Law of Contracts - I: Indian Contract Act, 1872

2.
LAW OF CONTRACTS - I
INDIAN CONTRACT ACT, 1872
Commencement and applicability:-
Short Title, Extent and commencement :
(a) General principles of the Law of Contract.

(b) Special kinds of contracts.
Contract Act. These principles apply to all kinds of contracts irrespective of their nature.
special contracts are Indemnity, Guarantee, Bailment, Pledge and Agency.

Sources of Mercantile Law in India
INDIAN CONTRACT ACT, 1872

The Indian Contract Act 1872 Applicable to whole of India except the state of Jammu & Kashmir
First day of September 1872(1st Sept. 1872)
1. “Every agreement and promise enforceable at law is a contract.” - Pollock

2. “A Contract is an agreement between two or more persons which is intended to be enforceable
at law and is contracted by the acceptance by one party of an offer made to him by the other
party to do or abstain from doing some act.” - Halsbury
3.
- Salmond
ESSENTIALS OF A VALID CONTRACT
“All agreements are contracts, if they are made -
Offer + acceptance = Promise

+
consideration
=
Agreement
+
enforceability By Law
20 LAW OF CONTRACTS - I
Contract
1. Proper offer and proper acceptance with intention to create legal relationship: Cases:- A
and B agree to go to a movie on coming Sunday. A does not turn in resulting in loss of B’s time B cannot
claim any damages from B since the agreement to watch a movie is a domestic agreement which does
not result in a contract.
no contract (Balfour v. Balfour)

In case of commercial agreements, the law presume that the parties had the intention to
create legal relations.
2. Lawful consideration :- consideration must not be unlawful, immoral or opposed to the

public policy.
3. Capacity:- The parties to a contract must have capacity (legal ability) to make valid contract.
Section 11:- of the Indian contract Act specify that every person is competent to contract provided.
(i) Is of the age of majority according to the Law which he is subject, and
(ii) Who is of sound mind and
Insolvents and convicts are not competent to contract.

4. Free consent :- consent of the parties must be genuine consent means agreed upon something
in the same sense i.e. there should be consensus - ad - idem. A consent is said to be free when it is not
5. Lawful object :
The object of agreement should be lawful and legal.
Two persons cannot enter into an agreement to do a criminal act.
Consideration or object of an agreement is unlawful if it
(a) is forbidden by law; or
(b) is of such nature that, if permitted, would defeat the provisions of any law; or
(c) is fraudulent; or
(d) Involves or implies, injury to person or property of another; or
(e) Court regards it as immoral, or opposed to public policy.
6. Possibility of performance:
The terms of the agreement should be capable of performance.
An agreements to do act, impossible in itself cannot be enforced.
Example : A agrees to B to discover treasure by magic. The agreement is void because the act in
itself is impossible to be performed from the very beginning.
Example : A agreed to pay Rs.5 lakh to B for ultra-modern decoration of his drawing room. The
agreement is void because the meaning of the term “ ultra - modern” is not certain.
8. Not declared Void
The agreement should be such that it should be capable of being enforced by law.
Certain agreements have been expressly declared illegal or void by the law.
9. Necessary legal formalities
A contract may be oral or in writing.
Where a particular type of contract is required by law to be in writing and registered, it must comply
with necessary formalities as to writing, registration and attestation.
If legal formalities are not carried out then the contract is not enforceable by law.
Example : A promise to pay a time-barred debt must be in writing.
Agreement is a wider term than contract where as all contracts are agreements. All agreements
are not contracts.
Agreement not enforceable by law / Agreement enforceable by law

All Contracts are Agreements, but all Agreements are not Contracts
Any essential of a valid contract is not available.
Distinction between Contract & Agreement
1. Section : Sec. 2(h) Sec. 2(e)
A contract is an agreement Every promise or every set of promises
enforceable by law. forming consideration for each other is
an agreement.
3. Enforceability : Every contract is enforceable. Every promise is not enforceable.
4. Inter-relationship : A contract includes an An agreement does not include a
agreement. contract.
5. Scope : The scope of a contract is limited, Its scope is relatively wider, as it includes
as it includes only commercial both social agreement and commercial
agreements. agreements.
6. Validity : Only legal agreements are called An agreement may be both legal and
contracts. illegal.
7. Legal Obligation : Every contract contains a legal It is not necessary for every agreement
obligation. to have legal obligation.
TYPES OF CONTRACTS :
b. Unilateral contract
On the Basis of creation
(a) Express contract :- A contract made by word
a. Express contract
b. Implied contract
c. Tacit contract
d. Quasi contract
e. E contract
On the Basis of Validity
a. Valid contract
b. Void contract
c. Voidable contract
d. Unenforceable contract
e. Illegal contract
On the Basis of execution

a. Executed contract
b. Executory contract
c. Partly executed and party executory
On the Basis of Liability

a. Bilateral contract
b. Unilateral contract
c. Express contract :- A contract made by word spoken or written. According to sec 9 in so for
as the proposal or acceptance of any promise is made in words, the promise is said to be
express.
d. Example : A says to B ‘will you purchase my bike for Rs.20,000?” B says to A “Yes”.
e. (b) Implied contract :- A contract inferred by
f. By implied contract means implied by law (i.e.) the law implied a contract through parties never
intended. According to sec 9 in so for as such proposed or acceptance is made otherwise
than in words, the promise is said to be implied. Example: A stops a taxi by waving his hand
and takes his seat. There is an implied contract that A will pay the prescribed fare.
c. Tacit contract: -
A contract is said to be tacit when it has to be inferred from the conduct of the parties. Example
obtaining cash through automatic teller machine, sale by fall hammer of an auction sale.
d. Quasi Contracts are contracts which are created -

Neither by word spoken
Nor written
Nor by the conduct of the parties.
But these are created by the law.
Example :
If Mr. A leaves his goods at Mr. B’s shop by mistake, then it is for Mr. B to return the goods or to
compensate the price. In fact, these contracts depend on the principle that nobody will be allowed
to become rich at the expense of the other.
(e). e - Contract: An e - contract is one, which is entered into between two parties via the
internet.
On the basis of validity
(a) Valid contract:-
On the basis of creation
(b) Void contract (2(j)):- a contract which ceases to be enforceable by law because void when
of ceased to be enforceable
When both parties to an agreement are:-
(c) Voidable contract 2(i) :- an agreement which is enforceable by law at the option of one or
more the parties but not at the option of the other or others is a voidable contract.
(d) Unenforceable contract :- where a contract is good in substance but because of some
technical defect i.e. absence in writing barred by imitation etc one or both the parties cannot
sue upon but is described as unenforceable contract.
Example: Writing, registration or stamping.
Example: An agreement which is required to be stamped will be unenforceable if the same is not
stamped at all or is under stamped.
(e) Illegal contract:- It is a contract which the law forbids to be made. All illegal agreements are
void but all void agreements or contracts are not necessary illegal.
Contract that is immoral or opposed to public policy are illegal in nature.
subsequently becomes void.

On the basis of execution
(a) Executed contract :-
the contract.
Example: A contracts to buy a car from B by paying cash, B instantly delivers his car.
(b) Executory contract:-
Example : D agrees to buy V’s cycle by promising to pay cash on 15th July. V agrees to
deliver the cycle on 20th July.
(c) Partly executed and partly executory:-
Example : A sells his car to B and A has delivered the car but B is yet to pay the price. For A,
it is executed contract whereas it is executory contract on the part of B since the price is yet
to be paid.
On the basis of liability for performance:-
(a) Bilateral contract:- A contract in which both the parties commit to perform their respective
promises is called a bilateral contract.
Example :
a promise by A to Sell the car and there is a promise by B to purchase the car there are two
promise.
(b) Unilateral contract:- A unilateral contract is a one sided contract in which only one party has
to perform his promise or obligation party has to perform his promise or obligation to do or
forbear.
Example :- A wants to get his room painted. He offers Rs.500 to B for this purpose B says to A “
if I have spare time on next Sunday I will paint your room”. There is a promise by A to pay
Rs 500 to B. If B is able to spare time to paint A’s room. However there is no promise by B to
Paint the house. There is only one promise.
Difference Between Void and Voidable Contract
Matter Void contract Voidable contract
It means contract which cease
It means an agreement enforceable by
to be enforceable. law by one or more parties.
Nature Valid when made subsequentlyIt remains voidable until cancelled by
becomes unenforceable. party.
Rights or remedy No legal remedy. Aggrieved party has remedy to cancel
the contract.
Performance of contract Party can’t demand If aggrieved party does not cancel it
performance of contract within reasonable time, performance
Reason Due to change in law or If consent is not obtained freely.
circumstances
Damages Not available Can demand in certain cases.
Difference between Void and illegal Agreement
Matter Void agreement Illegal agreement
What Void agreement is not prohibited It is prohibited by law.
by law.
Effect on collateral transaction Enforced Not enforced.
Punishment No Yes
Void ab initio May not be void ab initio Always void ab-initio
Contract of record:
It is either a judgment of a court or a Recognizance.
A Judgment is an obligation imposed by a Court upon one or more persons in favour of another
or others. In real sense, it is not a contract, as it is not based upon any agreement between two parties.
Recognizance is a Bond by which a person undertakes before a Court of Magistrate to observe
some condition e.g. to appear on summons.
Contracts of record derive their binding force from the authority of the Court.
Contract under Seal:
(a) A contract under Seal is one which derives its binding force from its form alone.
(b) It is in writing and signed, sealed and delivered by the parties.
(c) It is also called a Deed or a Specialty contract.
E - Contract
Electronic Contract General Principles of contracts to be read along with Information Technology
Act. 2000 and amended act 2008 to understand e-contracts. Electronic contract is a contract
executed by a software system. Computer programs are used to automate business processes that
the contract requirements. The programs do not have the capabilities to handle complex relationship
between parties to an e-contract.
Modes of entering into an e-contract: An electronic contract is an agreement which is created
and signed in an electronic form. In other words no paper or other hard copies need to be utilized. For
instance., you write a contract on your computer and email it to business associate, then the associate
emails back with an electronic signature accepting your offer. An e-contract can be done “Click to Agree”
contract, commonly used by downloading an software(Flipkart, Snapdeal,Crafts villa, Quiker dot.com
etc.,) The user clicks an “I Agree “ button on a page containing the terms of the software license before
the transaction can be completed.
The contractual rights are determined with reference to individuals , the need of the hour is
to ascertain whether existing contract law doctrine can cope up with the new laws of technology.
E-contracts is of two types. Web-wrap agreements and Shrink –wrap agreements. Web-wrap contracts
For eg., E-bay accepts by terms and conditions mentioned by the seller. On the other hand shrink wrap
agreements are those which are accepted by a user when a software is installed from a CD-ROM e.g
into for convenience let us assume the most simple web wrap agreement entered between the buyer and
seller through a computer. A buyer accesses an autonomous computer controlled by a seller wherein
makes an order after reading through after reading through the terms and conditions of the seller. The
In such cases the actual seller of goods is unaware about the fact that the transaction has been entered
between him and the buyer. The question which arises here is that whether such contracts are valid or
not.
When it comes to legality and enforceability of e-contracts entered between two or more parties
computer program.
OFFER
Offer(i.e. Proposal) [section 2(a)] :-
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.
To form an agreement, there must be at least two elements - one offer and the other acceptance.
Thus offer is the foundation of any agreement.
The person who makes an offer is called “Offeror” or “ Promisor” and the person to whom the
offer is made is called the “Offeree” or “Promised’.
Example
Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case, Mr. A is making an
offer to Mr. B. Here A is the offeror and B is the offeree.
Essentials elements of an offer:-
(1) There must be two parties.
(2) The offer must be communicated to the offeree.
(3) The offer must show the willingness of offeror. Mere telling the plan is not offer.
(4) The offer must be made with a view to obtaining the assent of the offeree.
(5) A statement made jokingly does not amount to an offer.
(6) An offer may involve a positive act or abstinence by the offeree.
(7) Mere expression of willingness does not constitute an offer.
A tells B’ that be desires to marry by the end of 2008, if does not constitute an offer of marriage by
A’ to B’ A further adds will you marry me. Then it become offer.
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.
Example:
A’s nephew has absconded from his home. He sent his servant to trace his missing nephew. When
the servant had 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
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 is 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
The offer may be express or implied; An offer may be express as well as implied. An offer which
is expressed by words, written or spoken, is called an express offer. The offer which is expressed by
5. Communication of complete 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.
6. Counter offer - A counter offer amounts to rejection of the original offer
7. Cross offer do not conclude a contract
8. An offer must not thrust the burden of acceptance on the offeree.
Example:
consider his case for the renewal of the contract. The promise is too vague to create a legal
relationship.
9. Offer must be distinguished from invitation to offer.

Example:
Menu card of restaurant is an invitation to put an offer.
Example:
Price - tags attached with the goods displayed in any showroom or supermarket is also an invitation
to proposal. If the salesman or the cashier does not accept the price, the or the cashier does not
accept the price, the interested buyer cannot compel him to sell, if he wants to buy it, he must make
a proposal.
Example:
Job or tender advertisement inviting applications for a job or inviting tenders is an invitation to an
offer.
Example
Standing Open and Continuous offer
Counter offer
An advertisement for auction sale is merely an invitation to make an offer and not an offer for sale.
Therefore, an advertisement of an auction can be withdrawn without any notice. The persons going to
the auction cannot claim for loss of time and expenses if the advertisement for auction is withdrawn.
10. Offeror should have an intention to obtain the consent of the offeree.
11. An answer to a question is not a offer.
Offer Invitation to offer
called as an offer
Example Example Issue of prospectus by a Company,

applicable to the Institution, a student seeking an education Institution
admission in educational Institution.
KINDS OF OFFER
1. Express offer
2. Implied offer
4. General offer
5. Standing Open and Continuous offer
6. Counter offer
7. Cross offer
I. Express offer
When the offeror expressly communicate 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
II. Implied offer -
When the offer is not communicated expressly. An offer may be implied from:- The conduct of the
parties or The circumstances of the case
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
IV. General offer:

It means on offer which is made to the public in general.
General offer can be accepted by anyone.
Communication of acceptance is not necessary in case of general offer

Example
Company advertised that a reward of Rs.100 would be given to any person who would suffer
directions.
One lady, Mrs, Carlill, purchased and used the medicine according to the printed directions of the
there was a contract as she had accepted a general offer by using the medicine in the prescribed manner
and as such is entitled to recover the reward from the company.
Carlill v Carbolic Smoke Ball Co. 1893
V. 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
1. They are made by the same parties to one another
2. Each offer made in ignorance of the offer made by the
3. 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.
When does a contract come into existence: - A contract comes into existence when any of the
parties, accept the cross offer made by the other party.
VI. Counter offer :-
terms of original offer. Counter offer amounts to rejection of the original offer.
Legal effect of counter offer:-
(1) Rejection of original offer
(2) The original offer is lapsed
(3) A counter offer result in a new offer.
In other words an offer made by the offeree in return of the original offer is called as a counter 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 as 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 to give his acceptance.
VII. 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 continuous offer. Tender for supply of goods is a kind of standing 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.
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: 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 bound by it. Thus, the communication of revocation of offer should reach the offeree before
the acceptance is communicated.
2. By lapse of 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.
3. By failure to accept condition precedent: Where, the offer requires that some condition must,
condition.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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
Acceptance 2(b):-
the proposal is said to be accepted.
Example: A offers to sell his house to B for rupees two lakhs. B accepts the offer and promises to
pay the price in four installments. This is not the acceptance as the acceptance is with variation in the
terms of the offer.
2. Acceptance must be communicated:
Mere mental acceptance is no acceptance, But there is no requirement of communication of
acceptance of general offer.
Example: The manager of Railway Company received a draft agreement relating to the supply of
coal. The manager marked the draft with the words “Approved” and put the same in the drawer of
his table and forgot all about it. Held, there was no contract between the parties as the acceptance
was not communicated. It may however, be pointed out that the Court construed a conduct to
parties as railway company was accepting the supplies of coal from time to time.
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 of 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. Acceptance of offer must be made by offeror.
Example : A applied for the headmastership of a school. He was selected by the appointing
authority but the decision was not communicated to him. However, one of members in his individual
capacity informed him about the selection. Subsequently, the appointing authority cancelled its decision.
A sued the school for breach of contract. The Court rejected the A’s action and held that there was no
the door”.
6. Acceptance must be communicated to offeror
7. Time limit for acceptance
If the offer does not prescribe the time limit, it must be accepted within reasonable time.
Example : A applied (offered) for shares in a company in early June. The allotment (Acceptance)
was made in late November. A refused to take the shares. Held, A was entitled to do so as the reasonable
time for acceptance had elapsed.
8. Acceptance of offer may be expressly (by words spoken or written); or impliedly (by acceptance
of consideration); or by performance of conditions (e.g.in case of a general offer)
9. 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.
10. However, following are the two exceptions to the above rule. It means silence amounts as
acceptance of offer.
of offer.
11. Acceptance subject to the contract is no acceptance

If the acceptance has been given ‘subject to the contract” or subject to approval by certain persons,
it has no effect at all. Such an acceptance will not create binding contract until a formal contract is
prepared and signed by all the parties.
1. In case of acceptance by post

Where the acceptance is given by post, the communication of acceptance is complete as against
the proposer when the letter of acceptance is posted. Thus, mere posting of letter of acceptance
2. Delayed or no delivery of letter

Where the letter of acceptance is posted by the acceptor but it never reaches the offeror, or it is
delayed in transit, it will not affect the validity of acceptance. The offeror is bound by the acceptance.
3. Acceptance by telephones telex or Fax
If the communication of an acceptance is made by telephone, tele-printer, telex, fax machines, etc,
it completes when the acceptance is received by the offeror. The contract is concluded as soon as
the offeror receives the acceptance.
4. The place of Contract
In case of acceptance by the post, the place where the letter is posted is the place of contract.
Where the acceptance is given by instantaneous means of communication (telephone, fax, tele-
printer, telex etc.), the contract is made at the place where the acceptance is received,
5. The time of Contract
In case of acceptance by post, the time of posting the letter of acceptance to the time of contract.
But in case of acceptance by instantaneous means of communication, the time of contract is the
time when the offeror gets the communication, the time of contract is the time when offeror gets the
communication of acceptance.
6. 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.
7. Acceptance on loudspeakers
General Rules as to Communication of Acceptance
Acceptance given on loudspeaker is not a valid a acceptance.
Particulars Offer Acceptance
When Communication is Communication of a proposal is As against the offerer/ Proposer:
complete when it comes to the When it is put in a course of
knowledge of the person to whom transmission to him so as to be out
it is made. of the power of the Acceptor.
Example : A proposes by letter, to As against the Offeree/ Acceptor:
sell his Tonga to B at Rs.10,000. When it comes to the knowledge
Communication of the proposal of the Proposer. (See separate
is complete when B receives the question above)
letter.
When Revocation can Offer/proposal may be revoked at Acceptance may be revoked at any
any time before the communication time before the communication of
of its acceptance is complete, acceptor, but not afterwards.
as against the proposer, but not Example: T sends to S by post,
afterwards. an offer to sell his cycle. S sends
Example: U sends a letter to Y his acceptance via post, S could
proposing to sell his land. Y sends revoke his acceptance, upto any
his acceptance by post. U can time before or at the moment when
revoke the offer at any time before he posts his letter of acceptance,
or at the moment when Y posts but not afterwards.
his letter of acceptance, but not
afterwards.
When communication of As against the offeror: When it is As against the Offeree:
revocation is complete put into a course of transmission When it comes to his knowledge.
to the person to whom it is made, Example : Communication of
so as to be out of the power of the revocation is complete only when
person who makes it. H receives the telegram. When
Example : S proposes to H by H revokes his acceptance, it is
letter. H sends his acceptance complete when he dispatches the
by letter. Suddenly, S sends telegram.
a telegram revoking his offer.
Revocation is complete as against
S when the telegram is dispatched;
H’s revocation of acceptance is
complete when S receives such
telegram.
Accepted is lighted match, while offer is a train of gun powder- Sir willian Anson
CAPACITY TO CONTRACT
Parties unable to Enter into a contract
1. Minor
3. Lunatic Idiot, Drunken and Intoxicated

4. Alien enemy, Foreign Sovereign, Convict, Corporation and Company Insolvent
1. Who is competent to make a contract:-
Section 11. Every person is competent to contract who is of age of majority according to the Law
to which he is subject, who is of sound mind and not is by any Law to
which he is subject.
Age of majority:- According to section 3 of Indian majority Act-1875 every person domiciled in
India attains majority on the completion of 18 years of age.
Exception: - 21 years - in the following cases.
a. Where a guardian of a minor’s person or property is appointed under the Guardian and wards
Act, 1890.
b. Where minor’s property has passed under the superintendence of the court of wards.
Position of Agreements by Minor:-

1. Validity:
Example :
Mr. D, a minor, mortgaged his house for Rs.20000 to a money - lender, but the mortgagee, i.e. the
money - lender, paid him a sum of Rs.8000. Subsequently, the minor sued for setting aside the
mortgage. Held that the contract was void, as Mr. D was minor and therefore he is not liable to pay
anything to the lender.
3. Fraudulent representation by a minor- no difference in the status of agreement. The contract

remains void.
for such contracts.

6. Minor’s parent/guardians are not liable to a minor’s creditor for the breach of contract by the minor.
7. A minor can act as an agent but not personally liable. But he cannot be principal.
8. A minor cannot become shareholder of a the company except when the shares are fully paid up
and transfer by share.
9. A minor cannot be adjudicated as insolvent.
10. 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.
11. Guarantee for and by minor

A contract of guarantee in favour of a minor is valid. However, a minor cannot be a surety in a
contract of guarantee. This is because, the surety is ultimately liable under a contract of guarantee
whereas a minor can never be held personally liable.
12. Minor as a trade union member
provided the rules of the trade union allow so. Such a member will enjoy all the rights of a member.
Contract by Guardian
a. within the scope of the authority of the guardian.
Contract for supply of Necessaries.

Example :
Food, clothes, bed, shelter, shoes, medicines and similar other things required for the maintenance
of his life or for the life of his dependents, expenses for instruction in grade or arts; expenses
for moral religions or intellectual education, funeral expenses of his deceased family members,
marriage expenses of a dependent female member in the family; expenses incurred in the protection
of his property or personal liberty, Diwali pooja expenses, etc. have been held by courts to be
necessaries of life. However, the things like earrings for a male, spectacles for a blind person
or a wild animal cannot be considered as necessaries.
Liability for tort: A minor is liable for a tort, i.e., civil wrong committed by him.
Example :
A, a 14 - year - old boy drives a car carelessly and injures B. He is liable for the accident i.e., tort.
EXCEPTION
PERSON OF UNSOUND MIND
Lunatic Idiot Drunken and Intoxicated
Person of Unsound Mind
A person who is usually of unsound mind, but occasionally of sound mind can make a contract
when he is of sound mind. Similarly, a person who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound 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.
An idiot is a person who is congenital (by birth) unsound mind. His incapacity is permanent and
therefore he can never understand contract and make a rational judgment as to its effects upon his
interest. Consequently, the agreement of an idiot is absolutely void ab initio. He is not personally
liable even for the payment of necessaries of life supplied to him.
A person delirious from fever is also not capable of understanding the nature and implications of an
agreement. Therefore, he cannot enter into a contract so long as delirium lasts.
There may be mental decay or senile mind to old age or poor health. When such person is not
capable of understanding the contract and its effect upon his interest, he cannot enter into contract.
He can enter into contract during lucid intervals i.e., during period when he is of sound mind.
Generally of Occasionally of Capacity to Contract Example
Unsound Mind Sound Mind Can enter into a A patient in a lunatic
Contract when he is of asylum, who is at
Sound Mind. intervals of sound mind,
may contract during
those intervals.
Sound Mind Unsound Mind Cannot make a Contract A sane man, who is
when he is of Unsound delirious from fever or
Mind. who is so drunk that
he cannot understand
terms of a contract or
form a judgment, cannot
contract while such
delirium or drunkenness
lasts.
An agreement made by intoxicated person is void.
PERSON DISQUALIFIED BY LAW

Alien enemy, Foreign Sovereign, Convict, Corporation and Company Insolvent
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.
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. And 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
of the central Government.

Only those persons, who are parties to a contract, can sue and be sued upon the contract. This
Rule is called “Doctrine of privity of contract.” Exception.
Trust:-
Example:
Third party to a contract cannot sue or a stranger to a contract cannot sue.
This exception to the rule of Privity of Contract has been recognised in a well known case of khwaja
Mohd. Khan v. Hussaini Begum (1910) 32 All 410.
Family settlement / Marriage contract:- In case of family settlement members who were not
originally party to the contract can also sue upon it.
A female member can force a provision for marriage expenses made on partition of HUF.
Example:
H sued her father - in - law K to recover Rs.15,000 being arrears of allowance called Pin money
payable to her by K under an agreement between K and H’s father, consideration being H’s
marriage to K’s son D. Both H and D were minors at the time of marriage. Held, the promise can
be made enforceable by H.
Provision of marriage expenses of female members of a Joint Hindu Family, entitles the female
member to sue for such expenses on a partition between male members.,
Two brothers, on partition of family joint properties, agreed to invest in equal shares for their
mother’s maintenance. Held, the mother was entitled to require her sons to make the investment.
Acknowledgement of liability:- Where a person admits his Liability thereafter if he refused he will
be stopped from denying his liability.
Example
Assignment of contract.
enforce upon the contract..
Contract entered into through an agent.
Covenants running with land.
Stranger to consideration:- “Stranger to contract’ must be distinguished from a stranger to
such a person is‘ stranger to consideration,.

(Chinnaya v. Ramayya).
CONSIDERATION
1. (a) Consideration is a quid pro quo i,e something in return it may be -
(ii) some forbearance, detriment, loss or responsibility suffered on undertaken by the
(b) According to Sir Frederick Pollock, “consideration is the price for which the promise
of the other is bought and the promise thus given for value is enforceable.
2. when at the desire of the Promisor, the promise of any other person.
abstinence or promise is called a consideration for the promise.

3. Example
(i) ‘P’ agrees to sell his car to ‘Q’ for Rs.50,000 Here ‘Q’s Promise to pay Rs50,000 is the
consideration for P’s promise and ‘P’s promise to sell the car is the consideration for
‘Q’s promise to pay Rs.50,000.
to pay him Rs.10,000 more. Here the abstinence of ‘A’ is the consideration for ‘B’s
Promise to pay.
1. Consideration must move at the desire of the promisor.
D constructed a market at the instance 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. Durga Prasad v. Baldeo
2. Consideration may move from the promisee or any other person who is not a party to the
contract. [Chinnaya’s v. Ramayya]
A owed Rs.20,000 to B. A persuaded C to sign a Pro Note in favour of B. C promised B that he
would pay the amount. On faith of promise by C, B credited the amount to A’s account. Held,
the discharge of A’s account was consideration for C’s promise. National Bank of Upper India v.
Bansidhar
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
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
(iv) illusory
5. Must be legal:-
Consideration must not be unlawful, immoral or opposed to public policy.
6. Consideration need not be adequate. A contract is not void merely because of the fact that
the consideration is inadequate. The law simply requires that contract should be supported by
consideration. So long as consideration exists and it is of some value, courts are not required to
consider its adequacy.
Example:
A agreed to sell a watch worth Rs.500 for Rs.20, A’s consent to the agreement was freely given.
The consideration, though inadequate will not affect the validity of the contract. However, the
inadequacy of the consideration can be considered in order to know whether the consent of the
promisor was free or not. [Section 25 Explanation II]
7. The performance of an act what one is legally bound to perform is not consideration for
the contract mean’s something other than the promisor’s existing obligation -
A contract not supported by consideration is void.
Exceptions to the Rule “No consideration. No contract”.
1. Written and registered agreements arising out of love and affection:- [25 (1)]
document
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.
Exception: Rajlukhy Dabee v. Bhootnath Mukharjee
Example:
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)]
Ex. Nudo Pacto non oritur actio i,e, an agreement without consideration is void.
Something which the promisor was legally compellable to do.
Example :-
3. Promise to pay a time - barred debt. [Sec 25(3)]
any consideration.
Examples
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. Remission (63).
8. 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.
FREE CONSENT
Free consent
Effect of absence of Free Consent :-
(a) Committing any act which is forbidden by the IPC

(b) Threatening to commit any act which is forbidden by the IPC.
(c) Unlawful detaining of any property or
(d) Threatening to detain any property.
Essential elements of coercion
(e) coercion need not necessarily proceed from party to contract.

(f) Coercion need not necessarily be directed against the other contracting party.
(g) It is immaterial whether the IPC is or is not in force at the time or at the place where the
an act of coercion.
UNDUE INFLUENCE [SECTION 16]
No. Presumption of Domination of will:-
Effect of Threat to commit suicide:- Threat to commit suicide amounted to coercion and the
release deed was example discussed in class.
Therefore voidable. [Chikham Ammiraju v Seshama]
Duress V Coercion
English Law - Duress does not include detaining of property or threat to detain property.
- Duress can be employed only by a party to the contract or his agent.
Effect:- when coercion is employed to obtain the consent of a party the contract is voidable at the
option of the party where consent was obtained by coercion.
A threat to strike by employees in support of their demands is not regarded as coercion. This
is because the threat to strike is not an offence under the I.P.C. it is a right given under the Industrial
Disputes Act.
Detaining property under mortgage: Detention of property by a mortgagee until the payment of loan
does not amount to coercion.
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 .
Presumption of domination of will:-
Circumstances Examples
Where he holds a real or apparent authority Master and servant, parent and child, Income Tax
over the other
Teacher.
relation to the other solicitors and clients. Guardian and wards

Mental Capacity of a person is temporarily or Relationship between medical attendant and ward.
permanent effected by reason of age, illness
or mental or bodily distress
of the party whose consent was so caused.

Burden of Proof:-
condition:-
Unconscionable transactions:- if transaction appears to unreasonable the dominant party to
Any other transaction:-

Where some transaction is entered into in the ordinary course of business, but due to certain
contingencies, one party is able to make the other party agree to certain terms and conditions then it is
Example:
A applies to a banker for a loan at a time when there is stringency in the money market. The banker
declines to make the loan except at an unusually high rate of interest. A accepts the loan on these
terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue
A spiritual guru induced his chela to donate all his property to the ashram and said that in return of
it becomes void.
Burden of Proof - Full disclosure is made to pardanashin women

Pardanashin Women - Understand the contract
- Receipt of competent independent advice .
Rebutting presumption:-
Contract with Pardanashin woman;-
Similarities: - Voidable at the option of aggrieved party:-

Coercion (15)
Meaning - using or threat to use physical Involves use of moral force (mental pressure)
force
Obtain the consent of party (intention) Obtain an unfair advantage (intention)
Punishment under IPC Not criminally liable
Parties - Stranger Between the parties to the contract
Relationship - Immaterial One party dominate the other party
Voidable at the option of aggrieved party Voidable or court set aside
FRAUD (17)
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.
Essentials of fraud :-
(a) By a party to the contract
(c) The representation must be false.

(d) Before conclusion of contract.
(e) The misrepresentation must be made willfully.
(f) The misrepresentation must be made with a view to deceive the other party.
(g) The other party must have actually been deceived.
(h) The other party have suffered a loss.
Ex. A furniture dealer conceals the cracks in furniture by polish work.
Effect of Fraud:-
Ex:- T bought a cannon from H. It was defective, but H had plugged it. T did not examine the
cannon, but it burst when he used it. Held as the plug had not deceived T, he was liable
to pay for the cannon.
Ex.: Where the representation was true at the time of when it was made but becomes untrue
before the contract is entered into and this fact is known to the party who made the
representation. If must be corrected. If it is not so corrected it will amount to be fraud.
When the silence amount to fraud:-
(a) General rule:- Mere (only) Silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud where the circumstances of the case are such that regarding being had
to them. It is duty of the person keeping silence to speak. Such duty arises in the following two
cases.
e.g. father and son,
(requiring utmost good faith), e.g. contracts of insurance.

Ex.:- A sells by auction to B a horse which A knows to be unsound. B’ is A’s daughter and has just
come of age. Here the relation between the parties would make it A’s duty to tell B, the horse is
unsound.
(2) When silence itself equivalent to speech. B says to A “ if you do not deny it I shall assume that
the horse is sound”. A say nothing - A’s silence equivalent to speech. A can held liable to fraud.
[Half Truth is worse than a blatant: -
Sec. 19: A contract induced by fraud is voidable at the option of the party defrauded. Till the
exercise of such option, the Contract is valid.
1. Rescinds of contract
2. Right to insist upon performance
3. Right to claim damages - if he suffered loss.
Exception : The contract is not voidable in the following cases.
of discovering the truth with ordinary diligence.
MISREPRESENTATION (SECTION 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 false representation made innocently. An agreement
his connivance or by agent) to the contract does not affect the validity of the contract.
(b) The misrepresentation was made innocently i.e. it was not made with a view to deceive the
other party.
(c) The other party has actually acted believing the misrepresentation to be true.
Misrepresentation include:-
misrepresentation
(1) Right to Rescind contract:-
Can’t do
interest in the property passing under the contract.
(2) Right to insist upon performance.

Ex.:- Unlike Fraud he cannot sue for damage.
Fraud (17) Misrepresentation (18)
meaning :- wrongful representation is made Meaning - innocently without any intention to
Willfully to deceive the party. Deceive the other party.
Knowledge of falsehood. The person making the wrong statement
The person making the wrong statement does believes it to be true.
not believe it to be true.
Right to claim damage
Means of discovering of truth Can’t claim damage
In case of fraud the contract is voidable even In case of misrepresentation the contract is
though the aggrieved party had the means of not voidable if the aggrieved party had the
discovering the truth with ordinary diligence. means of discovering the truth with ordinary
Exception :- Silence diligence....
MISTAKE
Mistake Erroneous Belief about some facts
One party Under Both parties under

Mistake of fact Mistake of facts the contract is valid same as mistake fact
The contract is valid the contract is void
Exception: - Where contract is not valid (void)

1. Identity of persons contract with
Ex.:- A woman, falsely misrepresenting herself to be wife of a well known Baron obtained two
buying. She pledged them with a broker who took them in good faith. Held that there was no
contract between jeweler and woman and even an innocent buyer or a broker did not get a
good title. Broker must return necklaces to jeweler. Jeweler intended to deal not with her but
with quite a different person, i.e., wife of a Baron.
2. As the nature of the contract
Ex.:- Illiterate man sign Bill of exchanges by means of false, representation that it was a mere
guarantee. It was held that he was not liable for bill of exchange because never intended to
sign the bill of exchange
Bilateral Mistakes:-
Subject matter Possibility
Existence Quantity Quality Prices Identity Title Legal Physical
(a) It is forbidden by law -
under the authority given by a statute.
Ex.:- A sold liquor without license to B. The sale is unlawful as the sale of liquor without license is
forbidden by the law, i.e., The Excise Act. Hence, A cannot recover the price.
Ex.:- a Hindu already married and his wife alive entered into a marriage agreement with Y an
unmarried girl. The agreement is void because the second marriage is forbidden by Hindu
Law.
(b) If it defeats the Provisions of any Law.
- not directly prohibited by any Law
Ex.:- A’s estate is sold for arrears of revenue under the provision defaulter is prohibited from
purchasing the estate upon an understanding with A becomes the purchaser and agrees to
convey the estate to A . Upon receiving from him the price which B has paid. The agreement
is void.
(c) If it is Fraudulent
Ex.:- Object or consideration of an agreement is fraudulent. An agreement with such an object or
consideration is unlawful and void.
(d) If it involves or Implies injury to a person or property of another.
Ex. :- Where it create injury to a person or to the property of another. An agreement with such an
object or consideration is unlawful and void.
(e) If the court regards it as immoral.
1. Partially unlawful Object or consideration [Sec. 24]: An Agreement is void if -

(a) any part of a single consideration for one or more objects is unlawful; or
(b) any one or any part of one of several consideration for a single object, is unlawful.
2. Example: B is a licensed manufacturer of permitted chemicals. A promise B to supervise B’
s business and combine it with the production of some contraband items together with the
permitted items. B promises to pay A, Salary of Rs.10,000 p.m. Agreement is void, object of
A’s promise and consideration for B’ s promise being partially unlawful.
3. Lawful Consideration enforceable: When there are several distinct promises made for
one and the same consideration and one or more of them are of such nature that law will not
enforce it, only such of the promises as are unlawful cannot be enforced. Other which are
lawful, can be enforced.
4. Test of Severability:
(a) If illegal part cannot be severed from legal part of a covenant, contract is altogether
void.
(b) If it is possible to severe them, whether the illegality be due to Statute or Common Law,
bad part alone may be rejected and good retained.
In case of pre - existing civil liability, the dropping of criminal proceedings need not necessarily
be a consideration for the agreement to satisfy that liability. Union Carbide Corpn. v. UOI
EVERY AGREEMENT OF WHICH THE OBJECT OR
CONSIDERATION IS UNLAWFUL IS VOID [SEC 23]
Illegal agreement - Void - ab - intio
Punishable by the criminal Law of the country or by any special legislation regulation effect of illegal
agreement.
Collateral transactions - illegal
No action can be taken for the recovery of money paid or property transferred.
If illegal part can’t be separated from the legal part.
If separated
Legal part - enforces illegal part - reject.
Reciprocal promises - In respect of reciprocal promises the agreement as to illegal promise is void.
Agreement opposed to public policy:-
Alternative promises: where in alternative promises one part is illegal, only the legal part can be
Champerty & Maintenance :

2(g) - Void agreement is an agreement which is not enforceable by Law - void - ab - inito.
(12) An agreement to enter into an agreement in the future.

Every agreement in restraint of marriage of any person other than a minor, is void, Any restraint of
marriage whether total or partial is opposed to public policy.
Ex. A promised to marry else except Mr. B, and in default pay her a sum of Rs.1,00,000. A married
someone else and B sued A for recovery of the sum. Held, the contract was in restraint of marriage, and
as such void.
Ex. The consideration under a Sale Deed was for marriage expenses of a minor girl aged 12. Held
the sale was a void transaction being opposed to public policy.
Ex. Two co-widows - agreement - if one of them remarried - she should forfeit her eight to her share
in the deceased husband’s property was not void because no restraint was imposed upon either of the
two widows from remarrying.
Ex. Wife to divorce herself and to claim maintenance from the husband on his marrying a second
wife was not void because no restraint was imposed upon husband from marrying a second wife.
Every agreement by which anyone is restrained from exercising a Lawful profession, trade or
business of any kind is void .
Burden for Proof :-
Party supporting the contract:- must show that the restraint is reasonably necessary to protect
public interest. Party challenging the contract:- restraints is injurious to the public.
Ex. : In Patna, 29 out of 30 manufacturers of combs agreed with R to supply combs only to him and
not to anyone else. Under the agreements R was free to reject the goods if he found no market for them.
Held, the agreement amounted to restraint of trade and void.
VOID AGREEMENT
Agreement in Restraint of marriage [26]
Exception to Sec. 27
(1) Sale of goodwill: - Seller of goodwill of a business may agree with the buyer to restrain from
carrying on business.
(a) Must relate to same business
(c) Restriction shall apply within a reasonable time period
(a) Restriction on existing partner [11(2)]
(b) Restriction on outgoing partner [36]

Not carry on a similar business after retirement
(c) Sec. 54: Upon or in anticipation of dissolution of Firm. Partners may agree that some or all
limits.
(d) Sec. 55(2) : Partner may agree with due buyers of Goodwill, not to use the Firm name or
carry on Firm’s business or solicit clients of the Firm.
(e) Sec. 55(3): Upon sale of Firm’s Goodwill, a partner may agree that he will not carry on any
Exception under judicial interpretations :-

(a) Trade combination.
and control of dealers, etc. are valid even if they are in restraint of trade.
avoid competition, they are against public policy and hence void.
(b) Sale dealing agreement: - Agreements to deal in the products of a single manufacturer or to sell
the whole produce to a single dealer are valid if their terms are reasonable.
Ex.: (Discuss in class)
Agreement - buyer of goods for Delhi market not to sell them in Chennai is valid.
(c) Service agreement.
Agreement: Employers may enter into agreements with employees - (i) not to engage in
other work during the tenure of his employment; or (ii) not to engage in similar work after his
termination.
During Employment:
practicing allowances to avoid practicing when they are employed in a hospital.
After termination of service: The second restraint is valid only if it is to protect the trade
interests of the employer. It may be imposed to prevent the outgoing employee from using
trade secrets he had learnt during his tenure, to the detriment of his previous employer.
Valid Agreements : Requiring employees to serve the organization for a few years after
training leaving; or execution of a bond requiring employees leaving the organization to pay
compensation to the employer are valid.
Use of Personal Skills: The employer cannot prevent the employees from using his personal
theatre plays or in performing an art.

Agreement restricting enforcement of rights:
An agreement by which any party is restricted absolutely from enforcing his legal rights under any
contract is void.
Agreements Limiting period of limitation:- An agreement which limits the time within which an action
may be brought is void.
A partial restrain is not void, eg.
Ex. 1: A clause in a contract that any dispute arising between the parties shall be subject to
jurisdiction of a court at a particular place only, is valid.
Ex. 2: An agreement is not void merely because if provides that any dispute arising between two
or more person shall be referred to arbitration.
That has arises.
Which may arise
Which has already arisen?
Ex. 3: An agreement not to go in appeal to higher court against the judgment of a lower court not
amount to restraint of legal proceeding.
1. An agreement is called an uncertain agreement when the meaning of that agreement is not
certain or capable of being certain. Such agreements are declared void u/s 29.
2. Areas of uncertainty: Uncertainty may relate to - (a) Subject Matter of Contract; or (b) Terms
of contract.
(a) Subject Matter: There may be uncertainty as regards - (i) existence; (ii) quantity (iii)
quality; (iv) price; or (v) title to the subject matter.
(b) Terms of Contract: There may be uncertainty as regards - (i) existence (ii) quality; (iv)
price; or (v) title and other terms in the contract.
Example:
1. A says to B “I shall sell my house; will you buy?” A says, “Yes, I shall buy”. Due to uncertainty
of price, the agreement is void and unenforceable. There is no binding contract.
2. A agreed to pay a certain sum, when he was able to pay. Held, the agreement was void for
uncertainty.
3. D agrees to sell his white horse, for Rs.5,000 or Rs.10,000. - void.
AGREEMENT IN RESTRAINT OF LEGAL PROCEEDINGS [28]
An agreement the meaning of which is not certain (Sec 29):
An agreement between two persons under which money or money’s worth is payable by one person
to another on the happen or non happening of a future uncertain event is called a wagering agreement.
Wagering agreement is promise to give money or money’s worth upon the determination of
uncertain event.- Sir Willian Anson.
(1) There must be a promise to pay money or money’s worth
(2) Performance of a promise must depend upon determination of uncertain event. It might have
already happened but the parties are not aware about it.
(3) Mutual chances of Gains or Loss.
(4) Neither party to have control over the events
(5) Neither party should have any other interest in event.
(6) One party is to win and one party is to lose.
Ex. 1:- Agreement to settle the difference between the contract price and market price of certain
goods or shares on a particular day.
Ex. 2: A lottery is wagering agreement. Therefore, an agreement to buy and sell lottery tickets is a
wagering agreement. Section 294 - A of the Indian Penal Code declares that drawing of lottery
is an offence. However, the government may authorize lotteries. The persons authorized to
conduct lotteries are exempt from the punishment. But, the lotteries still remain a wagering
transaction.
Ex. 3: However, if the crossword puzzle prizes depend upon sameness of the competitor’s solution
with a previously prepared solution kept with the organizer or newspaper editor, is a lottery
and, therefore, a wagering transaction.
Ex. 4: However, when any transaction in any commodity or in shares with an intention of paying or
getting difference in price, the agreement is a wager.
agreement.
WAGERING AGREEMENT [30] :-

Agreement not held as wagers:-
Essential elements of wagering agreements
pure speculative transaction. A commercial transaction is done with an intention of delivery of

goods (commodity or security) and payment of price. Therefore, it is not wagering agreement.
of a competition and prize depend upon the result, the competition is not Involve applications
of skill and prizes are awarded to the participants on the basis of merit of their solutions and
not on chance. Therefore, such competitions are valid and are not wagers.
wagers.
Example:
A and B, two wrestlers, agreed to enter into a wrestling contest in Ahmedabad on a certain
and the winning party will receive a sum of Rs.1,000. Held, it was not a wagering agreement.
draw of lots.
crime.
It is always void.
Any collateral transaction to illegal agreement is also void.
No action is allowed on illegal agreement.
Void Agreement Illegal agreement
Meaning Not enforceable by Law Forbidden by any law
One in another All void agreement is not illegal All illegal agreement are void
Reason 10,29,56 Against the provisions of law
Punishment Not liable to punished Party are criminally liable
Void - ab - initio A valid - collateral - is not void Illegal, collateral - illegal
CONTINGENT CONTRACT
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
Essential features of a contingent contract :-

(a) It is a contract to do or not to do something
(b) Dependent on happening or non happening of an event
(c) Such on event is a collateral event (i.e. it is collateral) to the contract i.e. the event must not
depend upon the mere will of party.
(d) The event is uncertain
CONTINGENT UPON
(1)
Void -
Ex.:- A contract to pay B a sum of money when B marries he dies without being married to B
contract - void
(2) Non happening of a future event:- [33]
Enforced :- when the happening of such events becomes impossible.
Void:- such event has happened.
Ex.:- A agrees to pay B sum of money if a certain ship does not return. This ship is sunk. The
contract can be enforced when the ship sinks.
Happening of Uncertain Future Event
Future conduct of a living person
Non - Happening of Uncertain Future Event
Impossible Events
Rules regarding contingent contract.
Enforce :-
Void :-
A promise to pay B sum of money if a certain ship return within a Year

Enforce :- ship returns within the year .
Void :- If the ship is burnt within the year / not come within the year.
Enforce :-
time.
Void:-
(5) Future conduct of a living person. [34]
Enforced:- When such person acts in the manner as desired in the contract.
Void :- When such person does anything which makes the desired future conduct of such person
- impossible - dependent upon certain contingency.
A agrees to pay B a sum of money if B marries C . C married D. The marriage of B to C must now
considered impossible, although it is possible that D may die any that C may afterwards marry B.
(6) Impossible events [36]
was known to the parties or not is immaterial.

A agrees to pay B Rs.1,000 if two parallel straight lines should enclose a space. Agreements
are void.
A agrees to pay B Rs.1,000 if B will marry A’s daughter C and C was dead at the time of the
agreement. Agreement is void.
Wagering agreement Contingent agreement
2. Meaning Promise to give money or money’s To do or not to do something if

worth upon the determinative of an some event. Collateral to such
uncertain event. contract does or does not happen.
3. Nature of uncertain event Contingent nature Not be a wagering nature
4. Void / valid. Void Valid
5. Interest No other interest in the subject Have real interest outcome of
matter of the agreement except the uncertain gain. A contingent
within of loss of wagering amt. A contract the not be a wagering
wagering agreement is essentially nature. Not consist a reciprocal
of a contingent nature. Consists of promises future event is fully
reciprocal promises futures event is collateral.
the sole determine factor
Sec 37:- That the parties to a contract must either perform or offer to perform, their respective
promises unless such performance is dispensed with or excused under the provisions of contract Act,
or of any other law.
Performance: - Two types
1. Actual performance - actually performed - liability of such a party comes to an end.
2. Attempted performance or tender of performance refusal to accept offer of performance by
Promisor performance of Offer promisee accept not Does attempted performance

Promisor is not responsible for non performance and they can sue the promisee for breach of
contract - nor he (promisor) thereby lose his rights under the contract.
A. Tender or offer of performance to be valid must satisfy the following conditions:-
(i) It must be unconditional
Ex :-
amount of principal and interest is not offered.
(ii) It must be made at a proper time and place.
Ex:- If the promisor wants to deliver the goods at 1 am. This is not a valid tender unless it
was so agreed;
(iii) Reasonable opportunity to examine goods.
Ex:- Delivery of something to the promisee by the promisor. Promisee must have reasonable
opportunity of inspection.
(iv) It must be for the whole obligation :- goods and amount.
Ex:-
(v) It must be made to the promisee or his duly authorized agent.

Ex:- It must be person who is willing to perform his part of performance.
(vi) In case of payment of money, tender must be of the exact amount due and it must be in the
legal tender.
PERFORMANCE
Essential of Valid tender
Unconditional
At a proper place
For whole obligation
Of exact amount and in legal tender money
At proper time
Reasonable opportunity to Promisee
Tender or offer of performance to be valid must satisfy the following conditions:-
(i) It must be unconditional
Ex :-
amount of principal and interest is not offered.
(ii) It must be made at a proper time and place.
Ex:- If the promisor wants to deliver the goods at 1 am. This is not a valid tender unless it
was so agreed;
(iii) Reasonable opportunity to examine goods.
Ex:- Delivery of something to the promisee by the promisor promisee must have reasonable
opportunity of inspection.
(iv) It must be for the whole obligation :- goods and amount.
Ex:-
(v) It must be made to the promisee or his duly authorized agent.

Ex:- It must be person who is willing to perform his part of performance.
(vi) In case of payment of money, tender must be of the exact amount due and it must be in the
legal tender.
Who can demand performance
1. Promisor himself :- include personal skill, taste or art work.

Ex:- ‘A’ promises to paint a picture for ‘B’ as this promise involves personal skill of ‘A’. It must
be performed by ‘A’.
2. Promisor or agent :-
3. Legal Representative:-
Type of Tender
Tender of goods and services
When a promisor offers to delivery of goods or service to the promisee, it is said to be tender of
goods or services, if promisee does not accept a valid tender, It has the following effects:
(i) The promisor is not responsible for non - performance of the contract.
(ii) The promisor is discharged from his obligation under the contract. Therefore, he need not
offer again.
(iii) He does not lose his right under the contract. Therefore, he can sue the promise.
Tender of money is an offer to make payment. In case a valid tender of money is not accepted, it
will have the following effects:
(i) The offeror is not discharged from his obligation to pay the amount.
(ii)
The offeror is discharged from his liability for payment of interest from the date of the tender
of money.
Person by whom promise is to be performed Sec 40.
1. Promisor himself :- include personal skill, taste or art work.
Ex:- ‘A’ promises to paint a picture for ‘B’ as this promise involves personal skill of ‘A’. If must
be performed by ‘A’.
2. Promisor or agent :-
3. Legal Representative:-
Performance of Joint Promises:-

4. Third person [Sec 41] :- Acceptance of promise from the third party:-
If the promisor accepts performance of a contract by a third party, he can’t after wards enforce the
third party.
Two or more person make a promise

Performed by all the joint promisor [42]
In England, however the liability of the joint promisors is only joint and not several and accordingly all the
joint promisors must be sued jointly.
Liability of joint promisor [43]
1. Liability -
B or C or any of two of them or all of them.
2. Where a joint promisor has been compelled to perform the whole promise, be 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).
C - 9000 - D A + B - C
3000 3000
3. If any one of the joint promisors make default in such contribution, the remaining joint promisors
must bear the loss arising from such default in equal shares
A + B + C - 9000 (A) - Insolvent
B + C = 4500 + 4500 = 9000
Sec 44:- Release of one joint promisor :-
Sec 45:-
1. During their joint lives - all the joint promisors .

2. After the death of any of them - The representative of such deceased promise jointly with the
surging promise
3. With the representatives of all jointly.
Ex:- ‘A’ in consideration of Rs 50,000 lent to him by ‘B’ and ‘ C’ promises ‘B’ and ‘C’ jointly to
during ‘C’ life.
from the promisee the performance must be made within a reasonable time. Reasonable
time - in each particulars case - a question of fact.
promisee
place at which the promise ought to be performed.
by the promise [49]
the performance and perform it at such appointed place.

5. Performance in manner or at time prescribed or sanctioned by promise [50]
Ex:- ‘A’ desires ‘B’ who owes him Rs 10,000 to send him a promissory note for Rs 10,000
by Post. The debt is discharged as soon as ‘B’ puts into the post a letter containing the
promissory note duly addressed to ‘A’.
Reciprocal Promise :-
Promises which form the consideration or part of consideration for each other as called reciprocal
promises.
1. Mutual and Independent:- Such promises all to be performed by each party independently
without waiting for the other party to perform his promise can’t excuse himself on the ground
of non-performance by the default party.
Y - Price - non Payment
2. Mutual and Dependent:- Sue damage . The performance of promise by one party depended
on the prior performance of the promise by other party.
3. Mutual and concurrent: - when reciprocal promises are to be performed simultaneously a
TIME PLACE AND MANNER OF PERFORMANCE[46-50]
PERFORMANCE OF RECIPROCAL PROMISES
Order of performance of reciprocal promises [52]
contract - they must be performed in that order.
Ex :-
the house must be performed before its promise to pay for it.
Sec 53 :- One party preventing - voidable at the option of the other party so prevented.
Sec 54 :- Legal and illegal

Legal - valid, illegal - void
Sec 58:- alternative promise, one branch being illegal legal branch alone can be enforced.
A - B - 1000 rupees
Deliver - rice + smuggled goods
Where time is essence - the concerned parties must perform their respective promises within
Time are fact :-

to prove that time is essence of the contract.
TIME IS GENERALLY CONSIDERED TO BE THE ESSENCE OF THE CONTRACT :-

(a) where the parties have expressly agreed to treat as the essence of the contract.
(b) Delay operates as an injury to the party and
Delivery of the goods - considered - essence of the contract payment of the price - No
Time is essence of the contract - party fails to perform

In time - the contract becomes voidable at the option the other party.
Time is not essence - only claim damages for delay in performance
TIME AS THE ESSENCE OF THE CONTRACT (SEC 55):-

Assignment of contract :-
(a) By - operation of law
(b) By an act of parties

Assignment is a mode of transferring rights.
Assignment and transferring of rights from one person to another.Rules regarding assignment
(a) The liabilities or obligations under a contract can’t be assigned
(c) An actionable claim can always be assigned

Succession Assignment
Meaning Deceased person - Legal Person - another person
represent
Time On the death of a person During the life time of a person
Voluntary Act Not voluntary automatic by Voluntary
operation of law
Written document Not required Required assignment deed
Scope Liability and rights Rights
Appropriation means application of payments - The question of appropriation of payments
arises when a debtor owes several debts to the same creditor and make a payment that is not
1. Appropriation of Payments
Sometimes, a debtor owes several distinct debts to the same creditor and he makes a payment
debt the payment is to be appropriated. Section 59 to 61 of the Act lay down following rules as to
appropriation of payments which provide an answer to this question.
Every debtor who owes several debts to a creditor has a right to instruct his creditor to which
particular debt, the payment is to be appropriated or adjusted. Therefore, where the debtor expressly
states that the payment is to be applied to the discharge of a particular debt, the payment must be
applied accordingly.
Example : A owes B three distinct debts of Rs.2,000, 3,000 and 5,000. A sends Rs.5,000 and
instructs B that the payment should be appropriated against the third debt. He is bound to appropriate
the payment against the third debt only.
Appropriation of Payments :- [ Sec 59 - 61]
2. Application of payment where debt to be discharge is not indicated [60]
If section 60 is attracted, the creditor shall have the discretion to apply such payment for any lawful
debt which is due to him from the person making the payment.
Example: A owes to B, among other debts, the sum of Rs.520. B writes to A and demands payment
of this sum. A sends to B Rs.520. This payment is to be applied to the discharge of the debt of
which B had demanded payment.
3. Application of payment where neither party appropriates [61]
The payment shall be applied in discharge of the debts in order of time whether they are or are not
based by the limitation Act 1963, if the debt are of equal standing (i.e. payable on the same date)
the payment shall be applied in discharge of each of these debt proportionately.
Example: A owes B, the following debts:
Amount of Positions of the debt the debt
Rs.2,000 Time barred
Rs.1,000 Time barred
Rs.2,000 Due on 10th June
Rs.3,000 Due on 20th September
A sends Rs. 1,500 in the month of June. He neither expressly intimates nor circumstance of the
case imply as to which debt the amount is to be applied. Moreover, B also does not appropriate the
payment at his own discretion. Therefore, the payment will be appropriated in order of time. However,
here in this case two debts are of equal standing. The payment will, therefore, be appropriated in order
debts of equal standing proportionately, i.e. in the ratio of 2:1.

Discharge by performance
Discharge of a contract means termination of contractual relation between the parties to a contract
in other words a contract is discharged when the rights and obligations created by it are extinguished (i.e.
prescribed in the contract.

(a) Actual performance - no party remains liable under the contract. Both the parties performed.
(b) Attempted performance or tender.:- Promisor offers to perform his obligation under
the contract but the promise refuses to accept the performance. It is called as attempted
performance or tender of performance
DISCHARGE OF A CONTRACT
Mode of discharge of contract
1. By performance
By impossibility of performance
By lapse of Time
By breach of contract
2. By mutual agreement
(By implied consent)
1. Novation - Sec 62
2. Rescission - Sec 62
3. Alteration - Sec 62
4. Remission - Sec 63
5. Waiver
6. Merger
3. By Operation of law
1. Death
2. Merger
3. Insolvency
4. Unauthorized alteration
4. Discharge by mutual agreement
(a) Novation [Sec 62] - Novation means substitution of a new contract in the place of the original
contract new contract entered into in consideration of discharge of the old contract. The new
contract may be.
(1) All the parties must consent to novation

(2) The novation must take place before the breach of original contract.
(3) The new contract must be valid and enforceable.
Example:
A owes B Rs.50,000. A enters into an agreements with B and gives B a mortgage of his estate for
Rs.40,000 in place of the debt of Rs.50,000. (Between same parties)
A owes money Rs.50,000 to B under a contract. It is agreed between A, B & C that B shall henceforth
accept C as his Debtor instead of A for the same amount. Old debt of A is discharged, and a new
debt from C to B is contracted. (Among different parties)
(b) Rescission [62]:- Rescission means cancellation of the contract by any party or all the parties
contract.
(c) Alteration [62] :- Alteration means a change in one or more of the terms of a contracts with
mutual consent of parties the parties of new contracts remains the same.
Ex:-
contract has come into effect.

(d) Remission [63]:- Remission means accepting a lesser consideration than agreed in the
contract. No consideration is necessary for remission. Remission takes place when a
Promisee-
(a) dispense with (wholly or part) the performance of a promise made to him.
(b) Extends the time for performance due by the promisors
(c) Accept a lesser sum instead of sum due under the contract
(d) Accept any other consideration that agreed in the contract
perform the promise.

(e) Waiver:- Intentional relinquishment of a night under the contract.
Discharge by operation of law
(f) Merger :- conversion of an inferior right into a superior right is called as merger.(Inferior right
end)
Basis Novation Alteration

1. Meaning It is substitution of an existing It is alteration to some of the
contract with new one. terms and conditions of the
original Contract.
2. Change in parties It is made by - (a) change in Terms of the contract may be
the terms of the contract or altered by mutual agreements
(b) change in the Contracting by the same contracting
Parties. parties. So, there is no change
in the parties.
3. New Contract A New Contract comes into It is not essential to substitute
existence in place of the old a new contract in place of the
one. old contract.
4. Performance Old contract need not be Old contract as per the altered
performed New contract must terms shall be performed.
be performed.
Discharge by operation of law
(a) Death :- involving the personal skill or ability, knowledge of the deceased party one discharged
automatically. In other contract the rights and liability passed to legal representative.
Example : A promises to perform a dance in B’s theatre. A dies. The contract comes to an end.
(b) Insolvency:- when a person is declared insolvent. He is discharged from his liability up to the date
of insolvency.
Example:
nothing to sell, A applies for insolvency and is adjudged insolvent. Contract is discharged.
(c) By unauthorized material alteration - without the approval of other party - comes to an end -
nature of contract substance or legal effect.
Example : A agrees upon a Promissory Note to pay Rs.5,000 to B. B alters the amount as Rs.50,000.
A is liable to pay only Rs.5,000.
(d) Merger: When an inferior right accruing to a party in a contract mergers into a superior right
accruing to the same party, then the contract conferring inferior right is discharged.
Example: A took a land on lease from B. Subsequently, A purchases that land. A becomes owner
of the land and ownership rights being superior to rights of a lessee, the earlier contract of lease
stands terminated.
5. Rights and liabilities vest in the same person:
Where the rights and liabilities under a Contract vest in the same person, the contract is discharged.
Example: A Bill of Exchange which was accepted by A, reaches A’s hands after being negotiated
and endorsed through 4 other parties. The contract is discharged.
Discharge by Lapse of time
Where a party fails to take action against the other party within the time prescribe under the
limitation Act, 1963. All his rights to come end. Recover a debt - 3 Years recover an immovable property
- 12 years
Ex.:-
2004. State the legal position on 1st August 2004
(a) If no. credit period allowed and
(b) If 2 month credit period allowed.
Failure of a party to perform his part of contract
(a) Anticipatory Breach of contract :- Anticipatory breach of contract occurs when the part
declares his intention of not performing the contract before the performance is due .
(i) Express repudiation: -
15.01.2006 on 31.12.2005. 5 express his unwillingness to supply the iron to B.
(ii) Party disables himself: - Implied by conduct.
Ex.:-
(b) Actual Breach of contract :- If party fails or neglects or refuses to perform his obligation on
the due date of performance or during performance. It is called as actual breach.
During performance - party has performed a part of the contact.
Consequences of Breach of contract:- The aggrieved party (i.e. the party not at face it ) is discharged
from his obligation and get rights to proceed against the party at fault. The various remedial available to
an aggrieved party.
(a) Effect of Initial Impossibility
(b) Effect of supervening. Impossibility
(a) Initial Impossibility - at the time of making contract
(b) Effect of super vanity Impossibility:-
DISCHARGE BY BREACH OF CONTRACT

Remedies for Breach of contract.
Remedy means course of action available to an aggrieved party when other party breaches the
contract.
1. Rescission of contract
2. Suit for damage
4. Suit for Injunction

5. Quantum Meruit
Cases when a contract is discharged on the group of super vent Impossible
(a) Distraction of subject matter - Failure of the ultimate purpose of contract - king coronate
process.
(b) Death of personal Incapacity
(c) Declaration of war
(d) Change of Law
(e) Non existence or Non occurrence of a particular state of thing necessary for performance.
No Super Impossibility - does not become void
RESCISSION OF CONTRACT - SEC 39

SUIT FOR DAMAGES
Remedies for Breach of contract
5. Quantum Merit
4. Suit for Injunction
Remedy means course of action available to an aggrieved party when other party breaches the
contract.
Effect of Rescission of Contract
When can Court Grant Rescind Contract?

Court can rescind the contract in the following situation:
not to punish party as fault.

Hadley v. Baxendale.
The facts of case were - H’s mill was stopped due to the breakdown of the shaft. He delivered the
shaft to common carrier to repair it and agree to pay certain sum of repair it and agree to pay certain sum
1. Rescission of contract
2. Suit for damage
REMEDIES FOR THE BREACH OF CONTRACT
The following are the different kinds of damages:
These are the damages which are payable for the loss arising naturally and directly as result of
breach of contract. It is also known as proximate damage or natural damage.
These are damages which are payable for loss arising due to some special circumstances. It can
be recovered only if special circumstances which result in special loss in case of breach of contract and
party have notice of such damage.
Example: A sends sample of his products for exhibition to an agent of a railway company for
carriage to “New Delhi” for an exhibition. The consignment note stated: “Must be at New Delhi, Monday
Certain.” Due to negligence of the company, the goods reached only after the exhibition was over. Held,
the company was liable for the loss caused by late arrival of the products because the company’s agent
was aware of the special circumstances.
These damages are allowed not to compensate party but as mean of punishment to defaulting
party. The court may award these damages in the case of:
Breach of contract to marry - loss based on mental injury.
Wrongful dishonor of cheque - smaller amount, larger the damage.
Where party suffers no loss, the court may allow nominal damages simply to establish that party
has proved his case and won. Nominal damage is very small in amount.
If party has suffered physical inconvenience, discomfort for mental agony as result of breach of
contract, party can recover the damage for such inconvenience.
Example: A photographer agreed to take photographs at a wedding ceremony but failed to do so.
The bride brought an action for the breach of contract. Held, she was entitled to damages for her injured
feelings.
liquidated damage, or (b) penalty.
it is called liquidated damage.

disproportionate to the damages, it is called as penalty.
As regard the payment of liquidated damages and penalty court can’t’ increase amount of damages
KINDS OF DAMAGES
Example : A gives B, a bond for the repayment of Rs.1,000 with interest at 12 per cent, at the end
of six months, with a stipulation that, in case of default, the interest shall be payable at the rate of 75 per
cent, from the date of default. This is a stipulation by way of penalty, and B is only entitled to recover from
A such compensation as the Court considers reasonable.
Any clause in contract entitling the aggrieved party to forfeit security deposit in the nature of penalty
and court may award reasonable compensation.
It is permissible.
If interest is in nature of penalty, court may grant relief.
or as per custom or usage of trade.
The court has also discretion to award cost of suit for damages in addition to the damages for
breach of contract.
It means, demanding an order from court that promise agreed in contract shall be carried out.
SUIT FOR SPECIFIC PERFORMANCE
Where actual damages arising from breach is not measurable.

Where monetary compensation is not adequate remedy.
When damages are an adequate remedy.

Where performance of contract requires numbers of minute details and therefore not possible for
court to supervise.
Where contract is of personal in nature.
Where contract made by company beyond its power. (ultra - vires)
Where one party to contract is minor
Example : A agree to sell B, an artist painting for Rs.30,000. Later on, he refused to sell it. Here B
court, injunction may be granted.

Example: Film actress agreed to act exclusively for W for a year and for no one else. During the
SUIT FOR INJUNCTION

It means stay order granted by court. This order prohibits a person to do particular act.
court, injunction may be granted.

Example: Film actress agreed to act exclusively for W for a year and for no one else. During the
QUASI CONTRACT
[Contracts implied in law or implied contract]
It means a contract which lacks one or more of the essentials of a contract.
Quasi contract are declared by law as valid contracts on the basis of principles of equity i.e.
no person shall be allowed to enrich himself at the expense of another the legal obligations of parties
remains same.
Nature of Quasi contracts:-
(a) A quasi contract does not arise from any formal agreement but is imposed by law.
(b) Every quasi contract based upon the principle of equity and good conscience.
(c) A quasi contract is always a right to money and generally though not always to a liquidated
sum of money.
(e) The right grouted to a party under a quasi contract is not available to him against the whole
world but against particular person(s) only.
contract
(g) Although there is no contract between the parties under a quasi contracts, yet they are put in
the same position as if he were a contract between them .
Provisions relating to various quasi contracts are contained in section 68 to sec 72 of the con-
tract Act, 1872.
Sec. 68 Sec. 69 Sec. 70 Sec. 71 Sec.72
Supply of Reimbursement Obligation to pay Responsibility of Person receiving
Necessaries of money due Finder of Goods goods are money
non-gratuitous act by mistake
Sec. 68:
If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is
supplied by another person, with necessaries suited to his condition in life, the person who has furnished
such supplies is entitled to be reimbursed from the property of such incapable person.
1. Meaning of Necessaries:
(a) Necessaries normally include articles required to maintain a particular person in the state,
degree and station in life in which he is.
(b) They are essentials to run a life.
of such kind.
(d) Necessaries include Services rendered to a person.
(e) What constitutes necessaries depends on the circumstances of each case.
2. Only property liable: person not liable:
(a) It is only the property (movable and immovable) of the incapable person they shall be liable.
(b) He cannot be held liable personally.
(c) Where he doesn’t own any property, nothing shall be payable.
3. Example:
(i) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be
reimbursed from B’s property.
(ii) A who supplies the wife and children of B, a lunatic, with necessaries suitable to their condition
in life, is entitled to be reimbursed from B’s Property.
Payment By a person who is interested in a transaction [69]
Condition of section [69]
Sec. 69 : A person, who is interested in the payment of money and pays such money, which
another is bound by low to pay, is entitled to be reimbursed by the other.
(a) One party is legally bound to make a payment
(b) Some other persons make such payment
(c) The person making such payment is not legally bound to make such payment
(d) The person making such payment is interested in paying such amount
Legal effect of sec 69.:-
If all the conditions of sec 69 are satisfy the person who is interested in paying such amount shall
be entitled to recover the payment made by him.
Ex.:- The goods belonging to A were wrongfully attached in order to realize arrears of Government
revenue due by G. A paid the amount to save the goods from sale at was held that A was entitled to
recover the amount from G.
Conditions of section 70.

Sec.70 : Where a person, lawfully does anything for another person, or delivers anything to him;
to make compensation to the other in respect of, or to restore the thing so done or delivered.
(a) A person has lawfully done something for another person or delivered something to another
person.
(b) Such person must have acted voluntarily and non - gratuitously.
Legal effect of sec 70.
Ex.:- A a trades man leaves goods at B’s house by mistake, B treat the goods as his own, He
is bound to pay A for them.
show that be intended to act gratuitously.
GENERAL PRINCIPLES OF SPECIFIC RELIEF
THE OBJECT OF
Act, 1963 applies to the whole of India except the State of J&K.
civil right and not for enforcing a penal law. The act provides the following reliefs:
1. Recovery of possession of immovable and movable property;
4. Rescission of Contract Section; 27-30

5. Cancellation of Instruments; Section 31-33
6. Declaratory decrees; Section 34-35
7. Preventive relief or injunctions; Section 36-42
In Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125 the
The Court further explained the nature and scope of various kinds of remedies available to the breach
of contract.
In Sita Ram & Others v. Radhey Shyam AIR 2008 SC 143
a non-guilty party.
Recovery of Possession of Property Section 5-8
RECOVERY OF POSSESSION
Section 5 a person with a “better title’ is “entitled to possession’ on the basis of ownership or possession.
manner (Institution of Suit and execution of decree under Order 21, Rule 35 and 36) prescribed by the
Code of Civil Procedure 1908.
Illustration: If A enters into peaceful possession of land claiming it as his own although he might
have no title to it, still he can sue such person who has forcibly removed him from possession and who
has no better title to it, because A although he has no legal title as owner, has at least a possessory
title. The burden of proof is on the plaintiff to prove that he has a better title (Annapoorani Ammal v. G.
Thangapalam (1989) 3 SCC 287)
Essentials
2. He must not be the owner.

3. The plaintiff must be entitled to immediate possession.
4. Property must be capable of being seized and delivered.
5. Recovery of possession must be made in the same manner provided in C.P.C
In PratapraiN. Kothari v. John Brganza AIR 1999 SC 1666 the defend Defendant was in the
possession of an immovable property for a very long and continuous possession. It was held that such
person can protect his possessory right by applying an injunction against any person in the world except
the true owner. Such true owner can get back his possession only by restoring to the due process of law.
In Adapa Tatarao v. Chamantula Mahalakshmi 2006 the Court held that the plaintiff is not entitled
for recovery of possession and perpetual injunction at the same time and in the same claim.
Suits by Person Dispossessed of Immovable Property
Section 6
SECTION 6 IS ENACTED
possession is valid’. Thus a trespasser cannot recover possession under the section. Possession is
nine points in law. Thus possession confers good title against all the persons in the world except the
real owner. The civil suit for recovery of possession must be brought within 6 months, from the date of
The relief provided under this section is summary remedy.

In S.R. Ejaz v. T.N. Handloom Weavers Co-op. Society Ltd. (2002) 3 SCC 137 The
tenant proved that he was disposed and kept the matter pending for a long period. The Supreme
Court held that it was wrongful because it had defeated the very purpose of the summary remedy.
Essentials
1. Possession of plaintiff must be valid, at the time of dis-possession.
2. Plaintiff must have been disposed of immovable property.
3. To dispossession must not have been made as per law.
6. No appeal or review is allowed from any order or decree.

7. Process of recovery must be as per C.P.C
In Saraswathi v. S. Ganapathy AIR 2001 SC 1844 The Appellant and respondent had purchased
land in adjacent survey numbers. The Appellant encroached into the land of respondents and was in the
which they had never purchased under sale deed. The Supreme Court therefore held that the appellant
was not entitled for possession of property therefore the appeal was dismissed.
Procedure 1908. The burden of proof was on the plaintiff to prove his case. He cannot take advantage
of the weakness of the defendant’s case.
Essentials
1. The plaintiff must have right to possession.
4. Recovery suit must be made within three years
6. The process of recovery must be as per C.P.C

Who can Sue?
of person for whom the trust is created. Hence if trust property is taken away by someone, he
can recover it.
2. A person who has a special or temporary right to the present possession of movable property
In Bridge v. Hawkeswoth (1851) 21 LJ OB 75. The Defendant while purchasing some goods in
the currency notes. The Court held that even though the shop belonged to the defendant, the premises
should be treated as public place due to the accumulation of large number of customers. The defendant
had no possessory title. Hence the plaintiff was entitled to possession of currency notes found by him.
Liability to deliver possession to person entitled: Section 8: According to section 8 any person
having possession or control of a particular article of movable property without ownership, may be
compelled to deliver it to the person who is entitled to its immediate possession in any of the following
cases:
1. When the thing claimed is held by defendant as the agent or trustee of plaintiff
2. When compensation is inadequate relief for loss of thing claimed.
4. When possession of thing claimed has been wrongfully transferred from plaintiff. E.g. A gives
compelled to deliver it to A.
Essentials
2. He must not be the owner.

3. The plaintiff must be entitled to immediate possession.
4. Property must be capable of being seized and delivered.
5. The recovery of possession must be made as per C.P.C
Differences between Section 7 and 8
1. A person having/who has a special or 1. No suit can be brought against the owner
temporary right to possession may bring the
suit even against the owner of the property.
2. A decree is for either the return of movable 2. The decree is passed only for the return of the
property or for the money value may be
passed.
Austin:
in the form of a judgment that the defendant is to actually perform the contract according to its terms and
Nelson: The aggrieved party is entitled to insist on the actual performance of the contract or to
obtain satisfaction for the non-performance of it.
According to Austin the aggrieved party is entitled to insist on the actual performance of the
performance in the following circumstances:

1. When compensation is neither adequate relief or nor it is proper and reasonable to grant
compensation.
performance is subject salutary guidelines. The following fundamental principles are recognized and
generally applied by the Courts.
adequate relief.
supervision of the Court.
of equity. According to Section 9 the defendant may take all those defences, which are available to him
under any law relating to contract. e.g. defences such as incapacity of parties, fraud, mistake, undue
Essentials:
1. It is necessary to prove that are enforceable contract is in existence

2. It is necessary to prove that important provisions of the contract were certain
3. It is necessary to prove that the terms of the said agreement had been agreed or
4. It is necessary to prove that terms are settled orally but it need not be in writing
5. It is necessary that the contract in question should valid and enforceable
In Bishandayal & Sons v. State of Orissa AIR 2001 SC 544
In Raj Kishore (Dead) by Legal Representatives v. Prem Singh and others 2011 i SCC 657 it
ready and willing to perform essential terms of contract sought to be enforced against defendant.
In Pramod Buildings and Developers Private Ltd. v. Shanta Chopra 2011 4 SCC 741 the
willingness to perform his obligations in terms of contract.

In Aloka Bose v. Parmata Devi and Others 20092 SCC 582 the buyer made part payment on a
condition that the sale deed would be executed within three months and balance consideration money
would be paid at the time of execution of the sale deed. When buyer is ready to pay the balance amount
CONTRACTS WHICH ARE
in the following cases.

I. No standard to as actual damage: Section 10:
1. When there is no standard for ascertaining the actual damage caused by non-performance of
the act agreed to be done, or
2. When the act agreed to be done is such that compensation in money for its non-performance
would not afford adequate relief. e.g. A agrees to buy, and B agrees to sell, a picture by a
for there is no standard for ascertaining the actual damage which would be caused by its non-
performance.
II. No Standard to ascertain damages: Section 10(a):
Where there is no standard for ascertaining the actual damage caused by non-performance of the
III. Inadequacy of monetary compensation: Section 10(b):

When the act agreed to be done is such that compensation in money for its non-performance
house for Rs.1,00,0000/- B is entitled to a decree directing A to transfer the house to him, he paying the
purchase money.
In Veerayee Ammal v. SeeniAmmal (2002) 1SCC 134: AIR (2001) SC 2920 The parties did not
conclude the contract. The Supreme Court held that where there is no concluded contract between the
was not liable.

In Maharshi Dayananda University v. Anand coop L/C Society Ltd 2007AIR (SC) 2441 it was
held that so long as a formal agreement has not been entered into, it may be open to contend that there
was no concluded contract between the parties.
In Pramod Buildings and Developers Private Ltd v. Shanta Chopra 2011 4 SCC 741 held, in
obligations in terms of contract.

In Pramod Buildings and Developers Private Ltd v. Shanta Chopra 2011 4 SCC 741 the
willingness to perform his obligations in terms of contract.

In Abdul Rashid Khan v. P.A.K.A. Shahul Hamid (2000) 10 SCC 636 A joint owner of the property
executed a sale deed to the extent of his 5/6th share, who his co- sharer has not joined him to do so.
performance to the extent of his share.
1. Agreement to sell or transfer immovable property

2. Agreement to make lease
3. Agreement to sell with a condition for repurchase
4. Agreement to partition
5. Compromise of doubtful claims
6. Family settlement and agreement for sale of shares
7. A contract for the purchase of the share of a partner
contract.
Exceptions: Clauses (2) to (4) are the exceptions to such rule. Where the part which cannot be
performed bears only a small portion to the whole in value and the unperformed part can compensated
for the other.

In Surjit Kaur v. Naurata Singh AIR 2000
be granted to a party who has not been ready and willing at all stages to perform the contact. In such
later stage.
VI. Acquiring power of performance subsequently: Section 13: When a person enters into
a contract without the power for performing that contract and subsequently be acquire the power of
performing the same, he is bound to perform it. This Section applies only to sale and lease.
Section 14
CONTRACTS WHICH CANNOT
1. Contracts with adequate monetary compensation: Section 14 (1) & (9) provides that a contract
for the non-performance of which compensation in money is an adequate relief, cannot be
2. Contracts involving personal skills: Section 14(1)(b) provides that contracts depending on
paint, to act, etc cannot be enforced, but the only remedy available is to save for damages.
In Lumley v. Wagner 1 DM & G 604 : 91 RR 193 A singer the defendant agreed to sing only
at the plaintiff’s theatre for certain period, but within such period she entered into agreement to
therefore the relief available for the plaintiff is only to claim damages for breach of contract.
In Ram Sahan Rai v. Sachin Samanaya Prabandhak AIR 2001 SC 1173
A District Co- operative Bank having the authority of State without following Rules, Regulation and
principles of natural justice, illegally dismissed an employee and the employee sued the bank and
requested the Court to declare that the order of his removal as illegal, null and void. The trial Court
and High Court dismissed the suit and found that the suit must not maintainable. Finally Supreme
Court set aside the judgment and decree of High Court and held that the dismissal of employee
was illegal.
3. Contracts, which are determinable by their nature: Section 14(1)(c) provides that contracts
4. Contracts requiring continuous constant supervision: Section 14(1)(d) provides that a contract
the performance of which involving continuous duty which the Court cannot supervise, cannot be
5. Contracts to refer arbitrator: Section 14(2) provides that a contract to refer present or future
6.
1. Contract without consideration or
2. Contracts based one illegal or immoral agreement
3. Contracts without mutuality
4. Contract to selling or letting the property without title S.17
5. Contracts against the terms and stipulations Sec 18
6. Suit for performance of contract based on false and incorrect facts Sec 2
7. Contracts giving unfair advantage to plaintiff over the defendant. Sec 20(2)(a)
8. Contract involving hardship on defendant, which he did not foresee Sec 20(b)
9. Inequitable contract or one-sided contracts. Sec 20(2)(c)
10. Contract for personal service
11. Contract based an illegal motive Evaluation
12. A contract to build or repair a house
13. Void agreements or contracts
Section 26
RECTIFICATION MEANS CORRECTION,
means correction of mistake in a document. Such mistake may be a fraud or by a mutual error. According
to Section 26(1) when a written contract of other document which does not express the real intention
through fraud or a mutual mistake of the parties, either party or their representatives may approach the
Object: Sometimes the real intention of the parties may not be expressed in a document by slip or
the Court to bring out the real intention of the parties. The mistake may be either of fact or of law.
The instrument represents the true intention of the parties and after
1. Either party to the suit or his represent. Sec 26(1) (a)

2. The plaintiff. Sec 26(1)(b)
3. The defendant. Sec 26(1)(c)
In Subhadra and Others v. Thankam 2010
can be claimed where contract was entered either by through fraud or a mutual mistake of the parties.
Cancellation of Instruments : Section 31-33
CANCELLATION OF INSTRUMENTS: When a contract is void or voidable, and has reasonable
apprehension or fear that such instrument may cause him serious injury may sue for cancellation of
instrument and the Court may, in his discretion declare the contract as that void or voidable and cancel
that instrument.
Essentials
1. The contract must be in writing
2. The contract must be void or voidable
3. The party must have reasonable apprehension of causing injury if not cancelled
to B, who bequeath it to C and dies. There upon D gets possession of the land and produces a forged
instrument stating that the conveyance was made to B in trust for him. C may obtain the cancellation of
the forged instrument.
Partial cancellation: As per Section 32: The Court may cancel the written instrument partially
based on the evidence of different rights or different obligation.
Effect:
must be restored to such party.
Object: The relief of cancellation of instruments is granted to prevent the use of any vexation or
injurious instruments which causes the future injury or loss.
Essentials:
1. The written instrument must be void or voidable
2. The plaintiff must face apprehension of harm or injury by theft of instrument
Limitation:
Declaratory Decrees
Section 34 and 35
DECLARATORY DECREES: LAW relating to declaratory decrees is dealt under Section 34 and
35. A declaratory decree of Court is a decree, which declares that the plaintiff is entitled to any legal
character, or to right as to any property against defendant, who denies his title. It is a declaration by way
is to prevent future litigation by removing the existing cause of the controversy.

Essentials
1. Plaintiff must be entitled to any legal character or to any right as to any property.
2. Defended must have denied or is interested to deny character or title of plaintiff
3. Plaintiff must pray for declaration of his legal character or title
4. Plaintiff must not pray for further relief
Is declaratory decree a right? A declaratory decree cannot be claimed as a right. The Court has
discretion either to grant or not to grant. It is granted only to put an end to disputes but not to cause
hardship to the parties.
In Kanwarjit Singh Dhillon v. Hardyal Singh Dhillon and Others AIR 2008 SC 306 the Court
held that mere fact that probate of will was granted by competent Court in respect of property and it does
not bar civil suit for declaration of title and permanent injunction in respect of the same property under
When Court may not grant declaratory relief?

1. When the conduct of plaintiff has been fraudulent
2. When the plaintiff interest is too remote
3. When the right is claimed in anticipation of a contingency, which may never arise
4. When the allegation of the plaintiff is false and baseless
5. When the defendant does not deny plaintiffs right or claim
6. When the plaintiff’s not the real parties but those who are behind the litigation
7. When the suit is of a speculative nature
8. When the plaintiff seeks a negative declaration so as to infringe right of defendant
Injunction
Preventive Relief
INJUNCTION IS AN order of the Court, which prohibits commencement, or continuance of a
wrongful act. According to Lord Halsbury “an injunction is a judicial process whereby a party is ordered
to refrain from doing or to do a particular act or thing”.
Illustration: A lets certain land to B, and B contracts not to dig sand or gravel there out. A may sue
for an injunction to restrain B from digging in violation of his contract.
While exercising its discretionary powers the Court must keep in mind in well-settled principles of
justice, equity of and fair play. An injunction will not be granted in the following circumstances:
1. Where damages are the appropriate remedy
2. Where injunction is not the appropriate relief
3. Where the plaintiff is no entitled to an injunction
5. Where the injunction would operate inequitably

Kinds of Injunction: Section 37:
1. Temporary or Interlocutory injunction
2. Perpetual or Permanent injunction
When Temporary Injunction is granted? Section 37:
Temporary injunction may be granted if it is proved:-
1. That any property in dispute in a suit is in danger of being wasted, damaged or alienated by
any party to the suit, or wrongfully sold in execution of a decree, or
2. That the defendant threatens, or intends, to remove or dispose of his properties with a view to
defraud his creditors.3. That the defendant threatens to dispossess the plaintiff or otherwise
cause injury to the plaintiff in relation to any property in dispute in the suit. or
Conditions to grant temporary injunction: Section 37:
1. The plaintiff must establish a prima facie case. The clear title need not be established but
there must be a substantial question to be investigated and that matters should be preserved
2. An irreparable loss or injury would result it the injunction is refused and there is no other
remedy open to the applicant by which he could protect himself from the consequences of the
apprehended injury.
When perpetual injunction is granted? Section 38:
1. Perpetual injunction may be granted to the plaintiff to prevent the breach of an obligation
existing in his favour, whether expressly or by implication
3. When the defendant invades or threaten to invade the plaintiff’s right to or enjoyment of
property,
Condition to grant perpetual injunction
1. There must be a legal right express or implied in favour of the applicant.
2. Such right must be violated or there should be a threatened invasion.
3. Such right must be in existence.
When injunction cannot be granted: Section 41:

An injunction cannot be granted:
1. To restrain any person from prosecuting a judicial proceeding pending at the institution of
the suit in which the injunction is sought, unless such restraint is necessary to prevent a
multiplicity of proceedings.
2. To restrain any person from instituting or prosecuting any proceedings is Court not subordinate
to that which the injunction is sought.
3. To restrain any person from applying to any legislative body.
4. To restrain any person from prosecuting any proceedings in a criminal matter.
enforced.
Breach of Injunction: Section 94(C) and Rule 2-A of Order 39, Civil Procedure Code provide
the consequences of breach of injunction. The Court may order the property of the person to attached
and also order such person yet to be detained in the civil prison for a term not exceeding three months,
unless in the meantime the Court directs his release. The disobedience or breach continues, the property
the injured party.

Grant of injunction: The Court is not bound to grant an injunction in every case. Sunil Kumar v.
Ram Prakash
of the Joint Hindu Family from transferring the joint family property in pursuance of a sale agreement with
a third party. The Court held that such an injunction could not be granted. Therefore the plaintiff was not
entitled for grant of injunction.
**********

Law of Contracts - I: Indian Contract Act, 1872

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Law of Contracts - I: Indian Contract Act, 1872

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2.

(a) General principles of the Law of Contract.

special contracts are Indemnity, Guarantee, Bailment, Pledge and Agency.

INDIAN CONTRACT ACT, 1872

1. “Every agreement and promise enforceable at law is a contract.” - Pollock

Offer + acceptance = Promise

no contract (Balfour v. Balfour)

2. Lawful consideration :- consideration must not be unlawful, immoral or opposed to the

Insolvents and convicts are not competent to contract.

Agreement not enforceable by law / Agreement enforceable by law

On the Basis of execution

On the Basis of Liability

d. Quasi Contracts are contracts which are created -

subsequently becomes void.

5. Communication of complete offer

9. Offer must be distinguished from invitation to offer.

Example Example Issue of prospectus by a Company,

It means an offer made in

IV. General offer:

Communication of acceptance is not necessary in case of general offer

11. Acceptance subject to the contract is no acceptance

1. In case of acceptance by post

2. Delayed or no delivery of letter

3. Lunatic Idiot, Drunken and Intoxicated

Position of Agreements by Minor:-

3. Fraudulent representation by a minor- no difference in the status of agreement. The contract

for such contracts.

11. Guarantee for and by minor

a. within the scope of the authority of the guardian.

Contract for supply of Necessaries.

An agreement made by intoxicated person is void.

PERSON DISQUALIFIED BY LAW

Contractual capacity of company is determined by object clause of its memorandum of association.

of the central Government.

such a person is‘ stranger to consideration,.

(ii) some forbearance, detriment, loss or responsibility suffered on undertaken by the

abstinence or promise is called a consideration for the promise.

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

Effect of absence of Free Consent :-

(a) Committing any act which is forbidden by the IPC

(e) coercion need not necessarily proceed from party to contract.

relation to the other solicitors and clients. Guardian and wards

of the party whose consent was so caused.

Unconscionable transactions:- if transaction appears to unreasonable the dominant party to

Any other transaction:-

Burden of Proof - Full disclosure is made to pardanashin women

Similarities: - Voidable at the option of aggrieved party:-

(c) The representation must be false.

Ex. A furniture dealer conceals the cracks in furniture by polish work.

(requiring utmost good faith), e.g. contracts of insurance.

of discovering the truth with ordinary diligence.

MISREPRESENTATION (SECTION 18)

interest in the property passing under the contract.

(2) Right to insist upon performance.

One party Under Both parties under

Exception: - Where contract is not valid (void)

1. Partially unlawful Object or consideration [Sec. 24]: An Agreement is void if -

Champerty & Maintenance :

(12) An agreement to enter into an agreement in the future.