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Indian Contract Act Essay


The Law of contract is that branch of Law, which determines the circumstances in which promises made by parties to contract shall be legally binding on them. Every one of us enters into a number of contracts from morning until night. Examples:

1) Buying Milk early in the morning.
2) Boarding BEST Bus
3) Borrowing Money from Friend
4) To see movie.
5) Purchasing goods from shops.

This how we enter into contracts though we are not conscious of it .Therefore, it is most usual method of defining the give and take deal in a business transaction The law relating to the contract is contained in the INDIAN CONTRACT ACT, 1972. The principle of this law helps in settlement of disputes between the parties to the contract.

The Indian Contract Act, 1872 deals only with promises which creates legal obligation.


The word contract is derived from the “LATIN” term “CONTRACTUM” Meaning “DRAWN TOGETHER”

This therefore denotes drawing together of two or more minds to form a common intention-giving rise to an agreement.

Indian Definition

A Contract is “an agreement” Enforceable by law {u/s 2(h)}

By analysis of this definition we find that a contract consists of two

1) An Agreement
2) Enforceability by law
Consent and free consent


Generally speaking, the word consent means agreeing that something should happen. An agreement is valid only when it is the result of the free consent of all the parties to it.

Consent means act of assenting to an offer.

{S-13} defines consent as two or more person are said to consent when they agree upon the same thing in the same sense.


Consent therefore, requires unity of the mind. When parties agreed upon the same thing in the same sense, they have consensus ad idem. Consensus ad idem means agreement to this same thing. Real agreement to a contract by the both parties. If there no consent, there is no contract.

Free consent

Parties’ consenting upon the same thing in the same sense is not sufficient, consent means also be from

{S-14} says Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue, fraud or misrepresentation or mistake.

{S-19} says a contract is void able at the option of the party whose consent was caused due to coercion, undue influence, fraud or misrepresentation or

For example:

A is forced to sign an agreement at the point of pistol. Here, A knows what he is signing but his consent is not free. In the following cases the consent of a person is NOT FREE.


When a person is compelled to enter into a contract by the use of force by the other party or under a threat, coercion is said to be employed.

{S-15} Coercion is-

a) The committing or threatening to commit any act forbidden by the Indian Penal Code, 1860 OR b) The unlawful detaining or threatening to detain any property to the prejudice of any person whatever, c) With the intention of causing any person to enter into an agreement.

Explanation: It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed.

For example: A threatens to kills B, if he does not lend money C. B agrees to lend money to C. The agreement is entered into by coercion

Case: Ranganayakamma vs. Alwar Setti: A Hindu widow was forced to adopt M under threat that her husband’s dead body will not be allowed to be removed by her husband’s relatives. The adoption was held to be voidable as having induced by coercion.

It is important to note that coercion may proceed from anybody, even a person who is not a party to the contract. It may be directed against anybody not necessarily the other contracting party. It includes physical compulsion, fear and even menace to the goods.

[S-19]: When consent to an agreement is caused by coercion, fraud or misrepresentation the agreement is a contract voidable at the option of the party whose consent was so caused

[S-72]: A person to whom has been paid or anything delivered under coercion or mistake must repay or return it.

Case : T.G.M. Asad vs. Coffee Board Held – Coercion in [S-72] of this Act must be understood in the ‘ordinary sense’. It includes every kind of compulsion even if it does not measure upto definition in this section.


It is wrong pressure put on someone which prevents that person from acting independently .i.e. A party is compelled to enter into an agreement against his own will as a result of unfair persuasion by the other party.

This happens when a special kind of relationship exists between the parties that a party is in a position to dominate the will of the other and because of such unfair influence, the other party is compelled to enter into an agreement against his will.

This principle applies to very case where:

a) The influence is acquired and abused.

(b) Where confidence is respond and betrayed.

{S-16(1)}: A contract is said to be induced by undue influence where the relation subsisting between the parties is 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. A person deemed to be in a position to dominate the will of the other-

(a) Where he holds real or apparent authority over the other

For example:

Master and servant.

(b)Where he makes a contract with a person whose mental capacity is temporarily or permanently affected: Because of age, illness or mental or bodily distress S-16(2)

For example:

Doctor and Patient.

Effect of undue influence:

When the consent to the agreement is caused by undue influence, it is voidable at the option of the part whose consent so caused

Any such contract may be st aside. If the party has received benefit, then, upon such terms and condition as the court may seem just

FRAUD (S-17)

Misrepresentation of facts may be intentional or unintentional. ‘Intentional mispresentation is ‘fraud’, unintentional or ‘innocent’ representation is called a “mispresentation”.

A statement of fact which one party makes in the course of negotiations with with a view to inducing the other party to enter into a
contract is called a “representation”.

According to (S-17) fraud MEANS and INCLUDES any of the following acts committed by a party to the contract or with his connivance, or by his agent with intent to deceive another or to induce a person to enter into the contract. (Connivance: see and ignore.)

For example:

{ S-55} of Transfer of Property Act – the seller of an immovable property is bound to disclose to the buyer all material defects – failure to do so amounts to a fraud.

Consequences of Fraud [S. 19]:

A contract induced by a fraud is voidable at the option of the party defrauded. If the party does not avoid the contract, it will continue to be valid. The party defrauded has the following remedies:

(a). he can rescind the contract within a reasonable time. However, if any innocent third party acquires an interest in the property for value then – he cannot rescind the contract. (Rescind – to cancel, to annul.)

(b). he may ask for damages suffered because of non fulfillment of the contract.(Damages compensation).


A representation is a statement or assertion made by 1 party to the other, before or at the time of the contract relating to it.

If the assertion is untrue and the person making it believes it to be true, it is known as innocent representation. If it is done intentionally, it will be a fraud.

For example:

A while selling his mare to B, tells him that mare is perfectly sound. A genuinely believes the mare to be sound although he has no sufficient for the belief. Later on B discovers the mare to be unsound. The representation made by A misrepresentation.

Definition of misrepresentation [S.18]:

Misrepresentation MEANS & INCLUDES

a) [S.18(1)] The positive assertion in a manner not warranted by the information of the person making it, of which is not true, though he believes it to be true.

(b)S. 18(2)] Any breach of duty, which, without an intent to deceive, gains an advantage to the person committing, it, or anyone claiming under him, by misleading 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 [S.18(3)].

Mistake of law: [S.21]

A contract is not avoidable (valid) because it was caused by a mistake as to any law in force in India;

But a mistake is to any law not in force in India has the same effect as a mistake of fact.

(a). Mistake of law of the country (India):
there is mistake of law of India, the contract is binding because everybody is supposed to the knowledge of his own law does not affect the contract.

For Example:

A and B make a contract on the erroneous belief that a particular debt is barred by the India aw of limitation. This is a VALID CONTRACT because mistake as to law of India does not affect the contract.

The reason behind this is that a person is expected to know the law of his own country, and if he does not, he must suffer the consequences of such ignorance of law.

(b). mistake of foreign law: (S.21}

This is regarded as a question of fact and not of law. Because a person is not bound, in civil law, to know the law of a foreign country. Therefore if a person has entered into contract by making a mistake of law of a foreign country, the contract may e avoided.

For example:

A and B enter into contract in India based on an erroneous belief that a particular debt is barred by American law of limitation. The contract is void because the mistake is of the law of America i.e. a mistake of fact which makes a contract void {u/s-21}.

Mistake of fact:

Bilateral Mistake: {S.20}


{S-20} When both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void

For this following condition must be fulfilled:

1) The mistake must be mutual:

Both the parties should misunderstand each other.

For example:

A agreed to purchase B’s motor car which was lying in B’s garage. Unknown to both the parties, the car and garage were completely destroyed by a fire a day earlier. The agreement is void.

(2). The mistake must relate to a matter of fact essential to the agreement:

As to what facts are essential in an agreement will depend upon the nature of the promise in each case. The mistake, moreover, must relate to an existing fact.

|||. Opinion:

Explanation {S-20}:

An erroneous opinion as to the value of at thing which forms the subject matter of an agreement is not be deemed a mistake as to a matter of fact.

For example:

A buys an article thinking it is worth rs.500, actually it is worth rs.200. the agreement cannot be avoided on the ground of mistake.

(1), physical impossibility:

Case: Griffith vs. Brymer(1903)

A contract for the hire of a room for witnessing the coronation procession of Edward VII was held to be void, because – unknown to the parties, the procession had already been cancelled.

Unilateral mistake:{S-22}

If the mistake is on the part of one person only, the contract is valid. When one of the parties to the contract is under a mistake as to the identity, quality or price of the subject matter of the contract. The mistake is unilateral mistake.

{S-22} says a contract is not avoidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact


Smith vs. Hughes (1871): H bought oates from S, a sample of which had been shown to H. Erroneously H thought the oaters were old. The oates were however new. Held- H cannot avoid the contract

For example:

A buy an article thinking its worth rs 1000/- when it is worth ro 50/- A cannot avoid the contract


[S-65] says where an agreement is discovered to be void, OR where a contract become void, any persons who has received any advantage under such an agreement OR contract is BOUND TO RESTORE it OR to make COMPENSATION for it to the person, from whom he has received it.

FOR Example :

A pays B rs. 1000? In consideration of B’s promising to marries to C. C is that at the time of promise. The agreement is void, but B must pay a rs.1000

Performance of contract:

When contract need not to be performed

a) substitute to new contract:

if the parties to the contract agrees to substitute a new contract for it oar rescind alter it the original contract need not to be performed{S-62}

b) Dispense the performance:

If the promise dispenses with or remits holy or in part, the performance of promise made to him or Extends the time for such performance or accepts satisfaction for it, the contract need not be performed {S-63}

(c) Voidable contract :

When the void able contract is rescinded the other party need not perform his promise {S-64}

Tender/offer of performance:

The offer to perform is
called the tender. Sometimes it so happens that a party who is bound to perform his promise under the contract is ready and wlling to perform but the other party to the contract does not accept the performance or is not willing to carry out his part of the promise.

The rule is given in {S-38}

Where a promisor has made an offer of performance to the promise, and the offer has not been accepted, the promise is not responsible for non performance, nor does he thereby lose his rights under a contract.

Effect of refusal to perform: {S-39}

When a party to a contract has refused to performed or disabled himself from performing the promise . The promise may put an end to the contract , unless he has shown his willingness to continue the contract by word or conduct.

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