mba

1. 1
MGT 201 BUSINESS LAW
Unit I
Indian contract act- 1872
GENERAL PRINCIPLES OF CONTRACT ACT (Sec. 1 to 75 )
INTRODUCTION:-
The law relating to contracts in India is contained in Indian Contract Act, 1872.The Act was passed
by British India and is based on the principles of English Common Law. It is applicable to all the states
of India except the state of Jammu and Kashmir. It determines the circumstances in which promises made
by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts
everyday knowingly or unknowingly. Each contract creates some rights and duties on the contracting
parties
(WHY) OR (OBJECT) The basic purpose of contract law is to provide a framework within which
individuals can freely contract. The rule of contract is the Remedies that are available in a court of law
against a person who fails to perform his contact.
Example: commerce and industry as bulk of their business transaction are based on contract.
WHAT IS CONTRACT:-
The term Contract is defined in section 2 (h) of the Indian Contract Act.
Contract 2(h):- An agreement enforceable by Law is a contract.
Other Words: -
Contract = an Agreement + Enforceability
Definition shows that a contract must have the following two elements:
1) An Agreement and
2) An Agreement must be enforceable by law.
Agreement 2(e):- Every promise and set of promises is forming the consideration for each other.
In short, agreement = offer + acceptance.
If one party fails to perform as promised the other party can use the court system to enforce the contract
and recover damages or other remedy.
Essential Elements of a Valid Contract:-
1. Offer and Acceptance: - In order to create a valid contract, there must be a 'lawful offer' by one
party and 'lawful acceptance' of the same by the other party. Parties are
Offeror –The party who make an offer to enter into a contract
Offeree-The party to whom an offer to enter into a contract is made
Offer
Acceptance
Offeror makes an offer Offeree has the power
To the offeree to accept the offer and create a contract
2. Intention to Create Legal Relationship: - In case, there is no such intention on the part of
parties, there is no contract. Agreements of social or domestic nature do not contemplate legal
relations.
Example : A husband promised to pay his wife a house hold allowance of rs 10000 per months. Later the
parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held
agreements such as these were outside the realm of contract.
3. Lawful Consideration: - Consideration has been defined in various ways. Consideration means
an advantage or benefit moving from one party to the other. It is the essence of a bargain. In
simple words consideration is known as quid pro-quo or something in return. [section 2(d) 23 and
25 ]
Offeror Offeree

2. 2
4. Capacity of parties:-The parties to an agreement must be competent to contract. If either of the
parties does not have the capacity to contract, the contract is not valid. According the following
persons is incompetent to contract. (secs. 11 and 12 )
a) Minority,
b) Persons of unsound mind, lunacy, idiocy, drunkenness and
c) persons disqualified by law to which they are subject.
5. Free Consent:- 'Consent' means the parties must have agreed upon the same thing in the same
sense. According to Section 14, Consent is said to be free when it is not caused by-
a) Coercion, or
b) Undue influence, or
c) Fraud, or
d) Mis-representation, or
e) Mistake.
An agreement should be made by the free consent of the parties.
6. Lawful Object (sec. 23) :- The object of an agreement must be valid. Object has nothing to do
with consideration. It means the purpose or design of the contract. Thus, when one hires a house
for use as a gambling house, the object of the contract is to run a gambling house. The Object is
said to be unlawful if-
a) It is forbidden by law;
b) it is of such nature that if permitted it would defeat the provision of any law;
c) it is fraudulent;
d) it involves an injury to the person or property of any other;
e) the court regards it as immoral or opposed to public policy.
7. Certainity of Meaning:- According to Section 29,"Agreement must be certain and not vague or
indefinite”. If it is vague and it is not possible to ascertain its meaning it cannot be enforced.
Example :
8. Possibility of Performance: - If the act is impossible in itself, physically or legally, if cannot be
enforced at law. For example, Mr. A agrees with B to discover treasure by magic. Such
Agreements is not enforceable.
9. Not Declared to be void or Illegal (sec 24 to 30 ):-The agreement though satisfying all the
conditions for a valid contract must not have been expressly declared void by any law in force in
the country. Agreements mentioned in Section 24 to 30 of the Act have been expressly declared
to be void for example agreements in restraint of trade, marriage, legal proceedings etc
10. Legal Formalities (sec . 10):- An oral Contract is a perfectly valid contract, expect in those cases
where writing, registration etc. is required by some statute. In India writing is required in cases of
sale, mortgage, lease and gift of immovable property, negotiable instruments; memorandum and
articles of association of a company, etc. Registration is required in cases of documents coming
within the scope of section 17 of the Registration Act.

3. 3
Types of Contracts :-
Classification of contracts
Classification according to validity or enforceability:-
a) Valid contract: A contract which satisfies all the conditions prescribed by law is a valid contract.
E.g. X offers to marry y. y accepts X offer. This is a valid contract. Section 10 of indian
Contact Act like :-Lawful offer and acceptance ,free consent,etc
For Example :- A ask B if he wants to buy his bike for Rs.10,000.B agrees to buy bike. It is agreement
which is enforceable by law. Hence, it is contract
b) Void Contract: The term void contract is described as under section 2(j) of I.CA, 1872, A
contract which cases to be enforceable by law becomes void when it ceases to be enforceable. In
other words, a void contract is a contract which is valid when entered into but which subsequently
became void due to impossibility of performance, change of law or some other reason. E.g. X
offers to marryY,Y accepts X offer. Later onY dies this contract was valid at the time of its
formation but became void at the death ofY. 
c) Void Agreement: According to Section 2(g), an agreement not enforceable by law is said to be
void. Such agreements are void- ab- initio which means that they are unenforceable right from the
time they are made.
E.g. in agreement with a minor or a person of unsound mind is void –ab-initio because a mino or
a person of unsound mind is incompetent to contract.
For Example X supplies Luxury goods to Y a minor for a consideration of Rs.10,000.Y refused to
make payment .X cannot enforce the agreement in the court of law since the agreement is void
because Y is minor
d) Voidable contract to section 2(i) : According of the Indian contract act, 1872, A voidable contract
is one which can be set aside or avoided at the option of the aggrieved party. Until the contract is
set aside by the aggrieved party, it remains a valid contract. For e.g. a contract is treated as
voidable at the option of the party whose consent has been obtained under influence or fraud or
misinterpretation.
E.g. X threatens to kill Y, if the does not sell his house for Rs. 1 lakh to X.Y sells his house to X
and receives payment. Here, Y consent has been obtained by coercion and hence this contract is
void able at the option of Y the aggrieved party.
For Example :- X promise to sell his scooter to Y for Rs 500000.however ,the consent X has been
procured by Y at a gun point .X is an aggrieved party and the contract is voidable at his point
e) Illegal Agreement: An illegal agreement is one the object of which is unlawful. Such an
agreement cannot be enforced bylaw.Thus, illegal agreements are always void – ab- initio (i.e.
void from the very beginning) e.g. X agrees to y Rs. 1 lakhY kills Z.Y kill and claims Rs. 1
lakh.Y cannot recover from X because the agreement between X andY is illegal and also its
object is unlawful.
Enforceability
a) Valid contract
b) Void contract
c) Void Agreement
d) Voidable
Contract
e) Illegal
Agreement
f) Unenforceable
contract
Formation
a) Express
b) Implied
/Tactic
c) Quasi/
Constructive
d) E.com
Performance
a) Executed
contract
b) Executory
Contract
Obligation
a) Unilateral
b) Bilateral

4. 4
Unenforceable contract: It is contract which is actually valid but cannot be enforced because of some
technical defect (such as not in writing, under stamped). Such contracts can be enforced if the technical
defect involved is removed.
Classification according to Formation :-
a) Express contract: Express contract is one which is made by words spoken or written.
Example No. 1: X says toY, will you buy a car for Rs. 100000? Y says to X, I am ready to buy you car for
Rs. 100000. It is an express contract made rally.
Example No. 2: X writes a letter to Y, I offer to sell my car for Rs. 100000 to you. Y send a letter to x, I
am ready to buy you car for Rs. 100000. It is an express contract made in writing.
An implied / tactic contract :- is a contract which is made otherwise than by the words spoken or
written. It came into existence on account of an act or conduct of the parties.
Example: - A stops a taxi by waving his hand and boards it. There is an implied contract that A will pay
the prescribed fare on reaching his destination. Withdrawal of cash from the ATM of a bank.
Quasi or constructive contract: It is a contract in which there is no intention either side to make a
contract, but the law imposes contract. In such a contract eights and obligations arise not by any
agreement between the practice but by operation of law.
E- Contract :- An e-contract is a contract made through the electronic mode.
Classification according to Performance / Obligation :- Executed Contract :- In an executed contract
both the parties have performed their promises under a contract. It is a contract where, under the terms of
contract, nothing remains to be done by the parties. Example A sells his car to B for 1 lakh. A delivered
the car and B paid the price.This is an executed contract.
Executory Contract :- In an executory contract both the parties are yet to perform their promises. In
other words, it is a contract where parties have to still perform their obligation in the future. Example A
sells his car to B for 1 lakh. If A is still to deliver the car and B is yet to pay the price, it is an executory
contract
Bilateral Contract :- In a bilateral contract both the parties have to perform their respective promises. It
is also known as a two-sided contract. Here, the obligation is outstanding on the part of both the parties.
example :- X promises y to pay rs 1000 for his cycle. Neither of them has performed his obligation.
Unilateral Contract :- A unilateral contract is also known as a one-sided contract. It is a contract where
only one party has to perform his promise. In such a contract, the promise on one side is exchanged for an
act on the other side.After the formation of a unilateral contract, only one party remains liable to perform
his obligation because the other party has already performed his obligation. Example Alap promises to
pay 1000 to anyone who finds his lost cellphone. Bansi finds and returns it to Alap. From the time Bansi
found the cell phone, the contract came into existence. Now Alap has to perform his promise, i.e., the
payment of 1000.
The Indian Contract Act, 1872
Nature of Contract The fabric of modern industrial society is woven around economic
relationships. The relational integration and determination of mutual rights and obligations are dependent,
to a great extent, on ex contractum terms. Contracts arising out of economic and social relationships. Such
relations are either contractual or akin to a contract. The market functions on the very premise of effective
functioning of contractual relationship.
What is a contract A written or spoken agreement intended to be enforceable by law. An agreement
enforceable by law is a contract. [Section 2(h) ] A contract is an agreement made between two or more
parties, which the law will enforce. Contract is a method through which individuals make law for
themselves by creating rights and obligation ex contractas.
Every agreement and promise enforceable at law is a contract. Pollock.
A legally binding agreement between two or more persons by which rights are acquired by
one or more to acts or forbearances on the part of the others. Sir William Anson. An agreement creating
and defining obligations between the parties. Salmond

5. 5
Proposal, Acceptance, Promise & Agreement
When a person signifies to another his willingness to do, or to abstain from doing anything, with a view to
obtaining the assent of that other to such act or abstinence, he is said to make a proposal. [Sec 2(a)] A
proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto.
A proposal when accepted becomes promise. [Sec 2(b)] Every promise and every set of promises forming
consideration for each other is a an agreement. [(Sec 2(e)]
Section 10 All agreements are contracts if –
They are made by the free consent of the parties, competent to contract, for a lawful consideration and,
with a lawful object, and are not expressly declared to be void.
Classification of Contracts
a) On basis of Formation
b) Express Contract
c) Implied contract –
d) Quasi Contract
e) On basis of Performance
f) Executed Contract
g) Executory Contract
On basis of Validity Voidable Contracts Void agreement Void Contract Valid Contract Illegal Agreements
Unenforceable contract (technical defects)
Essential Elements of Contract
Offer Acceptance Consensus ad idem Legal enforceability Lawful consideration Capacity of parties Free
consent Lawful object Agreement not declared void Certainty and possibility of performance Legal
formalities
Elements of Offer It must be made by one person to another person.
It must be an expression of readiness or willingness to do or to abstain from doing something. It must be
made with a view to obtain the consent of that other person. Terms of offer must be definite,
unambiguous and certain. Offer must be communicated. Offer not to contain a term the non-compliance
of which may amount to acceptance. A statement of price is not an offer.
Types of Offer Express Offer – by words written or spoken.
Implied Offer – By conduct or circumstances. Specific Offer- Made to a specified or definite person.
General Offer- Made to public at large
An offer must be distinguished from
A declaration of intention and an announcement. An invitation to make an offer or do business. A
statement of price. [Harvey v. Facey, (1893)]
Tenders A Definite Offer
When tenders are invited for the supply of specified goods or services, each tender submitted is an offer.
The party inviting tender may accept any tender he chooses thereby bringing about a contractual
relationship with the person (tender) so chosen.
Tenders A Standing Offer
Where goods or services are required continuously over a certain period, a trader may invite tenders as a
standing offer which is a continuing offer. The effect is that as and when goods or services are required,

6. 6
an order is placed with the person whose tender has been accepted. However, at each such time a distinct
contract is made.
Special terms in the contract
A term limiting or excluding the liability of offeror. The special terms should be presented in such a
manner that a reasonable man can become aware of it before a contract is entered into. The fact that he
did not or could not read does not alter the legal position. If the conditions are contained in a voucher or
receipt for payment of money, they do not bind the person receiving the voucher or receipt.
Legal Rules as to Acceptance
Must be absolute and unqualified. Must be communicated to the offeror. Must be according to the mode
prescribed or usual and reasonable mode. Must be given within a reasonable time. Cannot precede an
offer. Must be given by the party to whom the offer is made. Must be given before the offer lapse or is
withdrawn. It cannot be implied from silence.
Revocation or lapse of Offer (Sec. 6)
By communication of notice of revocation. By lapse of time. By non-fulfillment by the offeree of a
condition precedent to acceptance. By death or insanity of the offeror. If a counter offer is made. If an
offer is not accepted according to the prescribed or usual mode. If the law is changed.
Consideration Consideration is some kind of an exchange between the parties to an agreement.
Consideration is the price for which the promise of the other is bought and the promise thus given for
value is enforceable. Pollock A valuable consideration in the sense of the law may consist either – in
some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other.
Definition When at the desire of the promise, the promise 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.” [Section 2(d)]
Legal Rules as to Consideration
It must move at the desire of the promisor. It may move from promisee or any other person. It may be an
act, abstinence or forbearance. It may be past, present or future. It need not be adequate. It must be real
and not illusory. It must be something which the promisor is not already bound to do. It must not be
illegal, immoral or opposed to public policy.
Capacity to contract Every person is competent to contract who-
Is of the age of majority according to the law to which he is subject. Is of sound mind. Is not disqualified
from contracting by any law to which he is subject. (Sec 11)
The position of Minor’s Agreements
An agreement with or by minor is void ab initio No Estoppel Limited application of Restitution Contracts
for the benefit of Minor No ratification of agreement on attaining majority No specific performance
Cannot be adjudged insolvent He can be an agent Liability of Minor’s parents and guardians Minor’s
liability in Tort Minor as a Partner Minor as a Shareholder Liability of minor for necessities supplied to
him
Other Persons Disqualified by Law
Alien Enemy Foreign Sovereigns and Ambassadors A Company and a Corporations Convicts Insolvents
Free Consent Consent means an act of approval or assenting to an offer. Two or more persons are said to
consent when they agree upon the same thing in the same sense. Consent involves ad idem i.e. identity of
mind about the subject matter of contract. A mere consent is not enough, it should be free and voluntary.
Not to be caused by any vitiating factors given u/s 14.

7. 7
Section 14 Consent is said to be free when it is not caused by –
a) Coercion.
b) Undue influence.
c) Fraud.
d) Misrepresentation.
e) Mistake.
The contract is said to be voidable at the option of the party whose consent was not free. [Sec. 19]
Presumption of Domination
Master and Servant, Parent and Child, ITO and the Assessee, Trustee and Beneficiary, Spiritual Guru and
Disciple, Solicitor and Client, Guardian and Ward, Medical Attendant and Patient.
Agreements Opposed to Public Policy
While a contract serves private interest it should not conflict with any other private or public interests.
Public interest policies invalidate any private agreement. Section 23 provides that the consideration or
object of an agreement is lawful unless – it is forbidden by law, is of such a nature that if permitted, it
would defeat the provision of any law, or is fraudulent, or involves injury to the person or property of
another, or the courts regard it as immoral or opposed to public policy.
Trading with enemy. Agreements interfering with the administration of justice –
a) Interference with justice – using improper influence over judges or officers.
b) Stifling Prosecution – by way of an understanding not to prosecute an offender.
c) Maintenance and Champerty – financial or other assistance to bring or defend a lawsuit when the
person has no legal interest. Trafficking in public offices or titles. Agreement creating interest opposed to
duty.
Agreements restricting personal liberty.
Agreements in restraint of marriage. Agreement to commit a crime. Agreements in restraint of trade.
Agreements in restraint of legal proceedings a) Agreement restricting enforcement of rights b) Agreement
Limiting the Period of Limitation.
Exceptions – Restraint of trade
Sale of Goodwill
i) the restriction must relate to the same business;
ii) the restriction must be within a specified local limit;
iii) the restriction must be for the time so long as the buyer or any person, carries on a like business in the
specified local limits;
iv) the specified local limit must be reasonable having regard to the nature of the business.
Trade Combination Trade combination formed to regulate the business or to fix prices are not void, but
trade combinations to create monopoly or cartel, and which are against the public interest are void.
Employment Contracts A clause to serve the employer for a stipulated period is a valid clause if
reasonable. A clause preventing employee from accepting similar engagement during the employment is
also valid. A clause preventing the employee from accepting a similar engagement after the termination –
a) if the restraint is to protect an employer against making use of trade secret it is valid.
b) if the restraint is intended to serve any other purpose, like to avoid competition, it is not valid.
Performance of Contract
Performance of a contract is a mode of discharge of the contract. Performance of contract takes place
when the parties to the contract fulfill their respective obligations under the contract. The parties to a
contract must either perform or offer to perform their respective promises, unless such performance is
dispensed with or excused under the provisions of this Act, or of any other law.[Sec 37]

8. 8
Requisite of a valid tender
It must be unconditional. It must be of the whole obligation. It must be made at a proper time and place. It
must be made to the proper person. It may be made to one of the several joint promisees. In case of tender
of goods it must give a reasonable opportunity to the promisee for inspection of the good. In case of
tender of money the debtor must make a valid tender in the legal tender money.
Performance and Demand of Performance
By promisor himself. (S. 40) Promisor’s Agent. (S. 40) Legal representatives. Third person. (S 41) Joint
promisors. Promisee Legal Representative Third Party Joint promisee
Discharge of Contract A contract is said to be discharged when it ceases to operate. The rights and
obligations created by it comes to an end. A contract may be discharged - By Performance Actual
performance – doing what the parties intended to do when they entered in to the contract. Attempted
performance or tender – It is the legitimate attempt on the part of the promisor to perform his obligations
By Mutual Agreement or Consent
Novation Rescission Alteration Remission Waiver Merger
By operation of Law By death. By merger. By insolvency.
By unauthorized alteration of terms of a written contract. By rights and liabilities becoming vested in the
same person.
By Impossibility of Performance
Impossibility existing at the time of agreement – Known to the parties – the agreement is void ab initio.
Unknown to the parties – the agreement is void on the ground of mutual mistake. Impossibility arising
subsequent to the formation of the contract.
By Supervening Impossibility
Destruction of subject matter of contract Non-existence or non-occurrence of a particular state or things
Death or incapacity for personal services Change of law or stepping in of a person with statutory authority
Out break of war
By breach of contract Actual Breach a) On the due date of performance.
b) During the course of performance of contract. i) Express Repudiation. ii) Implied Repudiation.
Anticipatory Breach a) By express renunciation. b) Making the performance of promise become
impossible by doing some act.
Remedies for Breach of Contract
When the contract is broken, the injured party has one or more of the following remedies: Rescission of
the contract. Suit for damages. Suit upon quantum meruit. Suit for specific performance. Suit for
injunction.
Rescission of the contract
Rescission means a right not to perform an obligation. In case of breach of contract the promisee need not
perform his obligation, he is not only discharged from his liabilities but also he is entitled to claim
compensation for damages which he might have sustained due to non performance of the contract.
[Section 39]
Suit for damages Damages are monetary compensation allowed to the injured party for the loss suffered.
The object of awarding damages is not to punish the party at fault but to make good the financial loss
suffered by the injured party due to breach of contract.

9. 9
Quantum Meruit When an agreement is discovered to be void. [Sec 65]
When something is done without any intention to do gratuitously. [Sec 70] When there is an express or
implied contract to render service but no agreement as to remuneration. When the completion of the
contract has been prevented by the act of the other party to the contract. When a contract is divisible.
When an indivisible contract is completely performed but badly.
Specific Performance The remedy of Specific Performance is in the nature of equitable remedies based on
the principles of equities. Among the remedies are specific performance, injunction, rectification and
cancellation of instruments and rescission of contract. In the discretion of the court, specific performance
may be enforced: where there is no standard for ascertaining the actual damage caused by the non-
performance; or where compensation in money for the non-performance would not afford adequate relief.
Suit for Injunction It is a judicial process whereby a party to the contract is ordered to refrain from doing
a particular act or thing, or to do a particular act or thing. It a discretionary remedy and it acts only in
personam. Injunction means a prohibitory order of the court to a person to not to do a particular act he has
promised not to do under a contract, or to do an act which he has promised, under a contract, to do.
Quasi Contracts Sometime a person may receive a benefit which the law regards another person as better
entitled, or for which the law considers he should pay to the other person, even though there is no contract
between the parties. Such relationships are called quasi contracts. Because although there is no contract or
agreement between the parties, they are put on the same pedestal as though there was a contract between
them. This is based on the principles of equity.
Kinds of quasi contracts
Right to recover the price of necessities supplied. [Sec 68] Payment by an interested person. [Sec 69]
Right to recover for non-gratuitous Act. [Sec 70] Responsibility of the finder of Goods. [Sec 71] When
money is paid or things are delivered by mistake or under coercion. [Sec 72]
Contracts of Indemnity
In a contract of indemnity one party promises to compensate the other party against loss suffered by the
latter. Section 125 confines itself to losses occasioned due to an act of promisor or due to act of any other
persons. A contract by which one party promises to save the other from loss caused to him by the conduct
of the promisor himself or by the conduct of any other person is called a contract of indemnity. [Sec 124]
If a person who is interested in the payment of money which another is bound to pay and pays it, he is
entitled to be indemnified. [Sec 69] The surety has a rights to claim indemnity from the principal debtor
for sums he has rightfully paid towards the guarantee. [Sec 145] The principal is liable to indemnify the
agent for all amount paid by him during the exercise of his authority. [Sec 222]
Rights of indemnity holder [Sec 125]
All damages that he may be compelled to pay in a suit in respect of any matter to which the promise to
indemnify applies. All cost that he may be compelled to pay in bringing or defending such suit. All sums
which he may have paid under the terms of any compromise of any such suit.
Contract of Guarantee A contract of guarantee is essentially a contract to perform the promise or
discharge the liability of a third person in case of his default. The basic function of a contract of guarantee
is to enable a person to get a loan, or goods, or an employment. [Sec 126]
Essential features of guarantee
Surety. Principal Debtor. Creditor. Not be vitiated by incapacity, flaw in consent, and unlawful character
of the agreement. May be oral and it may either be expressed or implied. Concurrence of parties.
Existence of Principal debt. Essential of a valid contract like Consideration and Free consent.
Extent of surety's liability
The liability of surety is coextensive with that of the principal debtor. [Sec 128] The Surety may limit his

10. 10
liability by an express agreement. The liability of the surety arises immediately when a default is made by
the principal debtor. The creditor can sue the surety without suing the principal debtor. If the guarantee is
conditional upon another person joining it as co-surety, the guarantee is not valid if that person does not
join. [Sec 144]
Kinds of Guarantees Specific guarantee – extends to a specific transaction or a single debt. The liability
of surety comes to an end when the guaranteed debt is duly discharged. Continuing guarantee –extends to
a series of transaction. This kind of guarantee is intended to cover a number of transactions over a period
of time. Whether the guarantee is continuing guarantee or not is a question of intention, subject matter &
circumstance.
Revocation of Continuing Guarantee
By Notice By Death of Surety By Novation. (Sec 62) By variance in the terms of contract. (Sec 133) By
release or discharge of principal debtor. By compounding with the principal debtor. (Sec 135) By
creditor's act or omission imparting surety's eventual remedy. (Sec 139) By loss of security. (Sec 142)
Discharge of Surety By Revocation of Guarantee
Discharge by conduct of creditor Variance in the terms of the contract Release or discharge of principal
debtor Compounding by creditor with principal debtor Creditor compounding with principal debtor
Creditor promising to give time to the principal debtor Creditor agreeing not to sue the debtor.
By impairing surety's remedy
Loss of security by the creditor Discharge of surety by invalidation of contract Guarantee obtained by
misrepresentatio Guarantee obtained by concealment Guarantee on contract that creditor shall not act on it
untill a co-surety joins Failure of consideration
Finder of Goods A person who finds goods belonging to another and takes them into his custody, is
subject to the same responsibilities as a bailee. [Sec 71] He must take reasonable care. He must not use
the goods for his own purpose. He must not mix goods with his own. He must try to find out the owner of
the goods.
Rights of Finder of Goods
Right of lien. Right to sue for rewards. Right of sale.
Contract of Agency An agent is a person employed to do any act for another, or to represent another, in
dealings with third persons. The person for whom such act is done or who is so represented, is called the
principal." Whatever the principal can do himself, he may get the same done through an agent,; and What
the principal does by another, he does it himself. The acts of the agents are the acts of the principal.
Creation of Agency By Agreement – - Express Agreement.
Implied Agreement. Implied agency includes the following – Agency by Estoppel. Agency by holding
out. Agency by necessity – Agent acceding his authority in an emergency. A person entrusted with
another's property. Husband and Wife. Agency by ratification.
Essentials of a valid ratification
The agent must act for an identifiable principal. The principal must be in existence. The principal must
have contractual capacity. Ratification must be with full knowledge of facts. Ratification must be done
within a reasonable time. The act to be ratified must not be void, illegal or ultra vires. The whole
transaction must be ratified. Ratification can be of the acts the principal had power to do. Ratification
should not put a third party to damages. Ratification relates back to the date of the act.
Duties of Agents To carry out the work according to the directions of principal. To carry out the work
with reasonable care, skill and diligence. To render proper accounts. To communicate with the principal
in case of difficulty. Not to deal on his own account. To pay sums received for the principal.

11. 11
To protect the interest of the principal in case of his death or insolvency.
Not to use information obtained in the course of agency against the principal. Not to make secret profit.
Not to set up an adverse title. Not to put himself in a position where his interest and duty conflict. Not to
delegate authority.
Rights of Agents Right of retainer. Right to receive remuneration.
Right of lien. Right of indemnification. Right of compensation. Right of stoppage in transit.
Delegation of Authority
Delegatus non potest delegar A Sub-agent is a person employed by and acting under the control of the
original agent and the business of the agency. [Section 191] A agent may appoint a sub-agent if - There is
a custom of trade. The nature of work is such that sub-agent is necessary. Where the principal is aware of
the intention of the agent to appoint a sub-agent. Where unforeseen emergencies arise rendering. Where
the act to be done is purely ministerial. Where the principal permits appointment of sub-agent.
Effect of appointment of sub-agent [Section 192 and 193]
Where a sub-agent is properly appointed, the following effect follows : the principal is bound by the acts
of the sub-agent; the agent is responsible to the principal for the acts of the sub-agent; the sub-agent is
responsible for his acts to the agent, but not to the principal, except in case of fraud or willful wrong.
Where the sub-agent is not properly appointed, the effect will be :
the principal is not bound by the acts of sub-agent; the original agent is responsible for the acts of the sub-
agent both to the principal and to he third party; the sub-agent is responsible for his acts to the original
agent but not to the principal even in case of fraud or willful wrong.
Position of Principal and Agent in relation to third parties
Named principal – Acts of the agent are the acts of the principal. When the agent exceed his authority
Notice given to agent as notice to principal. Principal inducing belief that agent's unauthorised acts were
authorised. Misrepresentation or fraud of agent. Unnamed principal
Undisclosed principal –
The position of Principal – contracting party may sue either the principal or the agent or both. The
principal may also require the performance of contract. The position of agent – as between the principal
and agent, the agent has all the rights of an agent as against the principal; but as regards the third party, he
is personally liable on the contract.
The position of third parties –
the third party may elect to sue either the principal or the agent or both. If the principal discloses himself
before the contract is completed, the other party may refuse to fulfill the contract on the ground of
mistake of identity of party. The third party can also claim a right of set-off against the agent.
Personal Liability of an Agent - Exceptions [Sec 230]
When the contract expressly provides. When the agent acts for a foreign principal. When he acts for an
undisclosed principal. When he acts for a principal who cannot be sued. Where he signs a contract in his
own name. Where he acts for a principal not in existence. Where he is liable for breach of warranty of
authority. Where he receives or pays money by mistake or fraud. Where his authority is coupled with
interest. Where trade usage or customs makes him personally liable.

12. 12
Termination of agency [Sec 201]
Termination of agency by act of parties a) Agreement. b) Revocation by the principal. c) Revocation by
agent. Termination of agency by operation of law a) Performance of contract. b) Expiry of time. c) Death
or Insanity. d) Insolvency. e) Destruction of subject matter. f) Principal becoming an alien enemy. g)
Dissolution of a company.
Law of contracts in India defines Contract as an agreement enforceable by
law which offers personal rights, and imposes personal obligations, which the law protects and enforces
against the parties to the agreement. The general law of contract is based on the conception, which the
parties have, by an agreement, created legal rights and obligations, which are purely personal in their
nature and are only enforceable by action against the party in default.
Section 2(h) of the Indian Contract Act, 1872[2] defines a contract as "An agreement enforceable by law".
The word 'agreement' has been defined in Section 2(e) of the Act as ‘every promise and every set of
promises, forming consideration for each other’
Law of Contract and Contribution of Lord Denning:
Lord Denning was perhaps the
greatest law-making judge of the century and the most controversial. His achievement was to shape the
common law according to his own highly individual vision of society. Lord Denning was one of the most
celebrated judges of his time. He is popular as a dissenting judge.
Lord Alfred Thompson Denning (1899-1999) was a Populist English judge whose career
spanned 37 years. He was known as a fighter for the underdog and a protector of the little man's rights
against big business. He served for 20 years as the head of the Court of Appeals, one of the most
influential positions in the English legal system. Denning was a controversial judge who was often the
dissenting voice on the bench. His decisions were based more on his religious and moral beliefs than the
letter of the law and he was often criticized for his subjectivity. Denning retired from the bench in 1982
under a cloud of controversy regarding some racially insensitive views that he published. Denning
continued to publish books during his retirement and died at the age of 100....
Validity & formation of a Contract:
According to legal scholar Sir John William Salmond, a contract is "an agreement creating and defining
the obligations between two or more parties" For the formation of a contract the process of proposal or
offer by one party and the acceptance thereof by the other is necessary. This generally involves the
process of negotiation where the parties apply their minds make offer and acceptance and create a
contract.
Standard Form Contracts:
The law of contract has in recent time to face a problem, which is assuming new dimensions. The
problem has arisen out of the modern large scale and widespread practice of concluding contracts in
standardized form. People upon whom such exemption clauses or standard form contracts are imposed
hardly have any choice or alternative but to adhere. This gives a unique opportunity to the giant company
to exploit the weakness of the individual by imposing upon him terms, which may go to the extent of
exempting the company from all liability under contract. It is necessary and proper that their interests
should be protected. The courts have therefore devised some rules to protect the interest of such persons

13. 13
Post-Termination non-compete clauses in employment contracts:
Indian courts have consistently refused to enforce post-termination non-compete clauses in employment
contracts, viewing them as “restraint of trade” impermissible under Section 27 of the Indian Contract Act,
1872 (the Act), and as void and against public policy because of their potential to deprive an individual of
his or her fundamental right to earn a livelihood
Contract- II: Bailment:
Contracts of Bailment are a special class of contract. These are dealt within Chap. IX from S.148 to 181
of the Indian Contract Act, 1872. Bailment implies a sort of one person temporarily goes into the
possession of another. The circumstance in which this happens are numerous. Delivering a cycle, watch
or any other article for repair, delivering gold to a goldsmith for making ornaments, delivering garments
to a drycleaner, delivering goods for carriage, etc. are all familiar situations which create the relationship
of ‘Bailment’.
A Study of Contract Labour (Regulation and Abolition) Act, 1970:
Contract labourers also suffer from inferior labour status, casual nature of employment, lack of job
security and poor economic conditions. It was also observed that in some cases the contract labourers did
the same work as the workers directly employed by the industrialist but were no paid the same wages and
the same working conditions. This practice of contract labour has also lead to the exploitation of these
labourers as they are not employed directly under the employer. This practice of exploitation was and still
is very much prevalent in India, therefore to encounter such problem and also to regulate the conditions of
these labourers the Govt. passed an Act called the Contract Labour (Regulation and Abolition) Act, 1970..
Contract Labour:
Basic instinct. Hearing the concept of labour, what strikes the minds of the layman is the name sakingly
clad men and women who work at construction sites, factories and alongside the roads, working in the
scorching sun and pitiful conditions. Does it ever come to the minds of the general public that these
labourers have a huge set of laws governing and safeguarding their rights ? yes. Probably some of us do
know about labour laws. Ever given a second thought about the implementation of these laws and
regulations which are painstakingly formulated? Not that they are not followed at all but come on! We’re
aware of the scene here in our country
E-Contracts:
It’s an undisputed fact that E-Commerce has become a part of our daily life. One such justification for the
popularization of E-Commerce would be immoderate technological advancement. E-Commerce, as the
name suggests, is the practice of buying and selling goods and services through online consumer services
on the internet. The ‘e’ used before the word ‘commerce’ is a shortened form of ‘electronic’. The
effectiveness of E-Commerce is based on electronically made contracts known as E-Contracts. Although
E-Contracts are legalized by Information Technology Act but still majority feels insecure while dealing
online. The reason being lack of transparency in the terms & conditions attached to the contract and the
jurisdiction in case of a dispute that may arise during the pendency of a transaction with an offshore site
Specific performance of Contracts:
Specific performance is equitable relief, given by the court to enforce against a defendant, the duty of
doing what he agreed by contract to do. Thus, the remedy of specific performance is in contrast with the
remedy by way of damages for breach of contract, which gives pecuniary compensation for failure to

14. 14
carry out the terms of the contract. Damages and specific performance are both, remedies available upon
breach of obligations by a party to the contract; the former is a ‘substitutional’ remedy, and the latter a
‘specific’ remedy. The remedy of specific performance is granted by way of exception.
The Contract Labour (Regulation And Abolition) Act, 1970:
The Object of the Contract Labour Regulation and Abolition) Act, 1970 is to prevent exploitation of
contract labour and also to introduce better conditions of work. A workman is deemed to be employed as
Contract Labour when he is hired in connection with the work of an establishment by or through a
Contractor. Contract workmen are indirect employees. Contract Labour differs from Direct Labour in
terms of employment relationship with the establishment and method of wage payment.
Regulation of Contract Labour:
Contract Labour is one of the acute form of unorganized labour. Under the system of contract labour
workers may be employed through contractor on the contract basis. Workmen shall be deemed to be
employed as contract labour or in connection with the work of an establishment when he is hired in or in
connection with such work by or through a contractor, with or without the knowledge of the principal
employer. In this class of labour the contractors hire men (contract labour) who do the work on the
premises of the employer, known as the principal employer but are not deemed to be the employees of the
principal employer. The range of tasks performed by such contract workers varies from security to
sweeping and catering and is steadily increasing. It has been felt, and rightly too, that the execution of a
work on contract through a contractor who deployed the contract labour was to deprive the labour of its
due wages and privileges of labour class.
Doctrine of Frustration & Force-Majeure Clause:
The requirements of Force-Majeure are:
(a) It must proceed from a cause not brought about by the defaulting party’s default.
(b) The cause must be inevitable and unforeseeable.
(c) The cause must make execution of the contract wholly impossible.
The Calculation of Damages in EPC Contracts in India:
The engineering & construction industry, especially that in India, is dynamic and highly volatile, making
it susceptible to tremendous amounts of litigation and other forms of alternative dispute resolution. The
rapid and substantial growth in the magnitude of this industry has resulted in the increased need for
information about the rights and obligations of the various players involved in the execution of a
particular work of construction. It has become essential that proper attention is given to assert one’s rights
and discharge one’s obligations as laid down by the law and also by a correct understanding of the
meaning and interpretation of the terms of the contract governing such relationships, as otherwise the
basis of estimates and calculations made will become infructuous
Liquidated Damages:
The Indian Contract Act, 1872, provides a basic structure of the law of contract in India, its enforcement,
various provisions regarding non-performance and the breach of contract. This report is aimed to
highlight provisions regarding liquidated damages in case of the breach of the contract and to bring about
a comparative study between India and England regarding it. Thus, before knowing what exactly
liquidated damages are, it is important to understand the consequences of breach of contract and the
damages awarded in case of breach. A party who is injured by the breach of a contract may bring an
action for damages and Damages means compensation in terms of money for the loss suffered by the

15. 15
injured party. Thus, in contract when these damages are awarded it is known as liquidated damages
Privity of contract and third party beneficiary in a contract:
The doctrine of privity of contract means that only those involved in striking a bargain would have
standing to enforce it. In general this is still the case, only parties to a contract may sue for the breach of a
contract, although in recent years the rule of privity has eroded somewhat and third party beneficiaries
have been allowed to recover damages for breaches of contracts they were not party to. There are two
times where third party beneficiaries are allowed to fall under the contract. The duty owed test looks to
see if the third party was agreeing to pay a debt for the original party. The intent to benefit test looks to
see if circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised
performance. Any defense allowed to parties of the original contract extend to third party beneficiaries[1].
A recent example is in England, where the Contract (Rights of Third Parties) Act 1999 was introduced
Contract Ratification:
Ratification is in law equivalent to previous authority it may be expressed or it may be affected impliedly
by conduct.[1] Section 196 and 197 of the act show that an act done by person who is not authorized to do
it, but who purports to act as an agent for another person, can retrospectively ratified by such other
person. From this it follows logically, that such an act on the part of the person purporting to act as agent
is not void but voidable. If it is not ratified it becomes void but if it is ratified it will be validated.
Relevance of Quasi-Contracts:
There are certain situations wherein certain persons are required to perform an obligation despite the fact
that he hasn’t broken any contract nor committed any tort. For instance, a person is obligated to restore
the goods left at his home, by mistake, and keep it in good condition. Such obligations are called quasi-
contracts
Choice of law by the parties to the contract:
In this era of globalization where a contract contains one or more foreign elements, the difficult and
complicated question in proceeding that arises is that of ascertaining its applicable law. Such difficulty
stems from the multiplicity and diversity of connecting factors and each of them may arise in a different
jurisdiction for instance the place where the contract was made; the place of performance; the place of
business of the parties; the place of payment; the currency of payment; domicile or nationality o the
parties and so on. So to avoid this situation parties are granted with the freedom to select the law to
govern their contract under the provisions of Rome convention. The inclusion of a choice of law clause is
such an everyday matter in international contracts that its absence would be to ignore commercial realities
E-contracts & issues involved in its formation:
With the advancements in computer technology, telecommunication and information technology the use
of computer networks has gained considerable popularity in the recent past, computer networks serve as
channels between for electronic trading across the globe. By electronic trading we don’t just mean the use
of computer networks to enter into transaction between two human trading partners by facilitating a
communication but electronic trading or electronic commerce also means those contracts which are
entered between two legal persons along with the aid of a computer program which acts as an agent even
when it has no conscious of its own but also by initiating it

16. 16
Standard Form Contract:
The Law of Standard Form Contracts rests on intuitions of the common mass. This research paper
explores these intuitions and examines intended consumer behavior on common contracting contexts.
Firstly, the research paper focuses on the need of Standard Form Contracts and its justification. After the
clear explanation of the term and its use in the practical world, the focus shifts to the legal issue, as to
what are the problems with the issuance of Standard Form Contracts on a large scale, and how it can
prove to be of exploitative nature. Further, the paper discusses the basic tendency of the consumers
towards the acceptance of the Standard Form Contracts, the reasons for such acceptance and how the
party issuing the Standard Form Contract can take advantage of the consumer’s ignorant behaviour
Section 65 of the Indian Contract Act, 1872 with special reference to Discharge of a Contract by
Frustration:
The effects of frustration with special reference to the restitution of advantages or benefits received by a
party, not entitled to such advantage or benefit. On account of an agreement being deemed void,
subsequent to certain obligations being fulfilled by either party, there would continue to subsist, rights to
make good the loss caused. Section 65 of the Indian Contract Act, 1872, states
Evidentiary Value Of E-Contracts:
It’s an undisputed fact that E-Commerce has become a part of our daily life. One such justification for the
popularization of E-Commerce would be immoderate technological advancement. E-Commerce, as the
name suggests, is the practice of buying and selling goods and services through online consumer services
on the internet. The ‘e’ used before the word ‘commerce’ is a shortened form of ‘electronic’. The
effectiveness of E-Commerce is based on electronically made contracts known as E-Contracts. Although
E-Contracts are legalized by Information Technology Act but still majority feels insecure while dealing
online. The reason being lack of transparency in the terms & conditions attached to the contract and the
jurisdiction in case of a dispute that may arise during the pendency of a transaction with an offshore site
Arbitration clause v. Contingent Contract:
Section 32 and 33 provide for when are such contracts enforceable. Section 32 says when a contingent
contract to do or not to do anything depends on the happening of an uncertain future event cannot be
enforced by law unless and until that event has happened and in case the event becomes impossible, then
the contract becomes void. Section 33 provides that if a contingent contract to do or not to do anything
depends on an uncertain future event not happening, it can be enforced only when the happening of that
event becomes impossible and not before
E-Contracts & Its Legality:
E-contract is a contract modeled, specified, executed and deployed by a software system. E-contracts are
conceptually very similar to traditional (paper based) commercial contracts. Vendors present their
products, prices and terms to prospective buyers. Buyers consider their options, negotiate prices and terms
(where possible), place orders and make payments. Then, the vendors deliver the purchased products.
Nevertheless, because of the ways in which it differs from traditional commerce, electronic commerce
raises some new and interesting technical and legal challenges. For recognition of e-contracts following
questions are needed to be considered
Electronic Contract:
In the traditional notion of contract formation, negotiating parties must come to a "meeting of the minds"
on the terms of an agreement. In the course of negotiation, there may be invitations to make offers (e.g.,
price lists are generally not offers, but invitations) and counter-offers, but the general rule is that
formation requires an offer and acceptance to be communicated between the parties

17. 17
Contract Law Jurisdiction: Panama:
Under Panama Civil Law the general rule is that all contracts are consensual, which is to mean that they
are perfected by the mere consent of the parties. Consequently, and except if expressly established by law
that a contract is formal or real, it must be understood to be consensual, without prejudice to the liberty
granted by law to the parties to give a consensual contract the character of formal
Nature and Classification of contracts
Nature of contract
Corporate & Business Law THE INDIAN CONTRACT ACT, 1872
WHAT IS LAW?
Law consists of rules that regulate the conduct of individuals, businesses, and other organizations within
society. Law means any rule of conduct, standard or pattern , to which actions are required to conform.
OBJECT OF LAW
a) Object of law is the creation and protection of legal rights to maintain order in the society.
b) Keeping the peace.
c) Shaping moral standards.
d) Promoting social justice
e) Maintaining the status quo
f) Facilitating orderly change
g) Maximizing individual freedom
IGNORTIA JURIS NOT EXCUSANT
Ignorance of law is - NO EXCUSE
Every member of the society is expected that his actions conform to a set pattern or standard as reflected
in legal rules. For this purpose he is presumed to know the legal rules. He cannot take the plea that he did
not know them.
Business Laws
Business law is also termed as commercial Law and mercantile law. Business law is generally used to
denote that portion of law which deals with rights and obligations arising out of transactions between
mercantile persons. The term appears to be a convenient way of grouping together the laws that should be
regarded important for men in business.
It includes following laws:
a) Law of contracts
b) Sales of goods act
c) Partnership act
d) Company law
e) Negotiable instrument act
f) Insurance act
THE INDIAN CONTRACT ACT, 1872
The Law of Contract
It is that branch of law which determines the circumstances in which promises made by the parties to a
contract shall be legally binding on them.
It defines:
a) Remedies available
b) Conditions under which remedies are available

18. 18
Nature of the Law of Contract
It does not lay down the duties and responsibilities which the law will enforce
BUT,
It consists a number of limiting principles, subject to which; the parties may create rights & duties for
themselves which the law will upload.
Law of contract
a) creates
b) jus in personam,
c) jus in rem
DEFINITION OF CONTRACT
Sec.2(h) “An agreement enforceable by law.”
Contract =Agreement + enforceability by law.
Agreement must create a legal obligation or duty.
AGREEMENT
Sec. 2(e), “Every promise and every set of promises, forming consideration for each other” An agreement
takes place when an offer is made by one person is accepted by the other. All agreements are not contracts
but all contracts are agreements. (Balfour v/s Balfour)
Agreement = Offer + Acceptance
Agreement is a wide term
All agreements are not contracts BUT All contracts are agreements (Social v/s Legal) Consensus ad idem
Obligation
ESSENTIAL ELEMENTS OF VALID CONTRACT
Offer and acceptance – Two parties, offer & acceptance .Intention to create legal relationship –(Balfour
vs. Balfour- domestic, social agreements ) Lawful consideration- cash, kind,act of abstinence .Capacity of
parties – Competency .Free consent – without pressure (physical or mental)
Lawful object – The object of contract is unlawful, if :
1. Immoral
2. Illegal
3. Opposed to public policy
Agreement not expressly declared void – agreements must not be declared void by law in force in the
country .Certainty and possibility of performance ,Legal formalities – In writing, properly stamped
CLASSIFICATION OF CONTRACTS
Valid Contracts Formation Performance
1. Valid Contracts
2. Voidable Contracts
3. Void Agreement
4. Void Contracts
5. Unenforceable
Contracts
6. Illegal contract
1. Express Contracts
2. Implied Contracts
3. Quasi contracts
1. Executed Contracts
2. Executory Contracts
3. Bilateral Contracts
4. Unilateral Contracts

19. 19
Classification of Contracts Validity or Enforceability
CLASSIFICATION OF CONTRACTS…
According to validity
1. Valid contract – Agreement satisfying all the essentials.
2. Voidable contract – Consent of one party is not free. ( Aggrieved party, avoid in reasonable
time). & Void at option of that party only
3. Void contract – A valid contract when it was made but subsequently it becomes void.
Illegal contract – An agreement which is forbidden by law or against the policy of law is known as
unlawful or illegal agreement. (smuggling, murder )
Void agreements - Void ab - initio …. From the very beginning ( lack of one of the essentials)
Unenforceable contract – one which cannot be enforced in a Court of law due to some technical defects
According to formation
1. Express contract – orally or in writing
2. Implied contract – by conduct or acts
3. Quasi contract – no intention of the parties to create legal relationship. It is created by law.
According to time of performance:
Executed contract – Both the parties have performed.
Executory contract – Both the parties are yet to perform. It can be partly as well.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
ESSENTIAL ELEMENTS OF A VALID CONTRACT
All Contracts are agreements but all agreements are not contracts. Only that agreement which is
enforceable by law is a contract. An agreement, to be enforceable by law, must possess the essential
elements of a valid contract as contained in section 10 of the Indian Contract Act. According to Section
10, "All agreements are contract if they are made by the free consent of the parties, competent to contract,
for a lawful consideration and with a lawful object and are not expressly declared to be void.
The essential elements of a valid contract are:
1. Proper Offer and Proper Acceptance. In order to create a valid contract, there must be a 'lawful offer'
by one party and 'lawful acceptance' of the same by the other party. Section 2 (a) of the Contract Act
defines Offer as – ‘when one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make an
offer'. Section 2 (b) of the Contract Act states that, ‘when the person to whom the offer is made signifies
his assent there to, the offer is said to be accepted.
2. Intention to Create Legal Relationship. In case, there is no such intention on the part of parties, there
is no contract. Agreements of social or domestic nature do not contemplate legal relations.
Case :- Balfour vs. Balfour(1919) Mr. Balfour and his wife went to England for a vacation, and his wife
became ill and needed medical attention. They made an agreement that Mrs. Balfour was to remain
behind in England when the husband returned to Ceylon (Sri Lanka) and that Mr. Balfour would pay her
£30 a month until she returned. This understanding was made while their relationship was fine; however
the relationship later soured. The lower court found that there was sufficient consideration in the consent
of Mrs. Balfour and thus found the contract binding, which Mr. Balfour appealed. Arrangements made
between husbands and wives are not generally contracts as the parties do not intend to be legally bound
by the agreements.
3.Lawful Consideration. At the desire of promise, promisee or any other person has done or abstain
from doing or does abstain from doing such act or promises is known as consideration. According to
Blackstone "Consideration is recompense given by the party contracting to another." In other words of
Pollock, "Consideration is the price for which the promise of the another is brought." Consideration is
known as quid pro-quo or something in return. It may be cash, kind, act or abstinence and may be in past,
present or future. It should be unlawful, immoral and against the public policy.
4. Competent of parties. The parties to an agreement must be competent. If either of the parties does not
have the ability to contract, the contract is not valid. According to the following persons are incompetent
to contract. (a) Minor: A person less than age of 18 is minor. (b) Unsound mind person: Any person who

20. 20
is unable to understand the term and condition of contract at the time of its formation is unsound mind. (c)
persons disqualified by law to which they are subject.
5. Free Consent. 'Consent' means the parties must have agreed upon the same thing in the same sense.
According to Section 14, Consent is said to be free when it is not caused by-
(1) Coercion
(2) Undue influence
(3) Fraud
(4) Mis-representation
(5) Mistake.
An agreement should be made by the free consent of the parties.
6. Lawful Object. The object of an agreement must be valid. Object has nothing to do with consideration.
It means the purpose or design of the contract. Thus, when one hires a house for use as a gambling house,
the object of the contract is to run a gambling house. The Object is said to be unlawful if-
(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provision of any law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.
7. Certainty of Meaning. According to Section 29,"Agreement the meaning of which is not Certain or
capable of being made certain are void.“ For e.g. : A agree to sell to B a 100 tonne of oil, there is nothing
to show what kind of oil intended, the agreement is void due to the absence of certainty. But if A is dealer
of coconut oil only agree to sell B,100 tonne of oil, the nature of A’s trade is sufficient to show the kind
of oil, and this will be a valid contract.
8. Possibility of Performance. Condition for a contract should be capable for performance .If the act is
impossible in itself, physically or legally, if cannot be enforced at law. For example: If A and B makes an
agreement that if B encloses a space with the help of two straight lines then A will pay him Rs. 1000
otherwise B will be liable for paying Rs. 500 to A. RESULT: This is an impossible work. Two straight
lines can not enclose a space , hence contract is not valid.
9. Not Declared to be void or Illegal. The agreement though satisfying all the conditions for a valid
contract must not have been expressly declared void by any law in force in the country. Agreements
mentioned in Section 24 to 30 of the Act have been expressly declared to be void. For example
agreements in restraint of trade, marriage, legal proceedings etc. That is : If A is not willing to marry with
B, law can not enforce him/her.
10. Legal Formalities. An oral Contract is a perfectly valid contract, expect in those cases where writing,
registration etc. is required by some statute. In India writing is required in cases of sale, mortgage, lease
and gift of immovable property, negotiable instruments; memorandum and articles of association of a
company, etc. Registration is required in cases of documents coming within the scope of section 17 of the
Registration Act. All the elements mentioned above must be in order to make a valid contract. If any one
of them is absent the agreement does not become a contract.
Offer and Acceptance
Offer and Acceptance: Everything You Need to Know
Offer and acceptance are the essential elements of a contract. In either case, it
should be done out of one's free will and with an intention to enter into a legally binding agreement.3 min
read
Offer and acceptance are the essential elements of a contract. In either case, it
should be done out of one's free will and with an intention to enter into a legally binding agreement.
What Is an Offer?
When someone expresses his or her willingness to enter into a contract on certain
terms and intends to form a binding contract if the other party accepts it, such expression of willingness is
called an offer.

21. 21
The expression of willingness can be in various forms like a letter, email, fax, or even
conduct. However, it is important that the person communicates the terms on which he is willing to enter
into a contract.
Whether or not the person making an offer has the intention of entering into a contract is
judged objectively. It doesn't matter whether the person has real intentions. It's enough if, based upon the
circumstances of the case, it can be reasonably made out that he intended to form a binding contract.
A party can either expressly make an offer, or it can even be implied by its conduct. An offer can be made
to a specific person, a group of persons, or even the world at large (for example, announcement to offer a
reward).
An offer is different from an invitation to treat, where a party merely invites offers, which
can be accepted or rejected by it. For example, an advertisement is not an offer; it's only an invitation to
treat. If it were an offer, then the advertiser would have to supply the product to everyone accepting the
“offer”, irrespective of the stock he holds. Similarly, an auction is also an invitation to treat, where each
bid received by the auctioneer is an offer.
What Is an Acceptance?
If a person agrees to all the conditions of an offer made to him without placing any counter-
condition, the communication of such assent to the offerer is called an acceptance, provided it's done with
the intention of accepting the offer.
Sometimes, the conduct of the offeree may constitute expression of acceptance. In such
cases, it would be no defense to say that the party did not intend to enter into a legally binding agreement.
Courts often refer to the correspondence between the parties while deciding whether an acceptance has
occurred.
It's important that the offeree accepts the offer unconditionally. If he makes a counteroffer,
the original offer becomes irrelevant.
For example, when you list an item on eBay with a “buy now” price, with an option to sell it for the best
offer, every bid placed on your item constitutes a counteroffer. If you accept a counteroffer, this becomes
the basis of the contract of sale.
A contract does not become effective unless the offerer receives a communication of
acceptance from the offeree. The communication may be instant or at a later point in time, say for
instance, through email or post.
Although signing a contract is a common way of accepting an offer, there are various other
ways of acceptance. For example, if you offer a contractor to paint your home for a certain sum of money
and make some advance payment to him, the receiving of advance payment itself amounts to an
acceptance by the contractor.
Rules of Acceptance
There must be communication of acceptance from the offeree's side.
You can withdraw an offer any time before it's accepted.
Only the person to whom the offer is made can accept it. You are not bound by an acceptance made by
someone else on behalf of the offeree without his authorization.
You may do away with the requirement of communicating the acceptance; sometimes this may be
obvious from the construction of the contract.
If an offer requires a specific method of acceptance, it cannot be accepted through a less effective method
than what's specified.
Silence does not constitute an acceptance.
According to the “mirror image rule”, you must accept an offer in its entirety, without any changes.
Modifying the offer in any manner constitutes a counter-offer and nullifies the original offer.
The offeree can, however, request for information; such request does not amount to making a counter-
offer. You can draft an inquiry in a way that it adds to the original offer without nullifying it.
Usually, companies use a standard form contract in business.
In all cases where the contracting parties have contemplated acceptance via post, the contract is created at
the moment you post the acceptance.

22. 22
If you need help with offer and acceptance, you can post your legal need on UpCounsel's marketplace.
UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law
schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work
with or on behalf of companies like Google, Stripe, and Twilio.
Offer And Acceptance
Offer
Definition of offer •
Section 2(a) of Indian contract act
when one person signifies to another person his willingness to do or abstain from doing with a view to
obtain of assent of that other person.
Offeror
1. Shows intent to enter into a
contract
2. Makes a definite offer
3. Communicates the offer to the
offeree
“I’ll pay you Rs 50 an hour to edit
my book on Mesoamerican sewing
techniques”.
Offeree
1. Shows intent to accept the offer
2. Communicates intent to accept
by proper means
3. States acceptance that “Mirrors
“the terms of the offer
“I’ll take the editing job.”
Offer
Acceptance
Definition Offer must be certain Types of offer
Revocation of an
offer and
communication of
revocation
Communication of an
offer
To whom offer can be
made?
Promise
Offer/Proposal Acceptanc
e

23. 23
I will sell my car for10K.would u purchase it?? Yes I will purchase it.
Essential for making a valid contract
1. Offer must be communicated to the other party
2. The offer must be made with a view to obtain consent of the offree
3. The offer must have its terms and definite and clear
4. The offer must be capable of creating legal relationship
Types Of Offer
a) General Offer
b) Specific Offer
c) Counter Offer
d) Cross Offer
General and specific offer
General offer made to the whole world at large Specific offer made to some specific person
General offer can be accepted by any person
Having notice of the offer
by doing what is required under the offer
Specific offer can be accepted only by person to
whom it was made
COUNTER OFFER
A counteroffer is a type of offer made in response to another offer, which was seen as unacceptable. A
counteroffer revises the initial offer, making it more appealing for the person making the new offer.
Responding with a counteroffer allows a person to decline on a previous offer, while allowing
negotiations to continue.
COUNTER OFFER DOES NOT MAKE ANY CONTRACT

24. 24
Cross Offer •
When two persons make identical offers (EX. Similar in terms, conditions) to each other, without having
knowledge of each other’s offer are known as CROSS OFFER
A makes a offer to B B makes a offer to A
Invitation to offer •
When one or many party/persons are invited to one or more offer is called as invitation to offer, it
is not require for them to get into contract. Display of goods by a shopkeeper in his window , with prices
marked on them is not an offer, But merely an invitation to the public to make an offer to buy the goods at
the marked price.
Communication of an offer •
Section 4(a) – When the offeree understand and have a knowledge about the offer.
Revocation Of Offer And Communication
SEC.6(a)-The communication of notice
SEC.6(b)-Lapse of time Revocation of an offer and communication-SEC.5)(1)-
SEC.6(c) –Fails to fulfill the condition
SEC.6(d)-The offeror is dead
To whom an Offer can be made?
One person
A group
The whole world

25. 25
Acceptance
Definition •
According To Sec 2(a) •
“When the person to whom the proposal is made signifies his assent there to, The proposal is said to be
Accepted. A proposal when accepted becomes a promise.”
Teams of acceptance
1. Absolute and unqualified by section 7(a)
2. By expressed in some usual and reasonable manner by section 7(b)
3. Silence cannot be treated as acceptance to an offer
Types of acceptance
1. Express
a) Writing
b) Verbal
2. Implied
a) Action
b) Behavior
Communication of acceptance
1. Section 5( c) Communication of an acceptance completes when it comes to the knowledge of
offeror
2. The use of telecommunication apparatus: telephone, facsimile, video
3. Other types are letter and telegram (Use a the postal rules)
E.g:Sec.4(2)(a) and sec.4(2)(b)
Revocation Of Acceptance •
According to [sec.5 para-2]
Dismissed
An acceptance may be revoked at any time before the communication of acceptance is complete as
against the ACCEPTOR, But not afterwards
Consideration
Consideration meaning in law
In the legal system, the term consideration in contract law refers to something of value
given to someone in return for goods, services, or some other promise. A valid contract must include
consideration for every party involved. In simple terms, consideration is the basic reason a party enters
into a legal contract. To explore this concept, consider the following consideration definition.
Definition of Consideration
Noun
Something of value given in exchange for something else of value, usually in the context of a contract.
Definition Term of acceptance Type of acceptance
Revocation of an
acceptance and
communication of
recoveron
Communication of
an acceptance

26. 26
Origin
What is Consideration
Consideration is the benefit that each party receives, or expects to receive, when entering
into a contract. Consideration is often monetary, but it can be a promise to perform a specific act, or a
promise to refrain from doing something. In order for a contract or agreement to be legally binding, every
party to the contract must receive some type of consideration. In other words, a contract is a two-way
street, so each party must receive something of value from the other party or parties. Illegal or immoral
acts are not legally considered to serve as consideration.
Example 1
John backed into Allen’s car, damaging it. John is liable to pay for the damages, but does
not have the money right now. While Allen could sue John for the damages to his car, he enters into an
agreement with John to give him 90 days to pay the full amount of $1,500, plus an additional $250 for the
inconvenience. The agreement states that Allen will not file a lawsuit before the 90 days is up, but is free
to do so after that time. This agreement, or “contract,” provides consideration for both parties:
John’s benefit: Allen gives up the right to sue for a period of 90 days
Allen’s benefit: John will pay for the damages, plus an additional amount of $250
Example 2
Brittney agrees to sell her car to Bill for $1,000. Bill’s payment serves as consideration for
Brittney’s promise to sell the car to him. Brittney’s consideration is her promise to sell him the car.
Example 3
A landlord and a prospective tenant meet to discuss the rental of a condo. At the meeting,
they go over the terms of the lease, and agree to enter into the lease, which is signed by both the landlord
and the tenant. In this type of contract, the landlord agrees to provide tenant with housing, and the tenant
promises to pay rent in return.
Elements of Consideration
In order for a contract to be considered valid and enforceable by the courts, three elements
of consideration must be met. If one or more of these elements are missing, the contract lacks the
necessary requirements, it could potentially be deemed invalid by the court. The required elements of
consideration include:
1. The contract must include a bargain for the terms of the exchange. This means there must be
something that is worth bargaining over to both the parties.
2. There must be a mutual exchange between the parties. In simple terms, all parties involved must
benefit from the contract.
3. The exchange in the contract must be something of value.
In addition to the elements of consideration, a contract must contain certain other elements to be
enforceable. While these requirements vary by state, generally these requirements include:
1. An intent by both parties to enter into the agreement
2. The subject matter must be legal
3. One party must make an offer
4. The other party must accept an offer
5. Types of Consideration
Consideration in a contract is the exchange of anything of value by each party. Most often, services or
goods are exchanged or promised in a contract, though consideration may be whatever the parties agree
to. Examples include:
1. Money
2. Services
3. Personal property
4. Real property
5. Promise to act
6. Promise to refrain from acting
7. Lack of Consideration

27. 27
A contract may be deemed invalid by a court if it lacks recognizable consideration. Although
the exchange of certain items or terms may seem like something valid on which to create a contract, not
just anything meets the definition of consideration. Some of the scenarios where a contract lacks
consideration includes:
1. The agreement is more of a promise of a gift, rather than a contract
2. One of the parties involved was already legally obligated to perform as specified by the contract
3. The bargained for promise cannot be illusory. This means there cannot be a contract if the parties
are not mutually agreed, or where only one party is required to perform.
Example of a Gift
Naomi’s mother promises to buy her a car when she graduates in two years, if she keeps
her grades up, making an official-looking document, which she signed. After graduation, Naomi is
disappointed that her mother has decided not to buy the car, as Naomi got into trouble with drugs and
delinquent behavior over the past couple of years.
Naomi files a civil lawsuit, claiming that she had a contract with her mother, and that
her mother must buy her a car. However, because there was no mutual benefit, no consideration given by
both parties, the court is likely to determine that the document was simply a promise of a future gift,
which is not an enforceable contract.
Example of an Illusory Promise
ChocoTime candy company enters into a contract with Cocoa Merchants in which
ChocoTime will purchase all of the cocoa it needs for its candy from Cocoa Merchants, and Cocoa
Merchants will sell as much cocoa as it wants to ChocoTime. Because this contract binds ChocoTime to
purchasing all of the cocoa it needs only from Cocoa Merchants, ChocoTime is not bound to do anything.
In fact, Cocoa Merchants could choose not to sell any cocoa to ChocoTime if it desired. This is one type
of illusory promise, and it therefore makes this contract invalid and unenforceable.
Related Legal Terms and Issues
1. Binding – Having power to bind or oblige; imposing an obligation.
2. Contract – An agreement between two or more parties in which a promise is made to do or
provide something in return for a valuable benefit.
3. Damages – A monetary award in compensation for a financial loss, loss of or damage to personal
or real property, or an injury.
4. Intent – A resolve to perform an act for a specific purpose; a resolution to use a particular means
to a specific end.
5. Obligation – A promise or contract that is legally binding; the act of binding or obliging oneself,
as in a contract.
6. Personal Property – Any item that is moveable and not fixed to real property.
7. Real Property – Land and property attached or fixed directly to the land, including buildings and
structures.

28. 28
Capacity to Contract
One of the most essential elements of a valid contract is the competence of the parties to make a contract.
Section 11 of the Indian Contract Act, 1872, defines the capacity to contract of a person to be dependent
on three aspects; attaining the age of majority, being of sound mind, and not disqualified from entering
into a contract by any law that he is subject to. In this article, we will look at all aspects in a detailed
manner.
Capacity to Contract
According to Section 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 is not disqualified from contracting by
any law to which he is subject.”
So, we have three main aspects:
Attaining the age of majority
Being of sound mind
Not disqualified from entering into a contract by any law that he is subject to
1] Attaining the Age of Majority
According to the Indian Majority Act, 1875, the age of majority in India is defined as 18 years. For the
purpose of entering into a contract, even a day less than this age disqualifies the person from being a party
to the contract. Any person, domiciled in India, who has not attained the age of 18 years is termed as a
minor.
Let’s look at certain laws governing a minor’s agreement:
A Contract made with a Minor is Void
Since any person less than 18 years of age does not have the capacity to contract, any agreement made
with a minor is void ab-initio (from the beginning).
Peter is 17 years and 6 months old. He needs some money to go for a vacation with his friends. He
approached a moneylender and borrows Rs 25,000. As security, he signs some papers mortgaging his
laptop and motorcycle. Six months later, when he attains the age of majority, he files a suit declaring that
the mortgage executed by him when he was a minor is void and should be canceled. The Court agrees
and relieves Peter of all liability to repay the loan.
Also, if a minor enters into a contract, then he cannot ratify it even after he attains majority since the
contract is void ab-initio. And, a void agreement cannot be ratified.
A Minor can be a Beneficiary of a Contract
While a minor cannot enter a contract, he can be the beneficiary of one. Section 30 of the Indian
Partnership Act, 1932, also specifies that while a minor cannot become a partner in the partnership firm,
the benefits of the firm can be extended to him.
Peter lends some money to his neighbor, John and asks him to mortgage his house as security. John
agrees and the mortgage deed is made favoring Peter’s 10-year-old son – Oliver. John fails to repay the
loan and Peter, as the natural guardian of Oliver, files a suit against John to recover his money. The
Court holds the case since a minor an be a beneficiary of a contract.
A Minor is always given the Benefit of being a Minor
Even if a minor falsely represents himself as a major and takes a loan or enters into a contract, he can
plead minority. The rule of estoppel cannot be applied against a minor. He can plea his minority in
defense.
Contract by Guardian
Under certain circumstances, a guardian of a minor can enter into a valid contract on behalf of the minor.
Such a contract, which the guardian enters into, for the benefit of the minor, can also be enforced by the
minor.
However, guardians cannot bind a minor by a contract for buying immovable property. But, a contract
entered into by a certified guardian of a minor, appointed by the Court, with an approval from the Court
for the sale of a minor’s property can be enforced.

29. 29
Insolvency
A minor cannot be declared insolvent as he cannot avail debts. Also, if some dues are pending from the
properties of the minor and he is not personally liable for the same.
Joint contract by a Minor and an Adult
In case of a joint contract between an adult and a minor, executed by the guardian on behalf of the minor,
the liability of the contract falls on the adult.
2] Person of Sound Mind
According to Section 12 of the Indian Contract Act, 1872, for the purpose of entering into a contract, a
person is said to be of sound mind if he is capable of understanding the contract and being able to assess
its effects upon his interests.
It is important to note that a person who is usually of an unsound mind, but occasionally of a sound mind,
can enter a contract when he is of sound mind. No person can enter a contract when he is of unsound
mind, even if he is so temporarily. A contract made by a person of an unsound mind is void.
3] Disqualified Persons
Apart from minors and people with unsound minds, there are other people who cannot enter into a
contract. i.e. do not have the capacity to contract. The reasons for disqualification can include, political
status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien enemy,
convicts, insolvents, etc.
"Capacity of Parties" Business Law
Section 11
Competent to contract
Capacity to Contract Capacity means legal Competency of parties to enter into a contract.
1. Age of majority,
2. Sound Mind,
3. Not ‘disqualified by Law’. Business Law
Minors
Any person who has not attained the age of Majority is known as ‘Minor’. • An agreement with a
Minor is Void-ab-initio.
Unsound Mind •
Idiot – Any person whose Mental condition is not stable since birth, who cannot understand the Contract
or its Terms.
Lunatic – A person who behaves in a silly or dangerous way, a person suddenly acts/attacks violently.
These people are not allowed to make contract especially during the intervals of insanity. Rest of the time
they are perfectly fine to make a contract.
a) Drunken/Intoxicated
b) Hypnotised
Disqualified by Law •
Alien Enemy – he cannot enter into a contract with any indian national so long as the declaration is in
force.
Insolvents - Inability to pay one's debts/lack of means to pay one's debts.
a) Convicted
b) Artificial person (corporation/companies)
c) Married Women – she is an agent of her husband by necessity.
Rules by Judiciary as to Minors.
1. The law must protect the interest of minors.
2. The law should not cause Unnecessary hardship to the other party.
3. Enforcement is possible if minor is a Beneficiary/Promisee.
Provisions
1. Void-ab-initio: an agreement with minors is absolutely void.

30. 30
2. Minors can be promisee: if minor promises to someone and not perform then he has no such
obligation but if somebody promises to minor and not perform then a minor can enforce such agreement
in which he is beneficiary.
3. Insolvency: Minors neither can create agreement nor has personal liability so minor just can’t be
declared as insolvent.
4. Minor as a Joint Promisor: minor can be a Joint Promisor but not liable to perform his promise.
5. No ratification/approval: minor
6. Minor can plead minority: Minor enters into an agreement presenting himself major he is still not
bound to perform.
7. As a Partner: minor may not be a partner but he can be a partner of the firms only for benefits with
consent of all the partners.
8. As an agent: a minor himself cant appoint an agent because he is not competent. But yes minor is
appointed as an agent. Here he is personally not liable for any damage then his principal is liable.
9. As a shareholder/member: minor can be a shareholder with conditions:-
a) shares fully paid up
b) When AOA does not prohibits a minor
10. Contract by parents: yes possible on these conditions:-
a) On behalf of minor
b) Benefit of minor
c) Within the authority
d) Within the scope Business Law PPT: Sandeep Sharma
11. As a Guarantor: minor can’t be a surety in a contract of guarantee.
12. Restitution/Compensation possible: according to “specific relief act 1963” court may order a minor
to restore the benefits which he has.
13. No liability of Parents: Minor’s parents are not liable for agreements made by minor.
14. No specific performance: the court doesn’t order for specific performance to a minor.
Provisions relating to free consent
What is free consent in business law?
Free Consent. According to Section 13, " two or more persons are said to be in
consent when they agree upon the same thing in the same sense (Consensus-ad-idem).
According to Section 14, Consent is said to be free when it is not caused by coercion or undue
influence or fraud or misrepresentation or mistake
What is consent and free consent?
In the Indian Contract Act, the definition of Consent is given in Section 13, which
states that “it is when two or more persons agree upon the same thing and in the same sense”. ...
The section says that consent is considered free consent when it is not caused or effected by the
following, Coercion. Undue Influence. Fraud.
There have to be two parties to a contract, who willingly and knowingly enter into an
agreement. But how does the law determine if the parties are both these things? This is where the concept
of free consent comes in. Let us learn more about free consent and the elements vitiating free consent.
Free Consent
In the Indian Contract Act, the definition of Consent is given in Section 13, which
states that “it is when two or more persons agree upon the same thing and in the same sense”. So the two
people must agree to something in the same sense as well. Let’s say for example A agrees to sell his car
to B. A owns three cars and wants to sell the Maruti. B thinks he is buying his Honda. Here A and B have
not agreed upon the same thing in the same sense. Hence there is no consent and subsequently no
contract.

31. 31
Now Free Consent has been defined in Section 14 of the Act. The section says that consent is considered
free consent when it is not caused or effected by the following,
1. Coercion
2. Undue Influence
3. Fraud
4. Misrepresentation
5. Mistake
Elements Vitiating Free Consent
Let us take a look at these elements individually that impair with the free consent of either party.
Coercion (Section 15)
Coercion means using force to compel a person to enter into a contract. So force or threats are
used to obtain the consent of the party under coercion, i.e it is not free consent. Section 15 of the Act
describes coercion as
a) committing or threatening to commit any act forbidden by the law in the IPC
b) unlawfully detaining or threatening to detain any property with the intention of causing any
person to enter into a contract
For example, A threatens to hurt B if he does not sell his house to A for 5 lakh rupees. Here even if B
sells the house to A, it will not be a valid contract since B’s consent was obtained by coercion.
Now the effect of coercion is that it makes the contract voidable. This means the contract is voidable at
the option of the party whose consent was not free. So the aggravated party will decide whether to
perform the contract or to void the contract. So in the above example, if B still wishes, the contract can go
ahead.
Also, if any monies have been paid or goods delivered under coercion must be repaid or returned once the
contract is void. And the burden of proof proving coercion will be on the party who wants to avoid the
contract. So the aggravated party will have to prove the coercion, i.e. prove that his consent was not freely
given.
Undue Influence (Section 16)
Section 16 of the Act contains the definition of undue influence. It states that when the relations
between the two parties are such that one party is in a position to dominate the other party, and uses such
influence to obtain an unfair advantage of the other party it will be undue influence.
The section also further describes how the person can abuse his authority in the following two
ways,
When a person holds real or even apparent authority over the other person. Or if he is in a
fiduciary relationship with the other person
He makes a contract with a person whose mental capacity is affected by age, illness or distress.
The unsoundness of mind can be temporary or permanent
Say for example A sold his gold watch for only Rs 500/- to his teacher B after his teacher promised him
good grades. Here the consent of A (adult) is not freely given, he was under the influence of his teacher.

32. 32
Now undue influence to be evident the dominant party must have the objective to take advantage of the
other party. If influence is wielded to benefit the other party it will not be undue influence. But if consent
is not free due to undue influence, the contract becomes voidable at the option of the aggravated party.
And the burden of proof will be on the dominant party to prove the absence of influence.
Fraud (Section 17)
Fraud means deceit by one of the parties, i.e. when one of the parties deliberately makes false
statements. So the misrepresentation is done with full knowledge that it is not true, or recklessly without
checking for the trueness, this is said to be fraudulent. It absolutely impairs free consent.
So according to Section 17, a fraud is when a party convinces another to enter into an agreement by
making statements that are
a) suggesting a fact that is not true, and he does not believe it to be true
b) active concealment of facts
c) a promise made without any intention of performing it
d) any other such act fitted to deceive
Let us take a look at an example. A bought a horse from B. B claims the horse can be used
on the farm. Turns out the horse is lame and A cannot use him on his farm. Here B knowingly deceived A
and this will amount to fraud.
One factor to consider is that the aggravated party should suffer from some actual loss due to
the fraud. There is no fraud without damages. Also, the false statement must be a fact, not an opinion. In
the above example if B had said his horse is better than C’s this would be an opinion, not a fact. And it
would not amount to fraud.
Misrepresentation (Section 18)
Fraudulent misrepresentation means purposely lying about a transaction
Misrepresentation is also when a party makes a representation which is false, inaccurate,
incorrect etc. The difference here is the misrepresentation is innocent, i.e. not intentional. The party
making the statement believes it to be true. Misrepresentation can be of three types
a) A person makes a positive assertion believing it to be true
b) Any breach of duty gives the person committing it an advantage by misleading another. But the
breach of duty is without any intent to deceive
c) when one party causes the other party to make a mistake as to the subject matter of the contract.
But this is done innocently and not intentionally.
VOID AGREEMENT. Void agreements are those agreements which are not enforced by law courts. ...
All agreements are contracts if they are made with 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.

33. 33
VOID AGREEMENTS
Valid Contracts. (Sec. 10)•
Section 10 “ 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.
VOID AGREEMENTS•
i. Agreements by a Incompetent to Contract (Sec.11).•
ii. Mistake of Fact (Both Parties, Essential Fact) (Sec.20).•
iii. Where Object or Consideration is Unlawful (Sec.23).•
Iv. Where Object or Consideration is Unlawful in Part (Sec.24).•
v. Agreements made without consideration (Sec. 25).
Section 10 “ 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.
1. Agreements in Restraint of Marriage (Sec.26)•
2. Agreements in Restraint of a Trade (Sec.27)•
3. Agreements in Restraint of Legal Proceedings (Sec.28)•
4. Agreements, Meaning of which is Not Certain (Sec.29)•
5. Agreements By Way Wager (Sec.30)•
6. Agreements Contingent on Impossible Event (Sec.36)•
7. Agreements To Do an Impossible Act (Sec.56(1)).
Agreements in Restraint of Marriage (Sec.26)•
Sec.26 “Every agreement in restraint of the marriage of any person, other than minor, is void.”•
Difference between a positive promise to marry a particular person And but restrictive agreement
containing a promise not to marry anybody else.• Lowe v. Peers, (1768) : Mr. Peers promised Mrs.
Catherine Lowe, that he would not marry anyone other than Mrs. Lowe and promised further to pay, Mrs.
Lowe, 2000 pounds on default.
Agreements in Restraint of a Trade (Sec.27)•
Sec.27 “Every agreement by which anyone is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void.”

34. 34
Agreements in Restraint of a Trade (Sec.27)
EXCEPTIONS•
1) Sale of Goodwill: a seller of goodwill may be restrained from carrying on
a) (i)a similar business,
b) within specified local limits
c) so long as the buyer carries on a like business: provided
d) That such, limits appear to the Court reasonable regard being had to the nature of the
business.
Partners Agreement:
1) Amongst the Partners
2) Retiring Partner
3) On dissolution of Partnership
4) Sale of Good Will of Partnership
Trade Combination: An agreement the primary object of which is to regulate business and not to
restrain is valid.
Service Agreement:
Agreements in Restraint of Legal Proceedings (Sec.28)•
“Every agreement, by which any party there to is restricted absolutely from enforcing his rights under or
in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the
time within which he may thus enforce his rights, or which provides for forfeiture of any rights arising
from contract, if suit is not brought within a specified time, is void to the extent.
Baroda Spinning Co. Ltd V/s Satyanarayan Marine & Fire Insurance Co. Ltd.
This Sec. applies to only rights arising from contract. Not to cases of crime or tort.• Does not
affect the law relating to arbitration.• Does not affect an agreement “not to file an appeal”• Select one of
the two courts.