Indian Contract Act, 1872 – Sections 10–22: Valid Contracts, Capacity and Free Consent

SECTION 10 - WHAT AGREEMENTS ARE CONTRACTS

Section 10 lays down the basic requirements which must be satisfied before an agreement becomes a contract enforceable by law.

All agreements are contracts if they are:

• made by the free consent of the parties;
• made by parties competent to contract;
• supported by lawful consideration;
• made for a lawful object; and
• not expressly declared to be void by the Contract Act.

Thus, an offer and its acceptance create an agreement, but the agreement becomes a contract only when the other legal requirements are also satisfied.

FREE CONSENT

The parties must enter into the agreement with free consent.

Consent is not free when it is caused by:

• coercion;
• undue influence;
• fraud;
• misrepresentation; or
• mistake, subject to Sections 20-22.

The meaning of consent and free consent is dealt with in detail in Sections 13-22.

COMPETENCY OF PARTIES

The parties must be competent to contract according to Section 11.

A person is not competent to contract if he:

• has not attained the age of majority;
• is not of sound mind for the purpose of the particular contract; or
• is disqualified from contracting by any law applicable to him.

LAWFUL CONSIDERATION AND LAWFUL OBJECT

The consideration for the agreement and the object of the agreement must both be lawful.

The circumstances in which consideration or object becomes unlawful are dealt with principally in Sections 23 and 24.

AGREEMENT MUST NOT BE EXPRESSLY DECLARED VOID

Even where the parties are competent and have freely agreed, the agreement will not become a contract if the Act expressly declares that type of agreement to be void.

The Act later declares certain agreements void, including:

• certain agreements without consideration - Section 25;
• agreements in restraint of marriage - Section 26;
• agreements in restraint of trade - Section 27;
• agreements in restraint of legal proceedings - Section 28;
• uncertain agreements - Section 29; and
• wagering agreements - Section 30.

Thus, mere consent of the parties is not enough. The agreement must also satisfy the legal requirements imposed by the Act.

CONTRACTS REQUIRING SPECIAL FORMALITIES

The second paragraph of Section 10 makes it clear that the Contract Act does not override any other law which requires a particular transaction to be:

• made in writing;
• made in the presence of witnesses; or
• registered.

Therefore, although the Contract Act does not generally require every contract to be in writing, some transactions must satisfy additional formalities under other laws.

For example, where another law requires a registered instrument for a particular transfer of immovable property, Section 10 cannot dispense with that requirement.

Accordingly, the requirements of the Contract Act must be satisfied along with any special requirement of writing, attestation or registration imposed by another applicable law.

SECTION 11 - WHO ARE COMPETENT TO CONTRACT

Section 11 provides that every person is competent to contract who:

1. has attained the age of majority according to the law to which he is subject;
2. is of sound mind; and
3. is not disqualified from contracting by any law to which he is subject.

All three requirements must be satisfied.

AGE OF MAJORITY

Under the Majority Act, 1875, a person domiciled in India ordinarily attains majority on completing 18 years of age.

A person below that age is a minor and does not possess the ordinary contractual capacity required by Section 11.

MINOR'S AGREEMENT IS VOID FROM THE BEGINNING

The most important rule relating to a minor is that an agreement made by a minor is void ab initio, that is, void from the very beginning.

It is not merely voidable at the option of the minor.

Mohori Bibee v. Dharmodas Ghose (1903)

Dharmodas Ghose, while still a minor, mortgaged his property in favour of a money-lender. The money-lender's agent knew that Dharmodas was a minor at the time of the transaction.

The Privy Council held that Section 11 makes a minor incompetent to contract. Therefore, the mortgage agreement entered into by the minor was void from the beginning.

The importance of the case lies in the distinction between a void and a voidable transaction. A voidable contract remains valid until the person entitled to avoid it chooses to do so. A minor's agreement, on the other hand, does not become an enforceable contract against the minor in the first place.

MINOR'S AGREEMENT CANNOT ORDINARILY BE RATIFIED AFTER MAJORITY

Since an agreement made during minority is void from the beginning, it cannot ordinarily be made valid merely by the minor ratifying it after attaining majority.

Ratification normally relates back to the date of the original transaction. But in the case of a minor, there was no valid contract at that earlier stage which could later be ratified.

Suraj Narain Dube v. Sukhu Aheer (1928)

Money had been advanced to the defendant during his minority. After attaining majority, he made another promise relating to the earlier liability.

The Court held that the liability arising from the transaction made during minority could not become enforceable merely because the person, after attaining majority, promised to honour it.

A person who has attained majority may, however, enter into a fresh contract supported by fresh lawful consideration. Such a transaction is a new contract and not a ratification of the earlier void agreement.

FALSE REPRESENTATION OF AGE AND ESTOPPEL

Suppose a minor falsely represents that he is a major and enters into an agreement on that basis.

The mere fact that he falsely stated his age does not ordinarily make the otherwise void agreement enforceable against him.

The doctrine of estoppel cannot generally be used to achieve indirectly what Section 11 prohibits directly. The minor may therefore prove his true age even though he had earlier represented himself to be an adult.

R. Leslie Ltd. v. Sheill (1914)

A minor falsely represented himself to be of full age and obtained loans on that basis.

The lender attempted to recover the money by framing the claim as one based on fraud. The Court refused to impose liability where doing so would, in substance, amount to enforcing the minor's contractual obligation indirectly.

The protection given to a minor cannot therefore ordinarily be defeated merely by changing the form of the action.

This rule does not mean that a minor can always retain property or benefits obtained by fraud. In an appropriate case, restitutionary relief may be available. However, restitution cannot simply be used as another method of enforcing a void contract against the minor.

Khan Gul v. Lakha Singh (1928)

A minor entered into a transaction for the sale of property after falsely representing himself to be of full age and received consideration under the transaction.

The Court held that the minor was not estopped from pleading his minority. A rule of estoppel cannot be used to make enforceable a contract which the law declares the minor incompetent to enter into.

However, the Court also recognised that where a minor has obtained a benefit by fraudulently misrepresenting his age, the Court may, in an appropriate case, require him to restore the benefit received. Such restitution does not amount to enforcing the void contract against the minor.

MINOR MAY BE A BENEFICIARY

Section 11 prevents a minor from binding himself through an ordinary contract. It does not prevent a minor from receiving a legal benefit.

A minor may, for example:

• receive a gift;
• be a promisee or beneficiary under a transaction made for his benefit; or
• acquire property through a legally recognised mode.

The law protects the minor from contractual liability; it does not require every transaction beneficial to him to be treated as void.

CONTRACT MADE BY A GUARDIAN ON BEHALF OF A MINOR

A contract made personally by a minor must be distinguished from a contract entered into on behalf of the minor by a competent guardian.

Srikakulam Subrahmanyam v. Kurra Subba Rao (1948)

A guardian entered into a transaction concerning the minor's property. The transaction was entered into within the guardian's authority and was for the benefit of the minor.

The Privy Council recognised that a contract entered into by a competent guardian on behalf of a minor may bind the minor where the guardian had authority to enter into it and the transaction was for the minor's benefit.

Therefore, the rule that a minor's own agreement is void does not mean that every transaction entered into by a guardian on behalf of a minor must also be void.

NECESSARIES SUPPLIED TO A MINOR

A minor is not personally liable under an ordinary contract even where necessaries have been supplied to him.

However, Section 68 provides a right of reimbursement from the property of a person incapable of contracting where necessaries suited to his condition in life are supplied:

• to that person; or
• to someone whom he is legally bound to support.

Thus, the liability under Section 68 is against the property of the minor, and not a personal contractual liability of the minor.

The detailed rules relating to necessaries are dealt with under quasi-contractual obligations.

OTHER LEGAL DISQUALIFICATIONS

Section 11 also requires that a person must not be disqualified from contracting by any law to which he is subject.

The Contract Act does not itself give an exhaustive list of every possible disqualification.

Depending upon the circumstances, contractual capacity may also be affected by special laws relating to matters such as:

• corporations and statutory bodies;
• insolvency;
• enemy subjects during hostilities; or
• other special legal restrictions.

The important point is that competency depends not only upon age and soundness of mind but also upon the absence of any legal disqualification applicable to that person.

SECTION 12 - WHAT IS A SOUND MIND FOR THE PURPOSE OF CONTRACTING

Section 12 determines soundness of mind with reference to the time at which the contract is made.

A person is of sound mind for the purpose of making a contract if, at that time, he is capable of:

1. understanding the contract; and
2. forming a rational judgment as to its effect upon his interests.

Both requirements must be satisfied.

The question is therefore not merely whether a person is generally described as sane or insane. The real question is whether he possessed the required mental capacity at the particular time when the contract was made.

PERSON USUALLY OF UNSOUND MIND

A person who is usually of unsound mind but occasionally becomes of sound mind may make a valid contract during a lucid interval, when he possesses the capacity required by Section 12.

PERSON USUALLY OF SOUND MIND

A person who is normally of sound mind may nevertheless become temporarily incapable of contracting.

If, at the time of the transaction, he cannot understand the contract or form a rational judgment about its effect upon his interests, he is not competent to contract at that time.

Statutory Illustration

A sane person who is:

• delirious because of fever; or
• so intoxicated that he cannot understand the terms of the contract or form a rational judgment about their effect,

cannot make a contract while that condition continues.

Thus, contractual capacity under Section 12 is both time-specific and transaction-specific.

INTOXICATION

Mere consumption of alcohol does not automatically make a person incapable of contracting.

The intoxication must be of such a degree that, at the time of the contract, the person is unable:

• to understand the transaction; or
• to form a rational judgment about its effect upon his interests.

Therefore, the relevant question is not simply whether the person had consumed alcohol, but whether the intoxication had actually destroyed the mental capacity required by Section 12.

SECTION 13 - “CONSENT” DEFINED

Section 13 provides that two or more persons consent when they agree upon the same thing in the same sense.

This is commonly expressed by the Latin phrase consensus ad idem, meaning that the parties must have a common understanding regarding the essential terms of the agreement.

Example

A agrees to buy B's car bearing registration number X. B believes that the agreement relates to his different car bearing registration number Y.

If the circumstances show that the parties were genuinely referring to different cars and the ambiguity cannot otherwise be resolved, there may be no consent because they were not agreeing upon the same thing in the same sense.

Raffles v. Wichelhaus (1864) - The “Peerless” Case

The parties entered into an agreement for the sale of cotton to arrive from Bombay on a ship named Peerless. Unknown to them, there were two ships of that name, one sailing in October and the other in December.

One party had one ship in mind, while the other party had the other ship in mind.

The Court held that there was no binding agreement because the parties had not agreed upon the same thing in the same sense.

The case is a classic example of absence of consensus ad idem due to ambiguity regarding the subject matter of the agreement.

ABSENCE OF CONSENT AND ABSENCE OF FREE CONSENT

The two situations must be distinguished.

Section 13 asks whether there was consent at all.

Section 14 asks whether the consent, though present, was freely given.

For example, if A believes that he is signing a guarantee but, because of a fundamental deception about the nature of the document, he is actually signing a sale deed, the question may relate to the very existence of consent.

On the other hand, if A knows that he is signing a sale deed but signs it because B has coerced him, there is consent, but the consent is not free.

This distinction becomes important while dealing with fraud, mistake and the effect of defective consent.

SECTION 14 - “FREE CONSENT” DEFINED

Consent is said to be free when it is not caused by:

1. coercion - Section 15;
2. undue influence - Section 16;
3. fraud - Section 17;
4. misrepresentation - Section 18; or
5. mistake, subject to Sections 20, 21 and 22.

Consent is regarded as caused by any of these factors when it would not have been given but for the existence of that factor.

Thus, the coercion, fraud, misrepresentation, undue influence or mistake must have actually affected the decision of the person to enter into the agreement.

The legal effect is not the same in every case. Coercion, fraud and misrepresentation ordinarily make the contract voidable under Section 19, while undue influence is dealt with separately under Section 19A. A bilateral mistake regarding an essential fact makes the agreement void under Section 20.

SECTION 15 - “COERCION” DEFINED

Section 15 recognises coercion in two broad forms:

1. committing or threatening to commit an act forbidden by the penal law referred to in the section; or
2. unlawfully detaining or threatening to detain any property.

Such conduct must be:

• to the prejudice of any person whatever; and
• done with the intention of causing any person to enter into an agreement.

COERCION MAY BE DIRECTED AGAINST ANOTHER PERSON

The threatened act need not necessarily be directed against the person who enters into the agreement.

For example, if A threatens unlawful harm to B's child unless B signs an agreement, the pressure may amount to coercion.

Similarly, coercion need not necessarily be exercised by the other contracting party himself. The important question is whether the coercive act caused the person to enter into the agreement.

Chikkam Ammiraju v. Chikkam Seshamma (1917)

A husband threatened to commit suicide unless his wife and son executed a release deed in his favour.

The Court held that the threat amounted to coercion under Section 15 as it then stood. The case is particularly important for showing the wide meaning of the words “to the prejudice of any person whatever.”

Ranganayakamma v. Alwar Setti (1889)

A young widow was prevented from removing her husband's body for cremation unless she consented to an adoption.

Her consent was held not to be free. The pressure exercised upon her amounted to coercion.

The case shows that coercion is not confined to direct physical violence against the person entering into the agreement.

UNLAWFUL DETENTION OF PROPERTY

Coercion also includes:

• unlawful detention of property; or
• a threat to unlawfully detain property,

when it is done with the intention of causing a person to enter into an agreement.

For example, if A unlawfully refuses to return B's valuable documents unless B signs a settlement in A's favour, the conduct may amount to coercion.

PLACE WHERE COERCION IS EMPLOYED

The Explanation to Section 15 makes it immaterial whether the penal law referred to in the section is or is not in force at the place where the coercion is employed.

Thus, the nature of the act is judged by the standard adopted by Section 15 and not merely by the law prevailing at the place where the pressure was exercised.

SECTION 16 - “UNDUE INFLUENCE” DEFINED

A contract is induced by undue influence where:

1. the relationship between the parties is such that one party is in a position to dominate the will of the other; and
2. that position is used to obtain an unfair advantage over the other.

Both requirements must be present.

Mere influence is not enough. The influence must be used unfairly.

WHEN A PERSON IS DEEMED TO DOMINATE THE WILL OF ANOTHER

Section 16(2) identifies certain situations in which a person may be in a position to dominate the will of another.

Real or Apparent Authority

A person may be in such a position where he holds real or apparent authority over the other.

Fiduciary Relationship

A person may also dominate the will of another where there is a fiduciary relationship between them.

Depending upon the circumstances, such relationships may include:

• parent and child;
• guardian and ward;
• trustee and beneficiary;
• advocate and client;
• spiritual adviser and devotee; and
• doctor and patient.

The existence of such a relationship does not by itself make every transaction invalid. The dominant position must have been used to obtain an unfair advantage.

Mental Capacity Affected by Age, Illness or Distress

A person is also deemed to be in a position to dominate another's will where he contracts with a person whose mental capacity is temporarily or permanently affected by:

• age;
• illness;
• mental distress; or
• bodily distress.

STATUTORY ILLUSTRATIONS

A father who has advanced money to his son during the son's minority and, after the son becomes major, uses parental influence to obtain a bond for an excessive amount employs undue influence.

Similarly, where a medical attendant uses the weakness of a person affected by disease or age to obtain an unreasonable payment for professional services, the transaction may be induced by undue influence.

The Act also illustrates the case of a debtor obtaining a fresh loan from a village money-lender on terms which appear unconscionable. Where the money-lender is in a position to dominate the debtor's will, the burden may fall upon him to prove that the transaction was not induced by undue influence.

However, every hard bargain is not undue influence. If, during severe financial stringency, a banker offers money only at a very high rate of interest and the transaction is merely an ordinary commercial bargain, the high rate alone does not establish undue influence.

BURDEN OF PROOF - SECTION 16(3)

Where:

1. one party is in a position to dominate the will of the other; and
2. the transaction appears unconscionable either on its face or from the evidence,

the burden of proving that the contract was not induced by undue influence lies upon the party who was in the dominant position.

The Court should not begin merely by asking whether the bargain appears harsh. It must first consider the relationship between the parties and whether one was in a position to dominate the other's will.

Raghunath Prasad v. Sarju Prasad (1924)

The Privy Council explained the proper order in which Section 16 should be applied.

The Court must first determine whether one party was in a position to dominate the will of the other. It must then consider whether that position was used to obtain an unfair advantage. The question of shifting the burden of proof arises only after the statutory conditions are satisfied.

Thus, the mere fact that a transaction appears unreasonable or unconscionable does not by itself prove undue influence.

Subhas Chandra Das Mushib v. Ganga Prosad Das Mushib (1967)

The Supreme Court held that a close relationship by itself does not create an automatic presumption of undue influence.

A person may exercise influence over another in a perfectly legitimate manner. The influence becomes legally objectionable only when the dominant position is used to obtain an unfair advantage.

The case therefore emphasises the difference between influence and undue influence.

CURRENT EVIDENCE LAW

Section 16(3) contains a reference to the earlier evidence law relating to transactions between persons standing in a relationship of active confidence.

The corresponding rule is now found in Section 114 of the Bharatiya Sakshya Adhiniyam, 2023. Where the good faith of a transaction is in question and one party stands to the other in a position of active confidence, the burden of proving good faith lies upon the person occupying that position.

COERCION AND UNDUE INFLUENCE

Coercion under Section 15 generally involves unlawful pressure through a prohibited act or threat, or through unlawful detention of property.

Undue influence under Section 16 arises from a relationship in which one party is able to dominate the will of another and uses that position unfairly.

Coercion does not require any special relationship between the parties and may even operate through a threat directed against a third person. Undue influence normally depends upon the relationship between the contracting parties.

SECTION 17 - “FRAUD” DEFINED

Fraud involves deliberate deception.

The acts mentioned in Section 17 must be committed:

• by a party to the contract;
• with his connivance; or
• by his agent,

with the intention:

• to deceive another party or his agent; or
• to induce him to enter into the contract.

Section 17 recognises five forms of fraud.

1. FALSE SUGGESTION OF FACT

Fraud includes suggesting as a fact something:

• which is not true; and
• which the person making the statement does not believe to be true.

Therefore, the state of mind of the person making the statement is important.

Derry v. Peek (1889)

The directors of a company issued a prospectus containing an incorrect statement concerning the company's right to use steam power.

The House of Lords explained that fraud exists where a false representation is made:

• knowingly;
• without belief in its truth; or
• recklessly, without caring whether it is true or false.

The case remains a leading authority on the mental element required for fraudulent representation.

2. ACTIVE CONCEALMENT

Fraud includes active concealment of a fact by a person who knows or believes that fact to exist.

Active concealment involves some positive effort to hide the truth and is different from mere silence.

For example, if A knows that machinery has a serious defect and deliberately covers the damaged part before B inspects it, the conduct may amount to active concealment.

3. PROMISE WITHOUT INTENTION TO PERFORM

A promise made without any intention of performing it at the time when it is made amounts to fraud.

For example, A obtains money from B by promising to deliver goods, although at the time of making the promise A has already decided that he will never supply them.

However, a genuine promise does not become fraudulent merely because the promisor later fails to perform it. A subsequent breach of contract is not by itself proof that the original promise was fraudulent.

4. ANY OTHER ACT FITTED TO DECEIVE

Section 17 also includes any other act fitted to deceive.

This keeps the definition wide enough to cover deliberate deception which may not fall exactly within the earlier categories.

5. ACT OR OMISSION SPECIALLY DECLARED FRAUDULENT

An act or omission which the law specifically declares to be fraudulent is also treated as fraud.

MERE SILENCE IS ORDINARILY NOT FRAUD

As a general rule, merely remaining silent about a fact which may affect another person's willingness to enter into a contract does not amount to fraud.

The statutory illustration gives the example of a seller who knows that his horse is unsound but says nothing about it while selling the horse by auction. Mere silence, without anything more, is not fraud.

However, there are two important exceptions.

Duty to Speak

Silence amounts to fraud where the circumstances create a duty to disclose the truth.

For example, where a daughter who has just attained majority is dealing with her father, the relationship may create a duty upon the father to disclose material facts.

Silence Equivalent to Speech

Silence may also amount to fraud where, in the circumstances, silence itself amounts to a representation.

For example, B tells A:

“If you do not deny it, I shall assume that the horse is sound.”

If A deliberately remains silent in circumstances where his silence clearly confirms the statement, the silence may amount to fraud.

The Act also makes it clear that in an ordinary commercial transaction one trader is not generally required to disclose private market information merely because it would affect the other trader's decision.

Shri Krishan v. Kurukshetra University (1976)

A student was allowed to appear in an examination although questions later arose regarding his eligibility. The relevant information was available to the University and could have been discovered from its own records.

The Supreme Court did not treat the circumstances as fraud merely on the basis of non-disclosure.

The case is commonly associated with the principle that mere silence or non-disclosure does not automatically amount to fraud, particularly where the other party had the means of discovering the true position.

SECTION 18 - “MISREPRESENTATION” DEFINED

Misrepresentation differs from fraud mainly because there is no intention to deceive.

Section 18 recognises three forms of misrepresentation.

1. INNOCENT FALSE ASSERTION

Misrepresentation includes a positive assertion:

• which is not warranted by the information of the person making it;
• which is not true; but
• which that person honestly believes to be true.

For example, A tells B that a plot contains ten acres because A honestly relies upon an incorrect record. If the plot actually contains only eight acres, the statement may amount to misrepresentation even though A had no intention to deceive B.

2. BREACH OF DUTY WITHOUT INTENTION TO DECEIVE

Misrepresentation also includes a breach of duty which:

• is committed without an intention to deceive;
• gains an advantage to the person committing it or someone claiming under him; and
• misleads another person to his prejudice.

Dishonest intention is therefore not necessary under this part of Section 18.

For example, A is an agent employed by B to purchase a piece of land. Because of his position, A is under a duty to disclose all material facts to B. A learns that the land can be purchased for ₹8 lakh, but without any intention to deceive B, he fails to disclose this fact and arranges the transaction in a manner by which he himself obtains an advantage. B, believing the transaction to be on proper terms, pays ₹10 lakh.

Here, even though A had no dishonest intention, his breach of duty gave him an advantage and misled B to B’s prejudice. It therefore amounts to misrepresentation.

3. INNOCENTLY CAUSING MISTAKE AS TO SUBSTANCE

Misrepresentation also includes innocently causing a party to make a mistake regarding the substance of the thing which is the subject of the agreement.

Thus, Section 18 is not confined merely to spoken or written false statements.

For example, A sells a ring to B, both believing it to be made of gold. A innocently leads B to purchase it on that basis, but the ring is actually made of another metal. B has been caused to make a mistake as to the substance of the subject-matter.

FRAUD AND MISREPRESENTATION

The essential difference lies in the intention of the person making the representation.

In fraud, the deception is intentional. The person knows that the statement is false, does not believe it to be true, or otherwise deliberately deceives the other party.

In misrepresentation, there is no intention to deceive. The person may honestly believe that what he says is true.

SECTION 19 - VOIDABILITY OF AGREEMENTS WITHOUT FREE CONSENT

Where consent to an agreement is caused by:

• coercion;
• fraud; or
• misrepresentation,

the agreement becomes a contract voidable at the option of the party whose consent was so caused.

A voidable contract is not automatically void. It remains effective unless the party entitled to avoid it chooses to do so.

The aggrieved party may therefore ordinarily:

• affirm the contract; or
• rescind it.

Undue influence is separately governed by Section 19A.

RIGHT TO INSIST UPON PERFORMANCE IN CASE OF FRAUD OR MISREPRESENTATION

Where consent has been caused by fraud or misrepresentation, the aggrieved party has another option.

Instead of rescinding the contract, he may insist:

• that the contract be performed; and
• that he be placed in the position in which he would have been if the representation had been true.

For example, if A falsely represents to B that an estate is free from mortgage and B purchases it, B may either avoid the contract or insist upon performance in a manner which gives him the position represented to him.

This special option applies to fraud and misrepresentation, not to coercion.

ORDINARY DILIGENCE

Where consent was caused by:

• misrepresentation; or
• silence which amounts to fraud under Section 17,

the contract is not voidable if the aggrieved party had the means of discovering the truth with ordinary diligence.

This exception is limited. It does not extend in the same manner to every case of deliberate active fraud.

FRAUD OR MISREPRESENTATION MUST HAVE CAUSED CONSENT

Fraud or misrepresentation does not make a contract voidable if it did not actually cause the other party's consent.

If B already knows that A's statement is false but nevertheless enters into the contract for independent reasons, B cannot ordinarily avoid the contract merely because A made a false statement.

FRAUD AFFECTING CONTENTS AND FRAUD AFFECTING CHARACTER OF DOCUMENT

A distinction must be made between deception which merely affects free consent and deception which prevents consent altogether.

Ningawwa v. Byrappa (1968)

The Supreme Court distinguished between two situations.

Where a person understands the nature of the document but is deceived regarding some of its contents, the transaction is ordinarily voidable.

But where a person is deceived regarding the very nature or character of the document, there may be no real consent at all and the transaction may be void.

Thus, fraud which merely affects the freedom of consent ordinarily makes a transaction voidable, while fraud which destroys consent itself may prevent a valid transaction from coming into existence.

SECTION 19A - CONTRACT INDUCED BY UNDUE INFLUENCE

Where consent is caused by undue influence, the contract is voidable at the option of the party whose consent was so caused.

The Court may set aside the contract:

• completely; or
• where the affected party has received some benefit, upon such terms and conditions as the Court considers just.

This allows the Court to protect the weaker party while also taking account of any genuine benefit already received.

Statutory Illustration

A money-lender advances ₹100 to an agriculturist and, by undue influence, obtains a bond for ₹200 carrying an excessive rate of interest.

The Court may set aside the bond but may require the borrower to repay the amount actually advanced along with such interest as the Court considers reasonable.

Raghunath Prasad v. Sarju Prasad (1924)

As already discussed under Section 16, the mere fact that a bargain is harsh is not enough.

The Court must first find the relationship of domination and the use of that position to obtain an unfair advantage before granting relief on the ground of undue influence.

SECTION 20 - AGREEMENT VOID WHERE BOTH PARTIES ARE UNDER MISTAKE OF FACT

Section 20 applies where:

1. both parties are under a mistake;
2. the mistake concerns a matter of fact; and
3. that fact is essential to the agreement.

Where these conditions are satisfied, the agreement is void.

The mistake must therefore be mutual. A mistake made only by one party is ordinarily governed by Section 22.

MISTAKE MUST RELATE TO AN ESSENTIAL FACT

Every factual mistake does not make an agreement void.

The mistake must concern something fundamental to the agreement, such as:

• existence of the subject matter;
• identity of the subject matter;
• title or essential rights;
• quantity or area where fundamental to the bargain; or
• some other basic fact upon which the agreement depends.

MISTAKE AS TO VALUE

The Explanation to Section 20 expressly provides that an erroneous opinion regarding the value of the subject matter is not a mistake of fact for this purpose.

Thus, if both parties believe that a painting is worth ₹5 lakh and it later turns out to be worth much less, the agreement does not become void merely because their estimate of its value was wrong.

NON-EXISTENCE OF SUBJECT MATTER

The statutory illustrations make it clear that an agreement may be void where both parties believe that the subject matter exists when it had already ceased to exist.

Couturier v. Hastie (1856)

The parties entered into a contract concerning a cargo of corn which, unknown to both of them, had already ceased to exist in the contemplated form before the agreement was made.

The transaction failed because the basic subject matter assumed by both parties did not exist.

The case is a classic authority on common mistake regarding the existence of the subject matter.

The same principle is reflected in the statutory illustration where A agrees to buy a particular horse from B, but unknown to both parties the horse had already died.

MISTAKE AS TO TITLE OR RIGHTS

Cooper v. Phibbs (1867)

A person agreed to take a lease of a fishery from another person, both parties believing that the latter had the right to grant the lease. It was later discovered that the person taking the lease already had a beneficial interest in the fishery.

The agreement was affected by a common mistake concerning the rights of the parties in the subject matter.

The case is a leading example of mutual mistake relating to title or existing rights.

RAFFLES v. WICHELHAUS (1864)

The Peerless case discussed under Section 13 also illustrates how a fundamental misunderstanding about the identity of the subject matter may prevent a real agreement.

The case therefore has a close connection with both:

• Section 13, relating to consensus ad idem; and
• Section 20, relating to mutual mistake of essential fact.

TARSEM SINGH v. SUKHMINDER SINGH (1998)

The parties entered into an agreement for sale of land, but there was a fundamental mutual mistake concerning the area or unit of measurement and consequently the basis on which the price was calculated.

The Supreme Court held that Section 20 requires a mutual mistake regarding a fact essential to the agreement. Where both parties are mistaken regarding such a fundamental matter, the agreement is void.

The Court also held that where the agreement itself was void because of mutual mistake, a forfeiture clause contained in that agreement could not simply be used to forfeit the earnest money.

SECTION 21 - EFFECT OF MISTAKE AS TO LAW

Section 21 distinguishes between:

• mistake regarding a law in force in India; and
• mistake regarding a law not in force in India.

MISTAKE OF INDIAN LAW

A contract is not voidable merely because it was caused by a mistake regarding a law in force in India.

This reflects the general principle that ignorance or misunderstanding of the law ordinarily does not provide a ground for avoiding a contract.

Statutory Illustration

A and B enter into a contract on the mistaken belief that a particular debt is barred by the Indian law of limitation.

The contract is not voidable merely because their understanding of the law was incorrect.

MISTAKE OF FOREIGN LAW

A mistake regarding a law not in force in India is treated in the same manner as a mistake of fact.

Therefore, if both parties are mistaken about foreign law and that mistake concerns a matter essential to the agreement, Section 20 may become relevant.

SECTION 22 - MISTAKE OF ONE PARTY AS TO MATTER OF FACT

Section 22 deals with unilateral mistake.

A contract is not voidable merely because one of the parties was under a mistake as to a matter of fact.

Thus, a private mistake or assumption made by one party does not ordinarily destroy an otherwise valid contract.

Smith v. Hughes (1871)

A buyer purchased oats after inspecting a sample. He believed that the oats were old oats, while in fact they were new oats. The seller had not undertaken that they were old.

The Court held that the buyer's private mistake did not by itself prevent the formation of the contract.

The case illustrates the objective approach to agreement: a party's uncommunicated assumption does not ordinarily invalidate a transaction where the outward words and conduct show agreement.

WHERE UNILATERAL MISTAKE PREVENTS CONSENT ITSELF

Section 22 states that a contract is not voidable merely because one party is mistaken.

However, there are situations where the mistake is so fundamental that there may be no consent at all under Section 13.

The two most important situations concern:

• identity of the person with whom the contract is made; and
• nature or character of the document signed.

MISTAKE AS TO IDENTITY

Cundy v. Lindsay (1878)

A rogue named Blenkarn placed an order by correspondence in such a manner that the sellers believed they were dealing with a well-known and reputable firm called Blenkiron & Co.

The sellers intended to contract with that firm and not with Blenkarn.

The House of Lords held that there was no contract between the sellers and Blenkarn because the mistake concerning identity went to the root of consent.

Thus, where the identity of the other contracting party is of fundamental importance, a mistake regarding identity may prevent consensus ad idem altogether.

MISTAKE AS TO NATURE OF DOCUMENT

Foster v. Mackinnon (1869)

An elderly person was induced to sign a document believing that it was a guarantee. In reality, it was a bill of exchange.

The Court recognised that where a person signs a document under a fundamental mistake regarding its nature or character, the plea of non est factum may apply.

In such a case, the document may be void because the person never truly consented to the fundamentally different transaction contained in it.

The same basic distinction was recognised by the Supreme Court in Ningawwa v. Byrappa (1968). A mistake or fraud concerning the contents of a document ordinarily makes the transaction voidable, while a fundamental mistake concerning the very character of the document may prevent consent altogether.

Therefore, Section 22 does not mean that every unilateral mistake is legally irrelevant. The ordinary rule is that unilateral mistake does not make a contract voidable, but where the mistake destroys the very basis of consent, Section 13 becomes relevant.

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