Indian Contract Act, 1872 — Part 2

Free Consent (Sections 13–22)

Consent means two or more persons agreeing upon the same thing in the same sense. For a contract to be valid, consent must be free — not obtained through:

1. Coercion (Section 15)
2. Undue influence (Section 16)
3. Misrepresentation (Section 18)
4. Fraud (Section 17)
5. Mistake (Sections 20–22)

If consent is obtained by any of these, the contract is voidable (not automatically void) at the option of the party whose consent was obtained by improper means.

Coercion (Section 15)

Definition: Committing or threatening to commit any act forbidden by the Indian Penal Code (IPC) — or using force or threats — that causes the victim to sign a contract.

Examples:

• Threatening to file a criminal case unless the other party signs a contract
• Threatening to destroy property unless contract is signed
• A person threatening to commit suicide unless another signs a contract

Key case: Bhagwandas v. Girdhari Lal (1967) — SC held that threat to commit suicide can constitute coercion.

Essentials:

• The act or threat must be forbidden by IPC
• It must cause the consent
• The person threatened may be the promisee or any other person

Undue Influence (Section 16)

Definition: When a person takes improper advantage of their position relative to another person — such that the other person cannot act freely.

Two scenarios:

1. Position to dominate: A person is in a position to dominate the will of another (e.g., doctor-patient, teacher-student, parent-child, employer-employee, creditor-debtor)
2. Improper use of position: The person uses this position to obtain an unfair advantage

Examples:

• A spiritual guru inducing a devotee to donate all property to the ashram
• A bank manager influencing a customer to take a loan with unfavorable terms
• A wealthy relative influencing a poor person to sign away property

Presumption of undue influence: When a person is in a fiduciary relationship (doctor, solicitor, spiritual guide) and obtains a benefit — the court presumes undue influence (the burden of proof shifts to the dominant party to prove no undue influence).

Key case: Lakshmana v. Murugesa (1889) — A borrower under a mortgage was in a position to be dominated by the lender; contract set aside.

Misrepresentation (Section 18)

Definition: An innocent but incorrect statement of fact made without reasonable care, which induces the other party to enter the contract.

Three types of misrepresentation:

1. Positive assertion of a fact (without belief in its truth)
2. Breach of duty to be careful (careless statement that turns out to be false)
3. Causing another to believe a fact to be true when the speaker knows it to be false

Key distinction from fraud: Misrepresentation is innocent (no intention to deceive). Fraud involves intentional deception.

Effect: Contract is voidable — the misled party can rescind (cancel) the contract.

Fraud (Section 17)

Definition: Any of the following acts done with the intention to deceive:

1. Suggestion of a fact as true when the speaker knows it to be false
2. Active concealment of a fact
3. Promise made without any intention of performing it
4. Any other act fitted to deceive
5. Intentionally causing another to sign a document they do not understand

Fraud vitiates consent more severely than misrepresentation — the contract is voidable AND the party guilty of fraud may be liable in damages.

Key cases:

• Derry v. Peek (1889) — Fraud requires intention to deceive (not just negligent misstatement)
• Arvind Kumar v. Zee Media (2019) — False representation made deliberately

Effect of fraud:

• Contract is voidable
• Damages can be claimed for losses suffered
• Rescission can be sought

Mistake (Sections 20–22)

Types of Mistake:

1. Mutual Mistake as to a fact (Section 20): Both parties are mistaken about a material fact. The contract is void.

Key case: Cooper v. Phibbs (1867) — Both parties mistakenly believed there was a partnership; contract was void.

2. Unilateral Mistake (Section 22): Only one party is mistaken about a material fact. The contract is generally valid — except when the other party knows of the mistake and exploits it.

Exceptions where unilateral mistake makes contract void:

• Mistake as to the nature of the transaction (signed without understanding — e.g., signing a bond thinking it was a receipt)
• Mistake as to the identity of the other party
• Mistake as to a fundamental term

Key case: Phillips v. Brooks Ltd (1921) — A swindler posed as someone else; the seller delivered goods to the wrong person; seller could recover goods because there was no consensus ad idem.

Note: Mistake of law (not fact) is not a valid defense in India — ignorance of law is no excuse.

Legality of Object (Sections 23–30)

What makes an Object Unlawful? (Section 23)

An agreement is void if its object or consideration is:

1. Opposed to public policy
2. Of such a nature that if permitted it would defeat a provision of any law
3. Fraudulent
4. Involves or implies injury to the person or property of another
5. The court regards it as immoral or opposed to public policy

Agreements Opposed to Public Policy

Agreements in restraint of marriage (Section 26): Agrees not to marry at all, or not to marry a specific person — void.

Agreements in restraint of trade (Section 27): An agreement restricting a person’s ability to carry on their trade or profession is generally void — unless it falls within recognized exceptions.

Exceptions (restraint of trade):

• Partnership: Restriction on a partner after dissolution (reasonable)
• Sale of goodwill: Seller of goodwill can be restrained from competing (reasonable)
• Employment: Employee can be restrained from competing with former employer within reasonable limits

Key case: Nordenfelt v. Maxim Nordenfelt (1894) — Reasonable restraint of trade is enforceable; unreasonable is void.

Void Agreements (Sections 29–30)

Section 29 (Agreements uncertain): Agreements whose meaning is uncertain or vague are void.

Section 30 (Wagering agreements): A wager is a promise to pay money on the determination of an uncertain event. Wagering agreements are void.

Essentials of a wager:

• Each party must stand to win or lose
• There must be no control over the outcome (pure chance)
• Nothing but the event determines who wins

Distinction from insurance: Insurance is not a wager — the insured has an insurable interest (must suffer loss if event occurs). The event does not purely depend on chance.

Contingent Contracts (Section 31)

A contingent contract is one where a party promises to do something (or refrain from doing) only if a certain event occurs — which is uncertain at the time of making the contract.

Rules for enforcement:

• If the event becomes impossible (due to fault of the promisor): The contract becomes void
• If the event becomes illegal (due to fault of the promisor): The contract becomes void
• If the event doesn’t happen: The contract is not enforceable (but no damages if it was genuinely uncertain)

Examples: Insurance contracts, betting contracts (void as wagers), contracts dependent on contingencies.

Performance of Contract (Sections 37–67)

Who Must Perform?

1. Promisor must perform: The party who made the promise must fulfill it
2. Legal representatives: On death of promisor, the legal representative must perform (if the obligation is of a personal nature, it dies with the person)
3. Third party: A stranger cannot be forced to perform unless they have undertaken the obligation

Types of Performance

Actual performance: When the promisor does exactly what they promised.

Attempted performance (tender of performance): When the party willing to perform offers to do so but the other party refuses — the performing party is discharged from liability (Section 46). The performing party can sue for breach.

Exceptions to Performance

Situation	Effect
Destruction of subject matter (Section 56)	Contract becomes void
Impossibility at inception	Void ab initio
Subsequent impossibility	Contract becomes void — e.g., destruction of specific goods
Death or personal incapacity (Section 35, 56)	Contracts of personal nature terminate on death/incapacity
Non-availability of performance	If performance becomes impossible, the obligation is discharged

Section 56: An agreement to do an impossible act is void. If performance becomes impossible after the contract is made, the contract becomes void.

Key case: Krell v. Henry (1903) — Room overlooking coronation route; coronation postponed; contract frustrated → no damages.

Doctrine of Frustration

When a contract becomes impossible to perform due to an unforeseen event beyond the control of parties, the contract is discharged. This is the doctrine of frustration — embedded in Section 56.

Situations of frustration:

• Destruction of subject matter
• Change in law making performance illegal
• Death or incapacitation of a party in personal service contracts
• Principal source of benefit is destroyed

Assignment of Contracts

Rights of promisee: A promisee can assign their rights to a third party (novation — with consent of the promisor).

Liabilities: A promisee cannot assign their liabilities without the consent of the promisor.

CTET Exam Focus

• Coercion (Section 15): IPC-prohibited act, suicide threat can be coercion; contract voidable
• Undue influence (Section 16): Position to dominate will; fiduciary relationship; presumption
• Misrepresentation (Section 18): Innocent false statement; voidable contract
• Fraud (Section 17): Intentional deception; voidable + damages
• Mistake (Section 20): Mutual mistake → void; unilateral mistake → generally valid
• Void agreements (Section 27): Restraint of trade — generally void; exceptions (goodwill sale, partnership)
• Wagering agreements (Section 30): Void; insurance is not a wager
• Contingent contracts (Section 31): Enforceable if event happens; void if event becomes impossible
• Performance (Section 37+): Promisor must perform; frustration (Section 56) — impossibility discharges contract; doctrine of frustration (Krell v. Henry)

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