Essential Elements of valid contract of Indian Contract Act 1872

Offer
➔
➔
➔
➔
Meaning - a proposal made by one party to another to enter into an agreement
Definition - Sec. 2 (a), defines as “A person is said to have made the proposal
when he signifies to another his willingness to do or to abstain from
doing anything with a view to obtaining the assent of that offer to
such act or abstinence”
Parties - Two (Offeror and Offeree; Proposer and Proposee; Promisor and
Promisee)
Types - Eight (Express offer, Implied offer, Specific offer, General Offer,
Cross Offer, Counter offer, Standing offer, Positive or Negative
Offer)

Legal Rules as to Offer
1.
2.
3.
4.
5.
6.
7.
8.
The offer must be communicated to the other party
It must be made with a view to obtain the consent of the offeree
It must have its terms deﬁnite and clear
It must be capable of creating legal relationship
Special terms of offer, if any, must be communicated to the offeree at the
time when the offer is made
It must be distinguished from an answer to a question
It must be distinguished from an invitation to receive offer
It must be distinguished from mere statement of intention

Acceptance
➔
➔
➔
➔
➔
Meaning - when the person to whom the offer is made gives his consent to it
Deﬁnition - Sec. 2 (b), “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”.
Parties - Two (Offeror and Acceptor)
Types - Two (Express and Implied)
Eligibility - When an offer is made to a particular person, it can be accepted by
him alone.
In case of general offer, anybody can accept it.

Legal Rules as to Acceptance
1.
2.
3.
4.
5.
6.
7.
8.
9.
It must be absolute and unqualified
It must be communicated to the offeror
It must be given according to the prescribed mode or reasonable mode
It must be given within the time specified in the offer
It must be given only by the person to whom the offer is made
It cannot be implied from the silence
The acceptance based on the presumption of an offer is not valid
It must be given before the offer lapses or is withdrawn
It must show an intention that acceptor is willing to fulfil the terms of the offer

Communication and Revocation
Communication - Communication of offer and acceptance is complete only,
when it reaches the Offeror and Acceptor
Revocation - Offer and Acceptance may be revoked at anytime before it
reaches the concern person.
Eg: A sends an offer to B through a letter. B sends his acceptance to A through a
letter.

When does an offer comes to an end?
-
-
-
-
-
-
-
-
May come to an end by,
Revocation
Lapse of Time
Non-fulﬁlment by the offeree of a condition
Death or insanity of the offeror
Counter offer
Rejection
Acceptance
Change of law or destruction of the subject matter

Carlill Vs. Carbolic Smoke Ball Company
https://www.youtube.com/watch?v=tGNfc2clUl0
Chinnaya Vs. Rammayya
https://www.youtube.com/watch?v=jIelX19xbOY

Consideration
Meaning - A party to an agreement who promises to do something
must gain something in return.
Latin Maxim- ‘Quid Pro Quo’ (Something in Return)
Sec. 2(d) - “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”.

Legal Rules as to Consideration
1.
2.
3.
4.
5.
6.
7.
8.
It must move at the desire of the promisor
It may move from the promisee or any other person
It may be an act, abstinence (or) forbearance (or) return promise
It may be past, present or future
The consideration need not be adequate
It musts be real and not illusory
The consideration must be something, which the promisor is not already bound
to do under court of law
The consideration must be lawful
A Contract without Consideration is Void

Exception to the Rule (SEc. 25)
(Contract without consideration is void)
1.
2.
3.
4.
5.
6.
7.
Love and Affection
Compensation for Voluntary services
Promise to pay time barred debt
Agency
Complete Gift
Guarantee by the surety
Contribution to the charity

Stranger to the Contract
Consideration - it may move either from a promisee or any other person
Stranger - the person who is not a party to a contract
Stranger to a contract - Stranger to a contract cannot sue
Privity of Contract
Privity - Contractual Obligation or Contractual Relationship
A Stranger to a Consideration can sue, but a Stranger to a Contract cannot sue

Exception to the ‘Doctrine of Privity of Contract’
1.
2.
3.
4.
5.
Trust or Charge
Marriage settlement, partition and other family arrangement
Acknowledgement of liability or Estoppel
Contracts through agent
Assignee of a contract

Capacity or Competent
●
●
Sec. 10- “An agreement becomes a contract if it is entered into between
the parties who are competent to contract”.
Sec. 11- “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
of sound mind and who is not disqualiﬁed by any law to which
he is subject”.
Sec. 7 - Incompetent to Contract
Due to Mental Deﬁciency
Due to Status

Incompetent Persons
Due to Mental
Deﬁciency
Due to Status
Due to Age Due to Unsound
Mind
Alien Enemy
Foreign Sovereign
Insolvent
Convict
Lunatic
Drunken
Idiot
Minor

Minor
a)
b)
Meaning - a person who has not attained the age of majority (below 18
years)
Age of Contract - for entering into contract, the age of majority is 18 years.
Sec. 3 of IMA, 1875 - “A minor is a person who has not completed 18 years
of age”.
Note: Two Cases - age of majority is 21
Where a guardian of a minor’s person or property has been appointed under the
Guardians and Wards Act, 1890
Where the superintendents of minor’s property is assumed by a court of wards.

Rules regarding Minor’s Agreement
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
An agreement with a minor is void-ab-initio
The rule of estoppel does not apply to a minor
Minor’s liability for necessaries
No ratiﬁcation
A minor can be a beneﬁciary
Partnership by minor
A minor can be an agent
Minor can be a shareholder
A minor cannot be declared insolvent
Minor cannot be a surety
Position of minor’s parents
Contracts of apprenticeship and service

Persons of Unsound Mind
Sec. 12- “ 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
judgement as to its effect upon his interests”.
Contract with
Idiots - a person who has completely lost his mental faculties of
thinking.
Lunatics - a person whose mental faculties of thinking are deranged
Drunken - a person who is under the inﬂuence of drinks or drugs.

Person disqualified by Law
1.
2.
3.
4.
5.
Alien Enemies - the person other than Indian Citizen
Foreign Sovereigns - representatives of a foreign country enjoys special privilege
Convicts - imprisonment
Insolvents - a person whose debts are more than his assets. The possession of
the assets in the hands of Official Receiver or Official Assignee
Corporations or Companies - a company act beyond its powers.

1.
2.
3.
4.
5.
Meaning - Willingness
Sec. 10 - “All agreements are contracts if they are made by the free consent
of parties”
Sec. 13 - “Two or more persons are said to consent when they agree upon
the same thing in the same sense.
Sec. 14 - Consent is said to be free when it is not caused by
Coercion
Undue Inﬂuence
Fraud
Misrepresentation
Mistake.
Free Consent
When there is no free consent, the contract
is usually voidable at the option of the party
whose consent is not free

Coercion (Sec. 15)
Meaning - forcibly compelling a person to enter into a contract
Sec. 15- “Coercion is committing or threatening to commit, any act forbidden by the
Indian Penal Code or the unlawful detaining or threatening to detain, any property
to the prejudice of any person whatever with the intention of causing any person to
enter into an agreement”.

It may be
1.
2.
3.
4.
5.
6.
7.
8.
9.
Committing an act forbidden by the Indian Penal Code
The threat to commit an act forbidden by the Indian Penal Code
Unlawful detention of any property
The threat to unlawful detention of any property
The act of coercion must be with an intention of causing the other party to
enter into a contract
The Indian Penal Code may or may not be in force where the coercion is
committed
The acts of coercion may be initiated by any person
The coercion may be by way of threat to commit suicide
The coercion may not be by way of threat to ﬁle a suit

Undue Inﬂuence (Sec. 16)
Meaning - the unfair use of one’s superior power in order to obtain the consent of a
person who is in a weaker position.
Sec. 16 - “A contract is said to be induced by undue inﬂuence where the relations
subsisting between the parties are such that one of the parties is in a position to
dominate the will of other and uses that position to obtain an unfair advantage over
the other.

Presumption of Undue Influence
1.
2.
3.
a)
b)
c)
d)
e)
f)
A person is deemed to be in a position to dominate the will of another if,
Where he hold a real authority over the other
Where he stands in a fiduciary relation to the other
Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or mental or bodily distress etc”.
Relationships
Parent & Child
Trustee & Beneficiary
Father & Son
Doctor & Patient
Guardian & Ward
Teacher & Student
a)
b)
c)
No Presumption of Undue Influence
Husband & Wife
Creditor & Debtor
Landlord & Tenant

Burden of Proof
a)
b)
c)
a)
b)
c)
In case the Plaintiff, i.e, the affected party wants to avoid the contract on the ground of undue
inﬂuence, he must be able to prove that -
The defendant, i.e., the accused was in a position to dominate his will
The other party actually used his position to obtain an unfair advantage and
The transaction is unreasonable
The Defendant must prove that,
The weak party had been legal advice and had full knowledge of all the relevant facts
The price was adequate
It should be given in a reasonable time

Coercion Vs. Undue Inﬂuence
S.No. Coercion Undue Inﬂuence
1. It involves the use of violence It involves moral or mental pressure
2. It need not necessarily originated from
parties
It originates between the parties
3. It may be directed against the other party
or even a stranger
It is exercised on a party only
4. Threat under coercion may be directed
against the person or the property
Only against the person of a man
5. It is forbidden by the Indian Penal Code It is not so

Fraud (Sec.17)
-
-
-
-
-
Meaning - When a party to an agreement makes a false representation of fact intentionally
with a view to deceive the other, it amounts to fraud.
Sec. 17 - “Fraud means and includes any of the following acts committed by a party to a
contract or with his connivance or by his agent, with intention to deceive another party
thereto or his agent or to induce him to enter into the contract
The suggestion as to a fact, of that which is not true by one who does not believe is to
be true
The active concealment of a fact ny one having knowledge or belief of the fact
A promise made without any intention of performing it
Any other act ﬁtted to deceive
Any such act or omission as the law specially declares to be fraudulent

Elements of Fraud
1.
2.
3.
4.
5.
6.
7.
There must be a representation or assertion
It must be a statement of fact and not of the opinion
A mere attempt to deceive is not a fraud
The consent of the party must have been induced by that fraud
Making a promise without an intention to perform is a fraud
Active concealment of an essential fact may constitute a fraud
The party alleging fraud must have suffered some loss

Does Silence amount to Fraud?
1.
2.
3.
4.
5.
The General rule is “Silence is no Fraud”. But there are certain exceptions.
Where circumstances create a duty to disclose the facts
In a contract of uberrimae ﬁdei. - insurance, partnership, suretyship, etc.,
Active concealment of fact
Where silence is equivalent to speech
When customs around a place make disclosure obligatory

Misrepresentation (Sec. 18)
1.
2.
3.
Meaning - a false representation of fact made by a party to an agreement without any
intention to deceive the other party.
Sec. 18 - “Misrepresentation means and includes
The positive assertion, in a manner not warranted by the information of the person
making it, of that which in not true, though he believes it to be true.
Any breach of duty which without an intention to deceive, gains an advantage to the
person, committing it or any one claiming under him, be misleading, another to his
prejudice or to the prejudice of any one claiming under him.
Causing however innocently a party to an agreement to make a mistake as to the
substance of the thing which in the subject of the agreement”.

Elements of Misrepresentation
1.
2.
3.
4.
5.
6.
There must be a representation or assertion by a party to a contract
It must relate to a fact
The person making it must honestly believe it to be true
His intention is not to deceive the other party
It must have induced the other party to act upon it
The party acting upon it must have suffered some loss.

S.No. Misrepresentation Fraud
1. There is no intention to deceive
others
There is intention to deceive others
2. It is not an offence It can become a criminal act under IPC
3. It is an innocent wrong It is intentional or willful wrong
4. The contract is voidable The contract is voidable or void
5. He avoids the contract only The aggrieved party decides to avoid the
contract or sue for damage

Mistake (Sec. 20 - 22)
Meaning - it is an error relating to an essential feature of the contract. It is
generally takes place where the concerned parties are not fully aware of the
terms of the agreement and they take the terms in a different sense
Deﬁnition - The term mistake may be deﬁned as incorrect belief about
something.

Types of Mistake
Mistake of Law Mistake of Fact
Indian Law Unilateral
Bilateral
Foreign Law

Mistake of Law (Sec.21)
a)
a)
Indian Law - ‘Ignorantia Juris non-excusat’ - party cannot avoid the contract
Ex: ‘A’ an illiterate, has taxable income. He fails to comply with the provisions of the
Income Tax Act. He is liable for legal action under the Act.
Foreign Law - we cannot expected to be familiar with the law of foreign country -
party can avoid the contract
Ex: ‘X’ agrees to import certain goods from China and sell the same to ‘Y’ without
knowing that China imposes restriction on the export of those goods. The
agreement between ‘X’ and ‘Y’ therefore is void.

Mistake of Fact (Sec.20 and 22)
a)
a)
Bilateral (Sec. 20)- “Where the both the parties to an agreement are under a
mistake as to the matter of fact essential to the agreement, the agreement
is void”
Types - i) Subject matter and ii) Possibility of performance
Unilateral (Sec.22) - “A contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to a matter of
fact”
Types - i) Nature of Contract and ii) Identity of Performance

a) Bilateral Mistake
1.
2.
3.
4.
5.
6.
7.
Existence of the subject matter
Identity of the subject matter
Price of the subject matter
Quantity of the subject matter
Quality of the subject matter
Title of the subject matter
Mistake as to the possibility of performance of the contract
As to the subject matter

b) Unilateral Mistake (Sec. 22)
i) Mistake as to the nature of contract
If a person enters into a contract in the mistake beliefs that he signed a
document of a different class and character altogether, there is a mistake as
the nature of contract and the contract is void.
ii) Mistake as to the identity of the person, contracted with
Its is fundamental rule that if one of the parties represent himself to be some
person other than he really is, there is mistake as to the identity of the person
contract with.

Error in Consent
a)
a)
According to Salmond the error in consent may be of two
Error in Causa - Consent may not be free
Refer: Muthiah vs. Muthu Karuppa
Error in Consensus - Absence of Consent
Refer: Foster vs. Mackinnon

Legality of Object
1.
2.
3.
4.
5.
6.
Meaning - the consideration or the object should be lawful
Sec. 23 - the consideration or the object of an agreement is unlawful
If it is forbidden by law
If it defeats the provisions of any law
If it is fraudulent
If it involves or implies injury to another
If the Court regards it as immoral
If the Court regards it as opposed to public policy

AGREEMENTS OPPOSED TO
PUBLIC POLICY

Doctrine of Public Policy
An agreement is said to be against the public policy, when it hurts
the public welfare. It is a rule of law that no person shall do anything
which is not good for the community. In India it has been left to the
court to hold any contract as unlawful on the ground of being
opposed to public policy

Agreements opposed to Public Policy
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Agreement with an alien enemy
Agreement to stiﬂe prosecution
Agreement in the nature of Maintenance and Champerty
Agreement for the Sale or Transfer of Public Oﬃces and Titles
Agreement tending to create Interest opposed to duty
Agreement in restraint of parental rights
Agreement in restraint of personal liberty
Agreement interfering with course of justice
Marriage brokerage contracts
Agreement in restraint of marriage
Agreement in restraint of trade
Agreement in restraint of legal proceedings

Agreements in restraint to Trade
Sec. 27 - “Every agreement by which any one is restrained from
exercising a lawful profession, trade or business of any kind, is to that
extent void”.
In Short - Law recognises a person’s right to choose his profession,
trade or occupation. A person, therefore, cannot be inﬂuenced or
compelled to take up or not to take up a particular profession or
occupation.

Exception to the Rule
1.
2.
3.
4.
Where the business is sold along with goodwill
Agreement among partners
Trade combination
Service restrictions

Essential Elements of valid contract of Indian Contract Act 1872

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