CSEET · Business Laws and Management

Elements of Law of Contracts: formula sheet

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Key formulas

Section 10 checklist: Valid contract = agreement + free consent + competent parties + lawful consideration + lawful object + not expressly declared void; All conditions must be present together. Failing any one stops the agreement from being a valid contract.
Agreement and contract: Contract = agreement enforceable by law; Every contract is an agreement. Not every agreement is a contract.
Lawful consideration and object (Section 23): Unlawful if: forbidden by law | defeats a law | fraudulent | injury to person or property of another | immoral or opposed to public policy; An agreement whose object or consideration is unlawful is void.
No consideration (Section 25): Agreement without consideration is void, except: (1) written, registered, natural love and affection between near relations; (2) promise to compensate for past voluntary act; (3) written, signed promise to pay a time-barred debt; In these three cases the agreement is a contract. Inadequate consideration alone does not make an agreement void if consent was free.
Other void agreements: Void: restraint of trade (s.27, to that extent) | unlawful in part (s.24) | uncertain (s.29) | impossible act (s.56); These come under 'expressly declared to be void'. Section 27 has an exception for sale of goodwill within reasonable local limits.
Writing and registration (Section 10, second part): Section 10 does not affect any law requiring writing, witnesses or registration; Oral contracts are valid unless some other law demands a form.
Valid contract: Valid contract = agreement + enforceable by law (all essentials present); Can be enforced by either party in a court.
Void vs voidable: Void: enforceable by no one. Voidable: enforceable until the aggrieved party rejects it.; The option to cancel belongs only to the party whose consent was not free.
Void agreement vs void contract: Void agreement = void from the start. Void contract = valid at first, later becomes void.; Section 56: a contract becomes void when the act becomes impossible or unlawful by an event the promisor could not prevent.
Express vs implied (Section 9): Express = in words. Implied = otherwise than in words.; Implied means conduct or circumstances. It is still a real contract.
Executed vs executory: Executed = nothing left to do. Executory = something still to be done.; A contract can be executed on one side and executory on the other.
Restoration after void (Section 65): Advantage received under a void agreement or a contract that becomes void must be restored or compensated for.; Example: advance of ₹1,000 for a concert that cannot happen must be refunded.
Communication of proposal (Section 4): Complete when it comes to the knowledge of the person to whom it is made; A letter is complete on receipt, not on posting.
Communication of acceptance (Section 4): Against proposer: when put in course of transmission. Against acceptor: when it reaches the proposer's knowledge; Posting binds the proposer first. The acceptor is bound only when the letter reaches the proposer.
Revocation of proposal (Sections 5 and 6): Allowed any time before acceptance is complete as against the proposer; Ends also by lapse of time, failure of a condition precedent, or death or insanity of proposer known to acceptor before acceptance.
Free consent (Section 14): Not caused by coercion, undue influence, fraud, misrepresentation or mistake; Caused means consent would not have been given but for the factor.
Coercion (Section 15): Committing or threatening an act forbidden by the Indian Penal Code, or unlawfully detaining or threatening to detain property, to cause a person to enter an agreement; It is immaterial whether the Indian Penal Code is in force where the coercion is used.
Undue influence (Section 16): One party can dominate the other's will and uses that position to gain unfair advantage; If the transaction looks unconscionable, the burden of proof lies on the dominating party.
Effect of defect (Sections 19 and 19A): Coercion, fraud, misrepresentation: voidable at option of the party whose consent was so caused. Undue influence: voidable, court may set aside; Voidable, not void. The innocent party may choose.
Mistake as to law (Section 21): Mistake as to law in force in India: contract not voidable. Mistake as to law not in force in India: same effect as mistake of fact; Illustration: both wrongly believe a debt is time-barred; the contract is not voidable.
Section 21: mistake of Indian law: Mistake as to a law in force in India → contract is NOT voidable; Applies to a mistake by one or both parties. The contract stays valid.
Section 21: mistake of foreign law: Mistake as to a law not in force in India = mistake of fact; Then check whether it is bilateral (Section 20) or unilateral (Section 22).
Section 20: bilateral mistake of fact: Both parties mistaken + fact essential to the agreement → agreement is VOID; Both conditions must be met. The Explanation says a wrong opinion about value does not count.
Section 22: unilateral mistake of fact: 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.
Definition (Section 31): Contingent contract = contract to do or not to do something, if some collateral event does or does not happen; The event must be collateral, meaning it is not part of the promised act itself.
Enforcement when event must happen (Section 32): Enforceable only after the event has happened; Until then, no one can sue to enforce it.
Event becomes impossible (Section 32): Event impossible → contract void; Example: A promises to pay B when B marries C. C dies unmarried to B. The contract is void.
Event must not happen (Section 33): Enforceable when the event's happening becomes impossible, and not before; Example: pay if a ship does not return. The ship sinks. Enforce when it sinks.
Future conduct of a person (Section 34): Event is impossible when the person does something that rules out acting that way within any definite time; Example: A pays B if B marries C. C marries D. B's marriage to C is now treated as impossible.
Impossible event (Section 36): Contingent agreement on an impossible event → void; Void whether or not the parties knew it was impossible when they made it.
Wager (Section 30): Wagering agreement → void; no suit to recover winnings; A contingent contract is not void for being contingent.
Section 31: contingent contract: Contract to do or not to do something if a collateral event does or does not happen; The event must be collateral, that is, it is not part of the main promise itself.
Section 35, first part (event must happen within fixed time): Void if time expires without the event, or the event becomes impossible before the time; If the event happens within the time, the contract can be enforced.
Section 35, second part (event must not happen within fixed time): Enforceable when time expires and event has not happened, or when it becomes certain before expiry that it will not happen; Section 35 says such contracts 'may be enforced by law'.
Section 32 (no time limit, event happens): Cannot be enforced until the event has happened; void if the event becomes impossible; Use it when the question gives no fixed time.
Section 33 (no time limit, event does not happen): Enforceable when the happening of the event becomes impossible, and not before; Use it when the question gives no fixed time.

Quick revision

Section 10: agreements are contracts if made by free consent of competent parties, for a lawful consideration and lawful object, and not expressly declared void.
Section 10 does not affect laws requiring writing, witnesses or registration for certain contracts.
Consent is free when not caused by coercion, undue influence, fraud, misrepresentation or mistake (Section 14).
Consent caused by coercion, fraud or misrepresentation makes the contract voidable at the option of the affected party (Section 19).
Exception: if consent was caused by misrepresentation, or by silence that is fraudulent under Section 17, the contract is not voidable where the party had the means of discovering the truth with ordinary diligence (Section 19).
Mistake as to a law in force in India does not make a contract voidable (Section 21). Mistake as to a law not in force in India is treated like a mistake of fact.
Both parties mistaken about an essential fact: the agreement is void (Section 20). A wrong opinion about value is not a mistake of fact.
Only one party mistaken about a fact: the contract is not voidable merely for that reason (Section 22).
A contingent contract depends on an event collateral to the contract (Section 31).
Contingent contract on an event happening: cannot be enforced until the event happens, and becomes void if the event becomes impossible (Section 32).
Contingent contract on an event not happening: enforceable when the event becomes impossible, and not before (Section 33).
With a fixed time (Section 35): a contract that an event will happen within the time becomes void if it has not happened by then or becomes impossible earlier. A contract that it will not happen can be enforced once the time expires without the event, or earlier if it becomes certain it will not happen.

Common mistakes

Treating agreement and contract as the same thing. Fix: Use the line: a contract is an agreement enforceable by law. Every contract is an agreement, but not every agreement is a contract.
Calling an agreement made by fraud void instead of voidable. Fix: Under Section 19, lack of free consent through coercion, fraud or misrepresentation makes it voidable at the option of the affected party.
Saying a voidable contract is void. Fix: Remember that a voidable contract is valid until the injured party avoids it. Only that party can choose to cancel it.
Treating void agreement and void contract as the same thing. Fix: Ask when the defect arose. At the start: void agreement. After a valid beginning: void contract.
Treating an advertisement or price tag as an offer. Fix: Ask if the person intends to be bound on a simple yes. Invitations to treat only invite offers.
Saying a contract with coercion or fraud is void. Fix: Under Section 19 it is voidable at the option of the party whose consent was so caused. It stays valid until that party avoids it.
Saying a contract made under a mistake of Indian law is void or voidable. Fix: Remember Section 21: mistake of Indian law never makes the contract voidable.
Treating foreign law mistakes the same as Indian law mistakes. Fix: A mistake about a law not in force in India is treated as a mistake of fact, so test it under Sections 20 and 22.
Saying a contingent contract is void just because it depends on an uncertain event. Fix: A contingent contract is not void merely because it is contingent. Enforcement waits for the event. It becomes void only in cases such as the event becoming impossible (Section 32) or being impossible when agreed (Section 36). A wager is void under Section 30.
Thinking the contract can be enforced as soon as it is signed. Fix: Under Section 32, enforcement starts only after the event has happened.

Exam tips

In the OMR paper, learn the exact list in Section 10: free consent, competent parties, lawful consideration, lawful object, not expressly declared void.
Questions often hide one defect in the facts. Find it before reading the options.
Be clear on void versus voidable: lack of free consent gives voidable, unlawful object or consideration gives void.
Remember the second part of Section 10 on writing, witnesses and registration. It is a common one-line MCQ.
For a written answer, give the definition, list the essentials, then apply them to the facts in order.
In MCQs, look for key words: 'at the option of' signals voidable, 'cannot be enforced by anyone' signals void.
Learn the pair void agreement and void contract with one example each. This pair is a frequent trap.
For Section 9, remember the test is words versus no words, not written versus oral. Oral contracts are express.