What is Law?

Law means a ‘set of rules’ which governs our behaviours and relating in a civilized society. So there
is no need of Law in a uncivilized society.

Why Should One Know Law?

One should know the law to which he is subject because ignorance of law is no excuse.
 contract Act whole Indian September
st
1872 except the state 1872(1 Sept. of Jammu & 1872) Kashmir

¾ Prior to this English law of contract was followed in India. ¾ It

has XI chapter. ¾ Law of contract creates jus in personem and not in
jus in rem. ¾ The Indian Contract Act consists of the following two
parts:
(a) General principals of the Law of Contract.
(b) Special kinds of contracts.
¾ The general principals of the Law of Contract are contained in Sections 1 to 75 of the
Indian Contract Act. These principles apply to all kinds of contracts irrespective of their nature.

¾ Special contracts are contained in Sections 124 to 238 of the Indian Contract Act. These
special contracts are Indemnity, Guarantee, Bailment, pledge and Agency. Note: In our discussion on
this part of the book, unless otherwise stated, the sections mentioned are those of the Indian Contract
Act, 1872.
1. Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the assent of that
other person either to such act or abstinence, he is said to make a proposal.

2. Acceptance 2(b):- When the person to whom the proposal is made, signifies his assent
there to , the proposal is said to be accepted.

3. Promise 2(b) :- A Proposal when accepted becomes a promise. In simple words, when an
offer is accepted it becomes promise.

4. Promisor and promise 2(c) :- When the proposal is accepted, the person making the
proposal is called as promisor and the person accepting the proposal is called as promisee.

5. Consideration 2(d):- When at the desire of the promisor, the promisee or any other person
has done or abstained from doing something or does or abstains from doing something or
promises to do or abstain from doing something, such act or abstinence or promise is called a
consideration for the promise.

. Price paid by the one party for the promise of the other Technical word meaning QUID-
PRO-QUO i.e. something in return.

6. Agreement 2(e) :- Every promise and set of promises forming the consideration for each
other. In short, agreement = offer + acceptance.

7. Contract 2(h) :- An agreement enforceable by Law is a

contract.
8. Void agreement 2(g):- An agreement not enforceable by law is void.

9. Voidable contract 2(i):- An agreement is a voidable contract if it is enforceable by Law

at the option of one or more of the parties there to (i.e. the aggrieved party), and it is not
enforceable by Law at the option of the other or others.

10. Void contract :- A contract which ceases to be enforceable by Law becomes void when it
ceases to be enforceable.
“All agreements are contracts, if they are made –
¾ by free consent of the parties, competent to contract, ¾ for a lawful consideration
and ¾ with a lawful object, and ¾ not hereby expressly declared to be void.” -
Sec.10.

Offer + acceptance = Promise

+
consideration
= Agreement
+

enforceability By Law

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. ¾ In case of social agreement there is no intention to create legal
relationship and
there the is no contract (Balfour v. Balfour)

¾ In case of commercial agreements, the law presume that the parties had the intention
to create legal relations.
¾ [an agreement of a purely domestic or social nature is not a contract ]

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
(iii) Is not disqualified from contracting by any law to which he is subject.

¾ Person of unsound mind can enter into a contract during his lucid interval. ¾ An
alien enemy, foreign sovereigns and accredited representative of a foreign state.
Insolvents and convicts are not competent to contract.

4. Free consent :-consent of the parties must be genuine consent means agreed upon samething in
the same sense i.e. there should be consensus – ad – idem. A consent is
said to be free when it is not caused by
coercion, undue influence, fraud, misrepresentation or mistake.
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.

7. The terms of the agreements are certain or are capable of being made certain [29]
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 or
9. being enforced legal
Necessary by law.
formalities
•• Certain agreements
A contract may be oral or in
have
writing.been expressly
declared
• Where illegal or voidtype of
a particular
by the law.
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
Agreement
then theiscontract
a wideristerm
not than contract where as all contracts are agreements. All
agreements
enforceable are not contracts.
by law. Example : A
promise to pay a time. Barred
debt must be in writing.

The various agreements may be classified into two categories:

Conclusion
:
Thus we see that an agreement may be or may not be enforceable by law, and so
all agreemen
t
are not contract.
Only those agreements are contracts, which are enforceable by law, In short
.
 Hence, we can conclude “All contracts are agreement, but all agreements are not contracts.”

Distinction between Contract & Agreement

Basis Contract Agreement
1. Sec. 2(h) A Sec. 2(e) Every
Section : contract is an promise or every
2. agreement set of promises
Definitio enforceable by forming
n : 3. law. Every consideration for
Enforcea contract is each other is an
bility : enforceable A agreements.
4. contract includes Every promise is
Interrela an agreement. not enforceable.
tionship The scope of a An agreement
5. Scope contract is does not include
: 6. limited, as it a contract. Its
Validity includes only scope is
: 7. commercial relatively wider,
Legal : agreements. as it includes
Obligati Only legal both social
on agreements are Types
agreement and of contracts :
called contracts. commercial
Every contract agreements. An
(1) (2) (3) (4)
On the On the On the On the
Basis Basis of Basis of Basis
of Validity of Executed contract a. Bilateral contract
creatio execution Liabili Executed contract b. Unilateral Partly executed
n ty and contract party executory

(a) 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.
Example : A says to B ‘will you purchase my bike for Rs.20,000?” B says to A “Yes”.

(b) Implied contract:-A contract inferred by .

The conduct of person or . The circumstances of the
case.
By implies 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 expenses of the other.

(e). e – Contract: An e – contract is one, which is entered into between two parties via the
internet.

(a) Valid contract:- An agreement which satisfies all the requirements prescribed by law 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:- Under a mistake of facts [20]
Consideration or object of an agreement is unlawful [23] Agreement made without consideration [25]
Agreement in restrain of marriage [26] Restraint of trade [27] Restrain legal proceeding [28].
Agreement by wage of wager [30]

(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. Result of
coercion, undue influence, fraud and misrepresentation.

(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.
(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
. Unlike illegalpolicy are illegal
agreements thereinisnature.
no punishment to the parties to a void agreement. . Illegal
agreements are void from the very beginning agreements are void from the very beginning but
sometimes valid contracts may subsequently becomes void.

(a) Executed contract :- A contract in which both the parties have fulfilled their obligations
under the contract. Example: A contracts to buy a car from B by paying cash, B instantly delivers his
car.

(b) Executory contract:- A contract in which both the parties have still to fulfilled their
th
obligations. Example : D agrees to buy V’s cycle by promising to pay cash on 15 July. V agrees to
th
deliver the cycle on 20 July.

(c) Partly executed and partly executory:- A contract in which one of the parties has fulfilled
his obligation but the other party is yet to fulfill his obligation. 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 excuted 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 offers to sell his fiat car to B for Rs.1,00,000 on
acceptance of A’s offer by B, there is 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
Voidable
Matter Void contract
contract
Definitio It means It means an
n contract which agreement
cease to be enforceable by
enforceable. law by one or
more parties.
Nature Valid when It remains
Example:
made An agreement which isuntil
voidable required to be stamped will be unenforceable if the same is
subsequently
not stamped cancelled
at all or is under by
stamped.
becomes
SUJEET JHA 6 9213188188 party.
unenforceable.
Rights No legal remedy. Aggrieved party
 can be demanded.
Reason Due to i l o If consent is not
change n a r obtained freely.
circumst w
ances
Not
Damage Can demand in
availabl

Difference between Void and illegal Agreement

Matter Void agreement Illegal agreement
What Void agreement It is prohibited by
is not prohibited law.
by law.
Effect Enforced Not enforced.
on
collatera
l
transacti
Contract of record:
on
It is either a judgment of a court of 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.
Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtaining the assent of that other person either to such act
or abstinence, he is said to make a proposal.

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.

“When one person signifies to another his willingness –

to do or to abstain from doing anything,
with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal.”

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 “Promisee”.

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 he 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 did not know about the offer when the discovered
the missing boy. [Lalman Shukla v. Gauri Datt (1913) All LJ 489]
2. The offer must be certain definite and not vague unambiguous and certain.
Example:
A offered to sell to B. ‘a hundred tons of oil’. The offer is uncertain as there is nothing to
show what kind of oil is intended to be sold.

3. The offer must be capable of creating legal relation. A social invitation 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 conduct, is called an implied offer [Section 9].

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.

1 Counter offer – A counter offer amounts to rejection of the original offer

2 Cross offer do not conclude a contract
3 An offer must not thrust the burden of acceptance on the offeree.

Example:
A made a contract with B and promised that if he was satisfied as a customer he would
favorably consider his case for the renewal of the contract. The promise is too vague to create
a legal relationship.
¾ The acceptance cannot be presumed from silence.
¾ Acceptance is valid only if it is communicated to the offeror.

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:

SUJEET JHA 10 9213188188

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

¾ Show his readiness ¾ Person invites offer
to enter into a contract, to make an offer to
it is called as an offer him. ¾ Purpose of
¾ Purpose of entering enter offer ¾ Results
contract ¾ Results in a in offer. Example
contract Example Issue of prospectus by
Application filled in by a Company, an
a prospective education Institution.
applicable to the
Institution, a student
seeking admission in
educational Institution.
KINDS OF OFFER

Express Implied Specific General Cross offer Counter Standing offer offer offer offer offer Open and
Continuou s offer

I. Express offer - When the offeror expressly communication the offer the offer is said
to be an express offer the express communication of the offer may be made by Spoken word
Written word

II. Implied offer – when the offer is not communicate expressly. An offer may be implied from:-
The conduct of the parties or The circumstances of the case

III. Specific:- It means an offer made in

(a) a particular person or
(b) a group of person: It can be accepted only by that person to whom it is made
communication of acceptance is necessary in case of specific offer.

IV. General offer: - It means on offer which is made to the public in general.
• General offer can be accepted by anyone.
• If offeree fulfill the term and condition which is given in offer then offer is accepted.
• Communication of acceptance is not necessary is case of general offer
Example
 Company advertised that a reward of Rs.100 would be given to any person who would suffer
from influenza after using the medicine (Smoke balls) made by the company according to the
printed directions. One lady, Mrs, Carlill, purchased and used the medicine according to the
printed directions of the company but suffered from influenza, She filed a suit to recover the
reward of Rs.100. The court held that there was a contract as she had accepted a general offer
by using the medicine in the prescribed manner and as such as entitled to recover the reward
from the company.

Carlill v Carbilic 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
They are made by the same parties to one another
Each offer made in ignorance of the offer made by the
The terms and conditions contained in both the offers’ are same.

Example : A offers by a letter to sell 100 tons of steel at Rs.1,000 per ton. On the same day,
B also writes to A offering to buy 100 tons of steel at Rs.1,000 per ton.

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 :- when the offeree give qualified acceptance of the offer subject to modified
and variations in the 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 is a new 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:

By communication of notice of revocation: An offer may come to an end by communication

of notice of revocation by the offeror. It may be noted that an offer can be revoked only before its
acceptance is complete for the offeror. In other words, an offeror can revoke his offer at any time
before he becomes before bound by it. Thus, the communication of revocation of offer should reach
the offeree before the acceptance is communicated.
By lapse of time; Where time is fixed for the acceptance of the offer, and it is not acceptance
within the fixed time, the offer comes to an end automatically on the expiry of fixed time. Where no
time for acceptance is prescribed, the offer has to be accepted within reasonable time. The offer lapses
if it is not accepted within that time. The term ‘reasonable time’ will depend upon the facts and
circumstances of each case.
By failure to accept condition precedent: Where, the offer requires that some condition
must, be fulfilled before the acceptance of the offer, the offer lapses, if it is accepted without fulfilling
the condition.
By the death or insanity of the offeror: Where, the offeror dies or becomes, insane, the offer
comes to an end if the fact of his death or insanity comes to the knowledge of the acceptor before he
makes his acceptance. But if the offer is accepted in ignorance of the fact of death or insanity of the
offeror, the acceptance is valied. This will result in a valid contract, and legal representatives of the
deceased offeror shall be bound by the contract. On the death of offeree before acceptance, the offer
also comes to an end by operation of law.
By counter – offer by the offeree: Where, a counter – offer is made by the offeree, and then
the original offer automatically comes to an end, as the counter – offer amounts to rejections of the
original offer.
By not accepting the offer, according to the prescribed or usual mode: Where some
manner of acceptance is prescribed in the offer, the offeror can revoke the offer if it is not accepted
according to the prescribed manner.
By rejection of offer by the offeree: Where, the offeree rejects the offer, the offer comes to
an end. In other
Once thewords anrejects
offeree offer made by the
the offer, he offeree
cannot in return
revive theofoffer
the original offer is called
by subsequently as a to
attempting
accept it.counter offer. of offer may be express or implied.
The rejection
Example:
By change in law: Sometimes, there is a change in law which makes the offer illegal or
incapable of performance.
A offered to sell hisInpen
such
to cases
B for also, the offer
Rs.1,000. comes“toI an
B replied, amend.
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 continually 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.
Acceptance 2(b):- When the person to whom the proposal is made, signifies his assent there to ,
the proposal is said to be accepted.

1 Acceptance must be absolute and unqualified Example: A offers to sell his house to B for
Rs. two lakhs. B accepts the offer and promises to pay the price in four installments. This is not pay
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 or rejection,
he accepted acceptance of offer. Example: A offers B and indicates that the acceptance be given by
telegram. B sends his acceptance by ordinary post. It is a valid acceptance unless A insists for
acceptance in the prescribed manner.

5. 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 notice of acceptance. “Information by
unauthorized person is as insufficient as overhearing from behind the door”.

6. Acceptance must be communicated to offeror

7. Time limit for acceptance

• If the offer prescribes the
time limit, it must be accepted
within specified time.
• If the offer does not prescribe
the time limit, it must be
accepted within reasonable
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.
1. Where offeree agrees that non – refusal by him within specified time shall amount to
acceptance of offer.
2. When there is custom or usage of trade which specified that silence shall amount to
acceptance.

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 not 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 is sufficient to conclude a contract. However, the letter must be
properly addressed and stamped.

2. Delayed or no delivery of letter Where the letter of acceptance is posted by the acceptor but
it never reaches the offeror, or it is delayed in transit, it will not affect the validity of acceptance. The
offeror is bound by the acceptance.

3. Acceptance by telephones telex or tax If the communication of an acceptance is made by

telephone, tele-printer, telex, fax machines, etc, it completes when the acceptance is received by the
offeror. The contract is concluded as soon as the offeror receives not hears the acceptance.

4. The place of Contract In case of acceptance by the post, the place where the letter is posted
is the place of contract. Where the acceptance is given by instantaneous means 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
contracttime.
is the Example
time when: Aofferor gets
applied the communication
(offered) for shares in of acceptance.
a company in early June. The allotment
(Acceptance) was made in late November. A refused to take the shares. Held, A was entitled
6. Communication of acceptance
to do so as the reasonable inacceptance
time for case of an had
agent. Where the offer has been made through
elapsed.
an agent, the communication of acceptance is completed when the acceptance is given either to the
agent or to the principal. In such a
SUJEET JHA 15 9213188188
case, if the agent fails to convey the acceptance received from offeree, still the principal is
bound by the acceptance.
 7. Acceptance on loudspeakers
Acceptance given on loudspeaker is not a valid a acceptance.
Particula
Offer Acceptance
rs
When • • As against
Communi Communicatio the offerer/
cation is n of a Proposer:
complete proposal is When it is put
[Sec.4] complete in a course of
when it comes transmission
to the to him so as to
knowledge of be out of the
the person to power of the
whom it is Acceptor. • As
made. • against the
Example : A Offeree/Acce
proposes by ptor: When it
letter, to sell comes to the
his Tonga to B knowledge of
at Rs.10,000. the Proposer.
Communicatio (See separate
n of the question
proposal is above)
complete
when B
receives the
letter.
When • • Acceptance
Revocatio Offer/proposal may be
n can may be revoked
be made revoked at any at any time
[Sec.5] time before before the
the communicatio
communicatio n of acceptor,
n of its but not
acceptance is afterwards. •
complete, as Example: T
against the sends to S by
proposer, but post, an offer
not to sell his
afterwards. • cycle. S sends
Example: U his acceptance
sends a letter via post, S
to Y proposing could revoke
to sell his his
land. Y sends acceptance,
his acceptance upto any time
by post. U can before or at
revoke the the moment
Accepted is lighted match, while offer is when
offer at any a he posts
train of gun powder time before or his letter of
Sir willian Anson. at the moment acceptance,
when Y posts but not
SUJEET 9213188
his letter of afterwards.
JHA 16 188
acceptance,
 Parties unable to Enter into a contract
Minor

Lunatic Idiot Drunken and Intoxicated

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
disqualified from contracting by any Law to which he is subject.

Age of majority:-According to section 3 of Indian majority Act-1875 every person domiciled in

Indian attains majority on the completion of 18 years of age.

Exception: -21 years- in the following cases.

Where a guardian of a minor’s person or property is appointed under the Guardian and wards
Act, 1890.
Where minor’s property has passed under the superintendence of the court of words.
Position of Agreements by Minor:

1. Validity: - An agreement with a minor is void-ab-initio [ Mohoribibee v. Dharmodas Ghose]

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.

2. A minor’s has received any benefit under a void contract, he cannot be asked to
return the same.

3. If a minor has received any benefit under a void contract, he cannot be asked to
return the same.

4. Fraudulent representation by a minor- no difference in the status of agreement.

The contract remains void.

5. A minor with the consent of all the partners, be admitted to the benefits of an
existing partnership.

6. Contracts entered into by minors are void-ab-initio. Hence no specific performance can
be enforced for such contracts.
7.
Minor
’
s parent/guardians are not liable to a minor
’
s creditor for the breach of contract by the minor.
 8. A minor can act as an agent but not personally liable. But he cannot be principal.

9. A minor cannot become shareholder of a the company except when the shares are fully
paid up and transfer by share.

10. A minor cannot be adjudicated as insolvent.

11. Can enter into contracts of Apprenticeship, Services, Education, etc:

(a) A minor can enter into contract of apprenticeship, or for training or instruction in a
special art, education, etc.
(b) These are allowed because it generates benefits to the Minor.

12. 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.

13. Minor as a trade union member Any person who has attained the age of fifteen years may be
a member for registered trade union, provided the rules of the trade union allow so. Such a member
will enjoy all the rights of a member.

• Contract for the benefit of a minor.

• Contract by Guardian

Benefit of a minor by his guardian or manager of his estate.

within the scope of the authority of the guardian.

Is for the benefit of the minor.

• 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.
A person of unsound min
d
 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.

⇒ At time of entering into a contract, a person must be sound mind. Law presumes that every
person is of sound mind unless otherwise it is proved before court. An agreement by a person of
unsound mind is void. The following are categories of a person considered as person of a unsound
mind.

⇒ An idiot 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.

⇒ Delirious persons A person delirious from fever is also not capable of understanding the
nature and implications of an agreement. Therefore, he cannot enter into a contract so long as delirium
lasts.

⇒ Hypnotized persons Hypnotism produces temporary incapacity till a person is under the
effect of artificial induced sleep.

⇒ Mental decay There may be mental decay or senile mind the 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.

⇒ Lunatic is not permanently of unsound mined. He can enter into contract during lucid
intervals i.e., during period when he is of sound mind.

Gene Occasi Capacit Example

rally onally y to
of of Contra
ct
Unso Sound Can A patient in a
und Mind enter lunatic asylum,
Mind into a who is at
Contrac intervals of
t when sound mind,
he is of may contract
Sound during those
Mind. intervals.
Soun Unsou Cannot A sane man,
d nd make a who is
Mind Mind Contrac delirious from
⇒ Drunken person
An agreement made by intoxicated person is void.

Person Disqualified by law

Person Disqualified by Law

⇒ Body corporate or company or corporation Contractual capacity of company is determined

by object clause of its memorandum of association. Any act done in excess of power given is ultra –
virus and hence void.

⇒ Alien enemy
An ‘alien’ is a person who is a foreigner to the land. He may be either an ‘alien friend’
or an ‘alien enemy. If the sovereign or state of the alien is at peace with the country of his
stay, he is an alien friend. An if a war is declared between the two countries he is termed as an
alien enemy.
During the war, contract can be entered into with alien enemy with the permission of
central government.

(Discuss in class)

⇒ Convict can’t enter into a contract while he is undergoing imprisonment. But he can enter into
a contract with permission of central government while undergoing imprisonment. After the
imprisonment is over, be becomes capable of entering into contract. Thus the incapacity is only during
⇒
the period of sentence.
Insolvent When any person is declared as an insolvent, his property vests in receiver and
therefore, he can’t enter into contract relating to his property. Again he becomes capable to enter into
contract when he is discharged by court.
Foreign sovereigns, diplomatic staff and representative of foreign staff can enter into
valid contract. However, a suit cannot be filed against them, in the Indian counts without the prior
sanction of the central Government.

Only those persons, who are parties to a contract, can sue and be sued upon the contract.
This Rule is called “Doctrine of privities of contract.” Exception.

i. Trust:- In case of trust a beneficiary can sue upon the contract.

Example:
SUJEET JHA 20 9213188188
A transferred certain properties to B to be held by him in trust for the benefit of C. In this
case, C although not a party to the trust, can sue for the benefits available to him under the
trust. 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.
 ii. 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 members cone 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.

iii. Acknowledgement of liability:- Where a person admits his Liability thereafter if he refused
be will be stopped from denying his liability. Example X receives money from Y for paying it to Z. X
admits the receipt of that amount to Z. Z can recover the amount from X, even though the money is
due from Y.

Assignment of contract. Assignee (the person to whom benefits of contract are assigned) can
enforce upon the contract..
Contract entered into through an agent.
 1.(a)
Consideration is a quid pro quo i,e something in return it may be –
(i) some benefit right, interest, loss or profit that may accrue to one party or,
(ii) some forbearance, detriment, loss or responsibility suffered on undertaken by the other
party [currie V mussa]

(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. Definition [Sec 2(d)]:- when at the desire of the Promisor, the promise or any other person.

(a) has done or abstained from doing , or [Past consideration]

(b) does or abstains from doing, or [Present consideration]
(c) promises to do or abstain from doing something [Future consideration ] such act or
abstinence or promise is called a consideration for the promise.

3. Example
(i) ‘P’ aggress 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.
(ii) ‘A’ promises his debtor ‘B’ not to file a suit against him for one year on ‘A’s agreeing to
pay him Rs.10,000 more. Here the abstinence of ‘A’ is the consideration for ‘B’s Promise to
pay.

vi. 1. Consideration
Covenants runningmust
withmove
land.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
Stranger their shops. Held, there was
to consideration:-“Stranger to no consideration
contract” must bebecause money from
distinguished was not spent byto
a stranger
Plaintiff at the request of the Defendants, but at instance of a third person viz. the Collector
consideration need not necessarily be provided by the promises if may flow from a third party
and, such
also thus the contract
a person is ‘was void.toDurga
stranger Prasad v. Baldeo
consideration,.
( Chinnaya Vs Ramayya).

2. Consideration may move from the promisee or any other person who is not a party to the
contract. [Chinnaya’s Vs 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 date . B promise to pay first on delivery.
 4. Consideration should be real and not illusory. Illusory consideration renders the
transaction void consideration is not valid if it is.
(i) Physically impossible (ii) Legally not permissible
(iii) Uncertain (iv) illusory (fulfillment of a pre existing obligation)

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 became 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 .

ceptions to the Rule “ No consideration . No contract”.

1. Written and registered agreements arising out of love and affection:- [25 (1)]
• Expressed in writing and registered under law for the time being in force for
registration of document
• Natural love and affection
• Between parties standing in a near relation to each other Example:- An elder brother, on
account of natural love and affection, promised to pay the debts of his younger brother.
Agreement was put to writing and registered. Held, agreement was valid.

Exception: -Rajlukhy Dabee Vs 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)]

• Promise to compensate wholly or in part
• Who has already voluntarily done something for the promisor
SUJEET JHA 23 9213188188
•
Something which the promisor was legally compellable to do.
Example
:-
A finds B
’
s purse and give to him. B Promise to give A Rs.500. This is a valid contract.
3. Promise to pay a time – barred debt. [Sec 25(3)]
A debt barred by limitation con not recovered. Hence, a promise to pay a such a
debt is without any consideration.
Can be enforced only when – in writing and sighed by Debtor or his authorized
agent. Example : A owes B Rs.10,000 but the debt is barred by Limitation Act. A signs a
written promise to pay B Rs.8,000 on account of debt. This is a valid contract.

1 Completed gift- gift do not require any consideration.

2 Agency (185) – According to the Indian contract Act. No consideration is necessary to create
an agency.
3 Bailment (148)- consideration is not necessary to effect a valid bailment of goods. It is Called
Gratuitous Bailment.
4 Remission (63).
5 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.
According to section 13. Two persons are said to have consented when they agree upon same thing
in the same sense. In English law, this is called ‘consensus – ad – idem’

Effect of absence of consent:

⇒ When there is no consent at all, the agreement is void – ab –
initio’. It is not enforceable at the option of either party

Example 1:
X have two car one Maruti car and one Honda city car. Y does not know that X has two cars
Y offers to buy car at Rs.50,000. Here, there is no identity of mind in respect of the subject
matter. Hence there is no consent at all and the agreement is void – ab – inito.

Example 2:
An Illiterate woman signed a gift deed thinking that it was a power of attorney – no consent at
all and the agreement was void – ab – inito [ Bala Devi V S. Manumdats ]

Free consent
⇒ Consent is said to be free when it is not caused by [ Section 14]
(a) coercion [Section 15]
(b) Undue influence [Section 16]
(c) Fraud [Section 17]
(d) Misrepresentation [ Section 18]
(e) Mistake [Section 20, 21,22]

Effect of absence of Free Consent :-If consent coercion, undue influence, fraud , Misrepresentation
the contract is voidable at the option of party whose consent was not free [19, 19A]

(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.

Above four [a – d]
(e) coercion need not necessary proceed from party to contract.
(f) Coercion need not necessary 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
coercion is employed [Bay of Bengal caption]

Effect of threat to file a suit:- A threat to file a suit (whether civil or court) does not amount to
coercion unless the suit is on false charge. Threat to file a suit on false charge is an act forbidden by
the IPC and thus will amount to an act of coercion.
Effect of Threat to commit suicide
:- Threat to commit suicide amounted to coercion and th
e
release deed was example discussed in class
.
Therefore voidable.
[Chikham Ammiraju v seshama
]
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 mortgage until the payment of loan
does not amount to coercion.

Meaning of undue influence :- 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
(b) the willparty
The dominant of theuse
other.
his position.
(c) Obtain an unfair advantage over the other .

Presumption of domination of will:-

Circumstances Examples
Where he holds a real Master and servant,
or apparent authority parent and child,
over the other Where Income Tax officer and
he stands in a Trust assesses principal and
fiduciary (benefit) a Temporary Teacher.
relation to the other Trustee and beneficiary
Mental Capacity of a spiritual Guru and his
person is temporarily disciples, solicitors and
or permanent
Example effected
:A Poor clients.
Hindu widow Guardian
agreed to payand
interest at 100% P. a because she need the money to
by reason of age, wards Relationship
established her right of maintenance. It was held that the lender was in position to dominate the will
ofillness
widow.or mental or between medical
bodily distress attendant and ward.

¾Landlord and Tenant

¾Creditor and Debtor
Husband and wife
¾(other than
Pardanashin)
¾Principal and Agent
When consent to an agreement is caused by undue influence, the contract is voidable at the option of
the party whose consent was so caused.

Burden of Proof:- A contract is presumed to be induced by undue influence if the following

two condition:-¾ A party has the position to dominate the will of
the others ¾ The transaction is unconscionable (unreasonable)

In such a case dominant party is under the burden to prove the undue influence was not employed.

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

that there is no undue influence. ]
¾ Any other transaction:- weaker party to prove the influence was employed]

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
not undue influence.
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 influence.
Example :
A spiritual guru induced his chela to donate all his property to the ashram and said that in
return of it, he will certainly get salvation. The chela did the same. Held, that this is a case, of
undue influence so it becomes void.

Induced by undue influence Burden of Proof – Full disclosure is

made to pardanashin women Pardanashin Women - Understand the
contract
- Receipt of competent independent advice .
 Similarities: - Voidable at the option of aggrieved party:-
Coercion (15) Undue Influence (16)
Meaning – using or -Involves use of moral
threat to use physical force (mental pressure)
force -obtain the -Obtain an unfair
consent of party advantage (intention) -
(intention) - Not criminally liable -
Punishment under IPC Between the parties to
-Parties – Stranger - the contract -One
Relationship – party dominate the
Immaterial -Voidable other party -Voidable
at the option of or court set aside -
aggrieved party - Benefit – order of
Benefit - Back court – Back

The term fraud means a take representation of facts made willfully with a view to deceive the
other party.
Sec.17- fraud means any act committed by a party to a contract or with his connivance or by
his agent with intent to deceive another party there to or his agent or to induce to enter into contract.

Essentials of fraud :
(a) By a party to the contract

(b) There must be representation – [an opinion a statement of expression – does not fraud].

(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.

¾
(h) Dominant partyparty
The other – fullhave suffered¾
disclosure Price was adequate ¾ Receipt of competent
a loss.
independent advice before entering into contract – weaker party.
Fraud – definition include
• The suggestion, as to fact, of that which is not true by one who does not believe it to be true.
• The active concealment of a fact by one having knowledge or belief of the fact.

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

• A promise made without any intention of performing it.

• Any other act fitted to deceive.
SUJEET JHA 28 9213188188
⇒
Any such act or omission as the law specially declared to be fraudulent.
 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.

(1) Duty to speak exists where the parties stand in a fiduciary relationship, e.g. father and son,
guardian and ward, trustee and beneficiary etc. or where contract is a contract of
ubberima fidei (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 is 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: - Example – company pay dividend – in class room]

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.

Rescinds of contract
Right to insist upon performance
Right to claim damages – if he suffered loss.
Misrepresentation is when a party (person) asserts something which is not true though he believes is
to be true. In other words misrepresentation is a falls representation made innocently. An agreement
is said to be influenced by misrepresentation if all the following conditions are
satisfied.
The party makes a representation of a fact
(a)
[The representation by a stranger (By
anyone with his connivance or by agent)
to the contract does not affect the validity
of the contract.
The misrepresentation was made
(b
innocently i.e. if was not made with a
)
view to
Misrepresentation include:
deceive the other party.
¾ Unjustified statement of facts – positive assertion – Believe true really not true no basis
misrepresentation
¾ Breach of duty.
¾ Inducing other to make mistake as to qualify or nature of subject matter.

(1) Right to Rescind contract:-

Can’t do
¾ Discovering the truth with ordinary diligence.
¾ Give consent in ignorance of misrepresentation
¾ Become aware of misrepresentation takes a benefit
¾ Where an innocent third party before the contract is rescinds acquires consideration
some interest in the property passing under the contract.
¾ Where the parties can’t be restored to their original position.

(2) Right to insist upon performance.

Ex.:-Unlike Fraud he cannot sue for damage.

Misrepresentation
Fraud (17)
(18)
Meaning :- wrongful Meaning - innocently
representation is made without any intention
Willfully to deceive the to Deceive the other
party. Knowledge of party. -The person
falsehood. -The person making the wrong
making the wrong statement believes it to
statement does not
Exception : The contract beistrue.
not-Can’t
voidableclaim
in the following cases.
believe it to be true. - damage -In case of
¾Right to claim
When thedamage
party whomisrepresentation
consent was caused the by silence amount to fraud and be has the means of
Means of discovering contract is not voidable
discovering the truth with ordinary diligence. [ Ex class room]
¾of truth -In case
When of giveifthe
the party theconsent
aggrieved party
in ignorance of fraud.
¾fraud the contract is had the means of
When the party after become aware of fraud takes a benefit.
¾voidable eventhe
When though discovering
parties can’t thetotruth
be restored their original position.
¾the aggrieved party had with ordinary
Where interests of third parties intervene before the contract is avoided.
the means of diligence….
discovering the truth
with ordinary
diligence. Exception :-
Silence
Bilateral [20]

Mistake Erroneous Belief about some facts

Mistake of Indian
Unilateral [22]
Mistake of foreign
Mistake of fact Mistake of facts the contract is valid same as
mistake
The contract
fact is valid

[Not voidable and void]

Law Law

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
pearl necklaces from a firm of jewelers on the pretext of showing them to her husband before 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:-
Mistake of Fact

the contract is void

void

Both parties
under mistake
(a) It is forbidden by law – law would also include the rules regulations, notifications etc. under
or issued 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 state 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.

⇒ X gave Rs. 10,000 to Y a married woman to obtain a divorce from her husband. X agrees
to marry when divorce taken. X would not recover the amt.

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 manufactured 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
Existence Quantity Quality Prices Identity Title Legal Physical
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 caseVoid
2(g)- of pre – existing
agreement civil
is an liability, the
agreement dropping
which is not of criminal proceedings
enforceable need
by Law – void not–necessarily
– ab inito. be a
consideration for the agreement to satisfy that liability.
Union
(1) Carbide Corpn.byv.orUOI
Agreement with person’s incompetent to contract [10, 11]
(2) Agreement entered into through a mutual mistake [20]
Illegal
(3) agreement
Object or–consideration
Void – ab ––intio
unlawful [23]
(4) Consideration or object partially, unlawful [24]
(5) Without
-Punishable consideration
by the criminal Law[25]of the country or by any special legislation regulation effect of
(6) Restraint of marriage [26]
illegal agreement.
(7) Restraint of-Collateral
trade [27]transactions – illegal -No action can be taken for the recovery of
(8) Legal proceeding [28]
money
(9) paid or propertyidentified
Consideration transferred.
[29]-If illegal part can’t be separated from the legal part.
(10) Wagering agreement
Whole agreement [30]
is altogether illegal. [Sec.57] -If separated
(11) Impossible agreement [56]
(12) An agreement to enter into an agreement in the future.

- Legal part – enforces illegal part – reject.

Every agreement in restraint of marriage of any person other than a minor, is void, Any restraint of
- Reciprocal promises – In respect of reciprocal promises the agreement as to illegal
marriage whether total or partial is opposed to public policy.
promise is void.
Ex. A promised to marry else except Mr. B, and in default pay her a sum of Rs.1,00,000. A
Agreement opposed to public policy:
married someone else and B sued A for recovery of the sum. Held, the contract was in restraint of
marriage, and as such void.
Alternative promises: where in alternative promises one part is illegal, only the legal pent can be
Ex. The consideration under a Sale Deed was for marriage expenses of a minor girl aged 12. Held
enforced. [Sec. 58] transaction being opposed to public policy.
the sale was a void
Ex. Two co-widows – agreement – is one of them remarried – she shout forfeit her eight to her
Champerty
share & Maintenance
in the deceased husband’s property :was
(Refer Classbecause
not void Note) 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 impose upon husband from marrying a second wife.

Every agreement by which anyone is restrained from exercised 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.
Exception to Sec. 27
(1) Sale of goodwill: - Seller of goodwill of a business may agree with the buyer to restrain from
carrying(a)
on business.
Must relate to same business
(b) Restriction shall apply within specified Local limits.
(c) Restriction shall apply within a reasonable time period
(d) The specified local limits – depends on nature of business.

(a) Restriction on existing partner [11(2)]

-Not carry on business other than business of the firm till he is partner.

(b) Restriction on outgoing partner [36]

-Not carry on a similar business after retirement
-Local limits + specified period – local limit – nature of business

(c) Sec. 54: Upon or in anticipation of dissolution of Firm. Partners may agree that some or all of
them will not carry on business similar to that of the Firm within specified periods or local 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
business similar to Firm’s within specified periods or local limits.

Exception under judicial interpretations :

(a) Trade combination.

- Traders may from associations among them to regulate the business or to fix prices.

- Such agreement like opening and closing of business venture, licensing of traders,
supervision and control of dealers, etc. are valid even if they are in restraint of trade.

- But, a Combination that tends to create monopoly; or when two enter into an
agreement to 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.
-Not to sell any other firm – 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: The first restraint is always valid, e.g. doctors may be paid non
practicing allowances to avoid practicing when they are employed in a hospital.

- After termination of service: The second restraint is valid only is it is to protect the
trade interests or 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 skills and knowledge to his benefit; e.g. an employer cannot restrain an employee to
act in theatre plays or in perforating 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 way 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 prove 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 restart 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 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.
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.

-X promise to pay Rs. 1000 to Y if it is rained on a particular day, and Y promise to pay Rs.1000
to X if it did not. -Wagering agreement is promise to give money or money’s worth upon the
determination of uncertain event.- Sir Willian Anson.

(1) The 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 chancels 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.

⇒ Prize in terms of Prize competition Act, 1955 not exceeding Rs.1000 is not
wagering agreement.

⇒ Horse race [500] – An agreement to contribute a plate or prize.

⇒
Contract of insurance utmost in good faith eg. Favour in public policy.
 ⇒ Share market transaction A commercial transaction should always be
distinguished from a 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.

⇒ Crossword competition involving skill for its solution. If skill plays an important
role in the result 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.

⇒ Athletic Competitions also fall in the category of games of skill. Therefore,

these are also not wagers.

Example: A and B, two wrestlers, agreed to enter into a wrestling contest in Ahmedabad on a certain
day. They further agreed that a party failing to appear on the fixed day was to forfeit Rs.500 and the
winning party will receive a sum of Rs.1,000. Held, it was not a wagering agreement.

⇒ Contribution to chit fund is not wager – contributions made by the members are
refunded by draw of lots.

• Agreement is void.
• No suit can be filled for any recovery of the amount won on any wager.
• It is not illegal. Any agreement collateral to wagering agreement is valid.
• However, it is illegal in state of Maharashtra and Gujarat.

• Agreement which is prohibited by law is illegal agreement. Example

Agreement to commit crime.
•
⇒ Effects of illegal agreement:
1. It is always void.
2. Any collateral
transaction to illegal agreement is
also void.
3. No action is allowed
Void
on illegal agreement. Illegal
Agreement agreement
Meaning One Not Forbidden by
in another enforceable by any law All
Reason Law All void illegal
Punishment agreement is agreement are
Void – ab – not illegal void Against
initio 10,29,56 Not the provisions
liable to of law Party
punished A are criminally
valid – liable Illegal,
collateral – is collateral –
not void illegal
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
• A contract to pay B Rs.10,000 if B house is burnt.
• A promise to pay B Rs.1,00,000 if a certain, ship does not return within a year.

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

Happ Non – Futur Happeni Non – Imp

ening e ng of ossi
of ble
Uncer Happe condu Specifie Happeni Eve
tain ning of ct of d ng of nts
Futur Uncert a Uncertai Specifie
e ain living n Event d
Event
Future within Uncertai
perso
Event Fixed n Event
n
time
(3) Happening of an event within a specified time [35] Enforce :- when such event has
happened within the specific time. Void :- When the happening of such event because impossible
before the expiry of specified time. When such event has not happened within specified time. 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.

(4) Non – happening of an event within a fixed time [35] Enforce :- When the happening of
such event because impossible before the expiry of specified time.

⇒ When such event has not happened within the specified . Void:-
When such event has happened within the specified period.

(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]
- Such an agreement can not be enforced since it is void whether the impossibility of the
event 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 Contingent
agreement agreement
1. Defined 2. Not defined Defined o/s 31
Meaning 3. u/s 30 Promise To do or not to
Nature of to give money do something
uncertain or money’s if some event.
event
(1) 4.
Contracts contingent uponCollateral
Void / with upon the the happingto of an event enforced – such event has happened
valid. 5. determinative such contract
[32] Void – such event because impossible [happening of such event]
Interest of an does or does
uncertain not happen
event. Not be a
Ex.:-A contract to pay B a sum of money when B marries e dies without being married to B contract
Contingent wagering
– void nature Void nature Valid
No other Have real
(2) Non happening ofin
interest a future event:- [33] Enforced :- when the
the interest
happening of such subject
events becomes
matter impossible.
outcome of Void:-such event has happened.
of the the uncertain
agreement gain. A
Ex.:-A agrees to pay B sum of money if a certain ship does not return. This ship is sunk. The contract
except within contingent
can be enforced when the of
of loss ship sinks.contract the
wagering amt. not be a
A wagering wagering
agreement is nature. Not
essentially of consist a
a contingent reciprocal
nature. promises
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

promise [38] OfferDoes not
Promisor promisee attempted performance
of performance accept

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.
Essential of
Valid tender

Reasonable
Of exact
amount and in

Unconditional

At a proper

For whole

legal tender

At proper

opportunity to
 place obligation money
time Promisee

A. Tender or offer of performance to be valid must satisfy the following conditions:-

(i) It must be unconditional Ex :- ‘X’ offers to ‘Y’ the principal amount of the loan. This
is not a valid tender since the whole 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

promise by the promisor promise must have reasonable opportunity of inspection.

(iv) It must be for the whole obligation :- goods and amount. Ex:- ‘X’ a debtor, offer’s to
pay ‘Y’ the debt due in installments and tenders the first installment. This is not a valid tender
minor deviation – not invalid [Behari lal v ram gulam]
(v) It must be made to the promise or his duty authorized agent. Ex:- It must
be person who is willing to person 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.
 . Tender of goods and services When a promisor offers to delivery of goods or service to
the promise, 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
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.

Promisor – Refuse – Promise – wholly Promisee can put – can end of the contract or
– he can continue the contract if he has given his consent either by words or – by
conducts in its continuance.

Result – claim damages. [compensation]

Ex:
(Refer Class Notes)

Promisee – stranger can’t demand performance of the contract.

Legal Representative – legal representative can demand Exception performance. -
contrary intention appears from the contract -contract is of a personal nature.
Third party – Exception to “stranger to a contract”

[who will perform the contract ]

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 :-[does not involves personal skill]

3. Legal Representative [does not involve personal skill and taste]

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 performance against the promisor although the promisor had neither
authorized not ratified the act of the third party.
 [In other meaning once the promise accepts the performe from a third person, he cannot
compel the promisor the perform the contract again]

Two or more person make a promise

¾ Performed by all the joint promisor [42]

¾ All the joint promisor – liable

¾ Thus in India the liability of joint promisors is joint as well as several.

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.

¾ Liability of joint promisor [43]

1. Liability – joint as well as several [unless express A + B + C 900 D. D may compel either
A, 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 :- where one of the joint promisors is released other joint

[In English
romisors lawcontinue
shall if one joint
to bepromisor
liable. – discharge then all the joint promisors discharge]

Sec 45:- Rights to claim performance of joint [Devolution of joint rights]

During their joint lives – all the joint promisors .
After the death of any of them – The representative of such deceased promise jointly with
the surging promise
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 replace them that sum with interest on a day
specifies.
1. No time is specified for performance [Sec 46]
¾ Time of performance is not specified + promisor agreed to perform without, a demand
from the promise the performance must be made within a reasonable time. Reasonable time – in
each particulars case – a question of fact.

2. Time specified but hour not mentioned [47].

Time of performance specified + promisor agreed to perform without application by the promisee
¾ Performance must perform on the day fixed during the usual business hours and at the

place at which the promise ought to be performed.

3. Where Time is fixed and application to be made [48]

¾ Proper place and within the usual hour of business ¾
Promisee to apply for performance

4. Performance of promise where no place is specified and no application is to be made by

the promise [49]
¾ It is the duty of the promisor to apply to the promise to appoint a reasonable place for the
performance and perform it at such appointed place.

5. Performance in manner or at time prescribed or sanctioned by promise [50]

¾ In such prescribed manner and ¾ Prescribed time 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.
deliver on Paying
X YY 6th may
the goods 10th may the price Y –
Price – non Payment X – goods
delivered

1 Mutual and Dependent:- Sue damage . The performance of promise by one party depended
on the prior performance of the promise by other party. [The party at fault becomes liable to pay
compensation to the other party may sustain by the non performance of the contract – [54]
2 Mutual and concurrent: - when reciprocal promises are to be performed simultaneously a
promisor need not perform his part unless the promise is ready and willing to perform [51]
- ‘B’ dies. The right to claim performance rests with ‘B’ representatives jointly with ‘c’
during ‘C’ life. -And after ‘C’s death with the representatives of ‘B’ and ‘C’ jointly .
deliver Pay
 AB
the goods The Pr ice

¾ Where the order in which reciprocal

promises one to be performed is expressly
fixed by
the contract – they must be performed in
that order.
¾ Order is not expressly fixed – nature of
Sec 53 :-transaction
One party preventing
requires – voidable at the option of the other party so prevented.
- Compensation
Ex :- ‘A’ and ‘B’ contract for loss
that ‘A’ shall build

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 the
specified time.

Time are fact :- time is specified for the performance of the contract is not by itself sufficient to
prove that time is essence of the contract.
- Intention of the parties.

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

(c) Nature and necessities of the contracts requires it to be performs within the specified
time. -Delivery of the goods – considered – essence of the contract payment of the price

– No
[However in case of sale and purchase of an immoral property, the time is presumed to
not the essence of the contract]

Time is essence of the contract – party tails 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

Assignment of contract :-
(a) by
–
operation of law -Death -Insolvency
 (b) By an act of parties

Assignment is a made of transferring rights.

tranfer rights
Assignment another person
and int erest

Rules regarding assignment

(a) The liabilities or obligations under a contract can’t be assigned

(b) The rights and benefits under a contract which not of a personal nature can be assigned.

(c) An actionable claim can always be assigned

Succession Assignment
Meani Deceased person Person – another
ng - Legal represent person During the
Time On the death of a life time of a
Volunt person Not person Voluntary
ary voluntary Required
Act automatic by assignment deed
Writte operation of law Rights
n No. required
docum Liability and
ent rights
Scope

¾ 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 sufficient
to discharge the whole indebtness.

1. Appropriation of Payments Sometimes, a debtor owes several distinct debts to the same
creditor and he makes a payment which is insufficient to satisfy all the debts. In such a case, a
question arises as to which particular 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.

⇒ Appropriation as per express instructions

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.
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
Discharge other debts,
of a contract meansthe sum of Rs.520.
termination B writes relation
of contractual to A andbetween
demandsthe payment
parties ofto this sum. Ain
a contract
sendsatocontract
other words B Rs.520. This payment
is discharged is tothe
when berights
applied to obligations
and the dischargecreated
of the by
debtit of
arewhich B had
extinguished
demanded
(i.e. comes payment.
to an end).

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.

¾ First interest then principle ¾

Director of payer not receiver. ¾
Right primary of the debtor

[whatever is paid, paid according to the intention of paying it]

¾ [Quickquid soivitur , sovitur secundum modem solventies]

Example: A owes B, the following debts: Amount of Positions of the debt the
th
debt Rs.2,000 Time barred Rs.1,000 Time barred Rs.2,000 Due on 10 June
th
Rs.3,000 Due on 20 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 of time but to all equal standing debts. In this case, Rs.1,500 will be
appropriated towards the first two debts of equal standing proportionately, i.e. in the ratio of
2:1.
fulfillment of obligations by a party to the contract within the time and in the manner 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
¾ But the contract is not discharged.
 (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.
¾ Between the same parties (by change in the terms and condition) ¾ Between
different parties (the term and condition remains same or changed)

Following conditions are satisfied :

(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:
o 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)
o 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
st
parties to a contract. X promises Y to sell and deliver 100 bales of cotton on 1 oct his go down
st
and Y promises to par for goods on 1 Nov. X does not supply the goods. Y may rescind the
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:- X Promises to
st st
sell and delivers 100 bales of cotton on 1 oct. and Y promises to pay for goods on 1 Nov.
Afterwards X and Y mutually decide that the goods shall be delivered in five equal installments at
is godown . Here original contract has been discharged and a new 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

¾ A promise to paint a pictured for B. B after words for him to do so. A is no longer
bound to perform the promise.

(e) Waiver:- Intentional relinquishment of a night under the contract.

SUJEET JHA 49 9213188188

(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 It is alteration
substitution of to some of the
an existing terms and
contract with conditions of
new one. the original
Contract.
2. Change in It is made by – Terms of the
parties (a) change in contract may
the terms of be altered by
the contract or mutual
(b) change in agreements by
the the same
Contracting contracting
Parties. parties. So,
there is no
change in the
parties.
3. New A New It is not
Contract Contract essential to

(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 represent.
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: A contracts to sell 100 bags of sugar to B. Due to heavy loss by a
major fire which leaves 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 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.
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
st
property – 12 years Ex.:-On 1 July 20X1 X sold goods to Y to Rs 1,00,000 and Y had made no
st
payment till August 20X4. state the legal position on 1 Aug 20X4
(a) If no. credit period allowed Ans. (Refer Classroom)
(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: -5 agrees to supply B 100 tunes of specified category of iron on
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.:- 5 agrees to sell his fiat car to B
on 15.01.2006 on 31.12.05 5 sells his fiat car to T.

(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

Example:
(a) Initial A took a –land
Impossibility on time
at the lease of
from B. Subsequently,
making contract A purchases that land. A becomes
¾ Bothowner of the
parties knowland and life
– put ownership rights
into deed bodybeing superior
– void . ¾ to rights of a lessee, the earlier contract
of lease stands terminated.
Both don’t know – void. ¾ One know – compensate to
other party
5. Rights and liabilities vest in the same person: Where the rights and liabilities under a
Contract
(b) Effectvest in the vanity
of super same person, the contract is discharged. Example: A Bill of Exchange which
Impossibility:-
was accepted by A, reaches A’s hands
¾ Where an act becomes impossible after after the
being negotiated
contract and–endorsed
is made void ¾ through
Becomes4 other parties.
The contract
unlawful, is discharged.
beyond the control of promisor – void ¾ Promisor alone knows about the
Impossibility – compensate loss. ¾ When an agreement is discovered to be void or
where a contract becomes void
SUJEET JHA 51 9213188188
Sing
 Benefit must refund X Y. y
Ad.1000

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 Example : (Refer Classroom)

(c) Declaration of war Example : (Refer Classroom)

(d) change of Law Example : (Refer Classroom)

(e) Non existence or Non occurrence of a particular state of thing necessary for performance.
Example : (Refer Classroom)
Remedy means course of action available to an aggrieved party when other party breaches the
contract. Remedies for Breach of contract

performance

1.
No Super Impossibility – does not become void
It means
¾ Difficulty right to party–tocoal
of performance cancel contract.¾ Commercial Impossibility ¾ Default
– transport
In case of breach of contract, other party may rescind contract.
of a third party ¾ Strikes, knockout and civil disturbance. ¾ Partial Impossibility –
Effect of Rescission of Contract
coronation of king and to sailing around the lake by boat.
• Aggrieved party is not required to perform his part of obligation under contract.
• Aggrieved party claims compensation for any loss.
• Party is liable to restore benefit, if any.

When can Court Grant Rescind Contract?

Court can rescind the contract in the following situation:

Contract is voidable.
Contract is unlawful.
It means monetary compensation allowed for loss.
Purpose is to compensate aggrieved party and not to punish party as fault.
In India, rules relating to damages are based on English judgment of Hadley vs Baxendale.
The following are the different kinds of damages:
⇒ Ordinary 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.

⇒ Special damages

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.

⇒ Exemplary or punitive or vindictive damages

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.

⇒ Nominal damages 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.

⇒ Damages for inconvenience

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 damages and penalty Party may specify amount at the time of entering into
contract. The amount so specified may be (a) liquidated damage, or (b) penalty.

The facts of case were – H’s mill was stopped due to the breakdown of the shaft. He delivered the
If specified sum represent, fair and genuine pre – estimate damages likely to result due to
shaft to common carrier to repair it and agree to pay certain sum of repair it and agree to pay certain
breach, it is called liquidated damage.
sum of money for doing this work. H has informed to B that delay would result into loss of profit. B
delivered the shaft after reasonable time after repair. H filed suit for loss of profit. It was held that B is
But if specified sum is disproportionate to the damages, it is called as penalty.
not liable for loss of profit. The court laid down rule that damage can be recovered if party has breach
of contract.
As regard the payment of liquidated damages and penalty court can’t’ increase amount of
damages beyond the amount specified in the contract.
SUJEET JHA 54 9213188188
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.
⇒ Forfeiture of security deposit Any clause in contract entitling the aggrieved party to forfeit
security deposit in the nature of penalty and court may award reasonable compensation.

⇒ Payment of interest
• It is permissible.
• If interest is in nature of penalty, court may grant relief.
• If no rate of interest is specified in contract party shall be liable to pay as per the law
in force or as per custom or usage of trade.

⇒ Cost of suit or decree 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.

⇒ When is specific performance allowed?

• Where actual damages arising from breach
is not measurable.
• Where monetary compensation is not
⇒ adequate
Whenremedy.
specific performance is not allowed?
•• 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
• Where contract is inequitable to either party.
Example : A agree to sell B, an artist painting for
Rs.30,000. Later on, he refused to sell it. Here B
can file suit against A for specific performance of
the 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.

(d) A suit for its breach may be filed in the same way as in case of a complete contract.
(e) The right grouted to a party under a quasi contract is not available to him against the
whole world but against particular person(s) only.

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

(g) Although there is no contract between the parties under a quasi 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
contract Act, 1872.

Sec. Sec. Sec. 70 Sec. 71 Sec.72

68 69 Obligatio Responsi Person
Suppl Reimb n to pay bility of receivi
y of ursem for Finder of ng
Nece ent of benefit Goods goods
Sec. 68: If a person, incapable of entering into
ssarie money out of are a contract, or anyone whom he is legally bound
s due non – money
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. It means stay
Meaning order granted by court. This order prohibits a person to do particular act.
of Necessaries:
⇒ Where there is breach
(a) ofNecessaries
contract bynormally
one partyinclude
and order, of specific
articles requiredperformance
to maintain is
a not
granted by court, injunction may be granted. Example: Film actress agreed to act exclusively
particular person in the state, degree and station in life in which he for W
for a year and for no oneis.else. During the year she contracted to act for Z.
(b) They are essentials to run a
life.
(c
)
An item will not be considered necessary, if a person already has sufficient supply of
things 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 He
(b) liable.
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.

Obligation of person enjoying benefit of non-gratuitous act [70]

Conditions of section 70.

Sec.70 : Where a person, lawfully does anything for another person, or delivers anything to him; not
intending to do so gratuitously, and such other person enjoys the benefits thereof, then he is bound 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.
(c) The other person has enjoyed the benefit of the act done for him or the thing delivered to
him.

Legal effect of sec 70.

SUJEET JHA 57 9213188188

¾
If the conditions of sec70 are satisfied, there will be quasi contract between the parties.
¾
Consequently, the party who has done something or delivered a thing shall be entitled to
 recover its value from the person who obtained the benefit of the same. 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.

¾ A saves B’s property from fire. A is not entitled to compensation from B if the
circumstances show that be intended to act gratuitously.

Finder of Goods [71]

A person who finds goods belonging to another and takes them into custody, is subject to the
same responsibility as a Bailee.

A finder of goods has same rights and duties at that of bailee. ¾

Duty to take reasonable care of the goods ¾ Duty not to use the
goods for his own purpose. ¾ Duty not to mix the goods with
own goods
Right to recover expenses, reward, sell the goods

Ex.:- X a guest found a diamond ring at a birthday party of Y. X told Y and other guests about it. He
has performed his duty to find the own. If he is not able to find the owner he can retain the ring as
bales.

Money paid under a mistake or conversion [72]

Sec. 72: A person to whom money has been paid, or anything delivered by mistake or under
coercion, must repay or return it. Conditions of Sec. 72

(a) A person has (i) paid money to another person or

(ii) Delivered something to another person
(b) Such person must have acted ¾ Under a
mistake or under coercion.

Legal effect – quasi contract, recover its value from the person who obtained the benefit of same.
Example: (i) A and B jointly owe Rs.1,000 to C.A alone pays the full amount to C and B not knowing
this fact, pays Rs.1,000 again to C.C is bound to repay the amount to B. (ii) A Railway Company
refuses to deliver certain goods to the Consignee except upon payment of an illegal charge for
carriage. The Consignee pays the sum charged in order to take delivery of goods. He is entitled to
recover so much of the charge as was illegally excessive.

(c) A + B . – 100 – A – 100, B – 100, B – return.

One party preventing the other:- If a party prevents the other party from completing his obligation
under the contract the aggrieved party may claim payment on quantum merit for the part of contract
already performed by him.

(a) In case of void agreement or contract that becomes

¾ Any person who has received any advantage under such agreement or contract is bound to
restore if or to make compensation for it, to the person from who received it. Ex.:(1)- A – B –
10000 – to marry c (A’s daughter) – C – death of the time of performance of contract – B must
st
repay A Rs 1000. Ex.(2):- A – B decline 250 quince of rice before the 1 of May. A delivers 130
qu. Only before that day and none after. B retains the 130 qu. after the first of May. He is bound to
pay A for them. Ex(3):-A singer – two nights in every week during the next two month and B any
ages to pay her Rs 100 for each night’s performance on the sixth night, A willfully absent perfect.
B must pay a for the five night on which she had sung.

(b) In case of Act preventing the completing of contract:

If a party does not complete the contract or prevents the other party to complete the contract the
aggrieved party can sue or quantum meruit. Ex.c:- owner – P write a book to be published as series in
his magazine. After a few series were published the publication of the magazine was stopped. It was
held that P could claim payment on quantum meruit for the part already published.

(c) In case of divisible contract :

(1) If the contract is divisible and
(2) If the party not at default has enjoyed benefit of the point performance.
(3) the contract is party performed

If the above condition an satisfied, the party at fault may claim on payment on quantum meruit for
the part of contract performed by him be con recover such proportion of the contract price as the
work done, by him bears to the work under the contracts.

(d) In case of indivisible contract performed completely but Badly.

¾ Contract is indivisible ¾
Lump sum consideration ¾
Completely performed ¾
Performed badly
Compensation for failure to discharge obligation created by quasi contract [73]
The party at fault may recover the contract price (Lump sum price) less the deduction made for
done
Whenbadly.
an obligation created by quasi contract is not discharged the injured party is entitled to reline
the same compensation from the party in default as if such person had, contracted to discharge is and
Ex.:-
brokenXhis
agreed to decorate Y’s flat for a lump sum of Rs20,000. X did the complete work but Y
contract.
complained of faulty work man stop. It costs Y another Rs3000 to remedy the defect. X could
recover only Rs 17000 from Y.
(e)
In case of Non
–
gratuitous Act
–
Three condition
(i) The thing must have been done or delivered lawfully.
(ii) The person who has done or delivered the thing must not have intended to do so gratuitously And

(iii) The person from whom the act is done must have enjoyed the benefit of the act.

Ex.:- A, a tradesman leaves goods at B’s shop be mistake B treats the good as his own. He is
bound to pay A for them.

Difference between Quasi Contract and Contract

Quasi –
Matter Contract
contract
Intentionally It is not It is
Form intentionally intentionally
formed but formed by
law imposes parties.
upon the
parties.
Essentials of A quasi – A contract
contract contract does possesses all
not possess all the essentials
the essential of a valid
of a valid contract.
contract.
Obligations Obligations Obligations