UNIT - II

LAW OF CONTRACTS

IMPORTANT QUESTIONS AND ANSWERS

1. Define free consent. What are the elements affecting free consent under the Indian
Contract Act?
2. What is coercion? Explain its essential elements with illustrations and relevant case law.
3. What is undue influence? How does it differ from coercion? Discuss with leading cases.
4. Define fraud. What are the essentials of fraud? What are the consequences of fraud in a
contract?
5. Define misrepresentation. How is it different from fraud? Explain with case laws.
6. Discuss the law relating to mistake. Distinguish between mistake of law and mistake of
fact.
7. Explain the legal effect of mistake on contracts under Sections 20, 21, and 22.
8. Differentiate between void and voidable contracts with suitable illustrations.
9. Undue Influence – Burden of proof (Section 16)
10. Fraud and its exceptions (Section 17)
11. Misrepresentation (Section 18)
12. Mutual mistake and unilateral mistake (Sections 20–22)
13. Consent v. Free Consent
14. Effect of silence in fraud

 CAPACITY TO CONTRACT

The concept of "Capacity to Contract" is a foundational element in contract law,

determining who is legally competent to enter into a binding agreement. As per
the Indian Contract Act, 1872, particularly Section 11, a contract is only valid
if it is entered into by parties who possess the legal capacity to do so. Section
11 states: “Every person is competent to contract who is of the age of majority

1
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.” This
provision lays down three essential conditions for capacity to contract:

(i) the person must be a major

(ii) must be of sound mind; and

(iii) must not be disqualified from contracting by any law in force.

The absence of any of these conditions renders the contract void or voidable,
depending on the circumstances.

The first and foremost requirement under Section 11 is that the individual
must have attained the age of majority. According to the Indian Majority Act,
1875, the age of majority in India is 18 years, unless a guardian has been
appointed for the minor by the court, in which case the age of majority extends
to 21 years. A contract entered into by a minor is void ab initio, i.e., invalid
from the very beginning. This principle was firmly established by the landmark
case of Mohori Bibee v. Dharmodas Ghosh (1903) 30 Cal. 539 (PC), where
the Privy Council held that a minor is incompetent to contract and any
agreement entered into with a minor is absolutely void and not merely voidable.
In this case, a minor mortgaged his property in favour of a moneylender, and
when the lender sought to enforce the contract, the court ruled that since the
minor lacked capacity, the contract was void ab initio and unenforceable. The
ruling has since been the cornerstone for all discussions on minors and
contracts in India.

Moreover, even if a minor falsely represents himself as a major and enters into
a contract, the principle of estoppel does not apply against him. This means he
cannot be compelled to perform the contract or be held liable for damages for
misrepresentation. The courts have consistently held that no estoppel can be
pleaded against a minor, as seen in the case of Leslie v. Sheill (1914) 3 KB
2
607, where it was held that although the minor had obtained a loan by
misrepresenting his age, he could not be held liable for the amount nor
compelled to repay the money, as the underlying contract was void.

While a minor is not competent to enter into a contract, contracts made for the
benefit of a minor are enforceable. For instance, if a guardian enters into a
contract on behalf of a minor for his benefit, such an agreement may be
enforceable. In Raghava Chariar v. Srinivasa, the court upheld the validity of
a contract entered into by a guardian on behalf of a minor where the
transaction was clearly for the benefit of the minor.

The second essential condition for capacity is soundness of mind. As per

Section 12 of the Indian Contract Act, a person is said to be of sound mind for
the purpose of making a contract if, at the time of making the contract, he is
capable of understanding it and forming a rational judgment as to its effects
upon his interests. A person who is usually of unsound mind but occasionally
of sound mind can make a contract only when he is of sound mind.
Conversely, a person usually of sound mind but occasionally of unsound mind
cannot make a contract when he is of unsound mind. This distinction is crucial
as the law does not generalize mental conditions; rather, it focuses on the
mental state at the time of contract formation.

An important case regarding soundness of mind is Inder Singh v.

Parmeshwardhari Singh, AIR 1957 Pat 491, where the court held that a
contract made by a person who was of unsound mind at the time of agreement
is void. However, the burden of proof lies on the party who alleges that the
other party was of unsound mind at the time of making the contract. Medical
evidence, witness testimony, and conduct of the parties before and after the
agreement are relevant considerations in determining soundness of mind.

The third category under Section 11 relates to persons who are disqualified
from contracting by any law to which they are subject. This includes categories

3
such as insolvents, foreign sovereigns, alien enemies, convicts, and
corporations. These persons are either fully or partially disqualified from
entering into contracts depending on the nature of the law applicable to them.

For example, a person who has been declared an insolvent is incapable of

entering into contracts relating to property, as his assets vest with the official
receiver or assignee. Similarly, foreign sovereigns and ambassadors enjoy
certain privileges under international law and may not be sued in Indian courts
without the prior consent of the Central Government. In the case of K.
Satyanarayana v. A.P. State Road Transport Corporation AIR 1965 AP
140, it was held that statutory corporations, being legal persons, can enter into
contracts but only within the scope and limits of the powers conferred upon
them by their statutes. If a corporation enters into a contract beyond its powers
(ultra vires), such a contract is void.

In addition to these express categories, persons under the influence of

intoxication or drugs at the time of entering into a contract may also be
regarded as incapable of contracting, provided it can be shown that the person
was unable to understand the nature and consequences of the transaction. If
such incapacity is proven, the contract may be rendered void.

While Section 11 lays down who is competent to contract, the Indian Contract
Act does not provide exhaustive remedies in cases where contracts are made
with persons of incompetent status. However, equity comes into play through
principles like restitution under Section 65, which states that when an
agreement is discovered to be void or becomes void, any person who has
received any advantage under such agreement is bound to restore it or make
compensation. Nonetheless, in the case of minors, even restitution is limited
due to the overarching principle that the law protects minors and their
property. Therefore, even if a minor receives a benefit under a void contract,
the courts generally refuse to compel him to restore the benefit unless it is
traceable and identifiable.
4
In conclusion, capacity to contract is not merely a formal requirement but a
fundamental prerequisite for the validity and enforceability of contracts. The
law, in its wisdom, provides a protective shield to individuals like minors,
persons of unsound mind, and other disqualified persons, ensuring that they
are not bound by obligations they are legally or mentally incapable of
understanding. The doctrine serves not only to uphold the sanctity of
contractual relationships but also to prevent exploitation and uphold public
interest. Landmark cases such as Mohori Bibee have laid a firm foundation for
judicial interpretation, and the principles under Sections 11 and 12 of the
Indian Contract Act continue to guide courts in determining the validity of
agreements based on the competency of parties.

CONSENT AND FREE CONSENT

Under Indian Contract Law, the concept of "free consent" holds paramount
significance, as consent is the very foundation of a valid and enforceable
agreement. According to Section 10 of the Indian Contract Act, 1872, all
agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and
are not expressly declared to be void. Section 13 defines consent as when two
or more persons agree upon the same thing in the same sense, also known as
consensus ad idem. However, it is Section 14 that provides the real depth to
the concept by defining "free consent" and explaining that consent is said to be
free when it is not caused by coercion, undue influence, fraud,
misrepresentation, or mistake. If the consent of a party is not free, the contract
is usually voidable at the option of the party whose consent was so obtained.
This legal premise ensures that parties enter into agreements voluntarily and
with full knowledge of the terms, free from manipulation, fear, or deception.

5
The first factor that affects the free nature of consent is coercion. Defined
under Section 15 of the Indian Contract Act, coercion refers to the committing
or threatening to commit any act forbidden by the Indian Penal Code, or the
unlawful detaining or threatening to detain any property, with the intention of
causing any person to enter into an agreement. This definition was intended to
ensure that no party is compelled through unlawful force or threats to enter
into a contractual obligation. The classic case that elaborates on coercion is
Chikham Ammiraju v. Chikham Seshamma (1917), where a person
threatened to commit suicide unless his family members transferred property
to him. The court held that suicide being an act forbidden under IPC amounts
to coercion, and therefore, the consent obtained was not free. This case
widened the ambit of coercion and included even threats of self-harm as falling
within the scope of Section 15. It is essential to note that coercion need not
come from a party to the contract, nor be directed at the promisor—any
unlawful pressure that results in the formation of a contract may render it
voidable under Section 19 of the Act. For instance, if A threatens to shoot B
unless B sells his land to A for a nominal price and B agrees out of fear, the
contract is voidable at the option of B. Even if the threat is made outside India
or the Indian Penal Code is not directly applicable in that territory, it would
still amount to coercion if the contract is governed by Indian law.

Closely related to coercion, yet distinct, is the concept of undue influence

under Section 16. This provision states that a contract is said to be induced by
"undue influence" where the relations subsisting between the parties are such
that one party is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other. This typically occurs in
relationships where trust, confidence, or authority plays a dominant role, such
as doctor-patient, spiritual adviser-devotee, parent-child, or lawyer-client. In
the landmark case of Mannu Singh v. Umadat Pande (1890), a religious guru
induced his devotee to gift him the entirety of his property, relying on spiritual
influence. The court found that the gift deed was executed under undue

6
influence and declared it void. The burden of proof lies on the party in the
dominant position to prove that the transaction was not influenced by undue
advantage or pressure. Furthermore, when the terms of the contract appear
unconscionable or unusually advantageous to one party, courts presume the
presence of undue influence unless disproved. This legal safeguard is meant to
protect vulnerable individuals from being exploited in situations where their
decision-making autonomy is compromised due to emotional dependence, fear,
or misplaced trust.

Fraud, a more sinister vitiating factor, is dealt with in Section 17 of the Indian
Contract Act. It defines fraud as any act committed by a party to a contract, or
with his connivance, or by his agent, with intent to deceive another party
thereto or his agent, or to induce him to enter into the contract. The section
identifies fraud to include the suggestion as a fact of something which is not
true by one who does not believe it to be true, the active concealment of a fact
by one having knowledge or belief of the fact, a promise made without any
intention of performing it, or any such act or omission as the law specifically
declares to be fraudulent. Fraud essentially involves intentional deception, and
its impact can be severe.

For example, if A sells a horse to B, knowing it is lame but assures B that the
horse is perfectly sound, and B relies on that assertion, the contract is induced
by fraud and is voidable at B’s option.

In the notable case of Derry v. Peek (1889), it was held by the House of Lords
that a false representation made knowingly, or without belief in its truth, or
recklessly without caring whether it be true or false, amounts to fraud.
Although this was a case decided under English law, it continues to be a
persuasive precedent in Indian jurisprudence. Importantly, silence does not
generally constitute fraud unless there is a duty to speak or where silence is
equivalent to speech—such as in contracts of utmost good faith, like insurance
contracts, where full disclosure is mandated.
7
Misrepresentation, defined under Section 18, though similar to fraud, lacks the
element of intent to deceive. It includes the positive assertion of something not
true by someone who believes it to be true, any breach of duty which gains an
advantage for the person committing it by misleading another to his prejudice,
and causing a party to an agreement to make a mistake as to the substance of
the thing which is the subject of the agreement. A misrepresentation thus
occurs when a false statement is made innocently or without intent to mislead.
Even though there is no malice involved, such misrepresentation can lead to
the agreement being voidable at the option of the party misled. A classic
illustration would be if A, in good faith, tells B that a particular piece of land is
capable of yielding high agricultural produce based on past hearsay, and B,
relying on this, enters into a contract to buy the land. Later, it is found the
land is barren. Here, B can void the contract on grounds of misrepresentation.
The distinction between fraud and misrepresentation was clarified in Horsefall
v. Thomas (1862), where it was held that mere silence does not amount to
fraud unless the party had a duty to disclose. However, in With v. O'Flanagan
(1936), it was held that if a statement made during negotiations becomes false
due to a change in circumstances, the party is under an obligation to correct
the statement; failure to do so would amount to misrepresentation.

The legal consequences of coercion, undue influence, fraud, and

misrepresentation are primarily addressed in Section 19 and 19A of the Indian
Contract Act. Section 19 states that a contract induced by coercion, fraud, or
misrepresentation is voidable at the option of the party whose consent was so
obtained. The affected party may either rescind the contract or insist that it be
performed and put in the position they would have been in had the
representation been true. However, if the party whose consent was caused by
misrepresentation had the means of discovering the truth with ordinary
diligence, then the contract is not voidable. This caveat places some
responsibility on the party entering into the contract to act with due care.
Section 19A further elaborates on undue influence and empowers the court to

8
set aside a contract if it finds that undue influence was used. The court may
also impose just and reasonable terms in doing so. These provisions are
intended to strike a balance between the autonomy of contractual parties and
the prevention of injustice resulting from unfair or deceptive practices.

MISTAKE AND ITS EFFECTS UNDER CONTRACTS

Under Indian Contract Law, the doctrine of mistake occupies a critical place
in determining the validity and enforceability of agreements. Mistake refers
to an erroneous belief held by one or both parties to a contract concerning a
fact essential to the agreement. It is addressed under Sections 20, 21, and
22 of the Indian Contract Act, 1872. Mistakes can occur in different forms
and can have varying consequences on the enforceability of a contract,
ranging from making the agreement void to being insignificant in the eyes of
the law, depending upon whether the mistake is mutual or unilateral and
whether it pertains to a fact or to the law. The law recognizes that a contract
entered into under a fundamental mistake lacks the necessary consensus
ad idem (meeting of minds), which is essential for a valid contract.

Section 20 of the Indian Contract Act, 1872 specifically deals with mutual
mistake of fact and provides that “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.” The section highlights two vital aspects: the mistake must
be mutual, and it must relate to a fact essential to the agreement. A mutual
mistake occurs when both parties misunderstand each other and are at cross-
purposes, leading to a lack of consensus. The mistake must be about an
essential fact that goes to the root of the contract. For instance, in the classic
English case Couturier v. Hastie (1856) 5 HLC 673, the parties entered into a
contract for the sale of a cargo of corn which, unknown to both, had already
been sold because it had perished during the voyage. The House of Lords held
that since the subject matter did not exist at the time of the contract, there was

9
no agreement in the eyes of law. This case clearly illustrates how mutual
mistake as to the existence of the subject matter renders a contract void.

The Indian judiciary has also upheld this principle. In K.G. Venkata Reddi v.
State of Andhra Pradesh AIR 1966 SC 828, the Supreme Court held that an
agreement entered into under a mutual mistake of fact relating to a
fundamental matter was void under Section 20. In this case, the mistake was
regarding the boundary of a piece of land to be acquired, and the Court ruled
that since both parties were mistaken about a vital element of the agreement, it
was void.

An essential element to note is that the mistake must pertain to a fact essential
to the agreement. A mistake as to the quality or value of the subject matter
does not render the contract void. For example, if a person agrees to buy a
painting believing it to be an original, but it turns out to be a replica, the
contract may not necessarily be void unless it can be shown that both parties
operated under the mistaken belief of its originality and that belief was
fundamental to the agreement. In Raffles v. Wichelhaus (1864) 2 H&C 906, a
contract for the sale of cotton referred to a ship named "Peerless," but
unknown to both parties, there were two ships with the same name departing
at different times. Each party had a different ship in mind, leading to a
fundamental mistake. The court held the contract void for lack of consensus ad
idem.

Section 21 of the Indian Contract Act addresses the effect of mistake of law and
provides that “a contract is not voidable because it was caused by a mistake as
to any law in force in India; but a mistake as to a law not in force in India has
the same effect as a mistake of fact.” This reflects the principle ignorantia juris
non excusat – ignorance of the law is no excuse. If a party enters into a contract
under a mistaken belief regarding the Indian law, such a mistake does not
invalidate the contract. However, if the mistake pertains to foreign law, then it
is treated as a mistake of fact since courts do not presume knowledge of foreign
10
laws. For example, in Cooper v. Phibbs (1867) LR 2 HL 149, a party leased a
fishery believing he had no legal right to it, though he actually did. The House
of Lords held that the agreement was void on account of mutual mistake as to
the legal ownership, treating the mistake as one of fact.

Section 22 of the Act deals with unilateral mistake and states that “a contract
is not voidable merely because it was caused by one of the parties to it being
under a mistake as to a matter of fact.” This indicates that a mistake by one
party, when not shared by the other, does not affect the validity of a contract
unless the mistake is such that the other party was aware of it and took
advantage of it, or the mistake relates to the identity of the party or the nature
of the contract. A well-known example of this principle is the case of Smith v.
Hughes (1871) LR 6 QB 597, where the buyer believed he was buying old oats
for horse feed, but the seller sold new oats, and the seller had not
misrepresented the product. The court held that the contract was valid, and
the mistake was unilateral and not sufficient to void the contract since there
was no misrepresentation or mutual misunderstanding.

However, where the unilateral mistake is induced by the other party or where it
concerns the identity of the contracting party, the contract may be void. In
Cundy v. Lindsay (1878) 3 App Cas 459, a rogue falsely represented himself as
a reputable merchant and purchased goods from Lindsay & Co., who believed
they were dealing with a well-known businessman. The goods were then sold to
an innocent third party. The court held the contract void due to mistake as to
identity, which was fundamental to the agreement, and thus the title to goods
did not pass. Similarly, in Lake v. Simmons [1927] AC 487, the plaintiff pawned
jewelry to a person she believed to be a wealthy noblewoman. The court voided
the contract on the grounds of mistaken identity.

Indian courts have adopted a similar approach. In Dularia Devi v. Janardan

Singh AIR 1990 SC 1173, the Supreme Court held that a unilateral mistake,
when induced by fraud or misrepresentation, could lead to the contract being
11
voidable. Although this case dealt primarily with misrepresentation, it
reaffirmed the idea that where one party is mistaken and the other party
exploits that mistake, the contract may not be enforceable.

Furthermore, mistake can also affect written contracts where there is a mistake
in the expression of the agreement. Under Section 26 of the Specific Relief Act,
1963, a party may seek rectification of an instrument if it fails to express the
real intention due to a mutual mistake. In Fowler v. Fowler (1859) 4 De G & J
250, both parties agreed to transfer a property, but the deed erroneously
included only part of it. The court allowed rectification to bring the deed in line
with the actual agreement. Indian courts have followed this principle to provide
equitable relief in cases of drafting errors resulting from mutual mistake.

Another essential dimension of the doctrine of mistake in contracts is its

differentiation from other vitiating elements such as fraud, misrepresentation,
coercion, or undue influence. Unlike those doctrines, mistake does not involve
any wrongful act by either party; it is an innocent misapprehension that
nevertheless undermines the consent necessary for a valid contract. The
parties may both be acting in good faith, but still fail to reach a genuine
agreement because they are laboring under a false assumption about a
fundamental aspect of the deal.

Modern courts, both in India and abroad, have attempted to balance the
sanctity of contracts with the principles of fairness and justice. Courts are
generally reluctant to allow a party to escape from a contract merely on the
basis of mistake unless it is clear that the mistake was fundamental and that it
prevented a true meeting of minds. This principle was echoed in Bell v. Lever
Brothers Ltd. [1932] AC 161, where the House of Lords refused to void a
severance agreement despite the fact that the employer would not have entered
into the contract had they known of the employee's misconduct. The court held
that the mistake did not go to the root of the contract.

12
In India, a similar cautious approach is taken. Courts scrutinize the nature of
the mistake and its effect on the agreement before declaring it void. In State of
Rajasthan v. Shyam Sunder Sharma AIR 1974 Raj 13, the Rajasthan High
Court held that a mistake that does not relate to a matter of vital importance or
does not affect the very substance of the contract cannot render it void. This
position reiterates that only mistakes which go to the heart of the matter are
sufficient to negate consent.

In conclusion, the doctrine of mistake in Indian Contract Law is built on the

premise that a valid contract requires free and genuine consent. Mistakes—
whether mutual or unilateral—can affect the enforceability of an agreement
only when they pertain to essential facts or, in exceptional cases, to identity or
nature of the contract. Mutual mistake of fact renders a contract void under
Section 20. Mistake of Indian law, as per Section 21, has no effect, while
mistake of foreign law is treated as mistake of fact. Unilateral mistakes under
Section 22 do not make a contract voidable unless there is fraud,
misrepresentation, or mistake as to identity. The courts, both in India and in
the common law tradition, tread cautiously in applying this doctrine to prevent
misuse and to uphold the integrity of commercial transactions, ensuring that
only genuine and serious mistakes affecting the very foundation of a contract
result in its invalidation. Through a series of judicial pronouncements and
statutory interpretations, the doctrine of mistake continues to evolve,
emphasizing the core contractual principle of consensus ad idem while
balancing it with the need for equitable remedies where injustice would
otherwise occur.

LEGALITY OF OBJECT AND CONSIDERATION

In the realm of Indian Contract Law, the concept of legality of object and
consideration occupies a fundamental position in determining the validity and
enforceability of an agreement. This principle finds its statutory embodiment in

13
Section 23 of the Indian Contract Act, 1872, which lays down the foundation
for assessing whether an agreement has a lawful object and consideration. A
contract, to be valid and binding, must be made for a lawful consideration and
a lawful object; failing this requirement, the agreement becomes void ab initio.
The law thus intervenes to ensure that the parties to a contract do not
contravene public policy, the law of the land, or morality through their
transactions. Therefore, legality of object and consideration is not merely a
peripheral requirement but a sine qua non for the formation of a legally
enforceable contract.

Section 23 of the Indian Contract Act, 1872, reads: "The consideration or object
of an agreement is lawful, unless — it is forbidden by law; or is of such a
nature that, if permitted, it would defeat the provisions of any law; or is
fraudulent; or involves or implies injury to the person or property of another; or
the Court regards it as immoral, or opposed to public policy." The explanation
to the section further clarifies that in each of these cases, the consideration or
object is said to be unlawful. What emerges from this provision is that both
consideration and object must be lawful independently. Consideration refers to
what each party gives or promises to give in exchange for the promise of the
other. Object refers to the purpose or design of the contract. Both must be
legitimate and must not violate the enumerated conditions under Section 23.

A deeper understanding of Section 23 is facilitated by examining judicial

interpretations and landmark cases. One of the earliest and most cited cases is
Gherulal Parakh v. Mahadeodas Maiya (AIR 1959 SC 781), where the Supreme
Court held that an agreement not forbidden by law but which is opposed to
public policy is void. In this case, the contract in question was for a wagering
agreement in relation to a speculative transaction in cotton. The Court held
that although wagering agreements are not unlawful per se under the Indian
Contract Act, they are nonetheless void, and hence unenforceable in law. This

14
decision clarified that public policy, though a vague and uncertain term, plays
a pivotal role in adjudicating the legality of object and consideration.

The first category of unlawful consideration or object is one that is expressly

forbidden by law. If the law directly prohibits an act, any agreement to do such
an act is void. For instance, in Pearce v. Brooks (1866 LR 1 Ex 213), the
plaintiff supplied a carriage to a prostitute knowing that she would use it for
her trade. The Court held that the contract was unenforceable since the object
was illegal, being tied to an immoral activity that was forbidden under law.
Similarly, an agreement to smuggle goods or evade taxes would be void, as it
involves an object that is clearly forbidden by the law.

The second ground of illegality under Section 23 is when the object or

consideration of a contract is not directly forbidden by law but, if allowed,
would defeat the provisions of any law. In Ramnath v. State of Madhya Pradesh
(AIR 1959 MP 240), the court held that an agreement by a government servant
to pay a portion of his salary to a person who helped him secure employment
was void, as it defeated the object of employment regulations that prohibit such
inducements. The rationale here is that even though the act may not be
expressly outlawed, its consequence undermines the purpose and efficacy of
existing laws, thereby making it impermissible.

The third facet pertains to agreements that are fraudulent. If a contract is

entered into with the intention to deceive another party, or to cause loss or
harm to them through deceptive means, the object is deemed unlawful. Fraud,
being a civil wrong and a criminal offence, renders the contract not only
voidable at the option of the aggrieved party but also void ab initio when the
entire object is based on fraudulent intent. In Sita Ram v. Radha Bai (AIR 1968
SC 534), the Supreme Court emphasized that fraud vitiates the very foundation
of a contract, and any agreement based on fraudulent consideration or object is
unenforceable in a court of law.

15
The fourth category involves those contracts which entail injury to the person
or property of another. This covers agreements to commit tortious acts or to
inflict harm, either physical or reputational, on third parties. For instance, an
agreement to assault someone in exchange for money, or to publish defamatory
material, would clearly fall within this category. The courts have consistently
refused to enforce such contracts, recognizing the inherent illegality in
agreements that are injurious or harmful to others.

Another important ground of illegality is immorality. Agreements with immoral

objects or considerations are void, even if not expressly prohibited by law.
Immorality is largely determined by prevailing social standards, judicial
interpretations, and the collective conscience of the community. In Madhub
Chunder v. Rajcoomar Doss (1874) 14 Beng LR 76, the Calcutta High Court
held that a contract to cohabit for consideration, even though not amounting to
prostitution, was void on the grounds of immorality. The Indian courts have
applied this test subjectively, guided by the facts of each case and the evolving
moral standards of society.

Perhaps the most expansive and evolving ground is that of public policy.
Courts have held that though the term 'public policy' cannot be exhaustively
defined, certain established heads such as restraint of marriage, restraint of
legal proceedings, trading with an enemy, interference with the administration
of justice, and so on, are deemed to be against public policy. In Rajeev v. State
of Haryana (AIR 1995 SC 121), the Supreme Court reiterated that an
agreement to stifle prosecution is against public policy and therefore void.
Similarly, in Surasaibalini Debi v. Phanindra Mohan Majumdar (AIR 1965 SC
1364), it was held that agreements to influence public servants in the
discharge of their duties are void on the ground of public policy. This
demonstrates the wide discretionary power courts wield in invoking public
policy to strike down agreements that they find detrimental to public welfare or
justice.

16
An additional nuance in the application of Section 23 emerges when both
lawful and unlawful parts are embedded within the same contract. Section 24
of the Indian Contract Act deals with such situations and states that if any
part of a single consideration for one or more objects, or any one or any part of
any one of several considerations for a single object, is unlawful, the agreement
is void. This provision reflects the strict nature of the doctrine of severability in
Indian law—where the lawful and unlawful parts of a contract are inseparable,
the entire agreement collapses.

An illustration of this can be found in the case of Bhagwat Dayal Singh v. Debi
Dayal Sahu (AIR 1962 SC 287), where a contract had both lawful and unlawful
purposes, and the Supreme Court held that since the unlawful part could not
be severed from the lawful one, the contract was void in its entirety. This
principle ensures that the courts do not indirectly validate illegality by allowing
partial enforcement of contracts tainted with unlawful objectives.

Another illustrative case is Void v. Voidable Agreements distinction as

discussed in Bai Mamubai v. Chetty (1885 ILR 9 Bom 341), where the court
distinguished between contracts that are void due to illegality and those that
are voidable due to coercion or misrepresentation. The Court clarified that
while voidable contracts may be enforced upon the removal of vitiating factors,
void contracts are absolutely unenforceable due to their foundational illegality
under Section 23.

Moreover, in the case of M. H. Mohd. Ishaq v. S. Kazam Pasha (AIR 2009 SC

215), the Supreme Court reiterated that the burden of proving the illegality of
an agreement rests upon the party who alleges it. This burden becomes heavier
when the illegality is based on public policy or morality, given the abstract and
subjective nature of these terms. Courts adopt a cautious and restrained
approach, refraining from expanding the doctrine of public policy unless it is
warranted by compelling societal interest.

17
In modern times, with the rise of complex commercial transactions, the
doctrine of legality of object and consideration continues to hold relevance. For
example, agreements involving money laundering, drug trafficking, or cyber
fraud are inherently void, despite their high-tech methods and sophisticated
structures. The judiciary has kept pace with such developments, using Section
23 as a tool to strike down contracts that mask illegality under a veneer of
legality.

An interesting development in contemporary jurisprudence is the consideration

of constitutional values while interpreting Section 23. In Central Inland Water
Transport Corporation Ltd. v. Brojo Nath Ganguly (AIR 1986 SC 1571), the
Supreme Court struck down an unconscionable clause in a contract as
opposed to public policy, thereby introducing the element of fairness and
reasonableness into the fold of legality. This case marks a shift from a purely
statutory interpretation to a rights-based approach in contract law.

To conclude, the doctrine of legality of object and consideration serves as a

powerful mechanism to ensure that contractual arrangements conform not
only to the black-letter law but also to the broader ideals of justice, morality,
and public welfare. Section 23 of the Indian Contract Act, 1872, supported by a
rich body of judicial precedent, provides a dynamic and adaptive framework to
assess the legitimacy of contractual dealings. Whether it is in the context of
express illegality, fraudulent schemes, immoral dealings, or actions opposed to
public policy, this doctrine stands as a guardian against abuse of contractual
freedom. It reflects the inherent balance that contract law seeks to strike—
between the autonomy of parties and the interests of society at large. Thus,
while parties are generally free to contract as they please, this freedom is not
absolute; it is bounded by the twin pillars of legality and legitimacy as
enshrined in Section 23 and shaped by evolving judicial wisdom.

AGREEMENTS AGAINST PUBLIC POLICY

18
In contract law, one of the essential conditions for a valid agreement under
Section 10 of the Indian Contract Act, 1872, is that the agreement must not be
one that is opposed to public policy. The concept of “public policy” is not
explicitly defined in the Act but has evolved through judicial interpretation over
the years. Section 23 of the Indian Contract Act specifically states that the
consideration or object of an agreement is lawful unless it is forbidden by law,
defeats the provisions of any law, is fraudulent, involves or implies injury to the
person or property of another, or is, in the opinion of the court, immoral or
opposed to public policy. Thus, any agreement that violates public policy is
void and unenforceable.

The term "public policy" is a dynamic and somewhat elusive doctrine that is
interpreted in the light of the prevailing social, moral, and legal standards. It
embodies the idea that certain principles and values are so fundamental to the
functioning of society that the courts will not enforce contracts that violate
them. The flexibility of this doctrine allows it to evolve with time, reflecting the
needs and values of contemporary society. The courts, however, have also
cautioned against the indiscriminate use of the doctrine of public policy as a
ground for invalidating agreements, for it can become a “vague and uncertain”
concept if not applied with caution and judicial discipline.

In the landmark case of Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC

781, the Supreme Court held that though the doctrine of public policy is vague
and susceptible to narrow or wide interpretation, the courts must proceed with
caution and only expand its scope in exceptional circumstances. In this case, a
wagering agreement was held not to be opposed to public policy as it was not
forbidden by law in the State in which it was entered. The judgment reaffirmed
the idea that agreements not forbidden by law but merely void under Section
30 of the Indian Contract Act may not necessarily be against public policy
unless they have an injurious impact on public welfare.

19
Public policy covers a wide spectrum of contracts that the courts have held to
be void. One common category includes agreements that interfere with the
administration of justice. Any agreement whose object is to stifle prosecution or
tamper with the judicial process is considered void. For instance, an agreement
to suppress criminal prosecution in exchange for money is clearly against
public policy. In Ouseph Poulo v. Catholic Union Bank Ltd., AIR 1965 Ker 203,
the Kerala High Court held that an agreement to suppress prosecution of a
criminal offence, particularly a non-compoundable offence, in exchange for
monetary consideration, is clearly against public policy and hence void under
Section 23 of the Contract Act.

Another category of agreements opposed to public policy includes those that

interfere with the marital duties and institution of marriage. Agreements that
tend to restrain marriage, promote divorce, or are made in consideration of
marriage are often declared void. For example, an agreement to marry a person
only after obtaining a divorce from an existing spouse is considered contrary to
public policy. Similarly, agreements in restraint of parental duties or parental
rights in respect of minor children are also void. In Pearce v. Brooks (1866) LR
1 Ex 213, although a foreign judgment, it influenced Indian courts by stating
that agreements which encourage sexual immorality are opposed to public
policy.

Moreover, agreements which restrain trade have often come under judicial
scrutiny. Section 27 of the Indian Contract Act expressly declares that every
agreement by which anyone is restrained from exercising a lawful profession,
trade, or business of any kind is to that extent void. This provision itself is a
reflection of public policy aimed at promoting free trade and economic
development. In the case of Niranjan Shankar Golikari v. The Century Spinning
and Manufacturing Company Ltd., AIR 1967 SC 1098, the Supreme Court held
that negative covenants in contracts of employment operative during the period
of employment are not in restraint of trade and hence not opposed to public

20
policy. However, post-employment restrictions were examined with caution as
they could be considered void unless reasonable and necessary to protect the
employer's interests.

Contracts which involve the commission of a fraud on the public or the revenue
authorities are also considered void under public policy. Any agreement made
with the object of defrauding tax authorities or customs is illegal and
unenforceable. For example, if a person agrees to undervalue property to evade
stamp duty, such an agreement is opposed to public policy. In Rattan Chand
Hira Chand v. Askar Nawaz Jung (Dead), AIR 1991 SC 1774, the Supreme
Court held that a contract to misrepresent the price of property in order to
evade stamp duty is fraudulent and hence void under public policy.

Furthermore, agreements that have a corrupting influence on public life and

public institutions also fall within the ambit of public policy. Bribery,
corruption, and undue influence in matters of public appointments, elections,
and governmental contracts are particularly offensive to public conscience. In
S. Hardev Singh v. Gurmail Singh, (2007) 2 SCC 404, it was held that
agreements which involve influencing government officials in the discharge of
their public duty are void for being opposed to public policy. Even if a party
benefits monetarily under such an agreement, the courts will not enforce it.

A peculiar instance is that of champerty and maintenance, which were

previously viewed as contrary to public policy in Indian law, though now
treated with nuance. Champerty refers to an agreement where a party supports
litigation in return for a share of the proceeds. Maintenance is the act of
assisting litigation without just cause. In Re, “K” an Advocate, AIR 1957 All
667, it was held that a contingency fee arrangement between a lawyer and a
client amounted to champerty and hence was against public policy. However,
courts have allowed third-party funding of litigation if it is done in good faith
and not with the object of gambling in litigation outcomes.

21
Public policy also encompasses agreements that restrict legal proceedings.
Agreements that oust the jurisdiction of courts or limit the time within which a
party may enforce their rights are usually regarded as void. Section 28 of the
Indian Contract Act, before its amendment, declared void any agreement that
restricted a party absolutely from enforcing their rights through legal
proceedings. After the amendment in 1997, agreements that extinguish the
rights of a party or discharge any party from any liability under or in respect of
any contract on the expiry of a specified period are also declared void. In Food
Corporation of India v. New India Assurance Co. Ltd., AIR 1994 SC 1928, the
court reiterated the position that such clauses are contrary to public policy and
therefore void.

In addition, agreements that tend to create monopolies or corner markets,

thereby affecting public interest and fair competition, are often considered
opposed to public policy. Though India does not have an explicit anti-monopoly
clause in the Indian Contract Act, the Competition Act, 2002 plays an
important role in regulating such practices. Agreements having an appreciable
adverse effect on competition in the market are treated as void. This reflects a
modern interpretation of public policy consistent with economic justice and
consumer welfare.

The doctrine of public policy also extends to protecting the sanctity of

institutions like education, judiciary, and public service. Agreements to secure
admission in educational institutions or employment in public offices by
corrupt means are considered void. In Gullapalli Nageswara Rao v. Andhra
Pradesh State Road Transport Corporation, AIR 1959 SC 308, though not
directly about contracts, the judgment emphasized the importance of fairness
and transparency in public institutions, a principle that has often been invoked
in contract law while evaluating agreements involving public interest.

Another emerging area under the public policy doctrine is environmental

protection. In recent times, courts have declared that contracts which promote
22
environmental degradation or violate environmental laws may be void for being
opposed to public policy. Though not yet widely litigated, this interpretation is
in line with Article 48A and 51A(g) of the Constitution of India which stress
environmental protection and duties of citizens, respectively. Hence, an
agreement to illegally exploit forest resources or violate pollution control norms
could be void for offending public policy.

One of the criticisms of the doctrine of public policy is its subjective and
uncertain nature. Lord Denning in Enderby Town Football Club Ltd. v. Football
Association Ltd. [1971] Ch 591 aptly remarked, “With a good man in the saddle,
the unruly horse can be kept in control.” This metaphor, often cited in Indian
judgments, captures the essence of the dilemma surrounding public policy –
while it provides the courts with necessary flexibility to prevent injustice and
uphold the moral fabric of society, its uncertain contours can lead to arbitrary
outcomes if not applied with care and principle.

To conclude, the doctrine of agreements against public policy under Indian

contract law is a powerful but sensitive legal tool. Rooted in Section 23 of the
Indian Contract Act, it encompasses a wide array of contracts that are
considered injurious to the public good. These include agreements involving
illegality, immorality, interference with justice, corruption, restraint of marriage
or trade, suppression of prosecution, or those which attempt to defeat the ends
of law. The scope of this doctrine is neither rigid nor closed, and it continues to
evolve with changing societal values, judicial perspectives, and constitutional
ethos. Courts play a crucial role in striking a balance between freedom of
contract and societal interest, ensuring that private agreements do not
undermine public welfare or the moral foundations of the legal system. As
such, the doctrine of public policy, despite its inherent uncertainties, remains
an indispensable part of Indian contract jurisprudence.

VOID AND VOIDABLE CONTRACTS

23
In contract law, understanding the distinction between void and voidable
contracts is vital to determining the enforceability and legal consequences of an
agreement. The Indian Contract Act, 1872, which governs contractual relations
in India, defines and provides the legal framework for both these types of
contracts. Sections 2(g) and 2(i) of the Indian Contract Act are particularly
significant in this context. According to Section 2(g), a void contract is one that
ceases to be enforceable by law, whereas Section 2(i) defines a voidable
contract as one that is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others. These definitions
underline a fundamental difference: while a void contract is void ab initio or
becomes void due to certain legal disabilities, a voidable contract remains valid
until it is rescinded by the party whose consent was not freely obtained.

A void contract, by its very nature, lacks legal effect from the beginning or
becomes legally ineffective due to supervening circumstances. It is important to
note that not all agreements that are initially void start off that way; some
begin as valid contracts but become void subsequently due to impossibility of
performance or illegality arising after formation. For instance, under Section 56
of the Indian Contract Act, an agreement to do an act impossible in itself is
void. The principle of impossibility, or doctrine of frustration, is well
exemplified in the landmark case of Satyabrata Ghose v. Mugneeram Bangur &
Co. (AIR 1954 SC 44), where the Supreme Court held that if the performance of
a contract becomes impossible due to an unforeseen event beyond the control
of the parties, the contract becomes void under Section 56.

On the other hand, a voidable contract is one that is valid and binding unless
and until the aggrieved party chooses to avoid or rescind it. The main grounds
on which a contract becomes voidable include lack of free consent due to
coercion, undue influence, fraud, misrepresentation, or mistake. Sections 19
and 19A of the Indian Contract Act deal with voidable contracts. Section 19
states that when consent to an agreement is caused by coercion, fraud, or

24
misrepresentation, the agreement is a contract voidable at the option of the
party whose consent was so caused. Section 19A further elaborates that when
consent is obtained through undue influence, the contract becomes voidable at
the instance of the party whose will was so dominated.

Illustratively, consider a situation where person A threatens person B with

harm to force B into selling his house. The consent obtained through coercion
makes the contract voidable at the option of B under Section 19. B may either
affirm the contract or rescind it. This was aptly addressed in
Ranganayakamma v. Alwar Setti (1889 ILR 13 Mad 214), where the court held
that a contract executed by a widow under threat and pressure during her
husband's funeral rites was voidable as her consent was not free.

Similarly, in Undue Influence cases, where a party is in a position to dominate

the will of another and uses that position to gain an unfair advantage, the
contract becomes voidable. This principle was elaborated in the case of Mannu
Singh v. Umadat Pandey (1890 ILR 12 All 523), where a spiritual adviser
influenced his disciple to gift away all his property. The court held the contract
to be voidable at the instance of the disciple as the consent was obtained under
undue influence.

Fraud and misrepresentation also render contracts voidable. A contract based

on false representations, even if made innocently, allows the aggrieved party to
rescind the contract. In the landmark case Derry v. Peek (1889) 14 App Cas
337, the House of Lords distinguished between fraudulent misrepresentation
and innocent misrepresentation, establishing the intent to deceive as a key
element in fraud. In Indian law, both fraud and misrepresentation under
Sections 17 and 18 respectively make the contract voidable at the option of the
deceived party.

It is also critical to recognize that some agreements are void due to illegality or
being against public policy. Such contracts are not voidable, but outright void.

25
Section 23 of the Indian Contract Act renders an agreement void if its object or
consideration is unlawful. A contract for smuggling or for hiring someone to
commit a crime would fall into this category. The case of Gherulal Parakh v.
Mahadeodas Maiya (AIR 1959 SC 781) is a notable example where the
Supreme Court discussed the doctrine of public policy, holding that
agreements opposed to public policy are void.

Another important category of void contracts arises under Section 20, which
deals with mutual mistakes of fact essential to the agreement. If both parties
are under a mistake of fact which is material to the contract, the contract is
void. For example, if A agrees to sell B a cargo of goods supposed to be on a
ship, but unknown to both parties, the ship had already sunk, the contract is
void under Section 20. This was discussed in Bell v. Lever Bros Ltd. (1932 AC
161), which laid down that a common mistake as to a fundamental fact renders
the contract void.

The difference in legal consequences between void and voidable contracts is

substantial. In the case of a void contract, since it is considered to have never
existed in the eyes of law, no rights or obligations arise from it. Any money or
benefit received under such a contract is subject to restitution under Section
65 of the Indian Contract Act, which mandates that when an agreement is
discovered to be void, or when a contract becomes void, any person who has
received any advantage under such agreement or contract is bound to restore
it. This concept was explained in Kanhaiyalal v. D.R. Banaji (AIR 1958 MP 48),
where restitution was ordered after the contract was found to be void.

In contrast, in voidable contracts, the party entitled to rescind may choose to

affirm the contract, in which case it remains valid and enforceable. If the
contract is rescinded, the parties must be restored to their original position,
and any benefits exchanged must be returned, as per Section 64 of the Act. A
party rescinding a voidable contract must do so within a reasonable time and
must not have affirmed the contract by words or conduct. This was discussed
26
in Bhuban Mohan Singh v. Mechhoo Singh (AIR 1971 SC 1041), where the
Supreme Court observed that delay or conduct indicating acceptance of the
contract might preclude rescission.

A further dimension arises in contracts involving minors. Under Indian law, a

contract with a minor is void ab initio, as established in the celebrated case of
Mohori Bibee v. Dharmodas Ghose (1903) 30 Cal 539 (PC). In this case, the
Privy Council held that a minor's agreement is absolutely void and not merely
voidable. The minor, therefore, cannot be compelled to perform such an
agreement, nor can he be made liable for restitution unless he still possesses
the property or benefit received under the agreement.

In terms of contractual remedies, parties to voidable contracts are provided

with equitable relief such as rescission and sometimes compensation for losses
incurred due to the voidable nature of the contract. In void contracts, the law
steps in only to prevent unjust enrichment and to restore parties to their
original position, as per the doctrine of restitution.

Moreover, the procedural implications also differ. A party seeking to avoid a

voidable contract must approach the court to have the contract rescinded and
must prove that consent was not freely given. On the other hand, a void
contract needs no such declaration; its invalidity is inherent and can be raised
as a defense in any legal proceedings.

The Indian judiciary has consistently upheld the distinctions between void and
voidable contracts and clarified the consequences flowing from each. The
Supreme Court in Kaliaperumal Pillai v. Visalakshmi (AIR 1938 Mad 32)
reiterated that the burden of proof lies on the party alleging that a contract is
voidable, especially where undue influence or fraud is alleged.

In conclusion, the doctrines of void and voidable contracts serve a crucial

function in contract law by distinguishing between agreements that are entirely

27
without legal effect and those that are provisionally valid but susceptible to
cancellation upon certain conditions. Sections 2(g), 2(i), 19, 19A, 20, 23, and
56 of the Indian Contract Act provide the statutory foundation for these
concepts, while judicial interpretations in various landmark cases have
provided further clarity. Void contracts cannot be enforced by either party and
are treated as nullities in law. Voidable contracts, on the other hand, are valid
until repudiated by the aggrieved party and can give rise to rights and
obligations until such rescission. This nuanced distinction ensures that the
principles of fairness, voluntariness, and legality are upheld in the realm of
contractual obligations.

CONTINGENT CONTRACTS

In the realm of contract law, not every agreement becomes enforceable

immediately upon formation; some contracts hinge on the happening or non-
happening of a specific event in the future. These are known as contingent
contracts. The concept of contingent contracts is codified under Section 31 to
36 of the Indian Contract Act, 1872. These contracts occupy a significant
position in commercial transactions, especially in insurance contracts,
indemnity contracts, and contracts of guarantee, where obligations are deferred
until a certain event either happens or fails to happen.

According to Section 31 of the Indian Contract Act, 1872, a contingent

contract is defined as “a contract to do or not to do something, if some event,
collateral to such contract, does or does not happen.” The essence of such
contracts is the occurrence or non-occurrence of a future uncertain event that
is collateral to the contract. The term "collateral" indicates that the event is not
a part of the reciprocal promises constituting the contract but an event that is
independent yet related to it. This is distinct from ordinary conditional
contracts where the condition forms part of the consideration or reciprocal
promise. For instance, a contract between A and B, where A agrees to pay B a

28
sum of money if B’s ship returns safely from a voyage, is a contingent contract.
Here, the performance is dependent on an uncertain future event – the safe
return of the ship.

The enforceability of contingent contracts is elaborated upon in Sections 32 to

36. Section 32 deals with contingent contracts based on the happening of a
future event. It states that such a contract cannot be enforced unless and until
the event occurs. If the event becomes impossible, the contract becomes void.
For example, if A contracts to sell his car to B if he wins a lottery, the contract
becomes enforceable only if A wins the lottery. If he does not win, or if the
lottery is cancelled, the contract becomes void.

Conversely, Section 33 addresses contracts contingent on the non-happening

of an event. It provides that such contracts can be enforced when the event
becomes impossible to occur. Suppose A agrees to pay B a sum of money if a
certain ship does not return. If the ship sinks and is declared lost, the contract
becomes enforceable at that point, as the non-happening of the event is now
certain.

Section 34 covers situations where contracts depend on the future conduct of

a living person. If the occurrence of the contingency is the will or conduct of a
person, the event is considered impossible when that person does something
which makes the event impossible or highly improbable. For instance, if A
agrees to transfer a piece of land to B if C sells it to him, and C sells the land to
someone else, the contract becomes void as the condition cannot now be
fulfilled.

Section 35 of the Act deals with contracts contingent on the happening or

non-happening of an event within a fixed time. If the event does not happen
within the stipulated time, the contract becomes void. On the contrary, if the
contract is contingent on the non-happening of an event within a fixed time, it
becomes enforceable after the time expires without the event occurring. An

29
illustration would be where A agrees to pay B if a certain train reaches a
station within 5 hours. If the train is delayed beyond 5 hours, the contract
becomes void.

Section 36 clearly lays down that contingent agreements to do or not to do

anything if an impossible event happens are void, whether the impossibility is
known or not to the parties at the time of making the agreement. This implies
that if the event upon which a contract is contingent is impossible from the
beginning, such contract is void ab initio. For instance, A agrees to pay B a
sum of money if B can make a dead man alive. This is void from the start as
the event is impossible.

One of the most celebrated and often-cited cases in this area is N.P.O. Santha
v. M.G. Venkatesh AIR 1972 Mys 219, where the Mysore High Court held
that a contract to pay a sum upon a person getting a government job was
contingent upon an uncertain event, i.e., selection by a third party
(government). Since the event did not materialize, the agreement was not
enforceable.

Another landmark decision in this context is Annapurna v. Ramalingam AIR

1957 Mad 564, where the Madras High Court ruled that an agreement to sell
land if the government does not acquire it within six months was a contingent
contract. When the government did acquire the land within the stipulated time,
the contract was held to be void under Section 32 as the contingency failed to
occur.

A classic example from English law that illustrates contingent contracts is the
case of Beale v. Taylor [1967] 3 All ER 253, although not directly on
contingent contracts under Indian law, it demonstrates the significance of
implied conditions which are foundational to contingent obligations. In this
case, the buyer relied on a description of the car, and it was found later that
the car sold was not as described. The court held the contract was voidable due

30
to misrepresentation, showing how closely conditions and contingencies may
intertwine in contract law.

A more complex application can be seen in Kishan Chand v. The State of J &
K AIR 1965 J&K 68, where the court discussed the principles behind
insurance contracts as being contingent in nature. Insurance contracts,
especially life and fire insurance, are fundamentally contingent contracts as
the insurer promises to pay only upon the happening of an uncertain event –
death, accident, or fire. If the event does not occur, there is no liability. The
court held that these contracts become enforceable only when the contingency
is met, thereby reinforcing the scope of Section 31.

The element of uncertainty plays a vital role in distinguishing contingent

contracts from wagering agreements. While both depend on future events,
wagering agreements are void under Section 30 of the Indian Contract Act, as
they are made primarily for betting or gambling. In contrast, contingent
contracts are valid and enforceable, provided they conform to the conditions
laid down in Sections 31 to 36. For instance, a contract of insurance is a valid
contingent contract, but a bet on a horse race is a void wagering agreement.

Furthermore, the timing of performance is critical in contingent contracts.

The obligation to perform does not arise immediately but only upon the
fulfilment of the condition. This postponement of obligation can have
significant implications in commercial transactions. In Bhagwandas
Goverdhandas Kedia v. Girdharilal Parshottamdas AIR 1966 SC 543,
although the case mainly focused on offer and acceptance via telephone, the
concept of future uncertainties affecting the contract was acknowledged,
indicating that commercial transactions often carry the character of
contingencies embedded within them.

Another notable case is Bank of India v. K. Mohandas (2009) 5 SCC 313,

where the Supreme Court dealt with performance guarantees and conditions

31
precedent, and held that the liability under such guarantees does not arise
until a specified condition is met. This reiterates the basic principle of
contingent contracts — performance arises only on the happening or non-
happening of an event.

In practical terms, contingent contracts are used in business transactions

involving delivery of goods, construction contracts, and real estate deals, where
obligations are often tied to approvals, inspections, or clearances. For instance,
a real estate developer may enter into an agreement to sell flats contingent
upon obtaining necessary building permits. Until the permits are granted, the
contract is not enforceable.

It is also important to distinguish between conditions precedent and

conditions subsequent. A condition precedent is one that must be fulfilled
before the promise becomes enforceable, as covered by contingent contracts. A
condition subsequent, however, brings an end to an existing contract upon the
happening of an event, which is not the subject of contingent contracts as
defined in the Act. This subtle distinction was discussed in Motilal Padampat
Sugar Mills Co. Ltd. v. State of Uttar Pradesh AIR 1979 SC 621, where the
Supreme Court emphasized the importance of interpreting the intention of
parties and the timing of conditions.

Moreover, contingent contracts foster economic efficiency by enabling

transactions to proceed despite uncertainties. Parties can structure their
agreements in such a way that performance is deferred until the conditions
necessary for successful execution are fulfilled. This leads to better allocation
of risk and reduces potential litigation.

It is also worthwhile to note that courts interpret contingent contracts strictly,

ensuring that the conditions are clearly defined and the events upon which the
contract depends are not too vague or remote. In Union of India v. Chaman
Lal Loona AIR 1957 SC 652, the Supreme Court observed that if the

32
contingency is uncertain or ambiguous, the contract may be rendered void for
uncertainty under Section 29 of the Indian Contract Act. This underscores the
necessity for clarity in drafting such contracts.

In conclusion, contingent contracts under Indian contract law provide a legal

framework for agreements that depend on uncertain future events. They are
governed primarily by Sections 31 to 36 of the Indian Contract Act, 1872, and
play a crucial role in commercial and civil transactions where risk, uncertainty,
and external factors affect performance. These contracts offer a means of
mitigating risk, allowing parties to structure obligations that only arise when
certain specified conditions are met.

33