II.

Contract Law
 The Indian contract Act 1872
• The Indian Contract Act, 1872 is the foundation
on which all business relations rest.
• It is the branch of law which determines the
circumstances in which promises made by the
parties to an agreement shall be legally
binding.
• It also defines the remedies that are available
for breach of agreements and prescribes
conditions under the which the remedies are
available.

PGDM 26 - BL CONTRACT LAW / TJK 2

 Bare act 

PGDM 26 - BL CONTRACT LAW / TJK 3

 Interpretation 

PGDM 26 - BL CONTRACT LAW / TJK 4

 Proposal and Promise
• When one person signifies to another
• his willingness to do or to abstain from doing anything,
• with a view to obtaining the assent of that other
• to such act or abstinence, he is said to make a
Proposal.
• A person making the Proposal is called the
“Promisor” and
• the person accepting the proposal is called the
“Promisee”. - S. 2(a)
• (Promisor and promisee can be called Offeror and
Offeree.)

PGDM 26 - BL CONTRACT LAW / TJK 5

 Contract
• When a person to whom the proposal is made,
• signifies his assent thereto, the proposal is said to be
accepted. - S.2(b)

• A proposal, when accepted, becomes a Promise

-2(b)
• Every promise and every set of promises,
• forming the consideration for each other,
• is an Agreement . - S.2(e)

• An Agreement enforceable by Law is a Contract.

- S.2(h)

PGDM 26 - BL CONTRACT LAW / TJK 6

 Formation of a contract

Proposal ACCEPTED Promise

or Offer

IO N
S AT
M ISE IDER
PRO ONS
T OF AL C
SE UTU
-M

Agreement Contract
Y LAW
ENFORCEABLE B

PGDM 26 - BL CONTRACT LAW / TJK 7

 An Advertisement in Pall Mall Gazette (Evening
news Paper) dt. Nov 13, 1891
• £100 reward will be paid by the Carbolic Smoke Ball Company to any
person who contracts the increasing epidemic influenza colds, or any
disease caused by taking cold, after having used the ball three times
daily for two weeks, according to the printed directions supplied with
each ball.
• £1000 is deposited with the Alliance Bank, Regent Street, showing our
sincerity in the matter.
• During the last epidemic of influenza many thousand carbolic smoke
balls were sold as preventives against this disease, and in no ascertained
case was the disease contracted by those using the carbolic smoke ball
• One carbolic smoke ball will last a family several months, making it the
cheapest remedy in the world at the price, 10s. post free. The ball can be
refilled at a cost of 5S.
• Address: Carbolic Smoke Ball Company, 27, Princes Street, Hanover
Square, London.

PGDM 26 - BL CONTRACT LAW / TJK 8

Carlill v Carbolic Smoke Ball Co [1893] 1 QB
256
Mrs. Elizabeth Carlill used the ball exactly as per instructions
from Nov. to Jan., but she caught the flu. The Company refused
to pay. Sued for £100. Defense arguments:
• The advertisement was not correctly stated;
• She had not acted in reliance on the Ad.;
• She had not used the device as directed;
• The Co. had no notice of her purchase;
• There was no valid contract;
• It was a gaming contract and not enforceable;
• The advertisement was not a contractual offer or,
• If it was, it was not accepted and communicated;
• The contract, was against public policy – hence void

PGDM 26 - BL CONTRACT LAW / TJK 9

 The decision
• The court rejected all the arguments put forward by the
defendants for the following reasons:
• The statement referring to the deposit of £1,000 demonstrated
intent and hence it was not a mere sales puff.
• It is quite possible to make an offer to the world.
• In unilateral contracts there is no requirement that the offeree
communicates an intention to accept, since acceptance is
through full performance.
• Whilst there may be some ambiguity in the wording this was
capable of being resolved by applying a reasonable time limit or
confining it to only those who caught flu while using the balls.
• The defendants would be liable even if the balls were not
purchased by them directly.

PGDM 26 - BL CONTRACT LAW / TJK 10

 The New Advertisement
• Many thousand Carbolic Smoke Balls were sold
on these advertisements, but only three people
claimed the reward of £100, thus proving
conclusively that this invaluable remedy will
prevent and cure the above mentioned
diseases.
• The CARBOLIC SMOKE BALL COMPANY LTD.
now offer £200 REWARD to the person who
purchases a Carbolic Smoke Ball and afterwards
contracts any of the following diseases.....

PGDM 26 - BL CONTRACT LAW / TJK 11

 Offer or Proposal
• An offer is an expression by one party of
• his assent to certain definitive terms,
• which looks forward to acceptance by the other to the exact same terms.
• Acceptor of the offer is called the promisee or acceptor.
• Offer may be express or implied
• Intent to give rise to legal consequences and be capable of creating legal relations.
• The terms of the offer must be certain.
• An invitation to offer is not an offer.
• An offer may be a ‘specific’ or ‘general’.
• An offer must be communicated to the offeree.
• Cross offers do not constitute acceptance.
• Offer cannot stipulate silence or inaction as acceptance.
• Non-written contracts are as valid as written contracts.

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 Communication, Acceptance and Revocation
• The communication of proposals, the
acceptance of proposals, and the
revocation of proposals and acceptances,
respectively, are deemed to be made by
any act or omission of the party proposing,
accepting or revoking, by which he intends
to communicate such proposal, acceptance
or revocation, or which has the effect of
communicating it. - S.3

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 When communication is
complete ?
• Henthorn v Fraser (1892) 2.Ch.27. “where the circumstances are
such that ,according to ordinary usages of mankind, the post
might be used as a means of communicating the acceptance of
an offer, the acceptance is complete as soon as it is posted. “
• The communication of an acceptance is complete,
• as against the proposer when it is put in a course of transmission to him, so
as to be out of the power of the acceptor ,
• as against the acceptor, when it comes to the knowledge of the proposer
- S.4

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Revocation of Proposals & acceptance
• A proposal may be revoked at any time before the
communication of its acceptance is complete as against the
proposer, but not afterwards.
• An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the
acceptor, but not afterwards - [S.5]

• How Carbolic Smoke Co can revoke the offer ?

PGDM 26 - BL CONTRACT LAW / TJK 15

• Ramdas chakrabarti Vs. Cotton ginning Co Ltd
(1887) 9 All 36
• Share allotment letter posted by the company. The
allottee did not get the letter.
• "it follows from this (section 4 and 5) that a notice
of allotment, which is the acceptance of the offer
to purchase shares, is communicated to the
allottee when it is dispatched, and from that
moment there is a complete contract for him.
Whether he receives the letter or not is
absolutely immaterial.

PGDM 26 - BL CONTRACT LAW / TJK 16

PGDM 26 - BL CONTRACT LAW / TJK 17
 Revocation of a Proposal
• A proposal is revoked –
(1) by the communication of notice of revocation by the
proposer to the other party;
(2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfill a condition
precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of the
death or insanity comes to the knowledge of the acceptor
before acceptance. - [S.6]

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What Agreements are Contracts ?
• All agreements are contracts if they are made -
• by the free consent of parties
• competent to contract,
• for a lawful consideration and
• with a lawful object, and
• are not hereby expressly declared to be void.
• Nothing herein contained shall affect any law in
force in India, and not hereby expressly repealed,
by which any contract is required to be made in
writing or in the presence of witnesses, or any law
relating to the registration of documents. - S.10

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 Consent and Free consent
• Two or more persons are said to consent when they agree upon
the same thing in the same sense. - S.13
• Consensus ad idem

• Consent is said to be free when it is not caused by –

• coercion, as defined in section 15, or

• undue influence, as defined in section 16, or

• fraud, as defined in section 17, or

• misrepresentation, as defined in section 18, or

• mistake, subject to the provisions of S. 20,21& 22.

• Consent is said to be so caused when it would not have been given

but for the existence of such coercion, undue influence, fraud,
misrepresentation, or mistake. - S.14
PGDM 26 - BL CONTRACT LAW / TJK 20
 Coercion

• “Coercion" is the committing, or

• threatening to commit,
• any act forbidden by the IPC or
• the unlawful detaining, or threatening to detain,
any property,
• to the prejudice of any person whatever, with the
intention of causing any person
• to enter into an agreement. -
[S.15]

PGDM 26 - BL CONTRACT LAW / TJK 21

 Undue Influence
•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.
•In particular and without prejudice to the generally of the
foregoing principle, a person is deemed to be in a position
to dominate the will of another –
• where he hold a real or apparent authority over the other, or where
he stands in a fiduciary relation to the other; or
• 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. - S.16(1)&(2)
……Contd.

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 Undue Influence
• 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 the evidence
adduced,
• to be unconscionable,
• the burden of proving that such contract was not induced by undue
influence shall be
• upon the person in a position to dominate the will of the other. -
S.16 (3)
• Allcard v Skinner 1887 36 Ch.d 145
• Undue influence exercised on the nun by the Mother superior of the Convent.

Consent
PGDM 26 - BL CONTRACT LAW / TJK 23
 Undue
in a position to influence
• Dominate the will of another .

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 Fraud
• "Fraud" means and includes any of the following acts
committed by a party to a contract, or with his connivance, or
by his agents, with intent to deceive another party thereto or
his agent, or to induce him to enter into the contract;
• the suggestion as a fact, of that which is not true, by one who does
not believe it to be true;
• the active concealment of a fact by one having knowledge or belief
of the fact;
• a promise made without any intention of performing it;
• any other act fitted to deceive;
• any such act or omission as the law specially declares to be
fraudulent.
• Explanation:- Mere silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case are such that , regard
being had to them, it is the duty of the person keeping silence to speak or unless his
silence is, in itself, equivalent to speech.
PGDM 20 - BL- PART I / TJK 25 - S.17
 Misrepresentation
• Misrepresentation” means and includes—
1. the positive assertion, in a manner not warranted by
the information of the person making it,
• of that which is not true, though he believes it to be true;
2. any breach of duty which,
• without an intent to deceive, gains an advantage to the
person committing it, or any one claiming under him;
• by misleading another to his prejudice, or to the prejudice
of any one claiming under him;
3. causing, however innocently, a party to an
agreement, to make a mistake
• as to the substance of the thing which is the subject
of the agreement. [18]
PGDM 26 - BL CONTRACT LAW / TJK 26
 Spice Girls Ltd v Aprilia World Service
• Aprilia World Service took the Spice Girls to court claiming the band knew of Miss
Halliwell's plans to leave before their Spiceworld tour, which the company
sponsored to the tune of £500,000.
• Aprilia produced hundreds of Sonic Spice scooters featuring a silhouette of band
members. The product flopped when Ginger left the group. They sued the group
for the £1.5 million it allegedly lost in advertising and sales of the specially-made
scooters.
• The Spice Girls, launched a counterclaim for £220,000 towards sponsorship fees,
royalties and scooters as part of the deal. They also wanted quashing of a Court
ruling that they should pay £45,550 in damages for the scooters Aprilia supplied to
them plus costs.
• The original deal was signed with Aprilia in May 1998, at which time Geri Halliwell
told the company of her intention to leave the group - but said it would not be until
after the tour. She changed her mind and quit without warning weeks later.
• Aprilia argued that Miss Halliwell confided to Emma Bunton in March that she was
leaving the band. The Spice Girls, failed to convince the court they had no
knowledge of Miss Halliwell's possible departure before the agreement
• The Court awarded Aprilia increased damages and the cost of the scooters the girls
failed to hand back, plus cost of the suit, totaling an estimated £1million.
PGDM 20 - BL- PART I / TJK 27
 Mistake
• Where both the parties to an agreement are under mistake as
to a matter of fact essential to the agreement, the agreement is
void. 
• Explanation : An erroneous opinion as to the value of the things which
forms the subject-matter of the agreement is not be deemed a mistake as
to a matter of fact - [S.20]
• Effect of mistake as to law 
• A contract is not voidable because it was caused by a mistake as to any
law in force in India; but mistake as to a law not in force in India has the
same effect as a mistake of fact. - [S.21]
• A contract is not voidable merely because it was caused by one
of the parties to it being under a mistake as to a matter of fact.
- [S.22]

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 Mistake
I married him for
I married her
his money. But he
for her beauty
is
penniless.

Both are
under mistake
as to a matter
of fact.
• C entered into an agreement with B to
export Mercury Thermometers to France.
• At the time of agreement, as per law
applicable in France, the manufacture,
import and sale of mercury
thermometers were prohibited.
• There is no blanket ban in India.
• Both the parties were not aware of such
law in France.
PGDM 26 - BL CONTRACT LAW / TJK 30
 Who are Competent to Contract ?
• Every person is competent to contract
• who is of the age of majority according to the law to
which he is subject, and
• who is sound mind and
• is not disqualified from contracting by any law to
which he is subject. - [S.11]
• If a person, incapable of entering into a contract is
supplied with necessaries in life, the person who
supplies is entitled to be reimbursed - [S.68]

PGDM 26 - BL CONTRACT LAW / TJK 31

 What are necessaries?
• Ryder v Wombwell (1868) LR 4 Exch 32
• “Earrings for a male, spectacles for a blind person, a wild
animal, daily dinner with turtle and venison for a clerk with a
salary of £1 a week are not necessaries”.
• Nash v Inman [1908] 2 KB 1
• Nash,a tailor, entered into a
contract to supply Inman (a
Cambridge undergraduate
student) with 11 fancy waistcoats.
 Inman was a minor who was
already adequately supplied with
clothes by his father. Held that
these are not necessaries.

PGDM 26 - BL CONTRACT LAW / TJK 32

 Unsound mind
• A person is said to be of sound mind for the purpose
of making a contract, if, at the time when he makes
it,
• he is capable of understanding it and of forming a
rational judgment as to its effect upon his interest.
• A person who is usually of unsound mind, but
occasionally of sound mind, may make a contract
when he is of sound mind.
• A person who is usually of sound mind, but
occasionally of unsound mind, may not make a
contract when he is of unsound mind. - [S.12]

PGDM 26 - BL CONTRACT LAW / TJK 33

 Alcoholic psychosis
• Chacko v. Mahadevan , (2007) 7 SCC 363
• A sale deed of property was executed.
• A very valuable land was sold for a paltry amount.
• At the time of transfer, the transferor was suffering
from alcoholic psychosis which was proved by a
medical certificate.
• The SC ordered to set aside the sale deed.
• The Court said that unsoundness of mind is a finding
of fact.

PGDM 26 - BL CONTRACT LAW / TJK 34

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

PGDM 26 - BL CONTRACT LAW / TJK 35

 Consideration and exceptions
• An agreement made without consideration is void, unless:
1. t is expressed in writing and registered under the law for the
time being in force for the registration of documents, and is
made on account of natural love and affection between parties
standing in a near relation to each other; or unless
2. 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;
or unless
3. 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 that behalf, to pay wholly or in part debt of which
the creditor might have enforced payment but for the law for
the limitation of suits. Contd….
PGDM 26 - BL CONTRACT LAW / TJK 36
Exceptions to consideration Contd.
• Explanation 1 : Nothing in this section shall affect the
validity, as between the donor and donee, of any gift
actually made.
• Explanation 2 : An agreement to which the consent of
the promisor is freely given is not void merely because
the consideration is inadequate; but the inadequacy
of the consideration may be taken into account by the
Court in determining the question whether the
consent of the promisor was freely given.
• Surendra Behari Lal v Jodonath 1984 All LJ 21 :
transfer of property to brother in law held void for
want of consideration.
PGDM 26 - BL CONTRACT LAW / TJK 37
 Legality of object and consideration
• The consideration or object of an agreement is lawful, unless –
• It is forbidden by law; or
• is of such nature that, if permitted it would defeat the provisions of any law or
• is fraudulent; or involves or implies, injury to the person or property of another; or
• the Court regards it as immoral, or opposed to public policy.
• In each of these cases, the consideration or object of an agreement is said to be
unlawful.
• Every agreement of which the object or consideration is unlawful is void. -
S.23
Pierce v Brooks (1866) LR 1 Ex 213:
• The defendant, a prostitute, was sued by the plaintiffs, coach-builders, for the hire
of a brougham. The jury found that they knew her to be a prostitute, and supplied
the brougham with a knowledge that it would be, as in fact it was, used by her as
part of her display to attract men. The contract for immoral purpose is void.

PGDM 26 - BL CONTRACT LAW / TJK 38

 Voidable Contract
•An agreement which is enforceable by law
• at the option of one or more of the parties thereto,
• but not at the option of the other or others,
•is a voidable contract
• 2(i)
•A contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable.
• 2(j)

PGDM 26 - BL CONTRACT LAW / TJK 39

 Voidable Contracts – free
consent
• When consent to an agreement is caused by coercion, fraud or
misrepresentation, the agreement is a contract voidable at the option
of the party whose consent was so caused.
• A party to a contract whose consent was caused by fraud or
misrepresentation, may, if he thinks fit, insist that the contract shall be
performed, and that he shall be put in the position in which he would
have been if the representations made had been true.
• Exception.—If such consent was caused by misrepresentation or by
silence, fraudulent within the meaning of section 17, the contract,
nevertheless, is not voidable, if the party whose consent was so caused
had the means of discovering the truth with ordinary diligence.
• Explanation.—A fraud or misrepresentation which did not cause the
consent to a contract of the party on whom such fraud was practised,
or to whom such misrepresentation was made, does not render a
contract voidable. [19]

PGDM 26 - BL CONTRACT LAW / TJK 40

 Voidable Contract
• When a contract contains reciprocal promises, and
• one party to the contract prevents the other from performing his
promise, the contract becomes voidable at the option of the party so
prevented;
• and he is entitled to compensation from the other party for any loss
which he may sustain in consequence of the nonperformance of the
contract.
• When a party to a contract promises to do a certain thing at or
before a specified time, or certain things at or before specified
times, and fails to do any such thing at or before the specified
time,
• the contract, or so much of it as has not been performed, becomes
voidable
• at the option of the promisee, if the intention of the parties was that
time should be of the essence of the contract.
PGDM 26 - BL CONTRACT LAW / TJK 41
 Void agreements
An agreement not enforceable by law is said to be void; [S.2(g)]
The following types of agreements are declared to be void :
1) Agreements of which consideration and objects are unlawful in part.
–S. 24
2) Agreements without consideration - S. 25
3) Agreements in restraint of marriage – S. 26
4) Agreements in restraint of trade. – S. 27
5) Agreements in restraint of legal proceedings – S. 28
6) Unmeaning Agreements – S. 29
7) Wagering Agreements – S. 30
8) Agreements to do impossible acts. – S. 56

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 Consideration and objects are unlawful in part
• Agreement void, if considerations and objects unlawful in part.-If
any part of a single consideration for one or more objects, or any
one or any part of any one of several considerations for a single
object, is unlawful, the agreement is void.
• Illustration : A promises to superintend, on behalf of B, a legal
manufacture of indigo, and an illegal traffic in other articles. B
promises to pay to A a salary of 10,000 rupees a year. The
agreement is void, the object of A's promise, and the
consideration for B's promise, being in part unlawful. - [S. 24]
• Pickering v Illfracambe – 1868 LR 3 CP 235 : “ Where you cannot
sever the legal part form the illegal part, the contract is
altogether void. Otherwise, you can reject the bad part and retain
the good. “

PGDM 26 - BL CONTRACT LAW / TJK 43

 Agreement in restraint of
marriage
• Every agreement in restraint of the marriage of any person,
other than a minor, is void. - [ S. 26]
• Air India v Nergesh Meerza & Ors 1981
• Under the Air India Employees Service Regulations, Air Hostesses
retired from service in the following contingencies:
• On attaining the age of 35 years;
• On marriage, if it took place within four years of the service, and
• On first pregnancy.
• The court held the clauses regarding retirement and pregnancy as
unconstitutional and thus ordered for them to be struck down.
• The decision was based on Article 14 of the Constitution. a violation
of Section 26 of the Indian Contract Act of 1872 was not pleaded.

PGDM 26 - BL CONTRACT LAW / TJK 44

 Agreements in restraint of Trade
• Every agreement by which anyone is restrained from
exercising a lawful profession, trade or business of any kind, is
to that extent void.
• Exception 1 - 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, or any person deriving title to the goodwill
from him, carries on a like business therein, Provided that such limits
appear to the court reasonable, regard being had to the nature of the
business. - [ S. 27]
• Other exceptions:
 Agreement among partners not to carry on similar business during the
continuance of partnership, on dissolution, on retirement from
partnership , reasonable restrictions specifying the local limits are
permissible. (S.11,36 of Partnership Act)
 Trade Combinations
 exclusive dealer arrangements
 Service Agreements and bonds.
PGDM 26 - BL CONTRACT LAW / TJK 45 Contd….
 Restraint of Trade – Cases.
• Trego V Hunt (1896) Ac, 26
• “ It is difficult to imagine that when the goodwill and trade of a
retail shop were sold, the vendor might the next day set up a shop
within a few doors ad draw off all customers”

• Gujarat Bottling co Ltd v Coca Cola Co (1995)5 SCC 545

• The Agreement restrained the franchisee to manufacture, bottle,
sell, deal or otherwise be concerned with the products, beverages
of any other brands or trade marks/ trade names during
subsistence of the agreement including the period of one year
notice.
• The purpose the agreement was to promote trade and the
restriction is operative only during the period the agreement is
subsisting.
• Held there is no restraint of Trade.
PGDM 26 - BL CONTRACT LAW / TJK 46
 Restraint of Legal Proceedings
• As per S.28, every agreement, which restricts absolutely
from enforcing his rights under any contract, by the usual
legal proceedings,
• or which limits the time within which he may thus enforce
his rights, is void to the extent.

• Reference of future disputes and existing questions to

arbitration is valid. [Ex to S. 28]
• Continental drug & C0 Ltd v Chemoids & Industries Ltd –
AIR 1955 CAL 161 : The contract fell under the concurrent
jurisdiction of both the Bombay and Alipore courts, but the
contract provided that “any dispute arising between the
parties, settlement of the same legally or otherwise will be
decided n Bombay” - Partial restriction is valid.
PGDM 26 - BL CONTRACT LAW / TJK 47
 Unmeaning Agreements
• Agreements, the meaning of which is not certain, or
• capable of being made certain, are void. - [S. 29]

• Guthying v Lynn (1831) 2 B Ad 232

• A horse was bought for a certain price coupled with a
promise to give £ 5 more if the horse proved lucky –
uncertain, void.
• Further, an agreement “to enter into an agreement in
future” is void for uncertainty unless all the terms of the
proposed agreement are agreed expressly or implicitly.
• Thus, an agreement to engage a servant some time
next year, at a salary to be mutually agreed upon is a
void agreement
PGDM 26 - BL CONTRACT LAW / TJK 48
 Wagering Agreements
• Agreements by way of wager are void; and
• no suit shall be brought for recovering anything alleged to be won
on any wager, or entrusted to any person to abide the result of
any game or other uncertain event on which may wager is made.
• This section shall not be deemed to render unlawful a
subscription or contribution, or agreement to subscribe or
contribute, made or entered into for or toward any plate, prize or
sum of money, of the value or amount of five hundred rupees or
upwards, to be rewarded to the winner or winners of any horse-
race.
• Nothing in this section shall be deemed to legalise any
transaction connected with horse-racing, to which the provisions
of section 294A of the Indian Penal Code (45 of 1860) apply. –
[ S.30]
Contd…

PGDM 26 - BL CONTRACT LAW / TJK 49

 What is Wager?
• In Tracker vs. Hardy Cotton, L.J., described a ‘wager’ as follows:
“The essence of gaming and wagering is that one party is to win
and the other to lose upon a future event which at the time of the
contract is of an uncertain nature - that is to say, if the event
turns out the other way he will win.
• Features of wager:
• Uncertain event
• Mutual chances of gaining or losing.
• Neither party to have control over the event
• No other interest in the event.

• Prize competitions which are games of skill are not wagers.

• Contract of insurance with insurable interest are not wagering
contracts.

PGDM 26 - BL CONTRACT LAW / TJK 50

 Agreement to do impossible acts
• An agreement to do an act impossible in itself is void.

• A contract to do an act which, after the contract is made,

becomes impossible or, by reason of some event which the
promisor could not prevent, becomes void when the act
becomes impossible or unlawful.
• Where one person has promised to do something which he
knew or, with reasonable diligence, might have known,
and which the promisee did not know to be impossible or
unlawful, such promisor must make compensation to such
promise for any loss which such promisee sustains through
the non-performance of the promise. – [S.56]

PGDM 26 - BL CONTRACT LAW / TJK 51

 Quasi Contracts
• Theory of unjust enrichment - Enrichment of one person
at the cost of another. Justice demands that this should
be prevented.
• The Indian Contract Act provides for 5 kinds of ‘relations
resembling those created by contract’
• S. 68 - Claim for necessaries supplied to person incapable of
contracting, or on his account
• S. 69 - Reimbursement of person paying money due by
another, in payment of which he is interested.
• S. 70 - Obligation of person enjoying benefit of non-gratuitous
act
• S. 71 - Responsibility of finder of goods – as a bailee.
• S. 72 - Liability of person to whom money is paid, or thing
delivered, by mistake or under coercion
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 Payment by interested persons
• Conditions:
• Payer must be interested in making payment.
• He should not be bound to pay.
• Defendant should be under legal compulsion to pay.
• Not moral compulsion. Must be legally compelled to pay,
• Payment should be from one to another (not to himself)

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Payment of Non –gratuitous acts
• Five conditions must be satisfied:
• A person should lawfully do something for
another.
• He must not intend to act gratuitously
• The other party must enjoy the benefit.
• The beneficiary has the choice to reject the
services.
• The services should have been rendered
without request.
PGDM 22 - BL CONTRACT LAW / TJK .54
PGDM 26 - BL CONTRACT LAW / TJK 55
 Non – gratuitous act
• Neha Bhasin v Anand Raj anand - (2006) 132 DLT 196:
• Songs “Ek Look Ek Look” were recorded by the defendants.
There was no contract between them. The defendants used
her voice in the original  soundtrack of the film "Aryan“ and
claimed that the song was sung by “Poonam Khubani”. Held:
• “ The plaintiff has lawfully done something for the  defendants.    
• When she underwent the process of recordings she did  not intend
to act gratuitously.   
• The defendants enjoyed the benefits of the plaintiff's  recordings.   
• A quasi contract comes into existence.
• All the ingredients of section  70 are satisfied.  
• The liability to compensate the plaintiff  has therefore fallen on the
defendants. ”

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 Finder of goods
• A person who finds goods belonging to another,
and takes them into his custody, is subject to the
same responsibility as a bailee. [71]
• The finder of goods has no right to sue the owner
for compensation for trouble and expense
voluntarily incurred by him to preserve the goods
and to find out the owner;
• but he may retain the goods against the owner until he
receives such compensation; and,
• where the owner has offered a specific reward for the
return of goods lost, the finder may sue for such reward,
and may retain the goods until he receives it. [168]
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 Finder – sale of goods found
• When a thing which is commonly the subject
of sale is lost, if the owner cannot with
reasonable diligence be found, or if he refuses,
upon demand, to pay the lawful charges of the
finder, the finder may sell it—
1. when the thing is in danger of perishing or
of losing the greater part of its value, or,
2. when the lawful charges of the finder, in
respect of the thing found, amount to two-
thirds of its value. [169]

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 Paid by Mistake.
• A person to whom money has been paid, or anything
delivered, by mistake or under coercion must repay or return
it. - [S.72]
• Sales Tax Officer v Kanhaiya Lal saraj – AIR 1959 SC 135 :
• Tax was paid under UP Sales Tax law on certain transactions, and subsequently,
the High court ruled that such levies are ultra vires. Money paid under mistake of
law also comes under S.72.
• S. Ketrabarsappa v Indian Bank – AIR 1987 Karnt 236:
• Bank made a credit entry in the customers account by mistake and the customer
withdrew the money. He is bound to pay back the money along with interest.
• Union bank of India v AT.Ali Hussain & Co: AIR 1978 Cal 169
• Forged cheques paid by the drawee Bank to the collecting Banker. Collecting
Banker parted with the funds. Though mistake is there, the defendant bank
altered their position and there was no unjust enrichment .

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