Contract Act – Theory

Delhi Law Academy

Law of Contract

Q1. Principle: If both the parties agree upon the same thing in the same sense, the parties are bound by their agreement.

Facts: Sanjay wrote to Hrithik offering to sell his horse for Rs. 20,000/- Hrithik wrote back, “I agree to purchase your black horse for Rs. 20,000.”

  • The parties are bound by their agreement as they agree on the price and also on the goods for sale.
  • The parties are not bound by the agreement as the object is uncertain.
  • The parties are bound by their agreement as the colour of the horse is only a question of detail.The answer is (b).

Reasoning: Since the parties did not agree upon the same thing in the same sense as the object of agreement was uncertain, the parties are not bound by the agreement.

Q2. Principle 1: Acceptance of an offer is complete when the acceptance is put into the course of transmission so as to be out of the power of the acceptor.

Principled: Acceptance once completed makes the agreement binding on both the parties.

Fact: A accepts to buy B’s offer of his motor car for Rs. 4 lakhs. The acceptance was put into e-mail. Unfortunately, when the e-mail was put, there was distortions as a result of which B was not in a position to really read what A had written.

  • Both the parties are bound to perform their part of the agreement.
  • Nobody is bound to perform the agreement.
  • A is bound to perform the agreement but not B.
  • B is bound to perform the agreement but not

The answer is (c).

Reasoning: Acceptance through e-mail is complete on the part of‘A’ only so only ‘A’ is bound to perform the agreement.

Q3. Principle: A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfilment of the contract.

Facts: Catareena, a singer contracted with John,

the manager of the theater, to sing at his theater for two nights in every week during the next two months, who agrees to pay her Rs. 100 for each night’s performance. On the 6th night, Catareena willfully absents herself from the theatre and John in consequence, rescinds the contract.

Is John entitled to claim compensation? –

  • Yes, because he has suffered loss.
  • Yes, because he has rightfully rescinded the contract.

The answer is (c).

Reasoning: Since Catareena wilfully absents herself from singing during the contract period, John rightfully rescinded from contract and is entitled to get compensation.


An agreement without consideration is void. Consideration means price of the promise. The Contract Act defines consideration to be some act or abstinence or promise on the part of promisee or acceptor at the desire of the offeror or promisor. Therefore, if an act is not done at the desire of the promisor, it will not be a good consideration.

A mere promise to pay a subscription becomes enforceable, if definite steps are taken in furtherance of the object, on the basis of promised subscription.

Further, if the consideration or object of an agreement is forbidden by law, the agreement is unlawful, and hence void.

Q4. Principle: A contract without consideration is void. When at the desire of one party, the other party does something the consideration is said to flow from the latter to the former.

Facts: A house was on fire and a child was trapped inside the house. Everyone was shouting for help. A brave onlooker, hearing the shrieks of child, went inside the house and brought it out. The greatful father of the child promised to pay the rescuer

Rs. 10,000/-. Subsequently he rescinded from the promise. The rescuer sued the promisee for the breach.

  • The father of the child must pay for the service rendered by the rescuer.
  • The rescuer is not entitled to the payment, since he acted on his own.
  • Commercial consideration cannot be applied to humanitarian instincts. [NLSIU, 2002]

The answer is (b).

Reasoning: Since there was no promise to pay for saving the child from fire, there was no consideration and hence there was no contract.

Q5. Principle 1: No consideration—No Contract.

Principle 2: Consideration is something done or abstinence of a party at the desire of another party.

Principle 3: Consideration must have same value in the eye of law.

Fact: Innovative Education Trust manages a school named Bharat Vidayaniketan. Ashok, the parent of a student in the school suggested to the Trust that it could build a new library building for which he would bear part of the cost. The school authority accepted the suggestion and started construction of the building. Ashok who suffered loss in business, now refuses to pay the part he had offered earlier.

Which of the decision you think is appropriate?

  • Ashok is not liable to pay as the building was for the benefit of the school and he has nothing to do with it by way of enjoying and benefit.
  • He is liable to pay as Ashok’s child is a student in the same school.
  • Ashok is liable to pay because based upon his promise, the school authority started construction of the building.

The answer is (c).

Reasoning: Since construction of the building started on the promise of Ashok to pay part of the cost, he would be liable.

Capacity of the Parties

Every person is competent to contract who has attained the age of majority and who has not been disqualified from entering into a contract. Therefore, the following persons are incompetent to contract—

  1. A minor i.e. a person below the age of 18 years,
  2. A person of unsound mind or insane,
  3. A person disqualified by any law to contract.

Nature of Minor’s Agreement

Thus, an agreement with a minor is absolutely void. In Mohri Bibee v. Dharma Das Ghose, a minor mortgaged his house in favour of a money-lender and received certain amount from him. The Privy Council held that the money-lender is not entitled to get the money back which was advanced to the minor. This is because only a person capable of entering into an agreement can enter into a contract. No contract took place in the above case. The agreement was void ab initio.

Unsound Mind

Similarly, a person of unsound mind is not competent to contract. An agreement with such person, is absolutely void, like that of minor. However, if a person’s mental disorder is such that he is of sound mind for sometimes and generally of unsound mind, he can make a valid contract when he is of sound mind. Therefore a patient in a mental asylum can enter into an agreement during those intervals when he is of sound mind.

Q6. Principle: A minor’s agreement is absolutely void.

Facts: Cuckoo, aged 16 is a stamp collector. He is particularly anxious to get a rare stamp belonging to Manoj who agrees in writing to sell this to Cuckoo for Rs. 100/- but subsequently refuses to deliver it to Cuckoo though Cuckoo pays Rs. 100/-. Cuckoo now wants to sue Manoj. Will he succeed?

  • Cuckoo cannot succeed as Manoj is not liable.
  • Cuckoo can succeed as he has paid Rs. 100/- for the stamp.
  • Cuckoo can succeed as Manoj agreed in writing to sell the stamp.

The answer is (b).

Reasoning: A minor can always avail the benefit of contract but he cannot be made liable for the contract entered by him.

Q7. Principle: A person who is usually of sound mind, but occasionally of unsound mind may not make a contract when he is of unsound mind.

A person who is usually of unsound mind but occasionally of sound mind may make a contract when he is of sound mind.

Facts: Rajendra, patient in a fanatic asylum, is at intervals of sound mind.

Can Rajendra contract at intervals?

  • Yes, because he is a human being.
  • Yes, because he is of sound mind during those intervals.

The answer is (c).

Reasoning: A person of unsound mind can enter into contract during the intervals when he is of sound mind.


For a valid contract the consent must be free. A consent is said to be a free consent when it is not vitiated by—

  1. coercion
  2. undue influence
  3. fraud
  4. misrepresentation
  5. mistake

Mere consent is not sufficient to constitute a valid agreement. ‘Free consent’ is a must. A consent obtained under the threat or coercion or undue influence is not free. A consent obtained by fraud or misrepresentation as well is not a free consent. A consent is vitiated by mistake also. A valid agreement cannot be made if consent is not free.


Coercion is committing or a threat to commit an act forbidden by the Indian Penal Code i.e. a violent act. It also means to detain or a threat to detain, any property of a person with an intention of causing him to enter into an agreement. Therefore, an agreement made by a person under criminal intimidation or under a fear that his son might be kidnapped is an agreement induced by coercion and hence void. Similarly, if the husband signs a transfer deed after a threat from wife to commit suicide, such a deed is bad in law, and not enforceable.

Undue Influence

Undue influence takes place where two persons stand in such a relation that one party is in a position to dominate the will of the other.


Misrepresentation means misstatements or unwarranted statements which are not true though the person believes it to be true. Misrepresentation is different from ‘fraud’ because the person making the statement believes it to be true. Whereas, ‘fraud’ is also called a wilful misrepresentation where maker of the statement knows and believes it not to be true-


Mistake of fact also vitiates a contract. A mistaken party cannot have a free consent. A mistake misleads a party or both the parties to enter into a contract. However, the mistake must be related to some fact which is essential to the contract.

Q8. Principle: Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

Facts: Ram agrees to buy from Shyam a certain horse. It turns out that the horse was dead at the time of bargain, though neither party was aware of it.

Is the agreement between Ram and Shyam void?

  • Yes, because Ram and Shyam were friends.
  • Yes, because Ram and Shyam were under a mistake as to matter of fact which is essential to the agreement.
  • No, because Ram was informed the horse being dead.
  • No, because Shyam was informed of the fact.

The answer is (b).

Reasoning: The agreement which rests on a mistaken fact, such agreement is a void agreement.

Q9. Principle: Where a person lawfully does anything for another person, or delivers anything to him, nfct intending to do so gratuitously and such another person enjoys the benefit thereof, the latter is bound to make compensation to the former in the respect, or to restore, the thing so done or delivered.

Facts: ‘A’, a tradesman, leaves goods at ‘B’s house by mistake. ‘B’ treats the goods as his own and uses it.

Is ‘B’ bound to repay ‘A’?

  • No, because ‘A’ and ‘B’ are friends.
  • Yes, because ‘A’ never intended to leave goods at ‘B’s house, but left them because of a mistake.
  • No, because ‘A’ leaves the goods at ‘B’s house due to his own fault.

The answer is (b).

Reasoning: Since ‘B’ treated the goods as his own and used it knowing it well that it was not his and enjoyed the benefits, he is bound to make compensation.

Void Agreements

Void agreements are those agreements which are not enforceable by law. The Contract Act declares certain agreements to be specifically void. These agreements are—

  • Agreement is restraint of marriage.
  • Agreement in restraint of trade.
  • Agreement in restraint of legal proceedings.
  • Agreement which is not certain or capable of being made certain.
  • Wagering agreements.
  • Agreements to do impossible acts.

Therefore if a person agrees to marry or not to

marry a particular man or woman, such an agreement is void ah initio and hence not enforceable. 

Q10. Principle: Agreements, the meaning of which is not certain or capable of being made certain, are void.

Facts: Ram agrees to sell Rohan “one thousand maunds of rice at a price to be fixed by Sohan.”

Is the agreement between Ram and Rohan void?

  • Yes
  • No, because the price can be made certain by Sohan.
  • No, because Ram has not fixed the price.

The answer is (c).

Reasoning: When the terms of agreement are not certain, the agreement is void.