 Indian contract act came into force on 1st September 1872.

 Law of contract lays down legal rules relating to promises, their formation
and enforcement.
 Total sec = 238 (earlier 266 sec)
 Indian contract act consists of following two parts:

Special
General Kinds of Sec 124-238
principles
Sec 1-75
Contracts
 According to Sec 2(h) :
“An agreement enforceable by law is a contract.”
 Two elements :
1. An agreement
2. The agreement enforceable by law

• According to Salmond –
“Contract is an agreement creating and defining
obligations between the two parties”.
 PROPOSAL : Defined in Sec 2(a) :
When one person signifies to another his willingness to do or abstain
from doing anything with a view to obtaining the assent of that other
to such act or abstinence, he is said to make a proposal.
E.g. A goes to hotel and orders tea, he is making proposal.

 PROMISE : Defined in Sec 2(b) :

“A proposal, when accepted becomes a promise.”
E.g. When A asks B to lend him a book and B gives his assent to
lend him a book . This is a promise.
 CONSIDERATION : Defined in Sec 2(d) :
“When at the desire of the promisor, the promisee or any other
person has done or abstained from doing or does or abstains from
doing, or promises to do or to abstain from doing, something, such
act or abstinence or promise is called a consideration.”

E.g. A offers to sell his car for Rs.1,00,000/- to B.

B accepts his offer.
Now, for A consideration is Rs 1,00,000/ and
for B consideration is car.
NOTE: Until and unless there is no consideration there can not be an
agreement.
 AGREEMENT: According to Sec 2(e) :
“Every promise and set of promises forming the consideration for each
other.”
E.g. A offers to sell his car for Rs.1,00,000/- to B.
B accepts his offer.
This offer after acceptance becomes promise and this promise is treated as an
agreement between A & B.

Agreement = Offer + Acceptance + Consideration

 ENFORCIABILITY : An agreement is said to be enforceable by law if it creates a legal
obligation.
If an agreement is incapable of creating a duty enforceable by law, it is not a contract.

Agreement of moral, religious or social nature are not contracts.

(They are not likely to create a duty enforceable by law)
E.g. X invites his friend Y to a dinner and Y accepts the invitation. If Y fails to turn up for
the dinner. Can he take his friend to Court????
X cannot go to the court to claim his loss.
E.g. A father promises to pay his daughter Rs 1000 as pocket allowance. Later he refuses to
pay. Can the daughter recover the Amount???
The daughter cannot recover as its is a domestic agreement and there is no intention on the
part of the parties to create legal relations
 PROMISOR/OFFEROR : Person making the proposal.
 PROMISEE/ OFFEREE : Person accepting the proposal.

Offer

Offeror Offeree

Acceptance
Offeror makes an Offeree has the power to accept
offer to the offeree the offer and create a contract
 Balfour vs Balfour [(1919) 2 K.B. 571]
Facts : A promise by the husband to pay his wife 30 pounds every month. Later Husband
refuses to pay. Wife goes to court.
Held: Unenforceable as parties never intended it to be bound by legal obligations

 Rose&Frank Co. vs Corruption Bros [1925 AC 445]

Facts: There was an agreement between R company and C company by means of which the
former was appointed as the agent of the latter. One clause in the agreement was: ”This
agreement is not entered into….as a formal or legal agreement and shall not be subject to
legal jurisdiction in the law courts.”
HELD - There was no binding contract as there was no intention to create legal relationship
 Chinnaya v Ramayya

 An old lady, by deed of gift, made over certain landed property to

the defendant, her daughter. By the terms of the deed, which was
registered, it was stipulated that an annuity of Rs.653 should be
paid every year to the plaintiff, who was the sister of the old
woman. The defendant on the same day executed in plaintiff’s favor
an agreement promising to give effect to the stipulation. The
annuity was however not paid and the plaintiff sued to recover it.
 It was held that the deed of gift and the defendant’s promise to pay
the annuity were executed simultaneously and, therefore, they
should be regarded as one transaction and there was sufficient
consideration for that transaction.

“Every contract is an agreement, but every agreement is not a
contract.”

According to Sec 10 : An agreement becomes a contract when the

following conditions are satisfied :
1. There is some consideration for it [sec 2(d) and 25]
2. The parties are competent to contract [ Sec 11-12]
3. Their consent is free [ Sec 13-22]
4. Their object is lawful [ Sec 23-30]
 AGREEMENT
 Offer and its acceptance
constitute an agreement.
 An agreement may or may not
create a legal obligation.
 Every agreement need not
necessarily be a contract.
 Agreement is not a binding
contract.
CONTRACT
 Agreement and its
enforceability constitute a
contract.
 A contract necessarily create a
legal obligation.
 All contract are necessarily an
agreement.
 Contract is binding on the
concerned parties
1. On the basis of Validity 3. On the basis of Nature and
Consideration
Void Contract
Unilateral Contract
Voidable Contract
Bilateral Contract
Valid Contract
4. On the basis of Execution
Illegal Contract
Executed Contract
Unenforceable Contract
Executory Contract
2. On the basis of Formation
Express Contract
Implied Contract
Quasi Contract
Types of Contracts On the basis of Validity
1. Valid: The Contracts which are enforceable in a court of law are called Valid
Contracts. To attain Validity the Contract should have certain features like
 consensus ad idem,

 Certainty,

 free consent,

 two directional consideration,

 fulfillment of legal formalities,

 legal obligations,

 lawful object,
 capacity of parties,
 possibility of performance, etc.
2. Void: A Contract which is not enforceable in a court of law is called Void
Contract. If a Contract is deficient in any one or more of the above
feature(except free consent and legal formalities) it is called Void Contract.

 Example: there is a Contract between X and Y where Y is a minor who has no

capacity to contract. It is Void Contract.

Case : Mohiribibi v Dharamdas Ghase (1903) 30 Cal 539

The court in this case held that the contract with minor is void ab initio which
means void from the beginning as minor is incompetent to enter into contract.
3. Voidable:
Voidable Contracts are those contracts which are deficient in regard free
consent only. In other words, it is a Contract which is made under certain
pressure either physical or mental. At the option of suffering party, it may
become either Valid or Void in future. A consent obtained is not free, if
obtained by:
 Coercion
 Undue influence
 Mistake
 Misrepresentation
Example: there is a Contract between A and B where B has forcibly
made A involved in the Contract. It is voidable at the option of A.
 Raniannapurna v. Swaminathan (1910) 20 MLJ 785
A poor Hindu widow who needed the money to establish her right to
maintenance, was persuaded by a money lender to agree to pay
100% rate of interest on money lent by him. It was a clear case of
undue influence and the contract was held voidable by the court.
Voidable contracts can be avoided at instance of the suffering party
but if not, then it becomes a valid contract.
4. Illegal:
 If the contract has been made with an unlawful object it is called Illegal
Contract. These contracts are void.
 Example: There is a contract between P and Q according to which S has to
murder S for a consideration of Rs. 15000/- from P. It is illegal contract.
5. Unenforceable:
 A contract which has not properly fulfilled the required legal formalities is
called unenforceable contract. That means unenforceable contract suffers
from some technical defect which may be insufficient stamp etc. and hence,
after rectification of that technical defect, it becomes enforceable or valid
contract.
 Example: X and Y have drafted their agreement on Rs. 100/- stamp where it
is to be written actually on Rs. 1000/- stamp. It is unenforceable contract.
 TYPES OF CONTRACTS ON THE BASIS OF FORMATION

1. Express Contracts:
 The Contracts where there is conversation or expression are called
Express Contracts.
 For example: X has offered to sell his house and Y has given acceptance.
It is Express Contract.

2. Implied Contract:
 The Contracts where there is no given expression are called implied
contracts.
 For example: Sitting in a bus can be taken as example to implied contract
between passenger and owner of the bus.
 Upton Rural District Council v. Powell
 A fire broke out in the defendant’s farm. He believed that he was
entitled to the free services of Upton Fire Brigade and, therefore,
summoned it. The Brigade put out the fire. It then turned out that
the defendant’s farm was not within free service zone of the Upton,
and fire brigade claimed compensation for the services.
 The court held the services were rendered on an implied promise to
pay for them.
3. Quasi Contract:
 In Quasi Contracts there will be no offer and acceptance so, there
will be no Contractual relations between the partners. It is created
by the Virtue of law and is called Quasi Contract. Sections 68 to 72
of the Indian Contract Act, 1972 read about the situations where
court can create Quasi Contract.
 68: When necessaries are supplied
 69: When expenses of one person are paid by another person.
 70: When one party is benefited by the activity of another party.
 71: In case of finder of lost tools.
 72: When payment is made by mistake or goods are delivered by
mistake.
 Chappal v. Cooper.
 In this case X’s husband becomes no more. She is very poor and
therefore not capable of meeting even cost of cremation. Y, one of
her relatives, understands her position and spends his own money
for cremation. It is done so without X’s request. Afterwards Y
claims his amount from X and X refuses to pay. Here court applies
Sec. 68 and creates a Quasi Contract between them.
 TYPES OF CONTRACTS ON THE BASIS OF NATURE OF
CONSIDERATION
1. Bilateral Contracts:
 It is called Bilateral Contract, if considerations are to be moved in both
directions after the contract.
 Example: A Contract has got formed between P and Q on 11th Jan,
According to which P has to deliver goods to Q on 13th Jan and Q has
to pay amount on 13th Jan. It is bilateral contract.
2.Unilateral Contract:
 If considerations move in one direction only after the Contract, it is
called Unilateral Contract.
 Example: P has lost his purse and Q is its finder. There after Q
searches for P and hands it over to P. Then P offers to pay Rs. 1000/- to
Q to which Q gives his acceptance. Here, after the Contract
consideration moves from P to Q only. It’s Unilateral Contract.
 TYPES OF CONTRACTS ON THE BASIS OF EXECUTION

1. Executed Contracts:
 If performance has been completed, it is called executed contract.

2. Executory Contracts:
 In case where contractual obligations are not to be performed now
but in future, it is called executory contract.
 Offer,
 Acceptance,
 Consideration,
 Capacity to contract,
 Free consent,
 Legality of object
 Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to
another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other person either to
such act or abstinence, he is said to make a proposal.

“When one person signifies to another his willingness –

•to do or to abstain from doing anything,
•with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal.”
 Legal Rules as to valid offer:-
1. Offer must be communicated to the offeree: The offer is completed only
when it has been communicated to the offeree. Until the offer is
communicated, it cannot be accepted. Thus, an offer accepted without its
knowledge, does not confer any legal rights on the acceptor.
CASE : Lalman Shukla v. Gauri Datt (1913) All LJ 489
A’s nephew has absconded from his home. He sent his servant to trace his
missing nephew. When the servant left, A then announced that anybody who
discovered the missing boy, would be given the reward of Rs.500. The servant
discovered the missing boy without knowing the reward. When the servant came
to know about the reward, he brought an action against A to recover the same.
But his action failed. It was held that the servant was not entitled to the reward
because he did not know about the offer when the discovered the missing boy.
2. The offer must be certain definite and not vague unambiguous and
certain.
Example: A offered to sell to B. ‘a hundred tons of oil’. The offer is
uncertain as there is nothing to show what kind of oil is intended to be
sold.
3. The offer must be capable of creating legal relation. A social
invitation does not create legal relation.
Example: A invited B to a 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.
4. Offer may be express and implied
5. Communication of complete offer
6. Counter offer – A counter offer amounts to rejection of the original
offer
Example: A offered to sell his pen to B for Rs.1,000. B replied, “I am
ready to pay Rs.950”. On A’s refusal to sell at this price, B agreed to pay
Rs.1,000. held, there was not contract at the acceptance to buy it for
Rs.950 was a counter offer, i.e. rejection of the offer of A. Subsequent
acceptance to pay Rs.1,000 is a fresh offer from B to which A was not
bound go give his acceptance.
Case: Harvey v. Facie

7. Offer must be distinguished from invitation to offer.

Example: Menu card of restaurant is an invitation to put an offer.
Job or tender advertisement inviting applications for a job or inviting
tenders is an invitation to an offer.
Case: Case: Fisher v. Bell
 KINDS OF OFFER

Express Implied Specific General Cross Counter Standing

 Express offer - When the offeror expressly communication the offer the
offer is said to be an express offer the express communication of the offer
may be made by Spoken word
Written word
 Implied offer – when the offer is not communicate expressly. An offer
may be implied from:-
The conduct of the parties or
The circumstances of the case
 Specific:- It means an offer made in
(a)a particular person or
(b)a group of person: It can be accepted only by that person to whom it is
made communication of acceptance is necessary in case of specific offer.
 General offer: - It means on offer which is made to the public in general.
General offer can be accepted by anyone.
If offeree fulfill the term and condition which is given in offer then offer is accepted.
Communication of acceptance is not necessary is case of general offer

 Cross offer:- When two parties exchange identical offers in ignorance at the time of
each other’s offer the offer’s are called cross offer.
Two cross offer does not conclude a contract. Two offer are said to be cross offer if
They are made by the same parties to one another
Each offer made in ignorance of the offer made by the
The terms and conditions contained in both the offers’ are same.
Example : A offers by a letter to sell 100 tons of steel at Rs.1,000 per ton. On the same
day, B also writes to A offering to buy 100 tons of steel at Rs.1,000 per ton.
 Counter Offer
Legal effect of counter offer:-
(1)Rejection of original offer
(2)The original offer is lapsed
(3)A counter offer result is a new offer.
Case: Harvey v. Facie
 Standing, open and continuous offer:- An offer is allowed to remain open for
acceptance over a period of time is known as standing, open or continually offer.

 Example: When we ask the newspaper vendor to supply the newspaper daily. In such
case, we do not repeat our offer daily and the newspaper vendor supplies the newspaper
to us daily. The offers of such types are called Standing Offer.
 Did the advertisement constitute an offer for sale or merely an
invitation to treat?
 Partridge v Crittenden [1968] 2 All ER 421
 Facts
 The defendant advertised for sale a number of Bramblefinch cocks and
hens, stating that the price was to be 25 shillings for each. Under the
Protection of Birds Act 1954, it was unlawful to offer for sale any wild
live bird. The Royal Society for the Prevention of Cruelty to Animals
(RSPCA) brought a prosecution against the defendant under the Act. At
his trial, the defendant was found guilty of the offence by the
magistrates; he appealed this conviction.
 The court held that the advertisement was not an offer but an
invitation to treat, and as such the defendant was not guilty.
 LAPSE OF AN OFFER

An offer should be accepted before it lapses (i.e. comes to an end). An offer

may come to an end in any of the following ways stated in Section 6 of the
Indian Contract Act:
1. By communication of notice of revocation
2. By lapse of time
3. By failure to accept condition precedent
4. By the death or insanity of the offeror
5. By counter – offer by the offeree
6. By not accepting the offer, according to the prescribed or usual mode
7. By rejection of offer by the offeree
8. By change in law
 By communication of notice of revocation: An offer may come to an
end by communication of notice of revocation by the offeror. It may be
noted that an offer can be revoked only before its acceptance is
complete for the offeror. In other words, an offeror can revoke his offer
at any time before he becomes before bound by it. Thus, the
communication of revocation of offer should reach the offeree before
the acceptance is communicated.

 By lapse of time; Where time is fixed for the acceptance of the offer,
and it is not acceptance within the fixed time, the offer comes to an end
automatically on the expiry of fixed time. Where no time for
acceptance is prescribed, the offer has to be accepted within reasonable
time. The offer lapses if it is not accepted within that time. The term
‘reasonable time’ will depend upon the facts and circumstances of each
case.
 By failure to accept condition precedent: Where, the offer requires
that some condition must, be fulfilled before the acceptance of the
offer, the offer lapses, if it is accepted without fulfilling the condition.
 By the death or insanity of the offeror: Where, the offeror dies or
becomes, insane, the offer comes to an end if the fact of his death or
insanity comes to the knowledge of the acceptor before he makes his
acceptance. But if the offer is accepted in ignorance of the fact of
death or insanity of the offeror, the acceptance is valid. This will result
in a valid contract, and legal representatives of the deceased offeror
shall be bound by the contract. On the death of offeree before
acceptance, the offer also comes to an end by operation of law.
 By counter – offer by the offeree: Where, a counter – offer is made
by the offeree, and then the original offer automatically comes to an
end, as the counter – offer amounts to rejections of the original offer.
 By not accepting the offer, according to the prescribed or usual
mode: Where some manner of acceptance is prescribed in the offer, the
offeror can revoke the offer if it is not accepted according to the
prescribed manner.

 By rejection of offer by the offeree: Where, the offeree rejects the

offer, the offer comes to an end. Once the offeree rejects the offer, he
cannot revive the offer by subsequently attempting to accept it. The
rejection of offer may be express or implied.

 By change in law: Sometimes, there is a change in law which makes the

offer illegal or incapable of performance. In such cases also, the offer
comes to an end.
 Acceptance 2(b):- When the person to whom the proposal is made,
signifies his assent there to , the proposal is said to be accepted.

Legal Rules for the Acceptance

1. Acceptance must be absolute and unqualified.

Example: A offers to sell his house to B for Rs. two lakhs. B accepts
the offer and promises to pay the price in four installments
It means that the acceptance should be in total (i.e. of all the terms of
the offer), and without any condition.
2. Acceptance must be communicated
3. Manner of acceptance : General rule say that it must be as per the
manner prescribed by offeror. If no mode is prescribed in which it
can be accepted, then it must be in some usual and reasonable
manner.
4. If there is deviation in communication of an acceptance of
offer : offeror may reject such acceptance by sending notice within
reasonable time. If the offeror doesn’t send notice or rejection, he
accepted acceptance of offer.
Example: A offers B and indicates that the acceptance be given by
telegram. B sends his acceptance by ordinary post. It is a valid
acceptance unless A insists for acceptance in the prescribed manner.
5. Time limit for acceptance :
If the offer prescribes the time limit, it must be accepted within
specified time.
If the offer does not prescribe the time limit, it must be accepted
within reasonable time.

6. Mere silence is not acceptance of the offer

Example A offers to B to buy his house for Rs.5 lakhs and writes “If
I hear no more about it within a week, I shall presume the house is
mine for Rs.5 lakhs. “B does not respond. Here, no contract is
concluded between A and B.
 General Rules as to Communication of Acceptance
In case of acceptance by post : Where the acceptance is given by post, the communication
of acceptance is complete as against the proposer when the letter of acceptance is posted.
Thus, mere posting of letter of acceptance is sufficient to conclude a contract. However, the
letter must be properly addressed and stamped.
Case: Adams v. Lindsell (1818) 106 ER 250 Court of King’s Bench
A complete contract arises on the date when the letter of acceptance is posted in due course.

Acceptance by telephones telex or tax : If the communication of an acceptance is made by

telephone, tele-printer, telex, fax machines, etc., it completes when the acceptance is
received by the offeror.

Communication of acceptance in case of an agent : Where the offer has been made
through an agent, the communication of acceptance is completed when the acceptance is
given either to the agent or to the principal. In such a case, if the agent fails to convey the
acceptance received from offeree, still the principal is bound by the acceptance.
 The place of Contract : In case of acceptance by the post, the place
where the letter is posted is the place of contract.
Where the acceptance is given by instantaneous means of
communication (telephone, fax, tele-printer, telex etc.), the contract is
made at the place where the acceptance is received.

Case: Bhagwandas Govardhandas Kedia v. Girdharilal

Parshottamdas & Co. AIR 1966 Sc 543
Facts- The Pt. made an offer from Ahmedabad to the Dt. At Khamgaon to
purchase certain goods and defendant accepted the offer.
Issue- Whether the contract is made at Khamgaon or at Ahmedabad?
Held- Contract is made at place where the acceptance is received.
 Consideration is a quid pro quo i.e. something in return.
 Definition- Sec 2(d)
Legal Rules for valid consideration
1. Consideration must move at the desire of the promisor.
Case: Durga Prasad v. Baldeo ILR (1881) 3 All 221
Facts- D constructed a market on the order of District collector. Occupants of
shops promised to pay D a commission on articles sold through their shops.
Held - there was no consideration because money was not spent by Plaintiff at
the request of the Defendants, but at instance of a third person viz. the
Collector and, thus the contract was void.
2. Must be legal - Consideration must not be unlawful, immoral or opposed to
public policy
3. Consideration may be past, present, Future:
Under English law : Past consideration is no consideration.
Present consideration :- cash sale
Future or executory consideration:- A Promises to B to deliver him 100 bags of
sugar at a future date . B promise to pay first on delivery.
4. Consideration should be real and not illusory : Illusory consideration
renders the transaction void, consideration is not valid if it is.
(i) Physically impossible
(ii) Legally not permissible
(iii) Uncertain
Nudo Pacto non oritur action, i,e, an agreement without consideration is void.
Exceptions to the Rule “ No consideration . No contract”
1. Written and registered agreements arising out of love and affection:- [25 (1)]
 Expressed in writing and registered under law for the time being in force for registration
of document
 Natural love and affection
 Between parties standing in a near relation to each other
Example:- An elder brother, on account of natural love and affection, promised to pay the
debts of his younger brother. Agreement was put to writing and registered. Held, agreement
was valid.
Case: Rajlukhy Dabee Vs Bhootnath Mukharjee
A Hindu husband by a registered document, after referring to quarrels and disagreements
between himself and his wife, promised to pay his wife a sum of money for her
maintenance and separate residence. Held that the promise was unenforceable since natural
love and affection was missing.
2. Promise to compensate [25(2)]
 Promise to compensate wholly or in part
 Who has already voluntarily done something for the promisor
 Something which the promisor was legally compellable to do.
Example:- A finds B’s purse and give to him. B Promise to give A Rs.500. This is a
valid contract.

3. Promise to pay a time – barred debt. [Sec 25(3)]

A debt barred by limitation can not recovered. Hence, a promise to pay a such a debt is
without any consideration.
Can be enforced only when – in writing and sighed by Debtor or his authorized agent.
Example : A owes B Rs.10,000 but the debt is barred by Limitation Act. A signs a
written promise to pay B Rs.8,000 on account of debt. This is a valid contract.
4. Completed gift- gift do not require any consideration.

5. Agency (185) – According to the Indian contract Act. No consideration

is necessary to create an agency.

6. Bailment (148)- consideration is not necessary to effect a valid

bailment of goods. It is called Gratuitous Bailment.

7. Charity- If a person promises to contribute to charity and on this faith

the promises undertakes a liability to the extent not exceeding the
promised subscription, the contract shall be valid.
 Parties unable to enter into
contract

Minor A person of Person disqualified

unsound mind by Law

Drunken
Lunatic Idiot and
Intoxicated Corporati
Alien Foreign Convict Insolvent
on and
Enemy Sovereign
Company
 MINOR
 Validity: - An agreement with a minor is void-ab-initio
[ Mohoribibee v. Dharmodas Ghose]
 A minor’s has received any benefit under a void contract, he cannot be
asked to return the same.
 Fraudulent representation by a minor- no difference in the status of
agreement. The contract remains void.
 Can enter into contracts of Apprenticeship, Services, Education, etc:
 (a) A minor can enter into contract of apprenticeship, or for training or
instruction in a special art, education, etc.
 (b) These are allowed because it generates benefits to the Minor.
 A person of unsound mind

An idiot : An idiot is a person who is congenital (by birth) unsound
mind.
 Lunatic : is not permanently of unsound mined. He can enter into
contract during lucid intervals i.e., during period when he is of
sound mind.
 Drunken person : An agreement made by intoxicated person is
void.
At time of entering into a contract, a person must be sound mind.
Law presumes that every person is of sound mind unless otherwise it
is proved before court. An agreement by a person of unsound mind is
void. The following are categories of a person considered as person
of a unsound mind.
  Person Disqualified by law
 Body corporate or company or corporation : Contractual capacity of
company is determined by object clause of its memorandum of association. Any
act done in excess of power given is ultra – virus and hence void.
 Alien enemy : An ‘alien’ is a person who is a foreigner to the land. He may be
either an ‘alien friend’ or an ‘alien enemy. If the sovereign or state of the alien is
at peace with the country of his stay, he is an alien friend. An if a war is
declared between the two countries he is termed as an alien enemy.
During the war, contract can be entered into with alien enemy with the
permission of central government.
 Convict can’t enter into a contract while he is undergoing imprisonment. But he
can enter into a contract with permission of central government while
undergoing imprisonment. After the imprisonment is over, be becomes capable
of entering into contract. Thus the incapacity is only during the period of
sentence.
 Insolvent : When any person is declared as an insolvent, his property
vests in receiver and therefore, he can’t enter into contract relating to his
property. Again he becomes capable to enter into contract when he is
discharged by court.

 Foreign sovereigns, diplomatic staff and representative of foreign

staff can enter into valid contract. However, a suit cannot be filed
against them, in the Indian counts without the prior sanction of the
Central Government.
 Consent is said to be free when it is not caused by

(a) Coercion [Section 15]

(b) Undue influence [Section 16]
(c) Fraud [Section 17]
(d) Misrepresentation [ Section 18]
(e) Mistake [Section 20, 21,22]
Coercion (S 15)
(a) Committing or threatening to commit any act forbidden by the IPC;
(b) unlawfully detaining or threatening to detain any property.
Case: Chikham Ammiraju v seshama
Threat to commit suicide amount to coercion.

Undue influence (S 16) dominating the will of the other person to obtain
an unfair advantages over the others.
a) where the relation subsisting between the parties must be such that one
party is in position to dominate the will of the other.
b) The dominant party use his position.
c) Obtain an unfair advantage over the other
 No. Presumption of Domination of will:-
1. Landlord and Tenant
2. Creditor and Debtor
3. Husband and wife
4. Principal and Agent

Fraud (S 17)
The term fraud means a take representation of facts made willfully
with a view to deceive the other party.
Sec.17- fraud means any act committed by a party to a contract or
with his connivance or by his agent with intent to deceive another
party there to or his agent or to induce to enter into contract.
Misrepresentation (S 18)
 Misrepresentation is when a party (person) asserts something which is not
true though he believes is to be true. In other words misrepresentation is a
falls representation made innocently.

 An agreement is said to be influenced by misrepresentation if all the

following conditions are satisfied.
a) The party makes a representation of a fact
b) The misrepresentation was made innocently
c) The other party has actually acted believing the misrepresent to be true
 Mistake : Mistake are of two type
1. Mistake of law
2. Mistake of fact
Mistake of fact
i) Bilateral mistake
ii) Unilateral mistake
 A contract is discharged when the rights and obligations
created between parties come to an end.
 Discharge or termination of contracts means termination
of contractual relations between the parties to a contract.
 A contract is said to be discharged when it ceases to
operate.
A contract may be discharged –
1.By performance
2.By agreement or consent
3.By impossibility or performance
4.By lapse of time
5.By operation of law
6.By breach of contract.
1. DISCHARGE BY PERFORMANCE : Discharge of performance
takes place when the parties to the contract fulfill their obligations arising
under the contract within the time and in the manner prescribed.
 Two forms
1. Actual performance : when both the parties perform his work.
2.Attempted performance/ tender/offer to perform : Tender is not actual
performance but is only an offer to perform the obligation under the
contract.
The effect of a valid tender is that the contract is deemed to have been
performed by the tenderer. The tenderer is discharged from the
responsibility for non-performance of the contract without in any way
prejudicing his rights which accrue to him against the promisee.
2. DISCHARGE BY AGREEMENT OR CONSENT : As it is the
agreement of the parties which binds them, so by their further agreement or
consent the contract may be terminated.
 The rule of law in this regard is as follows: Eodem modo quo quid
constituitur, eodem modo destruitur, i.e., a thing may be destroyed in the
same manner in which it is constituted.
 Types of discharge by agreement or consent:
(a) Novation
(b) Rescission
(c) Alteration
(d) Remission
(e) Waiver
 Novation (Sec. 62) :Novation takes place when (i) a new contract is
substituted for an existing one between the same parties, or (ii) a
contract between two parties is rescinded in consideration of a new
contract being entered into on the same terms between one of the
parties and a third party.
 a creditor at the request of the debtor agrees to take another person
as his debtor in place of the original debtor. The consideration for
the new contract is the discharge of the old contract
 Novation should take place before expiry of the time of the
performance of the original contract.
 If for any reason the new contract cannot be enforced, the parties
can fall back upon the old contract.
 Alteration : This refers to a change in one or more of the terms of a
contract with the consent of all the contracting parties. Alteration
results in a new contract but parties to it remain the same.
 Two types
(a). Material Alteration– is one which alters the legal effect of the
contract
For e.g change in the amount of money to be paid, rate of interest or
the names of the parties.
(b). Immaterial Alteration– it is correcting a clerical errors in
figures or the spelling of the name.
 Rescission : This refers to cancellation of all or some of the material terms
of the contract. If the contracting parties mutually decide to do so, the
respective contractual obligations of the parties stand terminated.
 Remission : acceptance of lesser amount than what was contracted or
lesser fulfillment of the promise made.
E.g. Peter owes Rs 100,000 to John and agrees to repay it within one year.
They document the debt under a contract. Subsequently, he loses his job and
requests John to accept Rs 75,000 as a final settlement of the loan. John
agrees and they make a contract to that effect.
 Waiver : The term waiver implies abandonment or relinquishment of a
right. Where a party deliberately abandons its rights under the contract, the
other party is released of its obligations, otherwise binding upon it.
3. DISCHARGE BY THE IMPOSSIBILITY OF PERFORMANCE
 If it is impossible for any of the parties to the contract to perform their
obligations, then the impossibility of performance leads to a discharge of the
contract. If the impossibility exists from the start, then it is impossibility ab-initio.
However, the impossibility might also arise later due to:
a. An unforeseen change in the law
b. Destruction of the subject-matter essential to the performance
c. The non-existence or non-occurrence of a particular state of things which
was considered a given for the performance of the contract
d. A declaration of war
 Example: Peter enters into a contract with John to marry his sister Olivia within
one year. However, Peter meets with an accident and becomes insane. The
impossibility of performance leads to a discharge of the contract.
4. DISCHARGE OF A CONTRACT BY LAPSE OF TIME
 The Limitation Act, 1963 prescribes a specified period for
performance of a contract. If the promisor fails to perform and the
promisee fails to take action within this specified period, then the
latter cannot seek remedy through law. It discharges the contract
due to the lapse of time.
 Example: Peter takes a loan from John and agrees to pay
instalments every month for the next five years. However, he does
not pay even a single instalment. John calls him a few times but
then gets busy and takes no action. Three years later, he approaches
the court to help him recover his money. However, the court rejects
his suit since he has crossed the time-limit of three years to recover
his debts.
5. DISCHARGE OF A CONTRACT BY OPERATION OF LAW
 A contract can be discharged by operation of law which includes insolvency or
death of the promisor.

6. DISCHARGE BY BREACH OF CONTRACT

 If a party to a contract fails to perform his obligation according to the time and
place specified, then he is said to have committed a breach of contract.
 Also, if a party repudiates a contract before the agreed time of performance of a
contract, then he is said to have committed an anticipatory breach of contract.
 In both cases, the breach discharges the contract. In the case of:
 an actual breach, the promisee retains his right of action for damages.
 an anticipatory breach of contract, the promisee cannot file a suit for damages. It
also discharges the promisor from performing his part of the contract.