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BUSINESSLAW
BUSINESSLAW
INTRODUCTION
What is law?
1. Different sets of rules regulating your external human action and conduct of an individual
dealing with other individual and with the government.
2. For the welfare of the State, demanded a reformed set of rules therefore Law has been often
subjected to changes to meet the needs of society and at the same time, attempting to achieve
uniformity in its application.
Characteristics of law:
Conclusion: Law includes all the rules and the principles which are regulate our relations with other
individual and with the state.
Definition of Law:
Holland defines Law as “Rule of external human action enforced by Sovereign _________ Authority”
Salmond defines Law as “the body of principles recognised and applied by the State in administration
of Justice”
Dictionary meaning:
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1. It should not offend local customs and usage of the society. Conformity with custom and usage.
2. It should not be static or rigid piece of legislation. It changes with times, custom and the needs
of the society. Man is expected to observe the code of conduct or the set of rules.
1. English Law: is the principle source of Indian law: (as British ruled our country for many years,
therefore their also left an impact on our law).
• Law of Merchant.
• English common law.
• Roman law.
• Rules of equity
• British Parliament.
• English judicial decisions.
2. Indian Statues: The central and state legislatures enact law in India, which is applied by the
Courts in India. Prior to 1872, English Courts used to apply personal law of the parties to the
suit. The Indian Contract Act is based on the English common law rules.
3. Judicial Decisions:
• Interpretation of law by judge’s application depending upon the facts of each case.
• Where customs and usage is silent-Courts apply Law based on English Judgments.
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Precedent: Application of Judicial decisions in previous case to subsequent similar cases from
a very important source of law.
4. Custom and usage: Custom and usage should be ancient, reasonable and constant. Custom
when accepted by the court and incorporated in a judicial decision become legal custom.
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Business Law
Introduction
Prior to the Indian Contract ACT, 1872, English Law applied which led to many inconvenience. Example:
To regulate the contract where parties were Mohammedans and Hindus. The right of Hindus and
Mohammedans were regulated by their own personal law. If both the parties were Hindus, they were
regulated by Hindu law. When both the parties were Muslim, Mohammedans law applied. If, however
one party was Hindu (Plaintiff) and the other was Muslim (defendant), the law of the defendant applied.
In this case Mohammedans Law would apply. Only where law of Hindu and Mohammedans were silent
on any point, English law applied. Gradually, the importance of enactment of General Law regulating
the contract was realized and this gave birth to Indian Contract Act, 1872.
Definition of contract:
Definition of Agreement:
Offer+Acceptance.
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AGREEMENT CONTRACT
An offer by one party and its An agreement and its enforceability at
acceptance by the other party law together constitute a contract.
constitute an agreement.
Agreement = offer + acceptance. Contract = agreement + enforceability
by law.
Every promise & every set of promises An agreement becomes a contract only
forming consideration for each other is when there re all the essential element
an agreement. of a valid contract present:
• Legal relationship
• Lawful consideration
• Competent parties
• Free consent
• No expressly declared to be void
• Legal formalities
• Possibility of performance
Agreement may or may not create a A contract necessarily creates a legal
legal obligation. obligation.
Agreement can be legal or social in All legal agreement are called contract.
nature depending upon the intention of Contract always accompanied by a
the parties. legal obligation and legal rights. There
is always a legal duty or consequence
attach to it.
All agreements are not contracts. All contracts are agreements.
Agreement is a wider concept than Agreement is a narrower concept than
contract. a contract or specie of agreement.
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Business Law
“All agreements are contract if they are made by free consent of the parties
competent to contract, for lawful consideration and with lawful object and
Section 10: Deals with the essential element of a valid contract. To form
party accepting it. The term of the offer must be definite and the
acceptance of the offer must be absolute and unconditional. It is necessary to understand the offer in
the same thing at the sense at
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• Held : Wife cannot recover the said amount through Court pf law because it was social
agreement and the intension of the parties was not to legal bind them
In the commercial business agreements the presumption is usually that the intension of the parties is
to create legal relationship. But if it specially shown that the parties did not intend to legally bound.
Consideration need not necessarily be in cash or kind. It may be an act or a promise to do or not to
do something .It may be past ,present or future . But it must be lawful in nature.
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Contract that there must be free and genuine consent of the parties to the agreement. The consent of
the parties is said be free when the parties are of the same mind on all the material terms of the
contract. The parties are said to be of the same mind when the agree about the subject matter of the
contract in the same time in the same sense. Section 13 says that if there is absence of free consent ,
then the agreement is induced (made) by coercion (force), undue influence, fraud, misinterpretation.
6. Lawful object : The object of the agreement should be lawful. In other words, it means that the object
must not be:
• It is not forbidden (not allowed) by any law
• If permitted, it would defeat the provision of any law or
• It is fraudulent in nature
• Illegal
• Immoral
• Oppose to public policy
• Or involves , an injury to another person or property of another person
7. Agreements must not be expressly declared to be void: The agreement must not be expressly
declared by the Indian contract act, 1872 to be void.
8.Obsevance of legal formalities : A contract can be oral, written, or implied. It is however in interest of
the parties that the contract should be in written form. There are some other formalities also to be
completed within order to make an agreement legally enforceable. In some case the document in which
contract is incorporated is to be stamped. In some other cases, a contract besides being written one
has to be registered or attested (in
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presence of witnesses) If the agreement fails to comply with the legal formalities as required by the law
or the act then it cannot be enforceable at law in other words there is technical defect.
• Whenever a law specifies a contract should be in writing and should comply with all legal
formalities. If the legal formalities are not complied with the contract will not be valid . E. g.
Will should be registered; transfer of property should be done on a proper stamp paper
9.Possibility of performance : A contract should not be to do impossible act. Such agreement are not
enforceable and not valid in law. The party cannot take the help of law to compel the other party to do
an impossible act. Impossibility to performance nullifies an existing obligation.
e.g. A promise to share with B 75% of the treasure, if creates a treasure by magic. As it is an impossible
act to create treasure by magic. the above agreement is incapable of performance and therefore void.
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ACCEPTANCE
A Proposal is always made with the view to be accepted. The rules regarding valid acceptance are as
under:
• Specific offer : an offer can be accepted only by the person to whom it is has been made
(definite person)
• Specific offer : when an offer is made to a class of person, it can be accepted by any
member of that class
• General offer : If the proposal is made to the world at large, it can be accepted by any
person or group of people in the world, and in each case there will be separate contract
between the offeror or offeree.
2) Acceptance of an offer must be absolute and unconditional : Section 7(1) of Indian contract
act states than an acceptance to be absolute and unconditional. Acceptance must be of all
the terms A provisional or conditional or partial acceptance amounts to rejection of the offer.
In case there is any variation between terms of the offer and the terms of the acceptance,
there is no contract.
3) Acceptance must be made within reasonable time : If the offeror/Proposer have prescribed
the time limit for the acceptance of an offer, acceptance must be made within that time limit
or acceptance is not legally binding. If no time limit is prescribed by the proposer, the
acceptance must be made within a reasonable time. Reasonable time depends upon the
subject matter whether it is perishable or non perishable item. Acceptance of the offer must
be made before the offer is withdrawn or lapsed.
• By written word
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• By conduct
• By post
• Telegram
5). Mental acceptance is not acceptance at all in the eyes of law: A valid acceptance is said to
be fulfilled when the offeree communicates the same (unconditional acceptance)
to the offeror in one of the modes prescribed within the time limit. A mere mental acceptance
(an acceptance which is not communicated to the offeror) is no acceptance at all in law A
mental resolve (intension to make up our minds) to accept an offer does not give rise to a
binding offer or a valid offer
6). Acceptance must be communicated to the offeror : An acceptance must be communicated
to the offeror only and not to his friends, his relatives or an agent otherwise this may not
amount to valid acceptance
7) Acceptance of offer is the acceptance of all its terms: Whenever a person accepts an offer it
is said to be accepted in its entirely or totality. Even, If the offeree is ignorant (unaware) of the
some of the terms of the offer Except under the following circumstances
• Where the terms are nit apparent on the face of the terms of the contract
9. Qualified acceptance is a counter- offer. Under the Indian Contract Act, qualified, Conditional
acceptance amounts to rejection of the offer. An acceptance with the variation in the terms is no
acceptance it it rather a
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Counter- offer, which may be accepted or rejected by the original offeror, who is now in a
position of an offeree
COUNTER OFFER
Meaning of a counter offer :
A counter offer means an original offer is rejected and a fresh offer is given.
FACTS : H offered to sell his farm to W for 1000/- pounds. W was interested in buying 950
pounds . H refused the offer ( counter offer made by W). Subsequently, W offered to purchase
the farm for 1000/- pounds.
HELDS: There was no contract because W rejected the original offer by giving a counter offer of
950 pounds. The counter offer of W was ow a fresh offer from W to H and H had the right to
accept or reject the offer. The position of W & H was interchanged from offeree to offeror &
offeror to offeree.
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Definition of Offer/Proposal :
Anything with a view of obtaining the assent of that other person to such an act or abstinence
he is said to have made a proposal is also known as as “Offer”.
Eg : A promises to pay B rs 100 a month provided B does not play his Tabla every night. A`s
proposal to pay Rs 100 is done is done with view to obtaining the assent of A not to do
something. This is a valid proposal ( negative act/ for not doing) and if it is assented to or
accepted by B it is constitute a contract.
Eg A is willing to sell his car to B for Rs 1 Lakh. Here A is making an offer to B because he
signifies to B his willingness to sell his car with the view of obtaining B`s assent to purchase the
car.
Eg I am willing to die for my country. Or I am willing to serve you. Are mere statement and not
offers as in this case here the intention of the person is not to be bound (legally bind) by it.
The person making the proposal is called as proposer (offeror) and the person accepting the
proposal is called the offeree. When an offer is accepted it results into contract. An offer that
has not been accepted is ineffective & powerless.
1) The offer must contemplate the creation of legal relationship B/w the offeror & the
offeree.
An offer must be intended to create and be capable of creating legal relationship and not social
or moral relation. If the proposal is not intended to create legal relationship it is not offer in the
eyes of law.
Eg A promised to give B rs 500 as a birthday present on B`s birthday. A failed to fulfill his
promise. B wants to file a suit against A for the realization of the said amount. Advise B. B
cannot succeed as there was no intention on the part of A to create a legal obligation.
Eg A wants 100 ml of oil. Here the terms of the offer is not definite it could be 100ml of . cooking
oil or hair oil. According to S-29 of thid act, the terms of an offer not certain are void
aggrements.
Eg A says to B I will sell you my car. A owns 4 cars the offer is not definite or clear in nature.
An expresses offer is that is made to the offeror either in writing OR by spoken words. An
implied pffer is that which is implied OR understood by the conduct of the offeror
Eg A offers to sell his house to B for Rs 100000. This is an offer that is made to B & it is only B
who has a right to accept the offer.
Eg X puts a notice of reward to any student finding & returning his lost book.This offer is made
to a definite class of persons namely the students.
d) Eg A advertises in the news papers for a reward to any person finding OR giving
information about his missing son.
A person cannot accept an offer if he is unaware of its existence. Unless an offer is not properly
communicated there can be no acceptance of it. An acceptance of an offer in ignorance of the
offer is no acceptance at all and does not create any legal rights or obligation.
G sent his servant L in search of her missing nephew. G then later on announced a reward for
information concerning the boy in ignorance of any such reward. Subsequently when L came to
know of this reward, he claimed it.
Held: L was not entitled to the reward as L was ignorant of the offer. Hence the question of
acceptance does not arise in this case at all and therefore does not create any legal rights or
obligation.
Every expression of willingness of a person to enter into contract may not be an offer in legal
sense. Therefore an offer must be distinguish from an invitation to offer.
Distinctions:
1) If the person who makes the statement intends to be bound by it as soon as it Is accepted it is
an offer
2) If he intends to do some further act before being bound by it – it is an invitation to an offer E.g A
want to build a bungalow on a given plot. He invites people to give their quotation for their
service in relation to building the same B, C & D give their quotation respectively. Here A has
reserved to do some further act before he binds himself by it. He has the liberty to choose either
B or C or D. In the above case A has invited B, C and D to give their offer therefore it is and
invitation to an offer and on offer/
When an offer is made which is not accepted, not rejected, not revoked, then after a reasonable
period the offer will remain deemed to have come to an end.
Eg:
An offer for sale of a flat for Rs. 1,00,000/- cannot be accepted after an unreasonable time that is
say after a year of the offer.
Communication of an offer:
An offer has to be communicated to the offeree without which there would be no valid offer. Any
special condition if contained in the offer will be binding upon the offeree.
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CONSIDERATION
CONCEPT OF CONSIDERATION :
Consideration in simple term means “something in return”, “price of a promise”. Section 2 defines
consideration as “When at the desire of the promise, the promise, or any other person a) has done, or
abstained from doing, or b) does, or abstains from promise, is called a consideration for the promise.”
From the above definition it is clear that the term ‘consideration’ is used in the sense of ‘quid pro quo’
which means ‘something in return’. This something may be some benefit, right, interest, profit, or it
may be some forbearance or responsibility upon the other party. Thus, generally speaking a contract
cannot be thought of without consideration. “No consideration no contract” is the rule of law.
Eg.:X proposes to sell his motor car to Y for Rs. 50,000/-. Y accepts the proposal. Thus, I) for X’s
promise to sell his motor car, the consideration is Y’s promise to pay Rs. 50,000/- to X, and II) for Y’s
promise to pay Rs. 50,000/- to X, the consideration is X’s promise to sell his motor car to Y.
PAGE NO 17
consideration need not necessarily move from the promisee. It may move from any other person.
Hence, her maternal uncle was entitled to receive an annuity.
A present consideration is something which the promisee does or abstains from doing
simultaneously at the time of making a promise. It is known as an executed consideration.
Eg. A goes to a bookseller and buys a book and pays the price on the spot there & then.
A future consideration in one which is promised to be given at a future date or after a stipulated
period. It is also called an executory consideration.
Eg. R promises to deliver 100 bags of rice to S after a month and S promises to pay the price after 3
months from the date of receipt of goods. The consideration in this case are executory or future.
The general rule of the law is that an agreement without consideration is void. However following are
the exceptional cases, in which an agreement without consideration is not void and is enforceable.
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Eg. X for natural love and affection promises to give his son, Y Rs. 20,000/-, X puts his promise in
writing and registers it. This is a contract.
An elder brother on account of natural love and affection promised to pay the debts of his young
brother. The agreement was put in writing and registered. Held : the agreement is valid.
2) An agreement for compensation for Past Voluntary Services section 25(2) :
An agreement to compensate wholly or in part a person who has already done voluntarily some
services for the promisor or who was legally compelled to do something for the promisor is
enforceable at law even though without consideration.
Eg. A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract.
X owes Rs. 10,000/- to Y, but the debt is barred by the limitation Act. X signs a written promise to
pay Y a sum of Rs. 5,000/- on account of the time barred debt. This is a contract.
Section 23 lays down that the consideration or object of an agreement is lawful except in the following
five cases :
1) Where the consideration of object is forbidden by law.
An act is forbidden by law when it si punishable under the Indian Penal Code or under any other
legislation
Eg. A promises to secure for B an employment in the public services and B promises to pay Rs.
1,00,000/- to A. The agreement is void as the consideration being A’s promise to secure for B an
employment in the public services is opposed to public policy and therefore unlawful.
2) If it is of such a nature that if permitted it would defeat the provision of any statutory law, such
as the Hindu law or the Mohammadan Law or the Criminal Procedure Code or the Law of Limitation
it is Void.
Eg.A, a Muslim, contracts to marry B. A already has 4 wives. His contract for marriage with
B would be void because it would defeat the provision of the Mohammadan Law, as a Muslim is
permitted to have not more than four wives
3) When consideration or object is fraudulent it is void. If an agreement is made with the intention of
practicing fraud upon some person it is void agreement.
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Eg.A & B agree to distribute between gains acquired by then by fraud. The agreement is void.
Eg.
A promises to pay B a sum of Rs. 1000/-, if B published an article, defamatory / malicious ( insulting
or harming one’s reputation) in character against C. The agreement is void as it involves an injury
to the reputation of C’s.
5) If the Court regards it as immoral or opposed to public policy, it is void. All agreement in violation of
the
public morals of the time or harmful to the public welfare is void. Agreement created with the object
of sexual immorality, illicit cohabitation, prostitution or concubinage etc is void.
Agreement against public policy is difficult to be defined precisely, as it is vague and not always the
same. In general it refers to public morals of the time and the established social, economic, cultural
& political interests of the society from time to time. The following agreement has been held against
public policy.
1) All agreements made between citizens of the enemy countries or where two countries are at
war with each other are held void as they are against public policy.
2) All agreements made for maintenance and / or champerty are held to be void as they are
against public policy.
3) All agreement made for stifling prosecutions i.e. compounding or compromising prosecutions for
non-compounding offences like grievous hurt, criminal breach of trust etc. are void, as they are
against public policy.
4) All marriage breakage agreement under which the money is paid as consideration for procuring
a marriage are void.
5) All agreement that interfere with administration of justice are against public policy.
6) All agreement which tend to create interest against duty of a public servant are against public
policy and therefore void.
7) All agreements for sale of public offers are against public policy.
8) All agreements in restraint of marriage of any person other than a minor.
9) All agreements in restraint of legal proceedings are against public policy.
10) All agreements to default creditors are against public policy.
11) All agreements not bid against one another are void if the object is to defraud a third person or
decree holder.
12) All agreement tending to create monopoly are void.
13) All agreements which seek waiver of illegality are void.
14) All agreements in restraint of trade are void.
15) All agreement between pleaders and their clients where the clients to pay to their pleaders
money according to the success in the mater in addition to their full fees.
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Capacity to contract
Every person is competent to contract ,who is the age of majority, according to the law to which he is
subject, and who is of sound mind and is not disqualified from contracting by any law,to which he is
subject
It is therefore ,follows the incapacity to contract arises from the following three circumstances or
conditions , viz
i)Age of minority
B: Agreements by Minor
WHO IS MINOR
A minor is a person who has not attained the age of majority, according to law by which he/she is
governed. According to section 3 of Indian Majority act ,1875 a person become major on completion
of 18 yrs of age.It means that minor domiciled in India is a person who has not completed of 18 yrs
of age.However when a guardian of a minor’s person and /or property is appointed by the court the
age of majority of such minor is 21 yrs.
1) A minors agreement is VOID AB INITIO and inoperative : because a minor has no capacity (S.
11). A minor cannot bind himself by a contract. However under the English law , a contract by
minor is voidable
Caselaw : Mohori bibee Vs. Dhannodas Ghose
Facts : A minor executed a mortgage for Rs. 20000/- out of which she received Rs. 8000/- from
the mortgagee. Subsequently , the minor sued for setting aside the mortgages. The mortgagee
claimed refund of Rs. 8000/- paid by him
Held : that the minor’s agreement is void ab initio, hence the question of refunding the money
did not arises at all. Even if the minor misrepresents his age, at the time of entering into a
contract, the concept is void
2) A minor who has entered into a contract cannot ratify it subsequently on attaining the age of
majority because minor’s agreement is void ab initio ( Indra Ramaswamy Vs. Anthiappa
Chettiar)
3) A minors property is liable to a person who supplies necessaries of life to a mior (S. 68). The
terms “ necessaries is not defined anywhere in Contract act, 1872, however it means those
essential goods/service which is reasonably necessary to a minor, keeping in mind the social
status of the minor in society.
4) There is no estoppel against a minor. If a minor misrepresent himself to be a major and induces
another person to enter into a contract with him even then he can plead minority as a defense
in a law suit on the agreement . Thus no minor can be sued in contract or given in tort for fraud
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ESTOPPEL : Estoppel is rule of evidence. When a man by words spoken or written or by the conduct
induced another to believe that certain state of things exist, he will not be allowed to deny the
existence of that state of things. However a minor even though he is falsely represent himself to be
major can yet deny the stand and take up the defense of minority. He is not estopped from pleading
his minority. The law of estoppel therefore does not apply to minor.
Following are the exceptions to the general rule that Minors agreement is Void ab initio A minor is
therefore can contract in the following cases
1.) Promisee or transferee or Beneficiary : A minor can be promise or a beneficiary in equity though
not in law i.e. Law does not regard the minor is incapable of accepting benefit . Caselaw ;
sriniwas Vs. Raghavachariar . a promissory note executed in a favour of minor can be
executed . a minor is allowed to enforce a contract which is of some benefit to him under which
he has to bear no obligation
2.) Agency : A minor can act as an agent and bind his principal by his act but unlike other agents,
he is not liable to his principal for his acts
3.) Partnership : A minor cannot enter into a contract of partnership however with the consent of
all partners a minor can be admitted to the benefits of the firm
4.) Necessaries : Where the person supplies necessaries to a person incapable of entering into a
contract like a minor, according to the minor’s social status ,is entitled to be reimbursed from
the properties for the necessaries supplied to him. However the minor is not personally liable to
compensate for necessaries
A person is said to be of sound mind ,if at the time of making contract is capable of understanding the
terms and conditions of the contract and has ability to form a rational judgment as to its effect on his
interests
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CONTRACTS BY LUNATICS
Section 12: says that a person , who is usually of unsound mind but occasionally of a
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 acotract when he is of unsound mind
Caselaw ; Indersingh Vs. Parmeshwar Singh : Where a person who has an idiot and incapable of
understanding the transaction agreed to sell the property worth of Rs. 25,000/- for Rs. 7,000/- only, it
was held that the agreement is void as the person was incapable of exercising his own judgments.
Eg. A sane man who is delirious from fever or who is so drunk that he cannot understand the terms of
contract or form a rational judgment as to its effects on his interest cannot contact whilst such
delirious or drunkenness exists
CONTACTS BY DRUNKERDS
Contract by drunken person is absolutely void and can not be ratified. In order that
contract by drunkard should be void the drunkenness must be so effective and absolute that no rational
judgments can be formed by the contracting party. He should be incapable of understanding the nature
of the contract and its legal consequences
Disqualification or incompetence to contract arises from political status, corporate status, martial
status ,legal status etc.
CONTRACT BY CORPORATION
A corporation is an artificial person created by law under the Companies Act or formed
Special Act of Legislature . It is competent to contract can not enter into contracts which are ultra vires
of the Memorandum of Association . A municipal corporation cannot enter into contract beyond its
statutory power.
MARTIAL STATUS
A married woman is competent to contract, she can sue or be sued in the court of law. A
parda – nishia woman is incapable of entering into a contract unless it is established that the contract
was explained to and understand by her.
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2. Acceptance: 2(b)
3. Consideration: 2(d)
• Gift 25 explanation 1
• Agency 185
• Competent parties – 11
• Necessaries to a minor – 68
• Coercion – 15
• Undue influence – 16
• Fraud – 17
• Misrepresentation – 18
• Mistake – 20-22
• Agreement made by an incompetent persons, e.g. Minor a person of unsound mind. (Sec.
11)
• Agreement made under mutual mistake as to matter of fact essential to the agreement. (
Sec. 20)
PAGE NO 25
• Agreement made under mistake of law not in force in India ( Sec. 21)
• By performance – 37
• By breach – 39
• By frustration – 56
• By agreement – 62-64
• By operation of law.
PAGE NO 25
Section 31 of ICA defines contingent contract as “a contract to do or not to do something if some event,
collateral to such contract happens, or does not happen, as the case may be.”
1. Performance of the contract depends upon the happening or non-happening of some future
event.
E.g. A contracts to pay B Rs. 10,000/- if B’s house is burnt. Here the Liability of A arises, only
when a particular event takes place. i.e. burning of B’s house. This event is collateral to the
main contract.
As in this case burning of B’s house is not the performance required from B under the contract
nor it is the consideration obtain from B. It is altogether an independent event.
E.g. A agrees to deliver 100 bags of rice and B agrees to pay the price afterwards. This is a
conditional contract and not a contingent because B’s obligation to pay afterward is part of the
promise itself and not a collateral event.
1. Happening of future uncertain event: Unless and until that future uncertain event has
happened the law cannot enforced it. If the event becomes impossible such a contract becomes
void. E.g. A agrees to pay B a sum of money if the ship reaches Mumbai dock. The contract is
enforceable if the ship reaches he Mumbai dock.
2. Non-happening of the uncertain future event: The contract can be enforceable only when
the happening of that event becomes impossible and not before that. E.g. A agrees to sell his
car to B if C dies. The contract cannot be enforced as long as C is alive.
3. When the event is deemed to be impossible : If a contract is contingent upon how a person
will act at an unspecified time, the event shall be considered to became impossible when such a
person does anything which is renders it impossible that he should so act within any definite
time or otherwise than under further
contingencies. E.g. A agrees to pay B a sum of money if B marries C. C marries D the marriage
between B and C now will be considered impossible, although it is possible that D may die and
that C may afterwards marry B.
4. Happening of an event within a fixed time : A contract becomes enforceable it an event
happens within a fixed period of time, otherwise it becomes void if, at the expiration of the time
fixed, such an event has not happened, or if before the time fixed, such event becomes
impossible. E.g. A promises to pay B a sum of money, if a certain ship returns within a year. The
contract may be enforceable if the ship returns within a year, and becomes void if the ship is
burnt or sinks within a year.
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1. Non-happening of an event within a fixed time : A contract becomes enforceable upon the
non-happening of an event within a fixed period of time, otherwise it becomes void. It may be
enforced by law when the time fixed has expired and such an event has not happened or before
the time fixed has expired, if it becomes certain that such event will not happen. E.g. A promises
to pay B a sum of money if a certain ship does not return within a year. The contract may be
enforced, if the ship does not return within a year or is burnt within a year.
A agrees to pay B Rs. 1 lakh if B marries A’s daughter C. C is dead at the time of the agreement.
The agreement is void.
Law requires a person who receives the benefit to pay OR compensate the person giving the benefits
even though he receives the benefit without any contract. Such a contract created or constituted by
law is called as “ Quasi contracts”. According to Indian Contract Act, if under certain circumstances, a
person has received a benefit to which the law regards another person as a better entitled or for which
the law considers he should pay to the other person, even though there is no contract between parties.
These relationships are termed as Quasi Contracts or also “Implied Contracts” because they are such
obligation which resemble a contract. They are also called as “Construction Contracts” under the
English law.
When an obligation resembling those created by contracts have been incurred & not been discharged
any person injured by the failure to discharge is entitled to receive compensation from the party in
deficit.
Quasi contract is based on the ground of equity that a person shall not be allowed to enrich himself
unjustly at the expenses of another.
“Necessities” as such are a question of fact & law in each case. It includes articles required to
maintain a person in the same stage & the degree of life in which he is living. They are those
without which an individual cannot reasonably exists.
E.g. : Expense incurred by a person for performing the funeral of the father of a minor is a
necessity.
Every money advanced for purchase of necessities can be claimed. However the price paid for
such supplies must be reasonable.
The incapable person is however not personally liable to pay compensation. Compensation may
be claimed from his property.
A person who is interested in the payment of money that another person is bound by law to pay
& therefore pays it is entitled to reimbursement from the person who is bound by law to pay the
payment.
PAGE NO 29
E.g. :
B holds a land on lease granted by A. The revenue is payable by A to the government. But A is in
arrears of the same. The government has advertised the sale of the land on account of the
failure by A to pay the revenue. Under the law the result of the sale would mean that B would
loose his right over the property & therefore in order to prevent the sale B pays the revenue to
the government. A is bound to reimburse B with the amount spent by him to save his interest.
3. Obligation of a person to pay for enjoying the benefits out of non gratuitous act
[Section 70 ] : When a person lawfully does anything to another person OR delivers something
not intending to do so gratuitously & if the other person enjoys the benefits of the act the latter
is bound to compensate the former OR restore the thing so done OR delivered.
E.g.:
A, a transaction leaves certain goods at the house of B by mistake. B treats the goods as his
own. He will be liable to pay for the goods to A.
A person who finds the goods belonging to another & takes them into his custody is subject to
the same responsibility as a bailee.
a) The finder of the goods is entitled to retain the goods until he receives his lawful charges OR
compensation for returning the goods & for the care & preservation of the goods. However
he cannot sue for such compensation. He may sue where the owner has advertised a
specified reward.
b) He is entitled to the possession of the goods till the true owner is found.
iv. Where the lawful charges amounts to more than 2/3 rd of the value of the commodity
found.
a) He is responsible to take due care of the goods as a man of ordinary prudence would take in
respect of his own goods.
b) He must with responsible diligence trace the true owner of the goods.
5. Contract between a person to whom money has been paid OR things have been delivered by
mistake OR coercion [Section 72] :
A person to whom money has been paid OR anything has been delivered by mistake OR under
coercion must repay OR return it. A payment made under mistake that is not legally due OR
which cannot be enforced when made by a person must be repaid to him. Even taxes paid under
the mistake of law are to be repaid.
E.g. :
A & B jointly owed Rs. 1,000/- to C. A, alone pays the sum to C not knowing that B has already
paid Rs.500/- to C. In this case A is entitled to the refund of Rs. 500/- paid by him to C under
mistake.
PAGE NO 30
Bailment is defined as “A bailment is the delivery of goods by one person to another for some purpose
upon a contract that they shall be returned or otherwise disposed off according to the direction of the
person delivering them after the purpose has been accomplished.
The person delivering the goods is called as bailor & the person to whom they are delivered is called
bailee.The transaction is called bailment.
Eg:
1) A delivers a piece of cloth to B a tailor to be stiched into suit.This would amount to bailment.
2) R delivers a radio to S for repairs.
3) A delivers goods to B , a carrier to be transported from Mumbai to Pune.
Essential of Bailment :
1) A Contract :
The delivery of goods is upon a contract between the bailer & the bailee. However a person already in
possession may become a bailee by a subsequent agreement. Being a contract,it must have all the
essential elements of a valid contract.
This does not involve bailment as the right of possession of the goods is always with the master.
The delivery of the goods may be actual or constructive. Actual delivery may be by handing over
the goods to the throughthe bailer.
Constructive delivery may be by doing anything that has the effect of putting the possession of
the goods in the hands of the bailee.
5) Movable property:
PAGE NO 32
The bailment of goods can be only in respect of movable properties except money and actionable
claim (shares, debentures, promissory note, Cheques etc). Money is not included as a movable
property for the purpose of bailment.
7) Delivery of goods:
There are two types of delivery of goods that is
a) Actual / Physical : Where the goods are physically handed over by the bailor to the
bailee.
b) Constructive / Symbolic Delivery :Where the goods are in possession of a third party who
agrees to hold them on the behalf of the Bailee or where the bailee is already in the
possession of the goods on the behalf of the bailor and agrees to hold them on his
behalf.Eg. bill of landing, railway receipt etc.
2.Treat the bailment as voidable (Section 153): If the bailed does not act as regards the goods bailed in
consistence of the conditions of bailment the contract of the bailment is voidable at the option of the
bailer.
If the bailer wrongfully uses or disposes the goods the bailer can terminate the bailment and claim
rights.
3.Claim for compensation for the wrongful act OR use of the goods by the bailee (Section 154):
In case of any wrongful use of the goods by the bailee, the bailer can claim compensation for any
damage arising to the goods or out of the wrongful use.
4. To receive the increase of profits from the goods bailed [ Section 163] :
In the absence of any contract to the contrary the bailer is entitled to any increase of the profits that
may have occurred from the goods bailed.
a) Where if the bailee with the consent of the bailer mixes the goods of the bailer with his own
goods the bailer can claim proportionate share in the mixed goods.
b) Where if the bailee without the consent of the bailer mixes the goods of the bailer with his
own goods & the goods can be separated & devide the bailer can claim expenses of
separation & any damage arising out of the mixture.
PAGE NO 33
c) If the bailee without the consent of the bailer mixes the goods of bailer with his own goods&
the goods cannot be separated the bailer is entitled to be compensated for the loss of goods.
Ex.; A bails 100 kg of pure ghee to B. B without the consent of A, mixes with his 100 kg of
Dalda ghee.
If the goods delivered are dangerous the facts should be disclosed to the bailee.
If the goods are bailed on hire the bailer is responsible for such damages whether he was not aware of
such faults in the goods.
Eg:A hire a truck from B.The truck is unsafe though b is not aware of it A is injured B is responsible for
the injury of A.
The bailer shall repay to the bailee necessary expenses incurred by him for the purpose of bailment.
Rights of bailee:-
PAGE NO 34
General lien :
It means the right to retain any goods of another until all the claims of the holder are satisfied. It is a
right of retention of goods not only towards the demands arising out of the article in possession but for
general balance of account in favour of the holder . General lien is available only to the bankers,policy
brokers & attorneys.
Where the bailee has in accordance with the purpose of bailment rendered any service involving the
exercise of labour of skill in respect of the goods bailed in the absence of the contract to the contrary
right to retain such goods until he receives due remuneration or the services he has rendered in
respect of the goods.
Bailee has right to know the faults in the goods bailed to him of which the bailer is aware and which
would materially interfere with the use of the goods and expose him to extraordinary risk.
If the bailer does not disclose the bailee is entitled to receive damages arising from such faults.
2) Claim losses from the defect in title for the bailer [section 160 ]
If the bailers title to the goods is defective by reason of which of which he was not entitled to make the
bailment OR to receive back the goods. The bailee is entitled to compensation for any loss sustained by
him on account of the effect.
IV. To deliver any increase of profit accrued on goods [ Section 163 ]In the absence of any contract
to the contrary the bailee is bound deliver to the bailer any increase of profits that may have
accrued from the goods bailed.
Page no 35
Eg:
A leaves a cow in the custody of B to be taken care of.The cow while in the custody of B gives birth to a
calf B is bound to deliver the cow as well as calf to A.
V. Effect of mixture of bailer’s goods with the bailee [ Section 156 & 157 ]
Pledge
Section 173 says that a bailment of goods as security , for payment of a debt or performance of a
promise is called pledge.
Eg. A borrows a sum of Rs. 500/- from B and keeps his watch as a security for the payment of debt. The
bailment of watch is called pledge.
The bailor, in this case is called the pawner or the pledger and the bailee is called the pledger /
pawnee.
Page no 36
Contract of Agency
An agent is a person employed to do any act for another OR to represent another in dealing with third
persons.
The person for whom such an act is done OR who is represented is called as the principal. The person
employed OR who represents is called as the agent. The relation b/w them is called agency.
An agent therefore his principal & the third person [ Sec 182 ] .An agent is bound to follow the lawful
instruction of his principal.
Essentials of agency :
The selection therefore states that even a minor OR a person of an unsound mind as an agent is not
responsible to the principal therefore the agent who is minor OR a person of an unsound mind can
represent the principal before third person& bind the principal by their acts.
The agent does not incur any personal liability. The contract of agency is based on the maxim “ Quit
facittalium faut perse “ meaning he who acts through others acts himself.
Creation of Agency:
Agency is created by a contract b/w the principal & the agent in which the principal authorizes the
agent to act on his behalf.
This contractual relation b/w the principal & the agent can take place in any of the following ways.
b) Implied Agreement :
An authority is said to be implied when it is inferred from the conduct situation OR the relation
of the parties OR circumstances of the case by the ordinary course of dealings.
2) Agency by necessity [ Sec 189 ]When one is compelled to act as an agent of another without the
authority of that other such an agency is known as agency by necessity.
PAGE NO 37
An agent has an authority in any emergency to do all such acts for the principal for the purpose of
protecting of any loss if the act done is such as would be done by person of ordinary prudence in his
own case.
e.g: 1 the master of ship may borrow money to carry out necessary repairs to the ship. Such an act by
the master in the absence of an owner would be binding on the owner (principal). He should act in the
interest of the parties concerned.
2. An agency is created b/w a husband & wife i.e. a wife may purchase goods which are necessary &
bind the husband for the payment of the same.
When an agent has without the authority done an act OR has incurred an obligation to a third person
on behalf of his principal the principal is bound by the act Or obligation if he has by words OR conduct
induced the third person to believe that the act OR obligation were within the scope of the agents
authority . In other words when a principal by his words OR conduct induces a third party to believe
that a certain person is his agent he is precluded from subsequently denying the facts of agency.
Eg B, a servant of A purchase goods from C on credit for A without the authority of A. Later A pays for
the goods. He as induced C to believe that B is his agent & therefore will be bound by subsequent
purchases mad by B from C for A even if they are made without authority.
In a particular firm a partner is an agent of the other partner & of the partnership firm while dealing
with 3rd parties. The act of the partner while carrying on the business of the firm in the usual way binds
the firm & its partners. This is an implied agency created by the operation of law.
Where a person on behalf of another but without his knowledge does an act OR authority the other
person may elect to ratify OR to disown such an act.
If he ratifies them the same effect will follow as if the act had been done with previous authority
[Section 196]
The ratification may be expressed OR implied by the conduct of whose behalf the act has been done
[Section 197\
e.g: A without the authority buys good for B. Later B sells them to C as his own. B’s conduct implies a
ratification of the purchase made by A.
By ratification the person becomes an agent with retrospective effect i.e. he becomes an agent from
the time he has done the act & not from the time the act has been ratified.
Ratification would constitute as if the act was done with the previous permission of the principal.
Rules regarding ratification:
PAGE NO 38
Sub Agent
A sub-agent is a person employed by and acting under the control of original agent in the business of
agency [Section 191]
An agent appointed by an original agent would therefore be termed as a subagent. The relation of the
subagent to that of the original agent is that of a principal and agent. As a general rule an agent cannot
delegate his authority to another. This is based on the maxim "Delegatus non protest deligare"
which means a delegate cannot delegate i.e. one who has an authority to anoter therefore an agent
cannot lawfully appoint another person to perform the act which he has expressly OR impliedly
undertaken to perform personally.
i.e. when an agent can appoint another person as an agent to act as a subagent
An agent authorized to file OR defend suits may engage a lawyer (sub agent)
3) Where unforeseen emergencies arise necessitating OR compelling the agent to appoint a sub
agent it would be allowed
4) The acts of the sub agent are purely ministerial nature like an authority to sign
5) Where circumstances exists to reasonably presume that the parties to the contract originally
intended that the authority would be delegated
The relation between the principal, agent and sub agent depends upon whether the agent has an
authority to appoint sub agent and whether the sub agent has been properly appointed.
If the sub agent has been properly appointed the principal is liable for the acts of the sub agent
PAGE NO 39
The sub agent is not responsible to the principal because there is no privacy contract between
sub agent and the principal. It is only in the case of fraud that the principal may proceed against
the sub agent
a) Where the sub agent is not properly appointed
When an agent has appointed a person to act as a sub agent without the authority to do so the
principal shall not be liable for the acts of the sub agents so employed nor is the sub agent
responsible to the principal. The agent is responsible for the acts of such a sub agent both to the
principal and to third persons
Duties of an agent
1. To conduct the business of the principal under his instructions [Sections 211]
2. To conduct the business with skill and diligence [Section 212]
3. To render proper accounts to the principal [Section 213]
4. To pay sums received for the principal [Section 217 & 218]
5. To communicate with the principal while in difficulty [Section 214]
6. On the death OR insanity of the principal he is bound to protect and preserve the interest of the
principal [Section 216]
7. Not to deal with the goods of the principal on his own account [Section 215]
8. Must not earn secret profits [Section 216]
9. No to delegate [Section 190]
10. Liable for the acts of Sub agent [Section 192 & 193]
11. Liable for misrepresentation OR fraud [Section 238]
12. Liable for misconduct [Section *20]
Rights of an agent
He can retain only such sums as in his possession. He cannot retain sums received by him in one
business for his remunerations in another business
PAGE NO
Misrepresentation Or fraud committed by an agent acting in the course of business for his principal
has the same effect as if the misrepresentation OR fraud has been committed by the principal.
Hence the principal is liable for these acts of the agent to 3rd parties
5. All contracts entered into by the agent with third persons [Section 226]
6. All notices given to the agent [Section 229]
7. Where the principal induces a 3rd party to believe that the agents unauthorized act were
authorized [Section 237]
Termination of agency
Section 123 define "indemnity" as a contract by which one party promises to save the other from the
loss caused to him by the conduct of the promisor himself or by the conduct of any other person.
By a contract if indemnity, a security is provided to the promise against any anticipated loss. The
promise is protected and assured of being compensated for the loss if any arising out of the contract.
The loss must be such as the promisor or indemnifier has taken upon himself to indemnify.
e.g. A and B claim certain goods from a Railway Company as rival owners. Party A takes delivery of the
goods by agreeing to compensate the railway company against the loss in case Party B turns out to be
true owner. There is a contract of indemnity between Party A and Railway Company.
1. The indemnity holder has the right to recover all the amages which he may compelled to pay in
respect of any matter to which the promise to indemnity applies from the indemnifier
All cost that the indemnity holder may be compelled to pay in any suit in instituting or defending it can
be claimed from the indemnifier provided that the
PAGE NO 42
2. the indemnity holder did not contradict the orders of the promisor and has acted prudently
3. All sums that the indemnity holder may be paid under the terms of any comprise of any suit is
recoverable from the indemnifier
4. An indemnity holder can sue the indemnifier for specific performance of the contract of indemnity if
he incurs liability that is covered by the contract of indemnity
Section 125 defines "Contract of Guarantee is a contract to perform the promise and discharge the
liabilities of a third person incase of this default"
The person in respect of whose default the guarantee is given is called the principal debtor
e.g. S request C to lend Rs. 500 to P and guarantees that if P fails to pay the amount, he will pay. This is
a contract of guarantee. S, in this cases is surety, C the creditor and P, the principal debtor.
1. A contract of guarantee is a contract therefore all the essential elements of a valid contract
must be present in the contract
2. It is a tripartite agreement i.e. it involves three parties namely the creditor, principal debtor and
the guarantor. A contract of Guarantee has three agreements
a. An agreement between the creditor and the principal debtor
b. An agreement between the creditor and the guarantor
c. An agreement between the principal debtor and the guarantor
3. A guarantee may be written or oral
4. There must be a debt existing which should be recoverable There must be a promise oral or
written by the surety to pay the debt in case of default committed by the principal debtor
5. The liability of the principal debtor is primary (first liability) and the liability of the surety is
secondary
6. The liability of the guarantor is conditional upon the default committed by the PD
7. Relation between the creditor and the surety is fiduciary in nature and therefore the creditor
must disclose all the material facts to the surety
8. The liability of the surety must be legally enforceable
PAGE NO 43
Continuing Specific
PAGE NO 44
The surety may at any time revoke a Continuing guarantee by notice to the creditor.
A notice of revocation by the surety to the creditor is sufficient to revoke the Continuing guarantee
as to the future transactions. Notice by the surety must be clearly & specifically given. The liability
of the surety ceases from the day of the service of the notice upon the creditor.
A single guarantee cannot be revoked by notice if the liability has already occurred.
e.g.: ‘A’ contracts to build a house for ‘B’, for a fixed price, within a fixed time under the
condition that ‘B’ would supply the raw material for construction. ‘C’ guarantees the performance of ‘A’.
‘B’ fails to supply the raw material. ‘C’ is discharged of its liability.
PAGE NO 45
e. By the creditors act OR omission impairing the sureties eventual remedy [Section
139]:
If the creditor does any act which is inconsistent with the rights of the surety OR omits to do any
act which he is bound to do towards the surety and which takes away the eventual remedy of
the surety against the principal debtor than the surety is discharged of his liabilities.
e.g.: ‘B’ contracts to build a ship for ‘C’ for a certain sum to be paid in installments the work
reaches several stages. ‘A’ becomes a surety of performance of ‘B’. ‘C’ without the knowledge of
‘A’ prepays to ‘B’ the last 2 installments. ‘A’ is discharged of his liabilities by prepayment.
a) When an agreement is made by the creditor with a 3 rd person to give time to the
principal debtor:
Where a contract to give time to the principal debtor is made by the creditor with a 3rd person but
not with the principal debtor himself the surety is not discharged.
e.g.: ‘A’ has promised ‘B’ to repay certain amount within fixed time. ‘C’ has guaranteed the
performance of ‘B’. ‘A’ contracts with ‘B’ whereby he agrees to give extra time for repayment to ‘B’.
In such a case ‘C’ will not be released of his liabilities as a surety.
e.g.: ‘B’ owes ‘C’ debt guaranteed by ‘A’. The debt becomes payable but ‘C’ does not sue ‘B’ for a
year after the default. This will not discharge the liability of ‘A’.
c) By the release of one of the co-sureties [Section 138]:
When 2 or more persons guarantee the performance of a debt they are called as joint co-sureties.
PAGE NI 46
When there are co-sureties in a Contract of Guarantee the release by the creditor of one of them
does not discharge the others, neither it discharge the surety of so released from his responsibilities
towards the other sureties.
e.g.: ‘A’ owes ‘C’ a debt which is guaranteed by 3 sureties namely ‘B1’, ‘B2’, ‘B3’. ‘C’ releases of his
liabilities. ‘B1’ & ‘B2’ are not released of their liabilities towards ‘C’. Though ‘B3’ has been released
of his liabilities towards ‘C’ he is not released of his liabilities towards ‘B1’ & ‘B2’.
Liabilities of the surety: Section 128 says that the liability of the surety is co-extensive with that of
the principal debtor which means neither more or less than that of the principal debtor, unless it is
otherwise provided by the contract.
1) Surety’ right to limit his liability. The surety can expressly declare that his guarantee to be
limited to a fixed amount.
2) The liability of the surety does not come to an end with the death of the principal debtor.
3) A surety is not liable, where the principal debtor is a minor.
4) A creditor can sue a surety without suing the principal debtor.
PAGE NO 47
VOID AGREEMENT
SECTION 23 TO 30
Void agreements are agreements that are not enforceable by law [Section 2 (g)]. It has no legal status
or sanctity. The Indian Contract Act, 1872 has expressly declared the following agreements to be void.
1) Agreement made by an incompetent persons, e.g. Minor, a person of unsound mind. [Section
11].
2) Agreement made under mutual mistake as to matter of fact essential to the Agreement.
[Section 20].
3) Agreement made under mistake of law not in force in India. [Section 21].
4) Agreement, the consideration or the object is which is unlawful. [Section 23].
5) Agreement, the consideration or the object of which is unlawful in part. [Section 24].
6) Agreement made without consideration. [Section 25].
7) Agreement in restraint of marriage. [Section 26].
8) Agreement in restraint of trade. [Section 27].
9) Agreement in restraint of legal proceeding. [Section 28].
10) Agreement, the meaning of which is uncertain. [Section 29].
11) Agreement by way of wager. [Section 30].
12) Agreement contingent on an uncertain future event if the event becomes impossible. [Section
32].
13) Agreement contingent on an impossible event. [Section 36].
14) Agreement to do an impossible act. [Section 56].
15) Agreement to do an act which subsequently becomes impossible. [Section 56].
Note: Points 1 to6, 10, 13-15 already have been explained and discussed. Please refer your notes for
the same.
According to sec.26 every agreement in restraint of marriage of any person other than a minor is void.
Such an agreement is opposed to public policy. Restraint of marriage means restriction or limitation
imposed on an individual’s right to marry. But a promise to marry a particular individual does not mean
any restraint of marriage hence it is valid agreement.
‘A’ promised to marry ‘B’ only and to pay ‘B’ a sum of Rs. 2,000/- if he married someone else, ‘A’
married ‘C’. It was held that the agreement was void as it was a restraint of marriage and thus opposed
to public policy.
Similarly, marriage brokerage contracts are also void. An agreement to procure a husband and wife for
payment of money is void. An agreement by parent or a guardian to give minor in marriage for
consideration of money is void.
Section 27 says that every agreement, by which, any one is restrained from exercising a lawful
profession, trade, or business of any kind, is to that extent, void. However, following are the three
exceptions to the above general rule:
PAGE NO 48
1) Goodwill: One who sells the goodwill of a business may agree with the buyer to refrain from
carrying on a similar business within specified local limits so long as the buyer carries on a like
business therein.
2) Partnership:
a) According to Section 11(2) of the Indian Partnership Act 1932, a partnership contract
may provide that a partner shall not carry on any business other than that of the firm while he is
a partner.
b) A partnership contract may provide that on ceasing to be partner the ceased partner will
not carry on the business similar to that of the firm within specified local limit within a
reasonable time.
c) Partners may upon or in anticipation of dissolution of the firm may make an agreement
that some or all of them not carry out the same business similar to that of the firm within the
specified period or within the specified local limits, provided restrictions, imposed are
reasonable.
3) Service bond: An agreement of service, by which a person prevent the other from accepting
service with any one else, during the term of agreement, is not an agreement in restraint of trade.
E.g. A doctor employed in a hospital can be prevented from doing private practice.
a) Any person thereto is restricted absolutely from enforcing his rights under or in respect of any
contract by usual legal proceeding in the ordinary tribunals. OR
b) This limit the time, within which he may thus enforce his rights, is void to that extent.
Exception:
1) An agreement to refer a pending dispute or future disputes to arbitration is valid in law and
binding upon the parties thereto.
2) An agreement restricting the rights of the either party to sue within a particular territorial
jurisdiction of a court is valid.
A wager is an agreement between two parties to the effect that if a given uncertain event happens, one
person shall pay a certain sum to the other and if the uncertain event does not happen, other person
shall pay to the first party. The essence of wager is that one person is to win and the other is to lose
upon the determination of an uncertain event.
E.g.:
R agrees to pay S if there is rain on a particular day otherwise S will pay R the amount. The agreement
is void ant illegal.
Exception to wager:
1) Prizes for competitions: the purely depends upon the exercise of intelligence and skill.
2) Share market transaction: in which there is an intention to give and take shares are not
wagering transaction but the intention to pay the prices difference, the truncation is badla
transaction which is wagering in nature.
3) Contract of Insurance.
PAGE NO 49
4) Plate, prize or sum of money: above Rs 500/- to be awarded to winner of a horse race is
valid.
If any agreements conflicts with the morals of the time and contravenes nay will established
social, economic and political interest of the give society, it is void as being against public
policy.
PAGE NO 51
Discharge of Contract:
Discharge means termination of contract. By discharge the rights & obligations of parties come to an
end.
By By By
By By
By impossibility lapse breach
agreement operation
Performance of of of
or consent of law
performance time Contract
I. BY PERFORMANCE
II. BY AGGREEMENT OR CONSENT
1. Novaion
2. Rescission
3. Alteration
4. Remission
5. Waiver
6. Merger
III. BY IMPOSSIBILITY OF PERFOMANCE
V. BY OPERATION OF LAW
A) Death
B) Merger
C) Insolvency
A) Actual breach
B) Anticipatory breach.
I.BY PERFORMANCE
If both the parties to the contract have preformed what they had agreed to do the contract is
discharged. A party is released from the contract where the
PAGE NO-51
performance of the contract is excused under the provisions of this law or any other law. Eg. A delivers
the goods to B, whereby B makes the payment of the same. Both the parties have preformed their part
of contract.
A) By express consent
B) By implied consent.
1. Novation:- If there is a contract in existences and a new contract is substituted in its place,
either between the same parties or between different parties, there is a novation and the
obligation of the old contract is dissolved. When the parties to a contract agree to substitute the
existing contract for a new contract, it is called Novation. In cases where there is a novation, the
original contract need not be performed.
E.g. A owes money to B under a contract. It is agreed between A, B & C that B shall hence forth
accept C as his debtor instead of A. the old debts of A to B is at an end and a new debt from C to
B is contracted.
A) Unknown by the parties:- Where at the time of making the contract both the parties are
ignorant of the impossibility, as in the case of destruction of the subject matter to the ignorance
of both the parties, the contract is void on the ground of mutual mistake.
The Limitation Act 1963 lays down that a contract should be performed within a specified period, called
period of limitations. If it is not performed, and no action is taken by the promise within the period of
limitation, he is deprived of his remedy at law. In other words, the contract is terminated due to lapse
of time.
A. Death:- Where the contract is of a personal nature or where the personal skill or ability of the
promisor is involved the death of the promisor shall discharge the contract.
B. Merger:- Merger takes place when an inferior right accruing to a party under contract mergers
into a superior right accruing to the same party under the same or some other contract. E.g. P
holds a property under a lease. He later buys the property. His right a lessee merges into his
right as owner.
C. Insolvency:- When a person is adjudged insolvent, he is discharged from all liabilities incurred
prior to his adjudication.
D. Unauthorized Alteration of the terms: Where a party makes any material alteration in the
contract without the consent of the other party, the other party can avoid the contract.
VI.BY BREACH OF CONTRACT
Whenever the promisor refuses to perform or fails to perform the promise it is said to be committing a
breach of contract.
A. Actual Breach:- Actual Breach of contract occurs, when at the time of the performance is due,
one party fails or refuses to perform his obligation under the contract OR when during the
performance of the contract, on party fails or refuses to his obligation under the contract.
B. Anticipatory Breach:- An anticipatory breach of a contract is said to take place when the
promisor repudiates the contract even before the date of the performance of the contract. This
may be possible where the promisor
.
communicates to the promisee before the actual date of the performance of the contract that
he does not desire to perform his part of the contract. In such a case the peromisee may treat
the repudiation as an immediate breach of the contract & sue the promisor for damage. He may
also put an end to the contract. The promisee has an option to treat the communication of the
intention of the promisor responsible for non-performance. The disadvantage for the promisee is
that the contract is kept alive for the benefit of the promisor that would enable the promisor to
fulfill the promise if so advised even after repudiating the same. In case a promisee keeps a
contract alive by treat the communication inoperative the result would be.
a) The promisor gets a second chance to choose to perform the contract at the agreed fixed time &
the promise is bound to accept the same.
If the contract is alive & some event happens which may discharge the contract by some operation of
law the promisor may take advantage of the changed circumstances
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BREACH OF CONTACT
Parties to the contract must perform their liabilities and also enforce their rights. It is only when the
breach (failure of performance) is committed by one of the party to the contract that the other party is
aggrieved or injured. Law provides remedies to the aggrieved party as follows:-
1. Under Specific Relief Act, 1877:- Any party who fails to actually perform this part in the
contract is said to have committed the breach, therefore the aggrieved party can file a suit for
specific performance calling upon the party who has committed the breach to fulfill those
specific promises promised in the valid contract.
2. Suit for injunction:- An injunction is an order of the court either directing the party to do
something or prohibiting him from doing something. The order of injunction for either a limited
period or it could be permanent injunction.
3. Suit for damages:- The party who is aggrieved is entitled to monetary conpensation and the
discretion lies with the Court Restitution compensation for monetary losses which naturally flows
from the breach of the contract.
• Nominal damages: Damages which occur in the usual course of business of transaction.
• Special damages: Damages which occurs in the unusual course of business i.e. additional
loss.
• Remote damages: Damages which cannot be measured – mental agony or pain.
1. RULE I: Measure of damages in sale of goods act is difference between the
contract price and the market price.
2. RULE II: Damages are recoverable when they do not arise in usual course and
when they are reasonably contemplated.
3. RULE III: A contract may stipulate penalty in case of failure of contract. Such
penalty can be levied.
4. RULE IV: Quantum Meruit: As much earned or deserved.
• Act is non-gratuitious
• Where the contract if any discharged, party exercising
quantum meruit must not be a defaulter himself but should
have performed his part in contract.
• Quantum meruit could be awarded by measuring the work
done or goods supplied as per the prevailing market rate.