CONTRACTS-I
PROJECT
TOPIC-9
SEMESTER-1
[2023-24]
NAME:
MANSI GUPTA
SECTION:
SECTION-A
ROLL NUMBER:
LLB223028
SUBMITTED TO:
Ms. LOVELY DASGUPTA
WORD COUNT:
1453
1
PROBLEM
R is the Deputy CEO in a Company named X. Y is the CEO of the same Company. As per the
Company’s documents, Y is required to clear in writing all the decisions taken by the
Company’s Board. And R is to counter sign the same before the said decision is to be
implemented. The manager `Mr. Z of the Company X, prepares a document, that will have the
effect of transferring 50 percent shares to him. However, he presents the document to Y as that
involving transfer of 50 percent shares to Y’s wife. Y is busy with a new project and hence
signs the document without reading the details. Later Y realizes that Mr. Z has defrauded his
Company and challenges the validity of the document he had signed.
ISSUES
1. Is the Agreement between Y and Z enforceable in law in absence of R’s counter
signature?
2. Is the agreement between Y and Z void due to lack of consideration?
3. Is the contract between Y and Z, if formed, voidable due to fraud?
2
CONTENTS
PROBLEM _____________________________________________________________________ 2
ISSUES _________________________________________________________________________ 2
COUNSEL FOR Y [Plaintiff] _______________________________________________________ 4
ISSUE 1 ______________________________________________________________________ 4
ISSUE 2 ______________________________________________________________________ 4
ISSUE 3 ______________________________________________________________________ 4
COUNSEL FOR Z[Defendant] _____________________________________________________ 5
ISSUE 1 ______________________________________________________________________ 5
ISSUE 2 ______________________________________________________________________ 5
ISSUE 3 ______________________________________________________________________ 5
JUDGEMENT ___________________________________________________________________ 6
BIBLIOGRAPHY ________________________________________________________________ 8
3
COUNSEL FOR Y [Plaintiff]
ISSUE 1
The first contention revolves around whether a valid contract was formed without the assent
of R. According to the company's rules, acceptance of the offer must be given by both Mr. Y
and Mr. R. This dual acceptance is missing in this case, making it clear that no valid contract
exists. When an agreement is subject to ratification by other individuals who are not parties to
the agreement, it must be considered a condition precedent for the contract to come into
force.1A valid contract can’t be concluded without fulfilment of a condition precedent to
contract according to the section 6 of Indian Contract Act,1872 which states that when a
condition precedent to a contract is not fulfilled, no concluded contract can be arrived at. 2
Applying this legal principle to the facts, it is evident that no valid contract exists between Z
and Y. Therefore, the document executed between Mr. Z and Mr. Y cannot be considered a
concluded agreement and is not enforceable in a court of law.
ISSUE 2
An agreement without consideration is void and cannot be enforced.3There exists no adequate
consideration on part of Z, Therefore, no valid contract exists between the parties due to lack
of consideration.4
ISSUE 3
In arguendo, supposedly, a valid contract has been entered into, last contention arises which is
regarding whether the contract can be rendered voidable due to fraud.
Fraud is a valid ground for making a contract voidable at the option of the party whose consent
was so caused by fraud.5 Fraud is said to be committed when one man’s act causes another to
act on a false belief by a representation which the person making it himself believes to be not
based in truth.6 And, consent is procured by this false representation.7Moreover, Section 19
(Exception 1) does not apply to fraud but only to the word ‘silence’ coming withing the scope
M.V. Shankar Bhat v. Claude Pinto, (2003) 4 SCC 86 ¶ 27.
Indian Contract Act, 1872 § 6.
3
Indian Contract Act, 1872 § 25; Pollock and Mulla, The Indian Contract and Specific Relief Acts, 14th edition,
602 (2012).
4
Indian Contract Act, 1872 § 10.
5
Indian Contract Act, 1872 § 17.
6
Pollock and Mulla, The Indian Contract and Specific Relief Acts, 16th edition, 313 (2022).
7
Ibid.
1
2
4
of Section 17. So, the plaintiff need not establish that he had no means of discovering the truth
with ordinary diligence.8
Applying the above statute and case laws to the facts, Since Z prepared the document, he was
well aware of the contents of the document but made a deliberate false presentation of the
document to Y. And, upon that false presentation Y’s consent was so obtained. Therefore, it’s
a clear case of fraud which cannot be excused under the Section 19 (Exception 1).
Therefore, the Contract, if it was entered into, would have been voidable at the option of Y.
COUNSEL FOR Z[Defendant]
ISSUE 1
The first contention is regarding whether a valid contract was concluded without the assent of
R. The facts of the case clearly establish that “As per the Company’s rules, Y is required to
clear in writing all the decisions taken by the Company’s Board. And R is to counter sign the
same before the said decision is to be implemented.” Therefore, company rules only require R
to countersign the decisions taken by the company board. This decision was not taken by the
company board and therefore only the acceptor of the contract would have to sign it for its
conclusion. Therefore, a valid contract was formed.
ISSUE 2
Section 25(1) Explanation 19 provided in the act under the deals with the contention of the lack
of consideration. This explanation states that “Nothing in the section 25 shall affect the validity
of any transaction between the donor and donee, of any gift actually made.”10. “In the present
case, the release was without any consideration. But property may be transferred without
consideration. Such a transfer is a gift.”11 Therefore, the contract between Y and Z was valid
and need not be supported by a consideration under Section 25(1) Explanation 1 as gift is a
valid form of contract.
ISSUE 3
The last contention is regarding whether a contract can be rendered voidable due to fraud.
Niaz Ahmad Khan V Parsottam Chandra, AIR 1931 All 154 ¶ 12.
Indian Contract Act, 1872 § 25(1) Explanation 1
10
ibid
11
Kuppuswami Chettiar v ASPA Arumugan Chettiar, AIR 1967 SC 1395 pg. 4
8
9
5
If consent to a contract was caused by misrepresentation or by silence, which is fraudulent
within the meaning of Section 17, the contract is not voidable provided if the party whose
consent was so obtained had the means of discovering the truth with ordinary diligence. 12 In
Harilal Dalsukhram Sahiba vs Mulchand Asharam, 192813 High court of Bombay held that:
“It was on the purchaser to practice his ordinary diligence to determine that the field
he was buying was in the right condition or not and since he failed to practice the same,
contract remained valid.14While English law suggests the vendor must disclose defects
to the vendee, Indian law differs in this regard.”15
Applying the exception to section 19 and above case laws to the facts, Y failed to practice
ordinary diligence of a reasonable man to determine the contents of the contract.
Therefore, we can conclude that the contract is not voidable at the option of Y and is
enforceable.
JUDGEMENT
Regarding the first issue, it cannot be established that the company's rules require the
acceptance of both Mr. Y and Mr. R. The present facts establish that “As per the Company’s
rules, Y is required to clear in writing all the decisions taken by the Company’s Board. And R
is to counter sign the same before the said decision is to be implemented.” Therefore, company
rules only require R to countersign the decisions taken by the company board. This decision
was not taken by the company board and therefore only the acceptor of the contract would have
to sign it for its conclusion. So, this is not a valid ground for setting aside the contract between
Y and Z.
The Second issue about lack of consideration on Z’s part proves that no valid contract exists
between Y and Z. Moreover, lack of consideration can’t be justified by Explanation 1 of Section
25 (ICA, 1872). Under explanation 1, any gift whatsoever made forms a valid contract even in
absence of consideration. This is because a gift is made voluntarily without any imposition and
hence the absence of consideration does not matter. So, if plaintiff can prove that the gift was
Indian Contract Act ,1872 § 19(Exception)
Harilal Dalsukhram Sahiba v. Mulchand, 1928 SCC OnLine Bom 50,¶ 4
14
ibid
15
ibid
12
13
6
made under some imposition the gift would not be valid. This was established in the judgement
of Administrator-General of Bengal v Juggeswar Roy, 1877.16 To show that the consent was not
free, we move on to the last issue wherein the plaintiff has adequately proven that his consent
was obtained under imposition of fraud and hence was not free consent. Fraud is committed
when one causes another to act on a false belief by a representation, which he himself believes
to be not true.17 And, consent is obtained by such a false representation.18 Since defendant
prepared the document and was aware of contents, he deliberately represented the document in
a false manner so as to obtain the consent of the plaintiff.
Moreover, the Exception 1 of Section 19 regarding ordinary diligence would not apply to the
cases of active fraud but only to the word ‘Silence’ under Section 1719 which means that the
Exception applies to silence not amounting to fraud within Section 17, but does not cover a
case of fraud under Section 17. So, in cases of fraud, the party defrauded need not establish that
he had no means of discovering the truth with ordinary diligence.20
Therefore, the agreement was not enforceable in law due to consent being obtained under fraud
under Section 17 of Indian Contract Act, 1872.
Therefore, the petition is allowed. The decision is in favour of Y.
Administrator-General of Bengal v Juggeswar Roy, (1877) 3 Cal 192 at 196 ¶4.
See Supra Note 4
18
See Supra Note 5
19
John Minas Apcar vs Louis Caird Malchus, (1938) AIR 1939 Cal 473 ¶15 & 16.
20
ibid
16
17
7
BIBLIOGRAPHY
CASES
Administrator-General of Bengal v Juggeswar Roy, (1877) 3 Cal 192 at 196 ------------------- 6
Harilal Dalsukhram Sahiba v. Mulchand, 1928 SCC OnLine Bom 50 ---------------------------- 6
John Minas Apcar vs Louis Caird Malchus,(1938) AIR 1939 Cal 473 ---------------------------- 7
Kuppuswami Chettiar v ASPA Arumugan Chettiar, AIR 1967 SC 1395. -------------------------- 5
M.V. Shankar Bhat v. Claude Pinto, (2003) 4 SCC 86 -------------------------------------------- 4, 6
Niaz Ahmad Khan V Parsottam Chandra, AIR 1931 All 154 --------------------------------------- 5
STATUTES
Indian Contract Act ,1872 § 19(Exception) ----------------------------------------------------------- 6
Indian Contract Act, 1872 § 17-------------------------------------------------------------------------- 4
Indian Contract Act, 1872 § 25-------------------------------------------------------------------------- 4
COMMENTARIES
Pollock and Mulla, The Indian Contract and Specific Relief Acts, 14th edition, 602 (2012) --- 4
Pollock and Mulla, The Indian Contract and Specific Relief Acts, 16th edition, 313 (2022) --- 4
8