Contract

Contract

The term 'Contract' is defined under Section 2(h) of the Act. It provides that 'an agreement enforceable by law is a contract'. Therefore, from this definition we find that essential element of contract is (1) there should be an agreement and (2) it must have element of enforceability. Therefore, those agreements which are enforceable are called contracts. Enforceability means that it is recognized in the eyes of law and the courts of law will enforce the agreement.

Agreement

As far as 'agreement' is concerned, it is defined in Section 2(e). It provides that 'every promise and every set of promises, forming consideration for each other, is an agreement'. Section 2(b) provides that a proposal when accepted becomes promise. Thus, it can be said that a proposal when accepted becomes promise. Every promise is an agreement and when such agreement is enforceable by law it is called contract. 

For example, 'A' proposes to 'B' 'Will you buy this house for Rs 10 lacs'?'. This is a proposal from 'A'. 'B' replies "Yes I will buy the house for Rs 10 lacs'. This is an acceptance from 'B'. Now according to Section 2(b) a proposal when accepted becomes promise. This communication between 'A' and 'B' resulted in an agreement. For this agreement to convert to contract elements of enforceability are required.

For the purpose of enforceability we will now refer to Section 10. It lays down 'what agreements are contracts'. For an agreement to convert into contract, elements contained in Section 10 are to be complied with. It is only then the courts of law will enforce such agreement. It provides that all agreements are contracts if they are made by:-

(a) By free consent of parties [refer Sections 13-21]

(b) Parties competent to contract [refer Sections 11 and 12]

(c) For a lawful consideration [refer Section 23]

(d) With a lawful object [refer Section 23]

(e) Not expressly declared to be void [refer Sections 24-30]

An agreement, either it will be enforceable or not enforceable. If it is enforceable it is called a 'contract'. If it is not enforceable it is called 'void agreement'. Void agreement means void ab initio. It must be noted that there is no such concept of 'void contract'. A contract can never be void ab initio. 'Every contract is a an agreement but every agreement is not a a contract'.

There is another concept of 'voidable contract'. Section 2(i) provides that an agreement which is enforceable by law at the option of one or more of the parties, but not at the option of other is a voidable contract. Thus, a voidable contract may or may not be enforced at the option of one party. In this type of contract one of the parties can avoid or rescind the contract and go to the court for declaring it to be void. If the party insists on performance then the contract can be enforced as well.

1. There has to be a valid offer and acceptance.

2. There has to be consideration which must be lawful.

3. Parties must be competent to contract.

4. Consent of the parties should be free.

5. Object should be lawful.

6. It must not be otherwise declared to be void under the provisions of Contract Act or any other law.

It can be said that law determines whether the agreement is a contract or not. Generally, parties make agreement and then it is up to law to determine whether the agreement is a contract or not.

Standard form of contract

In such type of contracts the terms of the contract are pre-fixed by a party and other party cannot negotiate on such terms. He is just supposed to sign the contract without being in a position to bargain. It is also for the sake of convenience because when a large number of contracts are supposed to be entered into by a person then it is not possible to enter into contractual negotiations with each and every person. These are standardized contracts and the terms and conditions are generally written in 'fine print' which restrict and often exclude the liability under the contract. For example, contracts made with Railways, Life Insurance policies etc.

These kinds of contracts give opportunity to stronger parties to exploit weaker parties. Weaker party is not in a position to bargain and hence stronger party go to the extent of exempting the company from all liabilities under the contract. Therefore, legislature and courts have evolved the following rules to protect the interest of weaker party who is not in a position to bargain:-

(a) The notice should be adequate and reasonable: The proposer must give the adequate notice of the printed terms and conditions. For example, in Henderson v. Stevenson, (1875) 2 Sc & Div 470, plaintiff bought a steamer ticket and terms were printed on the back of the ticket. He was not told that the terms have been mentioned on the back of the ticket and neither there was any indication that terms are printed. Consequently, the plaintiff did not read the terms. One of the terms mentioned therein exempted the company from any loss or damage caused to the passenger or luggage. Plaintiff's luggage was lost due to fault of company. The court held that the company was liable for the loss because plaintiff could not have accepted the term which he has not seen. Therefore, if the document is given to the party a reasonably sufficient notice should be given of the presence of terms and conditions mentioned in the document.

(b) Notice should be contemporaneous with contract: The abovementioned notice should be given before or at the time of contract. If the notice is given subsequently then it will not bind the parties.

(c) Terms of contract should be reasonable: Term is unreasonable if it defeats the very purpose of contract or if it is repugnant to public policy. Such unreasonable terms are excluded from the contract.

(d) There should not be fundamental breach of contract: It is also called doctrine of fundamental breach of contract. Even if there is an adequate notice of the terms of the contract, the party imposing the conditions will not get any relief if he has committed fundamental breach of contract. Every contract contains a fundamental obligation which needs to be performed and party will be guilty of breach whether or not any exempting clause has been provided.

(e) Any ambiguity shall be resolved in favour of weaker party: If there is any ambiguity in the exemption clause then it is resolved in favour of weaker party. Exemption clauses are always strictly construed particularly when it is unreasonable. If words are capable of two constructions, wider one and limited one, then limited construction would be preferred.

Offer or proposal is considered as starting point of formation of contract. Section 2(a) of the Act defines 'Proposal". It provides that 'when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal. The person who makes the proposal is called 'promisor (offeror) and person who accept the proposal is called 'promisee' (offeree).

• proposal can be for positive or negative act.
• offer must be made to obtain the assent of another person.

Section 9 further lays down that proposal can be express or implied. If it is made in words it is said to be express and if it is made by conduct i.e. otherwise than by words, it is said to be implied.Court in Lalman Shukla v. Gauri Dutt, (1913) 11 All LJ 489 interpreted the term 'thereto' in Section 2(b) and held that a person cannot claim to have accepted a proposal without having the knowledge of it. In this case defendant's nephew absconded. The plaintiff, who was servant of defendant, was sent to search for the boy. After that the defendant issued handbills announcing reward of Rs 501 to anyone who finds the boy. Plaintiff came to know about the offer after he searched the boy and informed the defendant. Plaintiff claimed the award. It was held that since the plaintiff was ignorant of the offer, his act of finding the boy did not amount to acceptance. The court held that in order to constitute an contract there must be acceptance of the offer and there cannot be any acceptance unless there is knowledge of the offer.

Offers can be categorized into two categories i.e. General and Specific. Specific offer is made to a specific ascertained person while general offer is made to the public or world at large. Earlier, in Weeks v. Tybald, 1605 Noy 11: 74 ER 982 the court was of the view that offers must be made to a definite person and not to the world at large. This was overruled in Carlill v. Carbolic Smoke Ball Company Ltd, (1893) 1 QB 256 (CA). The current position is that the offers can be made to the world at large but the contract is made only with such person or persons who fulfill the conditions of the proposal and accept it.

Carlill v. Carbolic Smoke Ball Company Ltd, (1893) 1 QB 256 (CA), the Carbolic Smoke Ball company was manufacturer of a medicine to prevent influenza. Company offered to pay 100 pounds to anyone who contracts influenza after consuming the medicine of the company in prescribed manner. Company further stated that they had deposited 1000 pounds in the bank in order to show sincerity. Plaintiff used the smoke ball according to directions but nevertheless contracted the disease. One of the contentions of the company was that general offers cannot be a good offer and it does not constitute a valid contract. The court then laid down the following law in case of general offers hotel

(a) Offer can be made to the world at large and contract is made with the person who comes forward and accepts the offer.

(b) In such cases, communication of acceptance is not necessary. Performance of conditions is a sufficient acceptance without communication.

(c) General offer is continuing in nature and it is open for acceptance to any number of persons until it is retracted.

In Carlill's case it was held by the court that there is no need to communicate the acceptance in case of general offer. If the person has performed the conditions specified in the general offer then it is enough to constitute the acceptance. This principle has been incorporated in Section 8 of Indian Contract Act also.

In Har Bhajan Lal v. Har Charan Lal, AIR 1925 All 539 Allahabad High Court held that there can be an offer made to the world at large. In this case a boy went missing and father issued handbills to find the boy and offered a reward of Rs 500 to anyone who finds the boy. The plaintiff got to know of the offer and on seeing the boy he took him to police station and informed the boy's father. The court held that the handbill was a general offer open to the world at large. It was capable of acceptance by anyone who comes forward and accepts the conditions of the offer. Since, the plaintiff has performed the conditions it was held that he was entitled to reward.

Invitation to Offer

When a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he is said to make an invitation to offer. An invitation to offer is not same thing as an offer. An invitation to offer is merely a declaration of willingness to enter into the negotiations. Interested party may make an offer based on the invitation to offer.

In Harvey v. Facey, plaintiff telegraphed the defendants writing 'will you sell us Bumper Hall pen' Telegraph the lowest cash price'. Defendants replied, also by telegram, 'lowest price for Bumper Hall Pen is 900 pounds'. Plaintiff immediately sent the telegram stating 'we agree to buy Bumper Hall Pen for 900 pounds asked by you'. Defendant refused to sell the Bumper Hall Pen. The court held that mere quotation of lowest price does not amount to offer. It is at best an invitation to offer.

Cross offers

Cross offers arise when two parties make identical offers to each other in ignorance to each other's offer. Such offers do not constitute acceptance of one's offer [Tinn v. Hoffman and Co. (1873) 29 LT 271]. For example, 'A' writes a letter to 'B' offering to sell his car for Rs 2 lacs. At the same time 'B' also writes a letter to 'A' offering to buy A's car for Rs 2 lac. Letters crossed in post. This constitute a cross offer. The requirements of cross offers are (1) parties should be same, (2) subject matter should be same and (3) terms of offer should also be same.

Revocation of offer

Section 5 provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterwards. For example, 'A' proposes, by a letter sent by post, to sell his house to 'B'. 'B' accepts the proposal by a letter sent by post. 'A' may revoke his proposal at any time before or at the moment when 'B' posts his letter of acceptance, but not afterwards.

Section 4 provides that communication of revocation of proposal is complete in the following circumstances:

A As against the person who makes it: When it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the proposer.

As against the person to whom it is made: When it comes to his knowledge.

Mode of Revocation of Proposal: Section 6 provides that a proposal may be revoked in the following manner:-

1. By the communication of notice of revocation by the proposer to other party.
2. By lapse of the time prescribed in such proposal for its acceptance or if no time is prescribed by lapse of reasonable time.
3. By the failure of the acceptor to fulfill conditions precedent to acceptance.
4. By the death or insanity of the proposer (if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance).

Acceptance

Offer alone is not sufficient to form an agreement. There cannot be formation of an agreement without acceptance of offer. Section 2 (b) of the Act defines 'acceptance'. It provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.

Section 2(e) provides that every promise is an agreement. Section 2(h) says contract is an agreement enforceable by law. Thus, if there is no acceptance there cannot be a promise, if there will be no promise there will be no agreement and if there is no agreement there will be no contract. Therefore, it follows that acceptance is sine qua non for a valid contract. Sir William Anson has remarked: "Acceptance is to offer what a lighted match is to a train of gunpowder. It produces something which cannot be recalled or undone".

Acceptance must be made by the person to whom proposal is made

The expression 'to whom the proposal is made' in Section 2(b) clearly signifies that acceptance should be made by the person to whom the proposal is directed to. If it is a specific offer i.e. made to a specific person then it must be accepted by that specific person or any person who is authorized on his behalf. If it is a general offer i.e. made to the world at large, then any person who fulfills the conditions mentioned therein can accept it. For example, 'A' makes an offer to 'B' to buy his house. In this case only 'B' or his authorized agent can accept the offer. If 'X' overhears the conversation and accepts the offer then it will not be a valid acceptance.

Acceptance must be communicated

Section 2(b) uses the word 'signifies'. It means that acceptance should be communicated. Section 3 provides for the mode of communication, acceptance and revocation of a proposal and an acceptance, According to Section 3 the communication of proposals, the acceptance and the revocation of proposals are deemed to be made by any act or omission of the party proposing, accepting or revoking. By such act or omission the party must intend to communicate such proposal, acceptance or revocation. Thus, communication can be made by words of mouth, by writing or by conduct. The accetance may be communicated either expressly or impliedly according to Section 9.

Completion of communication of acceptance

For a concluded contract to arise communication of acceptance must be complete. Section 4 provides that the communication of acceptance is complete as against the person who makes it in the following circumstances:

• As against the proposer: When it is put into a course of transmission to the proposer so as to be out of the power of acceptor.
• As against the acceptor: Communication of acceptance is complete as against the acceptor when it comes to the knowledge of the proposer.

The term 'as against the proposer' means binding against the proposer and the term 'as against the acceptor' means binding against the acceptor.

Communication to offeror

The communication of acceptance must be made to the offeror himself. Communication to any other person is ineffective communication in eyes of law.

Acceptance should be made in a prescribed manner

Section 7(2) provides that in order to convert a proposal into a promise the acceptance must be expressed in some usual and reasonable manner, unless the proposer prescribes the manner in which it is to be accepted. If the acceptance is not made in a prescribed manner then it does not ipso facto invalidates the acceptance.

Acceptance must be absolute and unqualified

Section 7(1) provides that in order to convert a proposal into a promise the acceptance must be absolute and unqualified. Mulla has called this as 'Mirror Rule'. Absolute and unqualified means the acceptance should not contain any condition or stipulation. It should be exactly as the proposal. Any departure or variance will not constitute a valid acceptance. As the mirror shows the same object similarly the acceptance should be on same terms as proposal. If the offer is accepted with variation it converts to counter offer.

Counter offer: 

Offer and counter-offer are two different things. Generally speaking counter-offer is a fresh offer in lieu of other's offer. When an offer is accepted with variation i.e. introduction or deletion of certain terms from original offer, then it constitutes 'counter offer'. Therefore, an acceptance with variance is no acceptance in eyes of law. It is merely a counter offer.

For example, 'A' makes a proposal to 'B' to sell a car for Rs 5 lacs. 'B' replies that he will buy the car for Rs 4 lacs. This does not constitute acceptance. It is counter offer from 'B'. Counter offer implies a stage of negotiation.

Revocation of acceptance

Section 5 para 2 provides that an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor but not afterwards. According to Section 4 para 2, the communication of acceptance as against acceptor is complete when it comes to the knowledge of the proposer. So acceptor can revoke the acceptance before it comes to the knowledge of the proposer. For example, letter of acceptance is dispatched on 1" January which reaches the proposer on 5th January. Acceptance can be revoked before the letter reaches the proposer on 5th January.

Consideration

The term 'consideration' has been defined by various jurists and authors differently. According to Pollock consideration is the price for which the promise of the other is bought. According to Blackstone consideration is the recompense given by the party contracting with other. In Currie v. Misa, (1875) LR 10 Ex 153 court held that 'a valuable consideration in the sense of law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by other'.

Following are the essential ingredients of consideration:-

1. It must be at the desire of the promisor.
2. It may be given by the promisee or any other person [concept of privity of consideration and stranger to consideration]
3. Consideration can be past, present or future.
4. It must have some value in the eyes of law, though not adequate.

Promissory Estoppel and 2(d)

Section 2(d) clearly indicates that the act or abstinence must be done 'at the desire of the promisor. The act shall not constitute consideration if it is not done at the desire of the promisor. In Durga Prasad v. Baldeo, ILR (1881) 3 All 221 plaintiff, on the order of collector built a shopping complex. Few shops were occupied by the defendants. Defendants promised to pay commission on articles sold to the plaintiff in consideration of plaintiff having expended money in construction. Plaintiff could not recover the commission. Court held that act of plaintiff was not at the desire of the defendants but it was on the order of Collector and therefore, it did not furnish good consideration.

This concept is also linked with the doctrine of promissory estoppel. According to this doctrine when a person has made certain promise to another and another person believes on the promise and changes his position then the person who has made the promise cannot retract and he is bound to perform the promise.

Privity of consideration

Doctrine of privity of consideration provides that the consideration must move from the parties to the contract only. Under English law the consideration must move from promisee only. If the consideration is furnished from any other person then the promisee becomes stranger to consideration and, therefore, cannot enforce the promise. For example, if 'A' and 'B' enter into a contract wherein 'A' agrees to pay a certain sum of money for a work to be done by 'C'. In this case of 'B' has no privity of consideration. If 'B' sues for non-performance of promise, he will not be allowed to do so,

Privity of Contract

Doctrine of 'privity of contract' means that stranger to the contract cannot sue. It means that in a contract obligations arise between the parties to the contract only a person who is not a party to contract ie. stranger to contract cannot institute an action on the basis of contract.

Tweddle v. Atkinson, 123 ER 762. In this case the plaintiff was to be married to daughter of 'A'. In consideration of intended marriage 'A' and plaintiff's father entered into an agreement by which it was decided that both the fathers would pay plaintiff a sum of money. 'A' failed to do so and plaintiff sued. The court held that no stranger to contract can sue although it is made for his benefit. This case laid the foundation of 'doctrine of privity of contract'.

Exceptions to doctrine of privity of contract

• Beneficiaries under trust or charge
• Family arrangements, marriage settlements or partition
• Acknowledgement or estoppel
• Covenants running with land

Kinds of Consideration

1. Past
2. Present
3. Future

Past consideration

If the act has been done before the promise is made it is called past consideration. It simply means that consideration for any promise was given earlier and promise was made later on. For example, 'A' lost his purse and requests 'B' to find the purse. 'B' finds the purse and 'A" promises to pay Rs 1000 as a reward. It is past consideration because promise was made for an act which was done before the promise existed.

Present or executed consideration

Section 2(d) uses the expression 'does or abstain from doing'. It clearly shows that present consideration is permissible in India. In this type of consideration the consideration is given at the same moment the promise is given. For example, a reward is offered to find the lost article. Offer can be accepted only by finding the article. Act of finding the article is a consideration for the reward that has been offered.

Future or executory consideration

Section 2(d) uses the expression 'promises to do or to abstain from doing. This indicates that the consideration can be future consideration as well. It means that the promisee is to give consideration in future. For example, 'A' agrees to sell a certain quantity of goods to 'B' in future. 'A' has promised to deliver and 'B' has promised to pay. Therefore, executory consideration consists of acts which are already in the process of being done. It is a promise made by one party in return of the promise made by other.

Adequacy of consideration

It is not necessary that the consideration must be adequate. Indian Contract Act does not provide any provision mandating adequacy of consideration. Parties are free to mutually decide consideration.

Forbearance to sue

Forbearance to sue is regarded as a valuable consideration. It means that plaintiff has certain right of action against the defendant and on the promise of the defendant he refrains from bringing the action.

Pre-existing contract with the third party

When a person has contracted to do an act and a third person promises to pay him a sum of money if he goes ahead with the performance then this will serve as a good consideration under Indian as well as English laws.

Exceptions to consideration

As a general rule agreements without consideration are void. Section 25 provides that an agreement without consideration is void. It is also called nudum pactum. However, there are certain exceptions to this general rule. Following are the exceptions to consideration:-

• Natural love and affection[Section 25(1)]
• Past Voluntary Service[Section 25 (2)]
• Promise to pay a time barred debt [Section 25(3)]
• Creation of agency[Section 185]

(i) Natural love and affection [Section 25(1)]: If there is a written and registered agreement based on natural love and affection between near relatives then it is enforceable without consideration. The expression 'near relative' means parties related with blood or marriage.

Four requirements to invoke this exception are:

• Agreement in writing.
• Agreement must be registered.
• Agreement must be made on account of natural love and affection.
• Agreement must be between parties standing in near relation to each other.

(ii) Past Voluntary Service [Section 25 (2)]: It provides that if a promise is made to compensate a person, who has voluntarily done something for the promisor, or something which the promisor was compellable to do, then such promise is enforceable without consideration.

It must be noted that the service must be rendered voluntarily and not at request. If it is rendered at request it would be covered by past consideration under Section 2(d). For example, if 'A' finds 'B's purse and returns it to 'B'. 'B' promises to pay 100 Rs to 'A'. This is enforceable.

(iii) Promise to pay a time barred debt [Section 25(3)]: It provides that a promise to pay a time barred debt is enforceable. The only requirement is that the promise must be made in writing and signed by the person charged with or his agent. A mere acknowledgement of debt is not sufficient. Promise must be to pay whole or part of debt. For example, if 'A' owes 'B' Rs 10000/- but the debt is barred by limitation. If 'A' signs a written promise to pay 'B' Rs 10000/- then it is enforceable.

(iv) Creation of agency [Section 185]: It provides that no consideration is necessary to create agency.

Capacity to Contract

According to Section 10 for enforceability of an agreement it is necessary that parties must be competent to contract. Section 11 provides who are competent to contract. It says that every person is competent to contract, who is-

• Major
• Of sound mind
• Not disqualified from contracting by law.

Minor's agreement

According to Indian Majority Act, 1875 a minor is a person who has not completed the age of 18 years. According to Section 11 minors are not incompetent to contract. However, neither Section 10 nor Section 11 makes it clear whether the agreement would be void or contract would be voidable

Mohori Bibee v. Dharmodas Ghose, (1902-1903) AC 114. In this case Brahmo Dutt, who as a mahajan, carried out business of money lending through his agent. Dharmodas Ghose approached the agent of mahajan for a loan. He was minor and represented himself to be major. Agent was aware that Dharmodas Ghose was minor. Loan agreement was made between mahajan and minor through agent. Mahajan made the part payment of certain sum of money and minor mortgaged his two properties. Dharmodas's mother filed a suit for cancellation of mortgage on the ground that he was minor. Mahajan raised the following contentions:-

1. Minor's agreement is a voidable contract and not void agreement.
2. Principle of estoppel should have been applied and the minor should be estopped from denying the fact of his majority.
3. If, mortgage deed could not be enforced, the minor should return the benefit he has received under Section 64 of the Act.
4. Restitution against minor should be allowed in light of Section 65 of the Act.

Observations of the court: The court held that minor's agreement is not a voidable contract. It is an agreement void ab initio. Court held that according to Section 11 it is essential that all contracting parties should be competent to contract and it is expressly provided that person who is not of age of majority cannot make a contract. The court further held that the question whether the contract is voidable presupposes the existence of contract. There is no contract at the first instance so there is no question of it being voidable. Therefore, now the law is settled that minor's agreement is void ab initio.

The court made various other observations for different contentions raised by mahajan. We will discuss each issue separately under the below mentioned headings.

Ratification of minor's agreement

If agreement is made by a person when he is minor, can he ratify the agreement after attaining majority? The principle of ratification is not applicable in case of minor's agreement. It is because ratification has retrospective effect. Once the ratification is allowed, it will be deemed to be effective from the date of agreement and not from the date of ratification. Hence, what cannot be done directly cannot be done indirectly.

Doctrine of restitution

When a minor enters into an agreement with another and receives certain benefits out of the agreement then he question is whether the minor is liable to return the benefit? In other words can there be restitution against the minor?

The question of restitution was first discussed in Mohori Bibee's case. It was argued in this case that if, mortgage deed could not be enforced, the minor should return the benefit he has received under Section 64 or 65 of the Act. The court held that restitution cannot be granted under Section 64 of the Act because Section 64 is applicable when the contract is voidable. In minor's case, the agreement is void ab initio. Regarding Section 65 the court held that this section is applicable when 'contract becomes void'. There is no question of 'contract becoming void' because in first case there is no contract in case of minor ie. the contract does not become void, it is agreement that is void ab initio.

Persons of unsound mind

Section 12 provides that a person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

A person, who is usually of unsound mind, but occasionally of sound-mind, may make a contract when he is of sound mind. A person who is usually of sound-mind, but occasionally of unsound-mind may not make a contract when he is of unsound mind. For example, 'A', patient in a lunatic asylum, who is at intervals of sound-mind may contract during those intervals.

'A', sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interests cannot contract whilst such delirium or drunkenness lasts.

Free Consent

Section 10 mandates that in order to convert agreement into contract 'free consent' is essential. Mere consent of parties will not be enough for a valid contract. Consent is defined in Section 13. It provides that two or more persons said to consent when they agree upon same thing in same sense. This is also known as 'consensus-ad-idem'. The assent of the proposer and assent of acceptor makes consent of parties. If there is no consent there is no agreement. However, if there is consent there will be agreement but whether that agreement converts into contract or not will depend upon the fact whether the consent is free or not.

Section 14 defines 'free consent'. Consent is said to be free when it is not caused by the following factors:-

• Coercion[Section 15]
• Undue influence[Section 16]
• Fraud[Section 17]
• Misrepresentation[Section 18]
• Mistake[Section 20, 21 and 22]

Coercion

Section 15 defines the terms 'coercion'. Consent is said to be caused by coercion when it is caused in following manner:-

(i) Committing or threatening to commit any act forbidden by the Indian Penal Code, 1860;

(ii) Unlawful detaining or threatening to detain any property.

Above acts are with the intention causing any person to enter into an agreement. Explanation to Section 15 provides that it is immaterial whether the Indian Penal Code, 1860 is or is not in force in the place where the coercion is employed.

In Chikam Amiraju v. Chikam Seshamma, ILR (1918) 41 Mad 33 court held that threat to suicide amounts to coercion. The court held that the person committing suicide goes unpunished because of practical reason. There is no one left to face the charges. The policy of law is to prohibit suicide.

Undue Influence

Section 16 defines 'undue influence'. Section 16(1) lays down that a contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

Undue influence is subtle specie of fraud or coercion where the dominance is gained over victim's mind. In undue influence there is no use of physical force. Mental or moral force is used to gain mastery over other's mind. It depends on the existence of a relationship between the parties. Mere existence of dominant position is not sufficient. Such dominating position must be used to gain unfair advantage over other. If there is no unfair advantage there is no undue influence.

Relations involving position of dominance: Section 16(2) lays down that a person is deemed to be in a position to dominate the will of another where:-

(a) He holds a real or apparent authority over the other, or, stands in a fiduciary relation to the other; or

(b) He makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

Fraud

Section 17 defines the term 'Fraud'. Fraud means and includes any of the following acts if they are committed with intent to deceive another party or his agent, or to induce him to enter into the contract:-

(i) Suggestion, as a fact, of that which is not true, by one who does not believe it to be true.

(ii) Active concealment of a fact by one having knowledge or belief of the fact.

(ii) A promise made without any intention of performing it.

(iv) Any other act fitted to deceive.

(v) Any such act or omission as the law specially declares to be fraudulent.