UNIT III

CAPACITY TO CONTRACT, FREE CONSENT AND LAWFUL OBJECT

3.1 CAPACITY TO CONTRACT

3.3.1 Introduction

Section 10 of the Indian Contract Act, 1872 specifically provides that an agreement
becomes a valid contract only if it is made for a lawful consideration and with a lawful
object. That means, both the consideration and the object of an agreement must be lawful so
as to make the agreement a valid contract. If either the consideration or the object of an
agreement is unlawful for one reason or the other, the agreement becomes void. For instance,
if the consideration of an agreement is lawful, but its object is unlawful the agreement is void.
So also,if the object of an agreement is lawful, but its consideration is unlawful, the
agreement becomes void.
It may be noted that the Indian Contract Act has provided that both the consideration and the
object of an agreement must be lawful to make an agreement a valid contract, because the
terms, 'consideration' and 'object' do not mean the same thing.

The parties who enter into a contact must have the capacity to contract. Section 10 of
the Indian Contract Act, 1872 lays down that an agreement becomes a contract only if it is
entered into between parties who are competent to contract. Contracts entered into by persons
who are not competent to contract are void. So, capacity of the parties to contract is an
essential element of a valid contract.

3.1.2 Meaning of capacity to contract

Capacity to contract means the competence or competency of the parties to enter into a valid
contract.

Section 11 of the Indian Contract Act, 1872, which deals with the capacity of the
parties to contract, provides that every person (a) who is of the age of major according to-the
law to which he is subject, (b) who is of sound mind and (c) who is not disqualified from
contracting by any law to which he is subject (i.e., who is not subject to legal
disqualifications) is competent to enter into contract.

3.1.3 Persons who are incompetent to contract

As per the provisions of Section 11 of the Indian Contract Act, 1872, the following persons
are incompetent to contract:

(1) Minors.

(2) Persons of unsound mind.

(3) Persons disqualified by any law to which they are subject.

3.1.3(1) MINORS

Meaning of a minor:

According to Section 3 of the Indian Majority Act, 1875, a minor is a person who is
not a major. Under the Indian Law, a person domiciled in India attains majority on
completing his 18year. However, if the superintendence (i.e., management) of a minor’s
property is assumed by a court of wards, or if a guardian of a minor's person or property is
appointed by a court of law, he attains majority only on his completing his 21 year.

LAW RELATING TO MINOR'S AGREEMENTS OR EFFECTS OF MINOR’S

AGREEMENTS

The law (i.e., the rules) relating to a minor's agreements may be summarized as follows:

1 Minor's agreements are void ab initio:

Section 11 of the Indian Contract Act, 1872 has clearly laid down that a minor is not
competent to contract. But the Indian Contract Act of 1872 has not made it clear whether a
contract entered into by a minor is void or voidable. Until 1903, the courts in India also were
not unanimous on this point. It was only in 1903 that the Privy Council, the famous case of
Mohori Bibi Vs. Dharmodas Ghose, made it perfectly clear that a minor was not competent
to contract, and an agreement entered into by a minor was void ab initio (i.e., right from the
very beginning).

In this case, a minor mortgaged his house in favour of a money lender for a loan of
Rs. 20,000. The money lender (i.e., the mortgagee) advanced to the minor a part of the loan
amount, viz Rs. 8,000. Subsequently, after he became a major', the minor filed a suit for
setting aside the mortgage. Pleading that he was a minor, when he executed the mortgage.
They money lender claimed t the refund of the money advanced, viz., Rs. 8,000. It was held
by the Privy Council that the contract (i.e., the mortgage) by a minor was void absolutely and
furtherthe minor could not be compelled to refund the benefit ([Link] money) already
received by him.

So, an agreement by a minor is void. It is not only void but is absolutely void. It is
considered to be nullity and non-existent right from the very beginning, and is, therefore,
devoid of any legal consequences.

Further, if the minor has received any benefit under a void agreement, say, if the minor has
received a loan by mortgage, he cannot be asked to repay that benefit.

An agreement by a minor is considered void, because a minor is supposed to be incapable of

judging what is good forhim.

2 Minor's agreements cannot be ratified by him on his attaining majority:

Since a minor's agreement is void ab initio (i.e., right from the very beginning), it
cannot be ratified by him later on his attaining majority. This is based on the principle that an
agreement which was void at the time when it was entered into cannot be made valid by
subsequent ratification, and consideration given during minority is no consideration. So, a
minor cannot ratify his agreement, even after attaining majority.

3 No question of specific performance of minor's agreement:

A minor's agreement is void abinitio (i.e., right from the very beginning), there can be
no question of specific performance of the minor's agreement.

4. No estoppels against a minor:

There can be no estoppel against a minor. In other words, a minor cannot be estopped
(i.e., prevented) from pleading minority as a defence to avoid a contract. He can always plead
minority. As such, even if. a minor has, by fraudulently misrepresenting his age, induced the
other party to enter into a contract with him, such a contract will be void and he (i.e., the
minor) cannot be made liable on the same. This view was, upheld in many cases. For
instance, in the case of Leslie Vs. Sheill, S, a minor, by fraudulently misrepresenting himself
to be a major, induced L to lend him £ 400. Afterwards, S refused to repay the loan.
Therefore, L sued S for the money. It was held by the court that the contract was void, and S
was not liable to repay the loan.

The reason for this rule (i.e., the rule that there can be no estoppel against a minor) is
that, if the aggrieved party were allowed to sue the minor for fraud, it would be giving him
(i.e., the aggrieved party) an indirect means of enforcing the void agreement against the
minor).

5. Restitution against a minor in certain cases:

Sections 64 and 65 of the Indian Contract Act, which deal with restitution, apply only
to contracts between competent parties. As such, ordinarily, there can be no restitution
against a minor, who is incompetent to contract. That is, ordinarily, a minor cannot be made
liable to repay any money received by him or to compensate for any benefit received by him
under a void agreement.

6. Contract of service by a minor is void:

Contract of service entered into by a minor is void. However, a contract of
apprenticeship by a minor is valid and binding on him, provided he is not less than 14 years
of age. So, a contract for apprenticeship is enforceable against a minor, if it is reasonable and
is for his benefit.

7. Enforceability of contracts by a minor:

No doubt, a minor is incompetent to contract. But the incapacity of a minor

to enter-into a contract merely means his incapacity to bind himself by a contract. It does not
incapacitate him from enforcing a contract in his favour. In other words, there is nothing
which debars a minor from enforcing a contract in which he is the beneficiary.

8. Contract entered into by a minor and an adult jointly:

 Where a minor and an adult jointly enter into a contract with another person, the
minor is not liable on the contract. But the contract as a whole can be enforced against the
adult.

9. Minor and negotiable instruments:

A minor can draw, make, endorse and deliver negotiable instruments so as to bind all
parties except himself. That means, he cannot be held liable to others on negotiable
instruments to which he becomes a party. But he can enforce the negotiable instruments in his
favour against others.

10. Minor's liability in torts:

A minor is liable for his tort (i.e., civil wrong like assault, conversion, (i.e., wrongful
use of another person’s property), trespass over an immovable property, negligence, etc.) A
minor is liable for his tort which is independent of the contract.

This view was upheld in the case of Burnard Vs. Haggis. In this case, A minor, who
was a Cambridge under-graduate, hired a horse for the purpose of going for a ride. He
expressly stated that he did not want a horse for jumping. He let the horse to a friend who
used it for jumping. As a result the horse was injured and ultimately died. So, a suit was filed
against the minor for damages under tort. The court held the minor liable for damages under
tort on the ground that the wrongful action of the minor resulting in the death of the horse
was one which was not contemplated by the contract. (i.e., independent of or outside the
contract), and when the wrongful action of the minor was outside the contract, the minor
could be held liable for damages under tort.

11. Contracts entered into by a minor do not bind his parents:

A minor's parents or guardians are not liable for the contracts entered into by the
minor, even if the contracts are for the supply of necessaries to the minor. However, if the
minor is acting as an agent of the parents or guardians, the parents or guardians are liable for
the minor's acts.

12. Minor's liability for necessaries of life supplied to him:

As per Section 68 of the Indian Contract Act, 1872, if a person supplies necessaries of
life or renders necessary services to a minor or his dependants (i.e., persons whom the minor
is legally bound to support) or lends money to a minor to buy necessaries of life or to obtain
necessary services for himself or his dependants, he is entitled to be reimbursed for the same
out of the minor's property. That means minor is liable for the necessaries of life supplied or
necessary services rendered to him or his dependants, and he is also liable for loans taken by
him to obtain necessaries of life or necessary services for himself or his dependants. This
point was upheld in many cases.
 The law has made the minor liable for necessaries of life or necessary services
supplied to him or his dependants intentionally, because if it were not so, it would be
impossible for a minor to procure necessaries of life or necessary services for his living. But
he is not personally liable for such necessaries. Only his property is liable for the same. That
means, if a minor has no property, the supplier of necessaries of life or necessary services to
the minor or the giver of loans to the minor for the procurement of necessaries of life or
necessary services has no remedy against the minor (i.e., has to lose his money).

13. Marriage contracts entered into by a minor are void:

Contract to marry in future entered into by a minor is void. Promise made with minor
to marry in the future, when he or she attain the age of majority. Such a contract is void
contract.
14. Minor as an agent:

Minor can be appointed as an agent of a principal. When a minor act as an agent of a

principal, all contracts entered into by the minor in the course of agency are binding on the
principal, and not on the minor.

In this context, it may be noted that, though the contracts entered into by a minor as
an agent of a principal are binding on the principal, the minor cannot be held personally liable
to the principal for his negligence or breach of duty. That means, in appointing a minor as an
agent, a principal runs a great risk.

15. Minor cannot be adjudicated as an insolvent:

A minor cannot be adjudicated (i.e., adjudged) as an insolvent. This is because he is

incapable of contracting any debts.

16. A minor cannot enter into a contract of partnership:

As a minor has no capacity to enter into a contract, he cannot enter into a contract of
partnership. In other words, a minor cannot become a partner of a firm.

However as per Section 30 of the Indian Partnership Act a minor can be admitted to
the benefits of partnership by an agreement executed through his guardian with the other
partners.

17. Minor as a shareholder:

Since the membership of a joint stock company arises on the basis of a contract, a
minor being incompetent to contract cannot apply for the sharesof a company and be a
shareholder or member of a company.

In case a minor has been registered in the register of the company as a member by mistake
the company can rescind the transaction and remove his name from the register of members.
The minor also can repudiate the transaction and get his name removed from the register.

3.1.3 (2) PERSONS OF UNSOUND MIND

Meaning of persons of unsound mind

Section 12 of the Indian Contract Act, 1872 deals with the question as to what a sound
mind is far the purpose of entering into a contract. It lays down as follows: "A person is said
to be of sound mind for the purpose of making a contract, if at the time when he makes it, he
is capable of understanding it and of forming a rational judgment as to its effect upon his
interests".

From this, it is clear that aperson is said to be of unsound mind, if at the time when he
makes a contract, he is incapable of understanding the terms of a contract and forming a
rational judgment as to its effects upon his interests.

Tests of soundness of mind of a person:

There are two tests of soundness of mind of a person. They are:

(a) Capacity to understand the terms of the contract.

(b) Ability to form a rational judgement as to its effect upon his interests.

Causes of unsoundness of mind:

Unsoundness of mind arises from lunacy, idiocy, drunkenness or other factors such as
hypnotism (causing temporary unsoundness of mind) and mental decay brought about by old
age or disease).

Persons of unsound mind:

Lunatics and idiots are regarded as persons of unsound mind. Drunken persons also
are regarded as persons of unsound mind.

Burden of proof of unsoundness of mind:

Whether a party to a contract is of sound mind or of unsound mind is a question of

fact to be decided by the court. However, there is a presumption in favour of soundness of
mind. So, if a person relies on unsoundness of mind to set aside a contract, he must prove it
sufficiently to the satisfaction of the court.

Capacity of persons of unsound mind to enter into contracts:

A person who is usually of unsound mind. But occasionally of sound mind may make
contracts when he is of sound mind. A person who is usually of sound mind but occasionally
of unsound mind may make contracts when he is of sound mind. A person who is usually of
sound mind but occasionally of unsound mind cannot make contracts when he is of unsound
mind.

A person who is usually of unsound mind but occasionally of sound mind cannot
make contracts when he is of unsound mind.

Rules governing agreements entered into by persons of unsound mind:

The rules governing the agreements entered into by the various persons of unsound mind are
as follows:

3.1.3.(3) LUNATICS
Meaning of a lunatic:

A lunatic is a person who is mentally deranged due to some mental strain or other
personal experience. A lunatic suffers from intermittent intervals of sanity and insanity.

Rules relating to agreements entered into by a lunatic:

The rules governing agreements entered into by a lunatic are:

1. Contracts entered into during the period of sanity are valid, and contracts entered into
during the period of insanity are void.

2. A lunatic can enter into contracts during the period when he is sane, and contracts entered
into by him during the period of sanity are quite valid and are binding on him. On the other
hand, contracts entered into by a lunatic during the period of insanity are void.

3. A lunatic must prove the fact of lunacy to get a contract entered into by him set aside as
void.

There is a presumption in favour of sanity. As such, a person who wants to get a contract
entered into by him set aside on the ground of insanity must prove it sufficiently to the
satisfaction of the court.

4. Lunatic's liability for necessaries of life supplied to him or his dependants

No doubt, agreements entered into by a lunatic during the period of lunacy are void.
and are not binding on him. However, a lunatic is liable for necessaries of life supplied to him
or his dependants during the period of his insanity.

In this context, it may be noted that though a lunatic is liable for necessaries of life
supplied to him or his dependants during the period of his lunacy, he is not personally liable
for the necessaries of life supplied. Only his estate is liable for the necessaries supplied.

5. Contracts entered into by a lunatic's guardian on his behalf

The lawful guardian of a lunatic can bind the estate of the lunatic by contracts entered
on his behalf. In other words when contracts are entered into by the lawful guardian of a
lunatic on his behalf the estate or property of the lunatic is liable for such contracts.

3.1.3. (4) IDIOTS

Meaning of idiots:
An idiot is a person who has completely lost his mental powers.
 He does not exhibit understanding of even ordinary matters. Idiocy is a congenital
defect caused by lack of development of the brain. Idiocy is a permanent thing. It is
incurable.

Law relating to idiots:

1. Agreements entered into by an idiot are void:

An idiot is permanently incapable of entering into contracts. So, agreements entered

into by an idiot are absolutely void.

2. Idiot is liable for necessaries of life supplied:

No doubt, agreements entered into by an idiot are absolutely void and cannot be
enforced against him. But he is liable for necessaries of life supplied to him or his
dependants. It is true that an idiot is liable for necessaries supplied to him or his dependants.
But he is not personally liable for such necessaries. Only his estate or property is liable for
such necessaries. That means, if he does not have sufficient estate or property to pay for such
necessaries, the suppliers of such necessaries have to lose the amount.

Differences between lunacy and idiocy:

There are some differences between lunacy and idiocy. They are

1. Lunacy is temporary, whereas idiocy is permanent.

2. Lunacy is curable. But idiocy is incurable.

2. Lunacy is curable. But idiocy is incurable.

3. Lunacy is a disease of the brain, whereas idiocy is the lack of development of brain.
4. Contracts entered into by a lunatic during the period of sanity is valid. A contract by an
idiot is void.

3.1.3 (5) DRUNKEN PERSONS

Meaning of drunken person:

A drunken person is one who is under the influence of liquor.

A drunken person suffers from temporary incapacity to contract, i.e., he suffers from
incapacity to contract at the time when he is so drunk that he is incapable of understanding
the terms & conditions of the contract and is incapable of making a rational judgement as to
its effect on his own interests.

Law relating to contracts entered into by a drunken person:

The rules relating to contracts entered into by a drunken person are:

1. Contracts entered into by a drunken person during the period of drunkenness are void and
contracts entered into by him after his recovery from the effect of liquor are valid:

A drunken person suffers from only temporary incapacity to contract. He can enter
into contracts after his recovery from the effect of liquor. As such, contracts entered into by a
drunken person during the period of drunkenness are void, and contracts entered into by him
after his recovery from the effect of liquor are quite valid.

In this context, it may be noted that, it is true that contracts entered into by a drunken
person during the period of drunkenness are void. But such contracts are void only if the
drunkard is so drunken that he becomes incapable of understanding the terms of the contract
and forming a rational judgement as to it effect on his interests.

Another point to be noted is that, if a drunken person desires to get the contracts
entered into by him set aside on the ground of drunkenness, the burden of proof lies on him.
This is because, normally, a person is considered to be sober and is of sound mind.

2. A drunken person is liable for necessaries of life supplied:

A drunken person is liable for necessaries of life supplied to him or his dependents
during the period of his drunkenness. It is true that a drunken person is liable for necessaries
of life supplied to him or his dependents during the period of his drunkenness. But he is not
personally liable for such necessaries. Only his estate or property is liable for such
necessaries. That means, if he does not have sufficient estate or property to pay for such
necessaries, the supplier of necessaries has to lose the amount.

3.1.3 (6) DISQUALIFIED PERSONS

Disqualified persons refer to persons who are disqualified from contracting by any
law in force in the country. Such persons are

(a) Alien Enemies.

(b) Convicts.

(c) Insolvents or Bankrupts.

Alien enemies

Meaning of alien, alien friend and alien enemy:

An alien is a citizen of a foreign country living in [Link] alien living in India may
be an alien friend or an alienenemy. He is regarded as an alien friend if his country is at
peacewith India. On the other hand, he becomes an alien enemy, if awar breaks out between
his 'country and India.

Convicts
A convict is a person who has been found guilty and sentenced (i.e., imprisoned) by a court
of law.
Insolvent

A person is called insolvent when he is unable to meet his financial obligations or debts and
will be declared as insolvent by the competent courts.

3.2 FREE CONSENT

3.2.1 Introduction
Section 10 of the Indian Contract Act, 1872 lays down that an agreement is a contract,
if it is made up by the free consent of the parties to the agreement. That means, free consent
of the parties to an agreement is an essential element of a valid contract: For the
enforceability of an agreement, it is not only, necessary that the parties to the agreement
should have given their consent, but their consent should also be free.

3.2.2 Definition and Meaning of Consent

Section 13 of the Indian Contract Act defines consent as "two or more persons are
said to consent when they agree upon the same thing in the same sense". That is, the
contracting parties must agree upon the same thing in the same sense at the same time. If, for
whatever reason, there is no consensus ad idem between the contracting parties, there is no
real consent and so, there cannot be any valid contract.

3.2.3 Definitions and Meaning of Free Consent

The consent of the contracting parties maybe free or unfree. It is the free consent that
is necessary for the validity of a contract. So, it is necessary to know the meaning of 'free
consent'.
Free consent is the consent which is given by the free will of the parties of their own accord.

3.2.4. According to Section 14 of the Indian Contract Act, consent is said to be free,
when it is not caused by:
(1) Coercion, as defined in Section 15 of the Indian Contract Act, or
(2) Undue influence, as defined in Section 16 of the Indian Contract Act, or
(3) Fraud, as defined in Section 17 of the Indian Contract Act, or
(4) Misrepresentation, as defined in Section 18 of the Indian Contract Act, or
(5) Mistake, subject to the provisions of Sections 20, 21, and 22 of the Indian Contract Act.
If the consent of a party is vitiated by any of the above causes, the consent is said to be not
free.

3.2.4(1) COERCION

Definition and meaning of coercion

Section 15 of the Indian Contract Act defines coercion as "the committing or
threatening to commit any act forbidden by the Indian Penal Code, or the unlawful detaining
or threatening to detain any property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement."
According to this definition, coercion means the committing or threatening to commit
any act forbidden by the Indian Penal Code, or the unlawful detaining or threatening to detain
any property, with the intention of obtaining the consent of any person to an agreement.

ESSENTIAL ELEMENTS OR FEATURES OF COERCION:

The essential elements or features of coercion are:
Coercion includes threat, physical compulsion and menace (i.e., injury) to property. The
threat or act constituting coercion must amount to an offence punishable under the Indian
Penal Code. Threat to shoot, threat to cause hurt, rape, intimidation, defamation, giving
wrong evidence, instigating to commit crime, theft, attempt to commit suicide, etc. are some
of the examples of acts forbidden under the Indian Penal Code. Any act which is not
punishable under the Indian Penal Code, say, a threat to charge high prices for the goods, a
threat to charge high rate of interest on the amount due, a threat to prosecute or a threat to file
a suit will not amount to coercion, as these threats are not offences punishable under the
Indian Penal Code. The act amounting to coercion must be committed with the intention of
causing any person to give his consent to the agreement.
It is not necessary that the act amounting to coercion must be committed by a party to
the contract. It may proceed from (i.e., it may be committed by) any party, even from a
stranger to the contract. It is not necessary that the threat or act amounting to coercion must
be directed against the other contracting party. It may be directed against any person, even
against a third person.
Examples of Coercion:
The following are some of the examples of coercion:
1. After giving a good beating to B, A makes B to agree to sign a promissory note for Rs.
1,000 in his (i.e., A's) favour. Here, the agreement between A and, B is brought about by
coercion.
2. A threatens to shoot B, if B does not let out his house to him (i.e., to A), and B agrees to do
so under the fear of assault. In this case, the agreement between A and B has been brought
about by coercion.

Certain Special Cases:

In the context of examples of coercion, it is better to consider certain special cases and
see whether they amount to coercion or not.
1. Does a threat to prosecute a man or to file-a civil or criminal suit against a man
amount to coercion?
A threat to prosecute a man or to file a civil or criminal suit against a man does not amount to
coercion, as it is not forbidden by the Indian Penal Code.
But a threat to file a suit against a man on false charge amounts to coercion, because such an
act is forbidden by the Indian Penal Code.

2. Does a threat to charge high prices amount to coercion?

A threat to charge high prices does not amount to coercion, because such an act is not
forbidden by the Indian Penal Code.

3. Does a threat to charge high rate of interest amount to coercion?

A threat to charge high rate of interest on the amount due does not amount to coercion,
because it is not forbidden by the Indian Penal Code.

4. Does a threat to commit suicide amount to coercion?

Sometimes, the consent of the party to an agreement may be obtained by a threat to commit
suicide. So, a question arises whether a threat to commit suicide amounts to coercion or not.
In India, neither suicide nor a threat to commit suicide is punishable under the Indian Penal
Code. Only an attempt to commit suicide or an abetment to suicide is punishable under the
Indian Penal Code. So, strictly speaking, a threat to commit suicide, which is not punishable
under the Indian Penal Code, cannot be said to be forbidden by the Indian Penal Code. As the
threat to commit suicide cannot be said to be forbidden by the Indian Penal Code, the threat
to commit suicide cannot be said to be an act amounting to coercion.
However, in the case of ChikkamAmmirajuVs. ChikkamSheshamma, the majority of the
judges of the Bench of the Madras High Court, which heard the case, held that a threat to
commit suicide amounted to coercion.
To conclude in India, a threat to commit suicide amounts to coercion.

Effect of Coercion:
As per Section 19 of the Indian Contract Act when the consent of a party to an agreement is
obtained by coercion the consent of the party cannot be regarded as free. So, in such a case
(i.e. when the consent of a party to a contract has been obtained by coercion), the contract
becomes voidable at the option of the party whose consent is so obtained. That means, the
aggrieved party can set aside the contract or refuse to perform his part of obligation on the
contract taking the defence of coercion or can abide by the contract and insist on its
performance by the other party. In short when the consent of a party to a contract is obtained
by coercion, the contract becomes voidable at the option of the aggrieved party (i.e., the party
whose consent has been obtained by coercion).
This view has been confirmed in many cases.
For instance, in the case of Ranganayakamma Vs. Alwar Setti, a gentleman died, leaving a
young widow of 13 years. The young widow was made to agree to adopt a boy by her
husband's relatives who threatened her that they would not allow the dead body of her
husband to be removed for cremation until she consented to the adoption of the boy. The
young widow adopted the boy. Subsequently she applied to the court for the cancellation of
the adoption taking the defence that her consent for the adoption of the boy was given under-
coercion. It was held by the court that her consent for the adoption was obtained by coercion,
and so the contract was avoidable at her option.
As per Section 64 of the Indian Contract Act, 1872 if the aggrieved party opts to rescind or
avoid a voidable contract on the ground of coercion, he must restore (i.e., return) the benefit,
if any, received by him under the contract to the other party (i.e., the guilty party).
3.2.4(2) UNDUE INFLUENCE

Definition and meaning of undue influence

Section 16(1) of the Indian Contract Act, 1872 defines undue influence as "an
influence exercised by one party on the other where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and
uses that position to obtain an unfair advantage over the other."

Circumstances in which undue influence is presumed by law

As per Section 16(2) of the Indian Contract Act, 1872, the law presumes a person to be in a
position to dominate the will of the other,
(a) Where he holds a real or apparent authority over the other. Example: where there is the
relationship of master and servant, police officer and accused, etc.
(b) Where he stands in a fiduciary position to the other.
Fiduciary relation means a relation of mutual trust and confidence. Such a relation is
supposed to exist in the relationship between a father and a son, solicitor and client, doctor
and patient, trustee and beneficiary, spiritual or religious adviser and disciple, etc.
(c) Where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of old age or illness, etc., e.g., when there is a contract
between a medical attendant and a patient.
As per the provision of Section 16(2) of the Indian Contract Act, undue influence is
presumed by law in the following relationships, circumstances or cases:
(a) Father and son,
(b) Guardian and ward.
(c) Master and servant.
(d) Doctor and patient.
(e) Solicitor (i.e., advocate) and client.
(f) Trustee and beneficiary.
(g) Promoter and company.
(h) Teacher and student.
(i) Religious or spiritual adviser and disciple.
(j) Police officer and accused.
(k) Income-tax officer and assesses.
(1) Finance and fiancée.
(m) Husband and an illiterate wife.
(n) Pardanashan woman and any other contracting party.
(0) Illiterate lady and any other contracting party.
(It may be noted that in these cases, as the law presumes undue influence, the party seeking to
set aside the contract on the ground of undue influence need not prove undue influence.)

However, the law does not presume any undue influence in the following relations,
circumstances or cases:
(a) Husband and wife (Except in the case of a husband and an illiterate wife, generally, there
is no presumption of undue influence in the case of relationship between husband and wife).
(b) Mother and daughter.
(c) Grandfather and grandson.
(d) Creditor and debtor.
(e) Principal and agent.
(f) Landlord and tenant.
(In these cases, as the law does not presume undue influence, undue influence has to be
proved by the party who wants to avoid the contract on the ground of undue influence.)

Examples of Undue Influence:

Some of the examples of undue influence are:
1. An illiterate elderly woman made a gift deed of her entire property to her nephew who
managed her affairs. It was held that there was undue influence employed by the nephew over
the illiterate elderly woman, and so, the gift deed was not valid.
2. A Hindu lady made a gift of her entire property to her spiritual adviser (i.e., guru) to secure
the benefits for her soul in the next world. It was held that the gift deed was caused by undue
influence, and hence, voidable. (Mannu Singh Vs. Umadat)

3. Man Bhari was a young man addicted to smoking. Sri Ram was his guru. ManBhari sold to
Sri Ram, his guru, property worth Rs. 1,380 for just Rs. 70. The sale was set aside on the
ground of undue influence. (Man Bhari Vs. Sri Ram)

4. A lady, who was ill, gifted all her property worth Rs. 7,000 to P, a doctor, who was
attending on her. The lady disputed the gift deed as soon as she recovered from illness. P
filed a suit for retaining the possession of the gifted property. P's suit for the possession of the
property was set aside by the court on the ground of undue influence. (Sundar Kumari Vs.
Kishore).

Effect of Undue Influence

According to Section 19A of the Indian Contract Act, 1872, a contract procured by
undue influence is voidable at the option of the party whose consent was obtained by undue
influence. That means, the aggrieved party may rescind or avoid the contract, taking the
defence of undue influence, or if he so desires, may treat the contract as binding and enforce
it against the other party.

Differences between Coercion and Undue Influence:

There are a number of differences between coercion and undue influence. They are:
1. In coercion, the consent of the aggrieved party is obtained by committing or threatening to
commit an act forbidden by law or detaining or threatening to detain the property unlawfully.
On the other hand, in the case of undue influence, the consent of the aggrieved party is
obtained from the domination of the will of one party over the other.
2. Coercion is mainly of physical character, involving mostly the use of physical force. But
undue influence is of moral character, involving mostly the use of moral force or mental
pressure.

3. In the case of coercion, the threat may be directed against the person or the property of a
man, whereas, in the case of undue influence the threat is against the person, and not against
the property of the man.

4. In the case of coercion, there may be no relationship between the contracting parties,
whereas, in the case of undue influence, there is some sort of relationship between the
contracting parties.

5. In the case of coercion, the consent of the aggrieved party is obtained under the threat of an
offence. But in the case of undue influence, the consent of the aggrieved party is obtained
without any threat of an offence.

6. Coercion may be committed outside India, i.e., anywhere in the world. But undue influence
should have been committed in India, if it is to be taken notice of by Indian Law.
7. Coercion may be directed against the other contracting party or against a third party. But
undue influence is genera1ly, directed against the other contracting party.

8. Coercion may proceed either from a third party or from the other contracting party. But
undue influence is generally exercised by the other contracting party.

9. There is no presumption of coercion by law under any circumstances. So, the aggrieved
party has to prove that coercion had been committed. But in the case of undue influence there
is the presumption of undue influence by law in certain relations, circumstances or cases, and
in such cases, the aggrieved party need not prove that undue influence had been employed on
him.

10. In the case of coercion, there is criminal liability (i.e., the party exercising coercion
exposes himself to criminal liability) besides an action on the contract. On the other hand, in
the case of undue influence there is no criminal liability.

11. In the case of coercion, the aggrieved party can not only set aside the contract but also
claim compensation. But in the case of undue influence, there is no liability on the guilty to
pay compensation to the aggrieved party.

3.2.4(3) MISREPRESENTATIONS
Introduction
Misrepresentation is a statement of fact, relating to some matter essential to the
formation of the contract, made by one party to the other, either before or at the time of the,
contract, with an intention to induce the other party to enter into a contract. It may be
expressed by words, written or spoken, or implied from the act or conduct of the parties.
A representation may be made by a party either correctly or wrongly.

If a representation is made by a party wrongly, it is called misrepresentation.

A misrepresentation may be made by a party either innocently or willfully. So, in a broad

sense, misrepresentation comprises both innocent misrepresentation (i.e., a misrepresentation
made by a party innocently without an intention to deceive the other party) and willful
misrepresentation (i.e., a misrepresentation made willfully or deliberately with an intention to
deceive the other party). But, in law, only an innocent or unintentional misrepresentation is
called misrepresentation,and a misrepresentation made willfully, deliberately or intentionally
is called fraud or fraudulent misrepresentation.

Meaning of Misrepresentation
In ordinary sense misrepresentation refers to a false statement made by a party without any
intention of deceiving the other party. But, in a legal sense, it includes not only the false
statement of a material fact made by a party honestly, believing it to be true or not knowing it
to be false, but also the non-disclosure of a material fact, where there is a legal duty to
disclose, without any intention of deceiving the other party.
According to Section 18 of the Indian Contract Act. 1872, misrepresentation means and
includes:

(a) The positive assertion, in a manner not warranted by the information of the person making
it, of a material fact which is not true, though he believes it to be true.
(b) Any breach of duty, without any intent to deceive, which brings an advantage to the
person committing it or anyone claiming under him and misleads another to his prejudice or
to the prejudice of anyone claiming under him.
(c) Causing, however innocently, a party to an agreement to make a mistake as to the
substance of the thing, which is the subject-matter of the agreement.

Cases in which misrepresentation is presumed by law:

According to Section 18 of the Indian Contract Act, 1872, misrepresentation is presumed in
the following three cases:

1. Positive assertion of a material fact in a manner not warranted by the information of the
person making it
When a person, without any reasonable basis, makes an absolute and explicit,
statement of a material fact, which is not true, though he believes it to be true, there is
misrepresentation.
Example 1.
A learns from B that C will become the director of X Company and induces D to purchase the
shares in the Company. D purchases the shares on such representation by A. Here, there is
misrepresentation by A, as he did not get the information, which conveyed to D, from C.
Example 2.
X says to Y that his land produces 15 quintals of wheat per acre, and thereby, induces Y to
purchase the land. Y believes X's statement to be true, although he did not have any sufficient
ground for belief. Later, it was found by Y that the land would produce only 10 quintals of
wheat per acre. Here there is misrepresentation.

2. Breach of duty, without an intent to deceive, which brings an advantage to the party
committing it and misleads the other party to his prejudice
Where a person commits a breach of duty (i.e., where a person is under a duty to
disclose certain material fact, but does not do so), and, on account of which, he gains
something, while the other party loses, there is misrepresentation.

Example
In a case X, before signing a contract with Y for the sale of his business, correctly stated that
the monthly sales of his business were Rs. 40.000. But the negotiations for sale lasted for five
months. During the period of negotiations, the monthly sales declined to Rs. 4,000. X
unintentionally, kept quiet (i.e., did not disclose this fact to Y). It was held there was breach
of duty, and hence, misrepresentation.

3. Causing the other party to an agreement to make a mistake as to the substance of a

thing, which is the subject-matter of the contract, innocently
If a party to a contract causes the other contracting party, though innocently, to
commit a mistake as to the substance of a thing, which is the subject-matter of the contract
(say, as to the quality or nature of the thing bargained), there is misrepresentation.

Example.
In a contract of sale of 400 bags of wheat, the seller made a representation that no sulphur
had been used in the cultivation of wheat. But sulphur had been actually used in 5 out of 200
acres. (The buyer would not have purchased the wheat, if he had known that sulphur had been
used in the cultivation of wheat.) It was held that there was misrepresentation.

Effect of Misrepresentation
As per Section 19 of the Indian Contract Act, 1872, a contract which is -vitiated by
misrepresentation is voidable at the option of the aggrieved party.

3.2.4(4) FRAUD

Definition and Meaning of Fraud

Lord Herschellde fined fraud in the case of Derry Vs. Peek as "a false statement made
knowingly, or without belief in its truth, or recklessly, careless whether it be true or false.'

In the case of DerryVs. Peek,a company's prospectus contained a representation that the
company had been authorized by a Special Act of Parliament to run trams by steam or
mechanical power. The authority to use steam was, however, subject to the approval of the
Board of Trade. This' fact was not mentioned in the prospectus. The Board of Trade refused
consent. Consequently, the company was wound up. The plaintiff, who had bought some
shares of the company, sued the directors for fraud. It was held by the court that the directors
were not liable.
The directors were not guilty of fraud, as they honestly believed that once the
Parliament had authorized the use of steam, the consent of the Board of Trade was practically
concluded. The judgment in this case upholds the view that a person making a false
representation is not guilty of fraud, if he honestly believes in its truth. Only intentional
misrepresentation is fraud.

According to Section 17 of the Indian Contract Act, 1872, fraud means it includes any
of the following acts committed by a party to a contract, or with his connivance; or by his
agent, with intent to deceive another party thereto or his agent or induces him to enter into a
contract:
(a) The suggestion as to a fact, of that which is not true, by one who does not believe it to be
true.
(b) The active concealment of a fact by one having knowledge or belief of the fact.
(c) A promise made without any intention of performing it.
(d) Any other act fitted to deceive.
(c) Any such act or omission as the law specially declares to be fraudulent.

From these definitions, it is clear that fraud means willful or deliberate

misrepresentation (i.e., making of a false statement knowing it to be false), active
concealment of a fact (i.e., suppression of that which is true and which it is his duty to
disclose)or any promise made without any intention of performing it, any other act done or
made by a party to a contract or by anyone with his connivance or by his agent to induce the
other party to enter into a contract or to deceive the other contracting party and any act or
omission specially declared to be fraudulent by law. In short, fraud includes all acts
committed by a party to a contract or by anyone with his connivance or by his agent to induce
the other party to enter into a contract or to deceive the other party.

Essentials of Fraud
The essentials or essential elements of fraud are:
1. The fraud must have been committed by a party to the contract or by anyone with his
connivance or by his agent.
Fraud committed by a stranger to a contract does not affect the validity of the contract. Let us
consider this essential with an example. The directors of a company issued a prospectus
containing willful misrepresentation, and on the faith of which, A agreed to buy some shares
from the company. In this case, there is fraud, as the fraud or willful misrepresentation has
been made by the directors, who are deemed to be the agents of the company. So, A can
avoid the contract on the ground of fraud.

1. There must be anyone of the following ingredients or things in the act of fraud
 (a) Suggestiofalsi, i.e., a false representation or statement made with the knowledge of its
falsehood or without belief in its truth, or a false statement made recklessly without
caring whether it is true or false.
It may be noted that if astatement made in the honest belief that it is true turns out to
be false, it will not amount to fraud.

(b) Suppressiofacti, i.e., an active concealment or suppression of a material fact by one

having knowledge of or belief in, the fact.

Example 1 A, a horse dealer, sold a mare to B. A knew that the mare had a cracked hoof
which he filled up in such a way that it could not be discovered easily. The defect in the mare
was, however, subsequently discovered by B. Here, A's act amounted to fraud.

Example 2.
If a furniture dealer covers the cracks in the furniture and paints it in such a way that the
cracks cannot be discovered easily, his act amounts to fraud.
In this context, it may be noted that mere silence as to a fact is not fraud, when there is no
duty to disclose the same.

Example. A, a seller, sells some goods which were defective. He keeps silence, i.e., he does
not disclose the defects. B buys the goods without examining them. There is no fraud in this
case, because A is under no obligation to disclose the defects, and the general rule in the case
of sale of goods is "let the buyer beware".

(c) A promise made without any intention of performing it.

For example: if a person orders and obtains the possession of certain goods without any
intention of paying for them, there is fraud on his part. Similarly, if an insolvent borrows
money from a lender without any intention of repaying it, there is a case of fraud on the part
of the borrower.
So also, if a man, without having any intention) to regard the marriage as a real marriage,
goes through the marriage ceremony, his act amounts to fraud. (Shiteen Mai Vs,John J.
Taylor).
(d)Any other act fitted to deceive, i.e. any act which is used to cheat a person.

3. The act to fraud must have been committed by a party with, a view to induce the other
party to enter into the contract or to deceive him.
The other party must have acted upon that fraud, i.e., the act of fraud must have been
instrumental in inducing the other party to enter into the contract.

4. The other party must have been actually deceived by the act of fraud.
An act of fraud which does not deceive the other party is no fraud.

5. The other contracting party, who has been deceived by the act of fraud, must have
suffered some loss or damage.
It is a common saying that there is no fraud without damage. That means, unless the other
contracting party has sustained some loss, damage or injury, there is no ground for action for
fraud.

Consequences or Effects of Fraud

As per Section 19 of the Indian Contract Act, a contract induced by fraud is voidable
at the option of the defrauded. Of course, until it is avoided by the aggrieved party, the
contract is perfectly valid.
Besides the right to rescind or avoid the contract, the aggrieved party has also some other
remedies.
To be specific, a party defrauded has the following remedies open to him:

1. Under Section 19 of the Indian Contract Act, he can rescind or avoid the contract, i.e., he
can avoid the performance of the contract. But he has to act within a reasonable time, i.e., he
must rescind the contract without undue delay.

2. Under section 19 of the Indian Contract Act, he can insist that the contract should be
performed and that he should be put in the position in which he would have been, if the
representation made had been true.

[Link] can also sue for damages. As fraud is a civil wrong or tort, resulting in payment of
compensation, he can claim damages from the party who has practiced fraud. For instance, if
a party was fraudulently induced to buy an unsound horse, and if he had suffered injury
because of the unsoundness of the horse, he can claim damages or compensation from the
seller of the horse fop the injury caused to him. Similarly, if a person was fraudulently.
Differences between Misrepresentation and Fraud
There are some differences between misrepresentation and fraud. They are:

1. Intention
In the case of misrepresentation there is no intention to deceive the other party. Where as in
the case of fraud there is a clear intention to deceive the other party.

2. Nature
While misrepresentation is innocent fraud is willful or deliberate.

3. Belief
In the case of misrepresentation, the person making the representation believes it to be true.
But in the case of fraud the person making the representation does not believe it to be true.

4. Rescission and Damage

In the case of misrepresentation, the aggrieved party can either rescind (i.e., avoid) the
contract or can insist on its performance.
He cannot sue for damages ordinarily. On the other hand, in the case of fraud the aggrieved
party can not only rescind the contract but can also sue for damages.
5. Rescission of the contract when the means of discovering the truth are available
In the case of misrepresentation, the aggrieved party cannot, avoid the contract, if he
had the means of discovering the truth with ordinary diligence. But in all cases of fraud
except fraud by silence the aggrieved party can avoid the contract, even if he had the means
of discovering the truth with ordinary diligence.

3.2.4(5) MISTAKES

Meaning of Mistake
Mistake may be defined as an erroneous belief concerning, something. It is an error
committed while entering into an agreement. Salmond defined it as “an error in consensus”.

Effect of Mistake
An agreement becomes a valid contract only when there is consensus ad idem or
perfect identity of minds, i.e., only when there is real and free consent. Consent cannot be
said to be real and free when an agreement is entered into under a mistake. That means, if the
consent of the parties to an agreement is obtained under a mistake, there is no real and free
consent, and as such, the agreement cannot become a valid contract. It will be void.

Kinds of Mistake:
Mistake is of two kinds. They are:
1. Mistake of Law.
2. Mistake of Fact.
Mistake of Law

Mistake of law is of three types. They are:

1. Mistake of general law of the country
2. Mistake of foreign law
3. Mistake of private rights

1. Mistake of General Law of the Country

Every citizen of a country is deemed to be conversant with the general or ordinary law
of the country. Ignorantia juris non excusat, i.e., ignorance of law is not an excuse. As such, a
party to a contract is not allowed to avoid the contract on the ground that he had done the act
in ignorance of the law of the country. Section 21 of the Indian Contract Act also clearly
provides that "a contract is not voidable because it was caused by a mistake as to any law in
force in India".

2. Mistake of Foreign Law

Though ignorance of the law of the country is not excusable, ignorance of foreign law
is excused, as an individual is not expected to know foreign law.
Mistake of foreign law is treated as a mistake of fact, and so, an agreement based on the
mistake of foreign law is considered void. It may be noted that an agreement based on the
mistake of foreign law becomes void, only when there is a bilateral mistake (i.e., only when
both the parties to the agreement are under mistake).

3. Mistake of Private Rights

Mistake of private rights of a party relating to property is treated as a mistake of fact,
and so, an agreement based on the mistake of private rights is considered void. Let us
consider this point with an example. P took a lease of fishery from C. Both the parties were
unaware of the fact that the fishery already belonged to P. P came to know subsequently that
he himself was the owner of the fishery. He, therefore, filed a suit to avoid the contract. The
suit was decided in favour of p, (Cooper Vs. Phibbs).It may be noted that an agreement based
on the mistake of private rights becomes void, only when there is a bilateral mistake.

Mistake of Fact
Mistake of fact is of two types. They are:
1. Bilateral mistake
2. Unilateral mistake

1. Bilateral mistake
Meaning of Bilateral Mistake
When both the parties to an agreement misunderstand each other, there is said to be
bilateral mistake or mutual mistake. In other words, when each party to an agreement
understands. it in a different way, there is said to be bilateral mistake. In short, when both the
parties to an agreement commit mistake, there is said to be bilateral mistake.

Consequence or Effect of Bilateral Mistake

When there is a bilateral mistake of essential fact, the agreement is void ab initio. This
is clearly laid down in Section 20 that “Where both the parties to an agreement are under a
mistake as to a matter of fact essential to the agreement, the agreement is void".
Conditions to be fulfilled, if an agreement under bilateral mistake is to be declared void ab
initio:
If an agreement under bilateral mistake is to be declared void ab initio, the following
conditions must be fulfilled:
1. The mistake must be mutual. That is there must be mistake in the minds of both the parties
to the agreement.
Let us discuss this point with an example. Suppose X is having two houses in Mangalore, one
at Car Street and the other at Balmatta. He agrees to sell the house at Car Street to Y. Y
thinks of the house at Balmatta and agrees to buy it. Here, there is mutual mistake. So, the
agreement is void.
2. The mistake must be a mistake of fact, and not a mistake of law.
3. The mistake must relate to some fact and must not be a mistake relating to mere judgment
or opinion. If the mistake relates to mere opinion or judgment, the agreement cannot become
void ab initio. For instance, an erroneous opinion as to the value of a thing, which forms the
subject-matter of the agreement, is just a mistake relating to mere opinion or judgment. It is
not a mistake as to a matter of fact. So, in this case, the agreement cannot become void ab
initio.
4. The fact must lie at the very root of the agreement. That is, the fact must be essential to the
agreement.
The following are the mutual mistakes of fact relating to essential matters of the agreement,
and so, in these cases, the agreements become void ab initio

1. Mistake as to subject-matter of the agreement

The following are the instances or examples of mistake as to the subject-matter of agreement:
(a) Mistake as to the existence of the subject-matter of the agreement
Here, both the parties to an agreement are under a mistake, at the time of entering into the
agreement, as to the existence of the subject-matter of the agreement.
If, at the time of entering into the agreement, both the parties are under a mistake as to the
existence of the subject-matter of the agreement (i.e., if both the parties to the agreement
believe that the subject-matter of the agreement is in existence, but in fact the subject-matter
of the agreement has never been in existence or ceased to be in existence), the agreement is
void, because the subject-matter of the agreement has not been in existence at the time of the
agreement.

Example.
A and B entered into an agreement for the purchase and sale of a certain horse. But the horse
was dead at the time of the agreement, which fact was not known to both the parties. So, here,
as there was a mistake as to the existence of the subject matter of the agreement, the contract
was considered void.
(b) Mistake as to the identity of the subject-matter of the agreement
Here, the two parties to the agreement are under a mistake as to the identity of the subject-
matter of the agreement. That is, one party has one thing in mind, and the other party has
another thing in mind.
Where the parties to the agreement are under a mistake as to the identity of the subject-matter
of the agreement (i.e., where one party has one subject-matter or thing in mind and the other
party has another subject-matter or thing in mind), the agreement becomes void for want of
consensus ad idem.
Example. W agreed to buy. from R a certain quantity of Surat cotton expected to arrive by a
ship called 'Peerless' from Bombay. There were two ships having the same name Peerless
sailing from Bombay, one in October and the other in December. While entering into the
agreement, B, had in mind the cotton to be carried by the second ship, but A had in mind the
cotton to be carried by the first ship. Here, there was a mistake as to the identity of the
subject-matter. So, in a suit, the agreement was declared void for want of consensus ad idem.

(c) Mistake as to the title to the subject-matter of the agreement

Here, both the parties to the agreement are under a mistake as to the title of the parties to the
subject-matter of the agreement. Where a seller sells a thing to which he is not entitled to, and
the buyer buys the thing of which he is already the owner, i.e., where a buyer is already the
owner of a thing which the seller agrees to sell to the buyer, and both the parties are under a
mistake as to their title to the thing, the agreement is void.

Example. A agreed to take a lease of fishery from B. The fishery already belonged to A. But
both A and B were not aware of this fact. In this case, there was a mistake as to the title of the
parties to the subject-matter of the agreement, and so, the agreement was declared void.

(d)Mistake as to the quantity of the subject-matter of the agreement

Here, both the parties -to the agreement are under a mistake as to the quantity of the subject-
matter of the agreement. Where both the parties to the agreement are under a mistake as to
the quantity of the subject-matter of the agreement ([Link] there is a difference between
the quantity sold and quantity purchased), the agreement is void.
Example: A silver bar was sold under a mistake as to its weight. There was a difference
between the actual weight of the silver bar and its supposed weight. Held, there was a mistake
as to the quantity of the subject-matter, and so, the agreement was void. (Cox Vs. Prentice)

(e)Mistake as to the quality of the subject-matter of the agreement

Here, the parties to the agreement are under a mistake as to the quality of the subject-matter
of the agreement. Where both the parties to the agreement are under a mistake as to the
quality of the subject-matter (i.e., where the subject matter is essentially different from what
the parties thought it to be), the agreement becomes void.

Example 1.
An agreement for the sale of a horse believed to be a race horse by both the parties will be
void, if the horse turns out to be a cart horse.

Example 2.
A sold to B a certain painting which was believed to, be the work of a reputed artist by both
the parties. It (i.e., the painting) turned out to be the work of an ordinary painter, and not that
of the reputed artist. In this case, there was a mutual mistake as to the quality of the subject-
matter of the agreement, which was very essential from the point of view of both the parties.
So, the agreement was considered void.

(f) Mistake as to the price of the subject-matter of the agreement

Here, the parties to the agreement are under a mistake as to the price of the subject-matter of
the agreement. Where both the parties to the agreement are under a mistake as to the price of
the subject-matter of the agreement, the agreement becomes void.

Example. C wrote to W, offering to sell certain property for £1,250. C has earlier declined an
offer from W to buy the same property for £2,000. W, who knew that the offer of £1, 250 was
a mistake for £2,250, at once accepted the offer. It was held that W knew very well that the
offer was made by mistake, and therefore, the agreement would be void, and it could not be
specifically enforced by W against C.
2. Mistake as to the possibility of performance of the contract
Here, both the parties to the contract believe that the contract is capable of being
performed, but, in fact, this is not the case. When both the parties to a contract believe that
the contract is capable of being performed, when in fact, this is not the case, the contract
would be void.
The impossibility of performance is of two types, they are

1. Physical impossibility:
An agreement is void, if it provides that something should be done, but it cannot be done
physically.
Example. A contract for the hiring of a room for witnessing the coronation procession was
held to be void, because, unknown to both the parties, the coronation procession had already
been cancelled.

(2) Legal impossibility:

An agreement is void, if it provides that something should be done, but it cannot be done
legally. For instance, a person cannot enter into an agreement to take a lease of his own land.

2. Unilateral mistake or mistake of one party

Meaning of Unilateral Mistake

Here only one of the parties to a contract is under a mistake, the mistake in called
unilateral mistake. In the case of unilateral mistake, a mistake (of fact) takes place in the
mind of only one of the contracting parties.

Effect of Unilateral Mistake

A contract caused by unilateral mistake is not voidable, i.e., cannot be avoided by the
aggrieved party. It remains a valid contract. This rule is clearly provided in Section 22 of the
Indian Contract Act. Section 22 of the Indian ContractAct lays down that "a contract is not
voidable merely because it was caused by one of the parties to it being under a mistake as to a
matter of fact".

Example 1.
A proposes to sell his car. B, intending to offer Rs. 5,700, offers by mistake Rs. 7,500. A
accepts the offer. The mistake here is on the part of B only. So, it is a unilateral mistake. As it
is a unilateral mistake, B cannot avoid the agreement.

Example 2.
M buys a cycle from N, thinking that it is worth Rs. 500, and pays Rs. 500 to N. But,
subsequently, he finds that the cycle is worth only Rs. 200. Here, the mistake is unilateral. So,
M cannot avoid the contract on the ground of mistake.
It is true that, generally, when a mistake is unilateral, the contract is not avoidable (i.e.,
cannot be avoided) at the option of the aggrieved party.
 However, if the unilateral mistake is caused by fraud or misrepresentation on the part
of the other party, the contract is voidable aerent things. The term 'consideration’ means
reward for the promise, whereas the term 'object' means the purpose of the contract.

3.3.2 Circumstances under which the object or consideration becomes unlawful

The unlawful consideration and objects are specified in Section 23 Contract Act,
1872. As per Section 23 of the Indian Contract Act, the object or the consideration of an
agreement is unlawful in the following cases, and in those cases, the agreement becomes
void.
1. If it is forbidden by law
When an act is forbidden by law, the act or agreement becomes unlawful and void.
An act is forbidden by law:
(a) When it is punishable by the criminal law of the county or
(b) When it is prohibited by any special legislation or regulation made by a competent
authority under power derived from the legislature.

Examples of acts forbidden by law are:

(i) An agreement for the sale or purchase of smuggled goods.
(ii) An agreement to sell goods to a person for the purpose of smuggling them out of India.
(iii) An agreement to kidnap the other person etc.

2. If it is of such a nature that, if permitted it would defeatthe provision of any law

If the object or the consideration of an agreement is of such a nature, that, though it is
not directly forbidden by law, it would indirectly lead to the violation of the law (i.e., defeat
the provisions of the law), the agreement becomes void.

Examples of such agreement are:

(i) A let out a flat to R at a rent of £ 1,200 a year. To reduce the municipal tax, A entered into
two agreements with R, one by which the rent was stated to be £ 450 a year and the other by
which R agreed to pay A £ 750 a year for services in connection with the flat. In a suit filed
by A to recover £ 750, it was held that the agreement was of such a nature that, if permitted,
it would defeat the provision of the law, and so, it was void, and A was not entitled to recover
the money.
(ii) A loan granted under a promissory note to the guardian of a minor to enable him to
celebrate the marriage of the minor in contravention of the Child Marriage Restraint Act of
1929 is void, as the purpose of borrowing is such that, if permitted, it would defeat the
provisions of the Child Marriage Restraint Act.
(iii)An agreement between husband and wife to live separately is invalid, as it is opposed to
the Law (i.e., the Hindu Law).

3. If it is fraudulent
An agreement which is fraudulent, i.e., an agreement the object of which is to defraud
others is unlawful and void.
Examples fraudulent agreements are:
(i) A, B and C agree to divide among themselves any money or gains acquired by fraud. The
agreement is void, as it is fraudulent.
(ii) A promise to pay Rs. 300 to B, if B would commit a fraud on C. B agrees. The agreement
is void, as it is fraudulent.

4. If it involves or implies injury to the person or property of another

An agreement the object of which involves injury to the person or property of another
man is unlawful and void.
Examples of such agreements are:
(i) An agreement to pull down another man's house is unlawful and void.
(ii) A asks the editor of a newspaper to publish a libel (i.e., a defamatory article) against B
and promises to pay Rs. 4,000 for the work. The agreement is void, as it involves injury to the
person of B, and so, a suit cannot be brought by the editor to recover the promised amount.
(iii) An agreement to assault or beats a man is unlawful and void. Suppose X promises to pay
Rs.1,000 to Y, if Y assaults Z. Y agrees. The agreement is unlawful and void.
(iv) An agreement to destroy the property of another by fire (i.e., to put the property of
another on fire) is unlawful and void. Suppose M promises to pay Rs. 2,000 to N, if N
destroys the r property of P by fire. N agrees to do so. The agreement is void.

5. If the court regards it as immoral

Agreements the object or the consideration of which is immoral (i.e., contrary to good
morals) are immoral agreements, and immoral agreements are unlawful, and are void.
Examples of immoral agreements are:
(i) An agreement for illicit cohabitation (i.e., a case of sexual immorality) is immoral, and so,
is void.
(ii) A agrees to give his daughter to B for concubinage (i.e., for living together as husband
and wife without being married). This is also a case of sexual immorality and an immoral
agreement, and so, is void.

6. If the agreement is regarded by the court as opposed to public policy

An agreement which is injurious to the public or against the interest of the society is said to
be opposed to public policy.

7. An agreement opposed to public policy is unlawful and is void.

1. Agreements of trading with alien enemies
Agreements of trading with alien enemies (i.e., citizens of a foreign country with which
the home country is at war) are opposed to public policy, as they tend to aid the economy of
the enemy country. Such agreements are unlawful and void, unless they are specially
permitted by the Government.

2. Agreements interfering with the 'course of justice

An agreement interfering with or obstructing the course of justice, say, an agreement to
influence a judge or an officer of justice to decide the case in favour of a particular party, an
agreement to prevent a witness to appear as a witness in a suit or an agreement to conceal
certain documents relating to a civil suit so as to prevent their production at the time of
hearing is opposed to public policy, and such an agreement is unlawful and void.

3. Agreements for stifling criminal prosecution, i.e., for preventing criminal

proceedings already instituted from running their normal course
Agreements for stifling prosecution are opposed to public policy, and so, are void:
The following are examples of agreements for stifling prosecution:
When a crime has been 'committed, the guilty must be prosecuted. So, an agreement
which seeks to prevent the prosecution of the guilty is opposed to public policy, and so, is
void. Suppose A promises to drop a criminal prosecution which he has instituted against B
for robbery, and B promises to restore the value of the things stolen. Here, the object of the
agreement is unlawful, and it is opposed to public policy.

1. Maintenance and champerty

Maintenance is an agreement whereby a stranger promise to give financial assistance or
any other assistance, say, professional assistance to a person involved in litigation in
which the stranger (i.e., the person giving the assistance) has no legal interest of his own. In
other words, when a personagrees to help another person with financial assistance or
anyother assistance in litigation in which he is not himself interested,it is called
maintenance. For instance, A files a suit against Bfor obtaining the ownership of a house. C
promises to advanceRs. 1,000 to A for meeting the cost of litigation. This is a case of
maintenance.
Champerty is an agreement whereby a person agrees to provide financial assistance or
any other assistance, say, professional assistance, to another person involved in litigation in
exchange for his promise to hand over a portion of the gains of the litigation.

5. Trafficking in public offices, titles and honours

Agreements for sale or transfer of public offices, titles and honours, or for
appointment to public offices in consideration of money are opposed to public policy; as
such agreements would lead to corruption and inefficiency in public life. Similarly, an
agreement to pay money to a public servant to induce him to act corruptly or to retire
earlier and make way for the appointment of the financier is also opposed to public policy.
Such agreements are considered unlawfu1 and void.
Ex: - An agreement to procure a public office in consideration of money is opposed to
public policy, and so, is void. For instance, if A promises to obtain for B an employment
in the public service and B promises to pay Rs. 1,000 to A, the agreement is opposed to
public policy, and so, is void.

6. Agreements unduly restraining personal liberty or freedom of individuals:

Agreements unduly restraining personal liberty or freedom of individuals have
been held to be opposed to public policy, and so, they are unlawful and void.
Example: An agreement by a debtor to do manual work for the creditor as long as the debt
remains unpaid is against public policy and so, is void.
7. Agreements creating an interest opposed to duty:
An agreement which creates a conflict between interest and duty is opposed to
public policy, and so, is void. In other words, an agreement whereby a person agrees to do
something which is against his public or professional duty is void, as it is opposed to
public policy.
Examples: A agrees to pay B, the lieutenant colonel in the army, Rs. 50,000, if he assists
her (i.e., A's) brother to leave) the army. This agreement tends to create a conflict between
duty and interest. So, it is void.

8. Agreements in restraint of parental rights or duties

An agreement in restraint of parental rights or duties is opposed to public policy,
and so, is void. In other words, an agreement by which the guardianship (i.e., authority) of
parents over their minor children and that of the guardians over their wards is permanently
alienated is inconsistent with parental rights or duties, and so, is void.
Examples: The father of two minor sons agreed to transfer their guardianship (i.e.,
custody) to Mrs. Annie Besant on an irrevocable basis. Subsequently, he wanted to rescind
the agreement. Held, the guardianship (i.e., the parental rights) cannot be permanently
alienated. So, he got back the custody of the children.

[Link] interfering with marital duties

Agreements which interfere with marital duties are void, as they are opposed to
public policy.
Example: (i) An agreement to lend money to a woman to enable her to get a
divorce and to marry the lender is void.
(ii) An agreement that the husband would always stay at the father-in-law's house and
that the wife would never leave her parents' house is void.

10. Marriage brokerage agreements

Marriage brokerage agreements refer to agreements whereby a person, for a monetary
consideration, promises to procure for another person a husband or a wife.
In England marriage brokerage agreements are considered to be against public policy,
and so, they are declared void. For instance, if A pays B a certain sum of money to
procure a wife for him (i.e., A), he (i.e., A) cannot enforce the agreement, as it is
considered to be against public policy. The principle behind this rule is that a marriage
should take place according to the free choice of the parties and their choice should not
be interfered with by third parties acting as brokers.
Today, in India also, an agreement by which a broker or a priest, in consideration of
money, agrees to procure a wife or husband for a person is considered to be opposed to
public policy and void. Similarly, an agreement to pay money to the parents of the bride
or the bridegroom in consideration of their agreeing to the contract of marriage is also
considered to be void. So, once marriage is over, the money, if actually paid, cannot be
recovered and if it is pending to pay also cannot be recovered by filing a case.

11. Agreements in restraint of marriage

An agreement which restrains any person other than a minor from marrying at all or from
marrying a particular person or from marrying for a fixed period is void. In short, an
agreement in restraint of marriage of any person other than a minor is void. This view
has been confirmed in the case of LoweVs. [Link] this case, A promised to marry B
only and none else, and, in default to pay Rs. 2,000. But he (i.e., A) married C. B filed a
suit. Her suit was dismissed on the ground that was the agreement restraint of marriage,
and so, void.

12. Agreements tending to create monopolies

Agreements tending to create monopolies are unlawful and void, as they are opposed to
public policy.
13. Agreements in restraint of trade
Any agreement by which a person is restrained from exercising a lawful profession, trade
or business of any kind is void, as it is opposed to public policy.
However, there are certain exceptions to this general rule. They are:
(a) An agreement to limit competition and to maintain prices does not becomes void.
(b) An agreement binding a person to sell all the goods at a certain price is not void.
(c) A service agreement by which an employee binds himself, during the term on his
employment, not to compete with the employer by carrying on similar business, is not
void.
(d) An agreement by which a seller of goods is restrained from carrying on similar
business within a specified area and time is not void.
(e) An agreement restraining the partner of a firm from carrying on any business
competing with that of the firm is not void.

14. Agreements to influence elections to public offices

Agreements with voters tending to influence them by improper means were void.
Similarly, agreements with third persons to influence voters by improper means are void.
So also, agreements with the rival candidates that they should withdraw their candidature
in consideration of payment of money are void.

15. Agreements to defraud creditors

Agreements to defraud creditors are opposed to public policy, and so, are void. For
instance, if a person, who has filed an insolvency petition, transfers to a third person for
consideration, some of his properties with the object of defrauding his creditors, his act is
opposed to public policy, and so, is void.

16. Agreements to defraud revenue authorities

Agreements, the object of which is to defraud the revenue authorities, are void, and so,
are not enforceable at law. For instance, an agreement by which an employee was to get,
in addition to salary, an expense allowance grossly in excess of the expenses actually
incurred by him, was regarded as a device to defraud the income-tax authorities, and so,
was considered unlawful and void.
 17. Agreements to vary the period of limitation
Agreements which restrict or extend the period of limitation prescribed in the Law of
Limitation are void.

18. Agreements to induce persons to give evidence in civil courts

As it is the legal duty of every witness to appear in a court of law, agreements whereby
money is given to induce witnesses to give evidences in civil courts are void.

3.3 Assignment Questions

I. Question carrying one mark each
1. Which section of the Indian Contract Act, 1872 define Incompetency of the
contract?(A)
a) Section 10 c) Section 12
b) Section 11 d) Section 9

2. Minor's agreements cannot be ratified by him on his attaining

_____________(S)
a) Majority c) Minority
b) Lunacy d) Idiocy

3. Which section of the Indian Majority Act, 1875 define age of majority?(A)
c) Section 1 c) Section 2
d) Section 3 d) Section 9

4. A minor's agreement is ________________(K)

a) void ab initio c) Valid ab initio
b) voidable ab initio d) illegal

5. whether minor is liable for tort?(K)

a) Yes c) No
b) No sure d) Can’t say

6. Whether minor liable to pay for necessities supplied to him?(A)

a) Yes c) No
b) No sure d) Can’t say

7. Contract to marry in future entered into by a minor is ________(A)

a) Valid c) voidable
b) Void d) Prefer not to say

8. Minor cannot be adjudicated as an ______________(K)

a) Insolvent c) Idiot
b) Educated d) Lunatics

9. Whether can be shareholder?(U)

a) No c) yes
b) Not sure d) prefer not to say

10. Lunatics is derived from the word lunar which means ________________(S)
a) Sun c) Moon
b) Saturn d) Earth

11. Agreements entered by an idiot are _____________(K)

a) Void c) Valid
 b) Illegal d) Voidable

12. two or more persons agree upon the same thing in the same sense is
called_______________(U)
a) Consent c) Free consent
b) Coercion d) Force

13. committing or threatening to commit any act forbidden by the Indian Penal
Code is called_____________________(U)
a) Coercion c) undue influence
b) Misrepresentation d) Mistake

14. Ranganayak amma Vs. Alwar Setti is example for ____________(A)

a) Effect of coercion
b) Effect of undue influence
c) Effect of mistake
d) Effect of fraud

15. One of the following relationships, circumstance or case does not amount to
undue influence _____________(S)
(a) Father and son,
(b) Creditor and debtor
(c) Master and servant.
(d) Doctor and patient.

16. The contract made out of undue influence is ____________(A)

a) Valid c) Void
b) Voidable d) Illegal

17. The contract made out of coercion is ____________(K)

a) Valid c) Voidable
b) Void d) Illegal

18. A contract caused by unilateral mistake is not _______(S)

a) Voidable c) Void
b) Valid d) Unlawful

19. If the object of an agreement is lawful, but its consideration is unlawful, the
agreement becomes ________________(U)

a) Valid c) Voidable
b) Void d) Implied

20. An agreement opposed to public policy is (S)

 a) Unlawful and void
b) Legal and valid
c) Void but legal
d) Unlawful but valid

21. Agreements of trading with alien enemies is opposed to_________(S)

a) Constitution
b) CPC
c) Public Policy
d) IPC

22. Derry Vs Peek Case law is example for_________________(A)

a) Fraud c) Mistake
b) Coercion d) Misrepresentation

23. Mistake of General Law of the Country has ____________(S)

a) Execuse c) No execuse
b) Can’t say d) Sometimes

24. Mistake of Foreign Law____________________(S)

a) Has Execuse c) Has No execuse
b) Can’t say d) Sometimes

25. Unilateral mistake means___________(U)

a) Both the side mistake
b) One side mistake
c) All the side mistake
d) Everyone’s mistake

II. Questions carrying 08 Marks Each

1. What do you mean by ‘contractual capacity’? Explain the position of a minor and
the effects of a minor’s agreements. (U)
2. Write in your own words coercion and undue influence? What differences exist
between coercion and undue influence?(U)
3. What was the main idea about fraud and misrepresentation and distinguish
between fraud and misrepresentation?(U)
4. Who do you think is a minor? Explain the effects of a minor’s agreement(U)
5. “Law prescribes and regulates general conditions of human activity in the state”
Then What you know about Mistake of fact and mistake of law?(A)
6. What is lawful object? Demonstrate are the essentials of lawful object?(A)
7. Conduct an investigation to produce information of (A)
a) Unliteral mistake
b) Bi-lateral mistake
8. Write a note on agreements opposed to public policy (U)
9. Describe what is unlawful object. (U)
10. “Fraud is intentional deception to secure unfair or unlawful gain” What was the
main idea you have with respect of Fraud?(A)
11. Write a note on Undue influence.(S)
12. Explain the effect of coercion with the help of Ranganayakkamma VS Alwar
Setti.(A)