Contract Law Notes

06/09/2023, 12:08 Contract law notes - iPleaders
Contract law notes

By Ayush Verma - August 28, 2020
Image Source - https://rb.gy/wl2ew1
Table of Contents
https://blog.ipleaders.in/law-of-contracts-notes/ 1/140
1. Agreement and contract

2. An agreement (Section 2(e))
2.1. The agreement should not expressly be declared to be void
3. Contract (Section 2(h))
3.1. Types of contract
3.2. What are the key differences between agreements and contracts?
4. Offer and acceptance
5. Offer/proposal (Section 2(a))
5.1. Features of a valid offer
5.2. The element of a valid offer
5.2.1. There must be two parties
5.2.2. Every proposal must be communicated
5.2.3. Example
5.2.4. It must create legal relations
5.2.5. Example
5.2.6. It must be certain and definite
5.2.7. It may be specific or general
5.3. Classification of offer
5.3.1. Express offer and implied offer (Section 9)
5.3.2. General offer
5.3.3. Specific offer
5.3.4. Cross offer
5.3.5. Counter offer
5.3.6. Standing offer
5.3.7. Difference between an offer and Invitation to offer
5.4. Difference between general offer and specific offer
5.5. Lapses and revocation of an offer
5.6. When communication is complete
5.7. Time of revocation of an offer
6. Revocation of the offer by the offeror
6.0.1. Example
7. Acceptance (Section 2(b))
7.0.1. Example
7.1. Mode of acceptance
7.2. Acceptance: absolute and unqualified (Section 7)
7.3. Legal rules and conditions for acceptance
7.3.1. Mere silence is not acceptance
7.4. When communication is complete
8. Time of revocation of acceptance
8.1. Acceptance with subsequent condition
8.2. Acceptance of counter proposals
8.3. Provisional acceptance
8.4. Acceptance and withdrawal of tenders
8.5. Letter of intent to accept
8.6. Liability for failure to consider tender
8.7. Non-compliance with requirements
8.8. Tender with concessional rate
8.9. Certainty of terms
8.10. Preventing from tendering and blacklisting
9. Consideration (Section 2(d))

9.1. Why do we need consideration
9.2. Legal requirements as to consideration
9.3. Stranger to a contract
9.3.1. Exception
9.4. Past consideration
9.4.1. Past act at request good consideration
9.4.2. Past voluntary service
9.4.3. Past service at request past and executed
9.4.4. Executory consideration
9.5. Performance of existing duties
9.5.1. Performance of legal obligations
9.5.2. Performance of contractual obligations
9.5.3. Exceptions to the rule in Pinnel case
9.5.4. Position under the Indian contract act is different than under English Law
9.6. Pre-existing contract with the third party
9.7. Consideration and motive
9.8. Absence of consideration
9.9. Exceptions under Section 25, Indian Contract Act
9.9.1. Fiduciary relation
9.9.2. Past voluntary services
9.9.3. Time barred debt
9.10. Gift actually made
9.11. Inadequacy of consideration
10. Competent to contract (Section 11)
10.1. Disqualifications for entering into a contract
10.1.1. Minor
10.1.2. Person of unsound mind
10.1.3. Persons disqualified by law
10.1.4. Competency of parties to enter into an e-contract
11. Free consent (Section 13 and 14)
11.1. Difference between consent and free consent
11.2. Coercion (Section 15)
11.2.1. Techniques of causing coercion
11.3. Undue influence (Section 16)
11.3.1. What amounts to apply undue influence on someone?
11.4. Undue influence and coercion
11.4.1. Misrepresentation (Section 18)
11.4.2. Fraud (Section 17)
11.4.3. Mistake (Section 20, 21, and 22)
12. Legality of object and consideration (Section 23)
13. Intention to create legal relationship
14. Not expressly declared void
14.1. Agreements restricting a marriage (section 26)
14.2. Agreements restricting trade (section 27)
14.3. Agreements in restraint of proceedings (section 28)
14.4. Agreements void due to uncertainty (section 29)
14.4.1. How is certainty ensured?
14.5. Agreement of wager are void (section 30)
15. History of law related to the concept of wager
16. Types of wager
16.1. I. Moneyline betting
16.2. II. Spread betting
16.3. III. Over betting
16.4. IV. Under betting
16.5. V. Prop betting
17. Essentials of a wagering contract

17.1. Equal opportunity
17.2. Uncontrollable
17.3. No outside interest
17.4. Dependency
17.5. Promise
18. Can a wagering contract be enforced
19. Exceptions to the wager agreement
19.1. 1. Showcase of talent is not a wager
19.2. 2. Share market
19.3. 3. Horse race competition
19.4. 4. Insurance contracts
19.5. 5. Commercial transactions
20. How is it different from wagering agreement?
21. Essential elements of the contingent contract
21.1. There must be a valid contract to do or abstain from doing something
21.2. Performance of the contract must be conditional[i]
21.3. The said event must be collateral to such contract
21.4. The event should not be at the discretion of the promisor
22. Enforcement of contingent contract
22.1. Condition 1- enforcement of contract contingent on the happening of an event
22.2. Condition 2- enforcement of contract contingent on an event not happening
22.3. Condition 3- when an event on which contract is contingent to be deemed impossible if
it is the future conduct of a living person
22.4. Condition 4- contracts contingent on an event happening within the fixed time
22.5. Condition 5- contracts contingent on an event not happening within the fixed time
22.6. Condition 6- contract contingent of impossible event void
23. Conditions when a contingent contract becomes void
24. Commercial applications of contingent contracts
25. Tender of performance
25.1. The obligation of parties to perform (Section 37)
25.2. Submission of tender tantamounts to a proposal
26. Promises bind the representatives of the promisor
27. Clause for renewal
28. Tender of performance (Section 38)
29. Tender of performance should be unconditional
30. The tender of performance must be made at a proper time and place
31. By whom contracts must be performed (Section 40)
32. Effect of accepting performance by the third party (Section 41)
33. Joint promises (Section 42)
34. Devolution of joint liabilities (Section 42)
35. Types of joint obligations
36. Joint and several liability
37. Death of one joint promisors
38. Suit against joint promisors
39. Suit against one of the several partners
40. Effect of decree against only some of the joint promisors
41. Situations of such liability
42. Co-heirs
43. Contribution
44. Contribution between judgement-debtors
45. Principal debtors and sureties
46. Commencement of liability for contribution
47. Default in contribution
48. Release of one joint promisor (Section 44)

49. Rules regarding time and place of performance of contract
49.1. 1) When no application is to be made by the promisee and no time is specified – Section
46
49.2. 2) When time and place of performance is specified but no application is to be made by
the promisee- Section 47
49.3. 3) When Performance is to be made on a proper place and time but an application is to
be made by the promisee to the promisor for its performance- Section 48
49.4. 4) Where no place is fixed and no application has to be made to the promisor by the
promisee- Section 49
49.5. 5) When the performance has to be made in the time and manner as specified by the
promisee- Section 50
50. The consequence of failure to perform the contract at a fixed time when the time is
essential (Section 55)
50.1. The intention of the parties
50.2. Time can be made essence by notice
50.3. Extension of time
51. Types of reciprocal promises
51.1. Mutual and independent
51.2. Conditional
51.3. Concurrent
52. Rules regarding performance of reciprocal promises
52.1. Section 51– Simultaneous performance
52.2. Section 52– A sequence of performance
52.3. Section 53– One party preventing the other to perform their promise
52.4. Section 54– Reciprocal and dependent promises
52.5. Section 55– Failure to perform in stipulated time
52.6. Section 56– Impossible or unlawful act
52.6.1. Initial impossibility
52.6.2. Subsequent Impossibility
52.7. Section 57– Reciprocal promises or legal and illegal acts
52.8. Section 58– Alternative promise of legal and illegal acts
53. Appropriation by debtor
53.1. Clayton’s case
53.2. Several and distinct debts
53.3. Intimation by the debtor
53.4. Proof of intention
53.5. Contract of guarantee
54. Appropriation by creditor
54.1. Lawful debts
54.2. Time-barred debts
54.3. Principal and interest on single debt
55. Appropriation by law
56. Assignment of contracts
56.1. Assignment of liabilities
56.1.1. By the act of the party
56.1.2. By operation of law
56.2. Assignment of rights
56.2.1. Personal nature of the contract
56.2.2. Unilateral cancellation of the sale deed
56.3. Effect and formalities of assignment
56.3.1. Consideration
56.3.2. Subject to equities
56.3.3. Notice of assignment
57. Discharge by agreement
58. What is the novation of a contract?

58.1. Essentials of Section 62 of the Indian Contract Act
58.2. Kinds of novation of contract
58.2.1. Change in terms of the contract
58.2.2. Change in the parties to the contract
58.3. Novation of contract in an illegal agreement
58.4. When is it ‘No Novation’?
58.5. A unilateral act of one party
58.6. Intention of parties
59. Alteration of contract
60. Effect of alteration of contract through the consent of the parties
60.1. Effect of alteration of contract with the consent of parties
60.1.1. Material alteration
60.1.2. Burden of proof
60.2. Effect of alteration of contract without the consent of parties
61. Effect of alteration of contract in business
62. Rescission
63. What are the different modes of recession?
64. Who can rescind the contract?
65. Guilty party
66. Recession of part of the contract
67. What are the grounds for rescission of contract?
68. What is the process for rescinding a contract?
69. What are the problems faced in contract formation?
70. A contract is valid until avoided
71. What is the effect of the recession of the contract?
72. Damages and rescission
73. When is rescission not available?
73.1. Difference between rescission and novation
74. Waiver
74.1. What is a waiver?
75. Merger
75.1. Background
76. Quasi-contract
76.1. The Principle of unjust enrichment
76.2. Features of a quasi-contract
76.2.1. Implied-in-fact contract and quasi-contract
76.3. Section 68 (Claim for necessaries supplied to person incapable of contracting, or on his
account)
76.4. Section 69 (Reimbursement of person paying money due by another, in payment of
which he is interested)
76.5. Section 70 (Obligation of person enjoying the benefit of the non-gratuitous act)
76.6. Section 71 (Responsibility of finder of goods)
76.7. Section 72 (Liability of person to whom money is paid or thing delivered by mistake or
under coercion)
76.8. Distinction between a contact and a quasi-contract
77. Breach of the terms of the contract
78. Actual damages or loss
79. What happens after a breach of contract?
80. Types of breach of contract
80.1. Minor or partial contraventions
80.2. Material violations
80.3. Fundamental breach
80.4. Actual breach
80.5. Anticipatory breach
81. Difference between a material and minor breach of contract

82. Case laws
83. Types of damages under Section 73
83.1. What are the different types of damages?
83.1.1. General and special damages
83.1.2. Nominal damages
83.1.3. Substantial damages
83.1.4. Aggravated and exemplary damages
83.1.5. Liquidated and unliquidated damages
83.2. What does loss or damage mean?
83.2.1. Consequential damage and incidental loss
83.3. How to measure the damage caused?
83.4. What does the remoteness of damages mean?
83.4.1. How to test the remoteness?
84. Consequences of breach of contract (Section 73-75)
84.1. Section 73 – deals with compensation for loss or damage caused by breach of contract
84.2. Section 74 – penalties in regard to breach of contract
84.3. Section 75 – compensation to the party rightfully rescinding the contract
84.4. Nature of remedy of damage
85. A decree for specific performance
85.0.1. When there is no standard for ascertaining actual damage
85.0.2. When monetary compensation would not afford adequate relief
85.0.3. Suits for enforcement of a contract to execute a mortgage
86. An injunction
86.1. When are perpetual injunctions granted?
Agreement and contract

Contracts have always been an indispensable part of our lives. Knowingly or unknowingly,
we enter into a contract hundreds of times in a year. Even when we buy candy, we are
entering into an agreement with the shopkeeper. Every time we visit a restaurant or book a
cab, we are entering into a contract. Although the law of contract is developing with time,
the jurisprudence of contract remains the same. We know what a contract is all about but
new situations arise every day and a new question appears in the mind of whether this
particular agreement should be regarded as a contract or not!
One of the common perplexities among people is recognizing the difference between a
contract and an agreement. They are frequently used interchangeably. For example, when
the owner of a house hands over the rent agreement and says, “Please sign the contract”,
this creates uncertainty whether the document is an agreement or a contract.
We come across ‘contract killers’ in movies who charge money to kill people. Have you ever
thought, ‘Is a contract of killing someone for money, a valid contract?’ or ‘Can the man
giving the contract sue the contract killer in the court of law saying that the other party has
committed a breach of contract by not doing the job even after the payment of money?’.
An agreement (Section 2(e))

An Agreement is a promise between two entities creating mutual obligations by law. Section
2(e) of the Indian Contract Act, 1872 defines an agreement as ‘Every promise and every set
of promises, forming the consideration for each other, is an agreement’.
To form an agreement, the following ingredients are required:
Parties: There need to be two or more parties to form an agreement.
Offer/ Proposal: When a person signifies to another his willingness of doing or omitting
to do something with a view to obtain other’s assent. [Section 2(a)]
Acceptance: When the person to whom the proposal is made signifies his assent for the
same thing in the same sense as proposed by the offeror. [Section 2(b)]
Promise: When a proposal is accepted, it becomes a promise. [Section 2(b)]
Consideration: It is the price for the promise. It is the return one gets for his act or
omission. [Section 2(d)]
An agreement is, therefore, a promise or set of promises forming consideration for all the
parties. [Section 2(e)]
Agreement = Promise or set of promises (offer + acceptance) + Consideration (for

all the parties)
If a 7-year-old boy is buying an ice-cream from an ice-cream vendor and giving Rs. 10 in
return, it becomes an agreement. This is because the boy offers to buy ice-cream and the
vendor accepts the offer which makes it a promise. The consideration for both was ice-
cream and money respectively.
The agreement should not expressly be declared to be

void
There are certain kinds of contracts which are expressly declared by The Indian Contract
Act, 1872 to be null and void. The following are some of the agreements which are not
enforceable in the eyes of law:
Agreements without consideration except it is written and registered or is a promise to

compensate for something done or is a promise to pay a debt barred by limitation law.
Agreements in restraint of marriage
Agreements in restraint of trade
Agreements in restraint of legal proceedings
Agreements void for uncertainty
Agreements by way of wager
Agreements contingent on an impossible event
Agreements to do impossible act
Those agreements are void which are based on any of the subjects mentioned above. There
is no liability for not enforcing the contract and thus, the conditions of the contract are not
binding upon any of the parties.
For example, if Devdas asks Paro not to get married for her entire life then he will give her
a new dress and shoes in return; it cannot be considered as a valid contract because the
agreement is made in restraint of marriage.
Similarly, if the agreement is made to not to work for the entire life in exchange for a new
flat, it will not be considered as a valid contract as it is in restraint of trade.
Also, if a father enters into an agreement with his son that the father will get him a new
bicycle if the son scores 105% in his board exams. It will be considered a void agreement
because it is an agreement to do an impossible act.
The above-mentioned conditions are required to be fulfilled in order to make an agreement

legally enforceable. The agreement becomes void if any of the mentioned conditions are left
unfulfilled except in the case of free consent where the agreement becomes voidable
instead of void and giving the party, whose consent was not free at the time of entering into
the contract, the discretion to continue the contract or not.
Contract (Section 2(h))

A contract is a lawful agreement. In other words, an agreement enforceable by law is a
contract.
Contract = Agreement + Legal enforceability
Or
Contract = Legally enforceable Agreement
A type of agreement which is enforceable by law is a contract (Section 2(h) of the ICA).
Enforceable by law means that, if somebody is aggrieved then he may approach the court
for remedies. For example: In case of a Fire Insurance Contract where Titu wants to insure
his goods in the warehouse, he pays the insurance premium and promises to avoid
insurance fraud whereas the insurance company agrees to compensate losses in case of a
fire.
So Mathematically,
Agreement + Enforceable by Law = Contract
When an offer is made with the intention to create a legal obligation it becomes an offer for
entering into a contract. Thus an agreement becomes a contract when there is free consent
of the parties, capacity of the parties to contract, lawful consideration and lawful object or
subject matter (Section 10 of the ICA).
For an agreement to become a contract it must give rise to a legal obligation and if it is
incapable of doing so, it is not a contract. In the case of Balfour v Balfour [1919] 2 KB 571,
Mr. Balfour promised to pay his wife £30/month as she stayed in England for medical
reasons. When he failed to pay, Mrs. Balfour sued him. Her action failed because there was
no intention to create a legally binding agreement between Mr. and Mrs. Balfour. A contract
cannot be made without proper indication about the legal rights and obligations of the
parties to the contract. So, if this were to be a contract then the wife would have had a
right to receive payment and the husband would have had the obligation to pay his wife.
This makes an agreement a wider term than a contract. In a Venn diagram, agreements are
a bigger circle than contracts which is a smaller circle and a part of it.
So, an agreement is a contract when:
1. Free consent of the parties: When there is absence of Coercion (Section 15), Undue
Influence (Section 16), Fraud (Section 17), Misrepresentation (Section 18) and Mistake
(Section 20, 21, 22), the consent is said to be free.
2. Capacity of the parties to contract: Section 11 and 12 lay down that the competent
parties are persons who have attained majority {Exception for this was laid down in
Mohori Bibee v. Dharmodas Ghose ILR (1903) 30 Cal 539 (Pc)}, persons who are of
sound mind and persons who are not disqualified by law.
3. Lawful consideration and Lawful object: Section 23 lays down that the consideration
and object is lawful unless it is forbidden by law or it defeats provisions of any law or is
fraudulent or involves injury to person or property or is violative of public health,
morality, peace and order.
Let us look at some examples where agreements are not contracts:
1. Gabbar asked Samba to kill Jay and Veeru and Samba agreed. This is an agreement but
the object of the agreement makes it an illegal one. Therefore, it cannot be enforced and
so it is not a contract.
2. Rajesh promises his wife Chitra that he will bring for her the stars and the moon and
Sonam agrees. Here, the object of the agreement is impossible to perform and so it is
not enforceable and cannot be termed as a contract.
3. A mother promises her crying child that she will buy a Barbie doll for her but she does
not buy it. Here, the promise was not made with the intention to fulfil it and so it is not
enforceable and cannot be termed as a contract.
4. I offer my pen to Neelam and she accepts it, here an agreement is made but such
agreement is made out of friendship and has no consideration. An agreement without
consideration is not a contract (an exception to this is Section 25 of the ICA which states
that near relation and natural love and affection can be said to be consideration).
Types of contract
There are various types of contracts that are formed voluntarily via civil obligations. They
are as follows:
(I) Adhesion Contracts – These types of contracts are those which are formed by the
stronger party. It is a sort of, “Opt for it or do not” contract. The stronger party or the one
that has the bargaining power leaves the other party with a choice whether to accept or
reject the contract.
(II) Aleatory Contracts – This type of contract involves a mutual agreement that comes into
being after an unexpected occurrence, accident, or a natural calamity. In this type of
contract both the parties have an element of risk. Fire or Car insurances are this type of
contract.
(III) Bilateral and Unilateral Contracts – Bilateral contracts involve two parties. Both parties
are obliged to one another for performing or abstaining to perform any act. It is also called
a two-sided contract as it involves two way promises. Meanwhile, unilateral contracts are
those in which the promise is made by only one party. They consist of an offeror and
offeree. The offeror makes a promise to perform an action and is bound by the law to do so.
The offeree is not bound to the court even if he fails to execute the requested action
because he does not promise anything at all.
(IV) Express Contracts – These contracts are those wherein the terms of the contracts are
expressed clearly whether in written documents or orally.
(V) Implied Contracts – There are no oral or written terms in this type of contract. The
contracts are assumed owing to the facts of the parties. If an individual visits a medical
professional, he expects to be diagnosed for a disease or illness and be advised a cure. This
is an implied contract and a patient is capable of suing a medical practitioner for
malpractice.
(VI) Void and Voidable Contracts – Void contracts are illegal from the very beginning and
hold no validity under law. They are thereby un-enforceable. Voidable contracts are unlike
void contracts in the sense that one party is bound by the contract and the unbound party is
capable of terminating the contract as they are unbound to it.
A quasi-contract is unlike a real contract. Salmond defines quasi contracts as “there are
certain obligations which are not in truth contractual in the sense of resting on agreement,
but which the law treats as if they were”. It is important to remember that even though it is
imposed by law, it is not created by the operation of the contract.
What are the key differences between agreements and

contracts?
Basis for
Agreement Contract
Comparison
An agreement is made when a A contract is made when an

Meaning proposal by one party is accepted by agreement becomes enforceable
another lawful consideration. by law.
Agreement and Enforceability

Elements Offer and Acceptance
under law
Defined in Section 2(e) Section 2(h)
In writing Not necessarily Usually written and registered
Once the agreement becomes a

Legal There is no legal obligation as long
contract, there is a legal
obligation as it is a mere agreement.
obligation by parties involved.
Scope Wide Narrow
Offer and acceptance
Offer/proposal (Section 2(a))

The entire process of entering into a contract begins with the proposal or an offer made
by one party to another. The proposal must be accepted to enter into an agreement.
According to the Indian Contract Act 1872, proposal is defined in Section 2(a) as “when
one person will signify to another person his willingness to do or not do something
(abstain) with a view to obtain the assent of such person to such an act or abstinence,
he is said to make a proposal or an offer.”
Features of a valid offer

The person making the offer/proposal is referred to as the “promiser” or the “offeror”. And
the person who accepts an offer is referred to as “promisee” or the “acceptor”.
The offeror must express his willingness to do or abstain from doing an act. Only
willingness is not adequate. Or just an urge to do something or not to do anything will
not be an offer.
An offer can either be positive or negative. It can be a promise to do some act, and can
also be a promise to abstain from doing any act/service. Both are valid offers.
The element of a valid offer

Here are some essentials which make the offer valid:
There must be two parties

There have to be at least two parties: a person making the proposal and the other person
agreeing to it. All the persons are included i.e, Legal persons as well as artificial persons.
Every proposal must be communicated

Communication of the proposal is mandatory. An offer is valid if it is conveyed to the
offeree. The communication can either be expressed or implied. It can be communicated by
terms such as word of mouth, messenger, telegram, etc. Section 4 of the Indian Contract
Act says that the communication of a proposal is complete when it comes to the awareness
of the person to whom it is made.
Example
‘A’ proposes to sell a car to ‘B’ at a certain price. Once ‘B’ receives the letter, the proposal
communication is complete.
It must create legal relations

An offer must be such that when accepted it will result in a valid contract. A mere social
invitation cannot be regarded as an offer, because if such an invitation is accepted it will not
give rise to any legal relationship.
Example
‘A’ invited ‘B’ to dinner and ‘B’ accepted the invitation. It is a mere social invitation. And ‘A’
will not be liable if he fails to provide dinner to B.
It must be certain and definite

The terms of the offer must be certain and clear in order to create a valid contract, it must
not be ambiguous.
It may be specific or general

The specific offer is an offer that is accepted by any specific or particular person or by any
group to whom it is made. Whereas, The general offers are accepted by any person.
Classification of offer
An offer can be of many types, ranging across the spectrum. There are basically 7 kinds of
offers:
Express offer
Implied offer
General offer
Specific Offer
Cross Offer
Counter Offer
Standing Offer
Express offer and implied offer (Section 9)

Section 9 of The ICA defines both of them as: In so far as the proposal or acceptance of any
promise is made in words, the promise is said to be expressed. In so far as such a proposal
or acceptance is made otherwise than in words, the promise is said to be implied.
Therefore, any offer that is made with words, it may be regarded as express. Any promise
that is made otherwise than in words is implied. A bid at an auction is an example of an
Implied offer. A case in this regard is Upton-on-Severn RDC v. Powell, wherein the
defendant called a fire brigade assuming that those services would be free to him, however
it was found that his Farm did not come under that of Upton. The court held that the truth
of the matter is that the Defendant wanted the services of Upton, he asked for the services
of Upton and in response to that they offered their services and they were rendered on an
implied promise to pay for them.
In Ramji Dayawala & Sons (p) Ltd v. Invest Import, a case between an Indian and
Yugoslavian party the notice for revocation of an arbitration clause in the contract between
the parties was made by the Indian party, to which the other party gave no reply. It was
held that this would amount to an implied acceptance i.e.- the arbitration clause was
deleted from the contract, and a suit would lie in the court of law. Similarly entering into an
omnibus also amounts to implied acceptance, same as consuming edibles at a self-service
restaurant. Therefore in simpler terms a contract that is entered into because of actions on
the offerors part, may be referred to as an implied offer, any contract entered into
otherwise is an express offer.
General offer
A General Offer is an offer that is made to the world at large. The genesis of a General Offer
came about from the Landmark case of Carlill v. Carbolic Smoke Ball Co. A company by
the name Carbolic Smoke Ball offered through an Advertisement to pay 100 Pounds to
anyone who would contract increasing epidemic Influenza, colds or any disease caused by
cold after taking its Medicine according to the prescribed instructions. It was also added
that 1000 Pounds have been deposited in Alliance bank showing our sincerity in the matter.
One customer Mrs Carlill used the medicine and still contracted Influenza and hence sued
the company for the reward. The Defendants gave the argument that the offer was not
made with an intention to enter into a legally binding agreement, rather was only to Puff
the sales of the company. Moreover, they also contended that an offer needs to be made to
a specific person, and here the offer was not to any specific person and hence they are not
obliged to the Plaintiff.
Setting aside the arguments of the Defendant, the bench stated that in cases of such offers
i.e- general offers, there is no need for communication of acceptance, anyone who performs
the conditions of the contract is said to have communicated his/her acceptance, and
moreover, the money deposited by the Defendant in Alliance Bank clearly shows that they
intended to create a legally binding relationship. Hence the Plaintiff was awarded with the
amount. An Indian authority in this regard is Lalman Shukla v. Gauri Dutt, wherein a
servant was sent by his master to trace his missing nephew. In the meanwhile, he also
announced a reward for anyone finding his nephew, this in itself is an example of an offer
that is made to the world at large and hence a General Offer.
Valid acceptance based on fulfillment of condition
This concept has been given statutory authority under section 8 of the ICA:
Performance of the conditions of a proposal, or the acceptance of any consideration for a

reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.
This section was applied by YEARS CJ of Allahabad high court in the case of Har Bhajan
Lal v. Har Charan Lal, wherein the father of a young boy who ran from home issued a
pamphlet for a reward for anyone who would find him. The Plaintiff found him at the railway
station and sent a Telegram to his father. The Court held that the handbill was an offer that
was made to the world at large and anyone who fulfilled the conditions is deemed to have
accepted it. In the State of Bihar v. Bengal Chemical and Pharmaceutical Works LTD,
the Patna HC held that where the acceptance consists of an act, e.g- dispatching some
goods, the rule that there shall be no communication of acceptance will come into play.
General offer of continuing nature
When a general offer is of continuing nature, like it was in a carbolic smoke ball case, it can
be accepted by a number of people till it is retracted. However, when a similar offer requires
information regarding a missing thing, it is closed as soon as the first information comes in.
Specific offer
A Specific offer is an offer that is made to a specific or ascertained person, this type of offer
can only be accepted by the person to whom it is made. This concept was seen briefly in the
case of Boulton v. Jones, wherein the Plaintiff had taken the business of one Brocklehurst,
the defendant used to have business with Brocklehurst and not knowing about the change
in ownership of business, sent him an order for certain goods. The Defendant came to know
about the change only after receiving an invoice, at which point he had already consumed
the goods. The Defendant refused to pay the price, as he had a set off against the original
owner, for which the plaintiff sued him.
The Judges gave a unanimous judgement holding the defendant not liable. Pollock CB held
that the rule of law is clear, if you intend to contract with A, B cannot substitute himself as
A without your consent and to your disadvantage. It was also held that whenever a person
makes a contract with a specific personality, a specific party, so to say, for writing a book,
for painting a picture or for any personal service or if there is any set off due from any
party, no one has the authority to come in and maintain that he is the party contracted
with.
Cross offer
When two parties make an identical offer to each other, in ignorance to each other’s offer,
they are said to make cross offers. Cross offers are not valid offers. For example- if A
makes an offer to sell his car for 7 lakhs to B and B in ignorance of that makes an offer to
buy the same car for 7 Lakhs, they are said to make a cross offer, and there is no
acceptance in this case, hence it cannot be a mutual acceptance.
Basic essentials of a cross offer
1. Same offer to one another- When the offeror makes an offer to the offeree and the
offeree without prior knowledge makes the same offer to the offeror, then both the object
and the party remain the same.
2. Offer must be made in ignorance of each other- The two parties must make their offer in
ignorance of each other.
An important case in this aspect is the English case of Tinn v. Hoffman, the defendant
wrote to the complainant an offer to sell him 800 tons of iron at 69s per ton, at the same
time the complainant also wrote to the defendant an offer to buy the iron at similar terms.
The issue in this case was that, was there any contract between the parties, and would
simultaneous offers be a valid acceptance. The court held that these were cross offers that
were made simultaneously without knowledge of one another and would not bind the
parties.
Here it is imperative to deduce that for a valid contract to be formed there needs to be an
offer and acceptance of the same, whereas in a cross offer there is no acceptance, but only
simultaneous offers being and therefore a cross offer will not lead to the formation of a
contract.
Counter offer
When the offeree offers a qualified acceptance of the offer subject to modifications and
variations in terms of the original offer, he is said to have made a counter offer. A counter
offer is a rejection of the original offer. An example of this would be if A offers B a car for 10
Lakhs, B agrees to buy for 8 Lakhs, this amounts to a counter offer and it would mean a
rejection of the original offer. Later on, if B agrees to buy for 10 Lakhs, A may refuse. Sir
Jenkins CJ in Haji Mohd Haji Jiva v. Spinner, held that any departure from original offer
vitiates acceptance. In other words, an acceptance with a variation is not acceptance, it is
simply a counter proposal which must be accepted by the original offeror, for it to formulate
into a contract.
The Bombay High court gave this decision based upon the landmark judgement of Hyde v.
Wrench, in which an offer to sell a farm for 1000 Pounds was rejected by the Plaintiff, who
offered 950 for it. Subsequently the Plaintiff gave an acceptance to the original offer.
Holding that the Defendant was not bound by a contract, the court said that the Plaintiff
accepted the original offer of buying the farm at the price of 1000 pounds, it would have
been a completely valid contract , however he gave a counter proposal to it, thus rejecting
the original offer.
Partial acceptance
Counter offer also includes within its contours Partial acceptance, meaning that a party to
the contract cannot agree to those conditions of the agreement that favour him and reject
the rest, the acceptance should be of the complete agreement i.e.- all its parts. In
Ramanbhai M. Nilkanth v. Ghashiram Ladli Prasad, the plaintiff made an application
for certain shares in a company with the underlying condition that he would be made the
cashier in its new branch. The Company did not comply with this and hence the suit. The
court held that the Petitioners application for shares was condition on him being made the
cashier and that he would have never applied for the shares had there been no such
condition.
Acceptance of a counter proposal
In Hargopal v. People’s Bank of Northern India LTD, an application for shares was
made on a conditional undertaking by the bank that the applicant would be made the
director of the new branch. The shares were allotted to him without fulfilling the condition.
The applicant did not say anything and took his dividends, a subsequent suit by him failed
as the court held that he through his conduct had waived the condition. When a counter
proposal is accepted the contract arises in terms of the counter proposal and not
in terms of the original contract.
Standing offer
An Offer which remains open for acceptance over a period of time is called a standing offer.
Tenders that are invited for supply of goods is a kind of Standing Offer. In Percival Ltd. V.
London County Council Asylums and Mental deficiency Committee, the Plaintiff
advertised for tenders for supply of goods. The defendant took the tender in which he had
to supply to the company various special articles for a period of 12 months. In-between this
the Defendant didn’t supply for a particular consignment. The Court held that the Tender
was a standing offer that was to be converted into a series of contracts by the subsequent
acts of the company and that an order prevented the possibility of revocation, hence the
company succeeded in an action for breach of contract.
Difference between an offer and Invitation to offer

Although Invitation to Offer is not a type of offer per se, it is imperative to distinguish both
to even construe what an actual offer is. An invitation to offer is an offer to negotiate, an
offer to receive offers, offers to chauffeur. An offer is a final expression of willingness to get
into a contract upon those following terms. The concept of Invitation to offer was explained
in the Privy Council case of Harvey v. Facey, the Plaintiffs in this asked two questions from
the defendant i.e.- Would you sell me your Bumper Hall pen , telegram me the lowest price?
, the Defendant only gave the answer to the latter question , post which he refused to sell.
The Court held that the defendant was not to sell as he had only answered the second
question and reserved the same for his first question. Thus, this clearly shows the
distinction between an offer and invitation to offer.
In Adikanda Biswal v. Bhubaneswar Development Authority, when a development

authority made an announcement for allotment of plots on first come first serve basis on
payment of full consideration. An application against this with full consideration was only
considered to be an offer, as the Development authority only gave an invitation to offer, and
the offer can only be formalized into a contract when it is accepted by the development
authority.
Rules regarding display of goods in shops
In Pharmaceutical Society of Great Britain v. Boots Cash Chemists Southern Ltd.,

lord GODDARD CJ, said that it would be wrong to say that a shopkeeper intends to sell
everything that is displayed in his shop. Meaning that the customer makes an offer, to
which the shopkeeper has the discretion to accept or deny. The shopkeeper may say that he
doesn’t have enough stock of that good and therefore may not sell. Similarly, a bankers
catalogue of charges is also not an offer, the auction held by a person is also only an
invitation to offer and he may not be liable for the transportation costs that people may
have to pay to come to the place of auction, in case he cancels at the end moment.
Difference between general offer and specific offer

General Offer Specific Offer
General Offer is made to the whole world A specific Offer is made to some specific
at large. person.
A general offer can be considered by any A specific offer can be accepted by only a
person. specific person.
Lapses and revocation of an offer

An offer lapses after a defined or reasonable time.
An offer lapse by not being accepted in the specified mode
An offer lapses by rejection.
An offer lapses by the offeror or the offeror’s death or insanity until acceptance.
An offer lapses by revocation before acceptance.
An offer lapses by subsequent illegality or destruction of the subject matter.
When communication is complete

Communication of offer (section 4)
The communication of the offer is complete when it comes to the knowledge of the person
to whom it is made.
Time of revocation of an offer

Revocation of the offer (Section 4)
A proposal can be revoked at any time before the communication of its acceptance is
complete as against the proposer but not afterward.
Revocation of the offer by the offeror

The offeror can withdraw his offer before it is accepted “the bidder can withdraw (revoke)
his offer at an auction sale before being accepted by any auctioneer using any of the
customary methods.
Example
‘A’ agreed to sell the property to ‘B’ by a written document which stated “this offer to be left
over until Friday 9 AM”. on Thursday ‘A’ made a contract to sell the property to ‘C’. ‘B’ heard
of this from ‘X’ and on Friday 7 AM he delivered to ‘A’ acceptance of his offer. Held ‘B’ could
not accept A’s offer after he knew it had been revoked by the sale of the property to C.
Acceptance (Section 2(b))

The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to
whom the proposal is made signifies his assent thereto, the offer is said to be accepted.
Thus the proposal when accepted becomes a promise.” An offer can be revoked before it is
accepted.
As specified in the definition, if the offer is accepted unconditionally by the offeree to whom
the request is made, it will amount to acceptance. When the offer is accepted it becomes a
promise.
Example
‘A’ offer to buy B’s house for rupees 40 lacs and ‘B’ accepts such an offer. Now, it has
become a promise.
When an offer is accepted and it becomes a promise it also becomes irrevocable. No legal
obligation created by an offer.
Mode of acceptance
Under the Indian Contract Act, acceptance can be by following two ways:
Implied acceptance: Acceptance which is not explicitly made by means of speech or

writing but, by the conduct of the person to whom an offer is made. The striking of
hammer thrice by the auctioneer in order to show his acceptance to the offer made by a
bidder is an example of implied acceptance to the offer made by the bidder at an auction
to the auctioneer;
Express acceptance: Acceptance which is made by means of words, oral or written is

known as an express acceptance. For example, A offers B his watch for sale through a
mail and A replies in positive to the offer by email.
Acceptance: absolute and unqualified (Section 7)

Acceptance to be legally enforceable must be absolute and unqualified. Section 7(1) of the
Indian Contract Act provides that in order to turn an offer into an agreement the acceptance
to the offer must be absolute and unqualified. The logic behind the principle that the
acceptance to the offer must be absolute and unqualified is that when acceptance is not
absolute and is qualified it results into a counter offer which leads to the rejection of the
original offer made by the offeror to the offeree. If the offeree makes any variations in the
original terms of the contract proposed to him and then accepts the contract, such an
acceptance would result in the invalidity of the contract.
For example, if A offers to sell his bike to B for Rupees 10,000. But B persuades A to sell
him the bike for 7,000 rupees to which A denies and if B at any later point of time agrees to
buy the bike for 10,000 rupees. Then A is under no obligations to sell him the bike as the
counteroffer made by B puts an end to the original offer.
It is also important that the acceptance made by the offeree should be in toto, i.e.
acceptance should be given to all the terms and conditions of the offer as acceptance of
only a part of the offer is not a good acceptance under the law. For example, A makes an
offer to B of sale of 30 kg of wheat at Rupees 700 but B agrees to buy only 10 kg of wheat.
Here the acceptance made by B is not in toto with respect to the terms of the contract and
therefore, the acceptance made by B is no acceptance in the eyes of law and therefore, A is
under no obligation to sell him wheat since there is no contract between them.
Legal rules and conditions for acceptance

Acceptance must be absolute and unqualified
The offeree’s approval cannot be conditional. For example, ‘A’ wants to sell her car to ‘B’ for
Rs 2 lakh, ‘B’ can’t come back and says that she accepts the offer but will buy the same for
Rs. 1 lakh.
Acceptance must be told to the offeror
If the acceptor just accepts the offer in his head and he does not mention the same to the
offeror, it can not be called an Acceptance, whether in an express manner or an implied
manner.
Acceptance must be recommended in the following mode
Acceptance is sometimes required in a prescribed/specified communication mode.
In a reasonable amount of time, the acceptance is given
It’s very rare that an offer is always to get acceptance at any time and at all times.
Therefore, the offer defines a time limit. If it does not, it should not be acknowledged
forever.
Mere silence is not acceptance

If the offeree fails to respond to an offer made to him, his silence can not be confused with
acceptance. But, there is an exception to this rule. It is stated that, within 3 weeks of the
date on which the offer is made, the non-acceptance shall be communicated to the offeror.
Otherwise, the silence shall be communicated as acceptance.
When communication is complete

Communication of acceptance (Section 4)
Communication of acceptance is complete when it is put in the course of transmission to

him as to be out of the power of the acceptor to withdraw the same and when it comes to
the knowledge of the proposer.
Time of revocation of acceptance

An acceptance may be revoked at any time, but not afterward, before the communication of
the acceptance is complete as against the acceptor.
Acceptance with subsequent condition

In the law of contract, the term “condition” is used in a loose sense and it is used
synonymously as “terms”, ‘’condition” or ”clause”. In its proper sense, the term condition
means some operative term subsequent to acceptance and prior to acceptance, it is a fact
on which the rights and duties of the parties to the contract depend on. The fact can be any
act or omission by any of the contracting parties, an act of the third party or happening or
not happening of any natural event. Conditions are of three types, which are as follows:
Express condition: In an express condition, certain facts can operate as condition as it

has been expressly agreed upon by the parties to the contract;
Implied condition: When certain facts which operate as a condition are not expressly
mentioned by the parties but can be inferred by the conduct of the parties to contract is
known as an implied condition;
Constructive condition: When the court believes that the parties to a contract must have
intended to operate certain conditions because the court believes that the Justice
requires the presence of the condition. These conditions are known as constructive
conditions.
A contract comes into force by the acts or conduct of one party to the other party. The acts
or conduct of the party can be turned into a promise only by meeting of mind or an
agreement between both the parties. An acceptance that carries a subsequent condition
may not have the effect of counter-proposal. Thus, where a person ‘A’ accepted the terms
of the contract for the sale of a good by accompanying the acceptance with the warning
that if money was not delivered to him by a particular date, then the contract will remain
repudiated. The acceptance of the offer would not be deemed to be a counter-proposal.
Acceptance of counter proposals

In certain cases, the person whose proposal or offer has not been accepted absolutely or
unqualifiedly by the offeree as the offeree attaches a counter-proposal to the original
proposal, the offeror becomes bound by the counter-proposal. If, by the conduct of the
offeror, he indicates that he has accepted the terms of the counter-proposal laid down by
the offeree.
In the case of Hargopal v. People’s Bank of Northern India Ltd., an application for shares
was made with a conditional undertaking by the bank that the applicant would be appointed
as a permanent director of the local branch. The shares were allotted to the applicant by
the Bank without fulfilment of the condition and the applicant was given his shares and the
applicant accepted the same without any protest regarding the non-fulfilment of the terms
of the contract. When there arose a dispute between the parties in a court of law. The
applicant contended that the allotment was void on the ground of non-fulfilment of the
conditions which were stipulated in the original contract. The court rejected the contention
from the applicant’s side by holding that the same can not be pleaded by him as he has
waived the condition by his conduct.
In Bismi Abdullah and sons v. FCI, the court held that where tenders were invited subject to
the deposit of money. It was open to the tenderers to waive the requirement and
acceptance given to a tender without making the deposit is binding upon the tenderer.
In D.S. Constructions Ltd v. Rites Ltd, the court held the where the tenderer made
variations to the terms of his tender within the permissible period, but the variations were
only partly accepted by the other side without the tenderer’s consent lead to repudiation of
the contract and so there was no contract at all. Therefore, the earnest money deposited by
the party can not be forfeited.
Provisional acceptance
Provisional acceptance is the type of acceptance by the offeree which is made subject to the
final approval. A provisional acceptance does not ordinarily bind either party to the contract
until the final approval is given to the provisional acceptance made by the offeree. Until the
approval is given, the offeror is at liberty to cancel the offer made to the offeree.
In Union of India v. S. Narain Singh, the High Court of Punjab held that where the condition
attached to the auction sale of the liquor was that the acceptance of the bid shall be subject
to confirmation by the Chief Commissioner. The contract will not be complete till the highest
bid is confirmed by the Chief Commissioner and till the confirmation is made the person
whose bid is provisionally accepted is at liberty to withdraw the bid.
Similarly, in Mackenzie Lyall And Co. vs. Chamroo Singh And Co., the bid at an auction was
of provisional acceptance in nature ad the terms of the contract stated that the bid shall be
referred to the owner of the goods for his approval and sanction.the court in this case also,
allowed the person to revoke his bid whose bid was provisionally accepted.
In Somasundaram Pillai vs. The Provincial Government Of Madras, the court held that the
bidder would be at liberty to withdraw his will prior to the final approval of the provisional
acceptance where the terms of the contract expressly mention that a bid which has been
provisionally accepted can not be canceled subsequently.
When a provisional acceptance is subsequently ratified or accepted then it is the duty of the
offeree to inform the same to the offeror, as it is then when the offeror becomes bound by
the terms of the contract. Acceptance is not complete until it is communicated by the
offeror.
Acceptance and withdrawal of tenders

A Tender is a legal offer or proposal to do or abstain from doing an act and it binds the
party to performance to the party to whom the offer is made. A tender can be made with
respect to money or specific articles. If the tender is not an offer then it falls in the same
category as a quotation of price. When the tender is accepted it becomes a standing offer. A
contract can arise only when an offer is made on the basis of the tender.
In Bengal Coal Co. v. Homee Wadia & Co., the defendant signed an agreement. One of the
terms of the contract was that the undersigned from the day of signing the contract has to
abide by the condition stipulated by the contract which provides that they shall be required
to provide a certain quality of coal to the other party for a period of 12 months. The
defendant abided by the terms of the contract for some time but before the expiry of the
term of the contract, the defendants refused to comply with the conditions which were
stipulated under the contract. The plaintiff subsequently sued the defendant for breach of
contract. The court held that there was no contract between the parties and the terms
stipulated thereof were just the part of a standing offer and the successive orders given by
the plaintiff was an acceptance of the offers of the quantity offered by the defendant and
therefore the order given by the plaintiff and the offer of the defendant together constituted
a series of contract. The defendants, in this case, are not free to revoke the offers which
were actually given by them. But barring those offers aside, the defendants had the
complete power of revocation.
In Rajasthan State Electricity Board vs. Dayal Wood Work, the purchase orders were issued
in terms of an arrangement of supply. But the purchase offer itself contained the provision
that the tenderer can refuse to supply the goods. The court, in this case, held that there
was no concluded contract that came into force and therefore, the contractor was at liberty
to refund his security deposit.
In a case where the tenderer has on some consideration promised not to withdraw the
tender or where there is a statutory provision restraining the withdrawal of the tender, the
tender becomes irrevocable. Just as the tenderer has the right to revoke his tender in the
same way the acceptor of the tender also has the right to refuse to place any order.
In Madho Ram vs. The Secretary Of State For India, the military authorities accepted a
tender for the supply of certain goods but during the period of tender, no requisition was
ever issued. In an action against the military authorities, the court held that the military
authority was not bound whatsoever by the acceptance of their offer to purchase any or all
the goods specified under the contract without any covenant to that issue. And so the party
giving his assent to the offer may at any time declare to the tenderer that they no longer
want to place an order for the purchase of goods.
Letter of intent to accept

A letter of intent to accept an offer is sometimes issued prior to the final acceptance of the
offer. Letter of intent does not have any binding effect on any of the parties to the contract.
In Dibakar Swain v. Cashew Development corp. The letter of acceptance issued by the
company only indicated their intention to enter into the tender. The acceptance was not
clearly reduced into writing. The court held that there was no binding contract entered into
by the parties and no work order can be issued and so the amount which was deposited by
the tenderer can not be forfeited.
Liability for failure to consider tender

If a valid tender is opened then it must be duly considered by the inviting authority because
if the valid tender is not duly considered it would be unfair on the part of the tenderer. In
Vijai Kumar Ajay Kumar v. Steel Authority Of India Limited, the court of appeal observed
that in certain circumstances, the invitation to tender can give rise to the binding
contractual obligation on the part of the person who invited the tenders who confirmed the
conditions of the tender.
In A. K. Construction v. State of Jharkhand, the contract was awarded to a person who was
not a qualified tenderer and he was chosen at the cost of a qualified tenderer who brought
an action against the decision of granting the tender to the unqualified tenderer. The court,
in this case, allowed the awardee of the tenderer to complete his work and also allowed the
aggrieved party compensation of one lakh rupees to be recovered from the salary of the
guilty officers who were guilty of awarding the tender unreasonably.
Non-compliance with requirements

In Vijay Fire Protection Systems v. Visakhapatnam Port Trust And Anr., the authorities
inviting the tender made it clear to the tenderers that only one brand of pump sets would
be accepted. The authorities even gave the last minute opportunity to the tenderers to
change the quotations. The tenderer to whom the tender for the supply of goods was given
refuted to comply with the terms of the contract. Subsequently, the authorities who invited
the tender cancelled the contract between them and the tenderer thereof. The court held
that the decision made by the authorities was not arbitrary and they were having the right
to do so.
In Kesulal Mehta vs. Rajasthan Tribal Areas, one of the conditions in the tender was that the
tenderer should have at least one year of work experience in the work in question. The
court, in this case, held that such conditions could be relaxed and any otherwise competent
contractor could be given the tender and he could at a later point of time be required to
produce the certificate of work.
In KM Pareeth Labha v. Kerala Livestock Development Board, it was held that where a
tender invited the quotations for disposal of trees. The tender should mention the
approximate value of the trees which could be assessed by the tenderers who can quote
their price.
Tender with concessional rate

In Kanhaiya Lal Agrawal vs. Union Of India & Ors, in this case, tender offered firm rates, as
well as concessional rate, provided the tender gets finalized within a shorter period of time
than generally followed. The court held that it did not result in the formation of a conditional
offer which hinges on the happening or non-happening of any event and the condition which
was put forth was only meant for bringing about more expeditious acceptance.
Certainty of terms
An agreement regarding the sale of immovable property should identify the property with
certainty. The agreement should be based on mutuality and should fix the price. In New
Golden Bus Service vs. State Of Punjab And Ors., the tender was made inviting the tender
for hiring services for the vehicle but it did not stipulate any time period. The lowest
tenderer was awarded the tenderer for a period of three years. The court, in this case, held
that there was nothing wrong in it as an open-ended tender can not be regarded as void
because of the reason for its vagueness. The tender, in this case, specified that the tender
can not be issued for a vehicle that is more than six months old and the tenderer who was
awarded the tender complies with the specified conditions specified under the tender. The
acceptance of substitute vehicles which were of equal efficiency and cost by the authority
inviting the tender was not arbitrary.
Preventing from tendering and blacklisting

In Utpal Mitra vs. The Chief Executive Officer, a bidder was prevented by some elements
inside the office from submitting the tender. The authorities carried on the enquiry
confirming the allegations. The person who was so ruled out from the tender was later on
permitted to submit his tender after two intervening holidays and his tender was later on
accepted. The court held that no prejudice was caused to the other tenderers as the work
issued to them was not interfered with.
In Merittrac Services Private v. Post Graduate Institute, it was held that the provision of
blacklisting a contractor arises only when the contract is awarded and the tenderer fails to
perform any conditions stipulated in the contract. For the purpose of seeking permission for
making his proposal, some material facts may be required from the bidder about his
experience.
The party allocating the contracts has the indispensable power of blacklisting the contractor.
But when in cases where the party is the state, the decision to blacklist is open to judicial
review to ensure proportionality and principle of natural justice.
Consideration (Section 2(d))
Why do we need consideration

Only the promises that are backed by consideration are enforceable because any promise
made without any obligation is usually very rash and without any sort of deliberation. The
reason for making consideration an essential part of a contract is because it levies a sort of
burden on the parties to fulfil the terms of the contract. For Example, if, A promises to give
B a car without B doing or abstaining to do anything for it, makes the promise by an
unenforceable. This will be a gift and not a contract per se.
Legal requirements as to consideration

Must move at the desire of the promisor- Section 2d of the Indian Contract Act, 1872,
clearly mentions that the consideration should be at the desire of the promisor if the
consideration is made at the will of the third person or is not according to the promisor
then it is not a good consideration.
Can move from the promisee or another person- Unlike English law in which the
consideration must move at the desire of the promisor, in Indian law as long as there is
consideration it is immaterial as to who has furnished it. Moreover, in the case of
Chinnaya vs. Rammyya the consideration can also move at the desire of the third party
but only in the condition where he is the beneficiary of the contract.
Can be an act, abstinence or even a promise- If the promisee does something or abstains
from doing something for the promisor, at his desire, then it will be a good consideration.
Can be past, present or future:
PAST- When the consideration is given before the promise was made. For example- A saves
B at the latter’s desire. B after a month promises to pay A. the act of A will amount to past
consideration for the payment made by B.
PRESENT- When the consideration is given simultaneously to the promise made, then this is
present consideration or executed consideration. For example- cash sales.
FUTURE- When the consideration of the promise made is to be passed at a future date then
that is called future or executory consideration. For example- A promises to pay B, when
the latter will fetch newspaper for him.
Consideration need not be adequate- It is not necessary that the consideration is equal
or adequate for the promise made. However, it is mandatory that the consideration
should be something in which the law attaches some value. It is for the parties to decide
the value of the consideration and not a court of law. For example- A sells a table to B
and B gives him rs 500. It will be difficult for the court to ascertain the value of the table,
so if A is satisfied with the amount given then the consideration is valid.
Should be real- although the consideration need not be adequate it should be real and
not illusory. The consideration should not be physically impossible, legally not permissible
or based on an uncertain event or condition.
Should not be something which the promisor is already bound to do- a consideration to
do something which the promisor is already required to do is not a good consideration.
For example- the public duty done by a public servant.
Should not immoral, or against the public policy of the state- under Section 23 of the
Indian contract it is given that consideration should not be illegal, immoral or against
public policy. The court should decide the legality of the consideration and if found to be
illegal then no action on the agreement should be allowed.
Stranger to a contract
It is a general principle that the contract can be enforced only at the behest of the parties
to the contract. No third party could enforce it. It arises from the contractual relationship
between the two parties. However, Lord Dennings has criticised this rule a number of times
as this rule has never benefited the third party whose roots go deeper in the contract. This
rule has two consequences-
No third party could enforce the contract.
The contract between the parties cannot levy an obligation on any person other than
those parties to a contract.
Exception
There are three exceptions to this rule:
Marriage settlements- When an agreement is made with regards to marriage, family

settlement or partition and is made in such a way that it benefits another person who is
not a party to the contract then he may sue for the enforcement of the contract.
Covenants running with the land- in cases of the contract of property the purchaser will
be bound by all the conditions and covenants of the land, even though he was not a
party to the original contract.
Acknowledgement of estoppels- in case the terms of the contract require that an

agreement has to be made with the third party, then this has to be acknowledged. This
acknowledgement could be expressed or implied. This exception covers the areas where
the promisor either expressly or by conduct has posed himself to be an agent.
Past consideration
It is the consideration which is made before the agreement. It is something which the
promisee has already done at the desire of the promisor.
For example- A rescues B. B promises to give him Rs. 1000 for the same. Here it is a past
consideration as the act of rescuing happened before any agreement.
In English law past consideration is no consideration. If A saves B and B promises him to

pay but later refuses to do so, then under English law, A cannot enforce it in a court of law.
B can give him the money, but that would not be considered as a past consideration but it
would be by way of gratitude. This, however, causes a lot of inconveniences, as if a person
would pay for the past act then he shall have to recognise the past consideration which is
not valid under English Law. the report of the law commission of England proposes to
remove this rule.
In India however, there is no compulsion to follow the English law and past consideration is
regarded to be valid.
Past act at request good consideration

The past act done for consideration would be a good consideration. In the case of Lampleigh
vs. Brathwait, in which the defendant requested the plaintiff to help him get a pardon from
the king. The plaintiff put in efforts, travelled up to the king etc.his request was not
sanctioned. The defendant promised to pay him for the same. Later he refused to do so.
Plaintiff sued him in a court of law. The court held that the defendant must pay the plaintiff
because he has himself requested him to help him. Hence the act of the plaintiff, although
done in the past, would still be regarded as a valid consideration.
Past voluntary service

If a person renders voluntary services without any request or promise from another and the
person receiving the services makes a promise to pay for the services, then such a promise
is enforceable in India under Section 25(2) of the Indian Contract Act, 1872 which states:
‘‘An agreement made without consideration is void unless it’s a promise to compensate,
wholly or in part, a person who has already voluntarily done something for the promisor, or
something which the promisor was legally compellable to do; or unless.’’
For Example- Peter finds Noah’s wallet on the road. He returns it to him and Noah promises
to pay Peter Rs 500. This is a valid contract under the Indian Contracts Act, 1872.
Past service at request past and executed

An act done before the giving of a promise to make a payment or to confer some other
benefit can be a consideration for the promise. The act must have been done at the
promisor’s request, the parties must have understood that the act was to be remunerated
either by a payment or the conferment of some other benefit, and payment or the
conferment of a benefit must have been legally enforceable had it been promised in
advance.
Executory consideration
Consideration may be something which is done or in the process of being done. It also
consists of an act which is promised to be done in the future. There may be promises which
form the consideration for each other. Before the completion of a promise which forms a
part of the consideration of the other promise, then such consideration is called executory
consideration.
For example- if A promises to pay B when he will sell the goods to him. Until time A does
not get the goods, the consideration is executory, when he got the goods and paid for the
same, the consideration is executed. If B does not sell the goods then A could also breach
for the suit.
Value need not be adequate
Consideration is defined as an act of abstinence from doing something, at the desire of the
promisor. The consideration should be of some value in the eyes of law, but the courts have
been very liberal in interpreting and anything of value by the parties is regarded as a valid
consideration.
The value need not be adequate for the promise made. The court will not enquire whether
the value of the consideration is equivalent to the promise that is made. If the parties agree
to the value of the consideration then it is sufficient. This rule is applicable as per Indian
and English law.
Inadequacy as evidence of imposition
The inadequacy of consideration is regarded to check whether the consent is freely given.
For example- A agrees to sell his property worth Rs 1 crore to B for Rs 10,000. denies that
his consent for the sale of the property was not freely given. A party seeking to set aside
the transaction based on the inadequacy of the consideration must show that he was unable
to understand it or was by way of some imposition. If the court is satisfied that the contract
was freely entered into then it would not matter whether the consideration was adequate or
not.
Where the consideration is inadequate it could be because of fraud, coercion, mistake etc.
the same would be the case when the consideration is so low that it shows some serious
inequality of the bargaining power.
Forbearance to sue
The most usual form of forbearance is the forbearance to sue within a reasonable time. This
promise to forebear can be expressed or implied from the circumstances. Sometimes it is
very difficult to construe from the fact whether it was an agreement to forbearance (which
is not a good consideration until not backed by the request of the promisor) or actual
forbearance. Hence to clarify in the case Bittan Bibi vs. Kuntu Lal, it was held that the
promise of forbearance should move at the desire of the promisor.
Forbearance to sue on a claim which is void is not a consideration. Moreover, abstaining to

sue could be a valid consideration only when the person who is abstaining, has a valid right
to sue. Also, it is not necessary to specify the time for such abstinence. A request for
forbearance without specifying the length is understood to be a forbearance for a
reasonable time.
Compromise good irrespective of merits
It is an important kind of forbearance which is undertaken by way of a compromise of a

doubtful claim. The important element here is to ascertain the limits of which the
compromise will function and will still be a good consideration. The difference between
forbearance and compromise is that in the latter claim is not admitted and the claimant
promises to abandon the claim.
The abandonment of a doubtful or disputed claim is a good consideration even if it later

turns out to be unsustainable. The test is to find whether the person thought in good faith
and he has a case which he was abandoning. A compromise of a claim arising out of an
illegal contract is insufficient as a consideration unless the compromise arises out of a
dispute of fact as to whether the contract is illegal.
Performance of existing duties
Performance of legal obligations

The performance of what one is already bound to do, either by general law or by a specific
obligation to the other party, is not a good consideration for a promise, because such
performance is not a legal boundation of a person. Moreover, on the performance of a legal
obligation, a reward from the private organisation is taken then it would be against the
public policy. It should be ensured that the legal duty actually exists. But if a man who
already has a legal obligation undertakes to do something or to do something in any of the
admissible ways i.e. the person has forgotten the choice that the law allows him to take is a
good consideration.
Moreover, the actual performance of an existing duty may confer a factual benefit, because
on actual performance the promise is saved of pursuing a legal remedy for its breach.
Performance of contractual obligations
Pre-existing contract with the promisor
Usually, the performance of a duty already owed under the contract to the promisor is not
good consideration. Even in terms of public policy, it is necessary to discourage a tendency
to use improper pressure or threatening to break one’s contract unless another party
complies by paying or promising to do so. The promisee must find it beneficial to perform
the promise immediately rather than paying for its breach which may not fully compensate
the promisor.
Promise to pay less than the amount due
A promise to pay less than what is due in the contract cannot be regarded as consideration.
This rule was given in Pinnel’s case. The court held that a smaller amount cannot in whole
satisfy a larger sum. However, a gift of the horse, robe etc can be considered as a good
satisfaction because under certain circumstances it is considered to be more beneficial than
money, otherwise, the person would not accept it.
This holding was criticised in a way wherein several cases the jurist held that if the party is
content to receive any amount be it less than the sum and he is satisfied by the same, then
it should be considered to be a valid consideration. However, in spite of all this criticism, the
Pinnel’s Case was applied unanimously in various circumstances.
Exceptions to the rule in Pinnel case
Part-payment by the third party
The part payment by the third party may be a good consideration for the whole debt.
Composition
Payment of a lesser amount would be a good consideration for the larger sum where this is
done for some already entered compromise.
Payment before time
Payment of a lesser sum before the time or in a different mode, a different place than
agreed by the parties or the gift of a horse or robe etc is a valid satisfaction of the goods.
Promissory estoppel
The doctrine of promissory estoppel is considered to be a departure from the doctrine of

consideration. A promise that was made in the future is estoppel. If the promise is made
with the intention that it would be acted upon and it was in actuality acted on, then the
promisor cannot be allowed to back out and it could be enforced in a court of law as well.
Promissory estoppels differ from traditional contract theory. It protects reliance. This
doctrine was developed to prevent injustice if the promisee suffers from any injustice due to
the reliance on the promise of the promisor, even though it was not required for
consideration. However, in English law, the doctrine of promissory estoppel is used only as
passive equity and is invoked only in the cases of defence.
Position under the Indian contract act is different than under English
Law
Under English Law
It is an established rule under English law that the third party cannot sue a contract made
for his own benefit. Apart from special circumstances. A person who is not a part of the
contract cannot enforce or rely for protection on its provisions. Such right can be conferred
to a property by way of trust but it cannot be on a stranger to a contract as a right to
enforce the contract.
Under Indian Law
It is established that the consideration can move from a third party but it cannot sue for its
own agreement. However, there was lots of confusion on this point. Although the definition
of “consideration” is wider in the Indian than in the English law since common law is
applicable, therefore it is generally applied that the third party cannot enforce the contract.
Law Commission of India in one of its reports mentioned that the contract must be
enforceable by a third party if it expressly for his benefit but the defences of the party to
the contract must also be considered. It is also proposed that the parties cannot alter the
terms of the contract once the third party takes over the contract.
Pre-existing contract with the third party

A promise to perform a pre-existing contractual obligation with a third party can be a valid
consideration for another contract. The point of conflict in these kinds of arrangements is
regarding the presence of consideration for the promisor. This conflict was settled in the
case of Shadwell vs. Shadwell, where the plaintiff got engaged and his uncle wrote him a
letter promising him to pay 150 pounds throughout his lifetime.
The jurists in the above case held that there was adequate consideration for the contract as
it could be construed from the fact that it was made because of the engagement of his
nephew. Moreover, marriage is of great interest to the near relatives. Also, the contract is
binding on the uncle as it is possible that the plaintiff has undertaken many liabilities on
account of the promise given by the uncle and if the payment is withheld then the plaintiff
could face a lot of embarrassment.
Under these provisions, the person should be safeguarded from any further payment which
is not enforceable as per the contract. Like in the case of Syros Shipping vs. Elaghil Trading
co. a vessel which was prepaid had to deliver tractors to Yemen. The charters defaulted
their payment to the shipowner because of the congestion in the ports. During this period
the shipowner asked for extra payment, the consignees agreed to pay but later refused. The
court held that since there was no consideration for the promise, moreover no estoppel was
created hence the contract is not enforceable.
Consideration and motive

Consideration is not the same thing as motive or a mere desire. The requirement of
consideration is vital and the contract could not be satisfied with just a moral obligation.
Consideration for a promise is always a motive for the promise, unless it is nominal or
invented, while a motive for a promise may not always be a consideration for it. Motive
induces a promise to be given. Similar holding was given in the case of Dwarampudi
Nagarathnamma vs. Kuruku Ramayya, where the Karta of a Hindu Undivided Family gifted
his concubine a portion of the property beyond the cohabitation was a motive and not a
consideration, and it should be considered as invalid because it was motivated by the desire
to compensate for his past services.
Absence of consideration
If the promissory note is neither genuine nor fraud then it is recoverable under the
provision of this code, with interest. The court said that mere denial of the passing of
consideration does not make any defence. Something which is probable has to be brought
on record.
Exceptions under Section 25, Indian Contract Act

In English law, a contract which is under the seal is enforceable without consideration. In
Indian law, there are no such provisions but still, The general rule is the ex nudo pacto non-
oritur action, which means that no right of action arises from the contract which is entered
into without any consideration. Still, under Section 25 of the Indian Contract Act,1872.it
provides certain exceptions under Section 25 of the Indian Contract Act.
Fiduciary relation
In case of a contract entered into between the relatives or on account of natural love and
affection is enforceable without consideration. The meaning of love and affection is not
judicially construed but parties who are nearly related would have instinctive love and
affection. However, this could be overruled with regards to some external circumstances,
like between the wife and husband who are compelled to live separately because of
quarrelling. But a settlement to be given to a man by the wife by way of maintenance could
be enforced without any consideration because it will result in peace and family harmony.
The term “family” (in this context) should be understood as a group of people living
together and possessing a right of succession, inheritance etc., but the family could be
construed as a people who are bonded by natural love and affection.
Past voluntary services

A promise to compensate the person who has done something voluntary in the past for the
promisor is enforceable. This exception is attracted in the cases when the services are
rendered voluntarily. Thus where a service is rendered on behalf of a company which is not
in existence, a subsequent promise to pay would not attract this provision. Even where the
promisee has done something for the promisor, which he had to do legally, then it will also
be covered under this exception.
In case of a Minor
In Karam Chand vs Basant Kaur, the court held that even where the promisor after attaining
majority, promises to pay for the goods attained in minority will also fall under this
provision. The court said that although the promise made by a minority is void but if the
promise is made by a person of full age to the promisee who has done something for him
voluntarily when the promisor was a minor, then it will also attract this exception.
Time barred debt

A promise to pay a time-barred debt is enforceable and it should be signed by the person or
his agent. It could be to pay for the whole debt or in part. The debt to be enforced could be
paid except for the law of limitation. However, the person who is under no obligation to pay
to another person is under no obligation under this clause.
The promise to pay the debt must be expressed, it is not sufficient if the intention to pay
could not be gathered from the circumstances.
Acknowledgement of the debt is different from the promise to pay the debt. The
acknowledgement of the person should be done before the period of limitation. Promise to
pay a time-barred debt is a new contract. It is not just merely an acknowledgement of the
existing liability.
Gift actually made

The provisions of “Consideration” do not affect the gift actually made. Under this Section,
gift is defined as:
The gift is of movables then it should be accompanied by its delivery.
The gift is of immovables then should be along with registration.
If the above conditions of gifts are fulfilled then lack of consideration would not affect the
validity of these gifts. However, apart from the consideration, they could be questioned
otherwise.
Where the gift of the property was made by a registered deed and is attested by two
witnesses, it was not allowed to be questioned on the ground that she was the victim of
fraud, moreover, she was not able to establish it.
Inadequacy of consideration
Adequacy of the consideration means that the consideration which is paid is equal in value
to the value for which it is paid. Consideration can be terms of money, property etc.
inadequate consideration is not void but it renders the contract unenforceable because of
the improper bargaining or by itself.
Inadequate consideration must be distinguished from nominal consideration. Nominal

consideration is deliberately given to make the contract effective but inadequate
consideration is less than the amount promised. Although the act does not make any
distinction between the nominal and inadequate consideration but it was made in the case
of Midland Bank trust vs Green.
Valid contract (Section 10)
A contract has been defined as “an agreement enforceable by law.” For an agreement to be
enforceable by law, it must contain the essential elements which are important for a valid
contract.
Section 10 in The Indian Contract Act, 1872 tells about what agreements can constitute a
contract. “All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and are not
hereby expressly declared to be void. Nothing herein contained shall affect any law in force
in India, and not hereby expressly repealed, by which any contract is required to be made
in writing or in the presence of witnesses, or any law relating to the registration of
documents.”
For a contract to be valid both the parties should have given their consent and that consent
must be free. Both parties should behave in such a way that they can make an impression
on the other party that the other party is ready to make a contract and a legal relation, not
a social relation. Thus a person who is casually saying that he/she is accepting an offer
usually cannot be considered as a contract. On the other hand, a person who has no
intention of making and completing a contract but acts that it makes people believe that
he/she really wants to enter into a contract can be termed as a contract. Legally, it is the
external appearance which is important in determining whether one is considered to a
contract or not. Agreements which are of religious, social nature and moral e.g. a friend’s
promise to others to go on a walk or picnic with him does not amount to a contract as both
the parties didn’t intend on forming a legal relation and were neither intended to face legal
consequences.
A contract comes into existence only when all the terms and conditions are satisfied and
fulfilled by the parties to the contract. If any of the conditions is not fulfilled by any of the
parties that agreement will be void. We can also say that contracts are self-regulated and
no one else other than yourself is forcing you to enter into a contract. It’s upon your
discretion that you want to enter into a contract or not and no one in any condition can
force you to enter into any contract and if does so that agreement will be void. Later, the
duties after entering into an agreement are defined by the state and if not followed be
punished but entering into a contract is not forced by anyone else other than yourself.
According to the Section 10 of the Indian Contract Act, 1872 there are mainly four
conditions which have to be satisfied to form a valid contract, i.e. free consent of parties to
the contracts, competent to contract, for a lawful consideration and with a lawful object.
Competent to contract (Section 11)

Sec.11 of the Indian Contract Act, 1872 lists down the qualifications which enable a person
in India to enter into contracts-
A person should have attained the age of majority as per the law of the country of which
he is a citizen.
In India, the age of majority is governed by the Indian Majority Act, 1875. As per Sec. 3 of
the Indian Majority Act, 1875, an Indian citizen is said to have attained the age of majority
upon completion of eighteen years of age. In the USA (the majority of the states) and the
UK, the age of majority is 18 years as well.
However, if a person is below the age of 18 years and a guardian has been appointed for
him, he shall attain majority at the age of 21 years.
A person should be of sound mind at the time of entering into a contract.
As per Sec. 12 of the Act, a person can be said to be of sound mind when he can assess,
understand his actions and realize the consequences of obligations imposed on him at the
time of entering into a contract.
A person should not be disqualified under any law to which he is subject.
Disqualifications for entering into a contract

As per the Indian Contract Act, 1872 all persons who do not meet the criteria as per Sec. 11
of the act are incompetent to contract. Hence, we can deduce that the following category of
persons do not possess the legal capacity to enter into a contract-
Minor
In India, a minor is an Indian citizen who has not completed the age of eighteen years. A
minor is incapable of understanding the nature of the liabilities arising out of an agreement.
Hence a contract with a minor is void ab initio (void from the beginning) and cannot be
enforced in a court of law. The result is that a party cannot compel the minor to perform his
part of obligations as enumerated in the agreement (plead specific performance of an
agreement/rule against estoppel).
Mohori Bibee vs. Dharmodas Ghose
1. The respondent, Dharmodas Ghose, a minor, had mortgaged his property in favor of the
moneylender, Brahmo Dutt for securing a loan amounting to INR 20,000/-.
2. Mr. Brahmo Dutt had authorized Kedar Nath to enter into the transaction through a
power of attorney. Mr. Kedar Nath was informed of the fact that Dharmodas Ghose was a
minor through a letter sent by his mother.
3. However, the deed of mortgage contained a declaration that Dharmodas Ghose was of
the age of majority.
4. The respondent’s mother brought a suit on the ground that the mortgage executed by his
son is void on the ground that her son is a minor.
5. The relief sought by the respondent was granted and an appeal was preferred by the
executors of Brahmo Dutt before the Calcutta high court. The same was dismissed.
6. An appeal was then made to the Privy council. The Privy council held that-
1. A contract with a minor is void-ab-initio.
2. Sec.7 of the Transfer of Property Act, 1882 states that a person competent to contract
is competent to transfer a property.
3. Hence, the mortgage executed by the respondent is void.
However, if a minor enters into a contract and performs his part of obligations, the other
party can be compelled to perform and fulfill its obligations, and, in such instances, the
contract becomes legally enforceable.
A.T Raghava Chariar vs. O.A. Srinivasa Raghava Chariar
1. A minor entered into a contract for mortgage with a person of the age of majority.
2. The minor extended the monetary amount and performed his part of the obligations.
3. The other party refused to honor the agreement.
4. The full bench of the Madras High court had to decide “whether a mortgage executed in
favour of a minor who has advanced the whole of the mortgage money is enforceable by
him or by any other person on his behalf.”
5. The court ruled that-

1. The agreement sought to be enforced is the promise of the mortgagor who is of full
age to repay the money advanced to by the mortgagee.
2. The mortgagee (the minor) has already advanced the money which was the
consideration for the promise of the mortgagor and performed his part of the
obligations. There is nothing pending from his side.
3. Hence, the contract is enforceable.
Additionally, a minor cannot enter into a contract and provide his consent when he attains
majority. This is because a minor’s agreement is void from the beginning. A void agreement
cannot be made legally valid by ratification.
Suraj Narain Dube vs. Sukhu Ahir
1. Suraj Narain lent money to Sukhu Ahir who was a minor. The minor executed a
promissory note against the money borrowed.
2. After four years, when the minor attained majority, he and his mother executed a second
promissory note in favour of Suraj Narain in respect of the original loan plus the interest
accumulated over the years.
3. The court held-

1. The first agreement entered into by the parties is void as a minor is incompetent to
contract. The minor had no liability to pay under this agreement. However, the minor
made a promise and provided the promissory note, amounting to consideration.
2. A minor has no power to ratify the contracts entered into by him upon attaining the
age of majority.
3. In the second agreement executed by the parties, there was no consideration from the
Plaintiff. The original advance was no consideration for a second agreement. The
second agreement is void due to want of consideration.
In certain instances, a contract entered into by the minor or by the minor’s guardian for his
benefit is valid in the eyes of law-
1. A contract for marriage entered into by a minor/his guardian.
2. A partnership contract entered into with a minor admitting him to the benefits of a
partnership. However, the minor cannot be held personally liable for the losses incurred.
3. A contract relating to the minor’s property entered into by his guardian if it is for the
benefit of the minor.
4. A contract of apprenticeship with a minor.
5. A contract supplying the minors with goods and services necessary for life.
Websites such as YouTube expressly mention in their terms and conditions that any minor
while using its services represents that he has the permission of his parent/ guardian to do
so. Parents and guardians are held liable for the child’s activity on such websites.
Effects of minor’s agreement
Through Mohori Bibee vs. Dharmodas Ghose landmark judgment, the effects can be
explained-
No liability arising out of either tort/contract: A minor is incapable of giving consent, and
the nature of minor’s agreement is a nullity and cannot be enforced
The rule of estoppel: Estoppel is a legal rule of evidence which prevents a party from
alleging something that contradicts what he previously stated. The court held that the
doctrine of estoppel does not apply to the case in which the person knows the real facts,
beforehand and here the attorney of the defendant knew that the plaintiff was a minor.
Hence this rule does not apply.
Restitution of benefit: According to Section 64 of the Indian Contract Act, when a person
at whose option a contract is voidable rescinds it, the other party need not perform it.
This applies to contracts that are voidable, but a minor’s contract is void, and therefore,
he cannot be asked to refund the amount money to the moneylender.
Exception to general rule
For providing protection to a minor, his agreement is void. But there are certain exceptions
as well.
When a minor has performed his obligation: In a contract, a minor can be a promisee but
not a promisor. So if the minor has performed his part of the promise, but the other
party hasn’t the minor being in the position of a promisee he can enforce the contract.
A contract entered into by a guardian of a minor for his benefit: In that case, a minor can
sue the other party when it does not perform its promise. In the case of Great American
Insurance v. Madan Lal[1] the guardian on the behalf of her son entered into an
insurance contract in respect of fire for the minor’s property. When the property was
damaged and the minor asked for the compensation, the insurer denied it by saying that
a contract with a minor is a void one. But later the court held that this contract was
enforceable, and he is liable to pay compensation.
Contract of apprenticeship: Under the Indian Apprentices Act, 1850, a contract of

apprentice entered by guardian on his behalf is binding on the minor
Necessities supplied to a minor
If a person is incapable of entering into a contract is supplied by another person with

necessities of life, the person who has supplied is entitled to get reimbursement from the
property of such incompetent person, including a child as well. But if the minor has no
property of his own, then he cannot be bound to reimburse the other person.
Can a minor be a partner?
The way of a contract creates a partnership, and the essential of a contract is that the both
the parties should be of the age of majority. However, as an exception as per Section 30 of
the Partnership Act is that with the due consent of all the partners, the minor can be
admitted to the benefit of partnership for the time being. But he will not be liable for any of
his acts.
Liability of a minor under the Negotiable Instrument Act
As per Section 26 of the Act, a minor can draw, endorse, and negotiate and he can bind
everybody except himself. Every person who is capable of contracting according to the law
to which he is subject may bind himself and be bound by the making, drawing, accepting,
delivery and negotiation of a promissory note, cheque or a bill of exchange.
Can a minor be an agent or principal?
A minor can never be a principal because Section 183 of the Indian Contract Act for
anybody to become a principal should be of the age of majority and be of sound mind and
since a minor is not competent to contract, he also cannot employ an agent. But, a minor
can become an agent as per the provisions of section 184 but the principal shall be bound
by the acts of the minor and he would not be personally liable in that case.
Person of unsound mind

Idiots- An idiot, in medical terms, is a condition of mental retardation where a person has
a mental age of less than a 3-year-old child. Hence, idiots are incapable of understanding
the nature of the contract and it will be void from the very beginning.
Lunatic- A person who is of sound mind for certain duration of time and unsound for the
remaining duration is known as a lunatic. When a lunatic enters into a contract while he
is of sound mind, i.e. capable of understanding the nature of the contract, it is a valid
contract. Otherwise, it is void.
Illustration- A enters into a contract with B for sale of goods when he is of sound mind. A
later becomes of unsound mind. The contract is valid.
People under the influence of the drug- A contract signed under the influence of
alcohol/drug may or may not be valid. If a person is so drunk at the time of entering into
a contract that he is not in a position to understand the nature and consequences, the
contract is void. However, if he is capable of understanding the nature of the contract, it
will be enforceable.
Illustration- A enters into a contract with B under the influence of alcohol. The burden of
proof is on A to show that he was incapable of understanding the consequence at the time
of entering the contract and B was aware of his condition.
Persons disqualified by law

Alien enemy- An alien enemy is the citizen of a country India is at war with. Any
contracts made during the war period with an alien enemy are void. An Indian citizen
residing in an alien enemy’s territory shall be treated as an alien enemy under the
contract law. Contracts made before the war period either get dissolved if they are
against public policy or remain suspended and are revived after the war is over, provided
they are not barred by limitation.
Illustration- A, of country X, orders goods from B, of country Y. The goods are shipped and
before they could reach Y, country X declares a war with country Y. The contract between A
and B becomes void.
Convicts- A convict cannot enter into a contract while he is serving his sentence.
However, he regains his capacity to enter into a contract upon completion of his
sentence.
Illustration- A, is serving his sentence in jail. Any contract signed by him during this period
is void.
Insolvent- An insolvent is a person who is declared bankrupt/ against whom insolvency

proceedings have been filed in court/resolution professional takes possession of his
assets. Since the person does not have any power over his assets, he cannot enter into
contracts concerning the property.
Illustration- A enters into a contract for sale of goods with B. Before the sale takes place, an
insolvency suit is filed against A. A sell the goods to B during pendency of insolvency
proceedings. The contract is valid.
Foreign sovereign- Diplomats and ambassadors of foreign countries enjoy contractual

immunity in India. One cannot sue them in Indian courts unless they submit themselves
to the jurisdiction of Indian courts. Additionally, sanction from the central government is
also required in such cases. However, the foreign sovereign has the authority to enforce
contracts against the third person in Indian courts.
Body corporate- A company is an artificial person. The capacity of a company to enter

into a contract is determined by its memorandum and articles of association.
Competency of parties to enter into an e-contract

A party can enter into an e-contract if it satisfies the legal requirements as per Sec. 11 and
Sec. 12 of the Indian Contract Act, 1872.
Competency to contract on behalf of another
As per the Indian Contract Act, 1872 a person can employ another who shall enter into
contracts with the third person on his behalf. The person in this instance is known as the
principal and the other person so employed is known as the agent.
Any person may be employed as an agent. However, a minor or a person of unsound mind
cannot be held liable for their acts to the principal.
An agent’s authority may be either-
1. express, i.e. by word of mouth or documented in writing as in Power of Attorney
2. Implied, i.e. it might be deduced from the facts and circumstances of the case
Companies ensure competency of each other while entering into a contract.
Most companies while entering into contracts with one another want to make sure that the
other party is competent enough to enter into a contract. This is required to avoid any legal
complications in the future. This is mostly done through the inclusion of a representation
clause in a contract stating that the company, as per its memorandum and articles of
association, is capable of entering into a contract through its authorized representatives.
A copy of the articles of association may be annexed by both parties to confirm the
representations made.
If the memorandum and articles provide otherwise, a condition precedent clause is

incorporated into the agreement stating that the company shall pass necessary board
resolutions to alter its articles of association. A stipulated date called a long stop date is
given to the other party to comply with the conditions precedent failing which the
agreement shall stand terminated.
A party might be asked to produce a copy of board resolution so passed/ changes made in
the articles of association to the other party to prove its compliance with the condition
precedent.
It is expressly mentioned in the agreement that both the parties indemnify each other from
any suits, proceedings, or liabilities arising from breach of the representation clause.
Competency of parties to contract is one of the most important requirements to make an

agreement valid and enforceable in a court of law.
A contract made by a person who does not possess the mental capacity to understand the
nature and consequences of the contract is void ab initio. On the other hand, contracts with
lunatics, people under the influence of the drug may/may not be void depending upon the
circumstances surrounding the situation.
A person regains the legal capacity to contract upon removal of any of the disqualifications.
Companies while entering into contracts with one another always try to safeguard their
interests. Representation and indemnification are the most commonly used clauses to
ensure that both the parties are competent to contract.
Free consent (Section 13 and 14)

Consent is said to be free when it is not caused by coercion, undue influence, fraud,
misrepresentation and Mistake.
Consent is an essential element of a valid contract. In its absence, the contract becomes
void or voidable depending on the circumstance. Consent means providing the party with an
opportunity to exercise his/her volition with respect to the contract. For a valid acceptance
to the proposal, the assent must be voluntary and genuine. As discussed earlier assent is
required to form a valid agreement. Assent here refers to the opportunity to exercise one’s
volition. Where consent to an agreement is not free i.e. has any of these factors- coercion,
undue influence, fraud or misrepresentation, the agreement is a contract voidable if the
other party so chooses whose consent was obtained on the basis of vitiating factors. If, for
example, a person is induced to sign an agreement by fraud, he may, on discovering the
truth, either uphold the contract or reject it.
Where consent is caused by mistake, the agreement is void. A void agreement cannot be
affected by the party [Section 2(g)] An agreement which is void doesn’t give rise to legal
consequences and is void ab initio These agreements are not enforced by the court or we
can call this agreement as ‘’ An agreement not enforceable by law’.
Difference between consent and free consent

Section 13 defines consent:
An agreement where both parties share common intention relating to the terms of the
contract is known as true consent or consensus ad idem and is at the root of every contract.
Free consent is defined under the act as consent which is not caused by coercion, undue
influence, fraud, misrepresentation and mistake.
Every free consent is consent but every consent is not a free consent.
Void Agreement and Void Contract
Void agreement is an agreement not enforceable by law. A contract which is not recognised
by law. There can be no action instituted in a court of law to claim rights against parties.
Void agreement is void right from the day the agreement is constructed while a void
contract becomes void at a later stage. In a void contract, the voidness creeps because of
some incident or change in circumstance which is not through the fault of the parties.
Void agreements have been specifically stated in chapter 2 of the act under Sections 11,20,
23 to 30 and 56. No such specific mention has been made for a void contract under any
chapter of the Act.
Coercion (Section 15)

It is defined under Section 15. Coercion is using force or creating circumstances wherein the
other parties’ consent is not free. It might be through taking some property, doing
something which is an offence under IPC, the purpose of these things should be to get the
other parties’ consent.
Techniques of causing coercion

Consent is said to be caused by coercion when it is obtained by some act which compels the
other party;
1. Threatening or doing something which is a crime under IPC; or
2. Seizing or confining someone.
An illustration under the First category would be Consent given at the point of a knife, or by
threatening to injure someone, or by intimidation or by threatening to destroy a man’s
property.
An example of the second type will be a case where the plaintiff had pledged his plate with
the defendant for $20. When he went to redeem it the pledge insisted that an additional
$10 interest was also owed. The plaintiff paid this to redeem his plate and then sued to
recover it back. The court allowed it and the defendant had taken advantage of the situation
and extracted an amount which was not lawful.
Undue influence (Section 16)

This is defined under Section 16. It is using one’s position to influence the decision of the
other person to his prejudice. There is a subtle difference between fraud and undue
influence. The party is able to persuade because of the relation they share or he enjoys a
certain degree of confidence of the other person.
What amounts to apply undue influence on someone?

Sometimes the parties to an agreement are so related to each other that one of them is
able to apply undue influence to the expression of choice, willingness and consent of the
other.
The person who is in commanding position may use his position and the trust that the other
person reposes on him to his advantage. By ‘’advantage’’ we mean to cause the other
person to express his assent to the proposal.
It is the nature of the relationship that is a Sine qua non in these types of cases, which
enables one party to be at a superior position.
For Example: A spiritual adviser(guru), for example, in a case induced the plaintiff, his
devotee, to gift to him the whole of his property to secure benefits to his soul in the next
world. Such consent is said to be obtained by undue influence. The test is to examine this
from a prudent man’s point of view. Whether in the absence of the nature of the
relationship a prudent man would have done the same?
Subtle species of fraud
The court describes this in Mahboob Khan v. Hakim Abdul Rahim. Undue influence is a kind
of fraud wherein the parties’ mind is hacked in a pernicious way. It can be through various
means such as coercion, fear or other methods which are directed to impair the reasoning
of the person. The result is the person thinks he is using his volition but in reality, his free
will is affected by other parties’ scheme,
Undue influence and coercion

Coercion (duress) in the execution of a contract or deed involves some kind of physical or
bodily threat. The threat is not restricted to the party but to any person, the party is
interested in.
When compared to Undue influence, the difference is that undue influence may exist
without violence or threats of violence against the victim. Undue influence exists because of
the relationship the parties share. It is usually without violence or threats against the
victim. The confidence which the other party reposes in the other is used to one’s
advantage.
A person is said to be in a position to dominate the will of another in the following cases-
1. Where he holds a position of dominance or authority or some kind of trust is reposed in

him.
2. Where the victim doesn’t have the mental capacity to understand the consequences of
his actions.
Fiduciary relation
Trust and confidence are essential elements of Fiduciary relation. Confidence is involved in
many of our interactions in everyday life. This category is, therefore, a very wide one. It
includes the relationship of solicitor and client, spiritual adviser and his devotee, doctor and
patient, woman and her confidential managing agent, parent or guardian and child, and
creditor and debtor.
Presumption of undue influence
In certain cases, the presumption of undue influence is raised. The effect of presumption is
once it is prima facie established that the defendant has overpowered the will of the other,
it will be assumed he has used his position to influence the outcome. The defendant has to
establish the contrary.
The presumption is raised at least in the following cases:
Unconscionable bargains, inequality of bargaining power or economic duress
Unconscionableness: Where one of the parties to a contract is in a position to use undue

influence on the other and the contract is apparently skewed in one parties’ favour, the law
presumes that consent must have been obtained by undue influence. The burden is shifted
to the stronger party to prove that he did nothing to dominate the will of the other.
This case illustrates the above point wherein An old and illiterate woman, incapable of any
business, conferred on her confidential managing agent, without any valuable consideration,
an important pecuniary benefit under the guise of trust. The onus is on the grantee to show
conclusively that the transaction is honest, bona fide, well-understood, the subject of
independent advice and free from undue influence’’.
Position of dominance necessary for presumption to arise
For this presumption to be successful, one of the parties’ have to be in a superior position
or in a dominating position. Where the parties are on equal footing the mere
unconscionableness of the bargain does not create a presumption of undue influence. The
mere fact that the bargain is a hard one is no guard in itself for granting relief.
In Raghunath Prasad Sahu v. Sarju Prasad Sahu The defendant and his father were equal
owners of a vast joint family property over which they had quarrelled. Consequently, the
father had instituted criminal proceedings against the son. The defendant, in order to
defend himself, mortgaged his properties to the plaintiff and borrowed from him about ten
thousand on 24% compound interest. In eleven years this rate of interest had magnified
the sum covered by the mortgage more than elevenfold, viz., Rs1,12,885.
The defendant had contended that the lender had, by exacting a high rate of interest, taken
unconscionable advantage of his mental distress and, therefore, there should be a
presumption of undue influence.
Their lordships, however, held that there should be no such presumption in the
circumstances of the case.
Sub-Section (3) of Section 16, deals with three matters. There is a particular order which
should be followed while determining whether a party has dominated the will of the other.
In the first place, the relation is of a kind where the party can overpower the volition of the
other.
Then comes the second stage where it will be examined whether the contract has been
induced by undue influence.
This leads to the third stage, where onus probandi emerges. The burden of proving that
plaintiff consent is not vitiated by any of the factors shifts on defendant.
This order should be maintained lest error is avoided Unconscionableness of the bargain
cannot be the first thing to be considered. We have to start from the relation that the
parties share with respect to each other.
1. Contracts with Pardanashin woman
A contract with a Pardanashin woman is presumed to have been induced by undue

influence. She can avoid the contract unless the other party can show that it was her
‘’intelligent and voluntary act’’.
According to the Bombay High Court, a woman does not become pardanashin simply
because ‘’she lives in some degree of seclusion’’. The concept probably means a woman who
is totally ‘’secluded from ordinary social intercourse’’.
Once it is shown that a contract is made with a pardanashin woman, the law presumes
undue influence. In Moonshe Buzloor Raheem v. Shumsoonisa Begum, A window remarried.
Subsequently, she endorsed and delivered to her new husband certain valuable Government
papers. In an action to recover them back from him, she proved that she lived in seclusion
and that she had given over the papers to him for collection of interest. He contended that
he had given her full consideration for the notes. It was held that the mere fact of
endorsement and the allegation of consideration were not sufficient to lift the presumption
of undue influence. He should prove that the transaction was bona fide sale and that he
gave full consideration for the paper which he received from his wife.
Misrepresentation (Section 18)

A contract the consent to which is caused by misrepresentation is voidable at the option of
the deceived party. Misrepresentation means the action of giving a false or misleading
account of the nature of something. This inaccurate information might make the difference
with respect to a party deciding to enter into an agreement or not entering the agreement.
Misrepresentation means misstatement of a fact material to the contract. Section 18
defines:
This Section includes the following types of misrepresentation:
Unwarranted statements: When someone declares a statement which is relevant to the

contract and that statement doesn’t have information which justifies those facts even
though he believes to be true is misrepresentation.
In a Bombay case, for example, The defendant chartered a ship from the plaintiffs, who
stated that the ship was certainly not more than 2800 tonnage register. As a matter of fact,
the ship had never been in Bombay and was wholly unknown to the plaintiffs. She turned
out to be of the registered tonnage of more than 3000 tonnes.
It was held that the defendants were entitled to avoid the charter party. ’’The reason was
that defendants asserted regarding the size of the ship-an assertion not supported/justified
by any information the plaintiff had at the time, and which was not true’’
A statement is said to be warranted by the information of the person making it when he

receives the information from a reliable source. It should not be mere hearsay.
Where a representation acquires the status of being a term of the contract, and it turns out
to be false, the disadvantaged party may, not only avoid the contract but also sue for
damages for breach.
Where the seller of a car stated that the car had done only 20,000 miles, the representation
being untrue, the buyer was allowed to recover compensation for the misrepresentation.
Breach of Duty
Any breach of duty which is beneficial to the person committing it by confusing the party to
his harm is a misrepresentation. This clause covers all cases which are called as cases of
‘constructive fraud’, in which there is no intention to deceive, but where the circumstances
are such as to make the party who derives a benefit from the transaction equally
answerable in effect as if he had been actuated by motives of fraud or deceit’’.
Inducing mistake about subject-matter
Causing, however innocently, a party to an agreement to make a mistake as to the

substance of the thing which is the subject of the agreement is also misrepresentation
(Section 18 (3)). The subject-matter is the core of the agreement. This has to be of the
quality or value which the parties expected at the time of constructing the agreement. If
one of the parties leads the other, however innocently, to make a mistake as to the nature
or quality of the subject-matter, there is a misrepresentation.
Example: The government auctioned certain forest coupes. A part of the land was occupied
by tenants. The forest department knew this fact but did not disclose it to the purchaser.
The contract was held to be vitiated by misrepresentation. The purchaser was allowed to
recover damages for loss.
Suppression of vital facts
Misrepresentation may also arise from the suppression of vital facts. Cases of concealment
or suppression will fall either under sub-Section (2) when it amounts to a breach of duty or
under sub-Section(3) when it leads the other party to make a mistake about the subject-
matter of the agreement.
In R. v Kylsant, the prospectus of a company stated that the company had regularly paid
dividends, which created the impression that the company was making profits, whereas the
truth was that the company had been running into losses for the last several years and
dividends could only be paid out of wartime accumulated profits. This was held as a
Misrepresentation.
Expression of opinion
A mere expression of opinion cannot be regarded as a misrepresentation of facts even if the

opinion turns out to be wrong. In some cases, a statement of opinion may also amount to
misrepresentation.
It is a mistake to assume that a statement of opinion cannot involve a statement of fact.

When knowledge of the parties is not on the same footing then a statement of opinion by
the person who is more knowledgeable, his statement has a material fact for he tacitly
claims information which justifies his opinion.
Of material facts
A fact is said to be material if it would affect the judgment of a reasonable person in

deciding whether to enter into the contract and, if so, on what terms. Misrepresentation of
the age of a car, showing it to be five years younger, was held to be material because it
affected the price which a willing purchaser would have liked to pay for it.
Inducement
The misrepresentation must be the cause of the consent, in the sense that but for the
misrepresentation the consent would not have been given. It must have played a
substantial role in the plaintiff’s decision to enter or not to enter into the contract.
The representation must be made with the intention that it shall be acted upon by the other
party.
There would be no misrepresentation, even if the advertisement was false if the buyer had
inspected the goods before buying them unless he was the victim of some concealed defect
which could not be known by external examination.
Means of discovering the truth
A party cannot complain of misrepresentation if ‘’ he had the means of discovering the truth
with ordinary diligence’’.
A person who bought a quantity of rice was precluded from alleging misrepresentation
about its quality because he lived very near the place where the goods were lying and,
therefore, might have discovered the truth with ordinary diligence.
Fraud (Section 17)

According to Merriam-Webster fraud is defined as ‘’An intentional perversion of truth in
order to induce another to part with something of value or to surrender a legal right. The
distortion of facts intentionally which are directed towards the other party, in order to
receive their assent to the proposal. Section 17 defines fraud.
Assertion of facts without belief in the truth
In English law ‘’fraud’’ was defined in the well-known decision of the House of Lords in Derry
v Peek. The judges had observed in this case that- ‘’Fraud is proved when it is shown that a
false representation has been made,-
1. Knowingly, or
2. Without belief in its truth, or
3. Recklessly careless whether it be true or false’’.
In this case:
A company’s prospectus contained a representation that the company had been authorised
by a special Act of Parliament to run trams by steam or mechanical power. The authority to
use steam was, in the Board refused consent and consequently, the company was wound
up. The plaintiff, having bought some shares, sued the directors for fraud. They were held
not liable because they honestly believed that once the Parliament had authorised the use
of steam, the consent of the Board was something that was bound to happen. It follows,
therefore, that the person making a false representation is not guilty of fraud if he honestly
believes in its truth. Thus, intentional misrepresentation is of the essence of fraud.
Active concealment
‘’Active concealment’’ is different from ‘’passive concealment’’. Passive concealment means

mere silence as to material facts. Active concealment of a material fact is a fraud; mere
silence, except the few cases noted below, does not amount to fraud. Active concealment
involves some kind of action, behaviour or scheme to trick the other party into giving his
consent to the proposal. The intention is to commit fraud. For example, a husband
persuaded his illiterate wife to sign certain documents telling her that by them he was going
to mortgage her two lands to secure his indebtedness and in fact mortgaged four lands
belonging to her. This was an act done with the intention of deceiving her.
Mere silence is no fraud
False impression is ordinarily conveyed by deliberate misstatement of facts. Misstatement of

facts is just one of the ways by which fraud can be caused. A false impression may be
caused by trick or device or ambiguous language, active concealment of material facts or
other methods. Ordinarily, mere silence is no fraud, even if its result is to conceal ‘’facts
likely to affect the willingness of a person to enter into a contract’’.
A contracting party is under no obligation to disclose the whole truth to the other party or
to give him the whole information in his possession affecting the subject-matter of the
contract. It is under this principle that a trader may keep silent about a change in prices. A
seller who puts forth an unsound horse for sale, but says nothing about its quality, commits
no fraud.
When silence is fraud
Duty to speak (contracts uberrima fides): Duty to speak arises where one contracting
party reposes trust and confidence in the other. A father, for example, selling a horse to
his son must tell him if the horse is unsound, as the son is likely to rely upon his father.
Duty to disclose the truth will arise in all cases where one party reposes, and the other
accepts confidence.
This duty to speak is also expected from the party when the other party has no means to
discover the truth and has to depend on other parties’ judgment or assessment
A perfect example of this would be a contract of insurance wherein an insurance company

knows nothing about the life or situation of the insured. It is, therefore, the duty of the
assured to put the insurer in possession of all the material facts affecting the risk covered.
A contract of insurance is, for this reason, called a contract of absolute good faith, uberrima
fides.
This case where the plaintiff spent a sum of money to mark the engagement of his son. He
then discovered that the girl suffered from epileptic fits and so broke off the engagement.
He sued the other party to recover from them compensation for the loss which he had
suffered on account of their deliberate suppression of a vital fact which amounted to fraud.
The court concluded that a mere passive non-disclosure of the truth, however misleading in
fact, does not amount to fraud, unless there is a duty to speak. It was observed that the
law imposes no general duty on anyone to broadcast the blemishes of his female relations;
not even to those who are contemplating matrimony with them.
There was no fiduciary connection between the parties. The engagement was, however, held
to be voidable by reason of the misrepresentation, but the plaintiff was not entitled to
recover any compensation under Section 75 of the Contract Act.
Where silence is deceptive: Silence is sometimes itself equivalent to speech. A person

who keeps silent, knowing that his silence is going to be deceptive, is no less guilty of
fraud. Where, for example, the buyer knows more about the value of the property, which
is the subject of sale, but prefers to keep the information from the seller, the latter may
void the sale.
Change of circumstances: Sometimes a change in circumstances might take place in the

intervening period, between the representation of facts and when the contract is entered
into. When this happens it is the duty of the person who made the representation to
communicate the change of circumstances.
A medical practitioner represented to the plaintiff that ‘his practice was worth $2000 a year’.
The representation was true. Five months later when the plaintiff actually bought the
practice, it had considerably gone down on account of the defendant’s serious illness. It was
held that the change of circumstances ought to have been communicated.
Half-truths: Even when a person is under no duty to disclose a fact, he may become
guilty of fraud by non-disclosure if he voluntarily discloses something and then stops
halfway. A person may be silent, but if he speaks, a duty arises to disclose the whole
truth. ‘’ Everybody knows that sometimes half a truth is no better than a downright
falsehood’’
Difference between fraud and misrepresentation
1. Fraud is intentionally wrong, whereas misrepresentation may be quite innocent.
2. Fraud in addition to making the contract voidable is a cause of action in tort for damages.
Misrepresentation is not a tort but under Section 75 of the Contract Act
3. . ‘’ A person who rightfully rescinds a contract is entitled to compensation for any

damage which he has sustained through non-fulfilment of the contract’’.
4. A person complaining of misrepresentation can be countered with that he had the

opportunity of discovering the truth with ordinary effort’, but excepting, fraud by silence,
it does not lie in the mouth of the person committing fraud to say that his victim was too
easily deceived or had the means of discovering the truth.
Mistake (Section 20, 21, and 22)

Mistake may operate upon a contract in two ways. It may defeat the consent altogether
that the parties are supposed to have given, that is to say, the consent is unreal. Two or
more persons are said to consent when they agree upon the same thing in the same sense.
Definition of ‘’Mistake’’
Mistake happens when one of the parties has some misconceptions about the facts stated in
the contract. Section 20 defines
Illustration:. Two people contract that one of them will buy their house but none of them is
aware that the house was burnt when they were negotiating the contract. The agreement is
void.
Section 20 will come into play:
1. When both the parties to an agreement are mistaken,
2. Their mistake is as a matter of fact, and
3. The fact about which they are mistaken is essential to the agreement.
Contract caused by mistake of one party as a matter of fact- A contract will not become
voidable when one of the parties’ is under a mistake relating to some fact involved.
Certain facts are essential to every agreement. They are:
1. The identity of the parties;
2. The identity and nature of the subject-matter of the contract;
3. Nature and content of the promise itself.
Mistake as to identity
Mistake as to identity occurs where one of the parties represents himself to be some person
other than he really is.
We can state the particular case here, Jaggan Nath v Secy of State for India: A person,
called S, a brother of the plaintiff, represented himself as plaintiff, and thereby induced a
Government agent to contract with him.
The court found that the Government’s agent was deceived by the conduct of the plaintiff
and his brother as to the person with whom he was dealing, held that there was no valid
contract. The defendant’s agent intended to contract only with S’s brother and not with S
and S knew this. Real consent was prevented. It means that an offer which is meant for one
person cannot be accepted by another.
Mistake of identity caused by fraud

The following case where the plaintiffs received orders in writing from a fraudulent man,
called Blenkarn. The order papers had a printed heading: ‘Blenkarn & Co, 37 Wood street’.
There was a well-known and respectable firm, named ‘Blenkiron & Co in the same street.
The plaintiffs, believing that the orders had come from this firm, sent a large number of
handkerchiefs. Blenkarn received the goods and disposed of them off to the defendants,
who acted in good faith. The plaintiffs sued the defendants. It was held that there was no
contract between the plaintiffs and Blenkarn and, therefore, he had no right to sell the
goods. The plaintiffs intended to contract with Blenkiron & Co and consequently, no contract
could have arisen between them and Blenkarn. Hence, the defendants, being in possession
without a good title over such goods, were held liable for conversion.
Distinction between identity and attributes
A mistake about the attribute has been held not to avoid the agreement. There can be a
mistake of identity only when a person bearing a particular identity exists within the
knowledge of the plaintiff, and the plaintiff intends to deal with him only. If the name
assumed by the fraudster is fictitious, there will be no mistake of identity.
A man named Wallis adopted the name of ‘Hallam & Co’, a non-existent firm, and by letters
placed the order for some goods with the plaintiffs who complied with the order by sending
the goods. Wallis sold the goods to the defendants, who acted in good faith. The plaintiffs
sued the defendants for the value of the goods. The plaintiffs intended to enter into a
contract with the writer of letters. If it could have been shown that there was a separate
entity called Hallam & Co and another entity called Wallis then the case might have come
within the decision in the previous case discussed above. He had not fraudulently taken on
another identity when selling the goods to Edridge. Although the contract was voidable, the
possessory title was held to pass from a fraudster to an innocent person, therefore, only
voidable for fraud and it could not be disaffirmed after the defendants had acquired the
property in good faith.
In Ingram v. Little where three ladies, the joint owners of a car, advertised it for sale. A
person who wanted to buy the car offered to pay by cheque. The ladies objected to this as
the payment had to be in cash. The buyer in order to convince them impersonated
Hutchinson, a leading businessman, and quoted an address and a telephone number. After
verification, the ladies accepted the cheque. He resold the car to the defendant and
absconded. The cheque proved worthless and the plaintiffs sued the defendant for the car
or its value.
The defendant was held liable because the plaintiffs intended to enter into a contract with
real Hutchinson and not the impersonator. There was no offer made to him, therefore there
was no contract with him.
An important question arose in the light of the above conflicting judgments as to Why
should the title of the innocent buyer be made to depend on the state of a contract between
third parties? This discourse was taken by the court of appeal in Lewis v. Averay: Lewis, the
plaintiff, had a car to sell. A man, described in the judgment as ‘rogue’, came along and
introduced himself as Richard Green, a famous film actor. He offered a cheque and the
plaintiff asked him to wait until cheque was cleared. The rogue talked the plaintiff into
allowing him to take the car before the cheque clearance. He was able to persuade the
plaintiff because he produced a special pass of admission to a film studio which showed his
photograph and the official stamp when asked for identity proof. The rogue sold the car to
an innocent buyer, the defendant.
The court of appeal held that the car was delivered under a contract voidable by reason of
the fraud and the contract not having been avoided before the car passed into the hands of
an innocent buyer, he acquired a good title.
When the parties are present face to face, the presumption is that the contract is made with
the person actually present, even though there is a fraudulent impersonation by the buyer
representing himself as a different man than he is.
Mistake as to the quality of subject-matter as distinguished from substance
A mistake as to the quality of the subject-matter as distinguished from its substance may
not render the agreement void. Smith v Hughes is well-known for this distinction between
quality and substance.
The defendant wanted to buy old oats for his horses. The plaintiff showed him the sample of
the oats he had, but nothing about their age. The defendant kept the sample for twenty-
four hours and then placed an order for the oats. After a portion of them was delivered to
him, he found that they were new and, therefore, rejected them on the ground that he was
mistaken about their quality.
The court didn’t accept the defendant’s argument. It was observed by the court that the
two minds were not ad idem as to the age of oats; they certainly were ad idem as to the
sale and purchase of them.
Mistake as to the nature of promise
This principle is well established by authorities that when a deed of one character is
executed under the mistaken impression that it is of a different character, then it is wholly
void and inoperative. Thus, where a gift deed is signed under the impression that it is only a
power of attorney, the deed is inoperative.
Documents mistakenly signed or non est factum
The defence of non est factum enables a person who has signed a contract to say that it is
not his document because he signed it under some mistake. It was evolved by the courts to
relieve illiterate or blind people from the effect of a contract which they could not read and
which was not properly explained to them.
In a particular case, a person was asked to sign the back of the paper, the face of which
was not shown to him, and he was told that it was an ordinary guarantee the like of which
he had signed
before and under which no liability came to him, when, in fact, the paper was a bill of
exchange and he was sued by a holder in due course as an indorser.
The court held that ‘’The defendant never intended to sign that contract or any such
contract. He never intended to put his name to any instrument that later became
negotiable. He was deceived not merely as to the legal effect, but as to the actual contents
of the document.
Limitations
Mistake operates to avoid an agreement subject to the following limitations:
Mistake of both parties: An agreement is void by reason of mistake under Section 20

when both parties are mistaken as to a matter of fact essential to the agreement. This is
further supplemented by the declaration in Section 22 “A contract is not voidable merely
because it was caused by one of the parties to it being under a mistake as to matter of
fact’’. For example, where the government sold by auction the right of fishery and the
plaintiff offered the highest bid under the impression that the right was sold for three
years, when in fact it was for one year only, he could not avoid the agreement because it
was his unilateral mistake.
It should be pointed out that even in cases where there is a mistake of one party but has
the effect of nullifying consent as defined under Section 13, no contract will arise. When
there is an absence of real consent i.e agreement upon the same thing in the same sense.
For an agreement to be avoided on the basis of unilateral mistake, it must be shown:
1. That one party erroneously believed that the document sought to be rectified contained a
particular term or provision, or possibly did not contain a particular term or provision
which, mistakenly, it did not contain;
2. That the other party was aware of the omission or the inclusion and that it was due to a
mistake on the part of one party;
3. That the party who was aware of the mistake omitted to draw the mistake to the notice
of the other party; and
4. The mistake must be calculated to benefit one party.
The facts of the case in Thomas Bates & Son Ltd v Wyndham (Lingerie) Ltd the court came
to the conclusion that where a lease deed contained arbitration clause but the new deed
which was prepared by the landlord did not contain that provision without the knowledge of
the Landlord and though the lessee was aware of the omission he did not draw it to the
attention of the landlord, the landlord was entitled to seek rectification of the document for
inserting arbitration clause.
1. Erroneous opinion about the value of subject matter: In a case where a property which
was subject to a subsisting lease was sold. The lessee had the right to receive the value
of the improvements, but the agreement of sale was silent about this. The buyer wanted
to have the agreement set aside on the ground of mistake about this right. The court
held that there was no mistake and that even if there was a mistake it was not as to the
matter of fact essential to the agreement for sale.
2. Mistake of fact and not of law: It should be a mistake of fact and not of any law in force
in India.
Legality of object and consideration (Section 23)

Another essential feature of a valid contract is that the object and the consideration must
be lawful and not against the provisions by law. The object and the consideration of the
object need to be lawful otherwise the contract will be declared void. In some cases, the
object for which the parties entered into an agreement is lawful but the consideration for
the same is defeating the provisions of a lawful consideration and which will lead the
agreement to be termed as void and vice versa. So, for an agreement to be a valid one
both the object and consideration should be lawful. The court will not enforce any
agreement if its object and consideration are not lawful. The term “object of an agreement”
is used to define the purpose of design. Section 23 of the Indian Contract Act, 1872 clearly
states about what object and consideration are lawful and what are not. These are-
If that object or consideration is forbidden by law specifically.
Are of that nature which will defeat the very basic purpose of the law.
If the object or consideration is fraudulent.
If that involves or results in injury to any living person or the property of the person.
If the court has regarded any special objects and considerations as immoral.
Those objects and considerations which are against the policy of the public and can cause
harm to the public.
If a contract shows any of these elements then it is unlawful and void u/s 23.
A contract is forbidden by law if it is either against any law, both substantive and
procedural. E.g. An agreement to sell liquor without a licence, despite the law mandating to
have a licence. In a particular case, the Plaintiff owner of a bar and having the licence to
sell liquor transferred the management of the bar and liquor sale to the defendant who had
no such licence. The court held that transferring business and sale of liquor to a person
without the license, was prohibited by law and thus cannot be enforced.
If a contract circumvents a provision of any law or defeats the purpose of the law (i.e it
makes the provision irrelevant), it shall be deemed to defeat the provision of that law.
If the consideration or object of the contract is to commit fraud, the contract is void. Thus if
the object of agreement is to deceive another person, the same is void.
Even if a part of a single consideration is unlawful, the agreement is void
Intention to create legal relationship

Intention to create a legal relationship is one of the most fundamental aspects of the law. It
is defined as the intention to enter a legally binding agreement or contract, it implies that
the parties acknowledge and accept legal consequence in case of a breach of a contract.
Intention to create legal relations consist of readiness of a party to accept the legal
consequences of having entered into an agreement.
“Contracts must not be the sports of an idle hour, mere matters of pleasantry and badinage,
never intended by the parties to have any serious effect whatsoever”.
Further Mulla writes It is essential to the creation of a contract that both parties should
agree to the same thing in the same sense. Thus if two persons enter into an apparent
contract concerning a particular person or a ship, and it turns out that each of them, misled
by a similarity of name, had a different person or ship in his mind, no contract would exist
between them.
Not expressly declared void

Apart from conditions u/s 10, contract act specifically declared a few classes of contract as
void. Section 26 to 30 deals with such contracts. There are those contacts which have been
expressly declared void by the Contract Act.
Agreements restricting a marriage (section 26)

Section 26[xix] expressly declares that an agreement which in effect prevents, either party
to marry, then it is void. Section 26 does not differentiate between partial or absolute
restraint, thus any agreement enabling the two is void.
In Abhas Khan v. Nur Khan, the bride married the groom, without the consent of the
nearest male relative, in such cases under customary Muhammadan Law, the groom has to
pay a certain amount to such relatives, called “rogha”. The Lahore high court held that
enforcing such a custom is tantamount to saying that full age women cannot marry unless
the groom pays a sum, which could be impossible to do so. It would be a custom in
restraint of marriage.
There is only one exception to section 26 i.e. an agreement in restraint of marriage of a

minor. This is because marriage with a minor is outrightly against Public policy and against
section 10 of the Contract Act.
Agreements restricting trade (section 27)

Section 27 says that every agreement by which a person is restrained from exercising a
lawful profession, trade or business of any kind, is to that extent void.
It must be noted that the contract will be void only to such extent by which a person is
restrained. Thus the entire contract will not be declared void.
Eg. If a contract contains a “non-compete clause”, which restricts a person from carrying
out a trade, then only the non-compete clause will be void and not the entire contract.
Just like the doctrine of severability in constitutional law, Blue pencil doctrine is used in
contract law, to sever the void part from the rest of the agreement.
Further, it is immaterial if the restraint is reasonable or not, under Indian law a contract in
restraint of trade or business will be lawful only if the restraint falls within a statutory or
judicially created exception. This is in contrast to English law in which a reasonable restraint
may be held valid. In the case of Superintendence Company of India v. Krishan Murgai[xx]
apex court held that neither the test of reasonableness nor the principle that the restraint is
partial or reasonable applies to a case governed by section 27 of the act unless it falls
within the exception appended to the said section
Agreements in restraint of proceedings (section 28)

According to Section 28(a) an agreement by which any party to the contract is completely
or absolutely restricted in enforcing their rights (i.e. their right to move courts), by usual
legal proceedings in the ordinary tribunals, or
which limits their time within which he may enforce his legal rights, is void.
Thus if a clause in a contract prevents a party to initiate a suit against the other party, then
that agreement is void. However, an agreement which provides for arbitration when a
dispute arises, then that clause is not void[xxi]. Arbitration is a method of dispute
resolution recognised by courts all over the world and helps in reducing the burden on
courts. It is always advisable to have a comprehensive clause on arbitration, to resolve the
dispute as it would be favourable to both parties.
An agreement which provides that a suit should be brought for the breach of any terms of
the agreement within a time which is shorter than the period prescribed by the Limitation
Act is void to that extent. Limitation act provides for 3 years to initiate a proceeding in case
of a breach.
Section 28(b) talks about those contractual terms which although does not limit the period
of limitation but extinguishes a person to claim a right or discharges any party from any
liability if he does not do so within the time period mentioned in the contract. Such
contracts are also void. This is because such a contract restricts a party from enforcing his
right.
Eg. If a contract says that in case of a breach the party can ask for compensation only
within 3 months from the date of the breach, and if such compensation is not asked within
3 months then the breaching party will not be liable to compensate. In this case, the
contract discharges the breaching party from liability.
Such common clauses found in insurance policies provide that the insurer should not be
liable for loss or damage after expiration of twelve months from the happening of loss or
damage.
Agreements void due to uncertainty (section 29)

According to Section 29, a contract is said to be certain if its terms are capable of being
understood, in the sense, in which it has been intended to be understood, by the promisor,
and are not ambiguous and vague[xxii]. It should be capable of being reasonably
interpreted by the courts. Certainty is achieved, when intentions of the parties, safeguards,
expectations, performances, are clear or can be objectively ascertained.
Illustration A: A agreeing to sell B a 100 tons of oil, but without being satisfied about the
quality and kind of oil. Such an agreement is uncertain and void.
Illustration B: A entered into a contract with B for construction of the building and it was
agreed that A would pay B the consideration within a month after the construction was
completed.
In this case, the deadline for payment is uncertain. It does not specify whether he has to
pay before the last date of the month or on the last date of the month. Further, it is also
uncertain, when will the said month start- will it start after the construction is complete or
when the possession is transferred to A.
How is certainty ensured?

Certainty is ensured when the terms are not vague, ambiguous (capable of two meanings),
incomplete and when there is consensus ad-idem along with an intention to create a legal
relationship.
To create a binding contract the parties must express their agreement in sufficiently certain
terms. What is needed is not absolute certainty but a “reasonable degree” of certainty.
[Scammell v Ouston]
To create a binding contract the parties must express their agreement in sufficiently certain
terms. What is needed is not absolute certainty but a “reasonable degree” of certainty.
[Scammell v Ouston]
“To create a binding contract the parties must express their agreement in sufficiently certain
terms. What is needed is not absolute certainty but a reasonable degree of certainty”[xxiii]
This largely depends upon how the contract was drafted and the language used within the
clauses of the contract. One way to ensure certainty is not to make a clause open-ended
which could lead to different interpretations by different people.
The parties must make their own contract. The courts will not construct a contract for the
parties when the terms are indefinite or unsettled. The court must first be satisfied that the
parties have in fact concluded a contract, before seeking to make certain its terms.
It is not enough to show that the meaning of the contract is uncertain, it should further be
shown that it is incapable of being made certain. Mere vagueness or uncertainty which can
be removed by proper interpretation, cannot make a contract void[xxiv].
An agreement which provides for the future fixation of price either by the parties
themselves or by a third party is capable of being made certain and is not invalid under s
29. Such a contract is not void for uncertainty.[xxv]
Agreement of wager are void (section 30)

According to Section 30, Wagering agreements are void and no suit shall be brought to
recover anything that has been won by a wager. Further, no suit can be brought to make a
person abide by the result of any game or any other uncertain event if such an event was
the subject of a bet.
Meaning
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.”
Thus a wagering agreement is one whose outcome is based on a future uncertain event and
upon the happening of that uncertain event one party will gain and the other party will lose
and the loser shall pay the winner a sum of money or any other stake. Such parties shall
not have any other interest other than winning or losing the bet.
It must be noted that an insurance contract is not a wagering contract, an insurance

contract falls under contingent contracts.
What is a wagering contract?
When we talk about contracts we come across various types and kinds of contracts such as
Quasi-contracts, Implied contracts, Expressed contracts and many more. One such type of
contract is known as Wagering Contract. Wagering Contract is one in which there are two
necessary parties between which the contract has been made and wherein, the first party
promises to pay a certain sum of money to the second party on the happening of a
particular event in the future and the second party agrees to pay to the first party on not
happening of that particular event. The basic fundamental of a wagering agreement is the
presence of two parties who are of sound mind to get profit or loss. A Wager in the common
language means Betting or Gambling. The basic meaning of the term wager is betting.
Section 30 of the Indian Contract Act specifically talks about agreements by way of wager,
as void. The section read as follows:
“Agreements by way of wager are void and no suit shall be brought for recovering anything
alleged to be won on any wager, or entrusted to any person to abide the result of any game
or other uncertain events on which any wager is made.” (see more)
Carlill vs Carbolic Smoke Ball co.(1893): This is the only case law which has defined a
wagering contract in the most expressive and encompassing way. It States as follows:
”One by which two persons, professing to hold opposite views touching the issue of a future
uncertain event, mutually agree that, dependant on 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; neither of the parties having any other interest in that contract than the sum
or stake he will win or lose, there is no other consideration for making of such contract by
either of the parties. If either of the parties may win but cannot lose or may lose but cannot
win, it is not a wagering contract”. (see more)
Thus, it can be stated that all wagering agreements are contingent agreements but all
contingent agreements are not wagering agreements. Thus in simple language, we can
understand that a wagering contract is a futuristic contract which is based upon the
happening of a certain event in the future. A wagering contract may or may not be imposed
depending upon the circumstances in the future.
History of law related to the concept of wager

Since the primitive times when there were cases in British India, the law that related to the
wagers was the common law in England governed it but then in 1848, the Wagers Avoiding
Act came into force. Earlier, it was regarded that any action of the wager may be
maintained if it was not against the personal feelings of the third person with evidence and
that it was in contradiction to public policy. When we discuss the concept of gambling and
betting we know that this kind of activities existed in our country from the olden ages which
were not adopted in England and were boycotted. These types of activities have not been
specifically mentioned under the Indian Contract Act or the Hindu law in general and thus
these types of activities are considered as illegal and are not protected under the ambit of
our Indian constitution under Article 19 or Article 301.
Also in the case of Chimanlal Purshottamdas Shah vs Nyamatrai Madhavlal(1985), a new

dimension was given to the term Wager which follows, ”The essence of Gambling and
Wagering is that one party is to win and the other to lose upon a future event which, at the
time on track, is of an uncertain nature- that is to say, if the event turns our own way, A will
lose; but if it turns out the other way, he will win”. (see more)
Types of wager
I. Moneyline betting
This type of betting is one of the easiest types of betting. Betting through the money line is
very simple as it is done only on sports competitions and games and it is totally based upon
the outcome/result of the match. This type of betting is illegal and this type of activity has
been mostly seen in cricket to the highest in the Indian Premier League.
II. Spread betting

This type of wager/ betting takes place where the person who is placing the bet on the most
favored team playing in the match wins the match by a certain margin or on the team
which is regarded as the underdog for it to win or even if it loses then with a very close
margin.
III. Over betting

This type of betting is done in the game where the better places his bet on the total of
number score or total of goals scored by both the teams through a combination of the
certain number and which is totally a futuristic event uncertain and nobody has control over
it.
IV. Under betting

This type of betting takes place when the better places his bet on the condition that the
combination of the total number of goals and points that are scored by both the teams will
be less or under a certain limit. This type of wager is also related to the final outcome of the
game.
V. Prop betting
This type of betting is very unique and creative in nature as it is not related to the final
result of the game. In this case, the better places his bet on something like the first half of
the game or like whether there will be a super over in a cricket game etc. thus, this is also
known as prop betting.
Essentials of a wagering contract
Equal opportunity
One of the main points in a wagering contract is that there should be an equal chance for
both to either win or lose depending upon the outcome of the future event.
Uncontrollable
These events are futuristic which may or may not take place and it should be beyond the
control of either of the party because if either of the party has control over it then it would
not amount to wager.
No outside interest
Both the parties should have a single interest as to the profit or loss in the result of the
event and there should not be any outside or personal interest attached with the uncertain
event as that will not amount to wager as well.
Dependency
The wager agreement is fully dependent upon the happening of the futuristic event whether
it is contrasted with the past, present or future as to the result of that event.
Promise
The wager contract should contain an important clause which should state that the parties
promise to pay the money or money’s worth to the other party on the happening of the
event and this should be agreed upon by both the parties.
Can a wagering contract be enforced

The Effects and Enforceability of a wagering contract can be understood by the concept that
under the Indian Contract Act it has been explicitly declared as a void ab initio and thus
even section 65 of the Indian Contract Act does not apply to it as the contract is void but
there is nowhere mentioned that these type of contracts have been forbidden by the law,
which again implies that except the state of Gujarat and Maharashtra the wagering
contracts are void and are legal in the other states. Thus, these agreements by way of
wager are void and thus no suit can be brought for recovering anything alleged to be won
on any wager or entrusted to any person to abide by the result of any game or any other
such uncertain event on which any wager is made. This was also seen in the case of
Badridas Kothari v. Meghraj Kothari AIR 1967 the court held that although a promissory
note was executed for the payment of the debt caused through wagering transaction, the
note was not held enforceable. Thus, the winner cannot recover the money, but before it is
paid to him the depositor recovers from the stakeholder. Also, it was also seen in the case
of Gherulal Parakh v. MahadeoDas 1959 AIR 781 the honorable supreme court in its
judgment said that although a wager is not unlawful under Section 23 of the Indian
Contract Act and thus all the proceedings and transactions collateral to the main transaction
are as such enforceable.
Exceptions to the wager agreement

As per the Indian Contract Act Section 30 states that there are also certain exceptions in
the wagering agreements and thus the section read as follows:
“This section shall not be deemed to render unlawful a subscription or contribution, made or
entered into for or towards any plate, prize or sum of money, of the value or amount of five
hundred rupees or more, to be awarded to the winner of any horse race. Nothing in this
section shall be deemed to legalize any transaction connected with horse- racing, to which
the provisions of section 294A of the Indian Penal Code shall apply”. (see more)
Since a wagering contract is a void contract, thus there are certain exemptions to it which
are as follows:
1. Showcase of talent is not a wager

Using your talent or skill in front of people in some competition will not amount to
wager(such as sports competitions, puzzles etc), but there is a winning prize depending
upon mere possibility then it will amount to wager. In the eyes of law prize competitions do
not amount to wager but if the amount is not reasonable then it would amount to gambling
and it will automatically become void.
2. Share market
The transactions that take place under the share market shall not amount to wager where
the shares are bought and sold and mere delivery of shares from one person to another will
not be regarded as the wager.
3. Horse race competition

Sometimes, the state government may authorize certain horse race competition if the local
laws permit it and if the people contribute with a sum of RS 500 or more towards the prize
money which is to be given to the winner of the horse race then it will not consider a wager.
4. Insurance contracts
The contracts of insurance are not wagering at all because these are contracts of Indemnity.
These contracts are entered upon to safeguard and protect the interest of one party from
any damage hence it is not a wager.
5. Commercial transactions
The Agreements that are done for sale and purchase of any commodity that is to be used
on a commercial base in which there is genuine intention to do legitimate businesses which
are valid and if they intend to do so they are required to pay the difference.
Under Section 30 of the Indian Contract Act, the term Wager has not been defined and it
does not even define wager agreement it only says that such agreements are void with the
proviso of section 294A of the Indian Penal Code. The Indian lawmakers have never made
any amendments in this section to define such terms ever since this law came into force
and up till now, the section is silent on many things which are necessary to be defined
specifically. So, we can only wait for the lawmakers to amend the following section and
break the ambiguity on many things which have caused a lot of problems for the judiciary
to decide many cases in the past. Thus, it seems a matter of urgent importance to bring the
necessary amendments in the act.
Contingent contract
The word contingent means when an event or situation is contingent, i.e. it depends on
some other event or fact.
For example, making money is contingent on finding a good-paying job.
According to section 2 (h)[1] of the Indian Contracts Act, 1872, a contract is an agreement
in which two individuals enter and it is enforceable by law. In a contract, the party should
give their free consent, should be competent to contract and the object and the
consideration should be lawful. To form a contract, the agreement shouldn’t be declared as
void. Thus, to form a valid contract, there should be two things- an agreement and its
enforceability at law.
In regular courses, the phrase contingent means “subject to chance.” In the Indian Contract
Act also, the word means conditional. Future events are always uncertain. In the case of a
contingent contract, the chances of happening of this uncertain event is ascertained and
calculated and also the potentiality to deal with the event if they come to fore at all. The
contracting parties may require that some obligation will be performed depending on the
contingent event. The parties may agree that any right will be due, or any liability will be
imposed on the happening of the contingency. Section 31 to 36 of the Act governs
contingent contracts. Section 31 of the Act defines a contingent contract as a contract
between parties to do or not do something if some event which is collateral to the contract
happens or does not happen. So, a contingent contract is also primarily a contract. But it is
not an absolute or unconditional one. A contingent contract is dependent on the happening
or non-happening of the event.
Now, the ‘contingent contract’ means enforceability of that contract directly depends upon
happening or not happening on an event.
Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent Contract’ as
follows:
‘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’.
In simple words, contingent contracts are the ones where the promisor performs his
obligation only when certain conditions are met. The contracts of insurance, indemnity, and
guarantee are some examples of contingent contracts.
Illustration- A contract to pay B Rs. 20,000 if B’s house is burnt. This is a contingent.
Case laws
Chandulal Harjivandas v. CIT– In this case, it was held that all contracts of insurance and
indemnity are contingent.
How is it different from wagering agreement?

1. A wagering agreement is absolutely void (S. 30) while on the other hand contingent
contract is a valid contract.
2. In a contingent contract, the future uncertain event is merely collateral whereas in a

wagering agreement the uncertain event is a sole determining factor of the agreement.
3. In a wager, the parties are not interested in the occurrence of the event except for
winning or losing the best amount while in a contingent contract the parties have a real
interest in occurrence or non-occurrence of the event.
4. All wager contracts are contingent contracts, but all contingent contracts are not by way
of the wager.
Essential elements of the contingent contract

After examining the definition of the contingent contract given under section 31 of the Act,
the essentials of the term contingent contract are as follows:
There must be a valid contract to do or abstain from doing

something
Section 32 and 33 of the Act talks about enforcement of the contingent contract on the
happening or not happening of the events respectively. The contract will be valid only if it is
about performing or not performing an obligation.
Illustration 1: X makes a contract with Y to buy Y’s dog if X survives Z. This contract cannot
be enforced by law unless and until Z dies in X’s lifetime.
Illustration 2: X agrees to pay Y a sum of money if a certain ship does not return. The ship
is sunk. The contract can be enforced when the ship sinks.
Performance of the contract must be conditional[i]

The condition for which the contract has been entered into must be a future event, and it
should be uncertain. If the performance of the contract is dependent on an event, which is
although a future event, but certain and sure to happen, then it’ll not be considered as a
contingent contract.
The said event must be collateral to such contract

The event on whose happening or non-happening of the event on which the performance of
the contract is dependent should not be a part of the consideration of the contract. The
happening or non-happening of the event should be collateral to the contract and should
exist independently.
Illustration: X enters into a contract with Y and promises to deliver 10 books to him. Y
promises to pay Rs. 2000 upon delivery. This is not a contingent contract since Y’s
obligation depends on the event which is a part of the contract(delivery of 10 Books) and
not a collateral event.
The event should not be at the discretion of the promisor

The event so considered as for contingency should not at all be dependent on the promisor.
It should be totally a futuristic and uncertain event.
Illustration: X promises to pay Y, Rs. 10,000 if Y leaves Delhi for London on 31st March
2019. This is a contingent contract. Going to London can be within Y’s will but is not merely
his will.
Enforcement of contingent contract

Provisions related to the enforcement of the contingent contract are given under section 32
to 36 as follows:
Condition 1- enforcement of contract contingent on the

happening of an event
The contingent contracts to do or abstain from doing something if an uncertain future event
happens. However, the contract cannot be enforced by law unless the event takes place. If
the event becomes impossible, such contracts become void. [Section 32]
Illustration: X promises to pay Y, Rs. 100,000 if he marries Z, the prettiest girl in the
neighbourhood. This is a contingent contract. Unfortunately, Z dies in a car accident. Since
the happening of the event is no longer possible, the contract is void.
Condition 2- enforcement of contract contingent on an

event not happening
The contingent contracts to do or abstain from doing something if an uncertain future event
does not happen can be enforced when the happening of that event becomes impossible. If
the event takes place, then the contingent contract is void. [Section 33]
Illustration: X promises to pay Y a sum of money if a certain ship does not return. The ship
is sunk. The contract can be enforced when the ship sinks. On the other hand, if the ship
returns, then the contract is void.
Condition 3- when an event on which contract is

contingent to be deemed impossible if it is the future
conduct of a living person

If a contract contingent upon how a person will act at a future time, the event shall be
considered impossible when such person does anything which makes it impossible for the
event to happen. [Section 34]
Illustration: X agrees to pay Y, Rs. 100,000 if Y marries Z. However, Z marries A. The

marriage of Y to Z must now be considered impossible, although it is possible that A may
die and that Z afterward marry Y.
Condition 4- contracts contingent on an event happening

within the fixed time
Contingent contracts to do or not to do anything if a future uncertain event happens within
a fixed time. Such a contract is void if the event does not happen and the time lapses. It is
also void if before the time fixed, the happening of the event becomes impossible. [Section
35(para 1)]
Illustration: X promises to pay Y a sum of money if a certain ship returns before 1st April
2019. The contracts may be enforced if the ship returns within the fixed time. On the other
hand, it becomes void if the ship sinks.
Condition 5- contracts contingent on an event not

happening within the fixed time
Contingent contract to do or not to do anything if an uncertain event does not happen
within a fixed time may be enforced by law when the fixed time has expired, and such
event has not happened, or before the time fixed has expired, if it becomes certain that
such event will not happen. [Section 35(para 2)]
Illustration: X promises to pay Y a sum of money if a certain ship does not return before
31st March 2019. The contract may be enforced if the ship does not return before 31st
March 2019. Also, if the ship burns before the given time, the contract is enforced by law
since the return is impossible.
Condition 6- contract contingent of impossible event void

If an agreement to do or not to do is based on the impossible event, then such agreement
is void, whether the impossibility of the event is known or not to the parties to the
agreement at the time when it is made. [Section 36]
Illustration: X promises to pay Y, Rs 500 if two straight lines should enclose a space. The
agreement is void.
Conditions when a contingent contract becomes

void
Section 32- if the event on the happening of which the contract is contingent becomes
impossible, the contract becomes void.
Illustration: Mohan contracts to pay Ram a sum of Money when Ram marries Geeta. Geeta
dies without being married to Ram. The contract becomes void.
Section 35- contingent contract to do or not to do something, if a specified uncertain

event happens within a fixed time, becomes void if, at the expiration of the time fixed,
such event has not happened, or if, before the time fixed, such event becomes
impossible.
Illustration: Saurbh promises to pay Sarvesh if a certain ship returns within the year. The
contract becomes void if the ship is burnt within the year.
Section 34- if the future event on which a contract is a contingent is the way in which a
person will act at an unspecified time, the event shall be considered to 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.
Section 36- contingent agreement to do or not to do anything, if an impossible event

happens, are void, whether the impossibility of the event is known or not to the parties
to the agreement at the time when it is made.
Illustration: X agrees to pay Y, Rs. 10,000 if Y will marry X’s daughter P. P was dead at the
time of the agreement. The agreement is void.
Commercial applications of contingent contracts

1. Insurance is a contract to do something if the future event occurs that will be contracted
by the parties and liability will be taken by the offeror. In all Insurance like Life
Insurance, Marine Insurance, Fire Insurance, and other Insurances, the Offeror promises
to take the risk of the offeree against the incident to do or not to do something and for
that the offeree agrees to pay a certain amount of money.
2. The contingent contract can be used in the contract of guarantee as well as the contract
of warranty. Contingent guarantees generally are used when a supplier does not have a
relationship with a counterparty.
3. We can use a contingent contract in negotiation. Contingent contracts normally occur

when negotiating parties fail to reach an agreement.
4. We can use the contingent contract in mergers and acquisitions (M&A) as well.
Depending on the M&A deal, contingent payments such as earn-outs, Seller notes, and
Buyer stock may be part of the Seller’s proceeds. After the deal is finalized, these
contingent payments will need continuous contact between Buyer and Seller.
5. It can also be used in the contract of indemnity.
What is described as ‘contingent contract’ in this topic is familiar to English law as

‘conditional contract’. For a contingent contract, there is a certain event which needs to be
fulfilled. The terms of these contracts are certain and depend on the occurrence or non-
occurrence of a future event.
Performance of contract (Section 37 to 39)
The term “offer” has been defined under Section 2(a) of the Indian Contract Act, 1872. An
offer is an expression of willingness made by a person to do or abstain from doing any act
or omission with a view to obtaining the assent of the person to whom such an offer of act
or abstinence is made.
The term performance in its literal sense means the performance of a task or action. In its
legal sense “performance” means the fulfilment or the completion of the obligations which
they have towards the other party by virtue of the contract entered into by them. For
example, ‘A’ and ‘B’ enter into a contract, the terms of the contract state that A has to
deliver a book to B on payment of the consideration of five hundred rupees. Here, B pays to
A rupees five hundred and as stipulated in the contract, A delivers him the book.
Section 37 of the Contract Act talks about performance. According to the Section, there are
two types of performance which are:
Actual performance: Actual performance of the contract means the actual discharge of
the liability or obligation which a person has undertaken to perform and there remains no
other task which he is obliged to discharge under the promise. He is said to have made
the actual performance of the promise.
Attempted performance: At times when the performance becomes due. The promisor is
not able to discharge his obligation or perform his duty because he is prevented by the
promisee in doing so. This situation where the promisor actually intended to perform his
obligation or discharge his duty but is prevented from doing so by an intervening
disability is known as the attempted performance of a promise.
Attempted performance is also known as Tender. A tender can be of two types:
Tender of goods and services: The discharge of the contract to deliver goods and services
is completed when the goods are tendered for acceptance in accordance with the terms
of contact. If the goods and services so tendered are not accepted they are to be taken
back by the offeror and he is discharged from his liability.
Tender of money: where the debtor tenders the money which is to be paid to the creditor
but the debtor refuses to accept the money. The debtor is not discharged from the
lability to pay back the money. Therefore, a tender of money can never result in the
discharge of debt.
Tender of performance
Section 37 to Section 39 specifically deals with the performance of the contract by the
parties thereto. According to Section 37 of the Indian Contract Act, 1872 the parties to a
contract are under the obligation to either perform or offer to perform the promises which
have been agreed upon under the contract. Section 2(b) of the Indian Contract Act defines
the meaning of promise as a proposal made by the offeror which has been accepted by the
offeree. Thus, each party is under a legal obligation to perform his obligation which has
been agreed upon under the terms of the contract. Unless the terms of contract expressly
exempts or dispenses the performance of obligation upon the person.
The promises made by the parties to the contract after their death binds their
representatives provided that no contrary intention appears from the terms of the contract.
For example, if there is a contract between two persons ‘A’ and ‘B’ in which A promises to
deliver to B some goods on the payment of a certain amount of money by B on a particular
day. However, if A dies before the completion of contract, in that case, A’s representative
will be bound by the promise made by him and therefore they are under the obligation to
deliver goods to B and B is also under the obligation to pay the specified amount to A’s
representative.
However, in the case where the promise is made with regards to the personal skills and art
of the person then his representative will not be bound by the promise made by him. For
example, in the case where A promised B to make him painting on a specified day for a
certain price. A dies before the performance of the contract. Neither the representatives of
A are not bound by the promise made by A nor B can compel the representative for the
specific performance of the promise made by A.
The obligation of parties to perform (Section 37)

The obligations in a contract are those duties by which the parties to the contract have to
abide by. In a contract, the parties to the contract usually exchange something of value in
the eyes of the law. The thing which is decided to exchange can be the product, services,
money, etc. An example of contract obligations is with the sale of a product such as an
automobile. One party has the obligation to transfer ownership of the car, while the other
has the obligation to pay for it. The contract will specify the terms that regulate the
obligations, such as the method and amount of payment, and the time or place of delivery.
In the case of M. Kamalakannnan v. M. Manikanndan, there was a contract between the

plaintiff and the defendant for the sale of the property. The plaintiff, in this case, retained
some part of the money which was stipulated under the terms of the contract in order to
compel the defendant for the performance of some of the obligations like vacating the
property which was occupied by the tenants and handing over the vacant property to the
plaintiff. The contention by the defendant was that non-payment of some part of the
consideration resulted in the infringement of the terms of the contract.
In Geo-Group Communications INC v. IOL Broadband Ltd, the parties to the contract signed
an agreement and they fully acted on the terms of the agreements so much so that there
arose no further need for the documents to be executed any further. The agreement was
described as one of the preliminary and tentative drafts made for the purpose of discussion
and deliberation only. When the contract was challenged in the court of law, the court held
that the agreement was valid and it entitles the claimant for relief.
Submission of tender tantamounts to a proposal

When in response to an invitation a lender is submitted it is considered to be a proposal to
contract and not the contract itself. In M/S Great Eastern Energy vs. M/S Jain Irrigation
Systems Ltd, the tender specified the validity period for four months. The court held that
after the expiry of the period of tender, no acceptance could be made. The forfeiture of the
security deposit amount by acceptance of the tender after the expiry of its validity period
and failure of performance by the tenderer was not improper.
Promises bind the representatives of the promisor

The proviso attached to Section 37 of the Act provides that in case of the death of the
promisors the representative of such promisors would be bound by the promises made by
them unless a contrary intention appears from the terms of the contract. In the case of
Basanti Bai vs. Sri Prafulla Kumar Routrai, that in case a person dies without leaving behind
any legal representative, then, in that case, the liability to perform the promise on his
behalf would fall upon the person who acquires interest over the subject matters of the
contract through that deceased party. The Cuttack High Court, however, held that in the
present case, the plaintiff was not able to enjoy the above mentioned legal proposition as
she was unable to prove the existence of the agreement which was alleged by her.
Clause for renewal

The Clause for renewal is the provision by which the terms of the contract initially agreed
upon are renewed or recommenced.
In Hardesh Ores Pvt. Ltd vs. M/S. Hede And Company, the terms of the contract contained a
renewal clause. The party which have the authority in accordance with the terms of the
contract to renew the same exercised it. However, the other party refused to accept the
new terms caused by renewal. The Supreme Court held that in such a case the best course
of action for the party who is empowered by the terms of the contract to renew the terms of
the contract is to get the renewal declared and enforced by the court of law or to get the
declaration of renewal of contract by the court.
Tender of performance (Section 38)

The offeror should offer the performance of an obligation under the contract to the offeree.
The offer is called the “tender of performance”. It is the discretion of the promisee to accept
the offer. In case the promisee chooses not to accept the offer then neither the offeror could
be held liable for the non-performance of the terms of the contract nor he loses his rights
under the terms of the contract. Therefore, it is a settled principle that non-acceptance of
the tender of performance would result in the exclusion of the promisor from further
performance of the terms of the contract and he is also entitled to sue the other party for
not performing the terms of the contract. Section 38 of the Contract Act makes it clear that
a tender of performance tantamounts to performance. Every tender of performance must
fulfil a certain essential condition:
Section 38(1): The offer should be unconditional;
Section 38(2): The offer must be made at a proper time and place so as to allow the
party to have a reasonable time for ascertaining that the person who is making the offer
to him is competent to enter into a contract;
Section 38(3): If the offer to the offeree is such as to deliver some goods addressed to
the offeree then it is the duty of the offeror to provide reasonable time to the offeree in
which he can ascertain that the goods offered to him is the same by which the offeror is
bound under the terms of the contract.
Tender of performance should be unconditional

Subsection 1 of Section 38 states that a tender to valid must be unconditional which means
that it should not be accompanied with any clause, provision or condition precedent or
subsequent. In Haji Abdul Rehman Haji Mahomed, the court, in this case, explained the
situations in which the tender becomes conditional. According to the court, when a tender
does not follow the terms of the contract which were originally drafted and agreed upon by
the parties, the tender becomes conditional. The reason for making it a necessity is because
of the fact that it is not reasonable to compel a party to accept the modified or altered
terms of contract which were not initially agreed upon by the parties. For example, if A
offers to pay B a certain sum of money if B agrees to sell certain goods to him. It is a
conditional tender and therefore it is invalid. Similarly in a case where A sent a single
cheque for two items, only one of which was due at the time, while the other was payable
after some time. The cheque being one and indivisible could be accepted as whole or not at
all. It was held that the promisee was within his right in rejecting cheque.
The tender of performance must be made at a

proper time and place
Section 38(2) of the Act mandates that the tender of performance should necessarily be
made at a time and place and under such circumstances so as to afford the person to whom
the offer is made a reasonable opportunity to ascertain that the offeror is able and bound to
do whatever he has promised under the terms of contract to do.
In P.L.S.A.R.S., Sabapathi Chetty (Deceased) vs. Krishna Aiyar, the court held that
generally, the parties to the tender of performance fix the time and place. The tender of
performance should mandatorily be made at the time and place stipulated under the
contract. If the performance is made within the stipulated time and place then the promisor
is under no further obligations.
In Startup v. Macdonald, the defendant purchased ten tons of linseed oil to be delivered to
the plaintiff within the last fourteen days of the month of March. The plaintiff tendered the
defendant at night on the fourteenth day. The defendant however citing the lateness of the
tender rejected the acceptance of the tender. The court, in this case, held that the
defendant should be held liable for the breach of the terms of the contract and the
contention made by him that the late acceptance of the tender was made could not be
entertained because, although the acceptance was made late, still the acceptance was
made before midnight.
In Afovos shipping co. v. R Pagnan, an international contract was entered into by the
plaintiff and defendant. The term of the contract provided that the payment which formed
the consideration of the contract should reach on the 14th day of the month, however, the
defendant repudiated the contract before the 14th day of the month. The court held that
the defendant should have delayed the repudiation of the contract till 14th of the month.
Section 138(2) of the Act also provides that the tender must be made under such
circumstances so as to allow the other party to get reasonable opportunity to ascertain that
the person who is making the tender is capable and willing to fulfil all the conditions
mentioned under the contract. Section 138(3) of the Act provides that the goods which are
subjected to tender must be the same as mentioned under the description of the tender
otherwise the tender will be invalid.
In Dixon v. Clark the court held that the fact that payment was tendered and refused in no
way discharges the debtor from his liability to make good of the payment of a debt.
In Vidya Vati vs. Devi Das, the principle of old standing which was given in the above-
mentioned case was endorsed. The debtor was under the obligation of paying back his loan
in order to recover the vacant possession of his premises and his tender was also rejected.
However, the court held that the debtor was not released from the obligation to pay prior to
his recovery of the possession.
By whom contracts must be performed (Section 40)

Section 40 of the Contract Act contains provisions regarding the performance of the
contract. The Section provides that if by the terms of the contract it appears that the
intention of the parties to the contract was such that any promise contained in it must
essentially be performed by the promisor himself and no other person on his behalf can
perform his promise. In all the other contracts the terms of which do not indicate any
similar intention then in the absence of the promisor for the performance of the promise
any other competent person can perform the promise on his behalf. For example where A
promises to B a certain sum of money. The money could be paid to B by A personally or by
any other authorized person authorized by A on his behalf. If in the above case A dies
without authorizing the person who can make the payment on his behalf. Then his
representative will be bound to make the payment on his behalf or they can appoint any
other person to do so.
Effect of accepting performance by the third party

(Section 41)
Section 41 of the Contract Act contains provisions regarding the effect of acceptance of
performance of promise by the third party. The Section provides that where the promisee
agrees to performance of a promise which is made to him by the offeror, by the third party.
He can not at a later point of time enforce the contract against the promisor who initially
promised to perform the promise.
If the terms of the contract indicate that from the very beginning of entering into the
contract the parties to the contract intended specific performance of the promise by the
promisor himself. The effect of reflection of such intention would be that the promise should
essentially be performed by the promisor himself and the promise can not be enforced
against his legal representative nor can his legal representatives can enforce the promise.
This type of situation can usually be seen in cases which involve the personal skills of the
promisor himself.
Generally, the rules laid down under Section 37 is that the promises of the deceased
promisor will bind his representatives. Therefore, the general principle of the law of contract
is that unless there appears a contrary intention in the terms of the contract. The
representatives of a deceased promisor are bound by the promise of the deceased and the
promises of the deceased are enforceable against his representatives.
In the case of Kapur Chand Godha vs. Mir Nawab Himayatalikhan Azamjah, the court
declared that the English and the Indian law differs substantially on the point of
performance of the contract by the representatives of the deceased promisor, in the British
law system, the rule is that the third party or the representatives of the deceased promisor
could discharge his obligations only in the cases where it is clearly evident from the promise
that it was the intention of the parties while the formation of the promise to bind their
representatives in case any of the promisors dies, in Indian law, however, the position with
respect to the performance of the promise by the representatives of the deceased on
contrary to the English law and the same could be inferred from the words of Section 41 of
the Indian Contract Act, which leave no ray of doubt that in cases where the appellants
expressly declare the intention of the performance of their promise from the third party,
they can not afterwards enforce the promise against the promisor.
Joint promises (Section 42)

Section 42 of the Indian Contract Act talks about the joint promises. When two or more
promisors agree to perform the terms of the promise together they are said to have made a
joint promise and the people who jointly agreed to perform the promise are called the joint
promisors. The section provides that the promisors are jointly liable to fulfil the promise
until the terms of the contract provide anything to the contrary. The Section also provides
that in case of death of any one of the joint promisors his legal representatives will be
bound by the obligation under which the promisor was in his lifetime.
Performance of joint promises
According to English law, in a case where one of the several joint promisors dies. The
surviving joint promisor would be bound by the rights and liabilities of the deceased joint
promisors until a single joint promisor is alive the representatives of the promisor will not
acquire any rights or liabilities. This rule is sometimes considered to put the creditor in the
loss as he has no security of solvency of the creditors. This lacuna of the rule is filled by
Section 42 of the Indian Contract Act.
Devolution of joint liabilities (Section 42)

Section 42 of the Indian Contract Act deals with the devolution of joint liabilities. According
to the Section in case, there are several joint promisors involved in a contract by making a
promise then during the joint lives of the promisors they must fulfil the promise jointly. In
case of death of any of the joint promisor, the representatives of the deceased promisor
along with the surviving promisors should strive to fulfil the promise. On the death of the
last surviving promisor, the representatives of all the deceased promisors would be jointly
liable for fulfilment of the promise. However, this legal proposition is subject to any private
arrangement between the parties to the contract.
When two or more persons enter into a joint promise then unless a contrary intention
appears by the contract all promisors during their joint lives and after the death of any of
them their representatives will be bound jointly along with the surviving promisor or
promisors. After the death of all the promisors, the representatives of all the promisors will
be bound by the promise jointly entered into by the deceased promisors.
This Section provides security to the promisee by assuring him that the promisors would be
bound by the promise made by them during their joint life and after the death of either of
the promisor, their representatives will be bound by the promise made by the deceased
promisor.
In Gannmani Anasuya & Ors vs. Parvatini Amarendra Chowdhary, the court held that
Section 42 shifts the burden of the fulfilment of the promise on the representatives of the
deceased promisors. However, this liability is subject to the express or implied prescription
of such provision by the promisors. Such prescription by the promisors could be inferred
expressly or impliedly.
When two or more persons make a joint promise, the promisee may, in the absence of an
express agreement to the contrary, compel, any one or more of the joint promisor to
perform the whole promise.
Each promisor may compel contribution– Each of the 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.
Sharing of loss by default in contribution– 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. Section 43 entitles the promisee to claim performance from
anyone or more promisors to compel contribution from the others, and the sharing of loss in
the event of default in contribution. These provisions can be altered by providing to the
contrary in the contract.
Types of joint obligations

Several responsibilities arise when two or more persons under a single or different
instrument make separate promises to another. Their promises are cumulative, and one’s
payment will not discharge the other. Joint liability arises when two or more persons
promise to do the same thing together in the same instrument and make separate promises
to do the same thing. It gives rise to one joint obligation and as many joint and several
promisors as there are. Like joint responsibility, one-time performance discharges
everything.
Joint and several liability

The Section makes all joint contracts joint and several. When the debts are jointly incurred,
each promisee is liable for the whole amount. A joint contract unenforceable against one of
the joint promisors on the ground of lack of his signature or is having agreed at all, can be
enforced against the other who has signed. Neither the minority or insolvency of one joint
promisor affects the liability of the others.
Death of one joint promisors

As held in Gokhul Bihari Pande v Khiju Rai, if one of the joint promisors dies pending suit,
the suit can be brought against the other defendant promisors without recording his legal
representatives. But when a lawsuit has been dismissed against a number of joint
promisors, the plaintiff can not prosecute an appeal against just a few of them, waiving his
claim against the rest.
Suit against joint promisors

Under this Section, the lender may sue all or any of the joint promisors as he may choose,
even where one of the promisors has undertaken the liability as a surety. Section 43 read
along with O I r 6, CPC, makes the effect of joint liability arising on a contract the same as
where the liability is several. But this is limited to the question of joinder of parties liable on
the same contract and is a matter of procedure as held in Union of India v. East Bengal
Steamer Service Ltd. The Section allows a promisee to sue one or more of several joint
promisors to be sued only along with his co-promisors. It is no defense to such a suit that
all the promisors must have been made parties. However, this right of the promisee to sue
any one or more of the joint promisors is distant from, and does not affect the right of a
defendant to apply to the court under O I, r 10, of the CPC 1908, to have his co-contractor
added as a party, not on the ground that such co-contractor ought to be joined, but if the
“court considers it necessary to do so” as was held in Muhammad Askari v. Radhe Ram
Singh.
In Ganeshmull Sahasmull v. Sohanlal Punamchand, where, pending an appeal against a

decree obtained against joint promisors, one of the promisors dies and the appeal abates
qua him, the appeal can proceed against the other joint promisors. The abatement does not
affect the right of the surviving promisors for contribution against the deceased joint
promisor’s estate.
Suit against one of the several partners

The Section applies as much to partners as other contractors. In a suit brought upon a
contract made by a partnership firm, a plaintiff may select as defendants, those partners of
the firm against whom he wishes to proceed, without making all the partners defendants.
Where a partner of a registered firm entered into a contract of tenancy on behalf of the
firm, a suit against that partner for recovery of rent was maintainable in the absence of the
other partners, who were not necessary parties, non-payment of rent being an act of the
firm within the meaning of The Indian Partnership Act, s 25.
Where one partner, having himself settled a decree against the partnership, sued another
partner for contribution, he could not rely upon s 43 to defeat a plea by the defendant that
a suit for one item in the account could not be a subject of claim because the partnership
had been dissolved and the suit for accounts of the dissolved partnership was time-barred.
Effect of decree against only some of the joint

promisors
There is considerable difference of opinion among the high courts about the operation of
this Section, where a judgment has been obtained against some or one of joint promisors.
The Calcutta High Court held that a decree obtained against one of several joint makers of a
promissory note is a bar to a subsequent suit against others, which was followed initially by
the Madras High Court, but it later held that if the decree against some only of the joint
contractors was not barred. The Allahabad High Court held in Muhammad Askari v. Radhe
Ram Singh that a judgment obtained against some of several mortgagors remaining
unsatisfied was no bar to another suit against the other joint mortgagors.
A foreign judgment passed on admission against one joint promisor, who had admitted the
claim after the institution of the suit, would not bar the continuation of the suit against
other joint promisors in the domestic forum.
Situations of such liability

When a joint venture group contract is concluded, all members are jointly and severally
liable, even if only one is capable of rendering the service in question. Each of a number of
co-tenants is liable separately to the landlord under s 43 for the entire rent, and a suit is
also liable against all the heirs of a deceased co-tenant without making a party to other co-
tenants. As the rights of one of the joint mortgagors, who had redeemed the mortgage, are
specifically dealt with in s 92 of The Transfer of Property Act 1882, s 43 of this Act has no
application. The liability of the members of a company found illegally is joint and several,
and a suit can be maintained against only some of them.
Co-heirs
Section 43 refers to two or more persons making a joint promise, and there is no
application where parties become jointly interested in the operation of law in a single
person contract. The section therefore does not apply to the case of the original debtor’s
several heirs, and they must all be joined as parties to the suit. Later, a Calcutta High Court
Full Bench decision held that a case of a rented lawsuit against some of the heirs alone
could be upheld, since the court had the power to add parties under O I, r 10, CPC.
In the Absence of Express Agreement- Whether a sales deed by a number of sellers makes
all sellers jointly liable or makes each seller liable for their own share, is a matter of fact
depending on the parties’ intent. The burden of proving that each promoter is not liable
separately under the contract lies on that joint promoter who wishes to resist the suit on
this ground.
Contribution
The word contribution in s 43 and reimbursement is in s 69 convey two different ideas and
are applicable in two different ideas and applicable in two different circumstances. A
contribution is between persons equally bound, while reimbursement lies between a person
interested in payment and persons bound to pay. Contribution signifies payment by each of
the parties interested in his share in any common liability. Mutuality is the test of
contribution. Under the English law, joint and several debtors have a right of contribution
among themselves based on restitution. Unless a contrary intention appears, the right to
claim contribution is an absolute right, and the courts have no option but to give effect to it.
Contribution between judgement-debtors

Persons liable jointly and severally under a decree are in the same position as joint
promisors. They will bind a contribution to the extent of their respective shares towards the
discharge of the decree. A co-debtor may not be liable to contribute if he shows that the
other co-debtor had an amount of joint money sufficient to discharge the decree. A decree-
holder can recover his decretal debt from one or more or any of the judgment-debtors and
the latter can compel contribution from the other judgment debtors, who have not been
compelled to pay. In the absence of a contract to the contrary, the liability to contribute is
not affected by the release of any judgment-debtor by the decree-holder.
The question as to whether there is any right of contribution as between persons against
whom a joint decree has been passed depends upon the question whether the defendants,
in the former suit were wrong-doers in the sense that they knew or ought to have known
that they were doing an illegal or wrongful act. In that case, no suit for contribution will lie.
If an act is manifestly unlawful, or the doer of it knows it to be unlawful as constituting
either a civil wrong or a criminal offense, he cannot maintain an action for contribution or
indemnity to him for the commission of such act is also void. Thus, where a decree for costs
against two defendants jointly was executed against one of them, who had set up a false
defense in the suit in collusion with the other, and the former sue the latter for contribution
in Vayangara Vadaka Vittil Manja v. Pariyangot Padingara Kurupath Kadugochen. It was held
that the suit would not lie.
Principal debtors and sureties

A surety is not liable to pay contribution to the principal debtor. The liability of the principal
debtor and the surety is joint and several, but upon payment to the creditor, the surety is
entitled to recover from the principal debtor, the entire sum he has rightfully paid under the
guarantee. The liability of co-sureties to contribute is separately provided in s 146 of the
Act.
Commencement of liability for contribution

Before the enactment of this Act, it was held in Ram Pershad Singh v Neerbhoy Singh that
the mere existence of a decree against one of several joint debtors did not provide ground
for a contribution suit against the other debtors. Only after fully satisfying the joint decree
can a co-promoter seek contribution from other co-promoters. For contribution, a prima
facie case is made by the production of the judgment and the certificate of satisfaction.
Mere execution of a mortgage decree for costs does not entitle a defendant to the
contribution unless he redeems the mortgage or the mortgaged property is sold in
satisfaction of the mortgage. Limitation for contribution begins to run only from the date of
payment as held in Shankerlal v. Motilal.
Default in contribution
Joint promisors are liable to contribute equally unless a contrary intention appears from the
contract. The last paragraph of the Section does not contemplate cases where one of the
joint contributors has not paid and others received the benefits in the original contract in
unequal proportions. The fact that one happens to escape from legal liability to the creditor,
without consent of his associates, and perhaps even without their knowledge, cannot be
allowed to disturb the original obligation between co-debtors or to alter the proportions of
liability or contribution, which must be ascertained from the note at the time it was made as
held in Ramskill v Edwards. If one liable person is not in a position to pay his share, that
amount should be divided equally within the Section between the others, but it was held
that the amount could be divided by the proportion of the benefit each received.
Release of one joint promisor (Section 44)

Section 44 of the Contract Act grants the Right to release to the creditor under which he
may release either of the joint promisors from liability. The section provides that where the
creditor has released either of the joint promisors from the liability. The other joint
promisors are not discharged from their liabilities and they are still bound to fulfil the
promise which they have made to the person. The release of the promisor from his liability
towards the promisee, however, does not result in his release from the liability which he has
towards the other joint promisors.
Section 44 of the Indian Contract Act marks a departure from the common law principle in
which the release of one of the promisors from liability tantamounts to the release of the
other promisors from their liability towards the promisee. Unless the promisee expressly
provides for the preservation of rights against them.
Time and place for performance (Section 46-50)
We already know that a contract requires a certain set of basic essentials that must be
fulfilled in order to make a contract legally enforceable. But even when the parties to the
contract have fulfilled these essentials, its validity can be questioned if the contract is not
fulfilled in due time and in the manner prescribed in the contract. In all Commercial
contracts for example construction contracts, it is of utmost importance that a contract is

completed in due time because a delay in its performance might frustrate the whole
objective of the contract making the promise subject to losses. Although it is at the
discretion of the parties to decide the time, and place of the contract, once decided it
becomes necessary to comply with such terms.
We will now discuss the rules regarding time, place and manner as specified in sections 46-
50 of The Indian Contract Act, 1872.
Rules regarding time and place of performance of

contract
1) When no application is to be made by the promisee and

no time is specified – Section 46
In situations where there is no time period specified for the performance of the contract and
the promisor has to perform the contract without any request by the promisee, in such a
case the promisor must perform the contract within a “reasonable time”.
Here reasonable time means a fair amount of time that is required to do something
conveniently and as soon as the circumstances permit. Hence here time is not important
since a specified date for completion is not mentioned but this does not mean that the
promisee does not have the right to have the contract performed by the promisor.
Also, the term reasonable time depends on the facts and circumstances of the case and will
also depend on the nature of the transaction.
Illustration
Srishti takes a loan of Rs 10,000 from Shivani and says that she will return it to her when
she receives her next salary. Here the reasonable time for performance of the contract is
after Srishti receives her next salary.
2) When time and place of performance is specified but no

application is to be made by the promisee- Section 47
When the terms of the contract say that the promisor has to perform the contract without
any request by the promisee, on the place specified by the promisee and on the exact date
specified by him.
In case no specific time is mentioned then the promisor should deliver the goods during the
usual hours of business.
Illustration
Ankita promised to deliver goods to Ira on an advance payment of Rs 10,000. Ira made the
payment and asked Ankita to deliver the goods on 13th of the same month at her office at
Tis Hazari. Since the time is not specified, she should deliver it between 10 am and 5 pm,
assuming those are the regular court timings.
If Ankita attempts delivery after the business hours, then Ira has the right to not accept the
goods and ask Ankita to deliver again during business hours.
3) When Performance is to be made on a proper place and

time but an application is to be made by the promisee to
the promisor for its performance- Section 48
When the terms of the contract say that a performance of a contract has to be made on a
particular day but the promisor will only do so when the promisee makes an application to
the promisor on that specific day for performance. Hence, here since it is specifically
mentioned in the contract that the promisee has to request the promisor for performance
on that specific day, he must do so at the proper place and during the usual business hours
as specified by him.
Illustration
Manu agrees to supply Nishant 50 cartons of alcohol on 3rd November at his office. As per
terms of the contract, Nishant would have to request Manu for performance. Thus on the
due date and within usual business hours, Nishant should request Manu regarding a time
and place for the supply of goods.
4) Where no place is fixed and no application has to be

made to the promisor by the promisee- Section 49
When the terms of the contract does not specify the place where the goods have to be
delivered and that no request has to be made by the promisee for the performance of a
contract, in such a situation it is the duty of the promisor to request the promisee of a place
reasonable to both where the goods can be delivered and then accordingly perform the
contract.
The place for the performance of goods implies both the delivery and payment of goods.
Illustration
Sheela entered into a contract for supplying 100 cartons of Gram Flour to Anu on 5th
September at a specific price. On the due date of performance, Sheela must apply or
request Anu for determining a reasonable place and also make the payment at the same
place.
5) When the performance has to be made in the time and

manner as specified by the promisee- Section 50
A contract can also exist in which the promisor agrees to perform the contract in a manner
and at a place and time prescribed by the promisee.
Illustration
Prankur’s son is in the hospital and needs money for his son’s operation. Harshil owes
money to Prankur and agrees to repay him at any place or time decided by Prankur. In this
case, Prankur has the liberty to ask for the performance of the promise in any manner and
at any place or time suited to him.
The consequence of failure to perform the contract

at a fixed time when the time is essential (Section
55)
Section 55 of the Indian Contract Act,1872 deals with the effect of failure to perform the
contract at a fixed time when the time is essential.
If an act is not done within the stipulated time, the contract becomes voidable at the
option of the promisee provided the Intention of the parties was that time should be of
the essence of the contract.
Thus whether time was the essence of the contract depends on the intention of the parties
and also on the nature of the contract.
In Bhudra Chand v. Betts(1915) the defendant promised to deliver an elephant to the

plaintiff for the capture of a wild elephant as a part of Kheda Operations. The contract
provided that the elephant would be delivered on the 1st of October, 1910, but the
defendant obtained an extension of the time till 6th Oct and yet did not deliver the elephant
till 11th. The plaintiff refused to accept the elephant and sued for damages for the breach.
It was held that the plaintiff was entitled to recover damages since it was proved that time
was the essence of the contract since the defendant had tried to obtain an extension of
time.
This section says that if it was not the intention of parties to make time of the essence of
the contract, the contract does not become voidable by the failure to perform the
contract on or before the specified time but the promisee is entitled to claim
compensation for any loss caused by the default
Finally, the section goes on to say that if time is intended to be of the essence by the
parties but performance is accepted on some other time other than the time agreed,
compensation cannot be claimed by the promisee unless he gives such a notice to the
promisor.
In the case of State of Kerala v. M.A Mathai(2007), it was held that if there are any delays
in the performance of reciprocal obligations by an employer, the contractor gets the right to
avoid the contract but if he does not avoid the contract and accepts the belated
performance, he cannot claim compensation for any loss sustained to him due to delay in
performance, unless he gives a notice of the same to the delaying party.
The intention of the parties

In Indian law, the question of whether the time is of the essence of the contract or not is
determined by the intention of the parties.
The intention of the parties can be determined from:
(a) The express words used in the contract
(b) The nature of the contract itself
(c) The nature of the property which forms the subject matter of the contract
(d) The surrounding circumstances
It has been held in the case of China Cotton Exporters v. Beharilal Ramcharan Cotton Mills
Ltd (1961) that in commercial contracts time is ordinarily of the essence of the contract.
Thus It is ordinarily presumed that except in commercial contracts, time is not of the
essence in other contracts. This presumption can be rebutted by showing the intention of
the parties.
For example, Time is presumed not to be of the essence in contracts relating to immovable
property, but of the essence in contracts of renewal of leases.
In M/S Citadel Fine Pharmaceuticals vs. M/S Ramaniyam Real Estates Pvt. Ltd. and Ors.
(2011), It was held that time was the essence of the contract which was specifically
mentioned in clause 10 and the consequences of non-completion are mentioned in clause 9.
So, from the express terms of the contract and the commercial nature of the transaction
and the surrounding circumstances make it clear that the parties intended time to be of the
essence of the contract.
However, merely specifying the time at which the contract has to be performed does not
make time the essence of the contract. In order to determine this the terms and conditions
of the agreement should be read carefully. If the contract in its terms provides that time is
the essence of the contract, but other terms of the agreement show that the parties did not
intend time to be of the essence, the court has held that time is not of the essence.
For Example, in the Case of Hind Construction Contractors v. State of Maharashtra (1979)
the Appellant entered into a contract with the respondent on July 2, 1955, for some
construction work with the condition that the contract should be completed within 12
months from the commencement of the work. The Appellant could not complete the work
within the stipulated time and the Respondent canceled the contract with effect from August
16, 1956. The Appellant contended that time was not of the essence and further on account
of several difficulties, such as excessive rains, lack of proper road and means of approach to
the site, the completion was delayed. The Supreme Court, in deciding that time was not of
the essence in relied on two clauses in the contract–
1. First, there was a power to grant an extension of time on reasonable grounds by the
respondent on an application by the appellant. Even though the appellant made an
application for extension, the respondent revoked the contract which was wrong.
2. Second, there was a provision to recover penalty/compensation from the appellant at

specified rates during the time the work remains unfinished.
These two provisions, as per the court, exclude the inference that time was intended to be
of the essence of the contract.
Time can be made essence by notice

When time is not of the essence in a contract, it can be made so by giving notice to the
promisor. The notice must contain clearly that it wants to make time as the essence of the
contract and the necessary implications if it is not adhered to. The promisor can also be
intimated through the notice that default in the compliance with the terms will lead to the
cancellation of the contract. The party serving the notice must himself be bound by it.
Extension of time
Since one party to the contract cannot unilaterally vary the terms of the contract, he also
cannot extend the time without the consent of the other party through an agreement,
Therefore, time for performance can be extended only by an agreement arrived at between
the promisor and promisee. Thus if one party requests the other party for extension of time
but the other party does not communicate his acceptance, the time cannot be extended in
such a case.
What are reciprocal promises?
Section 2(f) of the Indian Contract Act, 1982 talks about what are reciprocal promises.
Reciprocal promises which form are a part of the consideration.
Types of reciprocal promises
Mutual and independent

This concept has evolved through jurisprudence. It states that the two promises of the
parties are independent of each other and they do not have to rely on each other for
performance. Suppose there is a contract where A will give chocolates to B and B will give
Pokemon cards to A.
A can fulfil his promise even if B does not give him the pokemon cards i.e- the absence of
Pokemon cards does not make the performance of his promise impossible. The same goes
for B. Thus while the acts are binding, they are mutually exclusive and are thus
independent of each other.
However, if the contract states the acts must be done in a certain order then that clause
should be upheld.
In Mrs Saradamani Kandappan vs. Mrs S. Rajalakshmi and Ors, Sadarmani was paying for a
piece of land to Rajalakshmi in instalments. Before the payment of the last instalment,
Sadarmani wanted to see the title document Rajalakshmi failed to show it and Saradamani
thus did not pay the last instalment.
Thus, Rajalakshmi terminated the contract. Sadarmani moved to the court and argued that
failure to show the title document was the reason she could not pay the last instalment. The
court ruled that these two promises (the promise to show the title document and the
promise to pay for the last document) were exclusive as Sadarmani could pay the last
instalment without showing the title document. Thus, Sadarmani should have paid the last
instalment.
Conditional
This is when the performance is dependent upon the prior performance of the other party. If
the first party fails to perform his promise, then it will be impossible for the second party to
perform his side of the contract.
Suppose the contract if A promises to give money to B, if B promises to buys Maggi for A. If
A defaults, i.e- he fails to pay B, then it will be impossible for B to hold up his side of the
contract as he won’t be able to buy the Maggi if A does not pay him. Thus, this type of
contract is considered a conditional contract.
In M/s Shanti Builders vs. CIBA Industrial Workers’ Co-Operative Housing Society Ltd., the
defendant, CIBA alleged that they suffered losses as Shanti builders did not do their work
on time. On the other hand, Shanti builders contested they were not given plots of land (as
per payment for construction). Since this plot of land was not given to them, they were not
able to complete construction.
The court held in favour of Shanti Builders and stated that if the nature of the transaction
states that certain promises must be performed first before others, then that order must be
followed. They also stated that in regards to conditional promises, the first party can not
ask for the performance of the second party without performing their act first.
Concurrent
Here, parties promise to do acts that have to be performed simultaneously. A party will be
exempted from doing their promise if the other party is not ready or willing to do their
promise. Here ‘readiness’ means financial abilities and ‘ willingness’ is perceived through the
action of the party.
For example, P is supplying coats to R. P will only supply the coats if R financially can and is
willing to, and R will only pay if P is willing to and has the goods.
In J.P. Builders vs. A. Ramadas Rao, the court stated the definitions of readiness and
willingness.
Rules regarding performance of reciprocal promises
Section 51– Simultaneous performance

Like we had discussed in concurrent promises, if the other party is not ready or willing to
perform their promise, then the other party does not need to perform their side of the
promise.
Thus, if Ashok and Navya are in a contract, Ashok need not pay for the goods unless Navya
is willing and ready. Similarly, Navya need not give the goods unless Ashok is willing and
ready.
In Pushkarnarayan S. Maheshwari vs. Kubrabai Gulamali, it was held that the burden of
proof is on the Plaintiff to prove that he performed or remained ready and willing to perform
the contract.
Section 52– A sequence of performance

If the contract calls for an order in which the acts promised should be performed, then the
acts should be performed in that order. Otherwise, the sequence of the order is determined
by the nature of the promises.
For example, if B cannot build a road he promised to build without providing material, then
A’s promised act should be performed first, then B’s.
Section 53– One party preventing the other to perform

their promise
If one party prevents, or makes it impossible for the other party to perform their job, then
the affected party has the option of voiding the contract. They also have the option of
asking for compensations for the damages.
For example, Ashok is willing to supply coats to Navya, but on the day of delivery, Navya
does not show up or locks Ashok in his shop; then Ashok can void the contract or collect
compensation.
Section 54– Reciprocal and dependent promises

When the nature of the promise is conditional, the first party (the party who has to perform
in order for the other party to perform) can not ask the other party to perform their
promise, if they do not perform first.
The second party can also ask for compensation if they face damages due to the non-
performance of the first party.
For example, Aaryan is a carpenter and Sara provides wood. They have a contract that Sara
will provide wood to Aaryan and then he will make a table for her. If Sara refuses to provide
the wood, then she can not expect Aaryan to make the table. If Aaryan faces any loss due
to the fact Sara failed to provide wood, then he can ask for compensation.
Section 55– Failure to perform in stipulated time

If performing an act in a specific time frame is essential to the contract, and the promisor
fails to do so, then the aggrieved party or the promisee can either void the contract and ask
for compensation for losses.
If time is not essential to the contract then the promisee can not void the contract, he can
also ask for compensation of losses that were suffered due to the delay.
In M/S Citadel Fine Pharmaceuticals vs. M/S Ramaniyam Real Estates Pvt. Ltd. and Ors.
(2011), it was stated that the intentions of the parties expressed in the contract are
imperative to signal whether the time is of the essence when the nature of the transaction
does not make it very clear.
Section 56– Impossible or unlawful act

If the promisor promises to do something which is impossible to do, then the contract is
void. This section, thus, deals with the ‘Doctrine of Frustration’.
The conditions that should be satisfied in order to invoke this section are –
1. The cause should not be a result of a default of the parties.
2. The cause must be unforeseeable and inevitable.
3. The cause must render the entire contract impossible to do.
There are two scenarios which are illustrated below-
Initial impossibility
This is when the promisor and promisee enter into a contract to do any act which they both
know is impossible to do then the contract is void.
If the promisor promises to do an act that he knows can not be done, then he is liable to
pay compensation for the losses suffered by the promisee due to his incapability to perform
the act.
Thus, Ashok promises to supply Navya a coat made of bear fur. Navya wishes to wear this
coat for a television interview. But, Ashok is aware that it is impossible for him to supply a
bear coat to her in this season, but he still promises to sell her one and enters into a
contract with her. In this situation, Navya can void the contract and can ask compensation
for the losses she suffered.
Subsequent Impossibility
At the time of making the contract, the act might have been possible and lawful, but later
on, it became impossible to do due to some reasons. In this case, the contract becomes
void when the act becomes impossible to do.
Taking from the previous example, at the time that Ashok enters the contract, he will be
able to provide a coat made of bear fur to Navya. But after he enters the contract, the
Government puts a ban on the supply of products made of bear fur. Now Ashok can not
supply Navya with the coat she wanted. Thus, the contract becomes void when the
Government passes the law.
Section 57– Reciprocal promises or legal and illegal acts

The parties may have entered the contract to do legal acts. But after the contract was
established, under specific conditions, they agreed to do illegal acts. In this case, the
previous legal acts are valid and the preceding illegal acts are held void.
For example, Ashok promises to supply coats to Navya. Navya then promises to sell such
coats on the black market for more profits. Here Ashok’s promise to supply coats to Navya
is valid but Navy’s promise to sell such coats on the black market is invalid.
Section 58– Alternative promise of legal and illegal acts

Parties may promise to do legal acts that branch off into illegal acts.
For example, Preeti promises to pay back her loan to Rohit. But this loan shall be paid with
black money. Thus, while Preeti’s promise to pay back the loan is valid, the promise to pay
with black money is invalid.
Appropriation of payments (Section 59-61)
Appropriation means ‘application’ of payments. In case of a creditor and a debtor, Section

59 to 61 of the Indian Contract Act, 1872, lay down certain rules regarding the
Appropriation of payments. When a debtor pays an amount to the creditor, the creditor is to
take note of these sections before applying the payment to a particular debt, because the
creditor would be inclined to appropriate payments to the debt which is not likely to be
realized easily. In case both parties do not specify the appropriation then the law would take
the responsibility and appropriate accordingly.
A discharge of a contract by agreement, on the other hand, is when the contract is ended
because the conditions are not fulfilled. However, the involved parties can also terminate a
contract when the primary terms and conditions of the said contract have not been fulfilled.
Essentially, the difference between a discharge of a contract and terminating contract is the
reason why the contract is coming to an end.
Appropriation by debtor
Under Section 59 of the Indian Contract Act, 1872, it is stated that if the debtor owes
several debts to the creditor, and makes a payment to any of them and later requests the
creditor to apply the payment to the discharge of a particular debt. If the creditor agrees to
this request, he is bound by such appropriation. This section applies to several distinct
debts and not to a single debt, or to various heads of one debt. This is not applicable where
the debt has merged into a decree. The appropriation may be implied or expressed by the
creditor. The basic idea is that “When money is paid, it is to be applied according to express
the will of the payer and not the receiver. If the party to whom the money is offered does
not agree to apply it according to the will of the party offering it, he must refuse it and
stand upon the rights which the law has given him”
Clayton’s case
In England, it has been considered a basic rule since the case of Devaynes vs. Noble, also
known as Clayton’s case. In this, it was held that the debtor can request the creditor to
appropriate the amount to any of the debt in case he owes to the creditor several and
distinct debts, if the creditor agrees to it, then he is bound by it.
Several and distinct debts

Section 59 applies to the debt which is several and distinct and does not apply in the cases
where there is only one debt even if it is to be paid in installments. The test to know
whether the debts are distinct is the person can sue for it separately.
Intimation by the debtor

The debtor must at the time of the payment of the debt, must intimate the creditor that the
amount must be paid for the liquidation of a certain debt, and the creditor has to
appropriate it accordingly. The creditor has the right to refuse any conditions made by the
debtor during the payment of the debt. Once appropriation has been accepted, then the
creditor cannot alter the terms of the appropriation, without the consent of the debtor.
The debtor should communicate his appropriation either expressly or impliedly, through the
circumstances indicating such intention.
Proof of intention
Intention about the appropriation of the payment by the debtor must be proved by
circumstances. Where the debtor alleges appropriation in a particular manner then he must
prove it. Moreover, entries in the book of the creditor could be considered for the proposed
appropriation by the debtor.
Contract of guarantee
The right to appropriate is available to the debtor and not the surety. A surety is also bound
by the creditor’s appropriation. Also, the surety has no right to insist on the appropriation of
any payment to the guaranteed debt, unless the circumstances of the case are such that
they show such intention.
Appropriation by creditor
Under Section 60, the creditor is also competent for appropriation. If the debtor makes any
payment without any appropriation then the creditor can use his discretion to wipe out any
debt which is due. He may use it for the payment of a time-barred debt or wipe out the
debt which is carrying a lower interest rate. The right of appropriation lies with the creditor
until the last moment, even when he is examined at the trial or before any act which
renders him inequitable for him to exercise this right. The creditor, in this case, has a lot of
scope for exercising his right, he can put himself in the most advantageous position.
Moreover, he need not express himself in express terms while doing so. As long as notice
has not been given in respect of the appropriation of any amount, the creditor can change it
and can appropriate some other claim.
Lawful debts
The creditor must establish the existence of a lawful debt actually due. Under this section,
the appropriation cannot be made against any unlawful debt. In several cases, it was held
by the court that a creditor can even appropriate an unenforceable debt due to some
defect.
Time-barred debts
The creditor, in the absence of any appropriation by the debtor, can appropriate the amount
of a debt barred by the Limitation Act,1963. This usually happens as the creditor
appropriate the amount to a time-barred debt and sue the debtor for the ones not barred.
However, the amount cannot be appropriated to a debt barred by a statute after an action
has been brought and judgment has been delivered.
Principal and interest on single debt

There is a lot of conflict amongst the opinion of the court as to whether the provisions of
this Section would apply to the principal and interest of the debt or not. In the case of Jia
Ram vs Sulakhan Mal (Air 1941 Lahore 386), it was held that the principal and the interest
would not be applicable under this.
As under the common law, the rule that applies is that where the principal and interest has
accrued on a debt, sums paid where interest has accrued must be applied first to the
interest. This rule is based on “common justice” else it would deprive the creditor of the
benefit to which he is entitled under his contract and would be most unreasonable for him.
Appropriation by law
Section 61 is applied in a situation when neither of the parties makes the appropriation. To
settle this deadlock, then the law gets the right to appropriate. In such cases, the debt is
settled in accordance with the order of the time they have incurred. In case all the debts
are of the same time then the debts would be discharged proportionately. Under this
Section not only the express agreement but also the mode of dealing between the parties.
Assignment of contracts
Assignment of contract means the transfer of the contractual rights or liabilities by a party
of the contract to some other person who is not a party to the contract. For Example- A
owes B debt and B owes to C. B can ask A to directly pay the amount to C, and if A agrees
to this, then this will be an assignment of a contract.
Assignment of liabilities
In an assignment of the contract, it is important to note that the liabilities cannot be
assigned. The promisor has to insist that the responsibility of the performance of the
contract lies on the promisor himself. It becomes more important when the work is of
personal nature and demands personalized skills like painting, singing. The promisor, in that
case, can object to the performance of the contract which is done by some other person
who is not a party to the contract.
The contractual liabilities may be assigned in the following two ways:
By the act of the party

Assignment with the consent of the other party and the assignee;
For Example- novation of a contract.
Assignment with the consent of other parties, but without the consent of the assignee.
For Example- A and B are party to a contract, they both decided to assign the liabilities on
C, who is a stranger to a contract.
The assignment without the consent of the other party but with the consent of the
assignee i.e. a voluntary assignment.
For Example- A and B are party to a contract, B assigns the liabilities of the contract to C,
who is a stranger to contract, with his consent but without the permission of A.
By operation of law
The operation of law is another mode of a valid assignment of any contractual liabilities to a
stranger. Such assignment is also called an ‘involuntary assignment’ or an ‘automatic
assignment’ of contractual burdens or obligations. Such assignment may take place in the
following circumstances:
1. On the death of the promisor.
2. On the retirement of a partner.
3. On insolvency of the promisor.
4. On winding up of a company.
Assignment of rights
The rights are assignable under a contract unless the contract is personal in nature or the
rights are incapable to be assigned either by law or under any contract that is entered by
the parties. The intention regarding the assignment of the rights needs to be gathered from
the nature of the agreement or from the prevailing circumstances.
Even when there is no prohibition as to the assignment of the rights, but if the court from
the facts of the case determines that there are various personal obligations under the
contract, hence the rights under this cannot be assigned.
One of the leading authorities is the decision of the Supreme Court in the case of Khardah
vs. Raymon, in this case, the dispute arose because of a contract for the purchase of mill by
a Pakistani jute dealer who failed to supply the goods as agreed. The court held that the
contract for the purchase of the foreign jute was not assignable because the goods had to
be imported from under the license which was not transferable. The other question which
was put up was whether the dealer could assign his rights to that price on the delivery of
the goods. The court accepted that there is nothing personal about the sale of goods.
Moreover, it is established that the arbitration clause does not take away the right of the
party to assign if it is otherwise assignable. In fact, the rights of the seller also do not
obstruct the assignability of the contract. In the case, there was no provision in the contract
which prohibits the assignment. The court stated that in the law there is a clear distinction
between the assignment of the rights under a contract by the party who has performed the
contract and his obligations, and the assignment of a claim for compensation which one
party has against the other party for the breach of contract. The latter is just a claim of
damages that can not be assigned in law, the former is the benefit under the agreement,
which is capable of assignment.
Personal nature of the contract

The contract of personal nature involved the personal creditworthiness of the buyer even in
the case of the mode of payment, which was not capable of being assigned. This was held
in the case of SAIL vs. State of MP in which the central government assigned a piece of land
to its own corporate undertaking with rights, liberties and privileges, one of which was the
exemption from tax. The court rules that the assignee became entitled to the exemption as
the successor.
Unilateral cancellation of the sale deed

It is not possible for the vendor to make a deed of cancellation of the sale deed made, even
if the ground is full of consideration was not received by the vendor. Such a deed would
result in the revocation of the contract and would require the order of the court. Moreover, a
deed of cancellation of a sale unilaterally executed by the transferor does not create,
assign, limit or extinguish any right, title or interest in the property and is of no effect.
Hence such a deed could not be accepted for registration.
Effect and formalities of assignment
Consideration
The assignment requires some form of consideration from the assignor to the assignee. In
the absence of any consideration between them, the assignment will be revocable. But
when an assignment is made by way of gift, by following all the essential conditions of a
gift, then it can not be revoked. In order to make a voluntary settlement valid, the settlor
must do everything, which according to the nature of the property was necessary to do in
order to transfer the property.
Subject to equities
The title of the assignee is subject to all the equities that exist or arise up to the time when
the notice of assignment is given to the debtor. (for instance, A is the assignor, B is the
assignee and C is the debtor).The assignee would not be affected by the equity of personal
nature between the assignor and the assignee. For example, the right to claim damages for
the fraud committed by the assignor cannot be used to defeat the right of the assignee.
Notice of assignment
Notice of assignment should be given to the debtor. This is very useful as it binds the
debtor. If the notice is not given then the debtor could make the payment of the assignor
himself and will get discharged. Moreover, if notice is given then the assignment would not
be affected by any equity that may arise. Moreover, if the notice is paid to the assignor who
has many assignments then, in that case, the notice is given to him at that point of time,
then that assignment will have priority over others even if it was received later.
Discharge by agreement
Discharge of a contract means to end a contract. Discharge of the contract can take place
through:
By Performance;
By agreement or by consent;
By promise failing to offer facilities for performance;
By breach of contract;
By impossibility of performance;
By death;
By refusing tender of performance;
By unauthorized material alteration of the contract;
Discharge by lapse of time;
By operation of law.
The parties to a contract are free to alter or rescind the entire term of the contract.
Novation or modification can happen in the same manner as that of the conclusion of the
contract. If one party proposes a novation and the other party accepts it but in a qualified
manner, then it will not amount to novation. A mutual abandonment, cancellation, or
rescission must be clearly expressed. Novation or modification is affected only when all the
parties agree to it. The substituted contract needs to be enforceable just like the original
contract. In case the new contract is not enforceable then the original contract would be
operative. In such cases, the consideration would be the release of the existing contract for
a promise to undertake a new contract.
Contract which need not to be performed
The word ‘novation’ literally means to replace with a new contract and the same obligations
are performed by different parties. Under novation, the liabilities under the existing contract
are extinguished. The doctrine of novations is recognized under Section 62 of the Indian
Contract Act, 1872. Every contract can be novated and novation can be effective only when
there is a new contract and not a new agreement. Hence, mere agreement to substitute the
existing contract will not be binding unless it has been accepted and executed mutually by
all the parties. A new contractual obligation arises when parties novate a contract.
What is the novation of a contract?

Novation of contract means creating a new contract while the old one is terminated and
need not be performed. It is an act substituting a new obligation or party in a contract for
the old one. Further, the newly substituted agreement should be valid, enforceable, have
consideration and should be by the mutual consent of the parties. Basically, it should fulfil
the requirements of a valid contract.
When a contract is novated, the original contract ceases to exist and the parties have to
follow the new contract. Section 62 of the Indian Contract Act states that “if the parties to
the contract agree to substitute a new contract for it or to rescind it or alter it, the original
contract need not to be performed.”
Essentials of Section 62 of the Indian Contract Act

Consensus ad idem between the parties to a contract.
There should be a previous contract entered into between the parties.
Substitution, recession or alteration of a contract giving rise to a valid new contract.
Termination of the original contract.
The basic requirement of Section 62 was discussed by the Supreme Court in the case of
Lata Construction & Ors v. Dr. Rameshchandra Ramniklal Shah, novation requires a
complete substitution of a new contract in place of the old one and only in that condition
the original contract does not have to be performed. The new substituted contract should
rescind or completely alter the terms of the original contract. In Ramdayal v. Maji Devdiji,
the court observed that novation takes place by introducing new terms in the contract or by
introducing new parties. A contract of novation requires a party to agree to extinguish or
discharge his obligation or debt. Unless this has been accomplished there can be no
novation. Therefore the test is to know whether the parties intended to enter into a new
contract between them or not.
For novation to take effect, modification to the contract must go to the root of the original
contract and change its essential character as held by the Calcutta High Court in the case of
Juggilal Kamlapat v. NV Internationale.
Examples:
1. In a partnership firm, the liabilities of an old firm are taken over by the new firm.
2. A lease agreement, where the tenant gives the lease to another party and makes him
responsible for the obligations and responsibility arising from the lease agreement.
3. John owes 2 lakh rupees to Ram under a contract, Ram owes David 2 lakh rupees. Ram
asked John to pay 2 lakh rupees to David in his place, but David does not agree and
neither gives her consent to the agreement. Therefore, Ram still owes David 2 lakh
hence, there is no new contract to enter.
Kinds of novation of contract

Novation is of two kinds:
Where the obligation under a contract is replaced with a new one, and
Where a party is replaced by another party.
Change in terms of the contract

The parties to a contract have the freedom to enter into a contract and alter its terms by
mutual consent. When both the parties mutually agree to change the term of the contract
which they have previously entered into, then the new agreement becomes binding on
them. However, in case there is a clause in the contract stating that the terms of the
contract can be altered by one party (unilaterally) such changes in the terms will be
considered as valid. Hence, a party cannot by unilateral terms impose conditions which
were not a part of the original contract.
In the case of RS Amarnath Mehra v. Union of India, the court observed that calling of fresh
rates at a lower price will not amount to a new contract. If a contract consists of a number
of terms and conditions then it does not mean that each term or condition is a separate
contract.
Similarly, in the case of Ramji Dayawala & Sons (P) Ltd v. Invest Import, the Apex Court
held that a contract having a number of parts should have been assented by the contracting
parties in the same manner and in the same sense, that is, it should have consensus ad
idem.
Change in the parties to the contract

Under a novation agreement, it is possible that the terms of the contract provide for the
replacement of one party to the contract by another party. This creates an obligation for
one party in place of another party. Under this kind of contract, the new party assumes all
the obligations under that contract and the party who has assigned his obligations to
another party under such a contract will not be held liable for any future damages.
For instance: if A and B are parties to a contract, and A agrees to replace C in B’s place,
then the existing contract between A & B will cease to exist.
In the case of Godan Namboothiripad v. Kerala Financial Corporation, the respondent

(Kerala Financial Corporation) sanctioned loan to one Gopinath for purchasing a transport
vehicle which was to be paid in instalments. He defaulted in making the payments and as a
result of that, the respondent seized the vehicle. After that, the appellants executed an
equitable mortgage confirmed to repay the balance amount. The court held that it was a
novation of contract because the appellants took the liability to pay the dues and the
original debtor (Gopinath Menon) ceased to be the debtor.
Difference between novation and assignment
The difference between novation and assignment is minimal but important and is discussed
in the table below:
Sr.
Novation Assignment
no
Under novation, the rights and

Under assignment, only some rights are
1 obligations arising under the new
transferred to the third party.
contract.
The original contract is discharged. The original agreement is not extinguished

2 The new contract becomes binding and the parties will remain bound by the
on the parties. obligations under that contract.
Novation of contract in an illegal agreement

The Court in Ratanlal son of Pannalalji v. Firm Mangilal Mathuralal observed that “if there is
a direct connection between a fresh contract after novation and the earlier illegal contract or
the earlier collateral contract, the novated contract would still continue to be illegal or
immoral and the Court would refuse to enforce the same”.
When is it ‘No Novation’?

When the requisite conditions of novation are not satisfied then it will be considered as no
novation. The Kerala High Court held in the case of Godan Namboothiripad v. Kerala
Financial, that the essential features of a novation are the replacement or relinquishment of
a right under the original contract by a new one and when these essential features are
missing then, there will be no novation.
A unilateral act of one party

As discussed already, a party cannot on its own change the terms of the contract
unilaterally. The Supreme Court in the case of Citi Bank N A v. Standard Chartered Bank
held that novation, recission, and alteration under Section 62 requires that both the parties
should agree to substitute, rescind or alter the existing contract with a new one. Such
substitution, rescission or alteration has to be done bilaterally. In the case of Polymat India
P. Ltd. & Anr vs National Insurance Co. Ltd. & Ors, it was held that the terms of a contract
cannot be varied without the mutual agreement of the parties.
Intention of parties
All the parties to the contract have to agree to the new terms of the substituted contract. A
novation contract will be ineffective when there is an absence of intention between the
parties to alter, rescind or substitute a contract. In T.S. Duraiswami Aiyar And Ors. vs
Krishnier, the court observed that substitution of one contract with another clearly depends
upon the intention of the parties. Similar observations were made in the case of Calcutta
Insurance, Madras vs Thirumalai Animal And Ors. and National Insurance Co. Ltd. v.
Thirumalai Ammal And Ors.
Alteration of contract
Alteration of contract means the modification of the terms of the contract with the consent
of both the parties. The elements of the alteration are:
1. The alteration must be done deliberately.
2. The alteration must have been material.
When the instrument which has been altered does not itself contain the obligations of the
parties but is to be relied upon by them for the purpose of carrying out the contract, the
alteration does not necessarily operate to discharge the parties from their underlying
obligations. The effect of alteration of contract is that the new contract is formed and both
the parties have to follow the rules of the new contract. It is essential to have assent of
both the parties when the contract is altered. Also, in alteration of contract parties do not
change. If parties decide to alter or modify the terms of the contract, then it is necessary
that the alteration of the contract should be done either by express agreement or by
necessary implication which would negate the application of the doctrine of acceptance sub
silentio. In the case of Satya Pal Anand v. State of Madhya Pradesh and Ors., it was stated
that any novation, rescission and alteration of contract, can be made only through
bilaterally and with the amicable consent of both the parties. The terms and conditions of a
contract may be altered but cannot be done unilaterally unless there exists any provision in
the contract, or in any law, or there is an implied acceptance through silence. In the case of
Suresh Kumar Wadhwa v. State of Madhya Pradesh, it was stated that the party to the
contract has no right to unilaterally alter the terms and conditions of the contract and nor
they have the right to add any additional terms and conditions unless both the parties agree
to alter such terms in the contract. In the alteration of contract, the liability of the parties in
the original agreement is extinguished and the parties become bound by the new altered
agreement.
Effect of alteration of contract through the consent

of the parties
The contract is only altered when there is consent by both the parties. If there is no consent
between the parties to alter the contract, then the contract is said to be void.
Effect of alteration of contract with the consent of parties
Material alteration
An alteration is material which affects the substance of the contract expressed in the
document or which alters the legal effect of the document, which affects the document
itself, at all events where identification may be important in the ordinary course of business.
The alteration is not material if they merely express what was already implied in the
document or add particulars consistent with the document as it stands. In the Pigot’s case,
it was stated that the material alteration of a document by a party to it after its execution
without the consent of the other parties renders it void and the alteration is not material.
Material alteration must depend upon the nature of the instrument as also upon the
changes. If the alteration causes the contract to operate it differently from the original, then
it is said to be material alteration. An instrument is not discharged by an immaterial
alteration. The alteration is said to be immaterial when it does not alter the legal effect of
the instrument or impose a greater liability on the promisor. Immaterial alteration does not
affect the rights and liabilities under a writing, irrespective of the person by whom the
alteration was made or his purpose in making it. Also, alteration made by adding or
changing a statement of the consideration does not ordinarily change the legal effect of an
obligation is considered as immaterial. In the Pigot’s case, it was held by Coke that when
any deed is altered by any stranger then the deed is said to be void. The alteration is said
to be immaterial if the alteration in a deed is signed by the parties before its execution so
far as those who have signed have not affected their interests.
Burden of proof
The burden of proof lies on the promisor that the promise has made the alteration in the
contract without the consent of the promisor. But if it is proved that the contract is altered
then the burden shifts to the promisee and the promisee has to show that the alteration
made is not improper.
Effect of alteration of contract without the consent of

parties
If one of the parties alters the contract without the consent of the other party, then the
contract is said to be void. The effect of alteration of contract without the consent of the
parties is not given in the Indian Contract Act but India practice allows the authorities of the
Common Law. If there is unauthorized alteration of documents or terms and conditions of
the contract then the contract is said to be void. There is no provision given in The Indian
Contract Act about the unauthorized alteration of documents of the contract. The Indian
Courts follow the English rule for the same. Blue Pencil Doctrine is a doctrine which is used
by the courts to make some portions of the contract void or unenforceable and other
portions of the contract enforceable. In Blue Pencil Doctrine, the words which are not
binding in nature or invalid are declared as void and makes other parts of the contract
enforceable. It is also called the doctrine of severability. Sometimes, there is alteration of
contract in which some parts of the contract are altered which is unauthorized and illegal
but with the help of the blue pencil doctrine this alteration can be declared as unenforceable
as it invalid and not binding in nature.
Effect of alteration of contract in business

In business, the businessmen make contracts with other businessmen in which it includes
many sections, terms and conditions which talks about the procedure, how the business will
work, compensation, damages, steps to be taken if some part of the business has to be
changed. If a business wants to change a part of the business, then the head of the
business has to make changes in the contract through alteration of contract as well.
Alteration of contract can only take place if there is any clause in the original contract and
with the consent of both the parties. The contract made by both the parties in the business
can be altered before and after signing the contract. If the contract has to be altered after
signing the contract, then there should be consent of both the parties. There is a right to
transfer the responsibilities of one party to another party when there is alteration of
contract. If there is a clause to sell to the vendees in the original agreement and two
independent persons are presented as marginal witnesses, then it is not said to be material
alteration and such agreement is said to be void ab initio. Also, in the case of life insurance
policy, the insured can alter some terms of the policy such as number of years, mode of
payments, etc. with the consent of both the parties.
In business, the parties to a contract can alter some parts of the contract as well as the
whole contract with the consent of both the parties. If two companies or business entities
merge, then a new contract is formed and if the merged companies want to bring some
change in the business then they have to make changes in the clauses of the contract
through alteration. If there are more than two parties in an agreement, then every party
has to pass information to another party independently. In English law, the employers are
allowed to alter the contract which is signed by the employee when he joins the firm.
In India, the Indian Contract Act does not allow the employers to alter the employment
contract. It is stated in the case of LIC and Ors. v. Sunil Kumar Mukherjee an Ors that the
employee of an insurer whose controlled business has been transferees and vested in the
Corporation and who is employed by the insure wholly or mainly shall continue to work
unless his employment in the Corporation is terminated or until his remuneration, terms
and conditions are duly altered by the Corporation. On March 26, 2013 M.P Power
Management Company had filed a petition to review the tariff orders and amend the power
purchase agreement (PPA). As the PPA was between the petitioners and the generators and
it was noted that the review was not empowered by the generators. It was stated that the
PPA will be altered only through the mutual consent of both the parties. Now-a-days, many
industries are getting into the Blockchain system so that there is transparency between the
parties in the industry such as manufacturing, logistics, transportation, retailers, and
customers. But if these parties come together on a blockchain then they are considered to
be a part of the same transaction. Any change in the delivery and supply contracts cannot
be made without the entire chain of business agreeing to alter agreements.
Rescission
Section 62 of the Indian Contract Act also permits the parties to rescind their contract. The
Supreme Court allowed the parties to rescind under this section a contract for sale of forest
coupes because of substantial variance between the particulars of quantity and quality of
timber held out at the time of the auction and the timber actually available. The contractor
was allowed to refund his deposit. But no compensation was allowed to him for his loss
because the contract contained a clause against compensation in such circumstances. This
was decided in the famous case law, namely Syed Isar Masood v State of MP.
When an old contract is rescinded and is replaced by a new one, the old one will not revive
only for the reason that there has been a failure to keep the new promise. The parties may,
however, by mutual consent, restore the original and then the original will revive and
become binding on the parties.
What are the different modes of recession?

Recession by notice
No form is required by Section 19 of the Indian Contract Act, 1872 for recession. It is
sufficient under Section 66 that the communication is communicated in the same manner
and is subject to the same rule as if it were a proposal. Notice of recession to an agent is
notice to the principal. A declaration of recession before commencing any proceedings is not
necessary as a matter of law, though, generally speaking, the prudent course is to
repudiate as soon as possible after knowing the facts and rights to rescind else, the contract
remains valid, and may expose such party to damage for breach of contract.
Setting aside by the contract
The process of recession is essentially the act of the party rescinding, and not of the court,
although, it is common to speak of a court ‘setting aside’ or rescinding a contract. A decree
of recession brings a suit to set aside the contract. A decree of a recession may become
essential where a property has been transferred on the execution of a deed. The Specific
Relief Act, 1963 provides Section 27 to Section 30 for a recession by the court.
Recession as a defence
The will to rescind may also be declared by way of defence to an action brought on the
contract. If a suit is brought by a party to enforce a contract, the defrauded party can pray
for avoiding the contract in his written statement being well within the period of limitation,
and it is not necessary for him to bring the suit to avoid the contract. His defence cannot be
defeated by the lapse of time. The innocent party may raise the defence of entitling him to
recession in a suit for specific performance, which is enabled by Section 9 of the Specific
Relief Act.
Who can rescind the contract?

The option of avoiding a contract is mentioned under Section 19 and Section 19A of the
Indian Contract Act, 1872. Once affirmed by the person entitled to rescind the contract, it
cannot be questioned by a third party.
Guilty party
If only one party acts fraudulently, he cannot be allowed, as plaintiff or defendant,to plead,
or adduce evidence in support of his fraud. Where one party forms an agreement
erroneously, and the other party, knowing of the error, acts fraudulently, the latter cannot
be allowed to take advantage of the error and enforce it. Where both the parties have acted
fraudulently, the courts will refuse to enforce the fraudulent transaction. Here, the plaintiff’s
suit will be dismissed; and the defendant who suppresses the fraud, cannot plead and prove
it to defeat the plaintiff’s claim.
Recession of part of the contract

A person entitled to rescind a contract cannot rescind a part only. When he decides to
repudiate it all together. Section 26(2)(d) of the Specific Relief Act 1963 gives the power to
the court to rescind the contract if only a part is sought to be rescinded, and such part is
not severable from the rest of the contract. This appears to suggest that the recession of a
part of the contract can be severed from the rest of the contract. This would be a power
with the court, and not the right of a party. The High Court of Australia has also decided
that equity permits a court to order partial rescission of a contract induced by fraudulent
misrepresentation.
In contrast, under the UNIDROIT principles, where the ground of avoidance affects only
individual terms of the contract, the effect of avoidance can be limited to individual terms of
the contract, unless it would, in the circumstances, be reasonable to uphold the remaining
contract. The test is not just of severability but also of reasonableness.
What are the grounds for rescission of contract?

The recession may take place only after the contract has been fully established and thus no
legal agreement has been entered into if a party is not aware of or intended, and recession
is, therefore, neither necessary nor possible. Recession is a complete cancellation of the
contract, which means all provisions will be terminated. Contracts are cancelled on a variety
of grounds. Common withdrawal reasons include:
Mutual Consent
If the parties agree to rescind the contract, a separate written document should indicate
their intent and consent. In cases where only one party wishes to withdraw from the
contract, it must give the appropriate written notification of the legal ground on which the
withdrawal will be requested and a court may have to determine if the withdrawal can be
done.
What is the process for rescinding a contract?

First, it must be determined whether the contract can be rescinded. This can be done by
reviewing the contract and its clauses to see if it contains rescission instructions. If there is
no such clause in the contract, the person seeking recession should contact an attorney or
check the statutes in their state.
If the contract cannot be rescinded under state or federal law, the person may attempt to
negotiate a rescission with the other party. Any contract may be rescinded by mutual
agreement, even if it is not allowed by the contract itself.
The rescinding party must determine whether there are legal grounds for rescission, such
as error, fraud, or coercion. Finally, a written rescission notice must be given to the other
party, after which the parties may negotiate a mutual rescission, or either party may file a
civil lawsuit.
What are the problems faced in contract formation?

.All agreements shall be concluded by legal means and under legal conditions. No consent
may be obtained by force or intimidation. All parties must understand clearly what they
have entered. Problems with contract formation may include issues such as:
Mistake
If a party has entered into the agreement on the grounds of reliance on or belief in an
erroneous fact or a mistake of law, a contract may be rescinded. Rescission based on the
error of fact may be permitted if the effect of the error causes a change in the intent of the
contractor, making the enforcement of the contract unconscionable.
Rescission from an error of law may be granted if a party is aware of the true facts of the
contract, but is mistaken as to the legal ramifications of those facts. There is an error of law
only if
1. all parties believe that they know the law as it relates to the contract but are mistaken,
or
2. one party misunderstood the law at the time it was entered into the contract and the
other party fails to correct the other party’s misunderstanding.
Fraud
Some types of fraud support a recession and the fraud can be real or constructed. Real
fraud occurs where one party misrepresents something to mislead the other party.
Constructive fraud occurs when one party engages in misleading behavior without
attempting to defraud the other party. When fraud of either type occurs, the innocent party
may terminate the contract as it enters into the contract on the basis of facts that were not
true.
Duress, Coercion, or Undue Influence
An individual can not be forced under threat of harm, coercion, or other hostile influence to
enter into a contract. When considering whether to grant a rescission on the basis of force,
coercion or undue influence, the adequacy of the consideration granted to the rescinding
party shall be taken into account.
A contract is valid until avoided

Rescission may take place if one of the contracting parties lacks the ability to legally enter
into a contract. For instance, when a party is under 18 years of age, intoxicated, mentally
incompetent, or ill, a party cannot enter into a contract.
The judgment of the Madras High Court, on the contrary, held in SNR Sundara Rao v.
Income Tax Commissioner[1] that the invalid contract, when avoided in the case of the
party affected by it, took effect from the date of the transaction and not when it was
avoided, was not in the case of a contract involving third party rights. The question under
the Income Tax Act 1961 was whether tax was payable from the date on which the father’s
trust deeds as a Karta of joint properties were declared void by a court decree or from the
date on which the transaction took place. It was held that from the later stage it was so. An
alienation that is perfect until it is set aside.
What is the effect of the recession of the contract?

The election of the party rescinding relieves the other party from any further obligation
under the contract and enables both the parties to make arrangements for the future on the
footing that the contract has been once for all broken and is at an end.
There is a substitution by implication of law for the primary obligation of the party in
default, which remains unperformed, where there is a secondary obligation to pay monetary
compensation to the other party for the loss sustained by him in consequence of non-
performance in the future. The unperformed primary obligation of the other party is
discharged.
Under the Contract Act, a voidable contract, when avoided, has been held to become void.
When a voidable contract is rescinded, the other party need not perform his outstanding
obligation under the contract. The party rescinding the contract must restore the benefit
received under the contract to the other party. Any party receiving anything under the
contract is liable to restore it or make compensation for it to the other person from whom it
has been received.
Damages and rescission

Under the English law, a person induced to enter into a contract by a fraudulent
misrepresentation is entitled to rescind the contract or claim damages, or both; and the
measure of damages is applicable under the law of torts. Under The Misrepresentation Act
1967, in force there, damages can also be claimed in a similar manner for negligent
misrepresentation.
Under this Act, the party is entitled to avoid, but insisting on performance, can be awarded
damages, in lieu of performance or enforcement and is entitled to restitution under Section
65, if he elects to rescind it. It does not expressly provide for damages on a recession
unless the provisions of Section 75 are interpreted to extend the contracts voidable under
Section 19 and 19A, but damages have been awarded under the law of torts.
When is rescission not available?

There are situations where rescission as a remedy is not available and the decision is at the
court’s discretion as an equitable remedy. A judge may deny rescission on the basis of
certain facts, including:
One party has substantially fulfilled its part of the contract.
A third party has already received some benefit from the contract.
The requesting party has committed some mistake in relation to the contract (referred to
as “unclean hands”).
The requesting party has unnecessarily delayed the request for rescission, resulting in
some prejudice to the other party.
The requesting party has already requested damages.
After requesting a monetary award, a contract withdrawal cannot be obtained.
Difference between rescission and novation

Sr.
Rescission Novation
no
Rescission happens when the parties Novation occurs when the parties
1 agree to cancel or terminate the substitute the old contract with a new
contract. one.
Waiver
Waiver signifies “Surrendering” the rights. At the point when involved with the agreement
relinquishes or postpones his rights, the agreement is released. Here, both the gatherings
commonly concur that they will never again be bound by the agreement. It adds up to an
arrival of gatherings from their legally binding commitments.
What is a waiver?
Waiver implies an individual surrendering a few or the majority of their legitimate rights
under an agreement. There is more than one path by which a privilege might be postponed,
and a waiver can happen either deliberately or unexpectedly.
Waiver by contract or deed:
This happens where a gathering explicitly consents to surrender their lawful rights. Such an
understanding will tie given the ordinary prerequisites of an agreement have been met.
Instances of this sort of waiver incorporate settlement or bargain understandings, varieties
to a current contract, or another agreement supplanting a more seasoned one.
Waiver by the decision:
This applies where a rupture of the agreement has happened and the “honest party” has a
decision between two elective rights or cures. Waiver by race, as a rule, happens where the
agreement contains an express right or alternative to end or repeal it in specific
circumstances, or where one gathering submits a genuine rupture which gives the
“blameless” party the privilege to end the agreement right away. In such cases, the
“honest” party may pick either to end the agreement promptly or to forgo the rupture and
proceed with the agreement.
Merger
An agreement additionally stands released through a merger that happens when a
substandard right accumulating to party in an argument amalgamates into the better right
resulting than a similar gathering. For example, contracts an industrial facility premises
from B for assembling movement for a year, yet 3 months in front of the expiry of rent buys
that very premises. Presently since A has turned into the proprietor of the structure, his
rights related with the rent (substandard rights) in this manner converge into the privileges
of possession (unrivaled rights). The past rental contract stops. In certain circumstances, it
is conceivable that substandard and predominant right corresponds in a similar individual.
In such cases, both the rights join prompting a release of the agreement administering the
sub-par rights.
Of certain relations resembling those created by contract
If, while riding on a train, a shoe shiner comes, and without us saying anything, starts to
polish our shoes and when they’re done, they ask for some money. Are we obliged to pay
them that amount? Or can we tell them “I did not ask you to polish my shoe anyway!”.
Imagine another situation, where someone else’s Amazon package, with its payment
already done, is left at your door. Do you become all excited and say “YAY! Free Gifts!” or
do you make an effort to find the owner or return the package? This blog post will give you
answers to similar questions.
There are certain obligations, specified in the Indian Contract Act, that are not actually
contracts because they miss one or the other elements of a contract, but are still
enforceable in a court of law. Such obligations are called Quasi-contractual obligations. Each
of them has been talked about separately in Sections 68 to 72 (Chapter V) of the Indian
Contract Act, 1872. Let us first look where these obligations arise from, and then discuss
each of them separately.
Background
It is first important to note that a contract before it becomes so, is an agreement.
Therefore, where there is no agreement, there is no contract. Yet, there are some
obligations that do not have their origin in an agreement. The obligation not to harm
another person or his property (Torts), for instance, the judgments or orders of courts,
quasi-contractual obligations, etc. These obligations are not ‘contracts’ by definition, but
they are enforceable in a court of law.
Quasi-contract
The obligation arising out of a quasi-contract was first recognized by the English law. The
Indian Contract Act, 1872 also follows the same elements which are followed by the English
Contract Act. There is no definition given for quasi-contract in the Indian Contract Act. But
the Act states that in the case of a quasi-contract, certain relations are created which are
very similar to contracts. But quasi-contract can be defined as a set of rights and liabilities
between the parties even when there is no formal contract. The law creates this obligation
to maintain justice and fairness between the parties. The law does not allow one person to
enrich himself at the expense of the other. If the rights and obligations are not created
(quasi-contract) one party would be unjustly enriched. Going by this, it can be said that a
quasi-contract is kind of a remedy instead of being a pure contract. Formation of a quasi-
contract allows the aggrieved party to recover the benefit which the enriched party has
taken at his expense. Since a quasi-contract is a law made by law, there is no statement of
consent between the parties. The obligation and rights which are placed on the shoulder of
the parties are rather by law than by assent.
Many times, a situation may arise where a legal obligation is placed on a person to uphold
justice, even though the person has not committed any tortious activity or has broken any
contract.
For instance, X forgets some goods at Y’s place. Y’s is under a legal obligation to restore
the goods to Y. this goes on to show that Y cannot enrich himself at the expense of X. such
kinds of obligations are described as Quasi-contractual Obligation. They are not actual
contracts in which the parties agree to enter, but are fictional agreements which are created
between the parties by law so as to ensure equity.
In quasi-contracts the liability imposed is based on the doctrine of unjust enrichment.

Quasi-contract is applied with regards to payment of services rendered or goods delivered
or used. In such situations, the main question which arises is the liability of the person who
got enriched. Since the basic concept of a quasi-contract is to prevent unjust enrichment,
the liability of the enriched party is limited to the value of services rendered or cost of the
goods used or delivered. Thus, the liability is limited to the amount of benefit only.
The Principle of unjust enrichment

Quasi-contracts are based on the principle of “Nemo debet locupletari ex aliena jactura”,
which means ‘No man should grow rich out of another person’s loss’. Therefore, liability in
the case of quasi-contractual obligations is based on the principle of ‘unjust enrichment’. It
essentially means that no man should get unjustly enriched at the cost of another person’s
loss. That means no person should gain anything unjustly, when his gaining such a thing
may mean a loss for another person.
Features of a quasi-contract
Implied-in-fact contract and quasi-contract
One of the main features of a quasi-contract is that there is no mutual consent between the
parties. Quasi-contracts are often confused with implied-in-fact (or implied contract). The
difference between a quasi-contract and an implied contract is that in the case of an implied
contract even if there is no written statement of the fact that the parties want to enter into
a contract, their actions and conduct imply that they have mutually agreed to enter into a
contract.
For example, P goes to a restaurant for dinner. The owner of the restaurant expects that P
will pay for his food. P also knows that he’ll have to pay for the food which will be provided
to him. Thus, the actions of the parties signify that they’ve mutually agreed to enter into an
agreement, even though the agreement is not a written one.
Their origin does not lie in the offer and its acceptance, that is, in an agreement between
the parties.
They are rather based on justice, equity, and a good conscience and on the principles of
natural justice.
Section 68 (Claim for necessaries supplied to person

incapable of contracting, or on his account)
If the “necessaries” for a person, who is incapable of contracting (for example, a minor or a
mentally disabled person) or of the dependants of such a person are taken care of by
someone, he has the right to be reimbursed from the property of such incapable person.
Although the word “necessaries” has not specifically been defined in the Act, it is implicitly
clear that it means the necessaries to sustain life, basic things like food, clothing,
education, etc. These are things without which a person cannot reasonably exist. In simple
terms, if a person A supplies another person B (who is incapable of entering into a contract)
or his family or anybody else who is dependant on him, with necessaries for life, he is
entitled to take his due return from the property of person B. He is entitled only to such a
reasonable amount as the value of the goods or services he may have supplied hold.
Section 69 (Reimbursement of person paying money due

by another, in payment of which he is interested)
If a person A pays something in someone’s (a person B’s) place, that which person B is
himself ‘bound by law’ to pay, A will be reimbursed by B. Please note that the person A
should be ‘interested’ in this payment. It is a case of implied indemnity.
For instance, Joe is a Zamindar. Annie holds one of his lands on lease in Punjab. The
revenue of Joe’s land is payable to the government in arrears. So, the land ends up being
advertised for sale by the government. According to the Revenue Law, if the land is sold, it
will end Annie’s lease. To prevent this sale, Annie pays Joe’s dues to the government. Joe is
bound to pay back to Annie.
The aforementioned illustration satisfies the following conditions-
1. The party paying the other party’s dues is interested in the payment.
2. The party whose payment is due was in fact bound by law to pay.
Section 70 (Obligation of person enjoying the benefit of

the non-gratuitous act)
When a person lawfully does something for another person (for example, delivers a good or
a service) without intending to do so ‘gratuitously’, and the other person enjoys the benefit
of the delivery of that good or service, the latter is bound to pay back to the former.
A gratuitous act is one that is done for a person by another without the expectation of a
return. For example, giving someone a gift is a gratuitous act. Here comes your Amazon
package delivered to the wrong address. A pack of chocolate chip cookies that you ate as
soon as they arrived. You are liable to compensate the actual owner of the package. The
illustration of a shoe-shiner unsolicitedly polishing one’s shoes or that of the coolie picking
up one’s goods will lie under Section 70. Such acts and services are not done gratuitously
and therefore a liability to pay back arises on the part of the person on the receiving end.
Section 71 (Responsibility of finder of goods)

Simply, a person who finds goods that belong to another person shall be treated as a bailee.
A bailee is essentially a safe keeper of the goods, who is supposed to return the goods to
the actual owner or dispose them in the manner in which the actual owner may want them
to. The bailee has certain duties and rights as the ‘possessor’ or ‘custodian’ of the goods for
the time being. For example, Sarah finds a diamond lying on the floor in a shop. She picks it
up and keeps it in her safe possession. Sarah makes all reasonable efforts to find the true
owner of the diamond. The diamond actually belonged to Nadia. Sarah has the right to hold
the possession of the diamond against all the world except Nadia, and is supposed to make
reasonable efforts to find her, and return it to her. In this case, Nadia will have to pay the
compensation for all the loss suffered by Sarah in finding her.
Duties of the finder of goods
1. The finder has a duty to take reasonable care.
2. He/she has a duty not to use the goods for his personal purposes.
3. He/she has a duty not to mix the found goods with his own goods.
4. He/she has a duty to make reasonable efforts to find the actual owner of the goods.
Rights of the finder of goods
1. Right to Lien– The right to retain the goods found until he receives compensation for all
the expenses suffered in finding the owner.
2. Right to Sue– If the owner has announced a reward for whoever finds the good, the
finder has the right to sue the owner for such reward or retain the goods until he is
compensated.
3. Right to Sell– The finder of goods has the right to sell the goods in certain specific
circumstances, for example:
1. i) If the owner could not be found even after reasonable efforts.
2. ii) If the owner is found but refuses to pay compensation or the lawful charges of the
finder.
iii) If the goods are in immediate danger of perishing if not used.iv) If the lawful charges of
the finder amount to two-thirds of the value of goods.
Section 72 (Liability of person to whom money is paid or

thing delivered by mistake or under coercion)
As the heading suggests, if something is delivered to a person by ‘mistake’ or under
‘coercion’, he is liable to pay it back. For instance, Aristotle and Dante share a flat and
contribute in half for the rent to be paid. Aristotle, without knowing that Dante has already
paid the due rent to the landlord in whole, pays again to the landlord. The landlord, in this
case, is liable to give back the money delivered to him by mistake. The term mistake here
can mean both mistake of fact or mistake of law.
The section also uses the term ‘coercion’. Here is an example of something delivered under
coercion- A railway company refuses to deliver goods to a certain consignee except upon
the payment of a certain illegal sum of money. The consignee pays the sum to obtain his
goods. The company is liable to return the sum of money illegally charged.
Distinction between a contact and a quasi-contract

A quasi-contract can be considered as a constructive contract or an implication of law. It is
just a fictitious contract, aimed towards providing a remedy to the aggrieved party, which is
not the case in an express contract. In the case of quasi-contracts, the intention of the
parties is not considered, but in the case of an express contract, the intention of the parties
is very crucial as, without the intention to enter into an agreement, there would be no
contract at all. In the case of an express contract, the duty of the parties defines the
contract, which forms the terms of the contract. But on the other hand, in the case of quasi-
contract, the duties are defined due the formation of a contract.
In words of Keener, A quasi-contract is one which has been implied by the law, and it
denotes the nature of evidence through which the aggrieved party can claim restitution.
Though the party who has been enriched would not set out to assume any obligation, the
law will impose it. In an express contract, both the parties have equal interests, but in the
case of a quasi-contract, the contract comes into being because the interest of one party is
affected.
Breach of contract
A contract is breached or broken when any of the parties fails or refuses to perform its
promise under the contract.Breach of contract is a legal cause of action in which a binding
agreement is not honored by one or more parties by non-performance of its promise by him
renders impossible.
Section 37 of the Indian Contract Act,1872 provides that the parties to the contract are
under obligation to perform or offer to perform their respective promises under the
contract, unless such performance is dispensed with or excused under the provisions of the
Indian Contract Act or of any other law.
According to Section 39, where the party has refused to perform or disabled himself from
performing his promise in its entirety, the other party may put an end to the contract, ,
unless that other party has expressly or impliedly signified its consent for the continuance
of contract. If the other party chooses to put an end to the contract, the contract is said to
be broken and amounts to breach of contract by the party not performing or refusing to
perform its promise under the contract. This is called repudiation. Thus repudiation can
occur when either party refuses to perform his part or makes it impossible for him to
perform his part of contract in each of the cases in such a manner as to show an intention
not to fulfil his part of the contract.
Breach of the terms of the contract

Strictly speaking, a breach of contract occurs if any of the terms are broken. Not all terms
are literally adopted, however, an order for a complaint to be brought to a standing, an
infringed contract has to in fact be regarded as “substantial infringement” and detract from
the value of the contract. Alternatively, the contract infringement has to change the result
of the contract so fundamentally that the aggravated Party has the right to terminate the
contract (a ‘substantial infringement’).
Actual damages or loss

To be successful in breaching a contract lawsuit, the grieved party must show that they
have suffered some type of loss or damage as a result of the breach. Current damages or
loss may take the form of loss of money, time loss, loss of chance or many more losses.
What happens after a breach of contract?

If an infringement or allegation occurs, one or both of the parties may wish to see that the
contract is implemented under their terms or try to recover for any harm caused by the
alleged infringement.
If a dispute arises over a contract and informal attempts at resolution fail, the next most
common step is a lawsuit. The parties may be able to resolve the issue in the Court of Small
Claims if the amount concerned is below a specific rupees figure.
Not only are courts and formal lawsuits the option for people and enterprises involved in
contract disputes, but the parties may also agree to review the contractual argument by a
mediator or may agree to resolve a contractual dispute through arbitration. These are two
“alternative dispute settlement” options.
Types of breach of contract

A breach of contract occurs when the terms of a contract are broken. At least one party to
the agreement does not keep its part of the deal. There are various types of contraventions:
Minor or partial contraventions

A partial breach occurs when some but not all of the contract terms have been fulfilled. The
injured party may only sue for damages in this case.
Material violations
If a Party does not do what it says in the contract, this leads to its destruction and makes
that Party liable for violating the contractual damages. You may have the right to sue it, but
only for “actual damages.” In the context of the Contract Restatement, the following must
be shown to determine if a material breach happened:
How badly the injured party is affected by the breach.
How much the injured party can be paid according to the terms of the contract.
How badly the other party broke the terms of the contract.
How likely the other party will be able to perform the failed terms depending on his or
her circumstances.
How the other party acts in good faith and fair dealing standards.
Fundamental breach
One party can sue the other party for breaking the terms and possibly terminate the
contract.
Actual breach
If a party fails, by the due date, to do what the terms say it will be an actual breach of a
contract.
Anticipatory breach
If one party ceases to fulfil its portion of the contract, which suggests that the agreement
remains incomplete. For example, refusal of payment, lack of a product ordered, or the fact
that one or more parties can not or will not fulfil their part of the deal. The violator may be
sued and the other party may conclude the contract.
Both actual and anticipatory breaches can waste time and money.
Difference between a material and minor breach of

contract
Contract breach may be material or minor. The obligations and solutions of the parties
depend on the type of violation.
An infringement is a matter if something substantially different from that set out in the
agreement is received by the other party because the violator does not fulfil a certain
aspect of the contract. For instance, when a tennis ball box is sold in the contract and a
football box is given to the buyer, the violation will be material. When an infringement is
material, the non-infringement party is no longer required under the contract and
immediately entitled to any remedies for the entire contract being infringed.
Case laws
Revelations Perfume and Cosmetics Inc. v. Prince Rogers Nelson
The company Revelations Perfume and Cosmetics sued the famous musician “Prince” and
his music label in 2008, seeking $100,000 in damages for reneging on an agreement to
help market their perfumes. In his 2006 album “3121,” the flamboyant pop star promised
personal promotion of a new fragrance named by the company, and to allow the packaging
of its name and likeness, Prince of the Nation.
Revelations asked the court to award more than $3 million in lost profits as well as punitive
damages in its breach of contract complaint. However, the judge did not find any evidence
that the pop star was acting with malicious intent and ordered him to pay almost $4 million
in out of pockets for the cosmetics company. Revelations’ petition has been denied for
damages to punitive and loss of profit.
Macy’s v. Martha Stewart Living
Macy’s department stores filed a breach of contract complaint against Martha Stewart Living
Omnimedia for signing an agreement with J.C. Penney was set up in February 2013 to
create Martha Stewart retail stores in their retail stores. J.C. before the deal for $38.5
million, Penney bought a minority stake in Steward’s company. Martha Stewart’s retailers
were to carry home goods, but Macy’s argued that it had been accorded exclusive rights to
manufacture and sell certain Martha Stewart Living products in a 2006 agreement.
Macy’s asked the court to grant a preliminary injunction to stop Steward from breaching the
contract while the court considered the matter. J.C. was ruled by a New York judge in June
2014 twelve years later. In fact, Penney had passed Macy’s domestic diva contract in an
attempt to sell products with her name. During the J.C. The contract was invalidated by
Penney, and no immediate financial breach of contractual damage was reached and the
legal fee and the cost of the proceedings may be limited, as the judge ruled that the case
had no cause for punitive harm.
Types of damages under Section 73

Section 73 provides compensation for loss or damage caused by the breach of contract.
When a contract has been broken, the party that suffers from such infringement is entitled
to receive compensation for any loss or damage resulting from such infringement. Such
compensation shall not be given for any remote and indirect loss or damage sustained as a
result of the breach.
Compensation for failure to discharge obligations similar to those created by the contract.
If an obligation similar to what was created in the contract has not been discharged, any
person who fails to discharge is entitled to receive the same compensation from the party in
default as if that person had contracted to discharge it and had broken his contract.
Explanation
In estimating the loss or damage resulting from the breach of a contract, consideration
must be given to the means that existed to remedy the inconvenience caused by the non-
performance of the contract.
Illustration
‘A’ contract to repair B’s house in a certain way and receive the money in advance. ‘A’
repairs the house, but not according to the contract. ‘B’ is entitled to recover the cost of
making the repairs conform to the contract from ‘A’.
‘X’, the owner of a boat, contracts with ‘Y’ to take a cargo of jute to Mirzapur for sale at that
place, starting on a given day. The boat does not start at the appointed time because of
some unavoidable cause, whereby the arrival of the cargo at Mirzapur is delayed beyond the
time it would have arrived if the boat had sailed under the contract. After that date, the
price of jute falls and before the cargo arrives. The measure of the compensation payable to
‘Y’ by ‘X’ is the difference between the price ‘B’ could have obtained for the Mirzapur cargo
at the time it was delivered in due course and its market price at the time it actually
arrived.
What are the different types of damages?
General and special damages

Difference between general and special damages are:
General Damages Special Damages
Special damages are those that do not, of

General damages refer to those course, arise from the breach of the defendant
damages which arose naturally during and can only be recovered if they were in the
the normal course of the events. reasonable consideration of the parties at the
time they made the contract.
In relation to the pleadings, the

complained of is presumed to be a It refers to those losses that must be specifically
natural and probable consequence pleaded and proven.
with the result that the
In relation to proof, it refers to those

It refers to those losses that can be calculated
losses, usually but not exclusively non-
financially. It represents the exact amount of
pecuniary, which in monetary terms
pecuniary loss that the claimant proves to have
are not capable of precise
suffered from the set of pleaded facts.
quantification.
Nominal damages
If the defendant is found liable for breach of contract, the plaintiff is entitled to nominal
damages even if no actual damage is proven. Nominal damages are awarded if there is an
infringement of a legal right and if it does not give the rise to any real damages, it gives the
right to a verdict because of the infringement.
In the following circumstances, nominal damages are awarded to the plaintiff:
The defendant committed a technical breach and the plaintiff himself did not intend to
execute the contract;
The complainant fails to prove the loss he may have suffered as a result of the contract
breach;
He has suffered actual damage, not because of the defendant’s wrongful act, but
because of the complainants’ own conduct or from an outside event;
The complainant may seek to establish the infringement of his legal rights without being
concerned about the actual loss. Where there is no basis for determining the amount.
The view that nominal damage does not connote a trifling amount is erroneous; nominal
damage means a small sum of money. Nominal damages have been defined as a sum of
money that can be spoken of, but which does not exist in terms of quantity.
Where the loss is small and quantifiable, the damages awarded, although small, are not
nominal damages.
If the market rate on the date of the breach is not proven, the plaintiff shall be entitled to
nominal damages. However, the fact that the buyer does not sustain any actual loss as a
result of the seller’s failure to deliver the goods is no reason to award the buyer nominal
damage.
Substantial damages
In cases where an offense is proven, many authorities may claim substantial damages even
if it is not only difficult but also impossible to calculate the damages with certainty or
accuracy. In all these cases, however, the extent of the breach has been established. There
was a complete failure to perform the contract on one side. However, where the breach is
partial and the extent of the failure is determined, only nominal damage is awarded. The
plaintiff who can not show that after the breach he would have had the contract performed,
he is in a worse financial position, usually, recovering only nominal damages for breach of
contract.
Where a defendant refuses to accept goods sold or manufactured for him, the plaintiff sells
them to a third party on the same terms as the defendant agreed and makes a similar
profit, the plaintiff shall be entitled to nominal damages if the demand exceeds the supply
of similar goods; but if the supply exceeds the demand, the plaintiff shall be entitled to
recover his loss of profit on the defendant’s contract.
Aggravated and exemplary damages

In certain circumstances, by taking into account the motives or behavior of the defendant,
the court may award more than the normal measure of damages. Such damage may be:
Aggravated Damages Exemplary Damages
Aggravated damages, that compensate a victim Exemplary damages are intended to

for mental distress or injured sensations in give the punishment to the defendant
circumstances where the injury was caused or an example they are punitive and not
increased by the manner in which the defendant intended to compensate the
committed the wrong or the defendant’s defendant for loss, but rather to
behavior following the wrong. punish the defendant.
It is compensatory in nature. It is punitive in nature.
Where the motives, conduct or manner of inflicting the injury on the defendant may have
aggravated the damage to the plaintiff by injuring his proper feelings of dignity and pride,
the damages awarded to compensate the plaintiff would be aggravated. These are awarded
in tort, but not in a contract because the motives and conduct of the defendant are not to
be taken into account when assessing damages and it is not to be awarded in respect of
feelings of disappointment or injury; they are too remote. Thus, if an employee is wrongly
dismissed from his job, the damages payable to him will not include compensation for the
manner in which he is dismissed, for his injured feelings, or for the loss that he may suffer
from the fact that the dismissal of himself makes it more difficult for him to obtain fresh
employment.
Liquidated and unliquidated damages

Damages are said to be liquidated once agreed and fixed by the parties. It is the sum
agreed by the parties by contract as payable on the default of one of them, Section 74
applies to such damages. In all other cases, the court quantifies or assesses the damage or
loss; such damages are unliquidated. The parties may only fix an amount as liquidated
damages for specific types of a breach, then the party suffering from another type breach
may sue for unliquidated damages resulting from such breach.
Where, under the terms of the contract, the purchaser was entitled to claim damages at the
agreed rate if the goods were not delivered before the fixed date and if they were not
delivered within seven days of the fixed date, the purchaser was entitled to cancel the
contract and pay guarantee amount to the bank, but the goods were delivered within the
extended period. It was held that the buyer was only entitled to claim damages at the
agreed rate and that the banking guarantee confiscation clause could not be invoked as the
contract was not cancelled.
What does loss or damage mean?

The word loss or damage means:
Harm to persons through physical injury, disabilities, loss of enjoyment, loss of comfort,
inconvenience or disappointment, injured feelings, vexation, mental distress, loss of
reputation.
Harm to property, viz. damage or destruction of property; and
Injury to an economic position which is the amount by which the plaintiff is worse off
than he would have been performed, and would include loss of profits, expenses
incurred, costs, damages paid to third parties, etc.
Consequential damage and incidental loss

Consequential damage or loss usually refers to pecuniary loss resulting from physical
damage, such as loss of profit sustained due to fire damage in a factory. When used in the
exemption clause in a contract, consequential damages refer to damages that can only be
recovered under the second head in Hadley v Baxendale, i.e. the second branch of the
section, and may also include recovery of profit and losses under the first branch.
Another term incidental loss refers to the loss incurred by the complainant after he became
aware of the breach and made to avoid the loss, i.e. the cost of buying or hitting a
replacement or returning defective goods.
How to measure the damage caused?

The measure of damage or measure of damages is concerned with the legal principles
governing recoverability; the principle of the remoteness of damage confines the
recoverability of damages. Questions of quantum of damages are only concerned with the
amount of damages to be awarded and are, therefore, different from the measure of
damages; the latter involves consideration of the law.
What does the remoteness of damages mean?

The term remoteness of damages refers to the legal test used to determine which type of
loss caused by contract breach can be compensated by awarding damages. It has been
distinguished from the term measure of damages or quantification which refers to the
method of assessing the money compensation for a particular consequence or loss which
has been held to be not too remote.
How to test the remoteness?

In deciding whether the claimed damages are too remote, the test is whether the damage is
such that it must have been considered by the parties as a possible result of the breach. If
it is, then it can not be considered too remote. The damage shall be assessed on the basis
of the natural and probable consequences of the breach. Actual knowledge must be
demonstrated that mere impudence and carelessness is not knowledge.
The defendant is only liable for reasonably foreseeable losses- those who would have
reason to foresee the likelihood of future infringement if a normally prudent person in his
place had this information when contracting.
The remoteness of damage is a matter of fact, and the only guidance that the law can give
is to lay down general principles.
The principle governing the remoteness of damages was elaborated in the landmark case of
Hadley v. Baxendale. The rules stated in this case were that a party injured by a breach of
contract could recover only those damages which were either to be considered “reasonably
as arising naturally, i.e., according to the usual course of things” from the breach, or could
reasonably have been considered by both parties at the time they entered into the contract
as the likely result of the breach. This is the basis for understanding special damages. In
this case, the Court acknowledged that the defendant’s failure to send the crankshaft for
repair was the only cause for the plaintiffs’ mill to stop, resulting in loss of profits.
Consequences of breach of contract (Section 73-75)

Chapter VI (Section 73 to 75) of the Indian Contract Act,1872 deals with the consequences
of breach of the contract.
Section 73 – deals with compensation for loss or damage

caused by breach of contract
When a contract has been broken, the party who suffers by such breach is entitled to
receive, from the party who has broken the contract, compensation for any loss or damage
caused to him ,which naturally arose in the natural course of things from such breach, or
which the parties knew, when they made the contract, to be likely to result from the breach
of it.
No compensation shall be given to any remote and indirect loss or damage sustained by
reason of breach.
Compensation in regard to failure to discharge obligation which resembles those created by

the contract
An obligation resembling those created by contract has been incurred and has not been
discharged, any person affected by the failure to discharge it is entitled to receive the same
compensation from the party in default as if such person had contracted to discharge it and
had broken his contract.
Compensation for loss or damage which naturally arose in the usual course of things from
such breach
Compensations to be recovered for loss or damage which the parties knew or which would
have naturally arisen in the usual course, to be likely to result from the breach of it.
An uncommonly known fact is that Section 73 is based on a case law, i.e. Hadley v.
Baxendale (1854) 9 Ex. 354
The well-known rule in this case was stated by the Court as follows:
“Where two parties have made a contract which one of them has broken, the damages
which the other party ought to receive in respect of such breach of contract should be either
such as may reasonably and fairly be considered as arising naturally, i.e. according to usual
course of things, from such breach of contract itself, or such as may reasonably be
supposed to have been in the contemplation of both parties at the time they made the
contract as the probable result of the breach of it.”
Section 73 deals with remote and indirect loss or damage
It states that no compensation is payable for remote and indirect loss or damage arising out
on account of breach of contract. The indirect loss cannot be said to arise on usual course of
things. The aggrieved party can claim compensation for indirect loss or loss of profit, only
where it is expressly made known to the other party or contemplated by contract that
breach of non-performance of the contract would result in some indirect loss or loss of profit
to the paparty.e term remoteness of damage refers to the legal test used for deciding which
type of loss caused by the breach of contract may be compensated by the award of
damage.
In Madras Railway Company v. Govinda (1898) 21 Mad. 172, the Plaintiff, who was a tailor,
delivered a sewing machine and some clothes to the defendant railway company, to be sent
to a place where he expected to carry on his business in an upcoming festival. Due to
mistakes made by the company’s employees, the goods were delayed and were not
delivered until some days after the festival was over. The plaintiff had not given any notice
to the railway company that the goods were required to be delivered within a fixed time for
any special purpose. On a suit by the plaintiff to recover a sum of his estimated profits, the
Court held that the damages claimed were too remote.
Section 73 deals with breach of resembling contract
It confers a statutory right upon a party to get compensation from a party who has incurred
a statutory obligation to pay compensation in case default even though there may be no
contract to pay compensation .The party in default is under obligation to pay compensation
to the injured party as if there was a contract and has broken such contract.
Section 73 deals with: mitigation of losses
It explains that the means which existed of remedying the inconvenience caused by the non
performance of the contract must be considered while calculating the damage or loss for
breach of the contract. [M.Lachia Setty & Sons Ltd v. Coffee Board Bangalore, AIR 1981 SC
162, 168]
Section 74 – penalties in regard to breach of contract

The party to the contract may agree at the time of contracting that , in the occurrence of
breach,the party in default has to pay a stipulated sum of money to the other, or may agree
that in the event of breach by one party any amount paid by him shall be forfeited. If this
sum is genuine pre-estimate of damage likely to flow from the breach is called ‘liquidated
damages’ .If it is not genuine pre-estimate of the loss, but an amount intended to secure
performance of the contract, it may be called ‘penalty’.
Section 74 provides for the measure of damages in two classes: (a) where the contract
names a sum to be paid in case of breach; and (b) where the contract contains any other
stipulation by way of penalty(Fateh Chand v. Balkrishna Das,[1964] 1 SCR 515).
Essence of penalty and liquidated damage
Penalty is a payment of money to a non –defaulting party, which puts the other party in fear
and enforces the other party to perform its promise under the contract .The penalty is
deterrent in nature .
A liquidated damage is a genuine and reasonable pre-estimate of damage. Liquidated

damages means it shall be taken as the sum which the parties have by the contract
assessed as damages to be paid whatever may be the actual damage.
Section 75 – compensation to the party rightfully

rescinding the contract
A person who rightfully resides the contract is entitled to compensation for any damage
which he has sustained through non fulfillment of the contract .A party to a contract is
entitled to rescind the contract in circumstances given in Section 39, 53, 55, 64 and 65 of
the Contract Act .The claim for compensation under Section 75 is maintainable when the
right of repudiation of the contract has been exercised either of the Section 39, 53, 54 and
55 of the Contract Act.( Mirza Javed Murtaza v. UP Financial Corpn), Kanpur, AIR 1983 Alld.
235.)
Damage can be claimed by:
Only those parties can claim damages for breach of contract who have performed or is
willing to perform his part of the obligations arising under the contract. Section 73 and 74
are for the benefit of a party willing to perform the contract and not for defaulting party
.Loss which is caused by the party’s failure to fulfill his duty is not recoverable from the
other party. A party to a Contract cannot be in a better position by reason of his own
default, than if he had fulfilled his obligations .A person, who is not a party to the contract,
cannot claim damages.
Can damage or loss suffered by a third party be claimed?
A party claiming the damage need not necessarily suffer any loss from breach of contract.
When it is contemplated by the contract. When it is contemplated by the contract that
breach by any of the parties to the contract is likely to cause loss to an identified or
identifiable stranger to the contract, rather than to the contracting party, a party not in
default can claim damages for the loss caused to an identified or identifiable stranger to the
contract. Thus the party may recover substantial damages even though it does not
personally bear the cost of correcting the defects or personally suffers the diminution in the
value ;provided this was intended or was within the contemplation of the parties ;and if
such intention or contemplation is shown it is immaterial that the true prayer or suffered is
stranger to the contract. (Alfred McAlpine Constn Ltd v. Panatown Ltd., (2001) AII ER (D)41
(Apr)).
Can interest be claimed as damage?
Interest would be refused if the party fails to show that interest is being claimed under a
contract or on account of usage or customs. The Supreme Court in Mahavir Prasad Rungta
v. Durga Dutta,1961 AIR 990 has ruled that interest can be claimed only if it is payable by
custom or there is express or implied provision in the agreement for payment of interest or
under provisions of substantive law plaintiff is entitled to recover the interest.
Nature of remedy of damage

The principle behind awarding damage for breach of contract to the party, who has suffered
the loss, is to place that party in the same position in which it would have been had that
contract not been broken. The damages must commensurate with the loss suffered .Where
the contract is broken by one party, contract is discharged, and the obligations under the
contract come to end; a new obligation arises for the payment of damages.
A contract is the fountainhead of a correlative set of rights and obligations of the parties
and would be of no value if there is no statutory provision for compensation for damage or
loss caused to the aggrieved party. Chapter VI of the Indian Contract Act ,1872 provides for
the remedy to the non-defaulting party to contract by way of compensation for damage or
loss caused due to breach of contract by the other party. Section 73 provides for
compensation for actual damage or loss from the party in breach of the contract Reasonable
liquidated damages are payable without proof of loss . Section 74 provides that contracting
parties in the event of breach, may agree that the defaulted party shall pay a stipulated
amount to the other ,or may agree that in the event of breach by one party any amount
paid to him shall be forfeited. If it is not genuine pre-estimate of the loss ,but an amount
intended to secure performance of the contract ,it may be called ‘penalty’. However mere
stipulation does not give right for compensation by way of penalty. Prove has to be
established for loss or damages caused by breach of contract.
A decree for specific performance

According to Section 10 of the Specific Relief Act, 1963, there are seven cases when specific
performance of a contract may be allowed by the Court. They are:
When there is no standard for ascertaining actual damage

When it is impossible to quantify the actual damage caused by the non-performance of the
act agreed to be done, the Court may, in its discretion, grant a decree of Specific
Performance of that act.
Duke of Somerset v. Cookson, 1935, 3 P Wins. 390
Art, paintings, old furniture, antiques, etc. have a special value to the contracting party,
although such articles may not have much monetary value. For example, an idol which has
been passed down from generation to generation of a family has immense value to that
family, even if it means nothing to someone else. No amount of damages can compensate
for the loss to the members of the family, even if the Court makes an attempt to assess the
damages payable instead of the idol. Therefore, an order will be passed for specific delivery
of that idol, not for damages.
In Vijaya Minerals v. Bikash AIR 1996 Cal. 67, the Hon’ble Calcutta High Court has observed
that since manganese and iron ore are not ordinary items of commerce, if a contract for
sale of iron and manganese ore from a mine has been made, specific performance of such
an act would be allowed.
When monetary compensation would not afford adequate relief

When the act agreed to be done is such that compensation offered in money for its non-
performance would not afford adequate relief. However, until the contrary is proved, it is to
be presumed that:
The breach of a contract to transfer immovable property cannot be adequately

compensated by payment of money.
The breach of a contract to transfer movable property can be so compensated, except in

the following cases:
1. Where the property is not an ordinary article of commerce or is of special value or
interest to the plaintiff, or consists of goods which are not easily obtainable in the
market;
2. Where the property is held by the defendant as the agent or trustee of the plaintiff.
Usually, the Courts are entitled to presume that in case of breach of contract to transfer of
immovable property, mere compensation is not adequate relief, whereas specific
performance is adequate relief, whereas in the case of movable property, compensation is
the ordinary relief and specific performance is exceptional. However, it must be noted that
these presumptions are rebuttable.
In Bank of India v. Chinoy, AIR 1949 PC 90, it was held that if shares are freely available in
the market, then specific performance would not be granted. If shares of a particular
company, for instance a private company are not readily available in the market, specific
performance would be granted.
Suits for enforcement of a contract to execute a mortgage

In a suit for the enforcement of a contract to execute a mortgage or furnish any other
security for the repayment of any loan which the borrower is not willing to pay at once,
specific performance may be allowed. However, where only part of the loan has been
advanced by the lender, he must be willing to advance the full amount of the loan.
1. Contracts for the purchase of any debentures of a company.
2. Suits for the execution of a formal deed of partnership.
3. Suits for the purchase of partner’s share.
4. Suits for the enforcement of a building construction contract or any other work on land,
provided the following 3 conditions are fulfilled:
The building or other work has been described in the contract in a reasonably precise
manner, so as to enable to Court to decide the exact nature of building or work;
The plaintiff has substantial interest in the performance of the contract, and the
interest is such that financial compensation for non-performance of the contract would
not be adequate relief; and
After the contract, the defendant has obtained possession of the whole or any part of
the land in question.
It is important to remember that specific performance is an equitable remedy, and is

therefore left to the discretion of the Court, rather than to the right of a person by law.
An injunction
Under Section 36 of Specific Relief Act 1963, an injunction is defined as an order of a
competent court, which:
1. Forbids the commission of a threatened wrong,
2. Forbids the continuation of a wrong already begun, or
3. Commands the restoration of the status quo (the former course of things).
Clauses i and ii deal with preventive relief, whereas clause iii deals with an injunction called
mandatory injunction, which aims at rectifying, rather than preventing the defendant’s
misconduct.
Under Sections 36 & 37 of the Specific Relief Act 1963, there are two types of injunctions –
temporary and perpetual, whereas Section 39 governs mandatory injunctions.
Temporary or interim injunctions are governed by Order 39 of Civil Procedure Code 1908
and are those injunctions that remain in force until a specified period of time, e.g. 15 days,
or till the date of the next hearing. Such injunctions can be granted at any stage of the
suit.
Permanent or perpetual injunctions, as under Sections 38 to 42 of the Specific Relief Act,

1963 are contained in the decree passed by the Court after fully hearing the merits of the
case. Such an injunction permanently prohibits the defendant from committing an act which
would be contrary to the plaintiff’s rights.
When are perpetual injunctions granted?

A: Under Section 38 of the Specific Relief Act 1963, whenever the defendant invades, or
even threatens to invade the plaintiff’s right to enjoyment of property or right to property
itself, the Court may grant to the plaintiff a perpetual or permanent injunction in the four
cases as follows:
1. Where there is no standard for quantifying the actual damages caused, or likely to be
caused, to the plaintiff, by the invasion of his rights;
2. Where invasion of the plaintiff’s rights is such that any compensation in money would be
inadequate relief;
3. Where the defendant is a trustee of the property for the plaintiff;
4. Where the injunction is necessary to prevent multiplicity of judicial proceedings.
Mandatory injunctions are granted in cases where in order to prevent the non-performance
of an obligation, it is necessary to compel the performance of certain acts which the Courts
are capable of enforcing. Thus, the Court may at its discretion grant an injunction to
prevent such non-performance and also to compel performance of the required acts. This
injunction is applicable to the breach of any obligation. It may be permanent or temporary,
although temporary-mandatory injunctions are rare.
Damages instead of, or in addition to injunction:
Section 40 of the Specific Relief Act 1963 states that a plaintiff may claim damages either in
addition to or in substitution for suing for perpetual or mandatory injunction, and if the
Court deems fit, it may even grant such damages.
It is worth emphasizing that damages and injunction are not alternate remedies. Both may
be allowed at the discretion of the Court.
However, damages cannot be granted unless the plaintiff has claimed damages in the plaint.
In the event that the plaintiff has not claimed damages in the plaintiff itself, he should be
allowed to amend the plaintiff, at any stage of the proceedings, on such terms as may be
just in the circumstances of the case.
To conclude, it is thus evident that there are several remedies available in case of breach of
a contract, none of which are very simple. One would have to overcome an abundance of
challenges and rebuttals to prove a case of breach of contract.
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Contract Law Notes - IPleaders

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Contract Law Notes - IPleaders

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06/09/2023, 12:08 Contract law notes - iPleaders

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1. Agreement and contract

9. Consideration (Section 2(d))

17. Essentials of a wagering contract

48. Release of one joint promisor (Section 44)

58. What is the novation of a contract?

81. Difference between a material and minor breach of contract

Agreement and contract

An agreement (Section 2(e))

of promises, forming the consideration for each other, is an agreement’.

To form an agreement, the following ingredients are required:

Parties: There need to be two or more parties to form an agreement.

Promise: When a proposal is accepted, it becomes a promise. [Section 2(b)]

Agreement = Promise or set of promises (offer + acceptance) + Consideration (for

The agreement should not expressly be declared to be

Agreements without consideration except it is written and registered or is a promise to

Agreements in restraint of marriage

Agreements in restraint of trade

Agreements in restraint of legal proceedings

Agreements void for uncertainty

Agreements by way of wager

Agreements contingent on an impossible event

Agreements to do impossible act

The above-mentioned conditions are required to be fulfilled in order to make an agreement

Contract (Section 2(h))

Contract = Agreement + Legal enforceability

Contract = Legally enforceable Agreement

Agreement + Enforceable by Law = Contract

So, an agreement is a contract when:

Let us look at some examples where agreements are not contracts:

What are the key differences between agreements and

An agreement is made when a A contract is made when an

Agreement and Enforceability

Defined in Section 2(e) Section 2(h)

In writing Not necessarily Usually written and registered

Once the agreement becomes a

Scope Wide Narrow

Offer and acceptance

Offer/proposal (Section 2(a))

Features of a valid offer

The element of a valid offer

There must be two parties

Every proposal must be communicated

It must create legal relations

It must be certain and definite

It may be specific or general

Express offer and implied offer (Section 9)

Valid acceptance based on fulfillment of condition

Performance of the conditions of a proposal, or the acceptance of any consideration for a

General offer of continuing nature

Basic essentials of a cross offer

Acceptance of a counter proposal

Difference between an offer and Invitation to offer

In Adikanda Biswal v. Bhubaneswar Development Authority, when a development

Rules regarding display of goods in shops

In Pharmaceutical Society of Great Britain v. Boots Cash Chemists Southern Ltd.,

Difference between general offer and specific offer

Lapses and revocation of an offer

An offer lapse by not being accepted in the specified mode

An offer lapses by rejection.

An offer lapses by revocation before acceptance.