Professional Documents
Culture Documents
Essentials of A Valid Contract
Essentials of A Valid Contract
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competent to contract,
Free consent
Object (purpose) and consideration (quid pro quo) must be lawful otherwise
agreement becomes void.
(i) Is of the age of majority according to the Law which he is subject, and
3. Rule of beneficiary
4. Ratification not allowed (for minor these can be voidable after he has attained the age
of majority)
Alien enemy
An insolvent
Foreign Diplomats
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Free Consent (Consenus ad idem)
(a) Coercion, or
(c) Fraud, or
(d) Misrepresentation, or
(e) Mistake.
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Coercion-Sec 15
c. Where the dominant party uses that position to obtain an unfair advantage over
the other
i. Where there is a fiduciary duty (duty of good faith and trust) - Teacher and student
or Doctor and Patient
b. Active concealment (Hide) of defect in goods: "A car-painter, uses paint to hide the
scratches over the old furniture and sold it claiming that is new". This is fraud.
c. "A farmer agrees to supply 100kg potato that will be produced by him out of his field,
after three month". Two months has been lapsed, but the farmer neither implant
seeds, nor does cultivation. This is case of fraud.
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Fraud: where there is a duty to speak
a. Insurance Policies
b. Mediclaim Policies
1. Mistake of law
(a) Mistake of Indian Law (In sense of penalty): The contract is not
voidable because everyone is supposed to know the law of his country.
Phillips was a jeweller. The fraudster purchased a ring from the jeweller with a cheque and signed his name “Sir
George Bullough” and provided this person’s address. Phillips knew of Bullough and knew he lived at the
address, so allowed him to take the ring before the cheque cleared. The cheque dishonored. The fraudster then
pledged the ring to Brooks Ltd who paid for it with a bona fide intent. Phillips brought action against Brooks Ltd
to recover the ring or its value.
The contract was declared as voidable and the claim by Phillips was allowed.
There was found to be no contract between Phillips and the fraudster, as Phillips believed he was making a
contract with Sir George Bullough. If he had known he was not, he would have had no intention to pass the ring
onto him. This was considered to be a material part of the contract. The property of the ring did not pass to the
fraudster so he never had a possessory title he could pass to Brooks Ltd on consideration. Brooks Ltd were
liable to Phillips and were required to return the ring.
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Lawful object and consideration –Sec
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When at the desire of the promisor, the promisee or any other person has done
or abstained from doing something or does or abstains from doing something or
promises to do or abstain from doing something, such act or abstinence or promise
is called a consideration for the promise
(1) there must be an exchange between the parties, involving either a promise for
promise, or promise for performance; and
(2) the promise or performance given in exchange must have value
Price of the Promise
Sec 10. of the Indian Contract Act 1872 says that Consideration is necessary for any
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valid contract.
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Practical Definition
Rules of Consideration
Exceptions to rule
Contracts of Agency
Gifts
Valid Contracts- Sec 10 conditions satisfied and as defined under Section 2(h)
Void Contract 2(j)- a contract which ceases to be enforceable by law
Voidable contract 2(i)- an agreement which is enforceable by law at the option of one or
more the parties but not at the option of the other or others is a voidable contract.
Illegal Contract
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Void Agreements
In these contracts one of the parties has the option to rescind or affirm.
If the choice is to affirm the contract, or if the right to rescind is not exercised within a reasonable
time so that the position of the parties has, in the meantime, become altered, the option to rescind
may be lost and the party who had it will be bound by the contract; otherwise that party is entitled
to repudiate its liability.
These contracts are not a nullity from the beginning. Until it is rescinded, it is valid and binding.
Illustration: A third party, therefore, who in good faith purchases goods which have been the subject
of a voidable contract without notice of the prior defect acquires a good title to the goods and
cannot be compelled to surrender them to their former owner.
Void and Voidable Contract
Void Voidable
Forbidden by law
Protective Devices
There should be contractual document
There should be no misrepresentation
Reasonable notice of the contractual terms
Notice should be contemporaneous with contract
Terms of contract to be reasonable
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