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An agreement enforceable by law is a contract Comment and explain the essentials of a valid contract in brief.

Generally contract means a promise or agreement made by two or more persons enforceable by law. According to Indian Contract Act 1872 Section 2(h)
defined. An agreement enforceable by law is a contract. Hence, agreement and legal enforceability creates an agreement as contract. Section 10 defines 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 void. The contract to be made in writing by law of land or in the presence of witnesses or be registered, if required On the basis of
the above definitions and judgment given by judges, help us to mention the following
Essentials of a valid contract
:(1) Atleast two parties are required to enter into a contract that is promisor and promisee.
(2) Agreement : Proposal and acceptance must be absolute and unconditional. The two identical Cross-offers and successive counter offer are only offer and not
(3) The intention should be to create legal relations not the social, domestic, political relations.
(4) Contractual capacity among persons who is not minor, insane and disqualified by law of the land.
(5) Consent or Consensus ad idem. The parties are said to consent when they agree upon the same thing in the same sense. (Section13).
6) Free Consent : According to Section14, the consent is said to be free when it is not caused by
i) coercion, or ii) undue influence, or iii) fraud, or iv) misrepresentation or v) mistake.
(7) Consideration : Except some exceptions, an agreement without consideration is void. It means quid pro-quo. It must be lawful and real and not illusory.
(8) The lawful object and its consideration must be legal.
(9) The agreement must have certain meaning.
(10) An agreement to be valid must be possible to be performed.
(11) The agreements must not be declared void by the law of the land.
(12) Compliance of legal formalities is required.
Hence, every agreement to be enforceable by law must possess all these essential elements for a contract. If any of the element is missing in an agreement, such
agreement is not enforceable by law.
A contract is a legally binding agreement between two or more parties which starts with an offer from one person but which does not become acontract until the
other party signifies an unequivocal willingness to accept the terms of that offer.
In the law of contracts, acceptance is one person's compliance with the terms of an offer made by another. Acceptanceoccurs in the law of insurance when an ins
urer agrees to receive a person's application for insurance and to issue a policyprotecting the person against certain risks, such as fire or theft. When a person wh
o is offered a gift by someone keeps thegift, this indicates his or her acceptance of it.
Acceptance also occurs when a bank pays a check written by a customer who has a checking account with that bank.
In business dealings between merchants, which is governed by the law of sales, a buyer demonstrates his or her acceptanceof goods that are not exactly what he
or she had ordered from the seller by telling the seller that he or she will keep thegoods even though they are not what was ordered; by failing to reject the goods
; or by doing something to the goodsinconsistent with the seller's ownership of them, such as selling the goods to consumers of the buyer's store.
Types of Acceptance
An acceptance may be conditional, express, or implied.
Conditional Acceptance A conditional acceptance, sometimes called a qualified acceptance, occurs when a person towhom an offer has been made tells the off
eror that he or she is willing to agree to the offer provided that some changes aremade in its terms or that some condition or event occurs. This type of acceptanc
e operates as a counteroffer. A counteroffermust be accepted by the original offeror before a contract can be established between the parties.
Another type of conditional acceptance occurs when a drawee promises to pay a draft upon the fulfillment of a condition,such as a shipment of goods reaching it
s destination on the date specified in the contract.
Express Acceptance An express acceptance occurs when a person clearly and explicitly agrees to an offer or agrees to paya draft that is presented for payment.
Implied Acceptance An implied acceptance is one that is not directly stated but is demonstrated by any acts indicating aperson's assent to the proposed bargain.
An implied acceptance occurs when a shopper selects an item in a supermarketand pays the cashier for it. The shopper's conduct indicates that he or she has agre
ed to the supermarket owner's offer tosell the item for the price stated on it.
Contingent Contract
Contingent contract has been defined by section 31 of the Indian Contract Act. According to this section , a contingent contract is a contract to do or not to do
something , if some event , collateral to such contract , does not happen .It is a kind of conditional contract and the nature of condition is uncertain . When the
condition is of uncertain in nature only then the contract can be regarded as contingent contract . If the nature of condition is such that it is certain to happen then
it is not at all a contingent contract . For example , A contracts to pay B ` 10,000 /- if Bs house is burnt . This is an example of contingent contract because the
contingency may or may not happen .From this point of view , all contracts of insurance , except life insurance , are contingent contracts . So a contingent
contract will contemplate a future event . Contingent contract means a contract that has already been arisen or a subsisting contract is there , but its performance
can not be demanded unless the contemplated event happens or does not happen in future .
The rules regarding contingent contracts are summarized here under (Section 32 to 36).
1. Contracts contingent upon the happening of a future uncertain event cannot be enforced by law unless and until that event has happened. And, if, the event
becomes impossible, such contract becomes void (S.32).For example: A makes a contract with B to buy B's horse if A survives C. This contract cannot be
enforced by law unless and until C dies in A's life-time.
In Chandulal Harjivandas Vs. CIT, Gujarat, AIR 1967, SC 816, in this case there was an agreement to pay taxed costs to the agent for appearing in the case in
the Supreme Court on being successful-held that the obligation which was contingent on winning of case would ripen into an absolute obligation in the event of
success of the case only.
2. Contracts contingent upon the non-happening of a certain future event can be enforced when the happening of that event becomes impossible, and not before.
For example: A agrees to pay B a sum of money, if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.(S.33)
3. If a contract is contingent upon as to how a person will act on an unspecified time, the event shall be considered to become impossible when such person does
anything, which renders it impossible that he would so act within any definite time or otherwise than under further contingencies (Section 34). For example: A
agrees to pay B a sum of money, if B marries C. But C marries D. The marriage to C must now be considered impossible, although it is possible that D may die
and that C may afterwards marry B.
4. Contracts contingent upon the happening of an uncertain specified event within a fixed time become void, if at the expiration of the time fixed, such event has
not happened or if, before the time fixed, such event becomes impossible (S..35). For example: A promises to pay B a sum of money if a certain ship returns
within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year.
5. Contracts contingent upon the non-happening of a specified event within a fixed time may be enforced by law when the time fixed has expired and such event
has not happened or before the time expired, if it becomes certain that such event will not happen (S.36). For example: 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 the year or is burnt within the year.


1. Acceptance must be given by the person to whom the proposal is made:
An acceptance to be valid must be given only by a person to whom offer has been given. In other words, acceptance must move from the offeree and no one
2. Acceptance can be given only when the acceptor has the knowledge of the offer:
Acceptance therefore cannot be given without the knowledge of offer, as in case of Lalman Shukla v Gauri Dutt.
3. The acceptance must be absolute and unconditional:
It is another important essential element of a valid acceptance. A valid contract arises only if the acceptance is absolute and unconditional. It means that the
acceptance should be in total (i.e. of all the terms of the offer), and without any condition.
Thus, an acceptance with a variation is no acceptance. It is simply a counter offer. A counter offer puts an end to the original offer, and it cannot be revived by
subsequent acceptance.
4. The acceptance must be given within the time prescribed or within a reasonable time:
Sometimes, the time limit is fixed within which an acceptance is to be given. In such cases, the acceptance must be given within the fixed time limit. In case, no
time is prescribed, the acceptance should be given within a reasonable time. The term reasonable time depends upon the facts and circumstances of each case.
5. The acceptance must be given before the lapse of offer:
A valid contract can arise only when the acceptance is given before the offer has elapsed or withdrawn. An acceptance which is made after the withdrawal of the
offer is invalid, and does not create any legal relationship.
6. The acceptance must be communicated:
It is an important and essential element of a valid acceptance. The definition of acceptance as given in Sec. 2(b) emphasises this requirement. According to this,
the consent to the offer should be signified (i.e. indicated or declared).
In other words, the acceptance is completed only when it has been communicated to the offeror. It may be noted that until the acceptance is communicated, it
does not create any legal relations.
7. The acceptance must be communicated to the offer or himself:
A valid contract arises only if the acceptance is communicated to the offeror himself. If acceptance is communicated to the person, other than the offeror, it will
not create any legal relationship. In fact, such communication is no communication at all.
8. The acceptance must be in the prescribed manner:
It is the legal rule of the acceptance that it must be accepted in the prescribed manner. If the offer is not accepted in the prescribed manner, then the offeror may
reject the acceptance within reasonable time.It may, however, be noted that, if the offeror does not reject the acceptance within a reasonable time then he
becomes bound by acceptance. [Sec. 7(2)]
9. The acceptance must be given in some usual and reasonable manner:
It is another important legal rule of an acceptance that where no mode is prescribed, acceptance must be given in some usual and reasonable manner. In such
cases, the mail course is considered, a very reasonable manner.
10. The acceptance must show an intention that acceptor is willing to fulfil the terms of the offer:
A valid contract can arise only when the acceptance is given with the intention of fulfilling the terms of the contract. An acceptance which is made jokingly and
without any intention of entering into a contract is invalid and does not create any legal relationship.
11. The acceptance may be express or implied:
An acceptance, which is expressed by words written or spoken, is called an express acceptance.
12. The acceptance cannot be presumed from silence:
Sometimes, the acceptor does not convey his decision to the offer or/and keeps silent. In such a case, his silence does not amount to acceptance. Similarly, the
offeror does not have the legal rights to say that if no answer is received within a certain time, the offer shall be deemed to have been accepted. He (the offeror)
cannot impose a condition that offerees silence will be regarded as equivalent to acceptance.
1. Acceptance by Authorized Person :Communication of acceptance should be made by a person who has the authority to accept it. If unauthorized person provides the information it is ineffective.
Example :- Mr. Akram sold his company to Mr. Nawaz for Rs. 10 million. Mr Ashraf now gives the supply order for the goods to Mr. Akram by name. Mr.
Nawaz received the order and supplied. There was no contract between Mr. Nawaz and Mr. Ashraf because offer was not made to Mr. Ashraf.
2. Specific Time :If time limit is specified then acceptance must be given within that period. Otherwise within a reasonable time it must be given. Example An offer to buy shares
of a company was made in June but the acceptance was communicated in November, it was held that the offerer was not bound by the acceptance because the
acceptance was not given within a reasonable time. [Ramsgate Victoria Hotel Co, v. Montefiore]
3. Acceptance Before Offer Lapses :If the acceptance is made after the withdrawn or lapses of offer, then it is not a valid acceptance. Acceptance must be made before the offer lapses. Example X
offered by a letter to sell his car for Rs 1,00,000. Subsequently, X withdrew his offer by a telegram which was duly received by Y. After the receipt of telegram,
Y sent his acceptance to X. In this case, the acceptance is invalid because it was made after the effective withdrawal of the offer.
4. Acceptance After Communication :Before the communication of offer, acceptance cannot be given. Acceptance cannot be valid if it is given before the communication of offer.
Example :- Mr. Awan is thinking to sell his car to Mr. Ram. But Mr. Ram writes him a letter of acceptance. The acceptance is not valid as it has been given
before offer.
5. Particular Manner :Acceptance must be given according the particular manner prescribed in the offer, if acceptance is not given according to that then it can be rejected by the offer.
If there is no such type of any condition then it can be made in a reasonable way.
6. Intention Must be Shown :Acceptance must show the intention of the acceptor to accept the offer. Intention to accept the offer can be shown by words, or by conduct. Silence does not
show acceptance.
Example :- Mr. Rana offers to sell his house to Mr. Jhon. If Mr. Jhon accepts it by writing a letter. This is an express acceptance.
7. Acceptance Informed :When acceptance comes to the knowledge of the proposer it becomes irrevocable and it becomes a valid acceptance.
8. Complete Acceptance :All the terms and conditions of the offer should be accepted by the acceptor. If any part of the offer is rejected then acceptance can not be called valid.
Example :- Mr. Farid offers to sell his three horses for Rs. 3 lac to Mr. Khan. Mr. Khan agrees to purchase one horse only. It is not a valid acceptance.
9. Case of Refusal :If once the offer is rejected by the acceptor, then it can not be accepted by the acceptor. Unless it is renewed by the proposer. Renewal is necessary for a valid
10. According to Act :Acceptor must accept the proposal according to the requirements of the act. If he ignores the requirements of act then it is not a valid acceptance.

Undue Influence
Section 16 says that 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 .
Section 16 further says that without prejudice to the foregoing principle , a person is said to be able to dominate the will of another --a) where he holds a real or apparent authority over the other , or where he stands in a fiduciary relation to the other ; or
b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age , illness , or mental or bodily
distress .
Where a person who is in a position to dominate the will of another enters into a contract with him , and the transaction appears , on the face of it or on evidence
adduced , to be unconscionable , the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate
the will of the other .
As for example , A , having advanced money to his son , B , during his minority , upon Bs coming of age obtains , by misuse of parental influence , a bond from
B for a greater amount than the sum due in respect of the advance . A employs undue influence .
In another example , A , a man enfeebled by disease or age , is induced by Bs influence over him as his medical attendant , to agree to pay B , an unreasonable
sum for his professional services . B employs undue influence .
Difference between Coercion & Undue Influence




Coercion is an act of threatening which involves the

use of physical force.

Undue Influence is an act of influencing the will of the other party.


It is governed by Section 15 of the Indian Contract

Act, 1872.

It is governed by Section 16 of the Indian Contract Act, 1872.

Use of

Psychological pressure or Physical force

Mental pressure or Moral force


To compel a person in such a way that he enters into

a contract with the other party.

To take unfair advantage of his position.

Criminal Nature




The relationship between parties is not necessary.

The act of undue influence is done only when the parties to the contract are in
relationship. Like teacher - student, doctor - patient etc.

Definition of Coercion
Coercion is a practice of unlawfully intimidating a person or property, employed to induce a person to enter into an agreement without his independent will. This
involves physical pressure. It is an act of compelling a person in such a manner, that he doesnt have any choice rather than entering into an agreement with the
other party.
Coercion includes blackmailing, threatening to kill or beat any person, torture, harming the family of a person, detaining property. Moreover, it includes the
actually committing or threatening to commit an offence which are strictly prohibited, or forbidden by the Indian Penal Code (IPC), 1860. The acts influenced
by coercion are voidable, not void i.e. if the other party whose will is influenced by coercion seems any benefit in the contract, then it can be enforceable..
Example: A threatens B to marry him, or else he will kill her whole family. In this situation, the consent of B is not free i.e. it is influenced by coercion.
Definition of Undue Influence
Undue Influence is a situation in which one person, influences the free will of another person by using his position and authority over the other person, which
forces the other person to enter into an agreement. Mental pressure and moral force are involved in it.
The parties to the contract are in fiduciary relation to each other like a master servant, teacher student, trustee beneficiary, doctor patient, parent child,
solicitor client, employer employee, etc. The dominant party tries to persuade the decisions of the weaker party, in order to take inequitable advantage of his
position. The contract between the parties is voidable, i.e. the weaker party can enforce it, if he seems some benefit in it.
Example: A teacher forces his student to sell his brand new watch, in a very nominal price, in order to get good grades in the examination. In this situation, the
consent of the student is affected by the undue influence.
Fraud is defined by section 17 of the Indian Contract Act . The definition is quite exhaustive .According to section 17 , fraud means and includes any of the
following acts done with intent to deceive or to induce a person to enter into a contract ------1) the suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true ;
2) active concealment of a fact by a person who has knowledge or belief of the fact ;
3) promise made without any intention of performing it ;
4) any other fact fitted to deceive ;
5) any such act or omission as the law specially declares to be fraudulent .

Key Differences Between Coercion and Undue Influence

The major differences between coercion and undue influence are as under:
1.The act of threatening a person in order to induce him to enter into an agreement is known as coercion. The act of persuading the free will of another person,
by taking advantage of position over the weaker party, is known as undue influence.
2.Coercion, is defined in section 15 while Undue Influence is defined in section 16 of the Indian contract Act, 1872.
3.Any benefit received under coercion is to be restored back to the other party. Conversely, any benefit received under undue influence, is to be returned back to
the party as per the directions given by the court.
4.The party who employs coercion, is criminally liable under IPC. On the other hand, the party who exercises undue influence, is not criminally liable under
5.Coercion involves physical force, whereas Undue Influence involves mental pressure.
6.The parties under coercion need not to be in any relationship with each other. As opposed to undue influence, the parties must be in a fiduciary relationship
with each other.
Key Differences Between Fraud and Misrepresentation
The major difference between fraud and misrepresentation are as under:
1.Fraud is a deliberate misstatement of a material fact. Misrepresentation is a bonafide representation of misstatement believing it to be true which turns out to
be untrue.
2.Fraud is done to deceive the other party, but Misrepresentation is not done to deceive the other party.
3.Fraud is defined in Section 17 and misrepresentation is defined in Section 18 of the Indian Contract Act, 1872.
4.In fraud, the party making representation knows the truth however in misrepresentation, the party making representation does not know the truth.
5.In fraud the aggrieved party can claim damages for any loss sustained. On the other hand, in misrepresentation, the aggrieved party cannot claim damages for
any loss sustained.
6.In fraud the contract is voidable even if the truth can be discovered in normal diligence. On the other hand, in misrepresentation the contract is not voidable if
the truth can be discovered in normal diligence.

Silence does and does not amount to fraud

Difference between Contingent Contract & Wagering Agreement

Contingent Contract is a valid contract in nature.
Under Contingent Contract, future uncertain events are collateral to the main purpose of the contract.
In Contingent Contract, there may or may not be reciprocal promises.
Parties have real interest in the happening or non-happening of an event.
Contingent agreements are not a game of chance.
The future event is only collateral.
Wagering agreements are void in nature.
Under Wagering agreement, future uncertain event is the key element of the agreement.
Reciprocal Promises are definite.
Parties are not interested in the happening of an event except for the winning or losing of the bet amount.
Wagering agreements are a game of chance.
Future event is the sole determining factor.
Something of value (either a promise, an act or an object) that a promisor receives from a promisee in return for his promise. It is one of the six elements that
must be present for a contract to be enforceable. Consideration must be both legally sufficient and bargained-for by the receiving party. Something
with monetary value, voluntarily exchanged for an act, benefit, forbearance, interest, promise, right, or goods or services. In banking, the loan-amount is a
consideration, in exchange for the borrower's promise to repay the principal and to pay interest and other charges. In insurance, the insurance company's offer to
make a loss good is a consideration in exchange for payment of premium. Essential element of all enforceable commercial-contracts, it does not have to be
'adequate' or equal in value to the exchanged item but must be legal (not in violation of any law). Any commercial contract without a valid (valuable and legal)
consideration is invalid and is called 'nudum pactum' (Latin for, naked contract) governed by the legal maxim 'ex nudo pacto non oritur actio' (Latin for, a right
of action does not arise from a naked contract). See also good consideration, and valuable consideration.

Section 25 of the Indian Contract Act provides three exceptions when agreement without consideration is valid . And these three exceptions are as
follows :1) Natural love and affection
When it is expressed in writing and registered under the law for the time being in force for registration of documents , and is made on account of natural love
and affection between the parties standing in a near relation to each other . As for example , A promises , for no consideration , to give to B Rs. 1,000 /-. This is
a void agreement for want of consideration . But if , A , for natural love and affection , promises to give his son , B , Rs. 1,000 /- and A puts his promise into
writing and registers it , then it becomes a contract .
2) Past voluntary service
When it is a promise to compensate , wholly or in part , a person who has already voluntarily done something for the promisor , or something which the
promisor was legally compellable to do . As for example , A finds Bs purse and gives it to him . B promises to give A Rs. 50 /- . This is a valid contract .
Again , A supports Bs infant son . B promises to pay As expenses in so doing. This is a valid contract .
3) Time barred debt
When it is a promise , made in writing and signed by the person to be charged therewith , or by his agent generally or specially authorized in that behalf , to pay
wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits . As for example , A owes B Rs. 1,000 /- ,
but the debt is barred by the Limitation Act . A signs a written promise to pay B Rs. 500/- on account of the debt . This is a valid contract .
Agreements made on any of the above grounds though made without consideration are valid .
Is past consideration valid?
If one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past. The rule is that past
consideration is no consideration, so it is not valid and cannot be used to sue on a contract. For example, A gives B a lift home in his car. On arrival B promises
to give A 5 towards the petrol. A cannot enforce this promise as his consideration, giving B a lift, is past.
1. Prohibited By Law :If it is forbidden by law then it will be unlawful consideration. Example :- Business of smuggling is prohibited in law. If any person makes an agreement with
other in this regard. The agreement is void as the consideration is forbidden by law.
2. Case of Fraudulent :If the object of agreement is unlawful and based on fraud then consideration is also unlawful. Example :- Mr. Zain and Mr. Arjun enter into an agreement that
they will divide money acquired by fraud equally among themselves. This object is unlawful so agreement is void.
3. Immoral :In case of immoral object agreement is void and cannot be enforced. Example :- Mr. James agrees to let his daughter to hire to Mr. Shah for concubinage. The
agreement is void because it is immoral.
4. Injury To Other Person or Property :If an agreement involves an injury to the person or property of another it is void. Example :- Mr. Ali asks Mr. Noor to beat Mr. Khan and promises to pay Rs.
10,000 for this work. The agreement between Mr. Ali and Mr. Noor is void at it involves injury to the other person Mr. Khan. Therefore suit cannot be filed by
Mr. Noor to recover Rs. 10,000.
5. Against the Public Policy :In this case also the object or consideration of an agreement is said to be unlawful. There are certain classes of acts which are said to be against the public policy.
Example :- Mr. Nasir promises to obtain for Mr. Agah an employment in public service and Mr. Agha promises to pay Rs. 10, 000 to Mr. Nisar.
This act of Mr. Nisar is against the public policy. A private man cannot give a public service to any person. So agreement is void.
6. Nature of Agreement :The consideration or object of an agreement is unlawful if it is of such nature that if permitted it would defeat the provisions of law.

Remedies in Law
When lawyers talk about "remedies in law," they are talking about money damages. For breach of contract cases, there are several different types of monetary
Compensatory damages: This is the most common breach of contract remedy. When compensatory damages are awarded, a court orders the person that
breached the contract to pay the other person enough money to get what they were promised in the contract elsewhere. For example, suppose you hire and pay
someone to clean your house for $100, but he is unable to do it. You search for a new cleaning service, and the cheapest one you find will clean your house for
$150. If this cost is found to be reasonable, your first cleaner would have to pay you $150 in compensatory damages, allowing you to get your house
professionally cleaned as the contract intended.
Restitution: When a court orders restitution, they tell the person that breached the contract to pay the other person back. In the example above, the court would
order the first cleaner to pay you back $100, since that's what you paid him to clean your house.
Punitive damages: This is a sum of money intended to punish the breaching party, and is usually reserved for cases in which something morally reprehensible
happened, such as a manufacturer deliberately selling a retailer unsafe or substandard goods.
Nominal damages: A court awards nominal damages when there has been a breach of contract but no party to the contract suffered any harm.
Liquidated damages: These are damages that the parties agree to pay in the event a contract is breached.
Quantum Meruit: A court can award one party payment for what they deserve for any work that she performed before the other party breached the contract.
For example, if the cleaner in the example above had cleaned half the house, and then you decided you didn't want him to finish, he can demand $50 as quantum
meruit. Translated from Latin, the term means "as much as he deserved."
Remedies in Equity
A remedy in equity is when the court orders someone do something. This can also be called "injunctive relief." In breach of contract cases, this can look like any
of the following:
Cancellation: The court cancels the contract and decides that the parties are no longer bound by it.
Specific Performance: This is when the court forces the breaching party to perform the service or deliver the goods that they promised in the contract. This is
typically reserved for cases when the goods or services are unique and no other remedy will suffice.
What is supervening impossibility?
Supervening impossibility is the impossibility arising after the formation of a contract. However, this arises at the time when the promisor's performance is due.
Such impossibility usually arises due to facts that the promisor had no reason to anticipate and did not contribute to the occurrence of. If contracting parties were
allowed to plead supervening impossibility, it would make the whole basis of contract insecure. Therefore, the risk involved in supervening impossibility could
be deliberately excluded by stipulations in the contract.

Difference between penalty and liquidated damages

Penalty is something which is used in a contract to secure the performance of the contract whose main purpose is to ensure the payment of money which is
specified to terrorise the offending party. Also where the loss which has to be recovered is greater than the pre-estimated loss then it amounts to penalty.
Whereas liquidated damages are compensatory in nature at the same time are pre-estimated damages. The purpose liquidated damages is to promote certainty
especially in commercial field.
Liquidated damages are based on the genuine pre-estimate of the loss, whereas penalty is based on the doctrine of reasonable compensation.
Also Sec.73 lays down the principles for damages pertaining to difference between the cost and price of the goods and services at the time of the contract and
the time when the contract was breached.
It is courts duty to determine whether the case in hand involves liquidated damages or penalty, by determining the facts of the case. Apart from it the court has
to look into

Nature of transaction,
Right sand other obligation arising from the contract and the transaction
And relative situation of the parties.

Rules for Damages are monetary awards and can include:

1) Compensatory Damages: These are damages for a monetary amount that is intended to compensate the non-breaching party for losses that result from the
breach. The aim is to "make the injured party whole again". There are two types of compensatory damages:
Expectation Damages: These are damages that are intended to cover what the injured party expected to receive from the contract. Calculations are usually
straightforward as they are based on the contract itself or market values.
Consequential Damages: These are intended to reimburse the injured party for indirect damages other than contractual loss; for example, loss of business
profits due to an undelivered machine. In order to recover, the injuries must "flow from the breach," i.e. be a direct result of the breach, and be reasonably
foreseeable to both parties when they entered into the contract.
2) Liquidation Damages: Damages that are specifically stated in the contract. These are available when damages may be hard to foresee and must be a fair
estimate of what damages might be if there is a breach. Both parties determine what would be an appropriate amount during contract negotiations.
3) Punitive Damages: These are damages that are intend to punish the breaching party and to deter him or her from committing any future breaches. They are
rarely awarded in contract cases, though they may be available in some fraud or tort cases that overlap with contract law.
4) Nominal Damages: These are damages that are awarded when the injured plaintiff does not actually incur a monetary loss, but the judge wants to show that
the winning party was in the right. These are typically rarely awarded in contract cases because breaches of contract usually involve some sort of loss to one
party, however they might be awarded in tort cases that cross over with a breach of contract case.
5) Restitution: These are not really legal damages per se, but rather are an equitable remedy awarded to prevent the breaching party from being unjustly
enriched. For example, if one party has delivered goods but the other party has failed to pay, the party that delivered the goods may be entitled to restitution, i.e.
the cost of the delivered goods, in order to prevent the unjust enrichment.
Equitable remedies are typically awarded when monetary damages will not properly remedy the situation. They involve the court ordering the parties to act or
to refrain from acting. Types of equitable remedies include:
Specific Performance: A court decree that requires the breaching party to perform their part of the bargain indicated in the contract. For example, if one party
has paid for a delivery of goods, but the other party did not ship them, a specific performance decree might require the goods to be properly delivered.
Contract Rescission: The former contract which is the subject of dispute is "rescinded" (cancelled), and a new one may be formed to meet the parties needs.
This is a remedy typically given when both parties agree to cancel the contract or if the contract was created through fraud.
Contract Reformation: The former contract is rewritten with the new contract reflecting the parties true intent. Reformation requires a valid contract to begin
with and often is used the parties had a mistaken understanding when forming the contract.

The Law Reform (Frustrated Contracts) Act 1943 was passed to provide for a just apportionment of losses where a contract is discharged by frustration. (For the
previous inflexible common law rules see ILEx Textbook, 13.5.4)
Section 1(2) provides three rules:
Money paid before the frustrating event is recoverable, and Money payable before the frustrating event ceases to be payable, whether or not there has been a
total failure of consideration. If, however, the party to whom such sums are paid/payable incurred expenses before discharge in performance of the contract, the
court may award him such expenses up to the limit of the money paid/payable before the frustrating event.
For an example: Gamerco v ICM/Fair Warning (Agency) Ltd [1995] 1 WLR 1226.
Section 1(3) provides:

If one party has, by reason of anything done by the other party in performance of the contract, obtained a valuable benefit (other than money) before the
frustrating event, he may be ordered to pay a sum in respect of it, if the court considers it just, having regard to all the circumstances of the case.
A case has discussed, inter alia, the meaning of the words 'valuable benefit'.
Section 2(3) permits contracting out.
Section 2(4) provides that the Act does not apply where wholly performed contractual obligations can be severed from those affected by the frustrating event.
Section 2(5) provides that the Act does not apply to:
Contracts containing a provision to meet the case of frustration; Charterparties (except time charterparties or charterparties by demise); Contracts for the carriage
of goods by sea; Contracts of insurance; Contracts for the sale of specific goods, which perish before the risk has passed to the buyer.
A quasi-contract, also an implied-in-law contract, is a legal substitute for a contract. A quasi-contract is a contract that should have been formed, even though in
actuality it was not. It is used when a court wishes to create an obligation upon a non-contracting party to avoid injustice.
An example of a quasi-contract is the case of a plumber who accidentally installs a sprinkler system in the lawn of the wrong house. The owner of the house had
learned the previous day that his neighbor was getting new sprinklers. That morning, he sees the plumber installing them in his own lawn. Pleased at the
mistake, he says nothing, and then refuses to pay when the plumber hands him the bill. Will the man be held liable for payment? Yes, if it could be proven that
the man knew that the sprinklers were being installed mistakenly, the court would make him pay because of a quasi-contract. If that knowledge could not be
proven, he would not be liable.
Key Differences Between Void Contract and Voidable Contract
1.A contract which lacks enforceability is Void Contract. A contract which lacks the free will of one of the parties to contract is known as Voidable Contract.
2.Void Contract is defined in section 2 (j) while Voidable Contract is defined in Section 2 (i) of the Indian Contract Act, 1872.
3.A void contract was valid at the time when it is created, but later on it becomes invalid. Conversely, voidable contract is valid until the aggrieved party, does
not revokes it within stipulated time.
4.When it is impossible, for an act to be performed by the parties it becomes void, as it ceases its enforceability. When the consent of the parties to the contract is
not free, the contract becomes voidable at the option of the party whose consent is not free.
5.In void contract, no party can claim any damages for the non-performance of the contract. On the other hand, the aggrieved party can claim damages for any
loss sustained.
Key Differences Between Offer and Invitation to Offer
1.An offer is the final willingness of the party to create legal relations. An invitation to offer is not the final willingness but the interest of the party to invite
public to offer him.
2.An offer is defined in section 2 (a) of the Indian Contract Act, 1872. Conversely, an invitation to offer is not defined in the Indian contract Act, 1872.
3.An offer is an essential element to make an agreement between the parties, but an invitation to offer is not an essential element until it becomes an offer.
4.An offer becomes an agreement when accepted. On the other hand, an invitation to offer becomes an offer when the public responds to it.
5.The main objective of making an offer is to enter into the contract, whereas the main objective of an invitation to offer is to negotiate the terms on which the
contract can be made.
Explain the difference between an actual breach and an anticipatory breach
An actual breach of contract takes place when one party, at the time when his obligations fall due for performance, fails to perform them. An example of such
a breach is where the seller under a sale of goods contract fails to hand over the goods on the agreed delivery date.
An anticipatory breach of contract takes place when one party, prior to the time when his obligations fall due for performance, indicates that he does not
intend to perform them. The indication may be either express (verbally or in writing) or implied. An example of an implied indication (and therefore of an
anticipatory breach) would be where the seller under a sale of goods contract sells the goods to a third party prior to the agreed delivery date.
Difference between Executed and Executory Types of Contracts are given below:


Executed Contract: A contract in which both the parties performed their respective promises. When a contract has been completely performed, it
is termed as executed contract, i.e. it is a contract where, under the terms of a contract, nothing remains to be done by either party. A contract may
be executed at once i.e. at the time when it is made. For example, in case of cash sales, the contract is executed at once. It may become executed in
some future date when the terms of the contract are carried out.
Executory contract: A contract in which the promises of both the parties have yet to be performed. Thus, executory contract is that where under
the terms of a contract something remains to be done by the parties.In other words, where one or both the parties to the contract have still to
perform their obligations in future, the contract is termed as executory contract. For example: X agreed to sell his car to Y for Rs. 2, 00,000. Car
was to be delivered by X on 20th of next month, and price was to be paid by 30th of that month. It is an executory contract, as both the parties have
to perform their respective obligation in future. Suppose X delivered the car on due date i.e. on 20th. The contract is still executory, because Y is still
under obligation to pay the price on 30th of the month. In such cases, the contract as a whole is executory one, though it may be said that it is partly
executed and partly executory.

Free consent is one of the most important essential elements of a valid contract. The term free consent refers to meeting of free and fresh minds of two parties
of an agreement when two parties take and understand, purpose, subject matter and terms and conditions of the agreement in the same sense it is free consent.

Both of them must take things in the same way. They must not understand it in different way. An agreement which is made freely it becomes a valid contract due
to presence of free consent of both the parties. In any of the free consent of both there will no free consent in the agreement.
Coercion: - threading.
Undue influence: - pressure and misuse of power for unfair advantage.
Fraud, deceiving on cheating the other.
Misrepresentation: - false statement without an intention to deceive the other.
Mistake error

Quantum Meruit
Latin for "as much as he deserved," the actual value of services performed. Quantum meruit determines the amount to be paid for services when no contract
exists or when there is doubt as to the amount due for the work performed but done under circumstances when payment could be expected. This may include a
physician's emergency aid, legal work when there was no contract, or evaluating the amount due when outside forces cause a job to be terminated unexpectedly.
If a person sues for payment for services in such circumstances the judge or jury will calculate the amount due based on time and usual rate of pay or the
customary charge, based on quantum meruit by implying a contract existed.
Substitution of an original party to a contract with a new party, or substitution of an original contract with a new contract. Upon substitution, the obligations of
the withdrawing-party are automatically discharged and no express-release is required. To be effective, however, the substitution must be agreed-to by all the
original and new parties to the contract. Novation is never presumed; if the novation agreement is not in writing, it must be established from
the acts and conduct of the parties. Novation is not the same as assignment of an agreement where no new agreement is needed and the rights and duties are
transferred from the assignor to the assignee. For example, if there exists a contract where Dan will give a TV to Alex, and another contract where Alex will give
a TV to Becky, then, it is possible to novate both contracts and replace them with a single contract wherein Dan agrees to give a TV to Becky. Contrary to
assignment, novation requires the consent of all parties. Consideration is still required for the new contract, but it is usually assumed to be the discharge of the
former contract.

Who Lacks the Capacity to Contract?

When it comes to legally binding agreements, certain people are always considered to lack the legal ability (or "capacity") to contract. As a legal matter,
basically they are presumed not to know what they're doing. These people--legal minors and the mentally ill, for example--are placed into a special category. If
they enter into a contract, the agreement is considered "voidable" by them (as the person who lacked capacity to enter the agreement in the first place). Voidable

means that the person who lacked capacity to enter the contact can either end the contract or permit it to go ahead as agreed on. This protects the party who lacks
capacity from being forced to go through with a deal that takes advantage of his or her lack of savvy.
Let's look at some situations in which a person might lack the legal capacity to enter into a legally binding contract.

Minors Have No Capacity to Contract

Minors (those under the age of 18, in most states) lack the capacity to make a contract. So a minor who signs a contract can either honor the deal or void the
contract. There are a few exceptions, however. For example, in most states, a minor cannot void a contract for necessities like food, clothing, and lodging. Also,
a minor can void a contract for lack of capacity only while still under the age of majority. In most states, if a minor turns 18 and hasn't done anything to void the
contract, then the contract can no longer be voided. EXAMPLE : Sean, 17, a snowboarder, signs a long-term endorsement agreement for sportswear. He
endorses the products and deposits his compensation for the endorsements for several years. At age 19, he decides he wants to void the agreement to take a
better endorsement deal. He claims he lacked capacity when he signed the deal at 17. A court probably will not permit Sean to now void the agreement. For
another example of minors entering into contracts, see Nolo's Q&A Is a 15-year-old's contract with a cell phone service valid?
Mental Incapacity
A person who lacks mental capacity can void, or have a guardian void, most contracts (except contracts for necessities). In most states, the standard for mental
capacity is whether the party understood the meaning and effect of the words comprising the contract or transaction. This is called the "cognitive" test. Some
states use what's called the "affective" test: a contract can be voided if one party is unable to act in a reasonable manner and the other party has reason to know
of the condition. And some states use a third measure, called the "motivational" test. Courts in these states measure capacity by the person's ability to judge
whether or not to enter into the agreement. These tests may produce varying results when applied to mental conditions such as bipolar disorder. EXAMPLE:
Mr. Smalley contracted to sell an invention, and then later claimed that the contract was void because he lacked capacity. Smalley had been diagnosed as manicdepressive and had been in and out of mental hospitals. His doctor stated that Mr. Smalley was not capable of evaluating business deals when he was in a
"manic" state. A California Court of Appeals refused to terminate the contract and stated that Smalley, in his manic state, was capable of contracting. "The manic
phase of the illness under discussion is not, however, a weakness of mind rendering a person incompetent to contract ." In other words, the Court's view of
manic-depression was cognitive--that the condition may have impaired Smalley's judgment but not his understanding.
Alcohol and Drugs
People who are intoxicated by drugs or alcohol are usually not considered to lack capacity to contract. Courts generally rule that those who are voluntarily
intoxicated shouldn't be allowed to avoid their contractual obligations, but should instead have to take responsibility for the results of their self-induced altered
state of mind. However, if a party is so far gone as to be unable to understand even the nature and consequences of the agreement, and the other (sober) party
takes advantage of the person's condition, then the contract may be voidable by the inebriated party. EXAMPLE : In the late 19th century, Mr. Thackrah, a Utah
resident and owner of $80,000 worth of mining stock, went on a three-month bender. Mr. T's fondness for alcohol was well known, and a local bank hired Mr.
Haas to contract with the inebriated Thackrah. Haas did the deal, getting Thackrah to agree to accept $1,200 for his mining stock. When he sobered up (a month
later), Thackrah learned that Haas had turned over the mining shares to a local bank (apparently the real culprits in the scheme). Thackrah sued Haas. The case
went all the way to the U.S. Supreme Court, which ruled that the agreement was void because the bank and Hass knew that Thackrah had no idea what he was
doing when he entered the contract. The bank had to return the shares to Thackrah, less the $1,200 he had already been paid.
Effects of minor agreement

Restraint of Trade
Certain types of agreements are declared as void by statues. Those agreements are harmful to Society and they are called 'Agreements Opposed to Public Policy'.
Out of them agreement in restraint of trade is one. The agreements which restrict trade business or profession are called agreements in restraint of trade. One
citizen cannot restrict lawful business of the other. A case on this point is Cohen Vs Wilken. In this case A is owner of a theater and B is a dancer. According to
their Contract B has to Conduct his dance programs at A`s theater only throughout life. Thereafter B breaches the Contract and A Sue`s. Court decides that it is
agreement in restraint of trade and therefore A cannot take any legal action.

Unlawful Agreement
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 itself. The classic example of such an agreement is a contract for murder.However, a contract that
requires only legal performance on the part of each party, such as the sale of packs of cards to a known gambler, where gambling is illegal, will nonetheless be
enforceable. A contract directly linked to the gambling act itself, such as paying off gambling debts, however, will not meet the legal standards of enforceability.
Therefore an employment contract between a blackjack dealer and a speakeasy manager, is an example of an illegal agreement and the employee has no valid
claim to his anticipated wages if gambling is illegal under that jurisdiction.

Wagering Agrement
In very simple terms, wagering is a bet on something which could bring a win or the opposite on the parties at the occurrence of uncertain future event. So it
would be a wagering agreement, if A and B both agree that if Pakistan wins a cricket match A will give tk.1000 to B and if India wins the cricket match, B will
give the same amount to A. Perhaps the best definition is given by Sir William Anson, a wagering contract is one by which two persons, professing to hold
opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of the event, one shall win from the other, and
that other shall pay or hand over to him, a sum of money or other stake; neither of the parties having any other interest in that contract than the sum or stake he
will so win or lose, there being no other consideration for making of such contract by either of the parties. If either of the parties may win, it is not a wagering
contract. According to A.K Sen, In the case of void agreements, collateral agreements which mean the agreements that are subsidiary or incidental to the main
agreement are valid. Therefore, though wagering agreements are void, transactions collateral to such agreements is valid. As gaming is a relative form of the
wager, we can speculate that, it is originated from Europe and China where games like craps, baccarat and keno (ancient Chinese lottery game) were played.