The Contract Act 1872

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INDIAN CONTRACT ACT, 1872
Topic 1: AGREEMENT
Agreement: “Every promise and every set of promises, forming
consideration for each other, is an agreement.” [Sec. 2(e)]. In simple words,
an agreement means a promise. It is created when a person makes an offer to another
person and that person accepts it.
It is clear from the above definition that an agreement is created by exchange or promises by
the parties.
But, what is a promise? “A proposal, when accepted, becomes a
promise.”[Sec.2 (b)] Thus it is clear that agreement is created when one person proposes
to another and the other accepts it, irrespective of the fact that it is enforceable by law or not.
AGREEMENT = OFFER + ACCEPTANCE OF THE OFFER.
PROPOSAL AND ACCEPTANCE
Will you buy my house..?

Will you buy my car..?
OFFEROR /
OFFER / PROPOSAL OFFEREE
PROPOSER
Will you sell me your computer..?
Will you work for me..?
PROPOSAL OR OFFER
The term „proposal‟ has been defined in the Indian Contract Act as
 When one person signifies
 to another
 his willingness to do or
 to abstain from doing anything,
 with a view to obtaining the assent of that other to such act or abstinence,
 he is said to make a proposal.[Sec.2(a)]
 The person making the proposal is known as the „Proposer‟, or „offeror‟ and
 The person to whom it is made is known as the „Offeree‟.
On acceptance of the proposal-
 The person making the proposal is called the „Promisor‟ and
 The person accepting the proposal is called the „Promisee‟ or the
„Acceptor‟.[Sec.2(c)]
Basic Characteristics of a Proposal

A valid proposal is said to be constituted when it possesses the following basic
characteristics:
1. At least two parties. In order to make a proposal – there must at least two parties, i.e.
the proposer and the offeree or acceptor.
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2. A proposal may be positive or negative. It is positive when the proposer expresses
his willingness to do something. When the proposer expresses his willingness to abstain
from doing anything, it is negative proposal.
3. A proposal must be made to obtain assent. A proposal must be made with a view to
obtaining the assent of the offeree.
4. Proposal must be made with an intention to create relations. Whether a proposal
is made with or without any intention of parties is determined by the terms of the
agreement as well as by the surrounding circumstances of the proposal.
5. It must be signified or communicated. Every proposal is complete only when the
proposer signifies or communicates it to the party to whom he wants to communicate it. If
the intended party does not come to know about the offer, the offer is incomplete.
TYPES OF OFFERS
The offers may be classified on the following basis:
Types of Offer
On the Basis of On the Basis of

On the Basis of
Nature of Offer
Mode of Offer Offeree:
Cross Offer
Express Offer Specific Offer
Counter Offer
Implied Offer General Offer
Standing Offer
1. On the Basis of Mode of Offer: The mode of offer may either-

(i) Express Offer. An offer made in words, written or spoken.
(ii) Implied Offer. An offer made otherwise than in words. Such an offer is inferred
from the conduct of parties and circumstances of the case.
2. On the Basis of Offeree: There are two types of offers on the basis of Offeree-
(i) Specific Offer. An offer made to specific or a particular or an ascertained
person. Such an offer can be accepted by the particular or specific person to whom
it has been made and none else.[Boulton v.Jones (1857)2 H & N 564]
(ii) General Offer. An offer made to the public at large or to the whole world. Any
person from among the public who has knowledge of it may accept such an offer.
Distinction between Specific and General Offer
Basis of
Specific offer General offer
distinction
A specific offer is an offer made
A general offer is an offer made to
1. Meaning to a particular or specific
public at large.
person.
It is accepted by any one from among
The person, to whom it has
2. Acceptance the public who had the knowledge
been made, accepts it.
of it.
It is accepted in the same It is accepted only by performance of
3. Mode of
mode as defined in the offer conditions or by doing the desired
acceptance
itself. act.
4. It continues up to reasonable It continues till it is accepted by
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Continuation time or till is accepted or any person by performance of
revoked. conditions of it or it is withdrawn.
3. On the Basis of Nature of Offer: On the basis of their nature, offer may also be
classified as-
(i) Cross offer. When two persons make identical offer (i.e. similar in terms,
conditions etc.) to each other, without having knowledge of each other‟s offer, are
known as cross offers. They are independent and identical offers of the respective
parties. Such offers do no constitute a contract even though both the parties intend to
do or not to do the same thing. Only when one of the parties accepts the offer of
the other party, contract comes into existence.
(ii) Counter offer. When an offer is accepted on the terms and conditions, other than set
out by the offerer, it is not an acceptance but a counter offer. A counter offer is, in
fact, not only a rejection of the original offer but is also a new offer by the
original offeree.
(iii) Standing offer. A standing offer is an offer, which is open for acceptance over a
period of time. This is also known as continuing or open offer.
WHAT IS NOT PROPOSAL?

There are certain communications or documents, which resemble as proposals but, in fact,
they are not proposals. They are either:
× Intention to put a proposal: The objective of proposal is to get the assent of the other
party whereas the intention to put a proposal is merely an expression or declaration
by a person that he intends to offer something in future.
× Invitation to proposal: The objective of proposal is to get the assent of the other party
but the invitation to proposal is made with an intention to receive a proposal from
other. The acceptance of offer creates an agreement whereas the acceptance of
invitation to proposal gives birth to a proposal. For example:
× Catalogue or price list.
× A banker‟s catalogue.
× Menu card.
× Quotation of price.
× Prospectus inviting
× Time table of a carrier. (Railways, roadways or airlines)
ACCEPTANCE
According to Sec. 2(b)

“When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted”.
A proposal when accepted becomes a promise.
Who May Accept? Acceptance may be given by the following:

1. In case of specific offer. Only the person to whom the offer is made may give the
acceptance. The underlying principle is that no person can give himself a contractual right
by interposing in an offer which was not intended for him.
2. In case of a general offer. Any person from among the public who has knowledge of the
offer may accept such an offer.
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ILLUSTRATIONS
1. Abhiram advertises in the newspaper that he will pay rupees one thousand
to anyone who restores to him his lost son. Decide who is entitled for
reward in the following cases:
a. Mr. Khoji saw the boy at a railway station and sent the telegram to the
boy‟s father.
b. Servant Ramu Kaka without knowledge of this reward finds Abhiram‟s
lost son and restore him to Abhiram.
Ans. In the case(a): When an offer is addressed to an uncertain body of
individuals i.e. world at large, it is a general offer and can be accepted by any
member of the general public by fulfilling the condition laid down in the offer. If
the offer of reward is for seeking some information or seeking the restoration of
missing thing, then the offer can be accepted by one individual who does it first
of all [HARBHAJANLAL V/s HARCHARANLAL]. Thus, Mr. Khoji has
substantially performed the conditions and is entitled to the reward.
In the case (b): Referring to the case mentioned above it is further stated that
the claimant must have the prior knowledge of the reward before doing that act
or providing that information. An acceptance never precedes an offer which is
not communicated. Similarly, performance of conditions of an offer without the
knowledge of the specific offer is no acceptance [LALMAN SHUKLA V. GAURI
DUTT (1913)]. Thus, Ramu Kaka brought the boy without the knowledge of the
reward and hence he is not entitled to reward.
2. Shambu Dayal started “self-service” system in his shop. Smt. Prakash

entered the shop, took a basket and after taking the articles of her choice
into the basket reached the cashier for payments. The cashier refuses to
accept the price. Can Shambhu Dayal be compelled to sell the said articles
to Smt. Prakash? Decide.
Ans. No, as self service store is INVITATION TO OFFER & not offer.
3. "Good Girl" Soap Co. advertised that it would give a reward of Rs. 1,000
who developed skin disease after using, "Good Girl" soap of the company
for a certain period according to the printed directions. Miss Rakhi
purchased "Good Girl" and developed skin disease in spite of using this
soap according to the printed instructions. She claimed reward of Rs.
1,000. The company refused the reward on the ground that offer was not
made to her and that in any case she had not communicated her
acceptance of the offer. Decide whether Miss Rakhi can claim the reward
or not. Refer the relevant case law, if any.
Answer: General offer: Yes, Miss Rakhi can claim the reward of Rs. 1,000
because the advertisement issued by the company is an offer made to the
public in general and hence anyone can accept and do the desired act. Relevant
case law is CARLILL V. CARBOLIC SMOKE BALL CO.
4. A sends an offer to B to sell his second-car for Rs. 40,000 with a condition
that if B does not reply within a week, he (A) shall treat the offer as
accepted. Is A correct in his proposition? What shall be the position if B
communicates his acceptance after one week?
Ans: Acceptance to an offer cannot be implied merely from the silence of the
offeree, even if it is expressly stated in the offer itself. So in the given problem, if
B remains silent, it does not amount to acceptance.
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Essentials/Legal Rules of Valid Acceptance
For a valid acceptance of a proposal, certain legal rules must be observed. Some of the
rules are given in the Act itself while a few others have been laid down by the Courts while
deciding the cases. A few important rules of acceptance are summarized as under:
 Acceptance must be absolute and unqualified.[Sec.7(1)]
 Acceptance must be in prescribed manner.
 Acceptance may be given by performance of conditions or act required by the
offeror.(Sec.8)
 It may be given by acceptance of consideration forwarded or act required by the
offeror.(Sec.8)
 It may express or implied.
 It must be given within specified or reasonable time.
 It must be given while the offer is in force.
 It must not precede an offer.
 It must be given by the person to whom offer is made.
 Acceptance must be communicated.
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Topic 2: CONTRACT
According to Section 2(h) of the Act, „An agreement enforceable by law is a contract.‟
Enforceability of the agreement: Every agreement is not a contract. Only an

agreement enforceable by law is a contract. An agreement is enforceable by law only when
it creates legal rights and obligations of the parties. Enforceability of the agreement depends
on the intention of the parties to the agreement as well as the fulfillment of requirements of a
valid contract.
CONTRACT = AGREEMENT + ENFORCEABILITY OF THE AGREEMENT.
ESSENTIALS OF A VALID CONTRACT
Section 10 states.
 All agreements are contracts
 if they are made by the free consent of
 parties competent to contract,
 for lawful consideration and with a lawful object,
 And are not hereby expressly declared to be void.
1. Plurality of parties. There must be at least two persons or parties. One of them is
known as „proposer‟ or „promisor‟ and other one is known an „offeree‟ or „promisee‟.
2. Proposal and acceptance (i.e. agreement)
3. Intention to create legal relations. For an agreement to be a contract, it must

be able to create legal relations. Whether or not any agreement creates legal relations
between the parties, would depend upon the intentions of the parties to the
contract.
In all social, domestic, moral, religious or political agreements, the usual presumption is
that the parties do not intend to create obligation. However, in business agreements,
usual presumption is that the parties intend to create legal obligations. But, when the
parties in a business transaction intend to rely on good faith and do want to go to the court
of law, such transaction is not legally binding.
4. Contractual Capacity. Only legally competent persons can make valid agreement.
The law presumes that every person is competent to enter into contract if he fulfills the
following conditions:
(i) He is a major.
(ii) He is of sound mind; and
(iii) He is not disqualified from contracting by any law of the land to which he is a
subject.
5. Consent or Consensus ad idem. Consent is the essence of a contract. The parties

are said to consent when they agree upon the same thing in the same sense.(Sec.13)
It means that both the parties must have „unision or meeting of mind or mutually of assent‟
(i.e. two minds with one intention) with regard to the subject-matter of the contract. This is
technically known as consensus ad idem.
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6. Free consent. Consent is said to be free when it is not caused by (i) coercion, or
(ii) undue influence, or (iii) fraud, or (iv) mis-representation, or (v) mistake.
(Sec.14).
7. Consideration. Generally, every agreement to be enforceable by law must be

supported by consideration‟. Consideration means something, which the promisor
receives from his promise. In fact, it is the price for promise paid by the promisee to the
promisor. It may be in cash or kind.
Consideration must be lawful and real and not illusory. It must have some value in
terms of money. However, it may not be adequate. Nominal consideration may even be
enough for a valid contract if the parties are satisfied. But agreements without
consideration are always void subject to certain exception.
8. Lawful objects or consideration. Another essential of a contract is the lawful

object or consideration. Any agreement for an unlawful object or consideration is void ab-
initio. An agreement will be unlawful in any of the following circumstances:
(i) If it (agreement) is forbidden by law; or
(ii) If it is of such a nature that if permitted, would defeat the provisions of any
law; or
(iii) If it is fraudulent; or
(iv) If it involves or implies injury to the person or property of another; or
(v) If the Court regards it as immoral; or
(vi) If the Court regards it against public policy.(Sec.23)
EXAMPLE
Determine In The Following Cases Whether The Consideration Is Lawful Or Unlawful?
Sr. Lawful/ Unlawful

Case
No Consideration
A agrees to sell his house to B for 10,000 rupees. Here B's
promise to pay the sum of 10,000 rupees is the consideration for
1.
A's promise to sell the house, and A's promise to sell the house
is the consideration for B's promise to pay the 10,000 rupees.
„A‟ promises to pay B 1,000 rupees at the end of six months, if C,
who owes that sum to B, fails to pay it. B promises to grant time
2
to C accordingly. Here the promise-of each party is the
consideration for the promise of the other party
„A‟ promises, for a certain sum paid to him by B, to make good to
B the value of his ship if it is wrecked on a certain voyage. Here
3
A's promise is the consideration for B's payment and B's
payment is the consideration for A's promise
A promises to maintain B's child and B promises to pay A 1,000
4
rupees yearly for the purpose.
A, B and C enter into an agreement for the division among them
5
of gains acquired, or- to be acquired, by them by fraud.
A's estate is sold for arrears of revenue under the provisions of
an Act of the Legislature, by which the defaulter is prohibited
6 from purchasing, the estate. B, upon an understanding with A,
becomes the purchaser, and agrees to convey the estate to A
upon receiving from him the price which B has paid.
9. Certainty of meaning. Agreements with certainty of meaning are only enforceable

by law. Agreements, the meaning of which is not certain, or which is not capable of being
made certain are void (Sec.29). The parties must agree upon the terms which are
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definite without further agreement of the parties. If, however, the meaning of agreement
can be made certain from the facts and circumstances of the case, it will be a valid
contract.
10. Possibility of performance. An agreement to be a valid contract must also be

possible to be performed. The terms of the agreement must be capable of
performance physically as well as legally. An agreement to do an impossible act
is void. (Sec.56).
11. Agreements not declared void. An agreement, which possesses all the
essential of a valid agreement, is generally a valid contract. However, if any such
agreement is expressly declared void by the law of the land, it is void.
Agreements having unlawful object or consideration, agreements without consideration,
agreement in restraint of trade or marriage, etc. are some of the expressly declared void
agreements.
12. Compliance of Legal formalities. Generally no legal formalities are required

to be complied with for a valid contract. A contract may be written, oral or gestural
(by signals).
However, Section 10, states that a contract should be made in writing or in the presence
of witnesses or be registered, if required by any law of the land. Various law of our
country requires that some formalities should be complied with for an agreement to be
enforceable.
For instance, agreements for transfer of property must also be written, witnessed and
registered. These are some examples where certain legal formalities are required to be
complied with the enforcement of agreement by the law.
AGREEMENT VS. CONTRACT
All Contracts are Agreements but

All Agreements are not Contracts
On comparing the meaning of the two terms i.e. contract and agreement, it is revealed that
agreement is a wider terms than the term contract. That is why it is repeated by experts
“All contracts are agreements but all agreements are not contracts.”
All Agreements are not Contracts

The term agreement is a wider term than the term contract. It includes variety of agreements
such as personal, social, domestic, lawful, unlawful, void, voidable, etc. Some of them are
enforceable by law and others are not. Those agreements, which are not
enforceable by law, are definitely not contracts as per section 2(h). Hence,
it is generally said that all agreements are not contracts. A few examples of such
agreements are given to show that all agreements are not contracts.
1. Certain domestic and family agreements.
2. Political agreements/promises.
3. Commercial transactions without legal binding.
4. Agreement not possessing all essentials of a contract.
5. Agreements expressly declared to be void.
6. Agreement to make a contract.
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CLASSIFICATION OF CONTRACTS / AGREEMENTS
CLASSIFICATION ACCORDING TO ENFORCEABILITY/LEGALITY
1. Valid agreement i.e. contract: A valid agreement is a contract. It gives rise

to legal obligations of all parties to it. Such an agreement possesses all essentials of a
contract laid down by Section 10.
2. Void agreement: “An agreement not enforceable by law is said to be

void.”[Sec.2(g)] Such an agreement lacks essentials of a valid agreement and
consequently does not create legal obligations of the parties. It is also not
maintainable in law and is, therefore, a nullity.
Effects
(i) Void from beginning. The agreement is void from beginning. It does not
create any legal obligation of either party.
(ii) No restitution. No restitution can be granted. Any consideration passed on by
parties to each other, cannot be generally restored.
3. Void Contract: According to Sec 2(j) “A contract which ceases to be

enforceable by law becomes void when it ceases to be enforceable.”
When a contract is valid at the time of its making but later on due to change in
circumstances or in law, it becomes unenforceable, it is a void contract.
Effects
(i) Contract becomes void. Contract is void, when it is discovered to be void or it
becomes void due to change in circumstances.
(ii) Restitution is allowed. Any person who has received any advantage under
void contract, is bound to restore it to the person from whom he got it.(Sec.65)
(iii) Payment or compensation for performance. Any party who has received
any advantage by way of part performance of a void contract (i.e. which later on
becomes void) is also bound to pay or make compensation to the person from
whom he received it. (Sec.65).
Distinction between Void Agreement and Void Contract.

Basis Void Agreement Void Contract
A contract which ceases to be
An agreement not enforceable
1. Definition enforceable by law becomes void
by law is said to be void.
when it ceases to be enforceable
2. Time when It becomes void subsequently
becomes It is void from very beginning. due to change in law or change in
void circumstances.
Generally no restitution is
granted. however, the court may Restitution may be granted
3. Restitution on equitable grounds grant when the contract is discovered to
restitution in case of fraud or be void or becomes void.
misrepresentation by minors.
4.
Such agreements have been There is no mention of void
Description
mentioned as void in the Act. contracts in the Act.
in the Act
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4. Voidable contract: According to Sec.2 (i), “An agreement which is
enforceable by law at the option of one or more of the parties
thereto, but not at the option of the others, is a voidable contract.”
Therefore, a voidable contract is an agreement, which is voidable at the option of the
aggrieved party. Voidable contracts may be of two types:
(i) Voidable from beginning. There are certain contracts, which are voidable from
the very beginning. It is so when the consent of the party is caused either by
(a) coercion,
(b) undue influence,
(c) fraud or
(d) mis-representation.
(ii) Voidable subsequently. There are certain cases where one part may treat a
contract as voidable. In other words, when one of the parties to the contract
elects to treat the contract as void, then such a contract becomes voidable
subsequently. A contract becomes voidable subsequently in the following three
circumstances.
(a) On refusal of performance: When a party to a contract has refused to
perform his promise in entirety, the other party may put an end to the
contract, unless he has signified by words or conduct, his consent to its
continuance.(Sec.39)
(b) When a party prevents another from performing. When one party to the
contract prevents the other from performing a reciprocal promise, the
contract becomes voidable at the option of the party so prevented. [Sec.53].
(c) When a party fails to perform within a specific time. When a party to a
contract promises to do a certain thing at or before a specific time and fails to
perform it at or before such time, the contract becomes voidable at the option
of the promisee, if the parties intended that the time should be of essence of
the contract.
Effects
(i) Voidable at the option of aggrieved party.
(ii) Valid till rescinded. A voidable contract continues to be valid till the aggrieved
party rescinds it.
(iii) Other party relieved from performing. When aggrieved party rescinds the
contract, the other party need not perform any promise therein contained. (Sec.64)
(iv) Restitution / Compensation is allowed if aggrieved party rescinds the contract..
Distinction between Void Agreement and Voidable Contract

Basis Void Agreement Voidable Contract
An agreement not A contract, which is enforceable by
1. Definition enforceable by law is said to law at the option of the aggrieved
be void. party, is a voidable contract.
2. Period of It is void from the beginning It is valid till the aggrieved party to
validity i.e. void ab initio. the contract avoids it.
3. Legal It is nullity, hence does not It has its existence in the eye of law
existence exist in the eye of law. till it is repudiated.
Status of void agreement does Status of such contract change
4. Change in
not change with the change when the aggrieved party elects
status
in circumstances. to avoid it within a reasonable time.
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A contract is voidable when the
Any agreement is void when it
consent of the party is caused by
is made with incompetent
coercion or undue influence or
parties or for unlawful objects
5.Causes fraud or misrepresentation.
and consideration or it is
Moreover, parties can treat the
expressly declared to be void
contract voidable under the
under the law.
provisions of Secs.39, 53 and 55.
The party obtaining goods under
voidable agreement can transfer a
The party obtaining goods
good title to the third party if the
6. Transfer of under void agreement cannot
third party obtains it in good faith and
title transfer a good title to the
for consideration and the aggrieved
third party.
party has not avoided the contract
before such transfer.
Parties do not have right to
restore the benefits passed on
If the party rescinding the contract
to the other unless the parties
has received may benefit under the
were unaware of the
7. Restitution contract from other party, he must
impossibility of performance at
restore such benefit, so far as may
the time of agreement or the
be, to the other party.
party to the agreement was
minor.
If a party rightfully rescind (i.e. puts
No party has a right to get
an end) the contract, he can claim
compensation for damages
8. Damages compensation or damages
because such agreement has
sustained by him due to non-
no legal effects.
fulfillment of the promise.
Distinction between Void and Voidable contract

Basis of
Void contract Voidable Contract
distinction
A contract, which ceases to be
A contract, which is enforceable by
enforceable by law become
1. Definition law at the option of the aggrieved
void, when it ceases to be
party, is voidable contract.
enforceable.
2. Period of It remains valid till it does not It remains valid till the party, at whose
validity cease to be enforceable. option it is voidable, avoids the same.
Its validity is not affected by
3. Will of the Its validity is affected by the will of
the will of any party. The court
party the aggrieved party.
decides it.
Contract is voidable when the
Contracts become void due to
consent of the party is caused by
4. Causes change in circumstances or
coercion, undue influence, fraud
in the law of the land.
or misrepresentation.
5. Illegal Agreement. Generally speaking, an agreement, which is expressly

or impliedly prohibited by law, is an illegal agreement. Such an
agreement may either be against the law of the land or opposed to public policy
or be criminal or immoral in nature.
The term „illegal agreement‟ has not been defined in the Indian Contract Act. However,
Section 23 of the Act states that the object or consideration of an agreement is unlawful if-
(i) it is forbidden by law; or
(ii) it is of such a nature that, if permitted, it would defeat the provisions of any law; or
(iii) it is fraudulent; or
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(iv) it involves or implies, injury to the person or property of another; or
(v) The Court regards it as immoral; or
(vi) The court regards it apposed to public policy.
Thus, the term unlawful agreement is wider in its scope that the term illegal agreement. All
the agreements covered under the above stated six heads are not illegal agreements. Only
the agreements forbidden by law, agreements opposed to public policy, agreement of
criminal or immoral nature are included in illegal agreements. Therefore, it is true that
every illegal agreement is unlawful but every unlawful agreement is not
necessarily illegal.
Effects:
(i) Void agreement. The agreement is void ab initio.
(ii) Collateral agreement void. Every collateral agreement to an illegal agreement is also
void. It should be noted that if the main agreement were void but not illegal, its
collateral agreement would not be affected.
(iii) Legal part enforceable. If any part of a single agreement is illegal, the whole
agreement will be illegal and void. However, where the agreement consists of two parts,
one legal and the other illegal, and they are severable or separable from each other, the
legal part is enforceable and the illegal part will be void.
(iv) Punishment. The parties to an illegal agreement are punishable as per the law of the
land.
Similarities and Distinctions

Void and illegal agreements are similar in certain respects. The similarities are as under:
(i) Both are un-enforceable agreements, hence void.
(ii) Restitution (Restoration of benefits) is not possible in either kind of agreements.
Distinction between Void and Illegal Agreement

Basis of
Void Agreement Illegal Agreement
distinction
An agreement, which is
An agreement not enforceable by
1. Definition expressly or impliedly
law.
prohibited by law.
2. Effect on The agreement collateral to the void The agreement collateral to an
collateral agreement is not necessarily illegal agreement is always
agreement void. void.
All void agreements need not be
3. Scope All illegal agreements are void.
illegal agreements.
The Court may grant restitution
of money advanced if the party to an Restitution of money is not
4. Restitution agreement is minor or if the parties granted in case of an illegal
were unaware of the impossibility of agreement.
performance of the agreement.
6. Unenforceable contract. A contract, which is good in substance but cannot be

forced in a law court due to some technical defects, is said to be unenforceable
contract. Technical defects in a contract may be due to non-compliance of some of the
legal formalities. For instance, a particular law may require that the contract must be in
writing, witnessed, stamped and registered. In such a case, the contract cannot be
enforced if all the legal formalities are not complied with properly. Even the absence of
signature of witness or stamps of lesser amount than required on the deed may render
the contract unenforceable. As soon as the technical defect is removed, the contract
becomes enforceable.
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Classification according to enforceability
VOID VOID VOIDABLE ILLEGAL

AGREEMENT CONTRACT CONTRACT CONTRACT
ENFORCEABLE NOT
CEASES TO ENFORCEABLE
NOT AT OPTION OF
BE
ENFORCEABLE AGGRIEVED (Collateral also
ENFORCEABLE
PARTY void)
RESTITUTION /
NO RESTITUTION / NO
PAYMENT /
RESTITUTION COMPENSATION RESTITUTION
COMPENSATION
II. Classification According to Mode of Formation

Contracts may be classified on the basis of their mode of formation in three heads:
1. Express Contract. A contract is express when the parties state its terms and conditions
and show their assent by words, either oral or written.
2. Implied contract. Where a contract is made otherwise than in words, is said to be

implied.(Sec.9). An implied contract arises from the acts and conduct of the parties or by
their surrounding circumstances.
3. Tacit Contract: tacit contracts are those which are inferred from the conduct of the
parties. For example cash withdrawn by a customer from the bank ATM.
4. Quasi-contract. A quasi-contract is not a result of agreement, express or implied. It is a

contract imposed by the law on the parties and gives rise to obligations similar to that
arising under a contract. The parties do not intentionally make such a contract.
III. Classification According to Extent of Execution

Contract may be classified according to extent of execution or performance under 2 heads:
1. Executed contract. A contract in which all the parties to the contract have
performed their respective obligations, is known as executed contract. Nothing remains
to be done by the parties under such a contract.
2. Executory contract. A contract in which the parties to the contract have still to
perform their side of the contract, it is known as executory contract.
Where in a contract, one party has performed the contract but the other is yet to perform
his part of the contract, the contract will be known as partly executed and partly
executory contract.
On the basis of extent of execution or performance, the contracts can also be classified as
follows:
1. Bilateral contract. A bilateral contract is one in which both the parties exchange a
promise to each other. One party promises to perform some act in the future in exchange
for the other party‟s promise to perform some act. In such a contract, obligations on part
of both the parties are outstanding at the time of formation of the contract.
Thus, it is similar to an executory contract. It is also known as contract with executory
consideration
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Unilateral contract. It is a one-sided contract in which one party has already performed
his obligation at or before the point of time when the contract comes into existence
and the other party remains liable to perform his obligation after the contract comes
into existence.
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Topic 3: CONSIDERATION
The definition of 'agreement' itself states that the mutual promises should form consideration
of each other. Thus, 'consideration' is essential for an agreement.
Definition of consideration:
 When, at the desire of the promisor,
 The Promisee or any other person
 Has done or Abstained from doing,
 Or does or abstains from doing,
 Or promises to do or to abstain from doing, something,
 Such act or abstinence or promise is called a consideration for the promise. [Section
2(d)].
Consideration' means quid pro quo i.e. 'something in return'. It is an advantage

moving from one to another. The consideration can be a positive act or abstinence from act
(i.e. negative act). It can be in form of cash, goods or services. It can be past, present or
future.
 Consideration should be at the desire of promisor - A cannot demand payment
for his services when he saved life of B when he was drowning, as it was voluntary
act and not at the desire of B.
 Consideration can be given to/by third person – It may move from promise or
any other person.
 Consideration must be lawful
 Past consideration valid, if given at desire of promisor
 Consideration should not be impossible
 Consideration should be certain - Promising to pay a 'reasonable sum' or 'as may
be mutually agreed upon' is not a consideration as it is uncertain. Agreement
containing such clause is not a valid contract.
 Act which promisor is anyway bound to do is not a 'consideration' - If the
promisor is any way legally bound to do something, and he agrees to do it, it is not
'consideration' as any way he was bound to do it - e.g. agreeing to pay an amount to
witness to attend Court as per summons received by him is not a 'consideration' as
he was anyway bound to attend as per Court orders. - - A promise to pay Advocate
additional sum if he wins the case is not a valid consideration as the advocate
was even otherwise bound to render best of his services.
Agreements void, if consideration or objects unlawful in part (Section 24)

 If any part of a single consideration for one or more objects, or any one or any part of
any one of several consideration of a single object, is unlawful, the agreement is
void.
EXAMPLE
Determine In The Following Case Whether The Agreement Is Valid Or Void?
Sr. Void / Valid

Case
No Agreement
1 A borrows from B to Rs.1000 for lending to C a minor
2 A borrows Rs.1000 from B to buy a pistol to shoot C.
3 A promises to indemnify B in consideration of his beating C.
A promised to obtain an employment to B in a public office
4
and B promises to pay A Rs.1000.
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A promises to drop a prosecution which he has instituted
5 against B for robbery and B promises to restore the stolen
property
Rule: Contract without consideration is void
EXCEPTIONS to the above rule Section 25: Means Contract without

consideration will be valid.
Exception 1If agreement is made on account of natural love and affection between
parties standing in a near relation to each other if it is made it in writing and must be
registered.
Exception 2: promise to compensate for past voluntary service.
Exception 3: A Promise to pay time barred debt (law of limitation) is valid if it is made in
writing + signed by debtor.
Exception 4: Completed Gifts i.e. gift is completed when it is accepted by done.

However, agreement to make gift is not enforceable.
Exception 5: Creation of Agency or Partnership
EXAMPLE:
Determine in the following cases the validity of the contract
Sr. Valid/ Invalid

Case
No Contract
1 A promises, for no consideration, to give to B Rs. 1,000.
A, for natural love and affection, promises to give his son, B,
2
Rs. 1,000. A puts his promise to B into writing and registers it.
A owes B Rs. 1,000, but the debt is barred by the Limitation
3 Act. A signs a written promise to pay B Rs. 500 on account of
the debt.
A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A's consent
4
to the agreement was freely given.
A finds B's purse and gives it to him. B promises to give A Rs.
5
50.
A supports B's infant son. B promises to pay A's expenses in so
6
doing.
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PRIVITY OF CONTRACT
As a general rule, stranger to contract cannot sue or be sued.
Rule: Stranger to contract cannot sue parties to contract
EXCEPTIONS to the above rule: Means EVEN stranger to contract can sue parties
to contract
Exception 1: Beneficiary can sue -Beneficiary of contract can sue if contract was for his
benefit. Beneficiary trust can enforce the contract. e.g. - A agrees to transfer certain property
to B to be held in to benefit of C. Here, C, being beneficiary, can enforce the agreement even
if he was not pa agreement - If airline books rooms for its crew in a hotel, the crew member
who is injured can sue hotel for injury suffered by him, as he was beneficiary of the contract
Exception 2: Assignee of contract – When benefits under a contract is assigned, the

assignee can enforce the contract.
Exception 3: Devolution by operation of law - Sometimes, contract may devolve on third

person by operation of law (e.g, purchase or lease of interest in land, death, bankruptcy,
insolvency). In such case, the successor (in case of death), official receiver (in case of
insolvency) etc. can sue though they were not parties to contract.
Exception 4: Insurance company can sue - Insurance Company can sue as it enters into
shoe of person to whom compensation was paid by it as per insurance contract.
Exception 5: Principal can enforce contract entered into by Agent - Principal can enforce
contract entered into by Agent on behalf of Principal, if Agent is acting within his authority.
THERE CAN BE STRANGER TO CONSIDERATION

(STRANGER CAN PERFORM CONTRACT)
BUT
THERE CANNOT BE STRANGER TO CONTRACT
ILLUSTRATIONS
5. Mrs. Sonam made a deed of gift over certain property to her daughter,
directing her to pay an annuity to Mrs. Sonam‟s brother as had been done
by Sonam herself before she gifted the property. On the same day
Sonam‟s daughter executed in writing in favour of Sonam‟s brother
agreeing to pay the annuity. Afterwards daughter declined to fulfill her
promise to pay her uncle saying no consideration had moved from him
(Sonam‟s brother). State whether daughter‟s contention is valid for want of
consideration?
Ans. Consideration is one of the essential elements of a valid contract. In
English law, consideration must move from promisee, so that stranger to the
contract cannot sue on contract. In Indian Law, however, consideration may
move from promisee or any other any person, so that the stranger to the
contract may maintain a suit. [Chiinnaya v. Ramaya, (1882) 4 Mad.137]
Thus in the instant case uncle (Sonam‟s brother) could sue even though no part
of the consideration received by his niece moved from him. The consideration
from Sonam was sufficient consideration.
6. Tillu supplied tyres to a wholesaler Nillu on condition that any retailer to

whom Nillu re-supplied the tyre should promise Nillu, not to sell them to
public below Tillu‟s list price. Nillu supplied tyres to Bablu upon this
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condition but nevertheless Bablu sold the tyres below list price. Can Tillu
obtain damages from Bablu?
Ans. The doctrine of privity of contract states that stranger to a contract
cannot sue the parties to the contract. In the given case there was a contract
between Tillu & Nillu and Nillu & Bablu. Therefore, Tillu could not obtain
damages from Bablu as Tillu had not given any consideration for Bablu‟s
promise to Nillu, nor was Bablu a party to the contract between Tillu and
Nillu.[DUNLOP PNEUMATIC TYRE CO. V. SELFRIDGE & CO. (1915) A.C.
847]
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Topic 4: COMMUNICATION
1. COMMUNICATION OF PROPOSAL/OFFER
An offer is complete when it is properly communicated to the offeree. The communication of
offer is complete when it comes to the knowledge of the person to whom it is made.[Sec.4,
para 1]
14 Feb
OFFEROR
Offer
16 Feb
OFFEREE
Communication of offer is complete as against the offeree???
2. COMMUNICATION OF ACCEPTANCE
Communication of acceptance of an offer completes at different times as against the offeror
and offeree. The time of completion of communication of acceptance against each of them is
as under:-
(a) As against the proposer/offeror: The communication of an acceptance is complete
as against the offeror when it is put into a course of transmission to him so as to be
out of the power of the acceptor. After such communication, the offeror is bound by
the acceptance.
(b) As against the acceptor: The communication of acceptance as against the acceptor
is complete when it comes to the knowledge of the offeror.(Sec.4 para 2.)
14 Feb
OFFEROR
Offer
16 Feb
OFFEREE
20 Feb
Acceptance put in to course of transmission
Communication of ACCEPTANCE is complete as against the OFFEROR ???
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14 Feb
OFFEROR
Offer
22 Feb 16 Feb
OFFEREE
20 Feb
Acceptance put in to course of transmission
Communication of ACCEPTANCE is complete as against the OFFEREE ???
3. COMMUNICATION OF REVOCATION
Revocation means „withdrawing‟ or „taking back‟. Offer as well as acceptance may be
revoked. The communication of revocation completes at two different counts:
(i) As against the person who makes. The communication of a revocation is complete
as against the person who makes it, when it is put into a course of transmission.
(ii) As against the person to whom it is made. The communication of a revocation is
complete as against the person to whom it is made, when it comes to his
knowledge.(sec.4)
QUESTIONS
What can be revoked?
Who will revoke?
Till which date can it be validly revoked?
Practical
Till which date can it be validly revoked?
Theory
GENERAL RULES AS TO COMMUNICATION OF ACCEPTANCE
1. In case of acceptance by post : Where the acceptance is given by post, the

communication of acceptance is complete as against the proposer when the letter of
'acceptance .is posted. Thus, mere posting of letter of acceptance is sufficient to
conclude a contract. However, the letter must be properly addressed and stamped.
2. Delayed or no delivery of letter: Where the letter of acceptance is posted by the

acceptor but it never reaches the offeror, or it is delayed in transit, it will not affect the
validity of acceptance. The offeror is bound by the acceptance.
3. Acceptance by telephones, telex or fax: If the communication of an acceptance is

made by telephone, teleprinter, telex, fax machines, etc., it completes when the
acceptance is received by the offeror. The contract is concluded as soon as the offeror
receives or hears the acceptance.
4. The place of Contract : In case of acceptance by the post, the place where the letter is
posted is the place of contract. Where the acceptance is given by instantaneous means
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of communication (telephone, fax, teleprinter, telex, etc.), the contract is made at the
place where the acceptance is received.
.
REVOCATION OF OFFER
Time for Revocation of Offer

A proposal may be revoked at any time before the communication of acceptance is
complete as against the proposer, but not afterwards.(sec.5 para 1) It is possible only
when no acceptance has been given by the time the communication of revocation of
acceptance is complete.
Modes of Revocation and Rejection of Offer

According to section 6, the following are the modes of revocation of an offer:
1. By notice.
2. By lapse of time.
3. By death of insanity of offeror. An offer stands revoked if the offeror dies or
becomes insane before acceptance and the fact of his death comes to the knowledge
of acceptor, before acceptance. [Sec.6(4)]
4. By Counter offer. A counter offer rejects the original offer.
5. by non- acceptance of the offer according to the prescribed or usual
mode.[Sec.7(2)]
6. By death of insanity of the offeree.
7. By destruction of subject matter.
8. By change in the law.
9. By rejection of offer.
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Topic 5: CAPACITY TO CONTRACT

Who are Competent to Contract?
Section 11 reads,
 Every person is competent to contract who is of the
 Age of majority according to the law to which he is subject and
 Who is of sound mind and
 Not disqualified from contracting by any law to which he is subject
Conversely, following persons are not competent to contract:

× Minors
× Persons of unsound mind; and
× Persons disqualified from contracting by any other law of the land.
I. MINORS:
 According to Indian Majority Act, “A minor is a person who has not completed 18
years of age”
 When guardian is appointed by court, person becomes major when he attains the
age of 21 years.
Rules/Effects as to or Nature of Minor’s Agreement

1. Void-ab-Initio. Minor‟s agreement in absolutely void from very beginning, i.e. void ab
initio. It is nullity in the eye of law. An agreement with minor, therefore, can never be
enforced by law.[Mohri bibi v.Dharmodas ghose]
2. Minor can be promisee or beneficiary. The Courts regard minor capable of accepting
benefits under an agreement. However, he must have performed his promise under the
agreement. It means that if a amajor borrows money from a minor and later on refuses to
pay it, minor can sue him and recover the money.
3. No ratification. One of the basic rules of ratification is that only valid acts may be
ratified. A minor‟s agreement is void ab initio. Hence it cannot be ratified even after
attaining majority.
(i) It maybe noted that where a minor after attaining majority pays the debt incurred
during minority, he cannot afterwards recover it.
(ii) Again it is worth noting that where a minor had not completed a transaction during his
minority and continues to complete the same on majority, he will be liable for the
whole transaction. Therefore, the services rendered at the desire of the minor during
his minority(to the minor) and are continued to be rendered at his request after his
majority and he makes a promise to pay for the whole, the promise is enforceable.
4. NO Restitution / Compensation. Generally, a minor is not liable to compensate for

or restore any benefit which he has received.
Restitution order is granted subject to following conditions (Specific Relief Act, 1963):
 Power of court to order restitution is discretionary
 It is generally allowed when minor had misrepresented to other party about his age
 If money paid to a minor is in the same form, minor may be ordered to pay it back
 If money is used to purchase property, property purchased by the minor shall be used
in paying off the money.
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5. No estoppel and can plead minority. The rule of estoppel says that when a person by
written or spoken words or by his conduct falsely represents another to believe that certain
state of things exists; he will not be allowed to deny the existence of that state of things.
However, the minor is not bound by the rule of estoppel. A minor can always plead
his minority. Even if he has falsely represented himself to be a major and induced the
other party to contract, he can later deny the stand. He cannot be sued either in contract
or in tort for fraud. If the aggrieved party is allowed to sue, it would amount to allowing
enforcement of void agreement which is not possible.
6. No specific performance. Specific performance of a contract means performance of

contract as per the terms of the contract. Minor‟s agreement being void, the court
cannot direct for specific performance of it.
7. Contract by parent / guardian / manager. A minor‟s parent / guardian / manager can

enter into contract on behalf of the minor provided:
i) the parent / guardian / manager is authorized ; and
ii) the contract is for the benefit of the minor.
A certified guardian / manager by the Court may with the sanction of the Court, sell the
minor‟s immovable property for his benefit.
8. No liability of parents. The Parents (guardian) of a minor are not liable for agreements
made by their minor ward. However, they can be held liable if the minor makes agreement
as their authorized agent.
9. Minor agent. A minor cannot appoint an agent because only person competent to contract
can appoint agents. (Sec.183) However, a minor can be appointed as an agent by any
person competent to contract. The minor agent can bind his principal by his acts but the
principal would be unable to hold him personally liable for any damage arising out of his
negligence or wrongful acts. (Sec.184)
10. Minor partner. Partnership arises out of a contract and a minor is not competent to make
a contract. Hence he cannot be a partner in a partnership firm. However, a minor can
be admitted to the benefits of an existing firm with the consent of all the partners. Thus,
he can be a partner in the profits of a firm but not partner of the firm. [sec.4 and 30 of the
Indian Partnership Act, 1932]
11. Guarantee for a minor or by a minor. A contract of guarantee in favour of a minor is

valid. However, a minor cannot be a surety in a contract of guarantee. This is because,
the surety is ultimately liable under a contract of guarantee whereas minor can never
be personally liable.
12. Liability for necessaries of life. A minor is incompetent to contract; therefore, he is not
personally liable for the payment of price of necessaries of life supplied to him or to his
legal dependents. However, the person who has furnished such supplies is entitled to
be reimbursed from the property of the minor. (Sec.68)
Thus, it is clear that the liability of the minor is not personal but is only to the extent of the
minor‟s property. The supplier‟s right of reimbursement is based on the principle of equity.
The law presumes a quasi-contract between the minor and the supplier.
ILLUSTRATION
7. Ramesh, a minor, by misrepresenting himself to be of 19 years, obtains a loan of
Rs.20000 from Suresh stating that the amount was badly needed by him to
complete his education. Suresh, without making any further enquiry, lent the
amount to Ramesh. Can Suresh recover the amount from Ramesh?
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Ans. Estoppel is a rule of evidence. The rule of estoppels says that when a
person by written or spoken words or by his conduct falsely represents another
to believe that certain state of things exists; he will not be allowed to deny
existence of that state of things. However, the minor is not bound by rule of
estoppel. A minor can always plead his minority even if he has falsely
represented to be a major and induced the other party to contract.
Section 68 states that minor are not personally liable for the payment of price of
necessities of life supplied to him or to his legal dependant. However, the
person who has furnished such supplies is entitled to be reimbursed from the
property of the minor. Education in India has been upheld to be a necessity. A
loan given for education should, therefore, qualify for that exception. Hence,
Ramesh‟s property, if any, shall be attachable and in case he has no properties
and the money is also spent, Suresh shall have no remedies.
II. PERSONS OF UNSOUND MIND

“A person is said to be of sound mind for the purpose of making a contract if, at
the time when he makes it, he is capable of understanding it and of forming a
rational judgment as to its effect upon his interests.” (Sec.12)
When soundness of Mind is required?

The soundness of mind is required only at the time of making a contract.
1. Contract by a person usually of unsound mind. A person who is usually of unsound
mind, but occasionally of sound mind, may make contract when he is of sound
mind.(Sec.12 para 2)
2. Contract by a person usually of sound mind. A person who is usually of sound mind,
but occasionally of unsound mind, may not make a contract when he of unsound
mind.(Sec.12 para 3)
Types of Persons of Unsound Mind and their Contracts

1) Idiot. An idiot is a person who is congenital (by birth) of unsound mind. Such a person
can never understand contract and make a rational judgment as to its effects upon his
interests. Consequently, the agreement of an idiot is absolutely void ab initio. He is
not personally liable even for the payment of necessaries of life supplied to him.
2) Lunatic. A lunatic is a person whose mental powers are damaged due to some
disease of brain or mental strain. A lunatic, therefore, may have lucid intervals of
sanity and insanity. He can make contracts during those intervals when he is sane.
He is not liable for agreements made during the intervals of insanity.
3) Delirious persons. A person delirious from fever is also not capable of
understanding the nature and implications of an agreement. Therefore, he cannot
enter into a contract so long as delirium lasts.
4) Drunken or intoxicated persons. A drunken or intoxicated person is temporarily
incompetent to contract. The mental faculties of such a person are clouded for the
time being when he is under the effect of drink or intoxicant. He cannot enter into
contract during the period when he is under the effect of such things.
5) Hypnotized persons. Hypnotism produces temporary incapacity till a person is under
the effect of artificial induced sleep.
6) Mental decay. There may be mental decay or senile mind due to old age or poor
health. When such person is not capable of understanding the contract and its effect
upon his interests, he cannot enter into contract.
III. PERSONS DISQUALIFIED BY LAW

There are certain persons who are disqualified from contracting by the law of our country.
They are as under:
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1) Alien enemy. Alien means foreign citizen living in India. When an alien is declared as
alien enemy (due to the declaration of war between his country and the Republic of
India or for any other reasons) he cannot enter into a contract with any Indian national
so long as the declaration is in force. The contract made before the declaration stands
suspended till such declaration remains in force.
2) Foreign Sovereigns, diplomatic staff etc. Foreign sovereigns, their representatives
and diplomatic staff (e.g. ambassadors, envoys etc.) have full capacity to contract in
India but they can claim their privilege of not sued. They cannot be sued unless they
voluntarily submit to the jurisdiction of our law Courts; or the Central Government
permits to sue them. (they can enter into valid contract)
3) Corporation and companies. Corporations and companies are the artificial persons
created by law. It is competent to make contract within the scope of the
Memorandum. Any contract made beyond the Memorandum is ultra vires and
void.
4) Insolvents. An adjudged insolvent (under the Insolvency Act to which he is a
subject) cannot enter into contract for the sale of his property. It is because his
property vests in the official Receiver or the Official Assignee. However, he can make
contracts of service or for purchase of property or to take loans.
5) Convicts. A convict during the period of his imprisonment becomes incompetent
for two things:
a. To enter into contract, and
b. To sue on contracts made before conviction.
He may however, get a license from the government and perform the above acts
while undergoing imprisonment.
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Topic 6: FREE CONSENT

In order to constitute a valid contract, „consent‟ of all the parties is necessary and that
too must be „free‟. Consent is an absolute and unconditional assent to an offer, given
by the offeree. According to
Section 13, “Two or more persons are said to consent when they agree upon
the same thing in the same sense”.
Free Consent: Free consent is the consent given by the sweet will of the parties
and not caused by any form of physical or mental force or pressure or mistake.
According to Sec.14, consent is said to be free when it is not caused by
i) Coercion – Sec 15 , or
ii) Undue influence – Sec 16, or
iii) Fraud – Sec 17, or
iv) Mis-representation – Sec 18, or
v) Mistake Sec 20.21.22.
COERCION:
According to Section 15,
 Coercion is the
 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.
The Act also provides an explanation with this Section, which states,
“It is immaterial whether the Indian Penal Code is or is not in force in the
place where the coercion is employed.”
Effects
 Voidable contract.
 Restitution is allowed if aggrieved party rescinds the contract
ILLUSTRATION
8. An Indian couple is in USA. Wife threatens to commit suicide and induces
husband to sign an agreement to sell his property located in India for small
sum of money. Assuming that attempt to commit suicide is not an offence in
USA but it is an offence in India. Is it coercion?
Ans. Section 15 of the Indian Contract Act, 1872 defines coercion as
committing or threatening to commit any act forbidden by Indian Penal
Cod. The explanation states it is immaterial whether IPC is in force or
not at the place where coercion is applied.
Hence, in the instant case, threat to commit suicide is an offence under
IPC. The place of threat is immaterial. Hence the contract is caused by
coercion.
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UNDUE INFLUENCE:
According to section 16(1)
 A contract is said to be induced by „undue influence‟
 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
 Kind of moral coercion.
Effect
 Voidable contract.
 Restitution is allowed if aggrieved party rescinds the contract
Presumption of UE:
(when is a person deemed to be in a position to dominate will of others?)
 Where he holds a real or apparent authority over the other (For ex- master &
servant, ITO & Assessee)
 Where he stands in a fiduciary relationship to the other.
 Unconscionable transaction - Where a party makes a contract with a person
whose mental capacity is temporarily or permanently affected by reason of age,
illness, or mental or bodily distress.
 Ex: Parent and child, guardian and ward, trustee and beneficiary, doctor and
patient, solicitor and client, Religious adviser and disciple.
NO Presumption
× Landlord and tenant, Creditor and debtor, Husband and wife, Principal & Agent.
EXAMPLE
1. A having advanced money to his son, B, during his minority, upon B's
coming of age obtains, by misuse of parental influence, a bond from B
for a greater amount than the sum due in respect of the advance. A
employs undue influence.
2. A, a man enfeebled by disease or age, is induced, by B's influence
over him as his medical attendant, to agree to pay B an unreasonable
sum for his professional services. B employs undue influence.
3. A, being in debt to B, the money-lender of his village, contracts a fresh
loan on terms which appear to be unconscionable. It lies on B to prove
that the contract was not induced by undue influence.
4. A applies to a banker for a loan at a time when there is stringency in
the money market. The banker declines to make the loan except at an
unusually high rate of interest. A accepts the loan on these terms. This
is a transaction in the ordinary course of business, and the contract is
not induced by undue influence
5. A, a spiritual adviser (guru), induced B, his devotee, to gift him the
whole property to secure benefit to his (devotee‟s) soul in the next
world. The consent of gift was held to be obtained by undue
influence.[MANNU SINGH V. UMADAT PANDEY (1890) 32 ALLAHABAD
523]
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FRAUD
According to Sec.17
 Fraud means and includes any of following acts
a) The suggestion, as a fact, of that which is not true, by one who does
not believe it to true.
b) The active concealment of a fact, by one having knowledge or belief of
the fact;
c) A promise made without any intention of performing it;
d) Any other act fitted to deceive; and
e) Any such act or omission as the law specially declares to be
fraudulent
 Committed by a party to a contract,
 Or with his connivance,
 Or by his agent
 With an intent to deceive another party there to or his agent,
 Or to induce him to enter into the contract
Rule: Silence ≠ Fraud
Explanation to Section 17 mentions the circumstances in which silence may be regarded
as fraud. The explanation reads “Mere silence as to facts likely to effect the
willingness of a person to enter into a contract is not fraud, unless the
circumstances of the case are such that, regard being had to them, it is the
duty of the person keeping silence to speak, or unless his silence is, in itself,
equivalent to speech.”
Duty to speak i.e. SILENCE WILL AMOUNT TO FRAUD

1. Contracts of uberrimae fidei, or utmost good faith. In contacts of uberrimae
fidei, there is a legal duty on the parties to disclose true and full material facts.
Suppression of truth in such contract amounts to fraud. The following types of
contract fall under this category:
(i) Contract of insurance. Insurance contracts are founded upon the
principle of utmost good faith. The proposer, therefore, is under a duty to
disclose all the facts known or ought to be known to him, which are likely to
affect the acceptance of the proposal.
(ii) Contracts for sale of immovable property. In such contracts, buyer as
well as seller is under a duty to disclose all material facts. (Sec.55, Transfer
of property Act)
(iii) Allotment of shares. Every prospectus issued by a company to the public
is an invitation to the public to subscribe shares in the company. It must
also disclose all the facts accurately otherwise the allotment will be
voidable at the option of the allottee.
(iv) Contract of marriage. Every party in a marriage contract is under a duty to
disclose all the material facts.
(v) Contract of family settlement. Each member of family is under a duty to
disclose all material facts.(i.e. as to property etc.) at the time of family
settlement.
2. Contract of partnership. A contract of partnership is not strictly a contract of

uberrimae fidei. It is because every partner is not under a duty to disclose all the
material facts, which existed before the partnership. They are required to observe
good faith to each other. Therefore, they are under a duty to give true account and
information to the firm on all matters affecting it.
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3. Contract of guarantee. In contract of guarantee the parties are under a duty to
disclose all the material facts. A guarantee obtained by means of keeping silence
as to material fact, is invalid.(Sec.143)
4. Contract by parties having fiduciary relations. Where the parties stand in

fiduciary relationship, they are also under a duty to disclose all the material facts
likely to affect the willingness of another party. Fiduciary relation is supposed to
exist between parent and child, solicitor and client, guardian and ward, trustee
and beneficiary, doctor and patient etc.
5. Change in facts before conclusion of the contract. If a statement is true when

made, but subsequently becomes false before the conclusion of the contract. In
such a case, the party is under a duty to speak and notify the change to the other
party.
6. Required by law. Where disclosure of facts is required by a law of the land, it

creates a duty to speak.
7. Customs and usages. Where the custom and usage of trade requires a party to
disclose certain known facts, it becomes a duty of the party to do so.
8. In case of latent defect. Where a product has latent defect (i.e. not visible by
ordinary inspection) and the seller has knowledge of it, he will be under a duty to
disclose the defect.
Silence Equivalent to Speech Sometimes keeping silence may also give an

impression of the existence of a certain fact. In such a case silence is, in itself
equivalent to speech.
Effects
 Contract voidable.
 Insisting for specific performance.
 Restitution.
 Claim for damages..
Exceptions
In the following cases, the contract is not voidable or contract cannot be rescinded:
× If the Aggrieved party had the means of discovering the truth with ordinary
diligence.(Exception of sec.19)
× A fraud which did not cause the consent of the party.(Explanation to sec.19)
× Where the party after becoming aware of the fraud affirms or ratifies the
contract.
× The right of rescission can be claimed within a reasonable time after
discovery of fraud.
× If a third party acquires rights or interest in the subject matter of the
contract for value and in good faith.
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ILLUSTRATION
9. The prospectus of a company contained an untrue statement that D was one
of the directors of the company. On the faith of the prospectus A bought
shares of the company, but he had never heard of D. on discovering that D
was not the director of the company, A wanted to claim the damages. A‟s
claim for damages was dismissed. In this case, the untrue statement had
not induced A to buy shares. Since A had never heard of D, the statement
was therefore, immaterial from his point of view. [SMITH V. CHANDWICK
(1884) 9 APP. CAS. 187]
MISREPRESENTATION
According to Sec 18, Misrepresentation is any innocent or unintentional false statement
or assertion of fact made by one party to the other during the course of negotiation of a
contract is called a misrepresentation. The party making the statement honestly believes
in it to be true and is made in honest ignorance of its falsehood.
Effects
 Contract voidable
 Insisting for performance.
 Restitution. (no damages)
Exceptions
In the following cases, the contract is not voidable or contract cannot be rescinded:
 If the Aggrieved party had the means of discovering the truth with ordinary
diligence.(Exception of sec.19)
 A misrepresentation which did not cause the consent of the
party.(Explanation to sec.19)
 Where the party after becoming aware of the fraud affirms or ratifies the
contract.
 The right of rescission can be claimed within a reasonable time after
discovery of fraud.
 If a third party acquires rights or interest in the subject matter of the
contract for value and in good faith.
ILLUSTRATION
10. Sohan induced Suraj to buy his motorcycle by saying that it was in a very
good condition. After the delivery, Suraj complained that there were many
defects in the motorcycle. Sohan proposed to get it repaired and promised
to pay 40% cost of the repairs. After a few days, the motorcycle did not
work at all. Now Suraj wants to rescind the contract. Decide giving reasons.
Ans. The aggrieved party, in case of misrepresentation by the other
party, can avoid or rescind the contract (Section19, Indian Contract Act,
1872). The aggrieved party loses the right to rescind the contract if he,
after becoming aware of the misrepresentation, takes a benefit under the
contract or in some way affirms it. Accordingly in the given case Suraj
could not rescind the contract, as his acceptance to the offer of Sohan to
bear 40% of the cost of repairs impliedly amount to full amount of the
sale [Long v. Lloyd, (1958)]
MISTAKE:
Mistake is a
 Misconception or
 Misimpression or
1. 30 | P aMisunderstanding
ge or
 Erroneous belief about something.
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Classification of Mistake
Mistake of LAW Mistake of FACT
Mistake of Mistake of
UNILATERAL Mistake BILATERAL Mistake
LAW of LAND FOREIGN LAW
VALID VOID VALID

VOID
No Excuse Like Mistake of FACT S.t. certain exceptions
Mistake of Law
 Mistake of law of the land. No party can seek the relief on the ground of ignorance of law of
the land. Sec.21 states that a contract is not voidable because it was caused by mistake as to
any law in force in India. The contract will have the same effect as if parties had full knowledge of
the law of the country.
 Mistake of foreign law. Ignorance of foreign law is excusable. Therefore, the mistake of
foreign law adversely affects the validity of a contract. It is void. Section 21 states that “ a
mistake as to a law not in force in India has the same effect as a mistake of fact”. The contracts
caused by mistake of fact are void. (Sec.20)
Mistake of fact
 Bilateral or mutual mistake. Where both the parties to an agreement are under a mistake
as to a matter of fact essential to the agreement, there is said to be a bilateral mistake. An
agreement caused by such a mistake is void.(Sec.20).Bilateral mistakes may be of two types:
 Mistake as to subject matter. Where both the parties are under a mistake as to
subject matter of the agreement, the agreement is void. Mistake as to subject matter
may be of the following types:
Mistake as to identity of subject matter, existence of subject matter, quality of subject
matter, quantity, price, title, existence of state of affairs.
 Mistake as to possibility of performance. When both the parties believe that the
contract is capable of being performed but, in fact, it is impossible to be performed at the
time of contract. In such a case, the contract is void on the ground of bilateral mistake as
to the possibility of performance. If the impossibility arises subsequent to the formation of
the contract, the contract is not void because of mistake. (Sec.56)
 Unilateral Mistake: Where one of the parties to a contract is under a mistake as

to a matter of fact, it is unilateral mistake. Section 22 states that a contract is not
voidable merely because it was caused by one of the parties to it being
under a mistake as to a matter of fact.
1. 31 | P aHowever,
ge in certain cases a unilateral mistake may also render a contract void
whether or not caused by fraud, misrepresentation etc. On the basis of judicial
decisions, they may be of following types:
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Important Case Laws on Bilateral Mistake

1. Mistake about the existence of the subject matter.
Eg. A agrees to buy from B a certain horse. It turns out that the horse was
dead at the time of the bargain, though neither party was aware of the
fact. Agreement is void.
2. Mistake about the title of the subject matter.

Eg.A agreed to sell to B all his right in a land including the right to mine
minerals. Subsequently, it was found that A rights did not include the right
to mine the minerals. This fact was not known to both the parties at the
time of the agreement. The agreement was held to be void because
without this right to mine, the land was worthless for B, whose only object
was to work the mines.
3. Mistake about the substance of the subjects matter.

Eg. A, the owner of the forest, granted a license to B to cut, process and
manufacture all sisal growing in the forest. B in return undertook to
manufacture and deliver to A, 50 tonnes sisal fiber per month. But it was
found that the leaf potential of the sisal area was not sufficient to
manufacture 50 tonnes of sisal fiber per month. As such, B cpuld not
perform the contract. mA filed suit against B for breach of contract. The
agreement was held to be void. And the court observed that “having
regards to the nature of the contract, it was very basis of the contract that
the sisal area should be capable of producing an average of 50 tonnes a
month throughout the term of the license, and the mistake was about the
matter of fact essential to the agreement”
4. Mistake about the quality of the subjects matter.

Eg: A offered to purchase a race horse from B, a horse dealer. B accepted the
offer believing it to be cart horse. In this case, the agreement is void as
both the parties are mistaken about quality of the subject matter. Here, the
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mistake as to quality makes the subject matter altogether different from
the thing as it was believed to be.
5. Mistake about the quantity of the subjects matter.

Eg: A agreed t buy 200 sewing cotton reels each containing 400 meters of
thread. But unknown to both the parties, the length of the thread per reel
was much less than 400 meters. The agreement was void as there was
bilateral mistake of the parties about the quantity of the subjects matter.
6. Mistake about the price of the subjects matter.

Eg: A agreed to let out his house to B for a monthly rent of Rs. 450. But in the
written agreement the figure of rent was put as Rs. 540 by mistake. The
agreement was held to be void.
7. Different subject matter in the minds of both the parties

Eg: A bought from B certain goods which were to arrive from Bombay through
a ship named “Peerless”. Two ships with the name “Peerless” sailed from
Bombay, one in October and the other in December. A had the first ship in
his mind, and B had the second in his mind. The agreement was held to
be void as there was no true consent of the parties.
8. Mistake about impossibility of performance

Eg: A hired a room from B for watching the coronation procession of King
Edward VII. Unknown to both the parties the procession was cancelled.
This agreement was held to be void. In this case, the performance of the
agreement was impossible as the purpose for which the room hired had
been defeated. And both the parties were mistaken about the fact of
impossibility of perform
Important Case Laws on Unilateral Mistake
9. A received order, in writing, from a fraudulent man called “Blenkarn”. The

order papers had printed heading, “Blenkarn & Co., 37 Wood Street”. There
was a well known and respectable firm “Blenkiron & Co.”, in the same street. A
believing that the order had come from a genuine firm sent a large quantity of
handkerchief. The Blenkarn received the goods and disposed them off to B.,
who acted in good faith. It was held that there was no contract between A and
Blenkarn because A intended to contract with Blenkiron & Co and not with
Blenkarn. A knew nothing about Blenkarn and never intended o deal with him.
10. A, a fraudulent man, adopted the name of “H & Co”. the firm with the name of
H & Co was not in existence. It was only a fictitious name adopted by A, who
placed an order with B for the supply of some goods. On the basis of this
order, B supplied goods to A, who further sold the goods to C who acted in
good faith. B sued C for the value of goods. It was held the contract between B
and H & Co was not void because B contracted to sell the goods to the writer
of the letter. Here A and H & Co being the same person, B had not made any
mistake as to the identity of the contracting party. The contract between B & H
& Co was voidable for fraud and it could not be revoked after C had acquired
the goods in good faith.
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11. A placed a document before B, an old man. A falsely told B that it was an
ordinary guarantee, and induced him to sign the document. B signed the
document on the belief that it was mere guarantee. In fact the document was a
BOE which was later on endorsed by B to C. C filed a suit against A, on the
basis of BOE. It was held that A was not liable for the bill as he never intended
to sign the BOE. He was deceived not merely for the legal effects but also for
the very nature of the document.
EXAMPLE
1. A agrees to sell to B a specific cargo of goods supposed to be on its
way from England to Bombay. It turns out that, before the day of the
bargain, the ship conveying the cargo had been cast away and the
goods lost. Neither party was aware of the facts. State the
consequence
2. A agrees to buy from B a certain horse. It turns out that the horse
was dead at the time of the bargain, though neither party was aware
of the fact. State the consequence
3. A, being entitled to an estate for the life of B, agrees to sell it to C. B

was dead at the time of the agreement, but both parties were
ignorant of the fact. State the consequence
4. A, intending to deceive B, falsely represents that 500 mounds of

indigo are made annually at A‟s factory, and thereby induces B to
buy the factory.
5. A, by misrepresentation, leads B erroneously to believe that 500

mounds of indigo are made annually at A‟s factory. B examines the
accounts of the factory, which shows that only 400 mounds in
indigo have been made. After this B buys the factory.
6. A, fraudulently informs B that A‟s estate is free from encumbrance.

B thereupon buys the estate. The estate is subject to mortgage.
7. B, having discovered a vein of ore on the estate of A, adopts means

to conceal, and does conceal the existence of the ore from A.
Through A‟s ignorance B is enabled to buy the estate at an
undervalue.
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Topic 7: VOID AGREEMENTS

“An agreement not enforceable by law is said to be void”. [(Sec.2 (g)]
Section Explanation
11 Agreements by incompetent persons
20 Agreement made under bilateral mistake as to material fact
23 Agreement of which the consideration or the object is unlawful
Agreement on which the consideration or the object is unlawful in part
24 and cannot be separated from the lawful part.
25 Agreements made without consideration with certain exceptions
26 Agreement in restraint of marriage, void
27 Agreement in restraint of trade, void
28 Agreements in restrain of legal proceedings, void
29 Agreements void for uncertainty
30 Agreements by way of wager, void
36 Agreements contingent on impossible event
56 Agreements to do impossible act
AGREEMENTS OPPOSED TO PUBLIC POLICY

1. Trading with the enemy.
2. Stifling (suppressing) prosecution:
3. Champerty and maintenance - When a person helps another in litigation
 Does not share in the proceeds of the action, it is called MAINTENANCE.
 Exchange of a promise to hand over a portion of the fruits of the litigation, if
any, it is called CHAMPERTY.
 VOID if litigation is of a gambling character
4. Marriage brokerage.
5. Sale of public offices, titles and appointments.
6. To create monopolies.
7. Restraining personal liberty.
8. Restraint of parental rights
9. Restraint of marriage / trade / legal proceedings
AGREEMENT IN RESTRAINT OF MARRIAGE, VOID

Every agreement in restraint of the marriage of any person, other than a minor, is void.
ILLUSTRATION
11. A agreed to marry B and none else. He further agreed to pay Rs. 1,000 to B if he (A)
married someone else. But A married C. B brought an action against A for the
recovery of the agreed sum on the ground that he (A) married someone else. It was
held that the agreement was void as it was in restraint of marriage. [LOWER V.
PEERS (1918) 98 ER. 160]
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AGREEMENTS IN RESTRAINT OF TRADE
Section 27 of the Act states that every agreement by which anyone is restrained
from exercising a lawful profession, trade or business of any kind, is to
that extent void.
Exceptions: The exceptions to the rule that agreement in restraint to trade is void can be
classified into:
1) Statutory Exceptions. Following are the statutory exceptions to the rule that an
agreement in restraint of trade is void.
(a) When goodwill is sold, seller is restrained from carrying on SIMILAR business
within specified local limits
(b) Where the partners of the firm make an agreement that a partner shall not carry
on any business other than that of the firm while he is a partner, the agreement
is valid.[Sec.11(2)Indian Partnership Act]
(c) Partners may agree that on ceasing to be partner, they will not carry on any
business similar to that of the firm within a specified period or within specified local
limits. Such an agreement is valid if the restrictions imposed are reasonable.[Sec.36(2)
Partnership Act]
(d) Where the partners, upon or in anticipation of dissolution of the firm, make an
agreement that some of all of them will not carry on a business similar to that of the
firm, it is valid agreement. [Sec.54, Indian Partnership Act]
(e) A service agreement may restraint employees from working elsewhere DURING
period of employment.
2) Exception under Judicial Interpretations

(a) Restraint by trade combinations. Now a days it is common to form trade, business
or professional association i.e. combination. These associations usually frame rules,
regulations and conditions of trade, sometimes, fix up the price to be charged, or fix up
the mode of selling the products or services etc. All these bind the members, although
these restrain the freedom of action of the members.
(b) Restraint by sole selling agreement. Sometimes a seller or producer agrees to sell
his entire goods to a sole selling agent or exclusive dealer in a particular area and who
in turn also agrees not to deal in the goods of any other producer. Such an agreement
is valid and not a restraint in trade.
ILLUSTRATION
12. Shanti paid Rs. 9000 to Venus to stop his business in a particular locality in
Nagpur. Venus did not keep his promise. Shanti filed suit for the sum. What will be
the consequence?
Ans. Section 27 of the Indian Contract Act states that every agreement by
which any one is restrained from exercising a lawful profession, trade or
business of any kind is, to that extent, void. Accordingly Shanti‟s suit for the
sum will be dismissed. (MADHUB CHUNDER V/s RACOOMAR. 1874 Bang.)
However if restraint is one which is really necessary for carrying on business,
the same is not prohibited.
13. Ram entered into a bond with the company to serve for a period of five years. In
case Ram leaves the job earlier and joins elsewhere with company‟s competitor
within five year, he was liable for damages. Ram was imparted necessary training
but he left the job and joined another company by taking a plea that agreement in
restraint of profession is void. Decide.
Ans. It is correct that agreement in restraint of trade is void but if such
restrictions are reasonable then they are allowed. The restraint was reasonable
as it was no more than is necessary for the protection of the company.
(Niranjan V/s The Century Spinning and Manufacturing Co. ltd.)
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AGREEMENT IN RESTRAINT OF LEGAL PROCEEDINGS (SECTION 28)
All agreements, which interfere with the course of justice, are unlawful and void as these are
against public policy. Section 28 the Act has following provisions:
(i) Agreements restricting enforcement of rights. Every agreement by which any party
to it is restricted absolutely from enforcing his rights under or in respect of any
contract by the usual legal proceedings in ordinary tribunal is void to that extent.
However, the partial restriction on the right to legal proceedings would be valid and
enforceable.
(ii) Agreements reducing the period of enforcement. Every agreement, which limits the
time within which any party may enforce his rights, is to that extent void.
(iii) Agreement extinguishing rights on the expiry of certain period. Every agreement
that extinguishes the rights of any party to it, (from any liability) under or in respect of
any contract on the expiry of a specific period so as to restrict any party from enforcing
his rights is void to that extent.
Exceptions:
i. any dispute between them in respect of any subject shall be referred to arbitration
(present disputes)
ii. To refer to arbitration any question between them which has already arisen
or which may arise in future, is valid; but such a contract must be in writing.
(agreement to refer past & future disputes to arbitration)
iii. Referring disputes to court in particular jurisdiction
WAGERING AGREEMENTS OR WAGER (Section 30)
According to Sir William Anson, “A wager is a promise to give money or money‟s

worth upon the determination or ascertainment of an uncertain event.” Justice
Hawkins defines, “a wagering agreement is one by which two persons, professing
to hold opposite views touching the issue of a future uncertain event, mutually
agree that, dependent upon the determination of that event, one shall win from
the other and that other shall pay or hand over to him a sum of money or other
stake…” [Carlill v.Carbolic Smoke Ball Company‟s case]
Such an agreement has been declared as void under the act. (Sec.30). For example betting
on cricket matches.
Effects of wagering Agreements

1. Void. The agreements by way of wager are void from beginning.(Sec.30)
2. Collateral agreements valid. The agreements collateral to void agreements need
not necessarily be void. [Gherulal Parekh v.Mahadel dass]. However, in the State of
Maharashtra and Gujarat, wagering agreements have been declared as
illegal. Therefore, in these States the collateral agreements to wagering agreements
are also void.
3. No recovery of money paid to stake holder. Money paid to the stakeholder cannot
be recovered.
4. A winner in the wagering agreement cannot sue for the recovery of money won.
5. No suit can lie on promissory note made for a debt due on a wagering
agreement. Such a note is deemed to have been made without consideration
because a void agreement (wagering agreement) cannot be treated as consideration
for a promissory note.
6. Agents cannot recover money from his principal. An agent is not entitled to
recover any money from the principal which he has paid on a wagering agreement,
entered into on behalf of the principal.[Sec.222]
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ILLUSTRATION
14. Chandan, in Mumbai, bets with Nandan and loses. Chandan applies to Tandon for a
loan in order to pay Nandan. Tandon gives the loan to Chandan to enable him to
pay Nandan. Can Tandon recover the amount of loan from Chandon? Would it
make any difference if this transaction takes place in Hyderabad?
Ans.
i. In Mumbai (State of Maharashtra), wagering agreements are illegal and
hence void. Where an agreement is illegal, any collateral transaction also
becomes unenforceable, since it is tainted with illegality. The contract
between Chandan and Tandon is illegal and void, being a collateral
transaction to an illegal agreement. So, Tandon cannot recover the
amount of loan from Chandan.
ii. If the transaction has taken place in Hyderabad, betting transactions are
only void u/s 30 and not illegal i.e. transactions collateral to the void
agreement are valid. Thus the loan given by Tandon to Chandan would
have been valid and enforceable contract in Hyderabad. So, Tandon can
recover the amount of loan from Chandan
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Topic 8: CONTINGENT CONTRACTS

A contract may be either absolute or contingent. In an absolute contract, promisor undertakes
to perform contract absolutely, i.e. unconditionally. But a contingent contract depends upon
the happening or non-happening of event collateral to such contract.
According to Sec.31, a contingent contract is a contract to do or not to do
something, if some event, collateral to such contract, does or does not happen.
The contracts of indemnity, insurance and guarantee are definitely contingent contracts.
Similarly the contracts of life insurance are also contingent contracts to a certain extent.
Characteristics/Essential of contingent Contracts

Following are the main characteristics of contingent contracts:
1) The performance of a contingent contract depends upon the happening or non-
happening of some future event.
2) A contingent contract is dependent upon an uncertain event.
3) The event upon which performance of a contingent contract depends must be
collateral or incidental to the contract. Collateral event is the event for which
neither of the parties makes any promise but the contract is dependent upon the
happening or non-happening of the event. It means that a contract already exists
between the parties but its performance depends upon the happening or non-
happening of the event.
4) The contingent event or act must not be the mere will of the promisor.
5) A contingent contract has all essentials of a valid contract. If any of the elements
is missing, the contingent contract is not enforceable.
Rules as To Enforcement of Contingent Contracts

The rules as to enforcement of contingent contracts are given in Sections 32 to 36 of the Act.
They are as under:
1. Contingent contracts dependent on the happening of some specific uncertain
future event can be enforced only when the event has happened. (Sec.32) If the
event becomes impossible, such contracts become void.
2. Where a contingent contract is dependent upon the happening of a specified

uncertain event within a fixed time, the contract can be enforced only when the
specified event happens within the time fixed. (Sec.35 para 1)
3. Where a contingent contract is to be performed on non-happening of a specified

future uncertain event, the contract can be enforced when the happening of that
event becomes impossible, and not before. (Sec.33).
4. Where a contingent contract is dependent upon the non-happening of some specified

uncertain future event within the time fixed, the contract may be enforced when
the (i) time fixed has expired and such event has not happened, or (ii) before the
expiry of time, if it becomes certain that the event will not happen.(Sec.35 para 2)
5. Sometimes, a contingent contract is dependent upon the way in which a person

will act at an unspecified time. In such a case, the event shall be considered to have
become impossible when such person does anything which renders it impossible that he
should so act within any definite time, or otherwise than under further contingencies.
(Sec.34)
6. Where a contingent agreement is dependent upon the happening of an impossible

event, the agreement is void. It makes no difference whether the impossibility of the
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event was known or not known to the parties at the time when the agreement was made.
(Sec.36)
PERFORMANCE OF CONTRACT
Obligations of parties to contract (Section 37)

The parties to a contract must either perform, or offer to perform, their respective promises,
unless such performance in dispensed with or excused under the provision of this Act, or of
any other law. Promises bind the representative of the promissor in case of the death of such
promissor before performance, unless a contrary intention appears from the contract.
TENDER OF PERFORMANCE(Sec 38)

Tender is not actual performance but is only an offer to perform the obligation under the
contract. Where the promisor offers to perform the obligation, or makes a tender and the
other party refuses to accept the performance, such tender shall be regarded as equivalent to
performance. It is, therefore, also called “attempted performance”.
Sec. 38 sums up the position as under: “Where a promisor has made an offer of
performance to the promisee, and the offer has not been accepted, the promisor
is not responsible for non-performance, nor does he thereby lose his rights under
the contract.
Requisites of a valid tender-
a) It must be unconditional.
b) It must be of the whole quantity contracted for or of the whole obligation.
c) It must be by a person who is in a position, and is willing, to perform the promise.
d) It must be made at the proper time and place.
e) It must be in proper form.
f) It must give a reasonable opportunity to the promisee for inspection of goods.
g) It must be made to proper person, i.e. the promisee or his duty authorized agent.
h) It may be made to one of the several joint owners, and in such a case it has the
same effect as a tender to all of them.
Kinds of tender: Tender or attempted performance may be-

1) Tender of goods. Where in a contract for the sale of goods, the seller satisfies
all the requirements of the contract as to delivery (i.e., the goods are in a
deliverable state and nothing remains to be done by the seller to ascertain the
price) and the buyer refuses to accept the goods, the seller is discharged by such
a tender of performance and may either maintain or successfully defend an action
for breach of the contract.
2) Tender of money. Where a debtor makes a valid tender of money, but the
creditor refuses to accept it, the debtor is not discharged from making the
payment. Tender, in this case, does not constitute discharge of the debt. When
the creditor files a suit against the debtor, the debtor can set up the defence of
tender. If he deposits the money in the Court and proves his pleas, the creditor
gets the amount originally tendered to him without any interest, whereas the
debtor gets judgment for his cost of defence.
Effect of refusal of party to perform promise wholly (Section 39)

When a party to a contract has refused to perform, or disabled himself from performing, his
promise in its entirely, the promisee may put an end to the contract, unless he has
signified, by words or conduct, his acquiescence in its continuance.
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ILLUSTRATION
15. Emon, a singer, enters into a contract with Soni, the manager of the theatre, to sing
in his theatre two nights in every week during the next two months and Soni agrees
to pay him @ Rs.1000 for each night. On the sixth night Emon wilfully absents
himself. With the assent of Soni, Emon sings on the seventh night. But on the
following day Soni puts an end to the contract. Can Emon claim damages for
breach of contract? If Soni rescinds the contract on the sixth night itself then state
the privileges available for Emon.
Ans. On the sixth night when Emon wilfully absents himself from the theatre,
Soni is at the liberty to put an end to the contract. If Emon sings on the seventh
night with the consent of Soni, Soni has signified his acquiescence in the
continuance of the contract and cannot now put an end to it. Emon is entitled to
compensation.
If Soni rescinds the contract on sixth night when Emon was absent then Soni
can claim damages for the breach of contract by Emon (Breach by conduct).
Person by whom promises is to be performed (Section 40)

If it appears from the nature of the case that it was the intention of the parties to any contract
that any promise contain in it should be performed by the promisor himself, such promise
must be performed by the promisor. In other cases, the promisor or his representative may
employ a competent person to perform it.
ILLUSTRATION
16. A promises to pay B a sum of money. A may perform this promise, either by
personally paying the money to B or by causing it to be paid to B by another ; and,
if A dies before the time appointed for payment, his representatives must perform
the promise, or employ some proper person to do so.
17. A promises to paint a picture for B. A must perform this promise personally
Time and Place of performance of contracts

Usually the parties lay down in the contract entered into by them the terms about time and
place of performance of that contract. Sec. 46 to 50 lay down rules regarding time and place
of performance of a contract. These Sections are reproduced below:
1. Where, by the contract, a promisor is to perform his promise without application
by the promisee, and no time for performance is specified, the engagement must
be performed within a reasonable time.(Sec.46).
2. When a promise is to be performed on a certain day, and the promisor has
undertaken to perform it without application by the promisee, the promisor may
perform it at any time during the usual hours of business on such day and at the
proper place at which the promise ought to be performed (Sec.47).
3. When a promise is to be performed on a certain day, and the promisor has not
undertaken to perform it without application by the promisee, it is the duty of
the promisee to apply for performance.
i. at a proper place; and
ii. within the usual hours of business(Sec.48).
4. When a promise is to be performed without application by the promisee, and no
place is fixed for its performance, it is the duty of the promisor to apply to the
promisee to appoint a reasonable place for the performance of the promise, and
to perform it at such place (Sec.49).
5. The performance of any promise may be made in any manner, or at any time, which
the promisee prescribes (Sec.50).
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Topic 9: PERFORMANCE & DISCHARGE

Discharge of Contract
By
By By Mutual By Lapse of By operation of By Breach of
impossibility of
Performance Consent Time Law Contract
performance
Novation Impossibility at Law of By merger

Actual or Actual or
Alteration the time making Limitation unauthorized
Attempted Anticipat
Rescission the contract, Ex: Time alteration of terms,
Performance ory
Remission with or without barred debt insolvency, death,
Waiver knowledge of the rights & liabilities
Merger parties or arising becoming vested
subsequent to in the same person
the formation of
the contract
A contract is said to be discharged, when the obligations created by it come to an end. A

contract may be discharged or terminated by any one of the following modes:
1. Discharge by performance. The most obvious mode of discharge of a contract is

by performance of the obligation by each party. When each party performs his
obligation, the contract comes to an end.
Performance may be actual, or attempted. Where a person does what he undertook to do, he
is said to have actually performed his promise. But sometimes it may happen that a person
who is bound to perform a promise is willing to perform it at the proper time and place but
cannot do so because the other party does not accept the performance. This is knows as
“attempted performance” or “tender”.
2. Discharge by agreement or consent. A contract rests on the agreement of the

parties. As it is their agreement, which binds them, so by their agreement, they may be
discharged.
Now we may take up the various cases that fall under this head one by one:
i. Novation: Novation occurs when a new contract is substituted for an existing
one, either between the same parties; or between the new parties. The
consideration for the new contract is the discharge of the old contract.
ii. Alteration. Alteration of a contract may take place when one or more terms of the
contract are altered by the mutual consent of all the parties to the contract.
iii. Rescission. Rescission of a contract takes place when all or some of the terms
of the contract are cancelled. It may occur under any of the following
circumstances:
(a) By mutual consent
(b) Where one party fails in the performance of his obligation under the
contract, the other party may rescind the contract without prejudice to his
right to claim compensation for breach by the other party.
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(c)In a voidable contract, the aggrieved party may cancel the contract.
Rescission can be effected by agreement between the parties at any time
before the contract is discharged by performance or in some other ways.
iv. Remission. Remission means acceptance of 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.
v. Waiver. Waiver means the intentional relinquishment or giving up of a right
by a party entitled thereto under a contract so that the other party to the contract is
released from his obligation.
vi. Merger. Merger takes place when an inferior right accruing to party in a
contract vanishes or merges into the superior right accruing to the same
party under the same contract. If, for example, a higher security is accepted in place
of a lower security, the security, which in the eyes of law is inferior in operative
power, merges and is extinguished in the higher security.
MATTER NOVATION ALTERATION

Meaning New contract in place of old Change in one or more terms of
contract contract with consent of parties
New contract Yes Does not require
Different parties May involve Parties are same
Change in terms & conditions May or may not involve Always require
MATTER RESCISSION ALTERATION

Meaning Cancellation of contract Change in one or more terms of
contract
Mutual consent With mutual consent or by Can‟t take place without mutual
aggrieved party consent
Effect Contract ends Parties are bound to each other
under altered contract
3. By impossibility of performance (Sec.56). Impossibility of performance may fall

into any of the following three categories:
a. Impossibility at the time making the contract, with the knowledge of the
parties. In this case the contract is void ab initio and the parties are discharged from
the performance of the contract.
b. Impossibility at the time of making the contract unknown to the parties. In
this case, the contract becomes void as soon as the impossibility is discovered.
c. Impossibility, which arises subsequent to the formation of the contract. Such
impossibility, as a general rule, is no excuse for the non-performance of the contract.
But where this impossibility is caused by the circumstances beyond the control of the
parties, they are discharged from the further performance of the obligation arising
under the contract.
4. By lapse of time. The Limitation Act lays down that a contract should be performed
within a specified period otherwise the contract shall be terminated. For example, a loan
should be paid back within 3 years and if it is not paid back and the creditor does not file a
suit within this period for the recovery of the amount, the debt becomes time-barred and
hence irrecoverable. Again if a contract is to be performed at a stipulated time, it is
discharged if it is not performed at such stipulated time. The party not in fault, in such a case,
need not perform his obligation.
5. Discharge by operation of law. This includes discharge-

a. By merger. Refer to point 2 (vi) discussed above.
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b. By the unauthorized alteration of terms of a written agreement. Where a party to
a contract makes any material alteration in the contract, without the consent of the
other party, the other party can avoid the contract.
c. By insolvency. When a person is adjudged insolvent, he is discharged from all
liabilities or debts incurred prior to his adjudication.
d. By death. In contracts involving personal skill or ability, the contract is terminated on
death. In other contracts, the rights and liabilities of a deceased person pass on to the
legal representatives of the deceased person.
e. By rights and liabilities becoming vested in the same person. Where the rights
and liabilities under a contract vest in the same person, the other parties are
discharged, e.g., when a bill gets into the hands of the acceptor, the other parties are
discharged of their liability.
6. Discharge by breach of contract. If one of the two parties to a contract breaks

the obligation or shows by his conduct or words his unwillingness to perform the
obligation, which the contract imposes, a new obligation arises- a right of action conferred
upon the party injured by the breach. This right of action by the injured party consists in-
i. treating the contract as discharged and suing the other party for breach of contract,
or
ii. treating the contract as still binding, if the time for the performance has not yet
arrived and compelling the other party to perform his part when the time for it
comes.
Subsequent or supervening impossibility

Impossibility, which arises subsequent to the formation of the contract, is called
subsequent or supervening impossibility. Sec.56, expressly provides that „A contract
to do an act which after the contract is made becomes impossible, or by
reason or some event which the promisor could not prevent, becomes void
when the act becomes impossible or unlawful.‟ This is called the doctrine of
supervening impossibility.
A contract is discharged by supervening impossibility in the following cases:
 Destruction of subject matter of contract
 Nonexistence or non-occurrence of particular state of things.
 Death or incapacity of a person, where the contract depends on the
personal skill or qualification.
 Government or legislative intervention
 Outbreak of war
Impossibility of performance-not an excuse

Impossibility of performance is, as a rule, not an excuse for non-performance of a
contract. In the following cases a contract is not discharged on the ground of doctrine of
supervening impossibility.
 Difficulty of performance: A contract is not discharged by the mere fact
that it has become more difficult to perform due to some non contemplated
events or delay.
 Commercial hardship
 Impossibility due to failure of a third person on whose work the promisor
relied
 Strikes, lock-outs and civil disturbances
 Failure of one of the objects
Effects
When the performance of a contract becomes impossible or unlawful subsequent to its
formation, the contract becomes void (Sec.56)
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ILLUSTRATION
18. Akhilesh entered into an agreement with Shekher to deliver him (Shekhar) 5000
bags to be manufactured in his factory. The bags could not be manufactured
because of strike by the workers and Akhilesh failed to supply the said bags to
Shekhar. Decide whether Akhilesh can be exempted from liability under the
provisions of Indian Contract Act, 1872.
Ans. No, as strike is not supervening impossibility.
APPROPRIATION OF PAYMENTS
The question of appropriation of payment becomes important when a debtor owns several
distinct debts to the same creditor and makes part payment to the creditor. At that time a
question may arise: against which debt is this payment to be appropriated? The creditor
would naturally like to appropriate a payment towards a debt, which he is not likely to
recover. But appropriation is a right generally given to the debtor and for his benefit.
The rules relating to appropriation of payments made by a debtor to his creditor as contained
in Secs.59 to 61 are as follows:
i. Where the debtor intimates (Sec.59). In the first instance, the right to adopt the
manner of appropriation rests with the debtor. If he expressly intimates that the
payment should be applied towards the discharge of a particular debt, the creditor
must do so. If there is no express intimation by the debtor, the law will look to the
circumstances attending the payment for appropriation.
ii. Where the debtor does not intimate (Sec.60). Where the debtor does not
expressly intimate or where the circumstances attending on the transaction do not
indicate any intention, the creditor is at liberty to apply it to any lawful debt actually
due and payable to him. But the creditor cannot apply the payment to a
disputed or unlawful debt. The creditor may even apply the payment to a
time-barred debt.
iii. Where the debtor does not intimate and the creditor fails to appropriate
(Sec.61). Where the debtor does not expressly intimate and where the creditor fails
to make any appropriation, it is open to the debtor to insist that the appropriation
shall be done in chronological order i.e. in order of time.
EXAMPLE
 A owes B, among other debts, 1,000 rupees upon a promissory note
which falls due on the' first June. He owes B no other debt of that
amount. On the first June A pays to B 1,000 rupees. The payment is to be
applied to the discharge of the promissory note.
 A owes to B, among other debts, the sum of 567 rupees. B writes to A and
demands payment' of this sum A sends to B 567 rupees. This payment is
to be applied to the discharge of the debt of which B had demanded
payment.
ASSIGNMENT OF CONTRACT
By the assignment of a contract we mean transfer of contractual rights and liabilities to a third
party with or without the concurrence of the other party to the contract.
Assignment may take place-
 By the act of the parties. This will include assignment of- i. contractual liabilities, and
ii. contractual rights.
 By operation of law. This will take place by death, or insolvency of a party to the
contract.
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1. Assignment by act of the parties of the contractual liabilities.

A promisor cannot assign his liabilities or obligations under a contract. In other words, a
promisee cannot be compelled by the promisor or a third party to accept any other person as
liable to him on the promise.
Limitations to the rule:
i. Vicarious performance. It is open to a party to have the contract performed
vicariously by another person in a satisfactory manner provided the contract does not
expressly or impliedly contemplate performance only by the promisor. However, the
original party remains liable for the proper performance of the obligation under the
contract.
ii. Novation (Secs.41 and 62). Novation is the substitution of a new contract for an
existing one either between the same parties or between new parties, the discharge
of the old contract being the consideration for the new one. Novation can take place
only by an agreement between the parties. However, contracts involving personal skill
or ability or other personal qualifications cannot be assigned (Sec.40).
ILLUSTRATION
1. A owes money to B under a contract. It is agreed between A, B and C that
B shall thenceforth accept C as his debtor, instead of A. The old debt of A
to B is at an end, and a new debt from C to B has been contracted.
2. A owes B 10,000 rupees. A enters into an arrangement with B, and gives
B a mortgage of his (A's) estate for 5,000 rupees in place of the debt of
10,000 rupees. This is a new contract and extinguishes the old.
(b) Assignment by act of the parties of contractual rights.

i. The right and benefits under a contract may be assigned, if the obligation under
the contract is not a personal nature, and the assignee can demand
performance from the other party to the contract, i.e. the promisor.
ii. An actionable claim can always be assigned but the assignment to be complete
and effectual must be effected by an instrument in writing. Notice of such
assignment must also be given to the debtor.
2. Assignment by operation of Law

This takes place in cases of death and insolvency.
i. Death. Upon the death of a party to a contract his rights and liabilities under
the contract (except in the case of contracts involving personal qualifications)
devolve upon his heirs and legal representatives.
ii. Insolvency. In case of insolvency of a person, his rights and liabilities incurred
previous to adjudication pass on to the Official Receiver or Assignee, as the
case may be
RIGHTS AND LIABILITIES OF JOINT PROMISORS
Where two or more persons enter into a joint agreement with one or more persons, the
question arises; who is liable to perform and who can demand performance? Secs.42 to 45
deal with this subject and are discussed below:
1. Devolution of joint liabilities (Sec.42). When two or more persons have made a joint
promise, then, unless a contrary intention appears from the contract, all such persons
must jointly fulfill the promise. Upon the death of one of the joint promisor, his
liability devolves upon his legal representatives, and his legal representatives are jointly
to perform the contract with the surviving parties. If all the parties die, the liability
devolves upon their legal representatives jointly.
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2. Any one of joint promisors may be compelled to perform (Sec.43). When two or
more persons make a joint promise, the promisee may, in the absence of express
agreement to the contrary, compel any one or more of such joint promisors to perform
the whole of the promise.
Each of two or more joint promisors may compel every other joint promisor to
contribute equally with himself to the performance of the promise, unless a
contrary intention appears from the contract. If any one of two or more joint promisors
makes default in such contribution the remaining joint promisors must bear the loss
arising from such default in equal shares.
3. Effect of release of one joint promisor.(Sec.44) Where two or more persons have
made a joint promise, a release of one of such joint promisors by the promisee, does
not discharge the other joint promisor or joint promisors, neither does it free the joint
promisors so released from responsibility to the other joint promisor or joint promisors.
4. Devolution of joint rights (Sec.45). When a person has made a promise to several
persons, then, unless a contrary intention appears from the contract, the right to claim
performance rests as between him and them i.e., all promisees jointly during the lifetime.
When one of the promisees dies, the right to claim performance rests with his legal
representatives jointly with the surviving promisees. When all the promisees die, the
right to claim performance rests with their legal representatives jointly.
EXAMPLE
3. A, B and C jointly promise to pay D 3,000 rupees. D may compel either A
or B or C to pay him 3,000 rupees.
4. A, B and C jointly promise to pay D the sum of 3,000 rupees. C is
compelled to pay the whole. A is insolvent, but his assets are sufficient to
pay one-half of his debts. C is entitled to receive 500 rupees from A's
estate, and 1,250 rupees from B.
5. A, B and C are under a joint promise to pay D 3,000 rupees. C is unable to
pay anything, and A is compelled to pay the whole. A is entitled to receive
1,500 rupees from B.
6. A, B and C are under a joint promise to pay D 3,000 rupees, A and B being
only sureties for C. C fails to pay. A and B are compelled to pay the whole
sum. They are entitled to recover it from C.
7. A, in consideration of 5,000 rupees, lent to him by B and C, promises B
and C jointly to repay them that sum with interest on a day specified. B
dies. The right to claim performance rests with B's representative jointly
with C during C's life, and after the death of C with the representatives of
B and C jointly
ILLUSTRATION
8. X, Y and Z jointly borrowed Rs.50,000 from A. the whole amount was paid
to A by Y.
Decide in the light of the Indian Contract Act, 1872 whether: (5 Marks)
(i) Y can recover the contribution from X and Z,
(ii) legal representatives of X are liable in case of death of X,
(iii) Y can recover the contribution from the assets, in case I becomes
insolvent.
Ans:
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Topic 10: BREACH OF CONTRACT

Breach of Contract
Actual Anticipatory
Breach Breach
On the due date of performance

OR BEFORE due date of
During performance performance
Aggrieved Party can TREAT CONTRACT AS DISCHARGED

And
CAN TAKE LEGAL ACTION IMMEDIATELY
MEASURE OF DAMAGES
KEPT ALIVE TILL

CONTRACT ENDED AT ONCE PERFORMANCE DATE
PRICE ON DATE OF BREACH PRICE ON DATE OF

(-) PERFORMANCE
CONTRACT PRICE (-)
CONTRACT PRICE
REMEDIES FOR BREACH OF CONTRACT
Rescission
Damages
Quantum meruit
Specific performance
Injunction
Restitution
Parties to a contract are expected to perform their respective promises. If one of the parties
breaks his obligation that the contract imposes, there takes place “breach of contract.” In
such a case, a new obligation will arise- a right of action conferred upon party injured by the
breach. Besides this, there are circumstances in which the breach not only gives rise to a
cause of action but will also discharge the injured party from such performance as may still
be due from him.
If the contract is unilateral, the only remedy available to the party who suffers by breach shall
be to claim relief for the breach. If the contract is bilateral, the party who suffers by breach by
the other party has two remedies:
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1. He can claim relief for breach, and
2. In certain circumstances, he can be absolved from the further performance
of the contract.
Breach of contract may be-

1. Actual Breach of contract:
(a) At the time when performance is due. Actual breach of contract occurs when at
the time when performance is due, one party fails or refuses to perform his obligation
under the contract.
(b) During the performance of the contract. Actual breach of contract occurs when
during the performance of the contract, one party fails or refuses to perform his
obligation under the contract.
2. Anticipatory breach of contract. Anticipatory breach of contract occurs when a

party repudiates his promise or obligation under the contract before the time for
performance arrives. This may happen in one of the following ways:
Rights of promisee in case of anticipatory breach:

1. He can treat the contract as discharged so that he is absolved from the performance
of his part of the promise.
2. He can immediately take a legal action for breach of contract, i.e. file a suit for
damages, specific performance, or injunction.
The breach of contract by one party, before the time for performance has come, does not, of
itself, put an end to the contract. However, the breach discharges the aggrieved party, if he
so chooses, and entitles him to sue for the breach at once.
If however, he (the promisee or party not in fault) refuses to accept the discharge or
repudiation by the other party, the contract remains in existence, but at the risk
of the promisee. The promisor may subsequently perform it or if an event happens which
discharges the contract legally (e.g. supervening impossibility), the promisor may take
advantage of such discharge. In other words, the promisee looses his right to sue for the
damages.
Measure of damages in anticipatory breach of contract:

1. If the contract is ended at once. If the promisee elects to end the contract at once,
he can sue the promisor for the damages. The amount of damages, which he can
recover, will be measured by the difference between,
i. The price prevailing on the date of the breach; and
ii. The contract price.
2. If the contract is kept alive till the date of performance of the contract, then the
measure of damages will be the difference between
i. The price prevailing on the date of the performance; and
ii. The contract price.
REMEDIES FOR BREACH OF CONTRACT

In case of breach of contract, the injured party has one or more of the following remedies:
1. Rescission. When there is breach of a contract by one party, the other party is
absolved from all his obligations under the contract.
2. Damages. When one party breaches a contract, the other party can claim damages
under the contract. Damages are monetary compensation payable to the aggrieved
party. The object of awarding damages for breach of a contract is to put the injured
party in the position in which he would have been had there been performance and
not breach.
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3. Quantum meruit. This means „as much is merited‟. Where the further
performance of a contract is not possible because of some hurdle created by the
promisee, the promisor can claim compensation for the work already done by him.
4. Specific performance: It means the actual carrying out of the promise by the
parties to the contract
When is specific performance allowed?
a. When actual damages are not measurable
b. Where monetary compensation is not adequate remedy.
When is specific performance NOT allowed?

i. Where monetary compensation is an adequate remedy.
ii. Where the contract is not certain.
iii. Where the contract is in its nature revocable.
iv. Where the contract is of a personal nature, e.g., a contract to marry.
v. Where the contract is made by a company in excess of its powers as laid down
in its charter (ultra vires)
vi. Where the performance of a contract involves the performance of a
continuous duty, which the Court cannot supervise.
5. Injunction. Injunction is a mode of securing the specific performance of the
negative terms of the contract.
6. Restitution : When an aggrieved party rescinds a voidable contract, it shall, if it has
received any benefit under the contract from the other party to such contract, restore
such benefit, so far as may be, to the other party from whom he received it (Sec.64).
Likewise, when an agreement is discovered to be void or when a contract becomes
void, the party which has received any benefit under the agreement or contract, shall
have to restore it to the person from whom he received it (Sec.65).
PRINCIPLES TO ASCERTAIN DAMAGES

The foundation of modern law of damages, is to be found in the judgement in the case of
Hadley vs. Baxendale, (1854) 9 Exch.341. Alderson B. observed in this case as follows:
Sec.73 is clearly based on the judgment in the case of Hadley vs. Baxendale. The rules laid
down in this Section are as follows:
i. Ordinary / Natural Damages: these are the damages which are payable fro the
loss arising naturally & directly as a result of breach of contract.
ii. Remote Damages: Damages not arising in the usual course of things but arising in
circumstances peculiar to the special case are not recoverable.
iii. Special Damages: these are the damages which are payable for loss arising due to
some special circumstance. It can be recovered only if it is in contemplation of both
the parties i.e parties have notice of such damage.
iv. Nominal Damages: where party suffers no loss, court may allow nominal damages
simply to establish that party has proved his case & won. It is very small in amount.
v. Exemplary / vindictive / punitive damages: these damages are allowed not to
compensate party but as mean of punishment to defaulting party. Court may award in
following two cases:
 Breach of contract to marry – loss based on mental injury
 Wrongful dishonor of cheque – smaller amount, larger the damage.
vi. Liquidated damages & penalty: party may specify the amount of damage at the
time of entering into contract in event of breach of contract.
 If specified sum represents, fair & genuine pre-estimate damages likely
to result due to breach, it is called liquidated damages
 But if specified sum is disproportionate to the damages, it is called
penalty.
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Types of Damages
Natural Remote Special Liquidated Vindictive /

Penalty
Damages Damages Damages Damages Exemplary
damages
Always Recoverable
Never Recoverable
Recovera Genuine + only in 2 cases:
Recoverable only if in Not genuine
ble Pre- Wrongful
contemplatio + Pre-
estimated dishonor of
n of both the estimated
Recoverable cheque &
parties Not
to the extent breach of
recoverable
estimated marriage
contract
QUANTUM MERUIT
The phrase „quantum meruit‟ literally means „as much as earned‟ or „as much as is
merited‟. When a person has begun work on a contract, and before he has completed it, if
the other party repudiates the contract or some event happens which makes the further
performance of the contract impossible, he can claim remuneration for the work he has
already done. The right to claim quantum meruit does not arise out of a contract as the
right to damages does; it is a claim on the quasi-contractual obligation, which the law
implies in the circumstances.
The claim on „quantum meruit‟ arises;
1. Claim of Quantum Meruit for party NOT in fault:
(a) When one party prevents other from completion of contract
(b) Where contract has become void before completion of contract
(c) Where agreement is discovered to be void.
2. Claim of Quantum Meruit for party at fault:

(a) If divisible contract is partly performed
Ex: A agreed to supply B 500 units of TV set before a particular date. A
supplied only 4oo sets before the date & declared his intention not to deliver
remaining units. B retained 400 units. A, therefore, is entitled to recover the
price of 400 sets on quantum meruit.
(b) Indivisible contract is performed completely but badly

Ex: A agreed to paint & decorate B‟s house for a lump sum of Rs. 1 Lakh.
The work was done but in a defective manner. The cost of remaking was
Rs. 15,000. Held A could recover from B, Rs. 85,000.
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Topic 11: QUASI CONTRACTS

In some cases the law implies from the circumstances of the case and from the conduct and
relationship of the parties that there is a promise imposing an obligation on one party and conferring a
right in favour of the other even though there is no offer and acceptance, consensus ad idem, and
agreement. These cases, strictly speaking, are not contracts but the law recognizes them as
„relations resembling those created by contracts.‟ Such relationships are called quasi-contracts,
or constructive contracts in English Law and „Certain relations resembling those created by contracts‟
under Indian Law. Such contracts rest on the ground of equity that a person shall not be allowed to
enrich himself unjustly at the expense of another.
Sec. 68 o 72 deal with the following quasi-contracts:
a. Claim for necessaries supplied to a person incapable of contracting, or on his
account (Sec.68). If a person, incapable of entering into a contact (e.g.. a minor), or anyone
whom he is legally bound to support, is supplied by another 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. Re-imbursement of person paying money due by another in payment of which he is
interested (Sec.69). A person who is interested in the payment of money, which another is
bound by law to pay, and who therefore, pays it, is entitled to be reimbursed by the other.
c. Obligation of person enjoying benefit of a non-gratuitous act (Sec.70). Where a
person lawfully does anything for another person, or delivers anything to him, not intending to
do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to
make compensation to the former in respect of, or to restore, the thing so done or delivered.
d. Responsibility of 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. In
all cases of bailment the bailee is bound to take as much care of the goods bailed to him, as
a man of ordinary prudence would, under similar circumstances, take of his own goods of the
same bulk, quality and value as the goods bailed.
e. Liability of person to whom money is 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.
1. 53 | P a g e

The Contract Act 1872

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The Contract Act 1872

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www.VirtualProfs.

com CS PRAVEEN CHOUDHARY

INDIAN CONTRACT ACT, 1872

AGREEMENT = OFFER + ACCEPTANCE OF THE OFFER.

PROPOSAL AND ACCEPTANCE

Will you buy my house..?

Basic Characteristics of a Proposal

On the Basis of On the Basis of

1. On the Basis of Mode of Offer: The mode of offer may either-

Distinction between Specific and General Offer

WHAT IS NOT PROPOSAL?

According to Sec. 2(b)

Who May Accept? Acceptance may be given by the following:

2. Shambu Dayal started “self-service” system in his shop. Smt. Prakash

Enforceability of the agreement: Every agreement is not a contract. Only an

CONTRACT = AGREEMENT + ENFORCEABILITY OF THE AGREEMENT.

ESSENTIALS OF A VALID CONTRACT

2. Proposal and acceptance (i.e. agreement)

3. Intention to create legal relations. For an agreement to be a contract, it must

5. Consent or Consensus ad idem. Consent is the essence of a contract. The parties

7. Consideration. Generally, every agreement to be enforceable by law must be

8. Lawful objects or consideration. Another essential of a contract is the lawful

Sr. Lawful/ Unlawful

9. Certainty of meaning. Agreements with certainty of meaning are only enforceable

10. Possibility of performance. An agreement to be a valid contract must also be

12. Compliance of Legal formalities. Generally no legal formalities are required

AGREEMENT VS. CONTRACT

All Contracts are Agreements but

All Agreements are not Contracts

CLASSIFICATION OF CONTRACTS / AGREEMENTS

CLASSIFICATION ACCORDING TO ENFORCEABILITY/LEGALITY

1. Valid agreement i.e. contract: A valid agreement is a contract. It gives rise

2. Void agreement: “An agreement not enforceable by law is said to be

3. Void Contract: According to Sec 2(j) “A contract which ceases to be

Distinction between Void Agreement and Void Contract.

Distinction between Void Agreement and Voidable Contract

Distinction between Void and Voidable contract

5. Illegal Agreement. Generally speaking, an agreement, which is expressly

Similarities and Distinctions

Distinction between Void and Illegal Agreement

6. Unenforceable contract. A contract, which is good in substance but cannot be

Classification according to enforceability

VOID VOID VOIDABLE ILLEGAL

II. Classification According to Mode of Formation

2. Implied contract. Where a contract is made otherwise than in words, is said to be

4. Quasi-contract. A quasi-contract is not a result of agreement, express or implied. It is a

III. Classification According to Extent of Execution

Consideration' means quid pro quo i.e. 'something in return'. It is an advantage

Agreements void, if consideration or objects unlawful in part (Section 24)

Sr. Void / Valid

Rule: Contract without consideration is void

EXCEPTIONS to the above rule Section 25: Means Contract without

Exception 2: promise to compensate for past voluntary service.

Exception 4: Completed Gifts i.e. gift is completed when it is accepted by done.

Exception 5: Creation of Agency or Partnership

Sr. Valid/ Invalid

As a general rule, stranger to contract cannot sue or be sued.

Rule: Stranger to contract cannot sue parties to contract

Exception 2: Assignee of contract – When benefits under a contract is assigned, the

Exception 3: Devolution by operation of law - Sometimes, contract may devolve on third

THERE CAN BE STRANGER TO CONSIDERATION

6. Tillu supplied tyres to a wholesaler Nillu on condition that any retailer to