CONTRACTS JH

CONTRACT ACT 1872

INDEX PAGE NOS

1. VALID CONTRACT 1
2. COMPETENCE TO CONTRACT 3
3. MINOR AGREEMENTS 4
4. DISCHARGE OF CONTRACTS 5
5. REMEDIES OF BREACH OF CONTRAC 6
6. QUASI CONTRACTS 6
7. SPECIFIC PERFORMANCE OF CONTRACT 7
8. INJUNCTIONS 8
9. STANDARD FORM OF CONTRACT 8
10.WAGERING CONTRACT 9
11.QUANTUM MERUIT 10
12.CASES 11

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VALID CONTRACT

Meaning of Contract: The law relating to contracts is governed by the “Indian

Contract Act, 1872”.

Definition of Contract: Section 2(h) defines a contract as “an agreement

enforceable by law”. There must be 1.An agreement and 2.The agreement should be
enforceable by law.

Agreement

Essential conditions of a Valid Contract:

Under Section 10

1. Minimum two parties (Offeror Sec 2(a) and Acceptor (Sec 2(b)),
2. Agreement (Sec. 2(e),
3. Offer and Acceptance,
4. Consensus-ad-idem (Identity of Minds),
5. Capacity to contract (Sec. 11) Mohori Bibee v. Dharmodas Ghose (1903),
6. Free consent (Sec. 14), Chikkam Ammiraju v. Chikkam Seshamma(1918)
1. Consent Sec. 13,
2. Free Consent Sec. 14,
3. Coercion Sec. 15,
4. Undue influence Sec. 16,
5. Fraud Sec. 17,
6. Misrepresentation Sec. 18,
7. Mistake Sections 20, 21 and 22,
8. Section 19 regarding void ability of agreements without free consent.
7. Lawful consideration (Sec. 2(d)),
8. Legal relationship, Balfour v. Balfour, 1919
9. Lawful object (sec 23),
10. Certainty of terms( Taylor v. Poratington, 1855)
11. Possibility of performance,

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12. Lawful agreement,

13. Legal formalities

Kinds of Contracts:

1. Valid contract (Sec 10),

2. Void Contract (Sec. 2(g)),
3. Voidable Contract (Sec. 2(i))
4. Unenforceable Contract,
5. Illegal Contract,
6. Standard Form of Contract,
7. Express Contract,
8. Implied Contract,
9. Executed Contract,
10. Executory Contract,
11. Unilateral Contract,
12. Bilateral Contract,
13. Formal Contract,
14. Simple Contract.

I. CAPACITY TO CONTRACT:-

“Capacity to contract” means competency of the parties to enter into a valid

contract. Competency of parties is an essential element of a valid contract. According
to Section 10 of the Contract Act, “All agreements are contracts if they are made by
the free consent of parties competent to contract….” Thus Section 10 requires parties
to be competent to contract. Section 11 of the Contract Act deals with the
competency of parties. It lays down that “Every person is competent to contract who
is of the age of majority according to the law to which he is subject, and who is of a
sound mind and is not disqualified from contracting by any law to which he is
subject”.

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INCAPACITY TO CONTRACT: Sec 11 of the Contract Act declares that a person is

incompetent to contract under the following circumstances:

1. If he is a minor, according to the law to which he is subject

(Mohori Bibee v Dharmodas Ghose, 1903),
2. If he is of unsound mind:
1. Insane person,
2. Contracts made by idiots,
3. Contracts by a lunatic or non compos mentis,
4. Contracts entered by drunkards,
3. If he is disqualified from contracting by any law to which he is subject:
1. Foreign Sovereigns and Ambassadors,
2. Alien Enemy,
3. Convicts or Felons,
4. Insolvent,
5. Government,
6. Barristers in England,
7. Illegal migrants from neighbouring countries,
8. The partners of an unregistered partnership cannot sue for the contract
entered by them. They are disqualified to sue,
9. If any property of an accused is forfeited under Section 53(v) of the Indian
Penal Code, 1860 by any court, nobody is entitled to enter into contract
pertaining to that forfeited property,
10. Contracts with Pardanashin woman valid subject to certain conditions
(Hussain Bai v. Zohra Bai, 1960)

Artificial status to enter into contract:

1. Capacity of corporations (Salomon v Salomon & co Ltd)

2. Deity,

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II. MINOR AGREEMENTS

Capacity to contract

Incapacity to contract : Section 11 of the Contract Act declares that a person is

incompetent to contract when he is a minor, he is of unsound mind, and disqualified
from contracting by any law.

Who is minor?

Legality of validity of minor’s contract.

Nature of minor’s agreement:

1. Agreement by a Minor is void ab initio (Mohori Bibee v Dharmodas Ghose,

1903),
2. No ratification of minor’s contract is possible (Bhola Ram v Bhagat Ram),
3. No Estoppel against a minor,
4. No Restitution for minor’s fraud (The Doctrine of Restitution).

Exceptions:

1. Enforceability of sales, mortgages, contracts etc., In favour of minor(A minor

binds others but is never bound by others),
2. Contracts of marriage on behalf of minor,
3. Minor can be admitted to the benefit of partnership,
4. Minor as a member of a company,
5. Minor In a contract of agency,
6. Minor and negotiable instruments,
7. Minor and insolvency,
8. Membership of societies,
9. No specific performance of minor’s agreement,
10. Insurance,
11. Joint documents,
12. Contracts of apprenticeship,
13. Minor’s liability for necessaries.
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III. DISCHARGE OF CONTRACTS

Methods or modes of discharge of contracts:

1. Discharge by actual or attempted performance

a. By actual performance,
b. Performance is dispensed with or executed(insolvency of a party),
c. By refusing the tender of performance,
d. By refusal.
2. Discharge by agreement:
a. Novation,
b. Alteration,
c. Rescission,
d. Remission,
e. Waiver,
f. Accord and satisfaction.
3. Discharge by lapse of time,
4. Discharge by impossibility of performance,
5. Discharge by breach,
6. Discharge by operation of law:
a. Death,
b. Insolvency,
c. Unauthorised material alteration of contract,
d. Merger.

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V. REMEDIES OF BREACH OF CONTRACT

Meaning of Breach of contract.

Remedies for breach of Contract:

1. Suit for rescission of the contract,

2. Suit for damages (Hadley V. Baxendale):
a. General or ordinary damages,
b. Specific damages or particular damages,
c. Vindictive or exemplary or punitive damages,
d. Nominal damages,
e. Liquidated damages,
f. Un-liquidated damages
3. Suit for quantum meruit,
4. Suit for specific performance,
5. Suit for injunction (Lumley V. Wagner)

VI. QUASI-CONTRACT

Definition of Quasi-contract: ‘Quasi’ means seemingly, apparently but not really’.

Quasi is a Latin word which means “as if”.

Characteristics or essential features of “quasi-contract”

1. Quasi-contract is not created by the operation of contract but is imposed by law,

It is strictly available against a person and is not available against all the world and
hence it is a right in personam,
2. The person, who incurs expenses, is entitled to receive money,
3. The person who enjoys or gets the benefit has to pay for it.

Evolution of the concept of quasi-contract.

Theoretical basis of quasi-contractual liability:

1. Theory of unjust enrichment,

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2. Implied promise theory.

Classification of quasi-contracts according to the Indian Contract Act, 1872:

1. Necessaries supplied to persons incapable of contracting i.e., minors, lunatics

(Sec. 68);
2. Payment by an interested person (Sec. 69);
a. The payment made should be bona fide for the protection of one’s interest.
b. The payment should not have been made gratuitously or voluntarily,
c. Another person must be bound by law to pay,
d. The payment must be made to a third party and not to himself.
3. Liability to pay for non-gratuitous acts (Sec. 70);
a. Doing of something or delivering anything to another person lawfully,
b. It must be doing of something positive,
c. No intention to do the act gratuitously,
d. Enjoyment of benefit by the defendant is necessary,
e. The person has not refused to accept the thing and not returned it.
4. Responsibilities of finder of goods (Sec. 71);
5. Liability of persons to whom money is paid or things delivered, by mistake or
under coercion (Sec. 72).

VII. SPECIFIC RELIEF ACT – 1963

Meaning and scope of the Specific Relief Act.

Reliefs under the Act:

1. Recovery of possession of immovable and movable property,

2. Specific performance of contracts (Sec. 9-25),
3. Rectification of instruments (Sec. 26),
4. Rescission of contract (Sec 27-30),
5. Cancellation of instruments (Sec 31.33),
6. Declaratory decrees (Sec. 34-35),
7. Preventive relief or injunctions (Sec. 36-42).

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VIII. INJUCTION

Preventive relief (Lumley V. Wagner).

Objects of granting injunction:

1. To restrain judicial proceedings,

2. To prevent tortuous acts,
3. To restrain breach of contract,
4. Breach of obligation to be prevented,
5. To prevent mishappening and injury to the aggrieved parties.

An injunction will not be granted in the following circumstances:

1. Where damages are the appropriate remedy,

2. Where injunction is not the appropriate relief,
3. Where the plaintiff is not entitled to an injunction,
4. Where the contract cannot be specifically enforced,
5. Where the injection would operate inequitably.

Characteristics of an injunction:

1. It is a judicial process,
2. The object attained thereby is restraint or prevention,
3. The thing restrained or prevented, is a wrongful act,
4. An injunction acts in ‘personam’ and does not run with the land.

Kinds of injunction:

1. Temporary injunctions (Interlocutory/interim/preliminary),

2. Permanent or perpetual injunction,
3. Mandatory injunction,
4. Prohibitory injunction,
5. Injunction to perform a negative agreement.

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IX. STANDARD FORM OF CONTRACTS

Due to increase in volume of trade and business, a business concern may have to
enter into contract with a large number of peoples. Hence, for the sake of
convenience, an organisation prepares standard form of contracts with fixed terms
and uses the same with the customers. Similarly, many contracts entered into by
public utility undertakings like the railways took the form of a set of terms fixed in
advance leaving no room for any discussion or bargain between the contracting
parties, a ‘take it or leave it’ offer. Such contracts were known as ‘standard
contracts’.

In standard form of contracts, the terms and conditions are not made by the
process of negotiation, between two parties. One of the parties generally prepares
draft of the contract, and on the same terms contracts may be made with numerous
persons. Such contracts have become quite common in our everyday life.

For instance, an insurance company may prepare a draft of insurance policy,

which may form the basis of contract with a large number of insured persons.
Similarly, the railway authorities may print various terms and conditions in the
Railway Time Table, which may be deemed to be the basis of the contract with
passengers.

Rules of standard form of contract:

1. There should be a contractual document,

2. There should not be no misrepresentation,
3. There should be a reasonable notice of the contractual terms,
4. Notice should express liability exemption clause,
5. The terms of the standard form of contract should be reasonable,
6. Protection to weaker party,
7. There should be no fundamental breach of contract,
8. No negation of liability,
9. Liability towards third party.

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X. WAGERING CONTRACT (SECTION 30)

Meaning of ‘wagering’

A wager is a contingent contract. Wager means bet or gamble. It is an agreement

to pay money or money’s worth on the happening or non-happening of a specified
uncertain event. Examples of wager.

Essentials of wagering agreement:

1. There must be a promise to pay money or money’s worth,

2. The promise must be dependent upon the happening or non-happening of an
event,
3. The event must be uncertain. The uncertain event may be past or future,
4. There must be two parties. Each party must have chance to lose or win.
5. The gain of one party must be the loss of the other,
6. The promise must have been made with the sole intention to gamble, wager is
a game of chance,
7. The parties must have opposite views on uncertain event,
8. Neither party have control over the event,

Effects of wagering contracts or agreement

1. Under Indian Law, wagering agreements are void but not illegal except in the
states of Maharashtra and Gujarat. So the amounts won on a wager cannot be
recovered. Promissory Note given on a wager also cannot be recovered. Thus
all kinds of wagers are void.
2. Though wagering contract I void, transactions incidental or collateral to a
wagering transaction are not void. They are valid and binding.
3. Wagering being only void, no taint of illegality is attached to a transaction.
4. Hence a wagering agreement is not unlawful and transactions collateral to the
main transaction are enforceable. For example, a broker in a wagering
transaction can recover his brokerage. Similarly, money lent for the purpose of
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gambling, or for paying gambling debt, even if given with knowledge of its
purpose for which the money is required, can be recovered.

Exceptions:

1. Lotteries,
2. Chit fund companies,
3. Games of skills,
4. Shares even though speculative,
5. Horse race,
6. A contract of insurance.

XI. QUANTUM MERUIT

Meaning of Quantum Meruit.

The doctrine of quantum Meruit comes into the operation in three distinct cases.
They are:

1. Breach of contract,
2. Contract discovered to be void,
3. Non-gratuitous services (Sec. 70).

Limitations: The doctrine of quantum Meruit is subject to the following limitations:

1. Indivisible contracts,
2. No evidence of promise,
3. Guilty of breach of contract.

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CASES PART – C

1. A , a businessman transferred his entire property on the name of the spiritual

guru, on his advice, believing that A will get moksha in the next world. But
after some time he denied his free consent. Decide. (Aug/Sep., 2013, 5 YDC)

Solution: In Manu singh v. Umadat Pande(1890), a Hindu lady made a gift

of her entire property to her spiritual guru, to secure benefits to her soul in the
next world. The court held that the gift was caused by undue influence and
hence voidable. (page 178 S.R.Myneni).

2. ‘A’ invites ‘B’ to dinner B accepts the invitation but does not turn up at the
dinner can ‘A’ sue ‘B’ for the loss he has suffered (Mar/Apr 2017).
A promises to buy a bike to his son if B secures a first class in the exams. Can
B file a suit for breach of promise if A fails his promise? (Feb/Mar 2013)]

Solution: An offer must be one capable of creating legal relationship between

the parties. A cannot sue B for breach of contract as there was no intention to
create legal obligation.
In Balfour v. Balfour, 1919, who was serving the government of Ceylon, went to
England with his wife on leave. After the expiry of the period of leave, Balfour
has to go back to Ceylon, but his wife could not accompany him for medical
reasons. Consequently, he promised orally to pay an allowance of 30 pounds a
month for her maintenance until she rejoined him. On his failure to make the
payment, the wife sued him for the recovery of the promised amount. Her suit
was dismissed by the court on the ground that the agreement was only an
arrangement between husband and wife, and the parties never intended to
create any legal obligation.

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3. A tells his wife that he would commit suicide, if she did not transfer her
personal assets to him. She does so under this threat. Can the wife avoid the
contract (Jun-2014).

Solution:: When an agreement is made under coercion, the consent is no free.

Hence, it is voidable at the option of the party whose consent was not free.
According to Section 72 of the Contract Act, “A person to whom money has
been paid, or anything delivered, by mistake or under coercion, must repay or
return it”. In Chikkam Ammiraju v. Chikkam Seshamma(1918), a husband
held out a threat to commit suicide and made his wife execute a release deed in
his favour. The suit was brought for setting aside that document. The Privy
Council held that threat of suicide though not punishable is forbidden by the
Indian Penal Code and that therefore consent obtained under threat of suicide
would be ‘coercion’ within the meaning of Section 15 of the Contract Act, and
therefore, rendered the release deed void.

4. A minor fraudulently represented to a money-lender that he was of full age and

executed a mortgage deed for Rs.10000. Has the money lender any right of
action against the minor for the money lent or for damages for fraudulent
misrepresentation (June-2014).
Solution: Law protects the minor against his own inexperience and the
improper designs of those advanced in years. It has been rightly observed that
“the judges are his counsellors, the Jury is his servant, and the law is his
guardian”.
Contract Act, 1872 has given a special privileged position to a minor.
Contracts made with minors are either void or valid. Minor binds others but is
never bound by others. No legal action can be taken against a minor even for
his misbehaviour or false promises. He cannot be held personally liable for any
of his wrongs.
In Mohori Bibee v. Dharmodas Ghose(1903), it was held that the
agreement by a minor was void. In this case, Dharmadas Ghouse while he was
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a minor, mortgaged his property in favour of the defendant Brahmo Dutt, who
was a money-lender to secure a loan of Rs.20000. Before the execution of the
mortgage, a notice was issued on behalf of Dharmodas Ghose’s mother to the
money-lender bout the fact of Dharmadas Ghouse’s minority. Despite this
notice, the money lender got a declaration signed by the attorney, who acted
on behalf of the money-lender, that Dharmodas Ghouse was a major and
advanced to Dharmodas Ghouse only about Rs.8000, part of the money agreed
and the mortgage deed was executed.

On behalf of Dharmodas Ghouse his mother brought a suit as a guardian and

next friend of the minor in September, 1895 for cancellation of the mortgage
deed and for a declaration that the transaction was void. By the time of appeal
to the Privy Council the defendant Brahmo Dutt died and the Appeal was
prosecuted by his executors (Mohori Bibee).
The defendant (money-lender) contended that:
a. Dharmodas Ghouse was of full age,
b. He has fraudulently misrepresented his age,
c. He was estoppel from pleading minority by reasons of the declaration,
d. If he were a minor, the contract was only voidable and not void, and
e. In the event the court cancelled the mortgage-deed, the court should
order repayment of money advanced i.e., Rs.10,500.

The Privy council held that ‘the Act makes it essential that all contracting parties
should be competent to contract and the Act especially provides in Section 11
that a person, who, by reason of minority or infancy, is incompetent to contract
cannot make a contract, within the meaning of the Act. It was accordingly held
that a mortgage made by a minor was void.

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8. A
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promises to pay a time barred debt to B. Can it be a good consideration to enforce A’s promise
(Feb/Mar 2013).
Solution: According to Section 25(3) of the Contract Act, ‘it is a promise, made in writing and signed
by the person to be charged therewith, or by his agent generally or specially authorised in the
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’ in such case, such an agreement is a contract.
The promise to pay the time barred debt must be an express one and cannot be held to be
sufficient if the intention to pay is unexpressed and has to be gathered from a number of
circumstances.
9. ‘M’ an old man of poor sight endorsed a bill of exchange of Rs. 10000/- thinking that it was a
guarantee. Is ‘M’ liable to pay the amount (Mar/April 2017).
A, an old man of feeble sight, signed a bill of exchange thinking it was a guarantee. There was no
negligence on the part of A. Is A liable.
Solution: As ‘M’ thought that that document was guarantee and endorsed a bill of exchange due to
feeble sight, M is not liable as it was not a case of fact.
Mistake as to the nature and character of a written document or promise. (Non est factum) : A
contract shall be void if a party to the contract, without any fault of his own, makes a mistake about
the very nature and character of the transaction or document. For example, A, who has property
wanted to appoint B as his Power of Attorney. B made a gift-deed instead of deed of Power of
Attorney. A signed on the deed. The deed of gift is void.
In Foster v. Mckinnon, 1869, A, an old man of feeble sight was made to sign a bill of exchange by
means of false representation that it was a guarantee form. Subsequently, B endorsed the bill to C,
who paid value for it in good faith. C sued on the bill of exchange. It was held that A was not liable
for the bill as his signature was fraudulently obtained to a document which he had never intended
to sign. There was no consent and consequently, there was no contract.
10. A borrowed Rs. 10000 from B fro starting a gambling house. Afterwards he refused to return the
money. What is the remedy available to B? (Aug 2014).
Under Indian Law, wagering agreements are void but not illegal except in the states of Maharashtra
and Gujarat. So the amounts won on a wager cannot be recovered.
Though a wagering contract is void transaction incidental or collateral to a wagering transaction
are not void. They are valid and binding.

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Hence a wagering agreement is not unlawful and transactions collateral to the main transaction
are enforceable. For example, a broker in a wagering transaction can recover his brokerage.
Similarly, money lent for the purpose of gambling, or for paying gambling debt, even if given with
knowledge of its purpose for which the money is required, can be recovered.

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11. A offers through a letter to sell his car to B for Rs. 15000/- B,
at the same time offers by
a letter to buy A’s car for Rs.15000. The two letters cross each other in post.
Is there a concluded contract between A and B? (Feb/Mar 2016, Jun 2014).
Solution: When the offer made by two persons to each other in ignorance of
each other, similar terms of bargain cross each other in post they are known as
‘cross offers’. They do not make a contract as they are not valid offers.
In Tinn v. Hoffmann, 1873, the defendant offered to the
plaintiff to sell 800 tons of iron @ 69 sh. Per ton. On the same day the plaintiff
also wrote to the defendant offering to buy 800 tons of iron @ 69 Sh. Per ton.
The two letters were crossed each other in post. The defendant could not
supply the material. Plaintiff sued the defendant. The court of Appeal held that
they were two cross offers, and the offer of neither of the parties having been
accepted by the other. Hence there was no contract.

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