Indian Contract Act

Nature of Contract Law

• Q. No. 01: What was the nature of the Law of Contract before passing the Indian Contract
Act, 1872 ?
• Ans.: Nature of the Contract Law in India before 1872 was as mentioned below:
1. No uniformity of the law.
2. Uncertainty in its application outside the original
jurisdiction of the High Court.
3. Judges of Mofussil Court had no guidelines.
4. Decisions were taken on the basis of principle of justice,
equity and good conscience.
5. Administration of Law of England with modifications by the
“Supreme Court of India” established by the “Royal
Charter”.
Contd…. Nature of Contract Law
Nature of the Contract Law in India before 1872 was as mentioned
below:
6. Law of England administered by the Supreme Court of Justice
at Bombay, Madras and Calcutta was not found favourable on
account of its foreign nature.
7. Supreme Court of Calcutta and Bombay were empowered in
1781 and 1797 respectively with application of Hindu Contract
Law for both the parties are Hindus and Muslim Contract Law
for both parties are Muslims.
8. Application of Law of Defendant where one party was Hindu
and other Muslim.
9. Establishment of Calcutta, Bombay and Madras High Courts in
1862 and application of same law of contract.
10. Remedy by Indian Law Commissioners in 1866, which
became Indian Contract Act, 1872.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
Q. No. 02: What is the Nature of the Contract Law in
India after enactment of Indian Contract Act, 1872?
Ans.: The Nature of Contract Law in India after 1872 is
as mentioned below:
1.The Act came into force w.e.f. 01.09.1872:
2.It extends to whole of India except J & K.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
3. It is not retrospective in its operation
4. Neither whole Law of Agreements nor whole Law
of Obligations: There are several agreements, which
do not carry any legal obligation i.e. agreement to
have dinner together at some pre-decided place, so
such types of agreements cannot be called as
contracts.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
4. Neither whole Law of Agreements nor whole Law
of Obligations: (Contd..)
Similarly, there are certain obligations which do not
necessarily spring from any agreement and are not
contractual in nature, but they are enforceable by law
e.g. Tort or civil wrongs, quasi contracts, judgements
of courts.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
• 4. Neither whole Law of Agreements nor whole
Law of Obligations: (Contd..)
• Salmond has rightly said that the law of contract is
“neither the whole law of agreements nor law of
obligations.It is the law of those agreements which
create obligations, and those obligations have their
source in agreements.”
• It excludes from its purview all obligations which
are not contractual in nature and agreements which
are social in nature.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
5. Consensus ad idem: Understanding and
interpretation of the facts of subject matter by both
the parties entering into a contract must be same.
The agreement as defined in Sec. 2(e) is essential and
exclusively consensual in nature. Before any
agreement between two parties there must be
“consensus ad idem” means that the parties to the
agreement must have agreed about the subject
matter of the agreement in the same sense and at the
same time. Unless there is consensus ad idem, there
can be no contract.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
6. Law of Contract Creates jus in rem as
distinguished from jus in personam : Jus in rem
means a right against or in respect of a thing and jus
in personam means a right against or in respect of
some specific person.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
7. The Act is not intended to deal exhaustively with
whole Branch of Law of Contract: It only defines and
amends certain parts of the law relating to contract. It
saves from its operation (i) all Statutes, Acts or
Regulations not expressly repealed by the Act (ii) Any
usage or custom of the trade (iii) Any incident of any
contract not inconsistent with provision of the
Contract Act.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
8. Deals with General Principle of Law of Contract as
well as special form of contract: The contract Act
deals with total eleven chapters. First six chapters
deal with General principle of law of contract and
remaining chapters deal with special form of contract
such as guarantee, bailments and agency. Chapter VII
on Sales and Chapter XI on Partnership have been
repealed by Sale of Goods Act, 1930 and Partnership
Act, 1932 respectively.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
9. The Acts, which are not dealt by Law of Contract Act:
(1) The Negotiable Instrument Act
(2) The Transfer of Property Act
(3) The Specific Relief Act
(4) The Companies Act
(5) The Sale of Goods Act
(6) The Partnership Act
(7) The Railway Act
(8) Act IX of 1856 (bills of lading)
(9) Interest Act (XXXII of 1839)
(10) Common Carriers Act, Act III of 1865
(11) Act V of 1863 (Seamen’s wages)
(12) Act XI of 1863 (Emigrants)
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
10. Usages and Customs saved from the operation of
the Contract Law:
(i)Pre-emption
(ii)Attorney’s lein
(iii) Arbitrator’s lein
(iv) Maritime Laws
(v) Custom as to Hundies
(vi) Customs as to carriers
(vii) The Rule of Damdupat
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
Rule of Damdupat: The Hindu Law arrears of interest
exceeding the amount of principal amount cannot be
recovered at any one time, but it prevails only in the
Bombay Presidency and in the ordinary original civil
jurisdiction of the Calcutta High Court.
 Contd…. Nature of Contract Law
Indian Contract Act, 1872
11. A wide branch of law affecting everyone & effect
of other Acts and Usages: The Law of Contract is very
wide branch of law. Every individual is affected
somehow or the other by some sort of contract.
There are so many other acts, customs and usages
which govern the terms of contract entered into by
men.
12. Incomplete Code: By going into details of the
Indian Contract Act, 1872 we can say that this is not a
complete code in itself.
 Scope of the Contract Act
• The Preamble of the Indian Contract Act, itself says that the
act is to define and amend certain parts of the law relating
to contract.
• Deals with General Principle of Law of Contract as well as
special form of contract: The contract Act deals with total
eleven chapters. First six chapters deal with General
principle of law of contract and remaining chapters deal
with special form of contract such as guarantee, bailments
and agency. Chapter VII on Sales and Chapter XI on
Partnership have been repealed by Sale of Goods Act, 1930
and Partnership Act, 1932 respectively.
• Act does not profess to be complete code on the entire
law relating to contracts.
• The extends to whole of India except the state of J. & K.
Interpretation of Clauses:
Q. Define and Explain ‘proposal’, ‘promise’,
‘promisor’, and promisee
Ans.: proposal’, ‘promise’, ‘promisor’, and promisee
Proposal: When one person signifies to another
his willingness to do or to abstain from doing
anything, with a view to obtain the assent of that
other to such act or abstinence, he is said to make a
proposal. It is essential that the proposer must make
the statement of his/ her intention to the other party
with a view to obtain the assent of the other party.
Contd…‘promise’, ‘promisor’, and promisee

Promise: When the person to whom the

proposal is made signifies his assent
thereto, the proposal is said to be accepted
. A proposal when accepted, becomes a
promise.
Contd… ‘promisor’, and promisee

Promisor and Promisee: The person

making the proposal is called
‘promisor’ and the person who is
accepting the proposal is called
‘promisee’
 Conversion of Proposal into Promise
Q. What conditions are necessary for converting
proposal into promise ?
Ans.: Conversion of proposal into promise: A proposal
becomes promise when it is accepted by the person
to whom it is made. Sec. 4 (b) of the Contract Act
says, “ When the person to whom the proposal is
made signifies his assent thereto, the proposal is said
to be accepted. A proposal when accepted becomes a
promise.
i.e. Proposal + Acceptance = Promise
 Contd….
• Before proceeding further it appears necessary to
give the definition of “proposal” too. Sec. 4 (a) says
“When one person signifies his willingness to do or
to abstain from doing anything with a view to
obtain the assent of that other to such act or
abstinence, he is said to make a proposal”

• Thus the proposal becomes promise only when it is

accepted by the person to whom it is made.
 Contd…
• As section 3 of the act the communication of the
proposal is deemed to be made by any act or
omission of the party proposing, which he intends
to communicate or which has the effect of
communication.
• Binding effect of the proposal (Section 4 ): Only
when it comes to the knowledge of proposee.
• The accepted proposal must give rise to the legal
duty or obligation.
Q. What do you understand by the terms– (i) Offer (ii)
Invitation to Offer and (iii) Acceptance?
Ans. :
(i)Offer: The word ‘offer’ of the English Law is
synonymous to the word “proposal” of Indian
Contract Act. (refer to definition of proposal as
given before) e.g. (1) Tender to supply goods (2) Bids in an
auction sale
(ii)Invitation to offer: Offer and Invitation to offer are
different from each other, thus the following cannot
be called as offer, but only invitation to offer: (1) A
Catalogue of goods for sale (2) The mere quotation of terms by a
trader (3) Advertisement for sale/ tender etc.
 Conted…. Offer
Followings are the offer:
• A tender to supply goods at a certain time
• A request for a loan
• Bids in an auction sale
 Contd…
(iii) Acceptance: When the person to whom the
proposal or offer is made signifies his assent to the
proposal is said to have accepted . The acceptance
may be made by words or conduct, but that must be
(1) Absolute (2) Unconditional (3) Unqualified and
(4) in the way prescribed by the offerer/ proposor.
 Consideration
• When, at the desire of the promisor, the promisee
or any other person has abstained from doing, or
does or abstains from doing, or promises to do or to
abstain from doing, something, such Act or
abstinence or promise is called a consideration for
the promise :
 Consideration
• Consideration is the legal concept of value in
connection with contracts. It is anything of
value in the common sense, promised to
another when making a contract. It can take
the form of money, physical objects, services,
promised actions, or even abstinence from a
future action.
 Case of consideration
• A agrees to sell his house to B for Rs
5,00000.Here A’s promise to sell his house is
for B’s consideration to pay Rs
5,00000.Similarly B’s promise to pay Rs
500000 is for A,s consideration to sell his
house to B.
 Essentials of a valid consideration
• Consideration must move at the desire of
promisor.
• Consideration may be past ,present or future.
• Consideration must be legal
• Consideration must be something of value
• Consideration need not be adequate
• Consideration must be real ,not illusionary
• Consideration should not be immoral or
opposed to public policy
 Essentials of a valid consideration

• Consideration must move at the desire of

promisor. Consideration must be done at the
request or desire of promisor. If done at the
instance of third party or without the desire of
promisor it is not consideration.
 Case for consideration
• Amar sees Bhushan’s house on fire and helps
in extinguishing it.Amar cannot demand
payment for his services because Bhushan
never asked him to help.
 Consideration
• Consideration may be past ,present or future.
says “When the consideration by the party for
the present promise was given in the past, it is
called past consideration.”
• Case: A renders some service to B at B’s
desire. After a month B promises to pay A for
the service done in the past. It is past
consideration.
 Present consideration
• When consideration is given simultaneously
with promise it is present consideration.In a
cash sale consideration is present.
• Case
• A receives Rs 5000 in return of which he
promises to deliver certain goods to B at the
same time. This is present consideration.
 Future Consideration
• When the consideration from one party to the
other is to pass subsequently in future to the
making of the contract, it is future or
executory consideration.
• Case:
• D promises to deliver certain goods to p after
a week. P promises to pay after a fortnight.It
is future consideration
 Quasi contract
• Quasi contract is based on the principal of
equity(fairness, moral justice, ethics)which
means no person should be allowed to enrich
himself at the expense of another.
 QUASI CONTRACT
• An obligation that the law creates in the
absence of an agreement between the parties.
It is invoked by the courts where
UNJUST ENRICHMENT, which occurs when a
person retains money or benefits that in all
fairness belong to another, would exist
without judicial relief.
 Kinds of Quasi contract
• Claim for necessaries supplied to a person
incapable of contracting on his account
• Case
• A supplies the wife and children of B ,a lunatic
with necessaries suitable to their condition in
life.A is entitled to be reimbursed from B’s
property
 Kinds of Quasi contract
• Responsibility of finder of goods: A person
who finds goods belonging to other is
supposed to return it
• Liability of a person to whom money has been
paid by mistake or coercion

• Case:
• A and B jointly owe Rs 1000 to C.A alone pays
the amount to C and B not knowing this fact
pays Rs 1000 over again to C. C is bound to
repay the amount to B.
 Distinction between Contract and
Quasi contract

Contract Quasi Contract

• Contract results from the
will of the parties
• Its an agreement
• Full fledged contract and is
binding
• Only an obligation
resembling that created by
a contract
• No agreement
• Not a full fledged contract
 Agreement
• Every promise and every set of promises,
forming the consideration for each other, is an
agreement.
 Reciprocal promise
• Promises, which form the consideration or
part, of the consideration for each other are
called reciprocal promises.
 Void Agreement
• An agreement not enforceable by law is said
to bevoid:
 Contract
• An agreement enforceable by law is a contract
 Voidable Contract
• An agreement which is enforceable by law at
the option of one or more of the parties-
thereto, but not at the option of the other or
others, is a voidable contract:
 Void Contract
• A contract which ceases to be enforceable by
law becomes void when it ceases to be
enforceable.
 CHAPTER - I
OF THE COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

• Sec.3 Communication, acceptance and revocation

of proposals:-The communication of proposals the
acceptance of proposals, and the revocation of
proposals and acceptances, respectively, are
deemed to be made by any act or omission of_ the
party proposing, accepting or revoking by which he
intends to communicate such pro- posal acceptance
or revocation, or which., has the effect of
communicating it.
 Communication when complete
• Sec.4. Communication when complete:-The,
communication of a proposal is complete when it
comes to the knowledge of the person to whom it is
made. The communication of an acceptance is
complete,-- as against the proposer, when it is put
in a course of transmission to him, so as to be out of
the power of the acceptor; as against the acceptor,
when it comes to the, knowledge, of the proposer
The communication of a revocation is complete

• As against the person who makes it, when it is

put into a course of transmission to the
person to whom it is made, so as "to be out of
the power of the person who makes it; as
against the person. to whom it is made, when
it comes. To his knowledge
 Illustrations
(a) A proposes, by letter, to sell a house to B at a certain price. The
communication of the proposal is complete when B receives the
letter.

(a) B accepts A's proposal by a letter sent by post. The communication

of the acceptance is complete, as against A when the letter is
posted as against B, when the letter is received by A.

(a) A revokes his proposal by telegram. The revocation is complete as

against A when the telegram is despatched. It is complete as against
B when B receives it. B revokes his acceptance by telegram. B's
revocation is complete as against B when the telegram is
despatched, and as against A when it reaches him.
 Revocation of proposals and acceptances
Sec.5 Revocation of proposals and acceptances:-A
proposal may be revoked at any time before the
communication of its acceptance is complete as
against the proposer, but not afterwards.

An acceptance may be revoked at any time before

the communication of the acceptance is complete as
against the acceptor, but not afterwards
 Illustrations
• A proposes, by a letter sent by post, to sell his
house to B. B accepts the proposal by a letter sent
by post. A may revoke his proposal at any time
before or at the moment when B posts his letter of
acceptance, but not afterwards.

• B may revoke his acceptance at any time before or

at the moment when the letter communicating it
reaches A, but not afterwards.
 Revocation how made
Sec. 6 Revocation how made.-A proposal is revoked-
(1) by the communication of notice of revocation by the proposer to
the other party

(2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a reasonable
time, without communication of the acceptance;

(3) by the failure of the acceptor to fulfil a condition precedent to

acceptance ; or

(4) by the death or insanity of the proposer, if the fact of his death
or insanity comes to the knowledge of the acceptor before acceptance.
 Acceptance must be absolute
Sec. 7 Acceptance must be absolute:-In order to convert a
proposal into a promise, the acceptance must
(1)be absolute and unqualified;
(2)be expressed in Some usual and reasonable manner,
unless the proposal prescribes the manner in which it is to
be accepted. If the proposal prescribes a manner in which it
is to be accepted, and the acceptance is not made in such
manner, the proposer may, within a reasonable time after
the acceptance is communicated to him, insist that his
proposal shall be accepted in the prescribed manner, and
not otherwise; but if he fails to do so, he accepts the
acceptance.
 Acceptance by performing conditions, or
receiving consideration
Sec. 8 Acceptance by performing conditions, or
receiving consideration:-
Performance of the conditions of a proposal, or the
acceptance of any consideration for a reciprocal
promise which may be offered with a proposal, is an
acceptance of the proposal.
 Promises, express and implied.
Sec. 9 Promises, express and implied:-In so far as the
proposal or acceptance of any promise is made in
words, the promise is said to be express. In so far as
such proposal or acceptance is made otherwise than
in words, the promise is said to be implied.
 CHAPTER II
OF CONTRACTS, VOIDABLE CONTRACTS AND VOID AGREEMENTS
What agreements are contracts

Sec.10 What agreements are contracts:-All

agreements are contracts if they are made by the free
consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not
hereby expressly declared to be void. Nothing herein
contained shall affect any law in force in 1*[India] and
not hereby expressly repealed by which any contract
is required to be made in writing 2* or in the
presence of witnesses, or any law relating to the
registration of documents.
 Who are competent to contract
Sec.11 Who are competent to contract:-
Every person is competent to contract who is
of the age of majority according to the law to
which he is subject, 3*and who is of sound
mind, and is not disqualified from contracting by
any law to which he is subject.
 What is a sound mind for the purposes of contracting
Sec. 12 What is a sound mind for the purposes of
contracting:-A person is said to be of sound mind for
the purpose of making a contract if, at the time when
he makes it, he is capable of understanding it and of
forming a rational judgment as to its effect upon his
interests e.g. A person who is usually of unsound
mind, but occasionally of sound mind, may make a
contract when he is of sound mind. A person who is
usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of
unsound mind.
 Illustrations

(a) A patient in a lunatic asylum, who is at intervals of

sound mind, may contract during those intervals.

(a) A sane man, who is delirious from fever or who is

so drunk that he cannot understand the terms of a
contract or form a rational judgment as to its
effect on his interests, cannot contract whilst such
delirium or drunkenness lasts.
 "Consent" defined.
Sec. 13 "Consent" defined:-Two or more
persons are said to consent when they agree
upon the same thing in the same sense.
 "Free consent" defined
"Free consent" defined:-Consent is said to be free
when it is not caused by-
(1)coercion
(2)undue influence
(3)fraud, as defined in section
(4) misrepresentation,
(5)mistake, subject to the provisions of sections
 "Coercion"defined.
Sec. 15 "Coercion" defined:-"Coercion" is the
committing, or threatening to commit, any act
forbidden by the Indian Penal Code, or the unlawful
detaining, or threatening to detain, any property, to
the prejudice of any person whatever, with the
intention of causing any person to enter into an
agreement.
 Illustration
• A is forced to sign a promissory note at the point of
pistol.A knows what he is sigining but his consent is
not free. The contract in this case is voidable at his
option.
 Threatening to commit any
forbidden act
• The threat amounting to coercion may not
necessarily proceed from a party to the
contract.It may even proceed from a stranger
to the contract.Likewise it may be directed to
any body not necessarily to the other
contracting party.
• Coercion includes fear,physical compulsion
and menace to goods.
 Threatening to commit any
forbidden act
• A threathens to shoot B if he(B) doesn’t
release him(A)from a debt which A owes to
B.The release has been brought about by
coercion.
• A threatens to kill B if he does not lend Rs
1000 to C. B agrees to lend the amount to C .
The agreement is entered into under coercion.
Unlawful detaining or threatening
to detain any property
• An agent refused to hand over any account
books of a business to a new agent unless the
principal released him from all his
liabilities.The principal has to give release
deed as demanded. Held, the deed was given
under threat and was
 Threat to commit suicide
• A person held out a threat of committing
suicide to his wife and son if they did not
execute a release in favour of his brother in
respect of certain properties. The wife and son
executed the release under the threat.
• This threat hence held amounted to coercion
and the release deed was therefore voidable.
 "Undue influence" defined
• Sometimes a party is compelled to enter into
an agreement against his will as a result of
unfair persuasion by the other party.
• It happens when special kind of relatioship
exists between parties and one party is in a
position to exercise undue influence over the
other.
 "Undue influence" defined
Sec. 16 "Undue influence" defined:-
(1)A contract is said to be induced by " undue
influence where the relations subsisting between
the parties are such that one of the parties is in a
position to dominate the will of the other and uses
that position to obtain an unfair advantage over the
other.
 Undue influence happens when
• Where a person holds a real or apparent
authority over the other.
Eg :relationship between master and servant,
doctor and patient
• Where a person stands in a fiduciary relation
to the other (relationship of trust and
confidence) father and son
• Where a person makes a contract with a
person whose mental capacity is temporarily
or permanently affected by reason of
age,illness. Eg:between a medical attendent
and his patient
Case:

A, a man enfeebled by disease or age, is

induced,by B's influence over him as his
medical attendant, to agree to pay B an
unreasonable sum for his professional
services. B employs undue influence.
Fraud" defined.-"Fraud" means and
Includes any of the following acts
committed by a party to a contract,
or with his connivance, or by his
Agent with intent to deceive another
Party to induce him to enter into the
contract
Fraud is

(1) the active concealment of a fact by one having knowledge

or belief of the fact ;

(2) a promise made without any intention of performing it

(3) any other act fitted to deceive ;

(4) any such act or omission as the law specially declares to

be fraudulent.
"Misrepresentation" defined.-"Misrepresentation" means
And Includes-

(1) the positive assertion, in a manner not warranted by the

information of the person making it, of that which is not true,
though he believes it to be true

(2) any breach, of duty which, without an intent to deceive,

gains an advantage to the person committing it, or any
one claiming under him, by misleading another to his prejudice
or to the prejudice of any one claiming under him;
(3)causing, however innocently, a party to an
Agreement to make a mistake as to the
substance of the thing which is the subject
of the agreement
A, intending to deceive B, falsely represents that five hundred
kilos
of indigo are made annually at As factory, and thereby
induces B to buy the factory. The contract is voidable at the
option of B.
A, intending to deceive B, falsely represents that five hundred
kilos
of indigo are made annually at As factory, and thereby
induces B to buy the factory. The contract is voidable at the
option of B.
A, intending to deceive B, falsely represents that five hundred
kilos
of indigo are made annually at As factory, and thereby
induces B to buy the factory. The contract is voidable at the
option of B.
 Distinction between Fraud and
misrepresentation
Misrepresentation Fraud

There is no intention to There is intention to deceive

deceive
False statement with no
intention to deceive
The person making the
statement believes it to be
true
False statement with
intention to deceive
The person making the
statement doesn't believe
it to be true
 Contingent Contract

A " contingent contract " is a contract to do or not to do

something, if some event, collateral to such contract, does or
does not happen.

A contracts to pay B Rs. 10,000 if Bs house is burnt. This is a

contingent contract.
 Contingent Contract

Enforcement of contracts contingent on an event happening

Contingent contracts to do or not to do anything if an uncertain
future event happens cannot be enforced by law unless and until
that event has happened.

If the event becomes impossible, such contracts become void.

 illustration
A makes a contract with B to buy B’s house if A
survives C.

. This contract cannot be enforced by law unless

and until C dies in A’s lifetime.
 Contingent Contract

Essential Characteristics of a contingent contract

•Its performance depends upon the happening or non

happening in future of some event.
•The event must be uncertain
•The event must be collateral i.e. incidental to contract.
 Contingent Contract

Enforcement of contracts contingent on an event happening.

Enforcement of contracts contingent on an event happening.-

Contingent contracts to do or not to do anything if an uncertain future
event happens cannot be enforced by law unless and until that event has
happened.

If the event becomes impossible, such contracts become void.

 illustration
A agrees to B a sum of money if certain ship
does not return. The contract can be enforced
when the ship sinks
 Contracts contingent on future conduct of a living person.

If the future event on which a contract is contingent is the way

in which a person will act at a specified time the event shall
be considered to become impossible where such person does
anything that renders it impossible

Eg:A agrees to pay B a sum of money if B marries C.C married

D.The marriage of B to C must now be considered impossible.
Contingent Contract on a specified event Happening with in a
fixed time.

Contingent contract to do or not to do anything if

a specified uncertain event happens within a
fixed time would become void,if at the
expiration of time fixed such event doesn’t
happen.
Eg :A promises to pay B a sum of money if a
certain ship returns within a year.the contract
may be enforced if a certain ship returns in one
year, if become void if it doesn’t return
 Unlawful and illegal agreements
An unlawful agreement is one which , like a void
agreement is not enforceable by law.It is void
ab initio. It effects only the immediate parties
and has no further consequences
An illegal agreement on the other hand, is not
only void as between immediate parties but
has this further effect that the collateral
transaction to it also becomes tainted with
illegality.
Every illegal agreement is unlawful but every
unlawful agreement is not illegal
L lends Rs 5000 to B to help him to purchase
some prohibited goods from T an alien
company. If B enters into agreement with
T,the agreement will be illegal and the
agreement between B and L shall also become
illegal
 Effects of illegality
An illegal agreement, under the common law of
contract, is one that the courts will not
enforce because the purpose of the
agreement is to achieve an illegal end. The
illegal end must result from performance of
the contract.
 When Consideration/ object is unlawful

• The cosideration/object is unlawful if it is

forbidden by law.
• If it of such a nature that if permitted it would
defeat the provisions of law.
• If it is fraudulent
• If it involves or implies injury to the person or
property of another.
• If the court regards it as immoral
 Agreements opposed to public policy

1. Agreement of trading with enemy

2. Agreement to commit a crime
3. Agreements which interfere with administration of
service.
4. Agreements in restraint of legal proceedings
5. Trafficking in public offices
6. Agreements in restraint of parental rights
7. Agreements restricting personal liberty.
 Agreements opposed to public policy

9. Agreement in restraint of marriage

10. Agreement in restraint of trade
 Types of tenders
• By public advertisement; This is usually
adopted method. “Open tender” falls in this
category.
• By direct invitation to a limited number of
firms/contractors; These are called “Limited
tenders”.
• By invitation to one firm/contractor only;
These are termed as “Single tenders”.
Time and place for performance of promise, where
time is specified and no application to be made –

When promise is to be performed on a

certain day, and the promisor has undertaken
to perform it without application by the
promisee, the promisor may perform it at any
time during the usual hours of business on
such day and at the place at which the
promise ought to be performed.
 Illustration

A promises to deliver goods at B's

warehouse on the first January. On that day
A brings the goods to B's warehouse, but after
the usual hour for closing it, and they are not
received. A has not performed his promise.
 
Application for performance on certain
day to be at proper time and place –
When a promise is to be performed on a
certain day, and the promisor has not
undertaken to perform it without application
by the promisee, it is the duty of the,
promisee to apply for performance at a
proper place and within the usual hours of
business.
Place for performance of promise, where no
application to be made and no place fixed for
performance
When a promise is to be performed without
application by the promisee, and no place is
fixed for the performance of it, it is the duty of
the promisor to apply to the promisee to
appoint a reasonable place for the
performance of the promise, and to perform it
at such place
 Illustration
 
A undertakes to deliver a thousand maunds of
jute to B on a fixed day. A must apply to B to
appoint a reasonable place for the purpose of
receiving it, and must deliver it to him at such
place. Performance in manner or at time
prescribed or sanctioned by promisee.
 
Performance in manner or at time prescribed
or sanctioned by promisee

The performance of any promise may be

made in any manner, or at any time which the
promisee prescribes or sanctions.
 Discharge of contract
Discharge of contract means termination of
contractual relations between parties. A
contract is said to be discharged when it
ceases to operate i.e when rights and
obligations created by it come to an end.
 A contract may be discharged by
1. By performance
2. By agreement or consent
3. By impossibility of performance.
4. By lapse of time
5. By operation of law
6. By breach of contract
 By performance
Discharge by Performance
A contract is usually discharged by the
performance of the terms of the agreement.
In most cases, the parties perform their
promises and the contract ceases to exist or is
thereby discharged. Nature of Performance
Performance may be the doing of an act or
making of payment.
 Performace
Actual Performance :When both the parties perform
their promises, the contract is discharged.
Performance should be complete precise and
according to the terms of the contract.
Attempted Performance: Tender is not actual
performance but only an offer to perform obligation
under the contract. When the promisor offers to
perform the obligation but the promisee refuses to
accept the performane it is called tender,and tender
is equivalent to actual performance .
 tender
The effect of a valid tender is that the contract is
deemed to have been performed by the
tenderer.
 Discharge of contract
Discharge by agreement or consent:
1. By express consent
2. By implied consent
• By novation:Old contract changed to make a new
contract.Must take place before the expiry of time of
performace of original contract, otherwise it will be breach
of contract.
• Rescission
• Alteration
• Remission
• Waiver
• Merger
 Discharge of contract
By impossibility of performance
1. Known to the parties: called absolute impossibility.The
agreement is void ab initio. For eg:A agrees to B to discover
treasure by magic.
2. Unknown to the parties:When at the time of the contract
the parties are ignorant of impossibility..Eg A sold to B
certain goods supposed to be on voyage.Goods ceased to
exist due to the perils of the sea.The agreement is void.
3. Supervening impossibility: Impossibilty subsequent to
formqtion of contract but beyond the control of parties
Discharge of contract

By lapse of time
 Discharge of contract
By operation of law:
• By Death:contract based on personal skill and ability
• By merger:lesee becoming an owner
• By insolvency:Once a person becomes insolvent ,he is
absolved of all his liabilities.
• Unauthorised alteration of terms of contract:When
party to a contract makes any unauthorised changes
witout the consent of other party , the other party
can avoid the contract
• Rights and duties vested in the same person:example
• when a bill gets into the hands of the acceptor.
Called Circuity of action
 Discharge of contract
By breach of contract:By actual Breach
:By anticipatory breach
Destruction of subject matter
Death or incapacity of personal sevices
Non existence of state of things
Change of law
Outbreak of war
Discharge of by breach of contract
Difficulty of performane
Commercial impossibility
Failure of third party
Stricks ,lockouts ,civil disturbances
Discharge of contract by breach of contract

By the act of the promisor making performance

impossible
By renunciation of obligation
 Remedies for breach of contract
Where there is a right there is a remedy. A
remedy is a means given by the law for the
enforcement of a right.
 Remedy
When a contract has been broken, the party
who suffers by such breach is entitled to
receive, from the party who has broken the
contract, compensation for any loss or
damage caused to him thereby, which
naturally arose in the usual course of things
from such breach, or which the parties knew,
when they made the contract, to be likely to
result from the breach of it.
 Remedies are:
Rescission of the contract
Suit for damages
Suit upon Quantam Meruit
Suit for specific performance of the contract
Suit for injunction
 Rescission
When a contract is broken by one party the other
party may sue to treat the contract as
rescinded and refuse further performance. In
such a case he is absolved of all his obligations
under the contract
Case:A promises to B to supply 10 bags of cement
on a certain day.B agrees to pay the price of
the goods after the receit.A doesn’t supply the
goods.B is discharged from the liability to pay
the price
 Party rightfully rescinding contract entitled to
compensation–

A, a singer, contracts with B, the manager of a theatre,

to sing at his theatre for two nights In every week
during the next two months, and B engages to pay
her 100 rupees for each night's performance. On
the sixth night, A willfully absents herself from the
theatre, and B, in consequence, rescinds the
contract. B is entitled to claim compensation for the
damage which he has sustained through the non-
fulfillment of the contract.
 
 Damages
Damages are the monetory compensation
allowed to a injured party by the court for the
injury suffered by him the breach of contract.

Restitution in integrum
 Damages
• Damages arising naturally
• Damages in contemplation of the parties
• Nominal Damages
• Damages for loss of reputation
• Penalty
• Cost of decree/cost of suit for damages
 Special damages

Damages other than those arising from the

breach of contract may be recovered if such
damages may reasonably be supposed to
have been in the contemplation of both the
parties as a probable result of breach of
contract. These are called special damages.
These can be recovered only if brought to the
notice of other party.
 Liquidated damages /penalty
These damages represent a sum fixed by the
parties in the contract which is usually a fair
and genuine estimate of the probable loss
that might ensue as a result of breach.It is
name of a sum named in the contract at the
time of its formation.It is disproportionate to
the damages likely to accrue as a result of
breach.
 Quantum Meruit
Means as much as earned. A right to sue in
Quantum meruit arises where a contract
partly performed has become discharged by
the breach of contract of other party.The right
is founded by the other party to pay for what
has been done.
 Specific Performance
In certain cases of breach of contract damages
are not an adequate remedy.The court may
direct the party in breach to carry out his
promise according to the terms of contract.
Happens when the compensation in money for
its non performance is not an adequate relief.
Where there is no standard way of ascertaining
damages.
 Injunction
Where a party is in the breach of a negative
term of a contract(i.e. where he is doing
something which he promised not to do)the
court may,by issuing an order restrain him
from doing what he promised not to do.Such
an order of court is called injunction.
 Case of injunction
W agreed to sing in L’s theatre and during that
period to sing nowhere else. Afterwards W
made a contract with Z to sing at another
theatre for him and refused to perform the
contract with L. Held, W could be restrained
by injunction from singing for Z.