Page 14 - DCOM103_COMMERCIAL_LAW

Unit 1: Law of Contract

Notes
Example: Suppose X agrees to buy books from Y for $50. Here the consideration of
X is books and the consideration of Y is $50. It can be a promise to act (doing something)
or forbearance (not doing something). The consideration may be present, future or can
be past. But the consideration must be real. For example, if John agrees to sell his car of
$ 50000 to Peter for $20000. This is a valid contract if John agrees to sell his car not under any

influence or force. It can be valid only if the consideration of John is free. An agreement is
valid only when the acts are legal. Illegal works like killing another for money, or immoral
works or illegal acts are cannot be treated as a valid agreement. So, illegal works will not
come under the contract act.
4. Capacity of parties to contract: Parties entering into an agreement must be competent and
capable of entering into a contract. If “A” agrees to sell a Government property to B and B
agrees to buy that property, it could not treated as a valid agreement as A is not authorized
or owner of the property. If any of the party is not competent or capable of entering into the
agreement, that agreement cannot be treated as a valid contract.
According to Section 11 of the Act which says that 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

it is clear that the party must be of sound mind and of age to enter into a valid agreement
which can be treated as a valid contract.
5. Free Consent: According to section 14, consent is said to be free when it is not caused by

(i) coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake. If the
contract made by any of the above four reason, at the option of the aggrieved party it could
be treated as a void contract. If the agreement induced by mutual mistake the agreement
would stand void or canceled. An agreement can be treated as a valid contract when the
consent of the parties are free and not under any undue influence, fear or pressure etc. The

consent of the parties must be genuine and free consent.
6. Lawful Object: The objective of the agreement must be lawful. Any act prohibited by law
will not be valid and such agreements cannot be treated as a valid contract.

Example: A rents out his house for the business of prostitution or for making bomb,
the acts performing there are unlawful. Hence such agreement cannot be treated as a valid
contract. Therefore the consideration as well as the object of the agreement should be
lawful.

7. Agreement not expressly declared void: Section 24 to 30 specify certain types of agreement
which have been expressly declared void.

Example: Restraint of marriage which has been expressly declared void under
Section 26. If John promises to pay $50 to Mary if she does not marry throughout her life
and Mary promise not to marry at all. But this agreement cannot be treated as a valid
contract owing to the fact that, under section 26 restraint of marriage expressly declared
void. Some of the agreements which have been expressly declared void are agreement in
restraint of legal proceedings, agreement in restraint of trade, agreement in restraint of
marriage and agreement by way of wager.

8. Certainty of meaning: Wording of the agreement must be clear and not uncertain or
vague. Suppose John agrees to sell 500 tones of oil to Mathew. But, what kind of oil is not
mentioned clearly. So on the ground of uncertainty, this agreement stands void. If the
meaning of the agreement can be made certain by the circumstances, it could be treated
as a valid contract. For example, if John and Mathew are sole trader of coconut oil, the

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