BUSINESS LAWS NOTES: INDIAN CONTRACT ACT, 1872

Unit – 1: Indian Contract Act

Meaning of Contract and Its essentials or (“All contracts are agreements, but all agreements are not contracts.” [Essentials of a Valid Contract] or “A Contract is an agreement enforceable by Law”)

Section 2 (h) defines ‘Contract’ as an agreement enforceable by law.  If we analyse the definition it has two components viz.

1. An agreement between two or more persons "To Do" or "Not to Do" something.

2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.

Section 2 (e) defines ‘agreement’ as “every promise and set of promises forming consideration for each other”. For a contract to be enforceable by law there must be an agreement which should be enforceable by law. To be enforceable, the agreement must be coupled with obligation. Obligation is a legal duty to do or abstain from doing what one promised to do or abstain from doing.  All contracts are agreements but for agreement to be a contract it has to be legally enforceable.

Section10 of the Act provide “All agreements are contracts if they are made by the free consent of the parties competent to contract for lawful object & are not hereby expressly declared void.”

An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable. Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts. In order to become a valid contract an agreement must posses the following essential elements:

a)      Offer & Acceptance: There must be two parties to an agreement i.e. one making the offer & other party accepting it. Acceptance of must be unconditional & absolute. A part of an offer cannot be accepted. The terms of an offer must be definite. The acceptance must be in the mode as prescribed & must be communicated. The acceptor of an offer must accept it in the same way & same sense & at the same time as offered by the offeror i.e. there must be consensus ad idem.

b)      Intention to create legal relationship: When two parties enter into a contract their intention must be to create legal relationship. If there is no such intention between the parties, there is no contract between them. Agreements of a social or domestic nature to do not constitute contracts.

c)       Lawful consideration: An agreement to be enforceable by law must be supported by consideration. “Consideration” means an advantage or benefit which one party receives from another. It is the essence of bargain. The agreement is legally enforceable only when both parties give something or get something in return. An agreement to do something without getting anything in return is not a contract. Contract must be in cash or kind.

d)      Capacity to Contract-Competency: The parties competent to contract must be capable of contracting i.e. they must be of the age of majority, they must be of sound mind & they must not be disqualified from contracting by any law to which they are subject to.  An agreement with minors, lunatics, drunkards, etc. is not contract & does not get a legal title.

e)      Free Consent: It is necessary between the contracting parties to have a free & genuine consent to an agreement. The consent of parties is said to be free when the contracting parties are of the same mind on the materials of a contract. They must mean the same thing at the same time the parties must not enter into a contract under undue influence, coercion, misrepresentation etc. If these flaws are present in an agreement it does not become a contract.

f)       Lawful object: The object of an agreement must be lawful. It should not be illegal, immoral or it should not oppose public policy. If an agreement suffers from a legal flaw with respect to object it is not enforceable by law & so it is not a contract.

g)      Agreement not declared void: For an agreement to be a contract it is necessary for the agreement must not be expressly declared void by any law in force in the country.

h)      Possibility & Certainty of performance: The terms of an agreement must not be vague or indefinite. It should be certain. The agreement must be to do a thing which is possible. For e.g. an agreement to sell a car for Rs. 100/- if sun does not rise tomorrow. This agreement is impossible & so not enforceable by law. 

Thus, agreement is the genus of which contract is the specie.

Types of Contracts

A contract is of various types which are given below:

a) VALID CONTRACT: Valid contract is that which is enforceable at law. It creates legal obligations between the parties. It enables one party to compel another party to do something or not to do something. In case of valid contract all the parties to the contract are legally responsible for the performance of a contract. If one party breaks the contract other has right to be enforced through the court.

Example: Mr. A proposes sell his one acre land to Mr. B for one lac and the parties are capable to do the contract by law. So this contract is valid. If Mr. A fails to deliver the land to Mr. B can sue him in the court for the delivery of land. On other hand if Mr. B fails to make the payment, Mr. A can sue him for the recovery of payment.

b) VOID CONTRACT: "An agreement not enforceable at law is a void contract". Originally it is a valid contract but due to certain reasons it becomes void after its formation. A void contract cannot be enforced by either party. In this case the parties are not legally responsible to fulfill the contract. If any party has received any benefit is bound to return. This contract takes place when consent of one of the parties is not free.

Features of Void Contract:

a. It is not enforceable by law.

b. It creates no legal rights.

c. It creates no obligations on any party.

d. An agreement which is against the public policy or against any law is also void.

e. Under this contract no compensation can be paid to any party.

Cases where the contracts specifically declared to be void under the Indian Contract Act:

1) Agreement made by incompetent person, for e.g. minor, a person of unsound mind

2) Agreement made under mutual mistake as to matter of fact essential to the agreement. 

3) Agreement made under mistake as to a law not enforce in India. 

4) Agreement, the consideration or object of which is unlawful in part or in full.

5) Agreement made without consideration.

6) Agreement in restraint of marriage: Every agreement in restraint of the marriage of any person other than the minor is void. Every adult person has a right to get married and that to have a right to exercise his choice.

7) Agreement in restraint of trade: Every agreement by which anyone is restraint from exercising a lawful profession, trade or business of any kind is to that extent void.

8) Agreement in restraint of legal proceedings: Every agreement which restricts, whether wholly or partly, the enforcing of rights in a court of law or every agreement limiting the time allowed by Law of Limitation shall be void. Every individual has a right to sue in any court and enforce his rights within the time allowed by the limitation act. The following are the exceptions to this rule:

(a) An agreement to refer any dispute to arbitration is permissible.

(b) An agreement restricting the right of other party to sue in a particular court is permissible.

9) Agreement, the meaning of which is uncertain.

10) Agreements by way of wager.

11) Agreements contingent on an uncertain future event, if the event becomes impossible. 

12) Agreements contingent on an impossible event. 

13) Agreements to do the impossible act. 

14) Agreements to do an act which subsequently becomes impossible.

c) VOIDABLE CONTRACT: An agreement, which is enforceable by law at the option of one more of the parties, but not at the option of the other (s), is a voidable contract.

For example: - Mr. A, at knife - point, asks B to sell his scooter for Rs. 50. Mr. B gives consent. The agreement is voidable at the option of B, whose consent is not free.

Features of Voidable Contract

a)      It is a contract, which is enforceable by law at the option of one or more parties thereof, but not at the option of others.

b)      A voidable contract takes its full and proper legal effect unless it is disputed and set aside by the person entitled to do so.

c)       A contract may be voidable since very beginning or may subsequently become voidable.

d)      A voidable contract gives right to the aggrieved party to rescind the contract and claim the damages, etc in certain cases.

e)      A voidable contract does not affect the collateral transactions.

4) Unenforceable Contract: An unenforceable contract is that contract which cannot be enforced in courts due to some technical defect, such as absence of writing, payment of inadequate stamp duty etc.

5) Illegal Contract: An illegal agreement is one the object of which is: a) Fraudulent b) against the provisions of any law c) causes an injury or damage to any person or his property d) immoral or opposed to public policy.

6) Express Contract: In express contracts, the terms are stated in writing expressly.

7) Implied Contract: An implied contract is one which is the result of the conduct of the parties. For example when a person boards a public bus or drinks a cup of tea in a restaurant there is an implied contract and he has to pay the charges for it.

8) Executed Contract: An executed contract is that contract in which both the parties to the contract have performed their respective promises.

9) Executory Contract: An Executory contract is that contract in which both the parties to it have yet to perform their promises.

10) Unilateral Contract: A unilateral contract is that contract in which only one party is required to perform his obligation.

11) Bilateral Contract: A bilateral contract is one in which both the parties are required to perform their obligations.

Difference between Void and Voidable Contract

1)      Definition: When a contract ceases to be enforceable at law, it becomes void contract. Voidable contract is a contract which is enforceable by law at the option of one or more parties thereof, but not at the option of others. 

2)      Status: A void contract cannot create any legal rights. It is a total nullity. A voidable contract takes its full and proper legal effect unless it is disputed and set aside by the person entitled to do so. 

3)      Nature: A void contract is valid when it is made. But subsequently it becomes void due to one reason or the other. A contract may be voidable since very beginning, or may subsequently become voidable. 

4)      Rights: A void contract is valid when it is made. But subsequently it becomes void due to one reason or the other. A voidable contract gives rights to the aggrieved party to rescind the contract, and claim the damages, etc. in certain cases. 

5)      Effect: When a contract is void because of illegality, its collateral transactions also becomes void. A voidable contract does not affect the collateral transactions.

Consideration and Its Essentials

Section 2 (d) of Indian Contract Act, 1872, defines consideration as “When at the desire of the promisor the promise or any other person has done or abstained from doing or does or abstains from doing something, such act abstinence or promise is called a consideration for the promisor.”

Consideration is based on the term ‘quid-pro-quo’ which means ‘something in return’. When a person makes a promise to other, he does so with an intention to get some benefit from him. This act to do or to refrain from doing something is known as consideration.

Consideration is an advantage or benefit which moves from one party to another. It is the essence of bargain. It is the reciprocal promise i.e. to do something or abstain from doing something in return of a promise. It is necessary for an agreement to be enforceable by law. In consideration both the parties give something & get something in return. It may be in cash or kind.

The following are the rules related to the consideration

(i) Consideration must move at the desire of promisor. If it is done at the instance of a third party without the desire of the promisor, it is not consideration. Act done at the desire of a third party is not a consideration. Act must be done voluntarily at the desire of the promisor.

(ii) It may move from the Promisee or any other person in the Indian Law so that a stranger to the consideration may maintain a suit. A consideration may move from the promise or any other person. Consideration from a third party is a valid consideration. Under English Law, however, consideration must move from the Promisee only.

(iii) Consideration may be past, present or future. The words used in Section 2(d) are “has done or abstained from doing (past), or does or abstains from doing (present), or promises to do or to abstain from doing (future) something” This means consideration may be past, present or future.

(iv) There must be mutuality in consideration.

(v) It must be real & not illusory, infinite or vague. Although consideration need not be adequate, it must be real, competent and of some value in the eye of law. Physical impossibility, legal impossibility, uncertain consideration & illusory consideration.

(vi)  Consideration must not be unlawful, illegal, immoral or opposed to public policy. The consideration given for an agreement must not be unlawful. Where it is unlawful, the courts do not allow an action on the agreement.

(vii) Consideration need not be adequate. Consideration as already explained means “something in return”. This “something given”. The law simply provides that a contract should be supported by consideration. So long as consideration exists, the courts are not concerned as to its adequacy, provided it is of some value. “The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced.”

Exceptions to the rule ‘No consideration no contract’

The general rule is that an agreement made without consideration is void. Section 25 deals with the exceptions to this rule. In such cases the agreements are enforceable even though they are made without consideration.  These cases are:

a) Love and Affection [Section 25(1)]: Where an agreement is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between the parties standing in a near relation to each other, it is enforceable even if there is no consideration. 

For e.g. F, for natural love and affection, promises to give his son A, Rs. 1 Lac. F puts this promise in writing and registers it. This is a contract.

b) Compensation for voluntary services [Section 25(2)]: A promise to compensate wholly or part a person, who has already voluntarily done something for the promisor, is enforceable, even though without consideration. A promise to pay for a past voluntary service is binding. 

For e.g. A says to B’ At the risk of your life you saved me from a serious accident. I promise to pay you Rs.1, 000.” There is a contract between A and B even though there is no consideration.

c) Promise to pay a time barred debt [Section 25(3)]: A promise by a debtor to pay a time barred debt is enforceable provided it is made in writing and is signed by the debtor or by his agent generally or specifically authorized in that behalf. The debt must be such “of which the creditor might have enforced payment but for the law for limitation of suits”

For e.g. D owes C Rs.1, 000 but the debt is barred by the Limitation Act. D signs a written promise to pay C Rs.500 on account of the debt. This is a valid contract.

d) Agency (Section 185): No consideration is necessary to create an agency.

e) Completed Gift (Explanation 1 to Section 25): The rule ‘No consideration no contract’ does not apply to completed gifts. This rule shall not affect the validity, as between donor and donee, of any gift actually made.

Contingent Contract

According to the Contract Act a contingent contract is one whose performance us uncertain. The performance of the contract which comes under this category depends on the happening or non- happening of certain uncertain-events. On the other hand, an ordinary or absolute contract is such where performance is certain or absolute in itself and not dependent on the happening or non-happening of an event. A contingent contract is defined as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen (sec. 31).

Example

(A) A contracts to pay Rs. 50,000 if B’s house is destroyed by five. This is a contingent contract as the performance depends on the happening of an event.

(B) A asks B to give loan to M and promises that he (A) will repay the loan if M does not return it in time.

Characteristics of a Contingent Contract: A Contingent Contract must have three essential characteristics. There are:

(1)  The performance of the contract depends on the happening or non-happening of a certain event in future. This dependence on a probable future event distinguishes a contingent contract from an ordinary contract.

(2)  This event must be uncertain, that means happening or non-happening of the future event is not certain, i.e., it may or may not happen. If the event is hundred percent sure to happen, and the contract in that case has to be performed any way, such a contract is not called a contingent contract.

(3)  The event must be collateral or incident to the contract. Therefore, contracts of indemnity, guarantee and insurance are the most common instances of a contingent contract.

Rules regarding contingent contracts: To enforce the performance of a contingent contract the following rules have to be followed:

1.    Where the performance of a contingent depends on the happening of an uncertain future event, it cannot be enforced till the event takes place. And if the happening of the event becomes impossible, such contracts become void (sec. 32). Example- A contracts to sell B a piece of land if he (A) wins the legal case involving that piece of land. A loses the case. The contract becomes void.

2.    Where the performance of a contingent contract depends on the non-happening of a future event, the contract can be enforced if the happening becomes impossible (sec. 33). Example- A agrees to sell his house to B if Y dies. This contract cannot be enforced till Y is alive.

3.    If the contract is dependent on the manner in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which makes it impossible that he should so act within any definite time or otherwise than under further contingencies (sec. 34). 

4.    Contingent contract to do or not to do anything, if a specified uncertain event happens within a fixed time, becomes void if the event does not happen and the time expires or its happening becomes impossible before the time expires [sec. 35(1)].

5.    Contingent contract to do or not to do anything, if a specific event does not happen within a specified time, may be enforced when the time so specified expires and such event does not happen, or before the time so specified it becomes certain that such event will not happen [sec. 35(1)].

6.    Contingent agreements to do or not to do any thing, if an impossible event happens, are void, whether or not the fact is known to the parties at the time when it is made (sec. 36). 

Quasi Contract

It means a contract which lacks one or more of the essentials of a contract. In a contract, a promisor voluntarily undertakes an obligation in favour of the promisee. When a similar obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. Such contracts are the quasi-contracts. Quasi contract are declared by law as valid contracts on the basis of principles of equity i.e. no person shall be allowed to enrich himself at the expense of another the legal obligations of parties remains same.

Nature of Quasi contracts:

a) A quasi contract does not arise from any formal agreement but is imposed by law.

b) Every quasi contract based upon the principle of equity and good conscience.

c) A quasi contract is always a right to money and generally though not always to a liquidated sum of money.

d) A suit for its breach may be filed in the same way as in case of a complete contract.

e) The right grouted to a party under a quasi contract is not available to him against the whole world but against particular person(s) only.

f) A suit for breach of a quasi contract may be filed in the same way as in case of an ordinary contract

g) Although there is no contract between the parties under a quasi contract, yet they are put in the same position as if he were a contract between them.

Types of Quasi Contracts

a) Claim for necessaries supplied to persons incapable of contracting (Sec. 68): If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person, with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.

b) Right to recover money paid for another person (Section 69): A person who has paid a sum of money which another is obliged to pay, is entitled to be reimbursed by that other person provided the payment has been made by him to protect his own interest.

c) Obligation of a person enjoying benefits of non-gratuitous act (Section 70): Where, a person does some act or delivers something lawfully to another person with the intention of receiving payments for the same, in such a case, the other person is bound to make payment if he accepts such services or goods or enjoys their benefit.

d) Responsibility of a finder of goods (Sec.71): A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. Therefore, he is required:

Ø  to take proper care of the thing found as his own goods

Ø  not to appropriate it to his own use,

Ø  to restore it to the owner when the owner is traced.

Right of finder

Ø  Finder is entitled to retain it against whole world.

Ø  Finder has lien for express incurred in preserving goods & finding true owner.

Ø  However he cannot file suit for recovery of this money.

Ø  It he can claim recovered. If it was offered.

Ø  If true owners refuses to pay lawful charge he May Sale.

a)      When goods are of perishable nature.

b)      When lawful charge amount to two third of its values or more.

e) Liability for money paid or thing delivered by mistake or under coercion (Sec. 72): A person to whom money has been paid, or anything delivered, by mistake or under coercion must repay or return it.

In each of the above cases, contractual liability is the creation of law and does not depend upon any mutual agreement between the parties.

Meaning of Discharge of a Contract

Discharge of a contract means termination of the contractual relations between the parties to a contract. A contract is said to be discharged when the rights and obligations of the parties under the contract come to an end.

Modes of discharge of a contract: A Contract is said to be discharged when the rights and obligations created by it come to an end. A contract may be discharged in the following modes:-

1.       Discharge by performance: Discharge by performance takes place when the parties to a contract fulfill their obligations arising under the contract within the time and in the manner prescribed. Performance may be actual performance or attempted performance.

2.       Discharge by Agreement or Consent: A Contract comes into existence by an agreement and it may be discharged also by an agreement. The following are modes of discharge of a contract by an agreement:

a)      By Waiver: Waiver takes place when the parties to a contract agree that they shall no longer be bound by the contract. For e.g. A an actor promised to make a guest performance in the film made by B. Later B forbids A from making the guest appearance. B is discharged of his obligation.

b)      By Novation: Novation occurs when a we contract is substituted  for an existing contract, either between the same parties or between different parties, the consideration being the discharge of old contract, mutually. E.g.: A is indebted to B & C to C. By mutual agreement B’s debt to C & B’s loan to A are cancelled & C accepts as his debtor.

c)       By Rescission: Rescission of a contract takes place when all or some of the terms of the contract are cancelled. It may occur by mutual consent or where one party fails in the performance of his obligations, the other party may rescind the contract.

d)      By alteration: Alteration of a contract may take place when one or more of the terms of the contract is/are altered by mutual consent of the parties to the contract.

e)      By Remission: Remission means acceptance of a lesser fulfillment of the promise made, E.g. Acceptance of a lesser sum than what was contracted for, in discharge of the whole of the debt.

f)       By Merger: Merger takes place when an inferior right accruing to a party under a contract merges into a superior right accruing to the same party under the same or some other contract. For e.g. P holds a property under a lease. He later buys the property. His rights as a lessee merge into his rights as an owner.

3.       Discharge by impossibility of performance: If a contract contains an undertaking to perform impossibility, it is void ab initio. As per Section 56, impossibility of performance may fall into either of the following categories –

(i) Impossibility existing at the time formation of the contract: This is known as pre-contractual impossibility. The fact of impossibility may be:

a) Known to the parties: Both the parties are aware or know that the contract is to perform an impossible act. For e.g. A agrees with B to put life into dead wife of B, the agreement is void.

b) Unknown to the parties: Both the parties are unaware of the impossibility. The contract could be on the ground of mutual mistake of fact. For e.g. contract to sell his house at Andaman to B. Both the parties are in Mumbai and are unknown to the fact that the house is actually washed away due to Tsunami.

(ii) Impossibility arising subsequent to the formation of the contract: Where impossibility of performance of the contract is caused by circumstances beyond the control of the parties, the parties are discharged from further performance of the obligation arising under the contract.

4.       Discharge by lapse of time:  The Limitation Act, 1963 lays down certain specified periods within which different contracts are to be performed and be enforceable. If a party to a contract does not perform, action can be taken only within the time specified by the Act. Failing which the contract is terminated by lapse of time. For e.g. A sold a gold chain to B on credit without any period of credit, the payment must be made or the suit to recover it, must be instituted within three years from the date of delivery of the instrument.

5.       Discharge by Operation of Law: A contract may be discharged independently of the wished of the parties i.e. by operation of law. This includes discharge:

a)      By death: In contract involving personal skill or ability, the contract is terminated on the death of the promisor. In other contracts the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person.

b)      By insolvency: When a person is declared insolvent, he is discharged from all liabilities incurred prior to such declaration.

c)       By unauthorized material alteration of the terms of a written agreement: Any material alteration made by a party to the contract, without the prior permission of the other party, the innocent party is discharged.

d)      By rights and liabilities becoming vested in the same person: When the rights and liabilities under a contract vests in the same person.

6.       Discharge by Breach of Contract: A breach of contract occurs when a party thereto without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. A breach to a contract occurs in two ways:-

a)      Actual Breach: When a party fails, or neglects or refuses or does not attempt to perform his obligation at the time fixed for performance, it results in actual breach of contract. For e.g. A promises to deliver 100 packs of ice-cream to B on his wedding day. A does not deliver the packs on that day. A has committed actual breach of the contract.

b)      Anticipatory Breach: Anticipatory Breach is a breach before the time of the performance of the contract has arrived. This may take place either by the promisor doing an act which makes the performance of his promise impossible or by the promisor, in way showing his intention not to perform it.

Free Consent

Section 13 defines consent as “Two or more persons are said to consent when they agree upon the same thing in the same sense.” Consent of the party’s means, the parties to a contract must mean the same thing in the same sense. It means ‘Consensus ad idem’. For e.g. A have 2 cars – Maruti 800 and Maruti Zen. A offers to sell the Maruti 800 while B accepts the offer thinking the car to be sold is Maruti Zen. Here there is no consent.

Free consent refers to consent which has been rendered by free will of the parties i.e. consent is voluntary. Section 10 of the Act, specifically states that a contract is valid and enforceable if it is made with the free consent of the parties.

Section 14 defines ‘Free Consent’ as – Consent is said to be free consent when it is not caused by –

(i) Coercion, as defined in Section 15, or

(ii) Undue influence, as defined in Section 16, or

(iii) Fraud as defined in Section 17, or

(iv) Misrepresentation as defined in Section 18, or

(i) Coercion: When a person is compelled to enter into a contract by the use of force by the other party or under a threat, ‘coercion’ is said to have been employed.  Section 15 of the Indian Contract Act, 1872 defines coercion as – “committing or threatening to commit, any act forbidden by the Indian Penal Code or the unlawful detaining, or threatening to detain any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.”

Coercion includes fear, physical compulsion and menace of the goods.  For e.g. A threatens to shoot B if B does not release A from the debt which he owed. B releases A under the threat. The release has been brought about by coercion and therefore voidable at the option of B.

(ii) Undue influence: Undue influence is the term used to demonstrate unfair use of one’s position or power. There is once party who is in a dominant position, while the other party is in a sub-ordinate position. The dominant party exercising its influence over the subordinate party and getting an unfair advantage. Unlike Coercion where there is physical pressure, in undue influence, there is mental pressure.

Section 16 defines as – “ Where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.” 

(iii) Fraud: Fraud means cheating. It is intentionally stating something untrue as true. Section 17 defines Fraud as “Fraud means and included any of the following acts committed by a party to a contract or with his connivance, or his agent, which intent to decided another party thereto or his agent, or to induce him to enter into a contract.”

(iv) Misrepresentation: Section18 defines misrepresentation as – “a false representation a fact made innocently or non disclosure of a material fact without any intention to deceive the other party.”The essential features of misrepresentation are

(i) Party to the contract making misrepresentation – The false statement must be by the party to the contract or by his agent or by his connivance. Further it must be addressed to the party who is misled. If not address to the party who has been misled it will not be misrepresentation.

(ii) False representation – The statement made by the party must be false, but the person making statement must honestly believe it to be true.

(iii) Representation as to fact – it is very important that the false statement made must be of material facts. A mere expression of once opinion is not statement of facts.

(iv) Object – The representation must be made with the view to inducing the other party to enter into a contract but having no intention to deceive the other.

(v) Actually acted upon – The innocent party must have actually acted on the basis of the statement which turns out to be false.