representationof factswhichthe personmakes
withoutknowingthatitisfalse.He makesthe statementsbelievingthemtobe true.The
followingessentialselementsrepresentmisrepresentation.
 Material Facts: Misrepresentationmustbe of those factswhichare importantinthe
formationof a contract. Some expressionsorpassingstatementsthatare notrelevant
will notbe enoughforavoidingacontract.
 Statementpriortoexecutingthe contract:The misrepresentationof factsmustbe
before the contractis executedbythe partiestothe contract.
 Misrepresentationbyaparty to the contract: Misrepresentationof factshasto be made
by a party or hisagentto the contract. A statementmade bya strangerto the contract
doesnothave any effectonthe validityof the contract.
 Objective of misrepresentation:The statementsmade bymisrepresentationof facts
shouldbe of the intentiontodeceive the otherpartyandto induce himto enterthe
contract.
Reactionof otherparty: Asa resultof the misrepresentationthe otherpartyinthe contract should
have actedon the faithof the facts represented.Effectof MisrepresentationAccordingtoSection19
of the IndianContractAct if on the misrepresentationof statementsapersontothe contract has
beenaffected;he canavoidthe contract because itbecomesavoidable contractat hisoption.The
personwhose consenthasbeentakenbymisrepresentationhasthe rightto rescindtothe contract.
He has a rightto ask for completionof the performance of the contract and He can alsoask for being
giventhe positionwhichhe wouldhave if the representationof factswastrue at the time of asking
for performance of the contract.
MISTAKE (Section 20)
Mistake can be definedasan incorrectstatementwhichcreatesmisunderstandingbetweenthe
parties.Suchmistakestake place whenthe partiestothe contractare not aware of the termsof the
contract in agreementwitheachother.Anagreementbetweentwoparties accordingtothe Indian
Contract Act isvalidonlywhenboththe partiesagree uponthe same thingandin the same sense.
Accordingto section20 the agreementbecomesvoidwhenthere isamistake inagreement.In
normal circumstanceslawdoesnotgive the rightto anyone toavoida contract because he was
mistakenaboutsome factinthe contract.However,some mistakesare fundamental tothe contract
insuch a mannerthat the verybasisof the formationof the contract becomesfaultyandthere isno
contract at all.In such casesthe agreementisconsideredtobe voiddue toconsensusadidem.

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Typesof Mistake can be of two types.
These are mistake of facts andmistake of law.
(1)Mistake of fact can be bilateral orunilateral and
(2) Mistake of lawcan be mistake of law inIndiaand mistake asto foreignlaw.
 Mistake of Fact: Mistake of fact can occur whenboththe partiestothe agreementare under
a mistake or onlyone of the partiesisundera mistake tothe essentialelementsof the
contract. Whenbothpartiesare undera mistake itiscalled bilateral mistake and whenonly
one party to the contract is undera mistake itiscalleda unilateral mistake.
Bilateral Mistake:A bilateral mistake ismade inthe followingcases:
(i) Mistake of existence of subjectmatter:The agreementisvoidif itisagreedupona
subjectmatterwhichdoesnotexistandthe partiestothe agreementdonothave any
knowledge aboutit.Thisisbilateralmistake because bothpartiesdidnotknow this
material factat the time of makingan agreement.
(ii) Mistake of identityof subjectmatter:The agreementisvoidif twopartiestothe
contract have confusionaboutthe identityof the subjectmatter.The agreementisvoid
due to wantof consensus.
(iii) Mistake regardingquality/descriptionof subjectmatter:Whentwopartiesmake an
agreementtheyshouldunderstandthatthe qualityof the product.If bothpartiesmake
a mutual mistake aboutthe descriptionof the product,itisbilateral mistakeandthe
agreementisvoid.
Mistake regardingtitle of the product:Anagreementof sale isvoidif there isa mistake of mistake
overthe entitlementof goods.
1) Mistake regardingsubstance of subjectmatter:If bothpartiestoan agreement
make a mutual mistake of factswhichis the essential partof the subjectmatterthe
agreementisvoid.
2) Mistake regardingquantityof subjectmatter:If twopartiesare mistakenaboutthe
quantityof subjectmatterto be supplied,thenthe agreementisvoid.Quantityisan
essential factof anagreement;if it isnot correct the agreementtobuy/ sell cannot
be held.
3) Mistake regardingprice of the subjectmatter:Price isan essential feature inthe sale
of a product.If there is a genuine mistakeregardingprice the agreementisvoid.
4) Mistake aboutpossibilityof performance:If there isabilateral mistake regardingthe
possibilityof performance the agreementisvoid.Impossibilityof performance can
be due to physical reasonor legal impossibility.
Effectof Bilateral Mistake:Whenthere isa bilateral mistake inunderstandingthe essentialfactsof
the agreement,the contractbecomesvoidabinitio.Thisagreementisvoidfromthe beginning,does
not have anylegal significance.Itcannotbe enforcedatthe optionof any of the partiestothe
contract."
Unilateral Mistake:Accordingtosection22, unilateral mistake occurswhenone partytothe
agreementmakesamistake.The contractis notvoidable because one of the partiestoitisundera
mistake.However,there are certainexceptionstothe rule.These are due to the followingreasons:
 Mistake of identityof a party:A veryfundamental mistake occursif anagreementismade
witha wrongperson.Whena party desirestodeal withacertainpersonand he doesnot do
so due to false representationof anotherpersonitisanerror inconsensus.

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 Mistake aboutnature of transaction:If a personmakesa transactionwithoutunderstanding
nature of the transaction,itcannot be executed.Thismistake ispossiblewhenaperson
doesnotdisclose tothe otherthe true nature of the document.