Void and Voidable Contract

Void Agreement (शुन्य सम्झौता)

 The term “void” signifies null since there is no need to declare

void.
 A void agreement is such a kind of agreement that has no validity
and does not create a legal relationship between the parties.
 It does not create rights and obligations because it is not enforced
by the court of law.
 The void agreement is essentially distinguished from the voidable
contract because the voidable contract needs to declare void within
the prescribed time limitation for nullification.
 Void Agreement

 Though the Civil Code has not defined this term void but
Section 517 of this Code has stipulated some legal
provisions relating to the void agreement.
 Agreements in restraint of trade, marriage, enjoying
facilities, consisting of impossible performance, etc. fall
under this category.
 Section 2(g) of the Indian Contract Act, 1872 has defined
this term “void” as “an agreement not enforceable by law is
said to be void.” It means any agreement that cannot be
enforced legally is a void agreement.
 Void Agreement
 Some agreements are void ab initio (from the beginning) but some
become void later on or were valid at the time of formulation.
 The Civil Code has declared some agreements or contracts as void.
The following types of agreements are regarded as void in the eye
of law.
1. Agreement in restraint of trade
व्यापारमा रोक लगाउने सम्झौता
2. Agreement in restraint marriage
विवाहमा रोक लगाउने सम्झौता
3. Agreement in restraint for using public facility
सार्वजनिक सुविधा उपभोगमा रोक लगाउने
सम्झौता
 Void Agreement
4. Agreement in restraint of legal proceedings
कानूनी कारवाहीमा रोक लगाउने सम्झौता
5. Agreement with the unlawful object and consideration
गैर कानूनी उद्देश्य वा प्रतिफल भएको सम्झौता
6. Agreement made by mutual mistake
तथ्य सम्वन्धी दोहोरो भूलबाट भएको सम्झौता
7. Agreement to do impossible work
असम्भव कार्य गर्न भएको सम्झौता
8. Agreement having uncertain meaning
अनिश्चित सम्झौता
 Void Agreement
9. Agreement by incompetent party
असक्षम पक्षबाट भएको सम्झौता

10. Agreement without consideration

प्रतिफल बिनाको सम्झौता

11. Agreement contingent on impossible events

असम्भव भावी घटनामा आधारित सांयोगिक
सम्झौता

12. Wagering agreement

बाजीको सम्झौता
 Void Agreement
[Link] against the prevailing law
कानूनको विरुद्घमा भएको वा प्रचलित कानूनले
निषेध गरेको कुरामा भएको सम्झौता

14. Agreements against the public interest or one that is

immoral
अनैतिक उद्देश्यको लागि वा सार्वजनिक
व्यवस्था वा हितको विरुद्घमा भएको सम्झौता
 Void Agreement
 Agreement in restraint of trade : Sec.517(2) (a)
Every person has the right to choose any kind of lawful occupation, profession, business, trade or
activity. An agreement to restrain any person to follow or accept such activities is void on the ground of
conflicting with the right guaranteed by the current law. Although such rights are expected and
protected by law but some exceptions are admitted in this respect. These exceptions are also admitted
for the sake of commercial or business interest. It means to the extent of such exceptions restraining is
also possible. These are as follows:
a) Sale of goodwill : Sec.517(2) (a)(1)
b) Existence partners’ agreement : Sec.517(2) (a)(2)
c) Agreement with outgoing partner : Sec.517(2) (a)(3)
d) Agreement not accepting service : Sec.517(2) (a)(4)
 Void Agreement
 Pramod Raj Sharma on behalf of Everest Bank Limited v. Rajib
Gajurel, NKP 2071, DN 9165
Everest Bank Limited and Rajib Gajurel did a service contract (service
bond) for 4 years, that is from 24th july 2003 to 24th july 2007. There was
the provision that Rajib Gajurel cannot quit the job before the date agreed in
the contract. If he quit then he has to pay the indemnification of
Rs.2,00,000/- but Rajib Gajurel resigned from the job on 27 feb.2007 that
means in 3 years 7 months.
So, Everest Bank Limited filed the case against Rajib Gajurel for
compensation according to contract. Supreme Court Declared that Rajib
Gajurel has to pay the compensation of Rs.2,00,000/- as agreed in the
contract.
 Void Agreement
 Agreement in restraint marriage : Sec.517(2) (b)
To get married is a basic right of every person and every
person can enjoy this right lawfully. The legally competent
couple can enter into marriage with each other on the basis
of their free consent. No agreement can be made to restrain
their marriage since it is contrary to the prevailing law,
such agreement is void. After attaining the age of 20 years
every person has the right to marriage on the basis of
his/her sole decision.
 क्याथरिन लुई वि. पियर्स
(Lowe v. Peers)
 पियर्स भन्ने व्यक्ति र श्रीमती क्याथरिन
लुई बीच भएको सम्झौतामा पियर्स ले निम्न
कुरा स्वीकार गरेको थियो : “म क्याथरिन लुई
बाहेक अरु कसै सँग पनि विवाह गर्ने छैन, यदि
अरु कुनै व्यक्ति सँग विवाह गरे भने
क्याथरिन लुई लाई तीन महिना भित्र २०००
पौण्ड तिर्ने छु ।”
 केही वर्ष पछि पियर्सले अर्को व्यक्ति
सँग विवाह गरेछन् । करारको उल्लंघन भयो भनी
क्याथरिन लुईको उजुरी पर्यो र वेलायतको
 Void Agreement

 Agreement in restraint for using public facility :

Sec.517(2) (c)
Every person can enjoy the public goods and facilities
provided to the common people. Such facilities should be
utilized on the ground of the accepted principles,
prevailing law, or tradition, i.e. inns (pati-pauwa), paths,
temples, water resources, sunlight, air and such. Therefore,
any agreement that comprises any condition to restraint to
utilize the public facilities is void.
 Void Agreement

 Agreement in restraint of legal proceedings:

Sec.517(2) (d)
Nobody has the right to hamper another person to enjoy
their legal rights. An agreement that restricts the legal
rights of other person to invoke the public office or court
is void. Section 28 of the Indian Contract Act has accepted
a similar provision.
 Void Agreement
 Agreement with the unlawful object and
consideration : Sec.517(2) (k)
The consideration and object of the contract must be
lawful or must be made in the line of the law, it comprises
otherwise becomes void. Violation of prevailing law,
immoral object, object conflicting to the public policy, the
object intended to injure other person and property and
object or consideration defeat the legal provision indirectly
fall under this category.
 Void Agreement

 Agreement made by mutual mistake : Sec.517(2) (l)

If both parties to an agreement are not clear or mistaken
about the fundamental subject matter or fact of the
agreement, the agreement is void since it is not possible to
perform due to a mistake.
 Agreement to do impossible work: Sec.517(2) (h)
An agreement, if contain an impossible obligation to
perform by human being, it is void because the law does
not compel to do impossible work to the person. A lawful
contract always consists of possible obligations.
 Void Agreement
 Agreement having uncertain meaning : Sec 517 (2) (i)
Certain meaning of terms and conditions of an agreement is a
precondition to convert an agreement into a valid contract. It must
be meaningful since should be capable to perform. Otherwise, it
is impossible to perform and becomes void from the formation.
 Agreement by incompetent party : Sec 517 (2) (j)
The party must be competent to enter into a contract or valid
agreement at the time of its formation. If an agreement is made by
an incapable party then it becomes void on the ground of the
incapability of the party. The capacity to contract is determined
by the prevailing law and it is mandatory for all to form a
contract.
 Void Agreement
 Agreement without Consideration :
Although there are some exceptions in respect of
consideration but generally, to be a valid contract, there
must be a consideration. In the absence of consideration,
an agreement is not regarded as valid. “ No consideration
no contract” is considered as a general rule in this
connection.
 Void Agreement
 Agreement contingent on impossible events :
If an agreement contingent is made comprising an impossible
event, the agreement is void since the occurrence of such event is
virtually impossible. According to Section 36 of the Indian
Contract Act, 1872 contingent agreements to do or not to do
anything, if an impossible event happens, are void, whether or not
the fact is known to the parties at the time when the agreement is
made.
Example : A agrees to pay B a sum of Rs.2000 if B will marry C,
A’s daughter. C was dead at the time of agreement. This agreement
is void.
 Void Agreement
 Wagering agreement :
Wagering is a bet between the parties to win or lose based
on an uncertain result, which is produced by a future
uncertain event. The parties to such an agreement are
concerned only with the result of that event rather than
other effects of the event.
 Void Agreement
13. Agreements against the prevailing law [517 {2(e)]
14. Agreements against the public interest or one that is
immoral [517 {2(f)]
 Muluki Civil Code, 2074
Section 517. Void contracts:
(1) A contract which is not valid according
to law shall be deemed to be a void
contract.
(2) The following contracts shall be void:
(a) A contract that restraints anyone
from exercising any profession, trade
or business which is not prohibited by
law,
 Muluki Civil Code, 2074
Provided that a contract shall not be deemed to be
made in restraint of any profession, trade or business
in any of the following circumstances:
(1) Where a contract is concluded between a buyer
and a seller on the sale and purchase of the
goodwill of any trade or business, the contract
restraining the seller from carrying on similar trade
or business under such goodwill for the time and
at the place specified in such contract,
 Muluki Civil Code, 2074
(2) A contract concluded between the partners to
restrain them from doing the same profession,
trade or business as that of the partnership firm or
any other profession, trade or business together
with other persons who are competitors of the
profession, trade or business of the same nature
other than the profession, trade or business of the
partnership firm until the partnership exists,
 Muluki Civil Code, 2074
(3) A contract concluded between the partners restraining
them from exercising a profession, trade or business of
the partnership firm for a certain reasonable period or at
a certain place after being separated from the
partnership,
(4) A contract so concluded between a person and any
person, firm, company or body that the person is
restrained from accepting the service of another person,
firm, company or body who is the competitor of such
other person, firm, company or body until the person is in
the service of, or for a specified period after retirement
from the service of, such other person, firm, company or
body.
 Muluki Civil Code, 2074
(b) A contract in restraint of a marriage other than one
prohibited by the law,
(c) A contract restraining any one from enjoying the
facilities being enjoyed by the public,
(d) A contract restraining legal right of any person from
being enforced by a court,
(e) A contract concluded contrary to law or on a matter
prohibited by the law in force,
(f) A contract made for an immoral purpose or against
public order or public interest,
 Muluki Civil Code, 2074
(g) A contract which cannot be performed because the
parties thereto do not exactly ascertain or know
about the matter in relation to which it has been
concluded,
(h) A contract the performance of which is impossible
at the time of its conclusion or a fictitious contract,
(i) A contract which is vague because of its subject
matter being incapable of giving a reasonable
meaning,
(j) A contract concluded by a person not competent to
make contract,
 Muluki Civil Code, 2074
(k) A contract with an illegal purpose,
(l) A contract concluded by mistake of both
parties as to the essential fact of the
contract at the time of its conclusion.
(3) A void contract is invalid ab initio and it shall
create neither any legal consequence nor any right
and obligation of its parties.
(4) Even if any part of a contract becomes void, its
remaining parts shall be enforceable according to
law.
 मुलुकी देवानी संहिता, २०७४
दफा ५१७ : बदर हुने करार :
(१) कानून बमोजिम मान्य नहुने करारलाई बदर हुने करार मानिनेछ ।
(२) देहाय बमोजिमका करार बदर हुनेछ :
(क) कानूनले निषेध नगरेको पेशा, व्यापार वा व्यवसाय गर्नबाट कसैलाई रोक
लगाइएको करार,
तर देहायको अवस्थामा कुनै पेशा, व्यापार वा व्यवसायमा रोक लगाउने गरी करार
भएको मानिनेछैन :
१. कुनै व्यापारको ख्याति खरिद बिक्री गर्ने गरी करार भएकोमा त्यस्तो
ख्याति बमोजिमको व्यापार वा व्यवसाय खरिद गर्ने खरिदकर्ता र
बिक्रेताबीच सम्पन्न करारमा उल्लिखित अवधि वा ठाउँमा त्यस्तो
बिक्रेताले त्यस्तै प्रकारको व्यापार वा व्यवसाय गर्न नपाउने गरी
भएको करार,
२. साझेदार रहुन्जेल साझेदारी फर्मको पेशा, व्यापार वा व्यवसाय बाहेक
सोही प्रकृतिको पेशा, व्यापार वा व्यवसायमा प्रतिस्पर्धी अन्य
व्यक्तिहरुसँग सोही वा अन्य कुनै पेशा, व्यापार वा व्यवसाय गर्न
नपाउनेगरी साझेदारहरुबीच भएको करार,
 मुलुकी देवानी संहिता, २०७४
३. साझेदारी छाडिसके पछि साझेदारी फर्म बमोजिमको पेशा, व्यापार वा
व्यवसाय निश्चित मनासिब अवधिसम्म वा निश्चित ठाउँमा नगर्ने गरी
साझेदारहरु बीच भएको करार,
४. कुनै व्यक्तिले कुनै व्यक्ति, फर्म, कम्पनी वा निकायसँग गरेको करार
अनुसार त्यस्तो व्यक्ति, फर्म, कम्पनी वा निकायको सेवामा छँदै वा
सेवाबाट अवकाश प्राप्त गरेको निश्चित अवधिसम्म त्यस्तो व्यक्ति,
फर्म, कम्पनी वा निकायको प्रतिस्पर्धी अन्य व्यक्ति, फर्म, कम्पनी वा
निकायको सेवा स्वीकार गर्न नपाउने गरी भएको करार ।
(ख) कानूनले निषेध गरेको विवाह बाहेक अन्य विवाहमा रोक लगाइएको करार।
(ग) सर्वसाधारणले उपभोग गरिरहेको सुविधा कसैलाई उपभोग गर्नबाट रोक
लगाइएको करार,
(घ) कसैले पाएको कानूनी अधिकार कुनै अदालतबाट प्रचलन गराई पाउनबाट रोक
लगाइएको करार,
(ङ) कानूनको विरुद्धमा भएको वा प्रचलित कानूनले निषेध गरेको कुरामा
भएको करार।
 मुलुकी देवानी संहिता, २०७४
(च) अनैतिक उद्देश्यको लागि वा सार्वजनिक व्यवस्था (पव्लिक अर्डर) वा हितको
विरुद्धमा भएको करार,
(छ) करार भएको विषयवस्तु करार गर्ने पक्षहरुलाई स्पष्ट रुपमा यकिन वा थाहा
नभएबाट पूरा गर्न नसकिने अवस्थामा भएको करार,
(ज) करार गर्दाकै अवस्थामा पूरा गर्न असम्भव भएको करार वा काल्पनिक करार,
(झ) करारको विषयवस्तुको मनासिव अर्थदिन नसक्ने भई अस्पष्ट रहेको करार,
(ञ) करार गर्न अयोग्य व्यक्तिबाट भएको करार,
(ट) गैरकानूनी उद्देश्य भएको करार,
(ठ) करारको अत्यावश्यक तथ्यको विषयमा करार गर्दाका बखत करारका दुवै
पक्षहरुको भूलबाट भएको करार,
(३) बदर हुने करार प्रारम्भदेखि नै अमान्य हुनेछ र यसबाट कुनै कानुनी परिणाम
र पक्षहरुको हक र दायित्व सृजना हुने छैन ।
(४) करारको कुनै अंश बदर भएमा पनि बाँकि रहेको अंश कानून बमोजिम
कार्यान्वयन हुनेछ ।
Unlawful Agreement (गैर कानूनी वा अवैध सम्झौता)
 Only an agreement having lawful object or consideration is valid and
the opposite of which is unlawful and void.
 An agreement consisting of an unlawful objective or consideration is
an unlawful agreement.
 On the basis of its legality, it is regarded as void and contains no legal
consequences at all.
 Any transactions or conduct prohibited by law are unlawful and if such
things are incorporated in the terms and conditions of an agreement are
not enforceable by law.
 Any transaction or act prohibited by law of the land either directly or
indirectly is known as an unlawful act. The transaction or act forbidden
directly by law is illegal.
 National Civil Code (Sec.517) and Indian Contract Act, 1872 (Sec. 23)
have incorporated several provisions in this respect.
 Unlawful Agreement
 In any of the following cases, the object or consideration of an agreement
is deemed to be void.
1. Object or consideration forbidden by law (कानूनद्वारा निषेधित
प्रतिफल वा उद्देश्य)

2. Object or consideration defeating the provision of prevailing law

(प्रचलित कानूनी व्यवस्था निस्कृय पार्ने उद्देश्य वा प्रतिफल)

3. Fraudulent object (जालसाजीपूर्ण उद्देश्य)

4. Immoral object or consideration (उद्देश्य वा प्रतिफल अनैतिक भएमा )
5. Object or consideration conflicting to public policy and order
(सार्वजनिक नीति तथा व्यवस्थासँग बाझिने उद्देश्य वा प्रतिफल
भएमा)

6. Object or consideration injuring to person or property (अन्य व्यक्ति वा

अन्य व्यक्तिको सम्पत्तिलाई हानी पु-याउने उद्देश्य वा प्रतिफल
भएमा)
 Unlawful Agreement
 Object or consideration forbidden by law
(कानूनद्वारा निषेधित प्रतिफल वा
उद्देश्य)
If any act that is forbidden by law and such act is
incorporated by an agreement as consideration or object, that
is void. The contract cannot be formulated against the
current law; therefore, it must be lawful.
Example :
Any agreement for selling narcotics drugs is void because
selling and purchasing narcotics drugs is an unlawful act.
 Unlawful Agreement
 Object or consideration defeating the provision of prevailing law
(प्रचलित कानूनी व्यवस्था निस्कृय पार्ने उद्देश्य वा
प्रतिफल)
If any conduct is not directly prohibited by law but defeats the current legal
provisions indirectly, such conduct is also regarded as unlawful conduct. In
such a case, an agreement is unlawful, consequently, void.
Example :
An agreement is made to avoid the provision of limitation for filing a case in
the court.
A borrowed Rs.10000 from B and agreed not to raise any objections as to the
limitations and that B may recover the amount even after the expiry of
limitation period. This agreement is void as it defeats the provision of
Limitation Act. ( Rama Murthi V. Goppayya (1917)
 Unlawful Agreement
 Fraudulent object (जालसाजीपूर्ण उद्देश्य)
 Any agreement that contains the fraudulent object is void. The term “fraud”
includes the quality of being deceitful कपटपूर्ण, the criminal deception
धोका, and the use of false representation to obtain an unjust benefit or like.
If it is proved that the object of the agreement is fraudulent then it is sufficient
to make void such agreement.
Example:
a) A promises to pay Rs 2000 to B, if B would commit fraud on C. B agrees.
B’s agreeing to fraud is unlawful consideration for A’s promise to pay.
Hence the agreement is illegal and void.
b) A, B and C enter into an agreement for the division among them of gains
acquired, or to be acquired, by them by fraud. The agreement is void, as its
object is unlawful.
 Unlawful Agreement
 Immoral object or consideration
(उद्देश्य वा प्रतिफल अनैतिक भएमा )
It is very difficult to declare certain conduct as an immoral act. Whether the
particular act is moral or not may be a controversial question. The same
conduct may be moral or immoral in different places, times and societies. If
the object or consideration is considered immoral, an agreement is void on
this ground. It means the agreement must satisfy the standard of morality of
contemporary society. Therefore, it is a minimum condition to an agreement
that it must be compatible with the moral standard.
Example : A let a flat on hire to B. A knows that B uses the flat for
prostitution. It’s object is immoral and illegal. That agreement is void from
the beginning.
 Unlawful Agreement
 Object or consideration conflicting to public policy and
order (सार्वजनिक नीति तथा व्यवस्थासँग
बाझिने उद्देश्य वा प्रतिफल भएमा)
 Public policy is the policy established by the state for
regulating society in an expected manner and it is also
regarded as law. It is made with an intention to protect the
public interest and welfare. An agreement if opposed or in
conflict with such public policy is void i.e. agreement to
trade with alien enemy, agreement restraining personal
freedom, agreement in restraint trade, agreement in restraint
marriage, agreement for interfering with administration of
justice, agreement intended to create monopoly.
 Unlawful Agreement
 Object or consideration injuring to person or property (अन्य
व्यक्ति वा अन्य व्यक्तिको सम्पत्तिलाई
हानी पु-याउने उद्देश्य वा प्रतिफल भएमा) M
Being a private law, a contract may introduce any terms and conditions
congruence एकरुपता with the current law and should not injure or
affect another person or property of another person.
 Example : Where B borrowed Rs100 from L and executed a bond
promising to work for L without pay for a period of two years. After
two years, A was to return the principal sum. It was agreed that if A
failed to pay back after two years, he would be to pay exorbitant ( very
high rate) interest and the principal sum. Held, the agreement between A
and B was void because it involved injury to A. { Ram Saroop V. Bansi
Mandar (1915),42, Cal.742}
 Unlawful Agreement
 If the object of an agreement or its consideration injures to
person or property then it is void because it is unlawful as
criminal conduct since it is prohibited by law.
 An agreement of loan consists of any term such as the
debtor will be a subject to beating if he will fail to return
the money borrowed within the time limitation mentioned
in the contract. This agreement is void because the object
and consideration are not lawful, contravene उल्लंघन to
the current law.
Agreements Opposed to the Public Order or Policy
 Section 517(2) (f) of National Civil Code, 2074 has
mentioned that a contract made for an immoral purpose
or against public order or interest is void contract.
 Public policy is the policy established by the state for
regulating society in an expected manner and it is also
regarded as law. It is made with an intention to protect
the public interest and welfare. An agreement if opposed
or in conflict with such public policy is void.
 Agreements Opposed to the Public Order or Policy

 Public Policy is the general rule that ‘No one can do

anything against the general good of all people’.
 An agreement, which is opposed, to “Public Policy”
cannot be enforced. Such agreements are illegal and void.
 An agreement made comprising a transaction contrary to
the public policy is considered as opposed to or
conflicting with public policy. An agreement intending to
injure public interest or welfare is considered as an
agreement that is opposed to good order and public policy
and it is void pursuant to section 517 of the National Civil
Code.
 Agreements Opposed to the Public Order or Policy
 There are certain types of agreement that are regarded as opposed
to public order or policy and the Civil Code has also recognized
those are opposed to public order or policy. These are given
below.
1. Agreement of trading with the alien enemy विदेशी
शत्रु सँग व्यापार गर्ने सम्झौता

2. Agreement interfering with parental rights

अभिभावकीय
अधिकारमा हस्तक्षेप गर्ने सम्झौता

3. Agreement restraining personal freedom व्यक्तिगत

स्वतन्त्रता कटौती गर्ने सम्झौता

4. Agreement for receiving or transferring of the public

title or offices सार्वजनिक पद वा उपाधि
हस्तान्तरण वा प्राप्त गर्ने सम्झौता
Agreements Opposed to the Public Order or Policy

5. Agreement in restraint of trade (Sec 517(2)(a) व्यापारमा

रोक लगाउने सम्झौता
6. Agreement in restraint of marriage (Sec 517(2)(b)
विवाहमा रोक लगाउने सम्झौता
7. Marriage Brokerage agreement विवाह दलाली दस्तुर
लिने सम्झौता
8. Agreement intended to create monopoly एकाधिकार
सिर्जना गर्ने सम्झौता
Agreements Opposed to the Public Order or
Policy
9. Agreement interfering with the administration of justice
न्याय प्रशासनमा हस्तक्षेप गर्ने सम्झौता
 Interference in the course of justice न्यायिक कार्यमा
हस्तक्षेप सम्झौता
 Stifling prosecution अभियोग नलगाउने सम्झौता
 Abuse of legal process कानूनी प्रकृयाको दुरुपयोग
सम्झौता
 Immoral Agreement
 It is very difficult to declare certain conduct as an
immoral act. Whether the particular act is moral or not
may be a controversial question.
 The same conduct may be moral or immoral in different
places, times and societies. If the object or consideration
is considered immoral, an agreement is void on this
ground. It means the agreement must satisfy the
standard of morality of contemporary society. Therefore,
it is a minimum condition to an agreement that it must
be compatible with the moral standard.
 Immoral Agreement
 Agreements which either directly or indirectly tend to
violate the established rules of decency and morality are
void, as being against morality as well as public policy.
 Section 517(2) (f) of National Civil Code, 2074 has
mentioned that a contract made for an immoral purpose or
against public order or interest is void contract.
Example : A let a flat on hire to B. A knows that B uses the
flat for prostitution. It’s object is immoral and illegal. That
agreement is void from the beginning.
 Illegal Agreement
 The agreement made by incorporating illegal or
prohibited work is called an illegal agreement.
 The parties to illegal agreement violating criminal laws
are liable for fine and punishment as well.
 Along with illegal agreement, the collateral agreement
to an illegal agreement is also treated as a void
agreement.
 There is a distinction between an agreement which is
only void and the one which is illegal agreement.
 Illegal Agreement
 If an agreement is formed by incorporating illegal or
restricted work is known as an illegal agreement.
 If an illegal agreement violates the criminal laws is
liable for punishment too.
 An illegal agreement is that agreement that consists of
illegal work under it and is regarded as void ab initio
(from the beginning).
 Illegal Agreement
 An illegal agreement is one which is actually forbidden
by the law; but a void agreement may not be forbidden,
the law may merely say that if it is made, the courts will
not enforce it.
 Thus, every illegal contract is also void, but a void
contract is not necessarily illegal.
 Any transaction or act prohibited by law of the land
either directly or indirectly is known as an unlawful act.
The transaction or act forbidden directly by law is
illegal.
 Illegal Agreement
 Thus, every illegal agreement is also void but a void
agreement is not necessarily illegal.
 The similarity between an illegal and a void agreement
is that both agreements are unenforceable by law and
void.
 The Court will not enforce such agreement because the
purpose of the agreement is to achieve an illegal end.
Example : An agreement for murder.
 Wagering Agreement
 It is a kind of bet under which one party agrees to the
other party to pay a certain sum of money or transfer
property or worth on the happening or non – happening
of an uncertain future event.
 Such an event produces a certain result and the result is
determining factor about the win or loss between the
parties.
 S.W. Anson has defined a wager as, “ A promise to give
money or money’s worth upon the determination or
ascertainment of an uncertain event.
 Wagering Agreement
 To form a wagering agreement, there must be a promise
to give money or money’s worth and parties must
express opposite views on the future uncertain event.
 The concerned parties have no control over such an
event that produces the result to which the parties are
concerned.
 There must be a mutually exclusive condition between
the win and loss.
 Wagering Agreement

Essentials of Wagering Agreement :

 Promises to pay money or money’s worth
 Uncertain Event
 Mutual Chances of gain or loss
 No control over the event
 No other interest in the event
 Impossible Contract : Sec.517(2) (h)

 An agreement, if contain an impossible obligation to perform by

human being, it is void because the law does not compel to do
impossible work to the person. A lawful contract always consists of
possible obligations.
 An impossible contract is one which the law will not hold binding
upon the parties, because of the natural or legal impossibility of the
performance by one party of that which is the consideration for the
promise of the other.
Provision of Civil Code:
Sec 517 : Void Contract
(2) (h) : A contract the performance of which is impossible
at the time of its conclusion or a fictitious contract,
 Uncertain Contract : Sec.517(2) (i)

 Certain meaning of terms and conditions of an

agreement is a precondition to convert an agreement
into a valid contract.
 It must be meaningful since should be capable to
perform. Otherwise, it is impossible to perform and
becomes void from the formation.
 Contracts, the meaning of which is not certain, or
capable of being made certain, are void.
 Uncertain Contract : Sec.517(2) (i)

 The law aims to ensure that the parties to a contract

should be aware of the precise nature and scope of their
mutual rights and obligation under the contract.
 Thus, if the words used by the parties are vague or
indefinite, the law cannot enforce the contract.
Provision of Civil Code:
Sec 517 : Void Contract
(2) (i) : A contract which is vague because of its subject matter being
incapable of giving a reasonable meaning,
 Contract by Incompetent Party : Sec 517 (2) (j)

 The party must be competent to enter into a contract or valid

agreement at the time of its formation.
 If an agreement is made by an incapable party then it becomes
void on the ground of the incapability of the party.
 The capacity to contract is determined by the prevailing law and
it is mandatory for all to form a contract.
517 Void Contract :
(2) (j) A contract concluded by a person not competent
to make contract,
Also see: Contractual Capacity
 Illegality of Object and
Consideration
 The term object connotes an aim or purpose of something.
 A contract is equivalent to the law made by its parties for
their purpose and if such an agreement consists of any
illegal purpose or aim, it is not converted into a valid
contract.
 It is a first and foremost condition that any agreement
formed by the parties through exchanging their promises
should be compatible with the law in force.
 Therefore, the legality of the object is an important essential
of a valid contract.
Illegality of Object and
Consideration
 If an agreement is to be enforced in a court of
law, both consideration and object of the
agreement must be lawful.
 Section 517(k) of Muluki Civil Code , 2074
clearly states that “A contract concluded with an
unlawful objective is Void”.
 Both, the object and consideration should be
lawful for an agreement to be valid.
 Illegality of Object and
 If the object ofConsideration
an agreement is not a legal one, the
agreement never be converted into a valid contract.
 The legal object provides validity or legal status to an
agreement as an enforceable contract.
 The term legality denotes legal conformity or validity.
 So the legality of an object refers that the object of a
particular agreement is made in accordance with current
law or within the legal ambit.
 Illegality of Object and
Consideration
 To be regarded as a valid contract, all aspects of the
contract including subject matters, purpose,
consideration, design, intention, motive and procedure
must be valid and lawful. Unless an agreement meets
this parameter, it is not a contract or a valid contract.
 It is very simple to understand that if the contract or an
agreement comprises an unlawful object and
consideration then it is void or not legal at all. It is no
need to invoke the door of the court to declare void such
an agreement that consists illegal object.
 Illegality of Object and
Consideration
 Several legal provisions have been incorporated under the
Indian Contract Act,1872 and the National Civil Code which
makes such contract or agreement void.
 These legal provisions are concerned with the validity of the
contract including object, consideration, and other matters of
the contract. No contract is valid without its legal object and
lawful consideration.
 Therefore, the legality of an object and consideration is one
of the major prerequisites to forming a valid contract.
 Illegality of Object and

Consideration
The object and consideration of the contract must be
lawful or must be made in the line of the law, It
comprises otherwise becomes void.
 Violation of prevailing law, immoral object, object
conflicting to the public policy, the object intended to
injure other person and property and object or
consideration defeat the legal provision indirectly fall
under this category.
 Illegality of Object and
 If an
Consideration
agreement is to be enforced in a court of law, both
consideration and object of the agreement must be lawful.
 Section 517(2)(k) of National Civil Code, 2074 clearly states
that “A contract concluded with an illegal purpose is Void”.
 Lawful consideration and/or lawful object cannot contain
any of the undermentioned conditions.
a. Specifically forbidden by law;
 Illegality of Object and
b. Of
Consideration
such a nature that they would defeat the purpose of
the law;
c. Are fraudulent;
d. Involve injury to any other person or property;
e. The courts regard them as immoral;
f. Are opposed to public policy.
 Voidable Contract
 Voidable contract is relating to the free consent of the
contracting party, which is one of the essential elements of
a valid contract.
 Free consent means the voluntary consent of a party which
is not caused by any one or more of the coercion, fraud,
undue influence, misrepresentation, or mistake.
 A contract formulated without free consent is known as a
voidable contract.
 The victim party of a voidable contract has the right to
make the contract void, through the help of a court.
 Voidable Contract
 If the victim wants to continue, it is valid. The victim party has
the option to make it valid or void.
 It remains valid and binding for both parties until it is declared
void.
 The victim party is entitled to get compensation for only the
loss caused by the contract.
Example :
A promises to sell his car to B for rupees 1 Mio. But his consent
is obtained buy use of force. The contract is voidable at the
option of A. He may avoid or select to be bound by it.
 Reality of Consent
 The English word “Consent” was derived from the Latin
term “Consentire” which means permission or
agreement to do or not to do something.”
 Black’s Law Dictionary defines consent as, “
Agreement, approval, or permission as to some act or
purpose; esp. given voluntarily by a competent person;
legally effective assent.’
 Reality of Consent
 The contract is known as private legislation for the parties
concerned and it is equivalent to current law for those parties
in the viewpoint of enforcement.
 It is enforced by the court relying on the view that it was
made based on the free consent of the parties. Parties
voluntarily may make any kind of contract except an illegal
one.
 Therefore, free consent is one of the necessary elements of a
valid contract. The contract must be made on the basis of the
voluntary judgement of the parties of that particular contract.
 Reality of Consent
 People who enter into contract must give their free
consent. The consent of the parties is said to be free
when they are of same mind on all material terms of
contract.
 It is essential to the creation of a contract that the parties
have consensus ad idem i.e. meeting of the mind.
 They must agree upon same thing in the same sense and
their consent is free and real.
 Reality of Consent
 Free consent of both parties is a prerequisite to
formulate a valid contract. The consent of the parties
should be given voluntarily or freely or knowingly. If
the consent is made by any means of coercion, fraud,
undue influence, misrepresentation, or mistake, such
consent is treated as involuntary consent and in such a
case the contract is regarded as voidable at the option of
the aggrieved party. An aggrieved party means a party,
whose consent was not obtained voluntarily.
 Example : Sita threatens to beat Rita, if she does not buy his motorcycle in
Rs.300,000.00. Rita agrees to do so under coercion. Here Rita’s consent is
not regarded as free consent because Rita’s acceptance is made due to
threaten.
 Meaning of free Consent
 In a contract, It is very important that the parties to it must
give free consent. It is an essential of valid contract.
 The parties have free consent when they have same
meeting of mind on all the terms of contract.
 Consent is the state of mind of a contracting party that
leads such party to enter into a contract.
 Meaning of free Consent
 Consent is a willingness or permission of a party to
form a contract after being aware of the terms and
conditions of the contract.
 The free decision to form a contract by the parties is
known as free consent upon it.
 Parties of the contract must be free from any kinds of
coercion, pressure, threat or undue influence to make
the contract in respect of forming the terms and
conditions under that contract.
 Meaning of free Consent
 Indian Contract Act, 1872 has defined this term as “two or
more persons are said to have consent when they agree upon
the same thing in the same sense.”
 This definition clarifies the meaning of consent as agreeing
upon the same thing in the same sense.
 Both parties agree upon the same thing in the same sense they
are said to be consent or make the meeting of the mind. It is
known as consensus-ad-idem in English law.
 It is the same intention regarding the terms and conditions of
the contract of both parties.
 Meaning of free Consent
 As per Salmond, “ If there any error in consensus ad idem
or meeting of the mind of the parties, then there is no
contract.
 Section 10 of the Indian Contract act, 1872 has mentioned
that all agreements are contracts if they are made with the
free consent of the parties.
 Therefore, only consent is not sufficient to form a contract
but also it must be made freely.
 Meaning of free Consent
 On the basis of section 10 of the Indian Contract Act, 1872 and
Section 518 of the Muluki Civil Code, 2074, certain factors cause
involuntary consent.
 In other words, consent caused by such factors is not regarded as
free consent.
 To form a valid contract on the ground of free consent is not caused
by :
1. Coercion करकाप
2. Undue influence अनुचित प्रभाव
3. Fraud जालसाज
4. Misrepresentation, मिथ्यावर्णन or
5. Mistake भूल
 Meaning of free Consent
 It means that the consent made by any of the above causes is
not free and if so, the contract is voidable at the option of
such party whose consent was obtained in using any of these
enlisted means.
 If the contract is made under coercion, undue influence,
fraud, misrepresentation and mistake, then the contract will
be voidable at the option of the aggrieved party.
 If an agreement is made by bilateral mistake (both parties
are mistaken as the matter of fact), it becomes void and
others forms of contract based on involuntary consent are
voidable.
 Meaning of free Consent
 It indicates that consent is necessary to form a contract.
 It must be made freely otherwise the contract is regarded as
voidable and such voidable contract, later on, converted into
either valid or void at the option of the aggrieved party.
 According to Section 518(2) of the Muluki Civil Code,
2074,“A contract formulated by coercion or undue influence
or fraud, or misrepresentation is voidable at the option of the
aggrieved party.
 If such party intends to avoid such contract, such party can
take legal action and can make it void by invoking the court
within a year from the date of accrual of the cause of
action.
 Meaning of free Consent
 However, it becomes valid if action against such a contract
is not taken or the consent is proved to be a free one.
 It means a voidable contract does not remain always in this
status, after completion of a certain time limitation, it is
converted into either void or valid contract.
Example :
A threatens to beat B if he does not sell his land. B agrees due to
threats. Here, B’s consent is obtained by threatening so, it is not
free. He has the option to convert the contract from voidable to
void. If he does not take legal action against “A” in the court
within the time limit or provides consent voluntarily then the
contract will be converted into valid. Therefore, this contract is
voidable.
 Factors Affecting Free Consent:
 Free consent is when a contract is made without
coercion, fraud, undue influence, misrepresentation or
mistake.
 Therefore, if a contract is influenced by any of these
elements (coercion, fraud, undue influence,
misrepresentation or mistake), there cannot be free
consent.
 An agreement, which is made by coercion, fraud, undue
influence and misrepresentation, is voidable at the
option of that party whose consent was not free.
 Factors Affecting Free Consent:
 Five factors affect the free or voluntary consent of the
contracting parties. Each of them, if appears, the consent
is not regarded as free consent. These factors are
mentioned below.
1. Coercion
2. Undue influence
3. Misrepresentation
4. Fraud, or
5. Mistake
 Coercion
 Coercion is a term that denotes a situation under which
a person is compelled to do or not to do something as
against his willingness or judgement.
 From the viewpoint of contract law, it is an act of using
unlawful force for obtaining the consent of a person
who does not voluntarily want to enter the contract.
 Therefore, when a party of contract is compelled to
enter such contract against the willingness of oneself,
with use of force by another party under a threat is
known as coercion.
 Coercion
 Under the English law, it is known as ‘duress’. Though the
term ‘duress’ is limited in comparison to coercion, but the
English law has admitted duress as a hampering factor of
voluntary consent.
 According to Section 15 of the Indian contract Act, 1872,
“ Coercion is the committing or threatening to commit, any
act forbidden by Indian Penal Code (XLV 1860), or the
unlawful detaining, or threatening to death, any property to
the prejudice of any person whatever with the intention of
causing any person to enter into an agreement.”
 Coercion
 The explanation of Section 518(2) (a) of the Civil Code has
defined the term coercion as, “ If a person detains or
threatens to detain any property of another person or
threatens to put that other person’s body, life or prestige in
peril or commits or threatens to commit any other act
forbidden by law, with the intention of causing that other
person to enter into a contract against his or her will, the
person is said to commit coercion.”
 Coercion
मुलुकी देवानी संहिता, २०७४
दफा ५१८. बदर गराउन सकिने करार :
(१) करारका पक्षको प्रयासमा अदालतबाट बदर घोषित गराउन सकिने करारलाई
बदर गर्न सकिने करार मानिनेछ ।
(२) देहाय बमोजिम भएको करार त्यस्तो करारबाट मर्का पर्ने व्यक्तिले
अदालतबाट बदर गराउन सक्नेछ :
(क) करकापबाट भएको करार,
स्पष्टीकरण : कुनै व्यक्तिलाई निजको इच्छा विरुद्ध कुनै करार गराउने
मनसायले निजको सम्पत्ति रोक्का राखेको वा राख्न धम्की दिएको वा निजको
जीउ, ज्यान वा इज्जतमा धक्का पु-याउने धम्की दिएको वा कानून विपरीत
अन्य कुनै काम गरेको वा गर्न धम्की दिएको भए करकाप गरेको सम्झनु पर्छ
।
 Coercion
 On the basis of above statutory expressions, coercion means compelling a
person into a contract by using fear, physical compulsion, or menace खतरा
to goods. Any of the following acts if employed to obtain the consent in
the contract against the will of the other party is considered coercion:
- Withholding/detaining of any property
- Threatens to detain any property of another person or
- Threatens to put that other person’s body, life or prestige in
peril or
- Commits or threatens to commit any other act forbidden by
law
- With the intention of causing that other person to enter into a
contract against his or her will
 Coercion
 In the Conclusion, a person is compelled to enter into a
contract against his will due to the illegal pressure,
which is known as coercion in the sense of contract law.
 Such contract is regarded as voidable at the desire of
the party whose consent was obtained by coercion.
 Coercion
 Example 1 : A threatens to kill B if he does not lend of
Rs.5,000/- to C. B agrees to lend the amount to C. The
agreement is under coercion.
 Example 2 : A young girl of 23 years old was forced to adopt a
boy under threat that her husband’s dead body would not be
allowed to be removed for cremation if she does not adopt the
boy. She adopted boy. Consequently, she applied for
cancellation of the adoption. It was held that the consent was
not free but was induced by coercion and the adoption was set
aside. (Ranganayakamma V. Alwar Setti, (1889).
 Consequences of Coercion
 When consent to an agreement is caused by coercion, the
contract is voidable at the option of the aggrieved party.
 Contracts done by coercion may be declared void on the
effort of the attempt of the party of the contract from the
court.
 The aggrieved party must go the court within the time limit
prescribed by the law for making such contract invalidated.
 Contract done by the coercion is voidable, therefore the
party can continue to perform as it is a valid contract.
 Consequences of Coercion
 In such a voidable contract, according to Section 538 of the
National Civil Code, the party must refund money or thing
or any other benefits received by him under the contract, to
the person from whom it was received.
 The onus (burden of proof) lies on the party who claims that
he/she entered the contract with coercion.
 Conditions for Non-Coercion
 In some special circumstances or cases, to compel a person to
do or threaten to do something does not mean coercion. In
such cases it is not regarded as coercion and the contract
remains valid even there may be any unwillingness of the
party concerned. These are undermentioned.
1. A threat to prosecute मुद्दा हाल्ने धम्की : If any
person makes a threat to another person to file a case
against him for compelling him to enter into a contract is
not regarded as coercion. The condition is that the threat
should not be of false case. It is not coercion because
every person may invoke the door of court if feel so and
it is a legal action.
 Conditions for Non-Coercion
2. A threat to commit suicide आत्म हत्या गर्ने
धम्की: If any person obtains consent by threatening
to commit suicide, from another person is not
coercion. Only threatening suicide is not a crime or
punishable according to law, therefore it is not
coercion. Any act that is not prohibited by law is
valid and there should not be any responsibility to the
person for committing valid actions.
 In Nepal attempt to commit suicide is not
punishable by the prevailing laws, only abetment of
suicide is punishable (See. Sec. 185 of Muluki Criminal
Code, 2074).
 Conditions for Non-Coercion
3. High Price : Persons are free to purchase goods as their
willingness but due to necessity they have to purchase goods
even at a high price against voluntary judgment. Only the ground
of purchasing goods at a high price is not regarded as coercion.
Because people have the right not to purchase it at a high price.
4. High rates of interest : As same as high price, the high rate of
interest also does not amount to coercion. A person may be
compelled to borrow a loan from another due to his compelling
circumstances but it is not regarded as coercion. Because the
debtor is not compelled to this transaction since he enters as
voluntarily.
 Differences between Coercion and Duress
 The term duress is similar to the term coercion
and it is used under English Law instead of
coercion.
 Coercion covers a much wide field but duress is
limited.
 Although both terms comprise similar meanings
in many aspects but there are also some
differences.
 Differences between Coercion and Duress
Issues Coercion Duress
Scope It is wider than duress It is more limited than
coercion
Threatening element The threat may be The threat may be
directed against any directed against the
person or property of a life or liberty of a man
man. not against the
property
Appearance of the This may be proceed No other person
third party from or may be except a contracting
directed against any party, his wife, or child
person or third party. can be the subject of it
and this can not
proceed from any
other person except
the contracting party
or his agent.
 Ramji Prasad Kushawa v. Bijaya Prasad Yadav
NKP 2071, Decision No. 9194
 The disputed agreement was dated on 16 th of Falgun,
2060, Sunday. However, when the calendar of the year
2060 was observed, it was found that the date
2060/11/16 is not a Sunday but a Saturday. Hence, as
there is a difference seen in the date mentioned and the
actual date, it is seen that the paper was made under
coercion.
 Undue Influence
 If a party enters into a contract under any kind of influence,
mental pressure or persuasion, which prevents such party from
exercising a free and independent decision is known as undue
influence.
 It is an abuse of position and authority, and one’s achievement for
unfair benefits.
 Section 16(1) of the Indian Contract Act has defined undue
influence as “ A contract is said to be induced undue influence
where the relations subsisting between the parties are such that
one of them is in position to dominate the will of the other, and
he uses that position to obtain an advantage over the other.”
 Undue Influence
 According to the clause 1, the explanation of Section
518(2)(b) of the Muluki Civil Code, 2074 has
mentioned that, “ Undue influence means influence
exercised by a person over another person who is under
his or her influence or whose will can be dominated by
him or her with the intention of taking an unfair
advantage for his or her interest or concern.
 Clause 2 of the explanation further mentions that the
following person is deemed to be under influence or
have his or her will dominated by the other person:
 Undue Influence
a) A person who is under guardianship, curatorship, or
custody of that other person,
b) A person who is incapable of representing his or her
interest temporarily or permanently by reason of age,
illness, or physical or mental distress,
c) A person who may be subjected to the financial or
positional influence of that other person.
 Undue Influence
(ख) अनुचित प्रभावबाट भएको करार,
स्पष्टीकरण :
(१) आफ्नो प्रभावमा रहेको र आफ्नो इच्छानुसार काम गराउन सकिने
व्यक्तिबाट आफ्नो हित वा स्वार्थका लागि कुनै अनुचित लाभ
उठाउने मनसायले त्यस्तो व्यक्ति उपर पारेको प्रभावलाई
अनुचित प्रभाव सम्झनु पर्छ ।
(२) खण्ड (१) को सर्वसामान्यतामा प्रतिकूल नहुने गरी देहायका
व्यक्तिलाई आफ्नो प्रभावमा रहेका र आफ्नो इच्छानुसार काम
गराउन सकिने व्यक्ति सम्झनु पर्छ :
(क) आफ्नो संरक्षकत्व, माथवरी वा जिम्मामा रहेको व्यक्ति,
(ख) बृद्धावस्था, बिरामी अवस्था वा शारीरिक वा मानसिक
दुर्बलताले गर्दा केही समय वा सदाका लागि आफ्नो हितको
विचार गर्न नसक्ने व्यक्ति,
(ग) आफूले आर्थिक वा पदीय दबाब पार्न सकिने व्यक्ति ।
 Undue Influence
 From above definitions, it is clear that one of the parties is
in a position to dominate the will of the other party and
such dominating party uses that position to obtain an
unfair advantage over the other is an undue influence
and a contract is formed in this way is called a contract by
undue influence.
 According to the Section 16(2) of the Indian Contract Act,
the person dominating the will of the another:
- Where he holds a real or apparent authority over the
other or
 Undue Influence
- Where he stands in a fiduciary relation to the other or
- He makes a contract with a person whose mental
capacity is temporarily or permanently affected by
reason of age, illness or mental or bodily distress.
 Real or apparent authority, fiduciary relation and mental
or physical distress person are necessary to analyze to
understand undue influence in accordance with the
statutory provisions explained the dominating the will of
another. These are mentioned below:
 Undue Influence
 Real or apparent authority वास्तविक वा प्रत्यक्ष
अधिकार : A person in authority is definitely able to
dominate the will of the other person over whom the
authority is held. The authority may be real or apparent.
Relationship between tax officer and assessee, master and
servant, police officer and accused person, professor and
student can be examples of locating dominating position
due to real or apparent authority.
 Undue Influence
 Fiduciary relation पारस्परिक असन्तुलित सम्वन्ध :
Every relationship of trust and confidence is a fiduciary
relationship. Fiduciary relations are several kinds indeed
every relationship of trust and confidence is a fiduciary
relationship and confidence is the base of innumerable
transactions between mankind. It includes the relationship of
solicitor and client, doctor and patient, Teacher and student
etc.
 Mental and physical distress: A man is said to be in distress
when his mental capacity is temporarily or permanently
affected. It may be due to extreme old age or mental or bodily
illness or any cause. Such a person is easily persuaded to give
 Undue Influence
Example 1: A, spiritual guru, induced his devotee B to gift to
him the whole of his property to secure benefits to B’s soul in
next world. Held, spiritual guru was in the position to
dominate the will of the devotee. (Manu Singh v. Umadat
Pandey, (1890)
Example 2: A, poor Hindu widow, was pursued by B, a money
lender, to agree to pay 100 percent rate of interest on money
lent by him to her. She needed the money to establish her right
to maintenance. It was held that B was in position to dominate
the will of A (Ranee Annapurni V. Swaminatha, (1910).
 Presumption of Undue Influence
 There are certain circumstances under which a contract is
concluded that may be formed under undue influence. A
contract can be deemed to have been made by undue influence
if :
1. Consideration is inadequate, or
2. There is a fiduciary relationship between the parties, or
3. There is an inequality between the parties in respect of social
status, position, post, age etc. of the parties.
4. A greater sum is demanded than the actual sum must be
obtained, or
5. There is an absence of independent advisors for the weaker
party.
 Consequences of Undue Influence
 A contract formulated by undue influence is voidable at
the option of the aggrieved party whose consent is
obtained by using undue influence.
 According to Section 518(2)(b) of Civil Code, the
aggrieved party is entitled to avoid the contract caused by
undue influence. A similar provision has been admitted in
Section 19 of the Indian Contract Act, 1872.
 The aggrieved party has to invoke the court within the
prescribed time limit for avoiding such a contract or to
make it void.
 Consequences of Undue Influence
 Such contract remains valid until it is declared void by
the court or the aggrieved party remains silent or
voluntarily accepts it later on.
 In such a case the, the burden of proof lies on the
aggrieved party only to the extent to prove his lower
position.
 The main burden of proof about the non-using of undue
influence is imposed upon the dominant party regarding
the non-use of undue influence.
 Consequences of Undue Influence
 Section 518(3)(b) if the Civil Code has made the provision
that if a contract is made with the person who is under his
or her influence and whose will can be dominated by him
or her, the party who claims that he or she has not exercised
such undue influence shall have the onus to prove that the
contract has not been caused by undue influence.
 It is sufficient for the inferior party to prove his/her
dominating position rather than proving the state of undue
influence imposing to form a contract. The remaining
burden of proof goes to the stronger party.
 Misrepresentation
 Misrepresentation is one of the factor that affect the free
consent of the contracting parties.
 A representation is a statement of fact made by one party to
the other party which includes the other to enter into the
contract. But, misrepresentation is a representation that is
untrue in reality.
 Misrepresentation is a false statement made by a person
innocently without any intention of deceiving (misleading)
the other party but it is not true in reality and the person
who makes it, does not know about its truth.
 Misrepresentation
 When a wrong representation is made by a party honestly
believing that the representation made by him is true then
such false representation would amount to
misrepresentation.
 According to S.W. Anson, the term misrepresentation
means,“A false statement which the person making it
honestly believes to be true or which at any rate he does
not know to be false.”
 Misrepresentation
 According to section 18 of the Indian Contract Act, 1872, “there is
misrepresentation in these cases: (i) positive assertion (ii) breach of
duty, and (iii) causing mistake innocently.” They can be described
as follow:
1. Positive Assertion निश्चयात्मक भनाई : It means an absolute
and explicit statement of fact that is relating to the contract. When
a person positively asserts that a fact is true when his information
does not warrant it to be so, though he believes it to be true.
Example : A says to B who intends to purchase A’s land, “” My land
produces 4 tons of wheat per hector. A believes the statement to be
true although does not have any sufficient ground for the belief. B
purchases A’s land believing A’s statement. Later on, it transpires that
the land does not produce 4 tons of wheat. Here, the representation
made by A is misrepresentation.
 Misrepresentation
2. Breach of duty कर्तव्यको उल्लंघन
 Any breach of duty which brings an advantage to the
person who commits it by misleading another to
aggrieve his misrepresentation.
 This clause covers all those cases where the
person making the statement has a duty to
disclose all material facts, which he knows, but he fails
to disclose it, innocently.
 Misrepresentation

3. Causing mistake innocently अज्ञानताबाट भएको

गल्ती:
 Any wrong that takes place due to the lack of
knowledge of the fact is known as mistake by one
innocently. Thus, when a party causes, however
innocently, the other party to an agreement to make a
mistake as to the subject of the agreement, this also
amounts to misrepresentation.
 Misrepresentation
 Explanation of section 518(2)(d) of the civil code has
defined the term “misrepresentation” as :
(i) Presenting a false description of any matter or
fact on without reasonable basis.
(ii) Misleading any party to his or her detriment,
(iii) Causing a mistake as to any matter of the
contract.
(iv) Making assurance to have concluded a contract in
one subject and but causing to enter into it in
another subject.
 Misrepresentation
(घ) झुक्याई गराएको करार,
स्पष्टीकरण : देहाय बमोजिमको कामलाई झुक्याएको
सम्झनु पर्छ :
(१)मनासिब आधार बिना कुनै कुराको झुट्टा विवरण वा
तथ्य दिएको,
(२) कुनै पक्षलाई मर्का पर्ने गरी बहकाएको,
(३) करारको विषयवस्तुमा गल्ती गराएको,
(४) एक विषयमा करार भएको विश्वास दिलाई अर्को विषयमा
करार गराएको ।
 Essential Elements of
Misrepresentation
 Can be made only by a contracting party
 Representation must be wrong
 Must be related to the fact
 Object
 Actually acted
 May be Indirect
Consequences of Misrepresentation
 It is already said that a contract made based on
misrepresentation is a voidable contract and the option to
declare void by the court depends on the aggrieved party.
 There are several consequences of a contract that is
formed through misrepresentation. They are
undermentioned.
1. The aggrieved party can avoid or rescind the contract but
he is not entitled to compensation. The rational is that the
wrong statement was not made intentionally to deceive
the other party or it was an unknown mistake of the
statement–making party.
 Consequences of Misrepresentation
2. The aggrieved party may accept the contract if thinks
so.
3. Although a false representation is made believing it as
true, subsequently it comes to be false before the
contract is made, the information about it must be
given to the other party. If such a party is not informed,
this amounts to fraud. In this case, the victim party is
entitled to avoid the contract and claim damages for
the loss suffered.
 Consequences of Misrepresentation

4. In certain situations the aggrieved party neither

rescinds the contract nor claims compensation for any
loss caused to him if such party remains silent or does
not take any legal action against the other party within
the certain time limit. He is deprived of both these
rights. In the following circumstances the aggrieved
party loses the right to avoid the contract formed
through misrepresentation
a. If such party after being aware of the
misrepresentation, takes a benefit under the contract.
 Consequences of Misrepresentation
a. If such party cannot be restored in his original position, or
b. If an innocent third party has acquired certain rights from the
subject matter consists in the contract so formed.
These all rules are equally applicable in the contract made by
fraud.
 The party who claims the contract as suffered from
misrepresentation has to present evidence to prove his claim. It
means the burden of proof lies upon the aggrieved party.
 Fraud
 Fraud is a willful misrepresentation made by a party with
an intent to deceive another party through inducing such
party into the contract believing that a thing is true which is
untrue or false in reality.
 It means fraud is misrepresentation with bad or what we
called in legal terms malafide intention.
 Such misstatement is made knowingly by a party to deceive
another party through the intended transaction under the
contract made.
 Fraud
 Fraud includes all acts committed by a person with an
intention to deceive another person to induce a man to
believe that a thing is true which is untrue or false.
 Simply speaking, the term “fraud” is a
misrepresentation with bad intention.
 In other words, fraud means a false representation of the
fact made intentionally or knowingly by a party to
another party.
 Thus, a wrong or false representation of fact made
willfully with a view or intent to deceive the other party
is called a fraud.
 Fraud
 Lord Herschell defines the term “fraud” as, “ A false
statement made knowingly or without belief in its truth or
recklessly or carelessly whether it be true or false.”
(In Derry v. Peek (1889) 14 A.C. 374)
 According to Explanation of Section 518(2)( C) of Muluki
Civil Code, “A party to a contract or his or her agent is said
to commit fraud when he or she, with intent to deceive
another party thereto or his or her agent, makes the
suggestion, as to a fact, of that which is not true which he or
she does not believe it to be true or does any act that is likely
to make the other party or his or her agent believe it, or
knowingly conceals a fact which is in his or her knowledge
or does any such act as the law declares to be fraudulent.”
 Fraud
(ग) जालसाजबाट भएको करार,
स्पष्टीकरण : करार गर्ने पक्ष वा निजको
प्रतिनिधिले अर्को पक्ष वा निजको
प्रतिनिधिलाई धोका दिने नियतबाट कुनै कुरा
सत्य होइन भन्ने जानकारी हुँदा हुँदै त्यस्तो
कुरा सत्य हो भनी विश्वास दिलाएको वा विश्वास
पर्न सक्ने कुनै काम कारबाही गरेको वा कुनै
तथ्यका बारेमा जानकारी हुँदा हुँदै त्यस्तो
तथ्य जानीजानी लुकाएको वा कानुन बमोजिम जालसाज
हुने अन्य कुनै काम गरेको भए जालसाज गरेको
सम्झनु पर्छ ।
 Fraud
 According to this explanation, it includes any one of the
following situations if committed by one party of the contract or
his agent with a view to deceiving another party or his agent :
i. To induce other party to believe that a false act is as a
true one
ii. To conceal actively about any truth about the fact.
iii. To do any act that conveys the other party to believe
false as true, and
iv. To do some such acts that are declared to be fraudulent
by the current law.
 Fraud
 The Indian Contract Act, 1872, section 17 mentions about it that the
“fraud” includes any of the following acts committed by a party to a
contract or by his agent with intent to deceive another party thereto or
his agent or to induce him to enter into the contract:
i. The suggestion as to a fact, of that which is not true; by
one who does not believe it to be true.
ii. The active concealment of a fact by one having
knowledge or belief of the fact’
iii. A promise made without any intention of performing;
iv. Any other act fitted to deceive;
v. Any such act or omission as the law specially declares to be
fraudulent.
 Fraud
 Example 1 : A sells a ring to B stating that it is made of
pure gold though he knows that it is not true. B purchases
the ring believing A’s statement to be true. It is fraud by A.
 Example 2 : A, intending to deceive B, Falsely represented
that 800 shirts was manufactured daily in his factory and
thereby induced B to buy the factory. In fact the production
was 500 shirts per day. The contract is voidable at the
option of B as his consent is obtained by fraud.
Essentials/ Characteristics of Fraud

 Committed by a party to a contract : Only the party to

contract or his agent needs to commit fraud. It must not
be committed by a third party. So, fraud committed by
any other person other than the party or his agent does
not affect the validity of the contract.
 False representation: There must be a false
representation and it must be made with the knowledge
of falsehood by the party.
 Essentials/ Characteristics of Fraud
 The representation must be related to the fact: The
assertion must be relating to the fact of the subject
matter of the contract and it should not be a mere
expression of opinion or flourishing description in the
matter of contract.
Example : X says to Y that his horse is worth Rs 5,000. Y buys the
horse. Later on, Y comes to know that X has purchased the horse
only for Rs 2500. Y cannot set the contract aside because the
statement was made by mere expression of opinion and cannot be
taken as fraud.
Essentials/ Characteristics of Fraud

Actually Acted : To constitute fraud, it must be actually
acted. It means it has to deceive the other party; only
intention or attempt does not regard as fraud. There
must be a certain loss to the other party as a result of
fraud.
 Aggrieved party must be suffered some damage :
There is a common principle that “ there is no fraud
without damage”. If there is no loss suffered by the
aggrieved party as a result of fraud, there is no fraud is
constituted. There must be some sort of loss, damage or
injury to the aggrieved party.
 Consequences of Fraud
 It is also a voidable contract, voidable at the option of an
aggrieved party. It is a contract, made by obtaining the consent
of other party by fraud, comprises the following consequences.
1. Legal action needs to avoid the contract
2. Acceptance / The aggrieved party may accept the contract
as a valid contract.
3. Claim of damage
4. The burden of proof in the case of fraud always goes to
the aggrieved party. It means who claims to declare void a
contract on the ground of fraud, the claimant party must
prove it.
 Mistake
 In order to make a valid contract, the parties to it must agree
upon the same thing in the same sense.
 A contract is formulated based on agreeing of both parties
upon the same thing in the same sense. If the acceptance is
given an understanding of the terms and conditions of the
offer in a different sense than the sense insisted in the offer,
it is said to be assent by mistake.
 Mistake is a wrong conception of something.
 Mistake may be defined as an erroneous belief about
something.
 Mistake
 Mistake affects the meeting of the mind of the contracting
parties.
 The mistake is an erroneous belief about a particular thing
that is comprised by the contract.
 The contract, on the ground of mistake, is sometimes
declared void and sometimes it is not done so or it is regarded
as a valid one.
 If there is a fundamental error in the contract, it is obviously
regarded as void.
 Mistake
 The fundamental error is related to the subject matter and it
is taken as a serious mistake.
 Fundamental error is a result of erroneous belief or opinion
or misunderstanding about the subject matter of contract. It
may arise by the reason of only one party or by reason of
both parties to the contract.
 Example : B makes an offer to A with intent to buy his red
horse. A accepts B’s offer with intent to sell a black horse.
Here, intention of B and A is different and both they are
mistaken on the colour of the horse. This error is
fundamental one. This agreement is void.
 Types of Mistake

1. Mistake of Law
2. Mistake of Fact
 Mistake of Law : “Ignorantia jures non excusat”, i.e. ignorance
of the law is no execuse, is a well - settled rule. A party cannot be
allowed to get any relief on the ground that it had done a
particular act in ignorance of the law. A mistake of law is,
therefore, no excuse and the contract cannot be avoided.
Accordingly, no relief can be granted on the ground of mistake of
the law of the country. A mistake of law is therefore, no excuse,
and the contract cannot be avoided (Solle v. Butcher, 1950).
 Types of Mistake
 The mistake of law is further split into two categories:
i) Mistake as to domestic law
ii) Mistake as to foreign law
i. Mistake as to domestic law:
 The principle ‘ignorance of law is no excuse’ is relevant in the
mistake of the law of own country.
 It is presumed that everyone has to know about the prevailing law
of the land.
 A mistake of law or ignorance of law is, therefore, not excusable,
and this principle is equally applicable in the realm of contract.
 Types of Mistake
ii. Mistake as to foreign law:
 All the laws of foreign countries are known as foreign laws and
it is not compulsory that everyone has to know foreign laws.
 The mistake of foreign law is equivalent to the mistake of fact
or it is excusable to that extent as the mistake of fact.
 It means a contract formulated by mistake of foreign law can be
avoided.
 If both the parties mistake as to the foreign law, the contract is
regarded as void and the mistake is unilateral contract may
remain valid as a unilateral mistake of fact.
 Types of Mistake
 Mistake of Fact :
 Any mistake in the contract regarding the subject matter of
the contract is called a mistake of fact and such contract
may be valid or void that depends on the circumstances or
degree of mistake. The mistake of fact is further split into
two categories:
i. Unilateral mistake
ii. Bilateral mistake
 Types of Mistake
i. Unilateral mistake :
 It is that kind of mistake that is committed only by one party to the
contract.
 If one party of the contract is mistaken about understanding the terms
and conditions or legal effect of the contract is known as a unilateral
mistake.
 This type of unilateral mistake does not affect the validity of the
contract. It means a unilateral mistake does not make a contract void.
 According to Section 22 of the Indian Contract Act, a contract is not
voidable merely because it was caused by one of the parties to it
being under a mistake as to the matter of fact.
 Types of Mistake
 A mistake by one of the contracting party is not a defense
to avoid the contract but some times even this rule has
some exceptions.
 In some cases the consent is given by one party under an
error that is so fundamental that it goes to the very root of
the contract, the contract is void. A unilateral mistake of
the following types will render the agreement as void:
i. Mistake about the identity of parties. (Mistake
as to the party. )
ii. Mistake about the nature of the agreement.
( Mistake as to the essence)
 Types of Mistake
ii. Bilateral Mistake:
 When both parties of the contract commit the same mistake
as to the subject matter is known as a bilateral mistake and
it is also termed an identical or common mistake.
 Contrary to this condition the party may commit a different
mistake it is known as a non-identical mistake.
 In such a mistake they misunderstand about the sense of
each-other .
 A contract made as a bilateral mistake of fact is void.
 Types of Mistake
 The Civil Code has not made a clear provision in this matter
but Section 517(2)(g) of the Code has made a provision that
where the fact essential to the contract is not known to the
parties and the contract becomes impossible to perform due to
such ignorance, the agreement is void. According to Section
20 of the Indian Contract Act, 1872 “ Where both the parties
to an agreement are under a mistake as to a matter of fact
essential to the agreement, there is a bilateral mistake and the
agreement is void.”
 Types of Mistake

 The bilateral mistake comprises the following types of mistakes;

A. Mistake as to the subject matter:
 When both the parties to an agreement are agreeing to form an
agreement under a mistake relating to the subject matter
comprised by the agreement, in this case, it is void.
 If both parties have made an assumption about the existence of a
certain fact in the same way but in reality, such fact is not in
existence, these types of mistake are known as the mistake of
subject matter.
 Types of Mistake
 Mistake as to the subject matter includes the following
conditions :
- Mistake as to the existence of the subject matter
- Mistake as to the identity of the subject matter
- Mistake as to the substance (nature and quantity) of the
subject matter.
- Mistake as to the quality of the subject matter
- Mistake as to the price of the subject matter
- Mistake as to the title of the subject matter.
 Types of Mistake
B. Mistake as to the possibility of performance:
 When both the parties may believe that it is possible to
perform the contract and they enter into the contract but
in reality, it is not possible to perform factually or
legally.
 The parties do not know at the time of forming the
contract that the contract cannot be performed. In this
case, the agreement is void.
 Types of Mistake
 Impossibility of performance may be two types:
a. Physical impossibility:
 Sometimes, without knowledge of the parties a contract may be
impossible to perform. A and B enter into a contract to buy and sell a
horse of A, but it has died at the time of forming the contract and the
parties have no knowledge about the death of the horse. In such cases,
the contract is void.
b. Legal impossibility:
 If it is not possible to perform legally that is a legal impossibility. Such
impossibility may be initial or subsequent. In both cases, a contract
becomes void at the very moment when it is found the legal
impossibility of performance.
 Consequences of Mistake
 If it is a bilateral mistake occurs as to fact essential to the contract, then
the agreement is void.
 If it is a unilateral mistake occurs as to the identity of the contracting
party, then the agreement is void.
 If it is a unilateral mistake occurs as to other matters other than the
above matters, then the agreement is not void.
 If the aggrieved party has received any advantage from the other party,
then the agreement is not void.
 A person to whom money has been paid or anything delivered by
mistake, such person is bound to repay or return it to the concerned
person.
 The contract gets validity if the aggrieved party does not go to the
 Consequences of Mistake

1. In case of bilateral mistake  The agreement is void

2. In case of unilateral mistake  The agreement is valid
3. In case of unilateral mistake as to identity  The agreement is void
of a person contracted with and the identity
of person being of material importance

4. In case of mistake as to domestic law  The agreement is valid

5. In case of mistake as to foreign law  The agreement is void.

 मुलुकी देवानी संहिता, २०७४
दफा ५१८.बदर गराउन सकिने करार
 बदर गराउन सकिने करार
(१) करारका पक्षको प्रयासमा अदालतबाट बदर घोषित गराउन सकिने
करारलाई बदर गर्न सकिने करार मानिनेछ ।
(२) देहाय बमोजिम भएको करार त्यस्तो करारबाट मर्का पर्ने
व्यक्तिले अदालतबाट बदर गराउन सक्नेछ :
(क) करकापबाट भएको करार,
स्पष्टीकरण : कुनै व्यक्तिलाई निजको इच्छा विरुद्ध कुनै करार
गराउने मनसायले निजको सम्पत्ति रोक्का राखेको वा राख्न धम्की
दिएको वा निजको जीउ, ज्यान वा इज्जतमा धक्का पु(याउने धम्की
दिएको वा कानून विपरीत अन्य कुनै काम गरेको वा गर्न धम्की
दिएको भए करकाप गरेको सम्झनु पर्छ ।
 मुलुकी देवानी संहिता, २०७४
दफा ५१८.बदर गराउन सकिने करार
(ख) अनुचित प्रभावबाट भएको करार,
स्पष्टीकरण :
(१) आफ्नो प्रभावमा रहेको र आफ्नो इच्छानुसार काम गराउन सकिने
व्यक्तिबाट आफ्नो हित वा स्वार्थका लागि कुनै अनुचित लाभ उठाउने
मनसायले त्यस्तो व्यक्ति उपर पारेको प्रभावलाई अनुचित प्रभाव
सम्झनु पर्छ ।
(२) खण्ड (१) को सर्वसामान्यतामा प्रतिकूल नहुने गरी देहायका
व्यक्तिलाई आफ्नो प्रभावमा रहेका र आफ्नो इच्छानुसार काम गराउन
सकिने व्यक्ति सम्झनु पर्छ :
(क) आफ्नो संरक्षकत्व, माथवरी वा जिम्मामा रहेको व्यक्ति,
(ख) बृद्धावस्था, बिरामी अवस्था वा शारीरिक वा मानसिक दुर्बलताले गर्दा
केही समय वा सदाका लागि आफ्नो हितको विचार गर्न नसक्ने व्यक्ति,
(ग) आफूले आर्थिक वा पदीय दबाब पार्न सकिने व्यक्ति ।
 मुलुकी देवानी संहिता, २०७४
दफा ५१८.बदर गराउन सकिने करार

(ग) जालसाजबाट भएको करार,

स्पष्टीकरण : करार गर्ने पक्ष वा निजको
प्रतिनिधिले अर्को पक्ष वा निजको
प्रतिनिधिलाई धोका दिने नियतबाट कुनै कुरा
सत्य होइन भन्ने जानकारी हुँदा हुँदै
त्यस्तो कुरा सत्य हो भनी विश्वास दिलाएको
वा विश्वास पर्न सक्ने कुनै काम कारबाही
गरेको वा कुनै तथ्यका बारेमा जानकारी हुँदा
हुँदै त्यस्तो तथ्य जानीजानी लुकाएको वा
कानुन बमोजिम जालसाज हुने अन्य कुनै काम
गरेको भए जालसाज गरेको सम्झनु पर्छ ।
 मुलुकी देवानी संहिता, २०७४
दफा ५१८.बदर गराउन सकिने करार
(घ) झुक्याई गराएको करार,
स्पष्टीकरण : देहाय बमोजिमको कामलाई झुक्याएको
सम्झनु पर्छ :
(१) मनासिब आधार बिना कुनै कुराको झुट्टा
विवरण वा तथ्य दिएको,
(२) कुनै पक्षलाई मर्का पर्ने गरी बहकाएको,
(३) करारको विषयवस्तुमा गल्ती गराएको,
(४) एक विषयमा करार भएको विश्वास दिलाई अर्को
विषयमा करार गराएको ।
 मुलुकी देवानी संहिता, २०७४
दफा ५१८.बदर गराउन सकिने करार

(३) यस दफा बमोजिम बदर गराउन सकिने करारका हकमा

देहायका कुरामा देहाय बमोजिम हुनेछ :
(क)करार गराइएको पक्षले करारलाई बदर नगराई त्यस्तो करार
हुनुअघि निजको स्थिति जस्तो हुन्थ्यो त्यस्तो गराई
माग्न सक्ने,
(ख)कसैले आफ्नो प्रभावमा रहेको र आफ्नो इच्छा अनुसार काम
गराउन सक्ने व्यक्तिसँग करार गरेकोमा त्यस्तो करार
अनुचित प्रभावबाट गरिएको होइन भनी प्रमाणित गर्ने भार
त्यसरी अनुचित प्रभाव पारेको होइन भन्ने पक्षमाथि
रहने ।
 मुलुकी देवानी संहिता, २०७४
दफा ५१८.बदर गराउन सकिने करार
(४)बदर गराउन सकिने करार बदर हुनुभन्दा
अघिसम्म कानून बमोजिमको करार सरह नै
कार्यान्वयन हुनेछ ।
(५) यस दफा बमोजिम बदर गराउन सकिने करार
अदालतबाट बदर भएकोमा बदर हुनुभन्दा अघि
त्यस्तो करार बमोजिम भए गरेको कामलाई असर
पर्ने छैन ।
(६) यस दफा बमोजिम कुनै करार बदर भएकोमा
त्यसरी बदर भएको कारणले मात्र निर्दोष
तेस्रो पक्षको कानूनसम्मत हक वा हितमा
प्रतिकूल असर पर्ने छैन ।