Module 1

Regulations of Contracts – 1

Definition of Contract:

The Indian Contract Act, 1872 defines the term “Contract” under its section 2 (h) as
“An agreement enforceable by law”. In other words, we can say that a contract is anything that
is an agreement and enforceable by the law.

According to Anson: "A Contract consists in an actionable promise or promises. Every such
promise involves two parties a promisor and promisee and an expression of a common intention
and of expectation as to the act or forbearance promised."

Essentials of valid contract:

1. Offer and acceptance

2. Legal relationship

3. Lawful consideration

4. Capacity of parties

5. Free consent

6. Lawful objective

7. Writing and registration

8. Certainty

9. Possibility of performance

10. Not expressly declared void

1. Offer and acceptance: It is one of the essentials of valid contract. There must be an offer and
acceptance of the same.
2. Legal Relationship: The parties to an agreement must create legal relation Agreement of a
social or domestic nature does not create legal relations and as such cannot give rise to a
contract.

Example: X invited Y to a dinner. Accepted the invitation. It is a social agreement. If X fails to

serve dinner to Y, Y cannot go to the courts of law for enforcing the agreement.

3. Lawful consideration: Consideration is "something in return". Consideration has been

defined as the price paid by one party for the promise of the other.

Example: X agrees to sell his motor bike to Y for Rs. 1 lakh Here Y's promise to pay rs.1 lakh is
the consideration of X's promise to sell the motor bike is the consideration for promise to pay 1
lakh

4. Capacity of parties: It means that the parties to an agreement must be competent to contract.
A contract by a person of unsound mind is void ab-initio. Thus, a contract entered into a minor,
or by a lunatic is void.

Example: X a minor borrowed rs.8000 from Y and executed mortgage of his property in favour
of the lender. This was not a valid contract because X is not competent to contract.

5. Free consent: For a valid contract it is necessary that the consent of parties to the contract
must be free. Consent is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation or mistake.

Example: X threatens to kill Y if he does not sell his car to Y. Y agrees to sell his car to X. In
this case Y's consent has been obtained by coercion and therefore, it cannot be regarded as free.

6. Lawful objects: It is also necessary that agreement should be made for a lawful object Every
agreement with the object on consideration is unlawful is illegal and therefore void.

Example: A gambling contract would be illegal in many states, if the illegal agreement has not
been performed, neither party has the right to sue the other for damages or to require
performance of the agreement.

7.Writing and registration: According to contract Act, a contract may be oral or in writing
Although in practice it is always in the interest of the parties that the contract should be made in
writing so that it may be convenient to prove in the court.
8.Certainty: For valid contract, the terms and conditions of an agreement must be clear and
certain.

Example: A agrees to sell to B 100 tons of oil, there is nothing to show what kind of oil intended
the agreement is void due to the absence of certainty. But A agree to sell to B a 100 tonnes of
coconut oil the nature of A's trade is sufficient to show the kind of oil and this will be a valid
contract.

On the basis of Formation

Express Contract : An express contract is formed when the parties explicitly state the terms and
conditions, either in writing or verbally. The intentions and commitments of both parties are
articulated, leaving little room for ambiguity.

Example: Jayant offers to buy Tanishk’s laptop for INR 50,000, and Tanshik explicitly agrees,
either by saying, “I accept your offer,” or by providing a written receipt. Their mutual
understanding and clear terms form an express contract.
Implied Contract :An implied contract is not expressed verbally or in writing but is inferred from
the parties’ actions, behaviour, or circumstances. The law derives the existence of an agreement
based on the parties’ conduct or the situation’s inherent fairness.

Example: When a person visits a doctor, there’s an implied contract that the doctor will provide
medical services, and in return, the patient will pay for those services, even if no explicit
agreement was made beforehand. The act of seeking and providing the service implies a contract.

Quasi contract: Quasi contract is another name for a contract implied in law,
which acts as a remedy for a dispute between two parties that don't have a
contract. A quasi contract is a legal obligation—not a traditional contract—
which is decided by a judge for one party to compensate the other. Thus, a
quasi contract is a retroactive judgment to correct a circumstance in which
one party acquires something at the expense of the other.

Example: A client who made an appointment for a trim but received a full haircut,
wash, and highlights

On the basis of Validity

Valid Contract: A valid contract is a comprehensive agreement that adheres to all legal
prerequisites. It’s a mutual understanding where both parties are bound to fulfil their respective
commitments. If one party fails to uphold their end, the other can pursue legal remedies, as the
contract is enforceable by law.

Example: Meghna agrees to lease his apartment to Lisa for INR 24,000 per month for one year.
Both are of legal age, the terms are clear, and the agreement is in writing, making this a valid
contract.

Void Contract: A void contract lacks legal standing from the outset. It’s missing one or more
critical elements, or its purpose is illegal. Such a contract is null and void, meaning it’s
unenforceable and has no legal effect, as if it never existed in the first place.

Example: Two individuals form an agreement to commit a bank robbery. Since the subject
matter is illegal, the contract is void.
Voidable Contract: A voidable contract is initially valid and enforceable. However, one party can
rescind or enforce the contract due to certain circumstances, such as misrepresentation, undue
influence, or lack of capacity. If not rescinded, it remains valid.

Example: A contract signed under duress, where John is coerced into selling his car to Mike for a
significantly lower price, is voidable. John can later opt to void the contract due to the undue
pressure.

Illegal Contact: The illegal contracts are deemed as void and not enforceable by law. As
section 2(g) of the Act states: “An agreement not enforceable by law is said to be
void.”

Example: Immoral consideration would be if someone promised to

pay another person to commit a crime.

Unenforceable Contract; An unenforceable contract may have all the elements of a valid
contract, but it cannot be enforced in a court of law due to some technicalities or legal
deficiencies. The contract is neither void nor voidable, but the law denies enforcement.

Example: An oral agreement to sell real estate is typically unenforceable in many jurisdictions
because the law requires such contracts to be in writing.

On the basis of performance

Executed Contract: An executed contract is an agreement where both parties have fulfilled their
obligations. In other words, the contract terms have been thoroughly carried out, and there’s
nothing left to be done by either party.

Example: Seema pays INR 200 to buy a book from a bookstore. Once she pays and receives the
book, the contract is executed, as both parties have met their obligations — Seema has paid, and
the bookstore has provided the book.

Executory Contract: An executory contract is one where one or both parties still have obligations
to perform in the future. The contract remains in place until all parties meet all terms and
conditions.
Example: Rita leases an apartment to Hina for a year. After signing the lease and moving in,
Hina is obligated for a month, and Rita must provide the apartment for the lease’s duration. The
contract remains executory until the lease ends and all payments are made.

Unilateral Contracts: As the name suggests these are one-sided contracts. It usually
comes into existence when only one party makes a promise, which is open and available to
anyone who wishes to or can fulfil the said promise. The contract will only be fulfilled once
someone fulfils the promise.

Example. Alex lost his bag pack on the metro. So he decided to announce a reward of Rs 1000/-
to anyone who finds and returns his bag with all its contents. Here the is only one party to the
contract, namely Alex. If someone finds and returns his bag he is obligated to pay the reward.
This is a unilateral contract.

Bilateral Contracts: By contrast, a bilateral contract is one that has two parties. It is a
traditional type of contract most commonly known and occurring. Here both parties agree
to the terms of the agreement and thus enter into a contract. Hence it is also known as a
reciprocal contract.

In bilateral contracts, both parties have usually agreed to a time frame to carry out the said
contract. Say for example the contract of sale of a house. The buyer pays a down payment and
agrees to pay the balance at a future date. The seller gives possession of the house to the buyer
and agrees to deliver the title against the specified sale price. This is a bilateral contract.
 Offer and Acceptance

Definition of Offer : The Indian Contract Act 1872. The term offer is defined under Section
2(a) as under: 'When one person signifies to another, his willingness to do or abstain from doing
anything with a view to obtaining the assent of the other, to such an act or abstinence, he is said
to make a proposal'.

Definition of Acceptance: The Indian Contract Act 1872 . Defines acceptance in Section 2 (b)
as “When the person to whom the proposal has been made signifies his assent thereto, the offer is
said to be accepted. Thus the proposal when accepted becomes a promise.”
Types of Offer or Proposal

An offer can be classified on a number of different bases. We can summarize the types of o in
the following manner

1. Express offer

2. Implied offer

3. General offer

4. Specific offer

5. Cross offer

6. Continuous offer

7. Counter offer

Express offer: The offer made by using words spoken or written is known as an express offer. It
is being made through letters, telephone or internet. The usage of language and words become
The communication of the intention has to be made from the offeror to the offeree clearly.

Example: A says to B- Will you purchase my car for Rs. 4,00,000?

Implied offer: The offer which could be understood by a conduct of parties or circumstances of
case is called the implied offer.

Example: Withdrawal of the money from the card holder from the ATM. It creates an implied
contract between the cardholder and the bank.

General offer: It is an offer made to public at large with or without any time limit. In terms of
Section & of the Act, anyone performing the conditions of the offer can be considered to have
accepted the offer (Carlill v. Carbolic Smoke Ball). It is not necessary that the offer should be
made to a specific person. Until the general offer is retracted or withdrawn, it can be accepted by
anyone at any time as it is a continuing offer.

Example: An advertisement in a newspaper, "Anyone who will find my lost Pen drive will be
rewarded with Rs. 5,000.

Specific offer: It is a type of offer, where a an offer is made to a particular and specified person,
it in a specific offer. Only that person can accept such specific offer, as it is special and exclusive
to him.

Example: A says to B-'Will you purchase my car for rs.200000?" It is a specific offer as it is
made to B. Only B can accept it.

Cross offer: When the offeror and offeree make the same offer to one another having same terms
out of knowledge of each other is known as cross offer. In this case there will be no contract due
to acceptance of the offer offered.

For example, both. A and B send letters to each other offering to sell and buy A's horse for Rs
5000, This is a cross offer, but it will be considered as acceptable for either of them.

Standing Offer/Continuous offer/open offer: An offer is regarded as a standing offer if it is meant

to remain open for a certain amount of time and can be accepted any time before the deadline.
When a company needs a large quantity of products from time to time, it usually invites tenders
for the supply of the products through an advertisement. Such a tender or offer is referred to as
an open, continuing, or standing tender of offer.

Example: A sell car to B for a price of rs.3lakhs and this price is fixed for a week.

Counter offer: In the event that the offeree is only willing to accept the offer if certain
modifications are made, he or she is offering a counteroffer. A counteroffer is itself an offer, and
it is considered a rejection of the initial offer. It is a new offer that terminates the initial offer.
making it impossible to be revived at a later time.

A counteroffer can be accepted or rejected by the party who offered the initial offer. If that party
accepts the counteroffer. a contract is established

Example: A offers to B to sell his car for rs. 1,00,000 and B says that he agrees to buy the car for
80,000 There is a counter offer from B.
Types of acceptance

Expressed Acceptance

Expressed Acceptance occurs when the offeree explicitly agrees to the terms of the offer, whether
verbally, in writing, or through a signed document. The offeror can see the offeree's intent to
form a contract. This is the most straightforward form of acceptance.

Example: Raj offers to sell his car to Mary for INR1,00,000. Mary replies, "I accept your offer
and will buy the car for INR 1,00,000." This is expressed acceptance because Mary has
communicated her agreement to the offer's terms.In acceptance in contract law, expressed
acceptance is legally binding and indicates mutual consent between the parties.

Implied Acceptance

Implied Acceptance happens when the offeree's actions or behavior suggest an agreement to the
terms of the offer, even though they haven't expressly communicated their acceptan conduct or
silence of the offeree may indi acceptance.

Example: Sophie enters a café, sits at a table and orders a coffee. When she receives the coffee
and pays for it, her actions imply acceptance of the café's offer to sell the coffee. Sophie didn't
verbally accept the offer, but her conduct of ordering and paying signifies her agreement to the
terms.
In acceptance in contract law, implied acceptance is often inferred from the circumstances or the
offeree's behavior,especially when it's clear that the offeree intended to accept the offer.

Conditional Acceptance

Conditional Acceptance occurs when the offeree agrees to the offer, but their acceptance is
dependent on certain conditions being met. This form of acceptance may lead to a counter-offer,
as the offeree is not agreeing to the original terms, but rather proposing new terms.

Example: Alex offers to sell his bicycle to Sarah for $300. Sarah replies, "I will buy it for $300,
but only if it has new tires." Sarah's response conditional acceptance because her agree is
contingent on the bike having new tires.

Essential of a Valid Proposal

A contract come into existence only when all the terms and conditions have been
finalised. If the facts of a particular case show that execution of a written contract was a
condition precedent for farming into force of the contract between the parties, then it
cannot be said that any concluded contract in absence of a written contract being
executed has come into force between the parties. The essentials are as follows:-

1. The Proposal must be Communicated

Section 2(a) of the Indian Contract Act, 1872 explains that a person is said to make a
proposal "when he signifies to another person his willingness to do or to abstain from
doing anything". The emphasis, here is upon the requirement that the willingness to make
a proposal should be signified. The term signify means to communicate to make known.
It means that the proposal should be communicated to the other party. The process of
making a proposal is completed by the act of communicating it to the other party.

Proposal must be certain

Section 29: Agreements, the meaning of which is not certain, or capable of being made certain
are void.

Illustration:
(a) A agrees to sell 'B' "a hundred tons of oil". There is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainty.

(b) A, who is a dealer in Coconut oil only, agrees to sell to B "one hundred tons of
oil". The nature of A's trade affords an indication of the meaning of the words,
and A has entered into a contract for the sale of one hundred tons of Coconut oil.
Difference between Contract and Agreement

Contract Agreement

A promise or a number of promises that are not

A contract is an agreement that is enforceable by
contradicting and are accepted by the parties
law.
involved is an agreement.

An agreement must be socially acceptable. It may

A contract is only legally enforceable.
or may not be enforceable by the law.

An agreement doesn’t create any legal

A contract has to create some legal obligation.
obligations.

All contracts are also agreements. An agreement may or may not be a contract.

According to section 2(c).-

The person making the proposal is called the promisor and the person accepting the
proposal is called the promisee.

A proposal to be valid must contain the following essential elements which are:-

(i) There must be two parties;

(ii) Every proposal must be communicated;

(iii) It must be made with a view to create legal relation;

 (iv) It must be certain and definite.

Intention to Create Legal Relationship

Whether it is necessary to create legal relationship for a valid contract?

The intention of the parties is naturally to be ascertained from the terms of the agreement
and the surrounding circumstances. According to Lord Atkin- "There are agreement
between parties who do not result in contracts within the meaning of that term in our law.
The ordinary example is where two parties agree to take a walk together, or where there
is an offer and acceptance of hospitability". They are not contracts because parties did not
intend that they shall be attended by legal consequences.

Explain the facts of Balfour v. Balfour case.

Balfour v. Balfour, (1919) 2 KB 571: The defendant was employed in Ceylon. He along
with his wife went to England to enjoy the leave. At the expiry of leave when he was
about to return Ceylon, his wife was advised to remain in England on account of her
health. Before returning to Ceylon, he promised to pay œ 30 every month to his wife for
her maintenance. He sent the amount for sometime but subsequently he stopped it as
certain differences between them led to their separation. Since by the time of separation,
the said allowance had fallen into arrears, the wife brought to an action to recover the
arrears. Her claim was dismissed by court.These arrangements do not result in contracts
at all, even though there may be what would constitute consideration for the agreements.
They are not contracts because parties did not intend that they shall be attended by legal
consequences.

Offer may be General or Specific

An offer need not always be made to an ascertained person but it is neccessary that the
ascertained person should accept it. For example, if a person offers a reward to anyone
who finds his lost diamond ring, the finder can successfully claim the reward. The
position be different if the finder has no knowledge of the reward.
Revocation of Proposal

How and when proposal is revoked? Explain with examples.

A proposer may according to the law revoke a proposal.

According to section 5: "A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards."

Illustration.-A proposer, by a letter sent by post to sell his house to B. B accept

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 no afterwards.

Revocation, how it is made: Section 6.-A proposal is revoked-

(1) by the communication of notice of revocation by the proposer to the other

party,

(2) by the lapse or, if no time is so prescribed, by the lapse of a reasonable time,
without communication of the acceptance,

(3) by the failure of the acceptor to fulfil a condition precedent to acceptance, or

(4) by the death or insanity of the proposes, if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance.

Consideration
According to Section 2(d) of the Indian Contract Act, 1872, consideration is defined as follows:

“When at the desire of the promisor, the promisee or any other person has done or abstained from
doing, or does or abstains from doing, or promises to do or abstain from doing something, such
act or abstinence is called a consideration for the promisee.”

At the desire of the promisor if the promisee either

• Does something (in the past, present or future)

• Abstains from doing something (in the past, present or future)

Example 1 – Doing something
Peter and John enter into a contract where Peter promises to deliver 15 curtains to John in one
month’s time. Also, John promises to pay Peter an amount of Rs 3,000 on delivery. In this
contract, John’s promise to pay Rs 3,000, on delivery, is the consideration for Peter’s promise.
Also, Peter’s promise of delivering 15 curtains is the consideration of John’s promise to pay.

Example 2 – Not doing something

Peter has taken a loan from his friend John. However, he has not repaid the loan yet. John
promises not to file a suit against Peter if he promises to repay the loan within a week. In this
case, abstinence on the part of John is due to the consideration of Peter’s promise of repayment of
the loan, moves after the contract is formed, it is a future or executor. It is also valid if it depends
on the condition.

Peter promises to create architectural plans for John’s new house. John promises to pay Peter an
amount of Rs 50,000 provided the plans are approved by his wife.

It must have value in the eyes of the law

While the law allows the parties to decide an ‘adequate’ consideration for them, it must be real
and have value in the eyes of law. While the Court will not consider inadequacy, it will look at it
to determine if the consent was given by the party with free-will or not.

Peter’s wife agrees to withdraw the suit she has filed against him in return for his promise to pay
her a monthly maintenance amount. This is a good consideration and holds value in the eyes of
law.

It should be over and above the Promisors’ existing obligations

If the promisor is already obligated either by his promise or law to perform or abstain from a
certain act, then it is not a good consideration for a promise.

Peter receives a summons from the Court to appear before it as a witness for John. John promises
to pay him Rs 10,000 to appear in the Court. This contract is not valid because Peter is obligated
by law to appear in the Court on receiving a summons.

It cannot be Unlawful
A consideration that is against the law or public policies is not valid.
 Peter offers Rs 10,000 to John to beat up his business rival. John beats him up but Peter refuses
to pay him. John cannot file a suit for recovery since the consideration is against the
law.

Introduction
▪ Consideration is an integral part of the contract. The rule of consideration states that it is essential
to have consideration for a valid contract.
▪ The legal definition of consideration is based on the concept of ‘bargained-for exchange.’ This
means that both parties are getting something that they've agreed to, usually something of value for
something of value.

Essentials of a Valid Consideration

▪ The Consideration must move at the desire of the Promisor: This implies that
the consideration will only be valid when the promisor has requested it. Effectively, any act done
voluntarily does not constitute valid consideration.
▪ The Consideration may move from the Promisee to any other Person:
It is not necessary for the promisee to supply the consideration. It may move from any other person. Even if
you are a stranger to consideration, you can sue as long as you are a party to the contract.
▪ The Consideration must be Lawful:
An illegal consideration is not valid and makes the contract void. The ICA declares
consideration unlawful if it is a forbidden act under any law, if it causes injury to a person or his
property, or if it is immoral.
▪ The Consideration must be Real and Possible: An impossible act cannot be classified as valid
consideration. Whatever is decided and agreed to as consideration must be capable of being
performed. Impossibility may be legal or physical. Moreover, the consideration must
not be uncertain.
▪ The Consideration may not be Adequate:
The adequacy of consideration is not necessary. The parties are free to bargain. A poor negotiation by
one party does not make the contract void. However, the decision must be made with the free
consent of both parties.

Types of Consideration
▪ Past Consideration:
o In case of past consideration, the promisor had received the consideration before the date of
promise, such consideration is called Past Consideration.
o Section 2(d) of the Contract Act uses the word ‘has done or abstained from doing,’ which
signifies that such considerations were made in the past. In English Law past consideration
is no consideration.
o Example: A's Bike on his way to the office is stopped due to lack of petrol. A requested B
who was petrol seller, B gave petrol to him. Later A promised B to pay Rs. 500/- in
consideration of his past consideration.
▪ Present Consideration:
 o Present consideration is one in which one of the parties to the contract has performed his
part of the promise, which constitutes the consideration for the promise by the other side it
is known as present consideration.
o In Present consideration both parties promise to perform their part of the promise
simultaneously. It is also known as executed consideration.
o Example: You buy fruit from a vendor and immediately pay him the price. This payment is
taken as executed or present consideration.
▪ Future Consideration:
o Future consideration is a type of consideration in which one party performs his part of the
promise immediately, and the other party promises to perform his part of the promise on a
future date. It is also known as executory consideration.
o Example: A agrees to supply wheat bags to B and B agrees to pay for them on a future
date. This consideration is the future consideration.

Exception to the rules of Consideration

Section 25 of Contract act opens with the declaration that an agreement made without consideration is
void but there are some exceptions to this general rule such as

▪ Natural Love and Affection:

o An agreement made without consideration is valid if it is made out of love, nature and
affection such agreements are enforceable when the agreement is written and registered,
o Example: Ram, out of natural love and affection, promises to give his son Shyam his
house. Ram puts his promise to Shyam in writing and registers it. This is a valid contract
▪ Compensation for Past Voluntary Services:
o A promise to compensate wholly or in part, a person who has already voluntarily done
something for which the promisor is enforceable.
o A service should have been rendered voluntarily for the promisor, if it is involuntarily
rendered at the desire of promisor then such service will not cover under this exception.
o Example: A husband by a registered document, after quarrels and disagreements between
him and his wife, promised to give his wife a sum of money for her maintenance and
separate house, such a promise is unenforceable.
▪ A Promise to Pay Time Barred Debt:
o A time barred debt cannot be recovered as per the law of limitation. However, a promise to
repay such debt without consideration is valid under Section 25 (3) of the act.
o Agreement to pay a time-bared debt in enforceable if the following conditions:
• The debt is a time bared debt.
• The debtor promises to pay the time barred debt.
• The promise is written.
• The debtor has signed the promise.

Consideration under:
▪ Gift:
o The rule ‘no consideration, no contract’ does not apply to completed gifts. According
to Explanation 1 Section 25, nothing in Section 25 shall affect the validity, as
between the donor and the donee, of any gift actually made.
 o Thus, transfer of properties by one person to the other as a gift according to the
provisions of the Transfer of Property Act, 1882 (i.e., by a written and registered
document) is valid and a person transferring the property cannot subsequently demand
the property back on the ground that there was no consideration.
▪ Agency (Section 185):
o Under Section 185 of the ICA, no consideration is necessary to create an agency,
i.e., a transaction of agency. For giving a person authority to act as agent,
consideration is not necessary.
o Example: If A authorises B to act on his behalf (act as an agent) before C, and B
agrees to do so, the contract is enforceable at the court of law although no
consideration is moving from A to B. A will be bound by the acts done by B on his
behalf as against C.
Adequacy:
• Courts generally do not scrutinize whether the consideration is "adequate" (fair in
value) as long as it is considered "sufficient" (something of value exchanged).
• Even if one party seems to be getting a significantly better deal, the contract can still be
valid as long as there is a legal exchange of value.

Unlawful Consideration:
If the consideration in a contract is illegal, immoral, or against public policy, the contract is
considered void and cannot be enforced.
• Examples of unlawful consideration include:
• Promising to commit a crime
• Agreeing to injure another person
• Contracts that violate public policy like agreements to restrain trade
excessively

Impact of unlawful consideration:

• No legal remedy:
If a contract is deemed void due to unlawful consideration, neither party can sue to enforce
its terms in court.
• Potential for criminal charges:
Depending on the nature of the unlawful act, parties involved in a contract with unlawful
consideration may face criminal charges.

• The agreement is void and cannot be enforced in court

• The agreement is considered fraudulent
• The agreement is opposed to public policy
• The agreement is injurious to another person or property dues are pending from the
properties of the minor and he is not personally liable for the same.
Contractual Capacity
Capacity to Contract

According to Section 11, “Every person is competent to contract who is of the age of majority
according to the law to which he is subject, and who is of sound mind and is not disqualified from
contracting by any law to which he is subject.”

So, we have three main aspects:

1. Attaining the age of majority

2. Being of sound mind

3. Not disqualified from entering into a contract by any law that he is subject to

1] Attaining the Age of Majority

According to the Indian Majority Act, 1875, the age of majority in India is defined as 18 years.
For the purpose of entering into a contract, even a day less than this age disqualifies the person
from being a party to the contract. Any person, domiciled in India, who has not attained the age of
18 years is termed as a minor.

A Contract made with a Minor is Void

Since any person less than 18 years of age does not have the capacity to contract, any agreement
made with a minor is void ab-initio (from the beginning).

Example, Peter is 17 years and 6 months old. He needs some money to go on vacation with
his friends. He approached a moneylender and borrows Rs 25,000. As security, he signs some
papers mortgaging his laptop and motorcycle. Six months later, when he attains the age of
majority, he files a suit declaring that the mortgage executed by him when he was a minor is void
and should be cancelled. The Court agrees and relieves Peter of all liability to repay the loan.

Also, if a minor enters into a contract, then he cannot ratify it even after he attains majority since
the contract is void ab-initio. And, a void agreement cannot be ratified.

A Minor can be a Beneficiary of a Contract

While a minor cannot enter a contract, he can be the beneficiary of one. Section 30 of the Indian
Partnership Act, 1932, also specifies that while a minor cannot become a partner in
the partnership firm, the benefits of the firm can be extended to him.
Example, Peter lends some money to his neighbour, John and asks him to mortgage his house as
security. John agrees and the mortgage deed is made favouring Peter’s 10-year-old son – Oliver.
John fails to repay the loan and Peter, as the natural guardian of Oliver, files a suit against John
to recover his money. The Court holds the case since a minor can be a beneficiary of a contract

A Minor is always given the Benefit of being a Minor

Even if a minor falsely represents himself as a major and takes a loan or enters into a contract, he
can plead minority. The rule of estoppel cannot be applied against a minor. He can plea his
minority in defence.

Contract by Guardian

Under certain circumstances, a guardian of a minor can enter into a valid contract on behalf of the
minor. Such a contract, which the guardian enters into, for the benefit of the minor, can also be
enforced by the minor.

However, guardians cannot bind a minor by a contract for buying immovable property. But, a
contract entered into by a certified guardian of a minor, appointed by the Court, with approval
from the Court for the sale of a minor’s property can be enforced.

Insolvency

A minor cannot be declared insolvent as he cannot avail debts. Also, if some dues are pending
from the properties of the minor and he is not personally liable for the same.

Joint contract by a Minor and an Adult

In case of a joint contract between an adult and a minor, executed by the guardian on behalf of the
minor, the liability of the contract falls on the adult.

7. Minor need not hold any specific performance except in certain cases

Since an agreement by a minor is absolutely void, the court will never direct 'specific
performance' of any contractual agreement by a minor. A guardian of minor cannot bind the
minor by an agreement for the purchase of immovable property. Here even minor cannot ask for
the specific performance of the contract where the guardian had no power to enter into. But a
guardian can enforce the contract only when it is beneficial to the minor.

8. Minor cannot be a partner

Basic principle of partnership is agreement. A minor being incompetent to enter into a contract,
cannot enter into a partnership agreement. However he can enter into an agreement only for the
benefit of the firm. According to the Indian Partnership Act 1932, under Sec. 30(1), observes as,
"A person who is a minor, according to the law to which he is subject may not be a partner of a
firm, but with the consent of all the partners for the time being he may be admitted to the benefits
of partnership."

9. Minor cannot be an insolvent

A minor cannot be declared insolvent as he is incapable of contracting debts and dues are payable
from the personal properties of minor and he is not personally liable. In other words, even for
necessaries supplied to him, he is not personally liable, only his property is liable.

10. Minor cannot be a surety

As minor is considered as incapable person for contracting transaction, he cannot act as a surety,
and he is not liable to pay or compensate anything under a contract.

11. Joint contract by minor and adult

In this case of joint contract, the adult will be liable for the contract and not a minor. In case,
"Sain Das Vs Ramchand," where there was a joint purchase by two purchasers, one

2] Person of Sound Mind

According to Section 12 of the Indian Contract Act, 1872, for the purpose of entering into a
contract, a person is said to be of sound mind if he is capable of understanding the contract and
being able to assess its effects upon his interests.

It is important to note that a person who is usually of an unsound mind, but occasionally of a
sound mind, can enter a contract when he is of sound mind. No person can enter a contract when
he is of unsound mind, even if he is so temporarily. A contract made by a person of an unsound
mind is void.

(a) Idiocy

Generally he is considered as incapable of entering into contract. His mental status is such that
even ordinary matters cannot be understood and judged by him, because of lack of development
of his mind. The agreement with an idiot is void.

(b) Insanity or Lunacy

Insanity or Lunacy appears in a person who is totally out of control. It is a disease which occur in
the brain. Such persons cannot use his reasoning power due to some mental strain or disease. If
his mind becomes sound due to the cure of his disease. In such cases he can enter into contract
other wise he is totally incapable of making a contract.

(c) Drunkness

Drunkness is another reason for incapability and it produces temporary incapability till a man is
under the effect of intoxication creating impotence of mind. Drunkness is also treated as lunacy.

(d) Old person

Many a time persons who are very old will lose the memory and become weak. Such person's
mind and memory may decay due to his old age. Even such person are considered as incapable
person for entering into a valid contract.

3] Disqualified Persons

Apart from minors and people with unsound minds, there are other people who cannot enter into a
contract. i.e. do not have the capacity to contract. The reasons for disqualification can include,
political status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien
enemy, convicts, insolvents, etc.

(a) A Married Women

A women as an individual is competent enough to enter into a contract. Law has not made any
distinction regarding contractual capacity of men and women. Whether persons are married or
unmarried, they enjoy the some contractual capacity. In respect of a property Regulations of
Contracts – 1 which belongs to woman, she holds absolute authority over it and she enters into a
contract. But a married women cannot enter into a contract in respect of her husband's property.
However a married women can bind her husband's property for necessaries supplied to her in
certain cases.

(b) Insolvents

According to the law a person who is declared insolvent is not a person. All the property of such
person ceased by his creditors or his property vests in the hands of the receiver or official
assignee. Therefore such person who is declared as insolvent cannot posses the contractual
capacity.

(c) Alien enemies

Aliens are referred to the persons who are not belonging to country or citizen of any country. An
Alien is a person who may be called as foreigner to the land. Such persons can be either an 'alien
friend' or an 'alien enemy', and is created during peace or war of any country. Generally an alien is
competent to contract with citizens of India living in India. The contractual capacity arises by
such persons during peace of the country. But if the country declared war, in such cases the alien
will be enemy and such persons cannot enter into a contract. Contracts before the declaration war
stands void during the war and cannot be enforced.

(d) A Convict

A convict is a man who is imprisoned. A convict while undergoing imprisonment is incapable of

entering into a contact. But incapability stands cancelled when once period of sentence or
imprisoned expires.

(e) Foreign Sovereigns and ambassadors

Foreign sovereigns and accredited representatives of a foreign state or ambassadors enjoy special
privilege, by which they cannot be sued in courts of law. Here these persons have right to contract
but can claim the privilege of not being sued. However in India, under Section 86 of the Civil
Procedure Code, previous sanction of Central Government is to be obtained, for suing the rulers
of foreign state, ambassadors and envoys.

(f) Corporations

A corporation is an artificial person created by the company and recognised by Law and exists
only in the eyes of Law. In other words, joint stock companies and corporations are incorporated
under an Act passed by Parliament or State Legislature, which referred to artificial persons. Such
of the companies cannot enter into contract directly, as they cannot act beyond the powers of
Memorandum of Association. These persons cannot enter directly including the contract of
marriage. But these are competent to enter into a contract only through its agents or Board of
Directors.

(g) Professionals

Professionals are person who have specialised knowledge, skill and qualification in their
respective field. Professionals are not bared in entering into contracts. They have their right to be
claimed after their service. But in England, there is a restriction that the barristers cannot sue their
clients for their professional fees. In India, according to the Bar Council Act 1927, advocates of
the High court can enter into a contract with his client and can also bring a suit against him for his
fees.

Effects of minor agreement

• Ratification of minor's agreement: An agreement with a minor is void and therefore it

cannot be ratified by the after attaining the age of majority and the consideration given to the
minor during minority cannot be a valid consideration for the promise made by him after attaining
the majority.

• Contract of apprenticeship: Under Indian

Apprentice Act, 1850, a contract of apprentice entered by guardian on his behalf is binding on the
minor.

• Necessities supplied to a minor (section 68): The general rule is that if incapable of entering into
a person is contract is supplied by another person with necessities of life, the person who has
supplied is entitled to get reimbursement from the property of such incompetent person, including
a child as well.

Illustration: A supplies the wife and children of B. a lunatic, with necessaries suitable to their
condition in life. A is entitled to be reimbursed from B's property.But if the minor has no property
of his own, then he cannot be bound to reimburse the other person.