CS Executive · Jurisprudence, Interpretation and General Laws

Contract Law: formula sheet

Full chapter guide

Key formulas

Proposal: Willingness to do or abstain, signified to another, with a view to obtaining that other's assent (Section 2(a)); Intention to obtain assent is what separates a proposal from a mere statement.
Promise: Proposal + acceptance = promise (Section 2(b)); Acceptance means the person to whom the proposal is made signifies assent.
Agreement: Agreement = every promise and every set of promises forming consideration for each other (Section 2(e)); Reciprocal promises are those forming the consideration or part of it for each other (Section 2(f)).
Contract: Contract = agreement enforceable by law (Section 2(h)); Agreement is the wider term; contract is the narrower one.
Void agreement: Agreement not enforceable by law (Section 2(g)); It is void from the start, with no legal effect as a contract.
Voidable contract: Enforceable at the option of one or more parties, not of the other or others (Section 2(i)); The aggrieved party chooses to affirm or avoid. Until avoided, it stands.
Contract becoming void: A contract that ceases to be enforceable becomes void when it ceases to be enforceable (Section 2(j)); Valid at the start, void later. Section 56 supplies an example.
Revocation of proposal: Proposal may be revoked any time before communication of acceptance is complete as against the proposer, not afterwards (Section 5); For a postal acceptance, the proposer can revoke up to the moment the acceptor posts the letter.
Revocation of acceptance: Acceptance may be revoked any time before communication of acceptance is complete as against the acceptor, not afterwards (Section 5); In the Act's postal illustration, the acceptor may revoke until the letter reaches the proposer.
Modes of revoking a proposal: Notice of revocation; lapse of time; failure of a condition precedent; death or insanity of proposer known to acceptor before acceptance (Section 6); Learn all four. Death or insanity works only if the acceptor learns of it before accepting.
Effect of benefit under a void agreement: Person who received an advantage under a void agreement or a contract that becomes void must restore it or compensate for it (Section 65); Useful when a question asks what happens to money already paid.
Section 11: three tests of competence: Competent = age of majority + sound mind + not disqualified by any law to which he is subject; All three must be satisfied. The law applied is the law to which the person is subject.
Section 10: link to a valid contract: Valid contract = free consent + competent parties + lawful consideration + lawful object + not expressly declared void; Capacity is one of the essentials. Without it the agreement is not a contract.
Section 12: sound mind test: Sound mind = at the time of making the contract, capable of understanding it and forming a rational judgment as to its effect on his interests; The test is applied at the time of contracting, not before or after.
Section 12: intermittent unsoundness: Usually unsound, occasionally sound: may contract when sound. Usually sound, occasionally unsound: may not contract when unsound.; Illustration (a): a patient in a lunatic asylum may contract during lucid intervals.
Age of majority: 18 years (Indian Majority Act, 1875); 21 years if a court-appointed guardian or court of wards; Section 11 refers to this Act in its footnote. Majority is computed in full years.
Minor's agreement: Minor's agreement = void ab initio; Settled rule from Mohori Bibee v. Dharmodas Ghose. No estoppel against the minor and no ratification on attaining majority.
General rule (Section 25): Agreement without consideration = void; Subject to the three exceptions in Section 25. Illustration (a): a bare promise to give ₹1,000 is void.
Exception 1: natural love and affection: Writing + registration + near relation + natural love and affection = contract; All four conditions are needed. An unregistered written promise fails. Illustration (b): a father's registered written promise of ₹1,000 to his son is a contract.
Exception 2: past voluntary service: Promise to compensate for something already voluntarily done for the promisor, or something the promisor was legally compellable to do = contract; The compensation may be whole or part. Writing is not required by the section. Illustration (c): A returns B's purse and B promises A ₹50.
Exception 3: time-barred debt: Written promise + signed by the person to be charged (or his authorised agent) + to pay a debt that was enforceable but for limitation = contract; The promise may be for the whole debt or part of it. Illustration (e): A signs a written promise to pay ₹500 of a barred ₹1,000 debt.
Inadequacy of consideration (Explanation 2): Free consent + inadequate consideration = not void on that ground alone; The court may weigh inadequacy when deciding whether consent was free. Illustration (f) and (g): a horse worth ₹1,000 sold for ₹10.
Gift (Explanation 1): Gift actually made = valid between donor and donee; Section 25 does not disturb a completed gift. A mere promise to gift is still void.
Consideration for guarantee (Section 127): Anything done or promised for the benefit of the principal debtor = sufficient consideration for the surety; Illustration (c): a later guarantee with no fresh consideration is void.
Free consent (Section 14): Consent is free if NOT caused by coercion, undue influence, fraud, misrepresentation or mistake; Consent is 'so caused' when it would not have been given but for the factor.
Coercion (Section 15): Forbidden act (or threat) under the IPC, or unlawful detention (or threat) of property + intention to cause agreement; Immaterial whether the IPC is in force where the act is done. The act or threat can be against any person, not only the promisor.
Undue influence (Section 16(1)): Position to dominate will + use of that position + unfair advantage; All three elements must be present.
Deemed domination (Section 16(2)): Real or apparent authority, or fiduciary relation, or party with mental capacity affected by age, illness or distress; These are illustrations, not a closed list, because the rule is 'without prejudice to the generality' of Section 16(1).
Burden of proof (Section 16(3)): Dominant party + transaction unconscionable on its face or on evidence → dominant party must prove no undue influence; Dominance must be shown first. The burden shifts only for an unconscionable transaction.
Effect (Sections 19 and 19A): Coercion, fraud, misrepresentation → voidable (S.19). Undue influence → voidable (S.19A); Under S.19A the Court may set aside absolutely, or on just terms if the party has received a benefit.
Option to affirm (Section 19): Party deceived by fraud or misrepresentation may insist on performance and be put in the position as if the representation were true; This option is stated for fraud and misrepresentation, not for coercion.
Exception to Section 19: Misrepresentation or fraudulent silence + means of discovering truth with ordinary diligence → contract NOT voidable; Illustration (b): the buyer examined the accounts, so the contract was not voidable.
Explanation to Section 19: Fraud or misrepresentation that did not cause consent → contract not voidable; This is the but for test again.
Principal and agent (Section 238): Agent's fraud or misrepresentation in the course of business binds the principal as if it were the principal's own; If the agent acts outside his authority, the principal is not affected.
Bilateral mistake of fact (Section 20): Both parties mistaken + fact essential to the agreement → agreement void; Both conditions are needed. An erroneous opinion as to value is not a mistake of fact.
Unilateral mistake of fact (Section 22): Only one party mistaken as to fact → contract not voidable merely for that reason; The word 'merely' matters. Other grounds such as fraud or misrepresentation are separate.
Mistake of Indian law (Section 21): Mistake as to law in force in India → contract not voidable; Applies whether one or both parties are mistaken.
Mistake of foreign law (Section 21): Mistake as to law not in force in India = mistake of fact; Then apply Section 20 (both mistaken) or Section 22 (one mistaken).
Restoration after a void agreement (Section 65): Agreement discovered void → advantage received must be restored or compensated; Use this to finish an answer where the agreement is void.
Valid contract (Section 10): Free consent + competent parties + lawful consideration + lawful object + not expressly declared void; Section 10 also saves laws requiring writing, witnesses or registration.
Unlawful object or consideration (Section 23): Forbidden by law | defeats law | fraudulent | injury to person or property | immoral or opposed to public policy; Any one ground makes the agreement void.
Partial illegality (Section 24): Any part of a single consideration for one or more objects, or any part of several considerations for a single object, unlawful ⇒ whole agreement void; Section 57 is a separate provision. It covers reciprocal promises in two sets, the first legal and the second illegal: the first set is a contract and the second is a void agreement.
Restraint of marriage (Section 26): Agreement in restraint of marriage of any person other than a minor ⇒ void; The Section protects the marriage of adults; the text excludes minors.
Restraint of trade (Section 27): Restraint on lawful profession, trade or business ⇒ void to that extent; Exception 1: seller of goodwill may agree not to carry on a similar business within specified local limits, so long as the buyer carries on a like business there, if the limits seem reasonable to the Court.
Restraint of legal proceedings (Section 28): Absolute restriction on enforcing rights by usual legal proceedings, or limiting the time for it ⇒ void to that extent; Saved: a contract to refer future disputes to arbitration, on the condition that only the amount awarded is recoverable (Exception 1); written agreements to refer to arbitration questions that have already arisen (Exception 2); and bank or financial institution guarantee terms with a period of not less than one year (Exception 3).
Uncertainty (Section 29): Meaning not certain, or not capable of being made certain ⇒ void; Test: can the meaning be fixed from the words, trade usage or a stated method?
Wager (Section 30): Wagering agreement ⇒ void; no suit to recover winnings or money entrusted to abide the result; Exception: horse-race prize of ₹500 or upwards.
Impossibility (Sections 36 and 56): Agreement to do an impossible act, or contingent on an impossible event ⇒ void; Section 56 also covers later impossibility and compensation where the promisor knew, or could have known, of the impossibility.
Impossible agreement (Section 56, para 1): Agreement to do an act impossible in itself = void from the start; Example: agreeing to discover treasure by magic (Illustration (a)).
Supervening impossibility (Section 56, para 2): Act becomes impossible or unlawful after contract + event promisor could not prevent → contract becomes void when the act becomes impossible or unlawful; The contract is valid when made and becomes void later. Mere hardship or higher cost is not impossibility.
Promisor who knew (Section 56, para 3): Promisor knew or, with reasonable diligence, might have known + promisee did not know → promisor pays compensation for promisee's loss; Illustration (c): A, already married, contracts to marry B and must compensate B.
Damages for breach (Section 73): Compensation = loss naturally arising in the usual course OR loss the parties knew to be likely at the time of contract; no compensation for remote and indirect loss; Knowledge must exist when the contract is made, not later.
Market-difference measure (Section 73, Illustrations (a), (c), (d)): Buyer's damages = market price at time of breach − contract price (if higher); seller's damages = contract price − market price (if lower); Both depend on the price at the date of breach.
Mitigation (Section 73, Explanation): Loss is estimated after taking into account the means that existed of remedying the inconvenience; The innocent party cannot claim loss it could reasonably have avoided.
Discharge of surety (Section 134): Surety is discharged by a contract releasing the principal debtor, or by a creditor's act or omission whose legal consequence is discharge of the principal debtor; A link to the law of guarantee. See Illustration (a) to Section 134.
Indemnity defined: Section 124: promise to save the other from loss caused by the promisor's conduct or by the conduct of any other person; Two-party relationship in the usual case: indemnifier and indemnified.
Guarantee defined: Section 126: contract to perform the promise, or discharge the liability, of a third person in case of his default; Three parties: surety, principal debtor, creditor. May be oral or written.
Discharge by variance: Section 133: variance in the contract between principal debtor and creditor, without surety's consent, discharges the surety as to transactions after the variance; Earlier transactions remain covered.
Discharge by release of principal debtor: Section 134: surety is discharged by a contract releasing the principal debtor, or by an act or omission of the creditor whose legal consequence is the discharge of the principal debtor; Both contract and act or omission count.
Composition, time or promise not to sue: Section 135: such a contract between creditor and principal debtor discharges the surety unless the surety assents; Surety's assent saves the guarantee.
Creditor impairing surety's remedy: Section 139: creditor's act inconsistent with the surety's rights, or omission of a duty owed to the surety, which impairs the surety's eventual remedy against the principal debtor, discharges the surety; Example: prepaying instalments without the surety's knowledge.
Surety's rights on payment: Section 140: on payment or performance of all he is liable for, the surety gets all the creditor's rights against the principal debtor; Applies once the debt is due or default has occurred.
Guarantee conditional on co-surety: Section 144: if a guarantee is given on condition that the creditor will not act until another joins as co-surety, it is invalid if that person does not join; Condition must be part of the contract.
Pledge by mercantile agent: Section 178: pledge by a mercantile agent in possession with owner's consent, in the ordinary course of business, is valid if the pawnee acts in good faith without notice of lack of authority; Agent must be in possession with the owner's consent.
Person named by agent: Section 194: where an agent with express or implied authority to name another person names him, that person is not a sub-agent but an agent of the principal for that part of the business; Contrast with an ordinary sub-agent.
Undisclosed principal: Section 231: principal may require performance; other party has against the principal the same rights as against the agent. Section 232: principal's performance is subject to the rights and obligations between agent and the other party; Set-off against the agent's debt is allowed.

Quick revision

Section 10: free consent, competent parties, lawful consideration, lawful object, not expressly declared void.
Section 11: a person must be of the age of majority, of sound mind, and not disqualified by any law.
Section 25: an agreement without consideration is void unless one of the three listed exceptions applies.
Section 25(1) needs writing, registration and natural love and affection between near relations.
Inadequate consideration does not by itself make an agreement void if consent was freely given.
Section 14: consent is free when not caused by coercion, undue influence, fraud, misrepresentation or mistake.
Section 19: consent caused by coercion, fraud or misrepresentation makes the contract voidable at the option of the affected party.
Section 19 exception: a party who could have found the truth with ordinary diligence cannot avoid the contract for misrepresentation.
Section 16: undue influence arises where one party can dominate the other's will and uses that position to gain an unfair advantage.
Section 21: a mistake as to a law in force in India does not make a contract voidable.
Section 238: an agent's fraud or misrepresentation in the course of business binds the principal as if it were the principal's own.
Section 133: a variance in the contract terms without the surety's consent discharges the surety for later transactions.

Common mistakes

Treating agreement and contract as the same thing. Fix: Write both definitions: Section 2(e) for agreement and Section 2(h) for contract. Say every contract is an agreement, but not every agreement is a contract.
Saying a voidable contract is void. Fix: A void agreement is not enforceable by law at all. A voidable contract is enforceable until the aggrieved party avoids it. Link voidable to Section 2(i).
Writing that a minor's agreement is voidable. Fix: Write void ab initio. A minor has no option to affirm it, and it cannot be ratified on attaining majority.
Saying a minor can ratify the agreement after turning eighteen. Fix: Ratification needs a valid original agreement. Since the agreement was void from the start, a fresh agreement with fresh consideration is required.
Saying a written promise to a son or wife is valid without registration. Fix: Write all conditions: writing, registration, near relation, natural love and affection. If registration is missing, the promise is void.
Treating the past-service exception as covering any past favour. Fix: The act must have been done for the promisor and voluntarily, or be something the promisor was legally compellable to do. The later promise must be to compensate for it.
Saying a contract made under coercion, fraud or undue influence is void. Fix: Write 'voidable at the option of the party whose consent was so caused' and cite Section 19 or 19A. The contract is valid until that party avoids it.
Treating undue influence as covered by Section 19. Fix: The words 'undue influence' were removed from Section 19 in 1899. Cite Section 19A for its effect.
Saying a mistake of Indian law makes the agreement void or voidable. Fix: Remember Section 21: a mistake as to law in force in India does not make a contract voidable.
Treating a unilateral mistake of fact as making the contract void. Fix: Ask who is mistaken. Void needs both parties. One party's mistake alone gives no relief under Section 22.

Exam tips

Begin every answer with the definition from Section 2 that the question depends on. Examiners look for the clause number.
For void versus voidable, write one line for each with its clause: Section 2(g) and Section 2(i). Then give a short example of each.
In case-based questions, set out the timeline of proposal, acceptance and revocation before you apply Section 5 and Section 6.
End each answer with a one-line conclusion that names the class of contract and its effect.
When you mention illegal or unenforceable agreements, say they are accepted classifications and do not attach a section number.
Always quote Section 11 first, then Section 12 if the facts mention illness, delirium or drunkenness. Examiners look for the provision before the analysis.
In problems, write the age at the date of the agreement and compare it with eighteen, noting the twenty-one-year exception where relevant.
For the minor, write void ab initio and name Mohori Bibee v. Dharmodas Ghose as the source of the rule. Do not attribute it to the wording of Section 11.