Chapter

Chapter
7 INDIAN CONTRACT
ACT, 1872
Chapter Outline
Unit - I: Nature of contract Unit - XI: Quasi Contract

¤¤ Nature of contract ¤¤ What do you understand by term “Quasi-Contract”
¤¤ Classification of Contract and what are included in it?
¤¤ Meaning Of Special Term In A Contract and Rules ¤¤ What do you understand by “Quantum Meruit”. In
Regarding It which cases it arises ?
Unit - II: Offer and Acceptance Unit-XII: Indemnity and Gurantee
¤¤ An Offer may be a ¤¤ [Sections 124 to 147] Contract of Indemnity and
Guarantee
¤¤ Elements of offer
¤¤ Distinction between Indemnity and Guarantee
¤¤ Acceptance and its Elements
¤¤ Extent of Surety’s Liability [Section 128]
¤¤ Communication, Acceptance and revocation of
proposals Unit-XIII: Bailment and Pledge
¤¤ Contract of Bailment and Pledge
Unit - III: Consideration
¤¤ Essential Elements Of Consideration Unit- XIV: Agency
¤¤ Stranger to A Contract ¤¤ [Section 182] Definition of Agent
¤¤ Contract Without Consideration ¤¤ Joint Venture/ Foreign Collaboration/Multinational
Agreements
Unit - IV: Capacity to Contract
¤¤ E-Contract
¤¤ Introduction
¤¤ Gives your views on “ Minor’s liability for necessaries”.
Unit - V: Free Consent
Unit - VI: Legality of Object
¤¤ Case Where Consideration Or Objects Are Unlawfulð
Unit- VII : Agreement Opposed to Public Plicy
¤¤ Discuss the Doctrine of Public Policy?
¤¤ Give your Views on “Agreement in restraint of Trade is
Void”. What is the exception of this?
Unit - VIII: Agreements Expressly Declared Void
¤¤ Contingent Contract
Unit - IX: Discharge of performance
Unit - X: Breach of contract
¤¤ Remedies For Breach of Contract
164 Economic and Commercial Laws
UNIT - I: NATURE OF CONTRACT

NATURE OF CONTRACT
•• Contract is the most important branch of the business law.
•• In simple words, Contract is defined as “an agreement enforceable by law” [Section – 2(h)].
•• In other words, it can also be defined as circumstances in which promises made by the parties to a contract shall
be legally binding on them.
•• Also, it can be defined as an agreement between two or more parties which the law will enforce.
•• Therefore,
(a) Contract is a combination of two things,
i.e., Agreement and obligation.
Offer + Acceptance = Agreement
+ Legal obligation = Contract
Definition given by Pollock: “Every agreement and promise enforceable at law is a contract”.
Definition given by Saltom: “Every agreement creating and defining obligation between parties”.
Definition
If we conclude the definition given in Indian Contract Act, 1872 and as given by Pollock, we find that in order to become
a contract, there are two steps or conditions:
•• Agreement
•• Enforceability by law
As per Section 10, an agreement is a contract when it is made for consideration between parties, who are competent,
with their free consent and for a lawful object”.
Now we can understand contract as a chain of following:
Promise with Consideration
↓
Agreement [Offer + Acceptance]
↓
Enforceability of law
↓
Contract
Essential Elements of A valid contract

According to Section 10, “All the agreements are contracts if they are made by 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”.
The following essential elements must co-exist in order to make a contract valid:
(a) Agreement
•• [Section 2(e)] defines agreement as “every promise and every set of promises, forming the consideration for
each other”.
•• Again Section 2(b) defines promise in these words: ”when the person to whom the proposal is made signifies
his assent there to, the proposal is said to be accepted.
Chapter-7: Indian Contract Act, 1872 165
•• Proposal when accepted, becomes a promise.

•• Agreement is an accepted offer.
•• Its sub-parts are (a) Offer and (b) Acceptance.
•• There must be two parties to an agreement, one party making the offer and other accepting it.
Give your Views on ”All agreements are not contract”.
Or
“All contracts are agreement but all agreements are not contract”
Or
“Contract is a wider term than Agreement”?
Answer: We know that, as stated in Section 10 of Indian Contract Act 1872, an agreement grows in to a contract when
it satisfies the following conditions:
•• There is some consideration for it.
•• The parties are competent to contract.
•• Their consent is free.
•• Their object is lawful.
The above points show that an agreement wouldn’t be called as contract until it satisfies the above conditions.
We also know that an agreement may be social agreement or legal agreement. Now, a social agreement does not give
rise to contractual obligations and is not enforceable in a court of law.
“Law of contract is not the whole law of agreement. It means there are several agreements which do not give in
to legal obligations. Such agreements are, therefore, not contracts.
Thus, we conclude that all agreement are not contract until they wear the special coat of their enforceability by law.
This also shows that when all agreement is not contract, then there will be some agreement beyond the scope of Indian
Contract Act, 1872.
This reason makes the statement true that “All agreements are not contract”.
Example
A invited his friend B to a party but when B came there was no one at home. Now, B cannot claim any compensation from A. As
the agreement was of social nature.
Therefore Contract = Agreement + Enforceability at law.
Intention to create legal relationship
•• It means that as a result of an agreement, there should exist a legal obligation or binding between the parties.
•• It means that if an agreement does not create any legal enforceability or relation, then such would not form a valid
contract.
•• Therefore, agreement of a social or domestic nature does not create legal relationship because in such
agreement there is no such intention to create legal binding.
CASE LAW Balfour Vs Balfour

A husband agreed to pay a certain amount of money to his wife monthly while he was going abroad. As he failed to pay the
same, his wife sued him but could not succeed because it was a kind of social agreement.
Lawful consideration
•• By consideration, we mean something in return or exchange.
•• The agreement is enforceable only when both the parties give and take something in return.
•• Consideration means price, need not be money.

•• Consideration means any benefit or advantage which move from one party to other in response of the act done or
not done at the desire of one party.
•• As per Section 2(d) , consideration may be act or abstinence or promise to do or not to do something.
•• But in order to take the quality of valid contract, the consideration must be real and lawful.
Capacity of Parties
The parties to the agreement must be capable of entering into a valid contract.
One is competent to contract, if he is:
•• of the age of majority
•• of sound mind, and
•• not disqualified from contracting by an to which he is subject.
Free consent
•• The consent of the parties to the agreement must be free and genuine.
•• The consent of the parties is said to be free when they are of the same mind with the material terms of the contract.
•• The two parties are said to be freely consenting when they contract for the same sense at the same time.
Lawful Objective
•• The object of the agreement must be lawful.
•• The object must not be illegal, immoral and against public policy.
Agreement not declared void

•• There are certain cases of agreement which have been declared illegal or void by the law.
•• In such cases, if the agreement possesses all the elements of a valid agreement, even though the agreement will
not be enforceable by law.
Certainty of meaning
The meaning of the agreement must be certain or capable of being made certain other wise the agreement will not be
enforceable by law.
Example:
A agrees to sell to B, a hundred tons of oil. There is nothing to show what kind of oil was intended. The agreement is
void for uncertainty.
Possibility of performance
•• The terms of the agreement must also be such as are capable of performance.
•• An agreement to do an impossible act, in itself, cannot be enforced.
Necessary legal formalities

•• A contract may be in writing or oral.
•• If the contract is in writing, it must fulfill the formalities of writing, registration, attestation, etc.
Example:
X invited the Y for dinner. Y agreed to same & X arranged all the things but on the due date Y didn’t Came. After that
X sued Y for the not coming. Is the sued of X maintainable.
Answer: X cannot sue Y because Y was not under legal obligation to attend such dinner
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Offer + Reject = Nothing
R Offer + Acceptance = Agreement (+) Social Obligation = Agreement
E = Agreement (+) Legal obligation = Contract
C
•• Legal obligation means both parties are legally bound to perform the contract.
A
P •• According to Section 2(h), Contract is an agreement enforceable by law
•• Aggrieved party can knock at the door of judiciary (court).
•• Aggrieved party means party suffering loss.
Consideration Can be
Q Positive Negative
↓
U ↓
An Act
I Abstain
(does not the Act)
C
K
Legal Formalities
R
E
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Oral contract Written contract
A
P
No legal formalities Legal formalities
Signed by parties in presence of witness

(partnership deed)
CLASSIFICATION OF CONTRACT
(a) Classification According to Validity

(i) Valid contract
The contracts which are not void, illegal or unenforceable by law are valid contracts.
(ii) Voidable contract
An agreement which is enforceable by law at the option of one or more of the parties but not by other or others is
a voidable contract.
Example:
A promises to sell his car to B. His consent is obtained by use of force. The contract is voidable at the option of A.
(iii) Void agreement or contract

•• An agreement not enforceable at law is said to be void.
•• A void agreement does not create any legal rights or relationships.
•• A contract which is enforceable by law becomes void when it ceases to be enforceable.
( iv) Illegal agreement
•• An illegal agreement is one which is immoral or against public policy.
•• All illegal agreements are void but not all void agreement are illegal.
Example:
A promises to obtain for B an employment in the public service and B promises to pay ` 10,000 to A, the
agreement is illegal.
(v) Unenforceable contract

Such contracts cannot be enforced in the court of law because they lack in some items of evidence, such as
writing, stamping, etc.
(B) Classification According to Mode of Formation

(i) Express contract
The terms of contract may be stated in words, written or spoken. Such a contract is expressed contract.
(ii) Implied Contract
•• A contract which is inferred from the circumstances of the case or the conduct of the parties.
Example:
Entering into a public bus or taking a cup of tea at a restaurant.
(iii) Quasi contract

•• It resembles a contract in which a legal obligation is imposed on a party who is required to perform it.
•• Ex – X, a tradesman, delivers goods at Y’s house instead of Z's by mistake. Y is bound to pay for the goods.
(C) Classification According to Performance

(i) Executed Contracts
•• An executed contract is one in which both the parties have performed the obligation or have fulfilled their
promises.
Example:
A agrees to sell his car to B for ` 10,000. If B has paid the price and A has delivered the car, it is executed
contract.
(ii) Executory Contracts

•• An executory contract is one in which both the parties still have to perform their obligations and promises.
Example:
If in the previous example, B has not given the delivery of car, then such contract would become an executory
contract.
•• A contract may be partially executed and partially executory.
•• Thus, if B has paid the price but A hasn’t delivered the car, then it would be executed on part of B but
executory on part of A.
Q
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E Validity Formation Performance
C
A Validity
P
Valid Void Unenforceable Illegal/ unlawful

↓ ↓ ↓
Contract which is Contract for which Agreement for
not void, illegal parties can’t move to unlawful object
or Unenforceable the court
Void – abinitio Void Void – able

↓ ↓ ↓
Invalid from the Valid & then invalid Able to be invalid at
beginning option of one party
E.g., Contract with minor
Formation
Kinds of Contract
Validity Formation Performance
Validity
Valid Void Unenforceable Illegal/ unlawful

↓ ↓ ↓
Contract which is Contract for which Agreement for
not void, illegal parties can’t move to unlawful object
or Unenforceable the court
Void – abinitio Void Void – able

Q ↓ ↓ ↓
U Invalid from the Valid & then invalid Able to be invalid at
I beginning option of one party
C E.g., Contract with minor
K Formation
R
E
Express Implied Quasi
C
↓ ↓ ↓
A Offer is given Obvious Contract which isn’t
P ↓ ↓ deliberately entered by party/
E.g., Bus conductor is shouting Bus conductor is silent contract by mistake
Performance
Executed Executory
↓ ↓
Contract has been performed Contract is to be performed in future
Write Short Notes on Following:

(a) Consensus Ad Idem
Consensus ad Idem means parties to a contract must agree upon the same thing in the same sense and in the
same manner.
It means that there should be a matching or meeting of minds between the parties.
Before entering into any agreement or contract, the presence of consensus ad idem is necessary, which means that
the offeror and the offeree must clearly understand the purpose, object, legality and consideration or effect of the
agreement in which they are proposed to be engaged.
It is right to say that “Unless there is consensus ad idem, there can be no contract".
Example:
A has 3 cars C1,C2, C3,. He is selling C1 to B but B thinks he is purchasing C2.
Now, there is no consensused idem since parties to a contract are not same about the subject matter of the
agreement and therefore, there is no contract.
(b) Jus in Rem

Jus in Rem means a right against or in respect of thing. It means that in jus in rem people have a right against all
the things and against all the persons.
Example:
Mr. A is the owner of piece of a land. Now he has full right of the quiet possession and enjoyment of that land. It
means that he has a right against anything or person which disturbs his possession or enjoyment. Thus, in other
words, we can say that he has a Jus in Rem.
(a) Jus in Personnam
Jus in Personnam is the name given to the rights available to a person against any other specified or particular
person.
As we see in a contract, there are two parties called offeror and acceptor. Now, if any party doesn’t fulfill his promise
then all the rights which are given by Indian Contract Act, 1872 against such defaulting party are in the nature of Jus
in Personam.
Example:
Mr. A has borrowed certain money from B. Now, if Mr A doesn’t repay the sum, then all the rights which Mr. B has
against Mr. A would be called “Jus in personam” or “Right against specified Person”.
MEANING OF SPECIAL TERM IN A CONTRACT AND RULES REGARDING IT

•• Special term in a contract means any special clause or point which is there in the contract or agreement.
•• Now, it is a general rule that if there is any special terms in a contract then such should be brought to the notice of
the offeree at the time of making of the proposal or offer.
•• This means that if special terms are not communicated to the offeree and the contract is entered into, then such
offeree to whom such special terms were not conveyed would not be bound by them.
•• In general, we see that at the reception of hotel, at the railway counters, at the bank counter, in buses and other
places, a board or notice is given.
•• Like “Check your money before leaving the counter”.
Or
“We are not responsible for your luggage”.
Or
“Proprietor is not liable for the loss of client’s goods”.
Rules Regarding Special Terms in a Contract

•• These special conditions must be brought to the notice of offeree at the time when the proposal is made.
•• These terms should be presented in such a manner so that a man can become aware of such conditions before he
enters into a contract .
•• If the above two conditions are satisfied, then the offeree would be bound by such condition whether he read such
conditions or not.
CASE LAW Olley Vs Marlborough Court Ltd

In this case, hotel put up a notice in bed room exempting the proprietor from liability for loss of client’s goods.
Court decided that the notice was not effective because the client came to know this special term only after they contract to
take room and it is the important rule in special term that such conditions should be conveyed to offeree before he enters
into a contract.
UNIT - II: OFFER AND ACCEPTANCE

Offer according Section 2(a) – “is a medium through which a person signifies to another his willingness to do or
abstain from doing anything with a view to obtain the assent of that other person to such act or absence.
TYPE OF OFFER
(i) General Offer
It is an offer made to the public in general and hence anyone can accept and do the desired act (Section – 8).

Example of Invitation to Offer
•• Applying for shares of any company is an offer by the person to the company and company has all the right either
to accept or reject the application.
•• Display of goods by a shopkeeper in his window, with price marked on them, is not on offer but merely an invitation
to the public to make an offer to buy the goods at the marked price.
•• Quotations, catalogues, advertisement in a newspaper for sale of an article or circulars sent to customers do not
constitute an offer.
(ii) Specific offer
When offer is made to a definite person, it is known as specific or special offer and such offers can be accepted
only by those specified persons.
(iii) Cross offer
When two parties exchange identical offers in ignorance at the time of each other’s offer, the offers are called cross
offers.
(iv) Counter offer
When the offeree offers to the qualified acceptance of the offerer, subject to modification and variations in the
terms of original offer, he is said to have counter offer.
(v) Standing Open or continuing offer
An offer which is allowed to remain open for acceptance over a period of time is known as standing, open or
continuing offer.
(vi) Express Offer
•• In express offer, the desire or willingness of a person to do or not to do any act is made by words, whether
in oral or in written.
•• This shows that there can be an oral offer or written offer, both are covered under express offer.
(vii) Implied Offer
•• In implied offer, the desire or willingness of an offeror is communicated not by using oral or written words
but against this, behaviour, action or conduct of the person shows that he has made an offer.
Example

•• In a coffee shop, there is on implied offer of giving coffee to any person who pays.
•• There is an implied desire or willingness of a bus-conductor to carry out the passenger for a certain fare.
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Offeror can be held liable for the performance under special offer but cannot be held for performance under
Note
general offer.
ELEMENTS OF OFFER
(i) Offer must be intended to create legal relationship
•• A social invitation, even if it is accepted, does not create any legal relationship because it is not so intended.
•• An offer, therefore, must be such as would result in a valid contract when it is accepted.
Example:
If Mr. A invites or asks, Mr. B to come to his house for tea, then this, if accepted, wouldn’t create any legal
relation between Mr. B. and Mr. A.
(ii) It must be certain
•• If the terms of an offer are not certain, its acceptance cannot create any contractual relationships.
Example:
Mr. Ram has 3 house at different place. He offers Mr. Shyam's “will you purchase my house”.
•• Offer is not definite as it does not specifically include the house and the location of such house.
Conclusion: Thus, we conclude that for any offer to be definite, certain and not loose or vague, it should contain
proper disclosure of particular thing, location, number, price, etc.
(iii) Offer must be distinguished from a declaration of intention and an invitation to offer
•• If a person has just planned, thought or intended to do or not to do any act, such would not make it offer.
•• This is because in offer; a person communicates to another what he has finally decided to be done or not to
be done but declaration only means that an offer will be made or invited in future .
•• That is why an advertisement in a newspaper for auction of sale or display of goods by a shopkeeper in his
window are not offer but are invitation to offer.
•• So, in simple words, invitation to offer means inviting offer from some person so as the right of acceptance
remains with the seller or offeror.
CASE LAW Harris V/s Nickerson

•• In this case, Nickerson advertised in a newspaper about the sale of furniture that would be held on a particular day.
•• Harris came from a distant place to attend the auction but all the furniture was withdrawn.
•• Now, H sued N but the court decided that advertisement in a newspaper was just declaration of intention and not the
offer and if there is no offer, then there is no chance of acceptance.
(iv) Offer must be communicated

•• In order to complete the offer, it must be communicated to offeree.
•• An offer must be communicated to the offeree before it can be accepted.
•• In other words ,if a person only plans or think in his mind and does not convey it to other person, then in
this case offer is absent.
CASE LAW Lalman Shukla Vs Gauri Dutt

G sent her servant L to trace his missing nephew and made an announcement that the founder would be entitled to a
certain reward, L traced the boy in ignorance of this announcement.
Subsequently, when he came to know the reward, he claimed it. Held, he was not entitled to the reward.
(v) Offer must be made with the view to obtain assent

The offer to do or not to something must be made with a view to obtain the assent of the other party addressed
and not merely with a view to disclose the intention of making an offer.
(vi) Statement of price is not an offer
•• A mere statement of price is not an offer to sell.
Example:
If Mr. A says to Mr. B, “Lowest price for this pen is ` 10.”
•• In this case it is just a statement of price and not the offer because the above statement is just declaration or
intention of Mr. A. Here, he hasn’t signified his assent to Mr. B for obtaining this acceptance of him.
(vii) Offer should not contain a term or condition if not fulfilled will automatically become acceptance
•• A man cannot say that if acceptance is not communicated by the acceptor in a certain time, the offer would
be considered as accepted.
Example:
A writes to B, “I will sell you my car for ` 5,000. If you do not reply with in 15 days, I shall assume, you have
accepted the offer.”
•• There is no contract if, B does not reply.
•• B is under no obligation to speak.
•• However, if B is in possession of A’s car at the time of the offer being made and continues to use the car
thereafter, then B’s silence and his continued use of car will amount to the acceptance of A’s offer on his part.
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ACCEPTANCE AND ITS ELEMENTS

Acceptance, according to Section 2(b), is “a proposal or offer is said to have been accepted when the person to whom
the proposal is made signifies his assent to do or not to do something.”
Elements of Acceptance or Rules Regarding Acceptance

(i) It must be absolute and unqualified
•• An acceptance, to be valid, must be absolute and unqualified and according to the exact terms of the offer.
•• Example → A says to B, “I will sell my car for ` 50,000”. B replies, “I will buy it for ` 45,000.” There is no
acceptance.
•• If acceptance is not absolute or complete, then it would not be binding on the offeror.
•• In simple words, there should be consensus ad idem between the offeror and acceptor.
CASE LAW Neal Vs M erret

•• In this case, M offered to sell a piece of land to N at $ 280, N accepted and enclosed $ 80 with a promise to pay the balance
in equal monthly instalments of $50. Court decided that this acceptance is qualified and not a valid acceptance.
•• This is because the term of the offer does not contain any element of giving payment in instalments and the acceptor
himself as accepted the mode of paying in instalment.
( ii) It must be communicated to the offeror

To conclude a contract between the parties, the acceptance must be communicated in the same form. A mere
mental acceptance is no acceptance. A mere mental acceptance means that a offeree is assenting to an offer in
mind only and has not communicated it to the offeror.
Example:
A tells B that he intends to marry C but tells C nothing of his intention. There is no contract, even if C is willing to
marry A.
CASE LAW Felthouse Vs Bindley

•• In this case, F offered to buy his nephew’s horse for $ 30, the nephew did not write to F but he told his intention of
selling his horse to his uncle to his auctioneer.
•• The auctioneer sold the horse to an other person. F sued him for this. Court decided that F's claim is not valid as his
offer was never accepted.
•• Even though nephew thought of selling this to his uncle, the nephew did not communicated acceptance to his uncle.
(iii) It must be according to prescribed or reasonable mode

•• If the acceptance is according to the mode prescribed or some usual and reasonable mode, the offeror
may intimate to the offeree within a reasonable time that the acceptance is not according to the mode
prescribed.
Example:
A makes an offer to B and says, “If you accept my offer, reply by phone”. B replies by post. It will be a valid
acceptance unless A informs B that the acceptance is not according to the mode prescribed.
(iv) It must be given within a reasonable time
The acceptance must be given within the time specified, if any, otherwise within a reasonable time.
(v) Acceptance cannot precede an offer
If the acceptance is done before an offer, it is not a valid acceptance and does not result in a contract.
(vi) An acceptance must show an intention to fulfill terms of the promise.
(vii) It must be given by the party or parties to whom the offer is made.
(viii) Acceptance must be given before the offer is withdrawn.
(ix) It cannot be implied by silence
The acceptance of an offer cannot be implied from the silence of the offeree or his failure to answer, unless the
offeree has, by his previous action/conduct, indicated that his silence means that he accepts.
Example:
A wrote to B, “I offer you my car for ` 10,000. If I don’t hear from you within seven days, I shall assume you
accept.” B did not reply at all. There is no contract.
COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

Communication when complete
1. The communication of a proposal is completed when it comes to the knowledge of the person to whom it is made
(offeree).
2. The communication of an acceptance is completed
•• 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.
3. Revocation of proposals and acceptances

A proposal may be revoked at any time before the communication of its acceptance is complete as against the
proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the acceptance is complete as against the
acceptor, but not afterwards.
Illustrations
•• A proposes by a letter sent by post, to sell his house to B.
•• B accepts the proposal by a letter sent by post.
•• A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but
not afterwards.
•• B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches
A, but not afterward.
4. Revocation, how it is made
A proposal is revoked
•• By the communication of notice of revocation by the proposer to the other party.
•• 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.
•• By the failure of the acceptor to fulfill a condition precedent to acceptance.
•• By the death or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the
acceptor before acceptance.
•• By the counter offer.
•• By rejection of offer.
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UNIT - III: CONSIDERATION

Definition Under Section 2 (d) : As per Section 2 (d) of The Indian Contract Act, 1872, “when at the desire of the
promisor, the promise any other person has done or abstained from doing or does or abstains from doing or promise
to do or abstain from doing something, such an act or abstinence or promise is called Consideration for the promise.”
ESSENTIAL ELEMENTS OF CONSIDERATION

1. Consideration must be made at the desire of promisor
An act or abstinence must be done at the desire or willingness of the promisor or the person who is expecting such
act to be done. It means that if any act or abstinence is not done at the desire of the promisor, such will not form a
valid consideration for the promise. As we know that Section 2(d) specially requires that the response should be on
the desire of promisor or offeres.
Example
•• A saved goods of B from fire without being asked to do so. Here, A cannot demand payment for his services.
•• A coolie carried the luggage without being said, would not demand payment.
3. Consideration may move from promisee or any other person
Under the English law, consideration must move from the promise. Under the Indian law, consideration may
move from the promise or other person, i.e., even a stranger. As long as there is a considerate for a promise, it is
immaterial who has influenced it.
CASE LAW Chinnaya Vs Ramayya

In the above case, sister of C made a gift deed and transfered certain property to R with a declaration to pay certain money
to C. R agreed to pay certain amount to C. But later R refused on the ground that there is no consideration, i.e., she is not
receiving something in return of payment. Court decided that C was entitled to file a suit as consideration was transferred
by old lady to R for making payment to C.
4. Consideration need not be adequate

Consideration as already explained means something in return. This something in return need not necessarily be

equal in value to something given.
The law simply provides that a contract should be supported by consideration. So long as consideration exists, the
courts are not concerned as to its adequacy, provided it is of some value.
The adequacy of the consideration is for the parties to consider, at the time of making the agreement, not for the
court when it is sought to be enforced.
Example
A purchased from B an old table for ` 10. It would be a difficult, if not, impossible, task for the court to ascertain
whether the price paid was adequate or not or whether the table was worth the price paid.
5. Consideration may be past, present, or future
As the wording of Section 2(d) includes has done or abstained, does or abstains and promises to do or abstain. This
shows that consideration may be past, present or future.
•• Past Consideration: When some act or abstinence was performed in past by one party at the desire of
another party.
Example
•• One month ago A saved B's dog, at his desire, now if Mr. B gives him some reward, than such reward is for past the
act of Mr. A.
•• Salary received by worker.
Present or executed Consideration: When consideration is given simultaneously with promise, which means act
or abstinence is done when promise is made.
Example
•• A took ` 100/- and gave B his dog.
•• Future or Executory Consideration: When consideration from one party to another will be passed in future.
Example: A promises to deliver goods to B after a week, who will pay after a week.
6. It may be an act or abstinence.
7. Consideration must be real and not illusory
Although consideration need not be adequate, it should be real, competent and of some value in the eyes of law.
8. Consideration should not be something which the promisor is already bound to do
If a person is already bound under a contract or by general law to do some act, then if a new promise is made to do
something on which he is already bound would not be good consideration.
Therefore, a public servant cannot demand extra payment for his work on which he is bound. But we should
remember that if a person does something extra on which he is not bound, then the consideration is good in such
case for such extra work or act.
Example: Overtime work by labour.
CASE LAW RamchandraVs Kalu Raju

In the above case, there was promise to pay to the vakil an additional sum if the suit was successful, but the court decided that
the promise was void because vakil is already bound to give best of his services, therefore there is no good considerations
( i.e., act done by vakil) to make payment to him.
9. It must not be unlawful Consideration can be

The consideration given for an agreement must not be unlawful, i.e., illegal, immoral or opposed to public policy,
where it is unlawful, the court does not allow action on the agreement.
Past Present Future
Note: Past consideration is no consideration

Consideration can be under English Law.
Consideration can be
Past Present Future
Q PositiveNote: Past consideration is no consideration under English Law.

Negative
U
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C
K Contract Without Consideration
Positive Or Negative
R Ex Nudo Pacto Non Order Actio
E ↓
An Act Contract without consideration is void Abstain
C
A
P Contract Without
Law Consideration
Or
Ex Nudo Pacto Non Order Actio
↓
Indian Law Contract without consideration is void English Law
One contract for which This law will treat these two transactions as
consideration was paid by one party separate contract without consideration because
in past and other party in future Law past consideration is not valid
Indian Law English Law

One contract for which This law will treat these two transactions as
consideration was paid by one party separate contract without consideration because
in past and other party in future past consideration is not valid
STRANGER TO A CONTRACT
The general law is that only parties to a contract can sue each other. This rule is known as the Doctrine of Privity of
Contract. It means, relationship between the two parties which creates legal or contractual relationship/obligation.
CASE LAW Dunlop tyre Co. Ltd. Vs Selfridges co. Ltd.

S bought tyres from the Dunlop Rubber co. and sold them to D, a sub-dealer, who agreed to sell not less than Dunlop’s least
price with S and to pay the Dunlop Co, S as damages on every tyre D undersold, D sold two tyres at less than the least price
and thereupon Dunlop Co. sued D for the breach.
Held, Dunlop Co. could not maintain the suit as it was a stranger to a contract.
Exceptions
1. In case of a trust, a third person is allowed to file case against the party to the contract
A person, in whose favour a trust or other interest in some specific immoveable property has been created, can
enforce it even though he is not a party to the contract.
CASE LAW Khwaja Md. Khan Vs Hussaini Begum

A had a son SA and B had a daughter HB. A agreed with B in consideration of the marriage of DB with SA, he (A) would pay
DB, his daughter – in law, an allowance of ` 500 p.m. in perpetuity. He charged certain properties with the payment with
the power to DB to enforce it. Held, DB, although no party to the agreement, was clearly entitled to recover the arrears of
the allowance.
2. In case of family settlement or partition of the family property

When an arrangement is made in connection with partition or other family arrangement and a provision is made
for the benefit of a person, he may sue although he is not a party to the agreement.
CASE LAW Shuppu Ammal Vs Subramaniyam

Two brothers, on a partition of joint properties, agreed to invest in equal shares a certain sum of money for the maintenance
of their mother. Held, she was entitled to require her sons to make the investment.
3. Acknowledgement of debt or loan

Where the promisor, by his conduct, acknowledges otherwise constitutes himself as an agent of a third party, a

binding obligation is thereby incurred by him towards the third party.
Example
A receives some money from T to be paid over to P. A admits of its receipt to P. P can recover the amount from A, who
shall be regarded as the agent of P.
4. Assignment of contract
The assignee of rights and benefits, under a contract not involving personal skill, can enforce the contract subject
in the equities between the original parties. Thus, the holder, in due course of a negotiable instrument, can realize
the amount on it even though there is no contract between him and the person liable to pay.
5. Contract by an agent
The principal can enforce the contract entered into by his agent provided the agent acts within the scope of his
authority and in the name of the principal.
CONTRACT WITHOUT CONSIDERATION

Ex Nudo Pactonon order Actio
or
A contract without consideration is Void
A contract would be enforced by law when the consideration seems to be present in such contract. For a valid contract,
consideration is very important. However, the Indian Contract Act, 1872 contains some exceptions to this Rule that “A
contract without consideration is Void."
Exceptions
1. Natural Love and Affection [Section 25 (1)]
When an agreement is made between the parties who are in relation to each other, out of love and affection, then
such agreement is enforceable in law even though there is no consideration. But for this, the following should be
present:
•• The agreement should be in writing [Example Gift: deed, transfer deed].
•• Such agreement should be registered under the law for time being in force.
•• Parties to an agreement should be in relation to each other. But love and affection comes before relation.
There may be relation but not love and affection.
CASE LAW Vankataswamy Vs Rangaswamy

V Promised B to discharge the debt of his brother R, by a written, registered agreement. Now, if V does not discharg then R
may sue him even though there is no consideration.
2. Compensation For Past Voluntary Services [Section 25 (2)]

This means that if a person does any act voluntarily which means without any, expectations of return and now, if the
person to whom such service were rendered wants to compensate, etc., then such would not need consideration
because consideration is already there in the form of Past Consideration. This shows that a promise to pay for past
services cannot be void on the ground of no consideration.
3. Promise to pay time barred debt
When a promise, in writing, signed by the person making it or by his authorized agent, is made, to pay a debt
barred by limitation, it is valid without consideration [Section – 25 (3)].
4. Agency
According to Section 185, no consideration is necessary to create an agency.
5. Completed gift
In case of completed gifts, the rule no consideration no contract does not apply. If there is a donor and donee then
it will constitute a completed gift. It means that for completed gift, presence of donor and donee is the essential
condition.
6. Charitable Subscription
We know that consideration means some benefits to one person and some detriment to the defendant. Now in
case of charitable subscription there is no consideration hence there will not be any contract.
UNIT - IV: CAPACITY TO CONTRACT
INTRODUCTION
As we know that one of the essential element which makes agreement valid is that such agreement should be entered
into by the parties who are competent to contract.
This shows that to become such agreement enforceable by law, the parties, i.e., offeror and offeree must be able to create a
legal relationship between themselves.
For this, Section 11 of Indian Contract Act, 1872 has defined following persons as not competent for making contract.
These are :
•• Minor
•• Person of unsound Mind
•• Persons disqualified by law
Every person who
•• has attained the age of majority
•• is of sound mind
•• is not otherwise disqualified from contracting
[Section 11] Is Competent to Contract

(a) Age of Majority
In India, the age of majority is regulated by the Indian Majority Act (Act IX of 1875). Every person domiciled in
India attains majority on the completion of 18 years of age.
But, in the following two cases a person will be minor if he has not completed age of 21 year rather than 18 year:
•• Where a guardian for a child has been appointed under Guardian and Ward Act, 1890.
•• Where the superintendence of minor's property is assumed by court of words.
(b) Is of sound mind
A person is said to be of sound mind for the purposes of making a contract if, at the time when he makes it, he is
capable of understanding it and forming a rational judgment as to its effect upon his interests.
A person, usually of unsound mind, can enter to a contract during his lucid in interval but not vice-versa .
Example
•• A patient in a lunatic asylum, who is of sound mind at intervals, may contract during those intervals.
•• A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms of a contract or form
a rational judgment as to its effect on his interests, cannot contract while such delirium or drunkenness lasts.
(c) Contract by disqualified person
Besides minor person or person of unsound mind, other persons are also disqualified from contracting, partially
or wholly Contracts by such persons are void.
Example → Alien enemy, criminal, insolvent etc.
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Rules Regarding Agreement with the Minor and its Position

(a) An agreement with a minor is void ab-initio
It means that an agreement entered in to with a minor is void from the very beginning which means that the law
would not make any decision in the case, where minor is a party to such contract.
This point could be easily understood by the help of discussing a most popular case
CASE LAW Mohiri Bibi Vs Dharmodas Ghose

In this case, a minor mortgaged his house in favour of a money-lender (M) to secure a loan of ` 20,000, out of which the
mortgagee paid the minor a sum of ` 8,000.
The mortgagee sued for recovery of mortgage money.
The minor’s contention was to set aside the mortgage, stating that he was underage when he executed the mortgage.
Held, the mortgage was void and therefore it cannot be enforced.
Further, the money-lender’s request for the repayment of the amount advanced to the minor as part of the consideration
for the mortgage was rejected, i.e., mortgagee could neither recover mortgage money nor minor’s property.
(b) He can be a promisee or beneficiary

There is nothing as such which can stop a minor from becoming a beneficiary.

Example → A payee, endorsee or a promisee in a contract.
Such contract may be enforced at his option, but not at the option of the other party.
The law does not regard him as incapable of accepting a benefit.
Example
M. aged 17, agreed to purchase a second hand scooter for ` 5,000 from S. He paid ` 200 as advance and agreed to pay
the balance the next day and collect the scooter.
When he came with the money next day, S told him that he has changed his mind and offered to return the advance.
S cannot avoid the contract, though M may, if he likes.
(c) His agreement cannot be ratified by him on attaining the age of majority
A minor cannot ratify the agreement on attaining the age of majority as the original agreement is void ab-intio and
therefore validity cannot be given to it later on.
CASE LAW Nazir Ahmed Vs Jiwan Das

N, a minor, borrows ` 50,000 from J and executes a promissory note in favour of J. After attaining majority, he executes
another promissory note in the settlement of the first note.
The second promissory note is void for want of consideration.
(d) If he has received any benefit under a void agreement, he cannot be asked to compensate or repay it (Section 65)
We have mentioned the facts in Mohiri Bibi’s case.
Under that case, the lender could not recover the money paid to the minor.
Also, the property mortgaged by the minor in favour of the lender could not be sold by the later for the realization
of his loan.
(e) He can always plead minority
Even if he has, by misrepresenting his age, induced the other party to contract with him, he cannot be sued either
in contract or in tort for fraud because if the injured party were allowed to sue for fraud, it would be giving him an
indirect means of enforcing the void agreement .
Example
CASE LAW Leslie Vs Shiell
S, a minor, by fraudulently representing himself of full age, induced L to lend him 400.
He refused to repay it and L sued him.
Held, the contract was void and S was not liable to repay the amount.
(f) There can be no specific performance
A contract of entered in to on his behalf by his parents or guardians or manager of his estate can be specifically
enforced by or against the minor provided the contract is :
•• Within the scope of the authority of parent, guardian or manager.
•• For the benefit if of the minor.
(g) He cannot enter into partnership
Minor cannot be a partner because partnership is based on agreements and minor is not capable of entering into
a contract.
However, he may be admitted to the benefits of already existing partnership with the consent of other partners.
(h) He cannot be declared to solvent
It is so because he is incapable of contracting debts.
(i) He is liable for necessities
The minor is liable not only for the necessary needs but also for the necessary services rendered to him.
The goods are necessaries for that minor having regard to his status or standard of living.
What is necessary to see is the minor’s actual requirements at the time of sale and at the time of delivery, where
these times are different.
Under Section – 68, any person would be entitled to reimbursement out of the minor’s estate, for necessaries
supplied to him or to his family.
GIVES YOUR VIEWS ON “ MINOR’S LIABILITY FOR NECESSARIES”.

Before going through legal rules regarding minor’s liability for necessaries, it is very important to understand the
meaning of term necessaries.
Meaning of Necessary
Thing to remember is that, the term necessaries is nowhere defined in Indian contract Act 1872, however as per Section
2 of sale of goods Act 1930, Necessary means “Goods suitable to the condition in life of such infant or other person and
to his actual requirement at the time of sale and delivery”.
If we analysis the above definition we find two things:
•• Goods suitable to condition in life.
•• Required both at the time of sale and at the time delivery
CASE LAW Nash Vs Inman
In this case, I the minor bought 11 fancy waist coats from N. he was at that time adequately provided with clothes court
decided that was not necessary for I, because at the time of sale such was not actually required by I and therefore I was not
liable to pay for any of them.
CASE LAW Ryder Vs Wombell
In this case, court just tried to explain the true meaning of term necessaries by saying “Earrings for a male, spectacles for a
blind man, a daily dinner of fish for a clerk having salary of 1 pound per week could not be called as necessaries.
Position of Minor in Case of Necessaries

A minor is liable to pay out of his property for all necessaries supplied to him. But Thing to remember is that it is
only the property of minor which is liable to meet the liability arising out of such contracts.
CASE LAW Chappel Vs Cooper

In this case court decided that legal advice, payment of funeral expenses for deceased husband of a minor widow, giving a
house on a rent to minor for study purposes all are nature of necessaries to a minor and his private estate is liable.
CASE LAW Roberts Vs Gray
In this case, G entered into a contract with R, who was a famous billiard player, to teach a game and play matches with
him during his would tour. R spent time in teaching the Game to G. but G, refused to make payment to him. Court
decided that G is liable to pay as the promise was one of necessaries.
(a) He can be an agent
An agent is merely a link between his principal and a third party.
A minor binds the principal by his acts without incurring any personal liability.
(b) His parent/guardian accent liable for the contract entered by him
Whether the contract is for necessaries or not, the parents are liable where the minor is acting as an agent of the
parent or guardian, otherwise not.
(c) A minor is not liable in tort (damage/injury)
If a tort arises out of a contract, a minor is not liable in tort as an indirect way to enforcing an invalid contract.
Rules Regarding Person of Unsound Mind

Section 11 also states that to be any party of the contract, person should be of sound mind. The only question left is
“Who is of unsound mind?”
Test for soundness as defined by law
Section 12 gives a test of soundness: A person is said to be of sound mind if, at the time of making a contract, he is able
to understand the result and matter of such contract.
It means two thing will make a person of sound mind in the eyes of law:
•• His capacity to understand the contents of the contract.
•• His ability to form Judgement about the result of such contract and how it will affect his interest.
Following persons are generally termed as of unsound mind and important thing is that are agreement made by a
person if unsound mind would be Void in the light of Section 10.
Such persons are:
Lunatic, idiots, Drunkard
Rules Regarding Other Disqualified Persons

(i) Alien Enemies
Here, alien means a person who is not a citizen of India and enemy means he is a citizen of such country, the
relation of which with India is not peaceful.
During the war, an alien enemy can neither contract with an Indian person nor he can sue in an Indian court.
Contracts entered before the war may be suspended or dissolved.
(ii) Insolvents
Insolvent cannot enter into a contract because his property vests in the official receiver. It is only the official receiver
who can enter into any contract on the behalf of the insolvent. The main thing is that as per Section 11 insolvents
are not competent to contract and do not fulfill conditions of section 10.
(iii) Corporations
A corporation is an artificial person created by law.
Now a corporation can enter into a contract but subject to rules made under Companies Act, 1956 and further
amendments under Companies Act.
If company enters into a contract in excess of the authorities and powers given under the Companies Act, 1956 and
MOA of a company, then a contract is void ab-initio being ultra vires.
Necessary
Nash (Major) Robert (Master) Chappal

Q Vs Vs Vs
U Inman (Minor) Gray (Minor) Cooper
I
C Held : It was held by the court of law Held: It was held by the court of law Held : - Various example was given
K that 11 waist courts cannot be term as that coaching from R was necessary by court : -
necessary supply to minor and hence for G to win such championship and ▪ Ear-rings for minor was held to be
R he cannot held liable shall be held as necessary luxury.
E ▪ Funeral exp. given to minor widow
C is necessary supply to her.
A ▪ Very costly meal with expensive
wine in a 7 star hotel by minor was
P held to be luxury.
▪ Minor student staying as P.G is
liable to pay for fooding & lodging
supplied to him/her.
UNIT - V: FREE CONSENT

According to Section 13, “two or more persons are said to have consented when they agree upon the same thing in the
same sense (consensus-ad-idem).
Example
A agrees to sell his fiat car, 1983 model, for ` 80,000. B agrees to buy the same. There is a valid contract since A and
B have consented to the same subject matter. If, for whatever reason, there is no consensus ad-idem among the
contracting parties, there is no real consent and hence, no valid contract.
Free Consent’ defined: Section 14 lays down that “Consent is said to be free" when it is not caused by:
1. Coercion, as defined in Section 15, or
2. Undue influence, as defined in Section 16, or
3. Misrepresentation, as defined in Section 18, or
4. Fraud, as defined in Section 17, or
5. Mistake, subject to the provisions of Sections, 20, 21 and 22.
Elements Vitiating Free Consent:
Section 15 of the Contract Act defines ‘Coercion’ as follows:
(i) Coercion implies (a) committing or threatening to commit any act forbidden by the Indian Penal Code; or (b)
unlawful detaining or threatening to detain any property, with the intention or causing any person to enter into an
agreement.
(ii) The Government gave a threat of attachment against the property of A, for the recovery of a fine due from B (the son
of A). A paid the fine. Held, the payment of fine was induced by coercion and therefore A was entitled to recover the
money paid to remove wrongful attachment.
(iii) The act constituting coercion, may be directed at any person, and not necessarily at the other party to the agreement.
Illustrations:
(a) A threatens to shoot B, a friend of C, if C does not let out his house to him. C agrees to do so. The agreement has
been brought about by coercion.
(b) L threatens to shoot M, if he does not let out his house to him. M agrees to let out his house to L. The consent of
M has been induced by coercion.
Threat to file a suit
CASE LAW Askari Mirz Vs Bibi Jai Kishori

To threaten a criminal or civil prosecution does not constitute coercion because it is not an act forbidden by the Indian
Penal Code. But a threat to file a suit on a false charge constitutes coercion, for such an act is forbidden by the I.P.C.
Threat to commit suicide: Neither ‘suicide’ nor ‘threat to commit suicide’ is punishable under the Indian Penal
Code; only ‘an attempt to commit suicide’ is punishable under it.
It was stated by the majority of judges that though ‘a threat to commit suicide’ was not punishable under the Indian
Penal Code, it must be deemed to be forbidden by that Code, as ‘an attempt to commit suicide’ was punishable
under Section 309 of that Code.
Duress: The term ‘duress’ is used in English Law to denote illegal imprisonment or either actual or threatened
violence over the person (body). A threat to destroy or detain property will not amount to ‘duress.’ Thus the scope
of the term ‘coercion,’ as defined in Section 15, is wider, because it includes threats over property also.
Pardanashin Woman

CASE LAW Shaik Ismail Vs Amir Bibi

Pardanashin woman, she can avoid any contract entered by her on the plea of undue influence and it is for the other party
to prove that no undue influence was used. For proving the absence of undue influence, the other party will have to satisfy
the Court (i) that the terms of the contract were fully explained to her, (ii) that she understood their implication and was
free to have independent advice in the matter, and (iii) that she freely consented to the contract. It may be noted that the
term ‘pardanashin’ here refers to a woman who observes complete seclusion (parda) from contact with people outside her
own family, because of the custom of her community, and one does not become ‘pardanashin’ simply because she lives in
some degree of seclusion.
CASE LAW Sonia Parshini Vs S.N. Baksha
The protection granted to pardanashin woman is also extended to illiterate and ignorant ladies, who are equally
exposed to the danger and risk of an unfair deal.
Effect of Coercion
A contract brought about by coercion is voidable at the option of the party whose consent was so caused (Section 19). This
means that the aggrieved party may either exercise the option to affirm the transaction and hold the other party bound by it.
The burden of proof, that coercion was used, lies on the party who wants to set aside the contract on the pleas of coercion.
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C Coercion Undue Influence Fraud Misrepresentation Mistake
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Undue Influence
Section 16(1) defines the term ‘Undue influence’ as follows:
“A contract is said to be induced by undue influence where, (i) 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 (ii) he uses the position to obtain an unfair
advantage over the other.
Seciton 16(2). A person is deemed to be in a position to dominate the will of another.
(a) Where he holds a real or apparent authority over the other.
Example: The relationship between master and the servant, police officer and the accused.
(b) Where he stands in a fiduciary relation to the other. Fiduciary relation means a relation means a relation of mutual
trust and confidence.
Such a relationship is supposed to exist in the following cases: father and son, guardian and ward, solicitor and
client, doctor and patient, Guru (spiritual adviser) and disciple, trustee and beneficiary, etc.
(c) 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.
Example: old illiterate persons.
Thus, the following relationship are said to raise a presumption of undue influence:
(a) Parent and child (b) Guardian and ward
(c) Trustee and beneficiary (d) Religious advisor
(f) Doctor and patient (f) Lawyer and client
Example
A Hindu, well in age, with objects of securing benefits to his soul in the next world, gave away his whole property to
his guru or spiritual advisor. Undue influence was presumed.
In the following cases of relationship, there is no presumption of undue influence:

(a) Landlord and tenant
(b) Creditors and Debtors
(c) Husband and wife
(d) Teacher and student.
The responsibility of proving that undue influence exists, lies on the weaker party.
Effect of Undue Influence

“When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the
party whose consent was so caused."
A, a money lender, advances `100 to B. an agriculturist, and by undue influence, induces B to execute a bond for `200
with interest at 6 per cent per month. The Court may set the bond aside, ordering B to repay the `100 with such interest
as may seem just.
Unconscionable Transaction
Unfair or unreasonable bargains belong to the category of ‘unconscionable transactions.’ These are such transactions
where as between two contracting parties, one is in a dominant position and makes an exorbitant profit of the other’s
distress.
High rate of interest

Unconscionable bargains take place mostly in money lending transactions where money lenders charge high rates of
interest from needy borrowers. The presumption of undue influence on the ground of high rate of interest is raised only
when the following two things are proved:
(a) That the money lender was in a position to dominate the will of the borrower, and
(b) That the bargain is unreasonable, i.e., rate of interest is excessive without any valid reason.
In such cases, the law presumes that consent must have been obtained by undue influence and burden of proving that
there was no undue influence lies on the creditors.
Distinction between Coercion and Undue Influence

•• In coercion, the consent of the aggrieved party is obtained by committing or threatening to commit an act forbidden
by Indian Penal Code or detaining or threatening to detain some property unlawfully. While in undue influence,
the consent of the aggrieved party is affected by the domination of the will of the person over another.
•• Coercion is mainly of a physical character involving mostly use of physical or violent force whereas undue influence
is of moral character involving use of moral force or mental pressure.
•• There is no presumption of coercion by law under any circumstance. The burden of proof that coercion was used
lies on the party whose consent was so caused. In the case of undue-influence, however, there is presumption as to
the same in the case of certain relationships. In these cases, there is no need of proving the use of undue-influence
by the party whose consent was so caused.
Misrepresentation (Section 18): A representation means a statement of fact made by one party to the other,
either before or at the time of contract, relating to some matter essential to the formation of the contact, with an
intention to induce the other party to enter into the contract. It may be expressed by words spoken or written or
implied from the acts or conducts of the parties.
Misrepresentation is incorrect or false statement. It is innocent; the party making it believes it to be true. It may
also be defined as a false of statement which the person making it honestly believes to be true or does not know of
it falseness.
Example
X learns from A that Y would be the director of a company to be formed. X tells this to B in order to induce him to purchase
shares of that company and B does so. This is misrepresentation by X, though he believed in the truthness of the statement
and there was no intention to deceive, as the information was not derived from A and was mere hear say.
Section 18 of the contract Act classifies cases of misrepresentation into three groups:
(a) The positive asserts 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.
(b) Any breach of duty, which, without an intention to deceive, gives an advantage to the person committing it, by
misleading another to his prejudice.
(c) Causing, however innocently, a party to an agreement to make a mistake as to the substance thing, which is the
subject of the agreement.
Example
A chartered a ship from B which was described in the “charter party” and was represented to him as being not more than
2,800 registered tonnage. It turned out that the registered tonnage was 3,045 tons. A refused to accept the ship in fulfillment
of the charter party and it was held that he was entitled to avoid the charter party by reason of the incorrect statement as
to tonnage.
(Oceanic Steam Navigation Co. Vs Sunderdas Dharamsey)

Consequences of Misrepresentation:
In case of misrepresentation, the party aggrieved can:
•• Avoid the contract .
•• Insist that the contract be performed and that he be put in the position in which he would have been if the
representation made had been true.
REQUIREMENTS OF MISREPRESENTATION
(a) It must be a statement of material fact: The expression or opinion, whether it is wrong, it is not treated as misrepresentation.
It must be made before conclusion of the contract: Any requirement must be made before contracting the other
party can enter the other party can enter into the contract.
(b) It must be made with the intention to induce the other party to the contract.
The fact must be wrong but the person stating the fact must honestly believe it to be true.
It must be made without any intention to cheat the other party.
(c) It need not be direct
[SECTION 17] FRAUD

Fraud: Fraud means and includes any of the following acts committed by a party to a contract:
(a) The suggestion, as a fact, of that which is not true by one who does not believe it to be true.
(b) The promise made without any intention to perform
(c) Any other fact fitted to deceive.
(d) Any such act which law specially declared to be fraudulent.
Fraud also includes any one of the following acts:

(a) Knowingly making a false statement.
(b) The active concealment of fact: There is a partial statement of a fact that the withholding of what is not stated
makes that which is stated false.
Illustration : A by auction sells a horse to B, which A knows to be unsound. A says nothing to B about the horse’s
unsoundness. This is not fraud by A.
Consequences of Fraud:
The party suffered has the following remedies:
(a) He can reject the contract within a reasonable time.
Example
A fraudulently informs B that A’s estate is free from encumbrance (burden).
B, therefore, buys the state. The estate is subject to mortgage. B may either avoid the contract, or may insist on its being
carried out and the mortgage deed redeemed.
(b) He can sue for damages.
Can Silence be Fraudulent?

The Explanation to Section 17 deals with cases as to when ‘silence is fraudulent’ or what is sometimes called ‘constructive
fraud.’ The explanation declares that “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
•• Silence is, in itself, equivalent to speech.”
It therefore follows that –
•• As a rule mere silence is not fraud because there is no duty cast by law on a party to a contract to make a disclosure
to the other party, of material facts within his knowledge.
Illustration
A and B, being traders, enter upon a contract and has private information of a change in prices which would affect B’s
willingness to proceed with the contract. A is not bound to inform B (Illustration (d) to Section 17).
•• Silence is fraudulent, if the circumstances of the case are such that ‘it is the duty of the person keeping silence to
speak’. In other words, silence is fraudulent in contracts of ‘utmost good faith’ i.e., contracts ‘uberrimaefidei.’
These are contracts in which the law imposes a duty of abundant disclosure on one of the parties thereto, due to
peculiar relationship of the parties thereto, due to the fact that one of the parties has peculiar relationship of the
parties or due to the fact that one of the parties has peculiar means of knowledge which are not accessible to the
other. The following contracts come within the class of ‘uberrimaefidei’ contracts:
•• Fiduciary relationship. When the parties stand in a fiduciary relation to each other, the person in whom confidence
is reposed is under a duty to act with utmost good faith and to make a full disclosure of all material facts concerning
the transaction known to him. Examples of a fiduciary relationship include those of principal and agent, solicitor
and client, guardian and ward, and trustee and beneficiary.
Illustrations
(a) Regiervs Campbell-Stuart
Where a broker who was employed to buy shares for the client, sold his own shares to the client, without disclosing
this fact to him and without obtaining his consent therefore, it was held that the sale can be avoided by the client
(b) Macpherson vs Watt
Where solicitor purchased certain property from his client nominally for his brother, but really for himself, it was
held that the sale can be avoided by the client, even if the transaction was perfectly proper one
•• Contracts of insurance
CASE LAW Ratan Lal Vs Metropolitan Co.
In contracts of marine, fire and life insurance, the insurer contracts on the basis that all material facts have been
communicated to him; and it is an implied condition of the contract that full disclosure shall be made, and that if there
has been non-disclosure he shall be entitled to avoid the contract. The assured, therefore must disclose to the insurer all
material facts concerning the risk to be undertaken. Example: disease etc., in case of life insurance. A concealment or
misstatement of a material fact will render the contract void
•• Contract of marriage engagement.
CASE LAW Haji Ahmed vs Abdul Gani

Every material fact must be disclosed by both parties to a contract of marriage otherwise the other party is justified in
breaking off the engagement.
•• Contracts of family settlements: Contracts of family settlements and arrangements also require full disclosure of
all material facts within the knowledge of the parties to such contracts. Such a contract is not binding if either party
has been misled by the concealment of material facts.
•• Share allotment contracts: Promoters and directors, who issue the ‘prospectus’ of a company to invite the public
to subscribe for shares and debentures, possess information which is not available to general public and as such
they are required to disclose all information regarding the company with strict and scrupulous accuracy.
•• Silence is fraudulent where the circumstances are such that “silence is, in itself, equivalent to speech.” Where,
for example, B says to A, “If you do not deny it, I shall assume that the horse is sound.” A says nothing. Hence, A’s
silence is equivalent to speech. If the horse is unsound A’s silence is fraudulent.
Fraud and Misrepresentation – Difference

Fraud Misrepresentation
1. The party making a false representation makes it with the Without any intention to deceive or gain an
intention to deceive the other party to enter into a contract. advantage.
2. The person making suggestion doesn’t believes it to be Person making suggestion believes it to be true.
true Except the certain cases, the only remedies are
3. Only the aggrieved party can make remedy or sue for rescission and restitution.
damages. The aggrieved party cannot avoid the contract if it had
4. If there is active concealment, the contract is voidable even the means of discovering the truth.
when the aggrieved party had the means of discovering the
truth.
MISTAKE
Mistake may be defined as an erroneous belief concerning something. It may be of two kinds:
(a) Mistake of law.
(b) Mistake of fact.
Mistake of Laws
Mistake of law may be of two types:
(a) Mistake of law of the country;
(b) Mistake of foreign law.
(a) Mistake of law of the country or Mistake of law
Everyone is deemed to be conversant with the law of his country, and hence the maxim “ignorance of law is no
excuse.” Mistake of law, therefore, is no excuse and it does not give right to the parties to avoid the contract.
Stating the effect of mistake as to law, Section 21 declares that “a contract is not voidable because it was caused
by a mistake as to any law in force in India.
(b) Mistake of foreign law
Mistake of foreign law stands on the same footing as the ‘mistake of fact’. Here, the agreement is void in case of
‘bilateral mistake.
Mistake of Fact
Mistake of fact may be of two types:
1. Bilateral mistake; or
Where the parties to an agreement misunderstood each other and are at cross purposes, there is a bilateral mistake.
Here there is no real correspondence of offer and acceptance, each party obviously understanding the contract in
a different way. In fact in such cases, there is no agreement at all, there being entire absence of consent.
In case of bilateral mistake of essential fact, the agreement is void ab-initio. Section 20 provides that “where both the
parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void”.
2. Unilateral mistake
Where only one of the contracting parties is mistaken as to a matter of fact, the mistake is a unilateral mistake.
Regarding the effect of unilateral mistake on the validity of a contract, Section 22 provides that “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”.
Undue Influence
Presumed Not Presumed
Parents Guardian Doctor Lawyer Religious Landlord Teacher Husband

and and and and adviser and and and
Q Child Ward Patient Client Tenant Student Wife
U
I [Section 17] Fraud
C
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Fraud Means and Includes
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C Suggestion of false Active Knowingly Promise made Any other fact
fact with malified concealment of making a false without an fitted to
A
intension fact statement intension to deceived
P perform
Effect of Fraud
Voidable Rescind the contract Punishable
Wrong Fact
With an intension to cheat or deceived Without an intension to cheat
Fraud Misrepresentation
UNIT - VI: LEGALITY OF OBJECT
CASE WHERE CONSIDERATION OR OBJECTS ARE UNLAWFULÐ

An agreement, the object and consideration of which is unlawful and unenforceable and void. Under Section 23 the
object or consideration of an agreement is unlawful in the following cases:
(i) If it is forbidden by law. (ii) If it defeats the provisions of any law.
(iii)
If it is fraudulent. (iv) If it involves injury to person or property of another.
(v) If it is immoral. (vi) If the court regards it as opposed to public policy.
•• If The object is Forbidden by law : Where the object or consideration of an agreement is forbidden by law, it is
void an unlawful.
Example
A agrees to sell certain good to B. A knows that the goods are to be smuggled out of India. The contract is unlawful because selling
of goods from smuggling is forbidden by law.
A , a Hindu already married and his wife is alive. He agrees to marry again with C i.e. another lady. It is unlawful as
the second marriage is against Hindu Law if the first wife is alive and marriage is sustaining.
•• If it is of Such A Nature That, If permitted, It Would Defeat The Provisions Of Law: Sometimes, the object and
consideration of an agreement is not directly forbidden by law but it is of such a nature that, if permitted, it would
defeat the provision of the law. In such a case, the object or consideration is unlawful and void.
Example
A’s estate is sold for the recovery of land revenues. Under the provisions of an Act of the Legislature, by which the defaulter is
not allowed to purchase directly or indirectly his own estate. B by an agreement with A agreed to purchase the land in auction. B
purchased the land and he conveyed it to A upon receiving from his the price paid. The agreement is unlawful, if it is allowed it
will defeat the purpose of the law.
•• If it Is Fraudulent: If the object of an agreement is to cheat the other party is unlawful and void.
Example
A,B and C enter into an agreement to divide among themselves the gain acquired or to be acquired by them by fraud. The
agreement is void as its object is fraudulent.
•• If it Involves Or Implies Injury To The person Or Property Of Another: Where the purpose of an agreement is
to make injury to the person or property of another person is unlawful and void. Injury means damage, harm or
wrong. Property may be movable or immovable.
Example
A requested an editor of a newspaper to publish a defamatory article against B and promised to pay ` 15,000 for this work. The
agreement is void as it involves injury to B.
•• If The Court Regards It immoral : If the court regards the purpose of consideration of an agreement immoral, it is
void. The term ‘immoral’ depends upon the standards of morality prevailing at a particular time and place and as
approved by the court. In general sexual immorality is regarded an immoral act.
Example
A agreed to let his daughter to B for concubine. The agreement is void being immoral, though the letting is not punishable under
Indian Penal Code.
Where the object of an agreement is to further sexual immorality, e.g. lending money to a prostitute to help her in her trade is immoral.
Where The Court Regards It Is As Opposed To Public Policy: If the object or consideration of an agreement is
considered to be against public goods or when it harms the public welfare. Public policy is that principle of law
which provides that no person can lawfully do that which has a tendency to be injurious to the public or public
goods. Agreements as opposed to public policy are unlawful and void.
Example
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E Forbidden by law Defeat the Fraudulent in Immoral in nature If it involves injury to other
C provision of law nature person or his property
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UNIT- VII : AGREEMENT OPPOSED TO PUBLIC PLICY

DOCTRINE OF PUBLIC POLICY
An agreement is said to be opposed or against the public policy if it involves anything which is harmful or dangerous
to the public welfare as law is made for the public as a whole for their betterment and it cannot allow any action which
is against the public. Public policy is that principle of law which states that no one can lawfully do that which has the
object to injure the interest to the public or which is against the goods of public welfare.
Some of the agreements against to public policy:
(i) Agreement of trading with enemy
(ii) Agreement to commit a crime
(iii) Agreement in restraint of legal proceedings
(iv) Agreement in do act opposed to duty
(v) Agreement in restraint of parental rights
(vi) Agreement in restraint of marital rights
(vii) Agreement restraining personal liberty
(viii) Agreement to default creditors
(ix) Agreement in restraint of trade.
Cases as opposed to Public Policy
The following are the cases which have been held by the courts as opposed to public policy:
(i) Trading with an enemy. Trading by an Indian national with an alien enemy is regarded as opposed to public
policy, unless permission of the Central Govt. is sought. Contracts made before the out breed of war are either
suspended for the time being, to be performed after the cessation of hostilities or are cancelled by the parties.
(ii) Agreement to commit a crime: An agreement between the parties to commit a crime or to indemnify a person
against the consequences of his criminal act is opposed to public policy and hence unenforceable.
Example: A promise to indemnify B in consideration of beating C. This agreement is against public policy.
(iii) Agreements for Stifling Prosecution: If a person has committed an offence, he should be punished in the public
interest. If any person makes an agreement not to prosecute the offender to withdraw a pending prosecution is void
as it is an agreement for stifling prosecution. No court of law can give an effect to an agreement which attempts to
take the administration of law out of the hands of the judges and put it in the hands of private individuals.
Example
A promises B to drop a prosecution which he has initiated in a case of robbery against B, and promises to restore the value of the things
taken. The agreement is void as its object is to stifle the prosecution.
(iv) Agreements For Improper Promotion Of Litigation: In this category there are two types of agreements in
English Law- maintenance and champerty.
•• Maintenance: Maintenance are those agreements in which a person promises to help another person by
money or otherwise to continue litigation is which he has no legal interest of his own. The main purpose of
such agreements is to stir up litigation.
•• Champerty: Champerty is a bargain in which a stranger to the contract promises to help monetary or
otherwise, to another person and to share the gains obtained by the legal action or the property recovered
by the court orders. Such agreements are ‘Champertous agreements’.
In England, both the above types of agreements are unlawful and void. But in India such maintains and champertous
agreements are not absolutely void .
An agreement to pay the lawyer according to the results of the case is against public policy.
(i) Interference With The Course Of Justice: An agreement which obstructs the course of justice in any way is
opposed to public policy and is void. Thus, an agreement for using improper influence of any kind with the judges
is unlawful interferes with the administration of Justice.

But an agreement to refer the present or future dispute or arbitration is not an interference with the administration
of justice and hence valid.
(ii) Agreement For The Marriage Brokerage: An agreement to procure marriage for reward is void. But it will in no
case, affect the validity of marriage. However, the amount agreed to be paid as brokerage for the marriage is not
recoverable, if not already paid. But, if it has been already paid, it cannot be taken back. In some cases, it has been
held that where money has been paid but marriage could not take place, the amount already paid can be recovered
since the illegal purpose has not been carried out.
(iii) Agreement Tending To Create Interest Opposed To Duty: The public policy requires that a person must perform
his duties honestly. If a person enters into an agreement whereby he is bound to do something which is against
his public or professional duties, the agreement is against public policy and is void. For example, agreement by an
agent to enable himself to make secret profits, or agreement to purchase a prohibited property by a government
officer etc. is void.
(iv) Agreements In Restraint Of Parental Rights: A father and in his absence, the mother is the natural guardian of
a minor child. This right cannot be bartered away by any agreement. A father or mother thus, cannot enter into
an agreement which is against their duty. If he/she enters into such an agreement, it is void as opposed to public
policy. An agreement in which a father agreed to transfer guardianship of his two minor children to a lady was held
to be void. [Giddu Narayanish Vs. Mrs. Annie Besant (1907)].
(v) Agreements Restraining Personal Liberty: Agreement which put undue restrictions on the personal liberty of the
parties are void as being against public policy.
Example
A, a servant borrowed some money from his employer agreeing that he would not leave the job, dispose of his property or move from
his house, without the written consent of the employer. The agreement was void as it usually restricts the personal liberty of A.
(vi) Agreements Interfering With Marital Status: Any agreement which interferes with the marital duties is void
being opposed to public policy,
Such agreements include

(i) A promise by a married person to marry a woman during the life time or after the death of her husband.
(ii) An agreement in contemplation of divorce
Example
An agreement to lend money to a woman on the condition that she would divorce her husband and marry him.
(iii) Traffic In Public Office: Agreement for the sale or transfer of a public office and titles for the procurement of public
reconvention like Padma Vibhushan or Param Veer Chakra for monetary consideration are void and unlawful for
being opposed to public policy. Such agreements, if enforced lead to corruption.
Example
Agreements to pay money to a public servant to act against law or normal practice or to retire and thus make way for the appointment
of the promisee, or an agreement with voters to procure their votes for monetary consideration etc. are void.

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GIVEYOUR VIEWS ON “AGREEMENT IN RESTRAINT OF TRADE IS VOID”. WHAT IS

THE EXCEPTION OF THIS?
Here in restraint of trade means preventing any person to engage himself in any lawful trade, profession, if any person
enters into any agreement the purpose or consideration of which is to interferes with the liberty of a person to do
any business or trade then such agreement is called “Agreement In Restraints Of Trade” and such agreements are
considered as against to Public Policy. Therefore such agreements are declared void.
As per Section 27, every agreement by which anyone is restrained from excursing a lawful profession, trade or business
of any kind, is to that extent void.
CASE LAW Shaikh Kaly Vs Ram Saran Bhagat
In this case out of 30 makes of comb, 29 agreed to supply only to R and no one else R was free to reject the goods if he found
no market for them. Held, the agreement was void.
Exceptions: But following are exceptions to rule that “An agreement In Restraint of Trade is void”.
(i) Sale of Goodwill: A seller of goodwill may be restrained from carrying on (i) a similar business (ii) within a limits
of area (iii) so long as the buyer or any person deriving title to the goodwill from him carries on a like business
provided such limits appears to be reasonable to the court.
(ii) Partner’s Agreements:
•• A partner cannot carry on any business other than that of firm while he is a partner.
•• An outgoing partner may agree with remaining partner not to carry the same business.
•• When a goodwill of firm is sold then the buyer may make an agreement with the partners not to carry same
business.
•• Partners at the time of dissolution may make an agreement that all of them would not start same business
within a specified time proud or limits.
UNIT - VIII: AGREEMENTS EXPRESSLY

DECLARED VOID
(i) Consideration Unlawful in Part: By virtue of section – 24, “If any part of a single consideration for one or more
objects, or any one or any part of anyone of several consideration for a single object, is unlawful, the agreement is void”
Example:
A promises to suppress on behalf of Y, a legal manufacturers of indigo and an illegal traffic in other articles. Y promises to
pay A, a salary of ` 2,000 p.m. The agreement is void, the object of A’s promise and the consideration for B’s promise being
in part unlawful.
(ii) Agreement the meaning of which is uncertain (section 29): An agreement, the meaning of which is not certain,
is void, but where the meaning there of is capable of being made certain, the agreement is valid.
Example:
A agrees to sell B, “ a 100 tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement is void
for uncertainty. But the agreement was valid if he was a dealer only of coconut oil.
(iii) Wagering agreement: An agreement by way of wager is void. According to Anson, a wagering agreement is “a
promise to give money or money’s worth upon the determination or ascertainment of an act”. It is an agreement
involving payment of a sum money upon the determination of an uncertain event.
Example:
A agrees to pay B ` 500 if it rains and B to pay the same if it does not rains. The agreement is by a way of wager and thus
void. But if one of the parties has control over the event, agreement is not a wager.
CONTINGENT CONTRACT
Meaning Of Contingent Contract
As per Section-31 of Indian Contract Act,1872 “A contingent contract is a contract to do or not to do something, if sum
event, collateral to such contract, does or does not happen”.
If we analysis the above definition we find that contingent contracts are such contracts which contain or include
any “condition” in it. The above definition clearly shows that under contingent contract, Act is done by the party only when
some events or conditions which are related with the complete performance of such contract are fulfilled or happened.
Example:
Mr. A agrees to sell his land to Mr. B for a ` 1, 00,000 if he wins the case concerning the land.
Now, if we see the above example we find that Mr. A has promised to sell his land to Mr. B for ` 1, 00,000. But his promise
includes a condition i.e. winning of case related to land and this contract is a contingent contract.
Thus we conclude the Contingent event under following three points:

(i) The performance of contingent contract depends upon the happening or non-happening of some future or
condition.
(ii) Such event or condition must be uncertain which means there is every chance of happening or non happening of
such event. If the event is certain at the time of contract them such are not termed as contingent events.
(iii) The event or condition which is uncertain must have been incidental or related with the contract. It means on such
condition, the performance or non performance of the contract depends.
Example:
Mr. A agrees to marry his daughter with B, if she gives her acceptance to this. Now in this the basic point is the yes or
no for marriage by daughter of Mr. A on which the performance of whole agreement depends.
Rules Regarding Contingent Contract

(i) The Performance Or Non-Performing of Contract cannot be fixed until such uncertain event happens [Section - 32]:
It means that in order to see whether the parties to a contingent contract are legally binding, liable or not, the
happening of uncertain future condition or event on which such contract based, is must
This is because if such future event happen then such contract would become vail contract which means a legal
relationship would be established between such parties and in that case both parties would be liable to perform
their act.
But, if such future event does not happen then such contract would become void contract and as a result of this the
parties to such contract would no more remain in legal binding relation to each other
But, if the event upon which the contract is contingent becomes impossible, the contract is void and unenforceable.
Example:
Mr. A has offered to sell his care to Mr. B with the condition that he will deliver it to Mr. B, if Mr. C refuses to purchase it.
In this example we see that, if Mr. C accepts to purchase the can then the contingent contract between Mr. A
and Mr. B would become void and as a result they would not require performing any act. But, if Mr. A refuses to
purchase the case then the contract between Mr. A and Mr. B would become valid contract.
(a) Contingent Agreement to do or not to do anything are voided, if an impossible events happen
[Section-36]: Even though contingent contracts are based on some uncertain event but such contract
would become void if the happening or non-happening of such event is impossible.
Example:
•• A agrees to pay B ` 1,000. If he proves that two straight lines can enclose a space. This is a void agreement because
two straight lines cannot enclose a space.
•• Mr. A agrees to pay Mr. B ` 1,000 if B will marry A’s daughter C. but at the time of that agreement C was dead and
hence the happening of marriage of C with B is impossible and hence the contingent contract between Mr. A and
Mr. B is void on the ground of impossibility of happening of event .
(b) When Any time is fixed with the happening or non-happening of a uncertain event [Section 35]:
If any fixed time limit has been attached with the happening or non-happening of uncertain event
then in such case a contingent contract can become void or valid based on the condition that whether
such event is happened or non-happened with in such specified time or whether it is impossible of
happening or non-happening of such event.
(ii) Where a contingent contract is dependent on happening of an uncertain event within a fixed time, it is
enforceable only when such event happens within that fixed time. If the event does not happen within the fixed
time or if it becomes impossible to happen before the expiry of the fixed time, the contract becomes void.
Example:
A agrees to sell his crown T. V. to B, if he gets a new ‘Sony’ T. V. from Singapore within 6 months. The contract is a contingent
contract. The contract can be enforced, if A get sony T. V within 6 months. If he does not get it within 6 months, the contract
becomes void on the expiry of the 6 months.
(iii) When the Contingent Contract is based on the condition how a third person will Act [Section 34]: if a
contingent contract is based on the condition how a third person will act then such contract can become void
when such third person does anything which made the happening of event impossible.
Example:
A agrees to pay Mr. B ` 1000 if he marries with C, but Cmarried with D. Hence the act done by C has made the marriage of B with
Cimpossible and therefore in this case the contingent contract between A and B is void because the third person C has done such
thing which made the happening of marriage of B with C impossible.
(iv) Contract Contingent upon the non-happening of a future uncertain Event [Section 33]. Where a contingent
contract is to be performed if a particular event does not happen, its performance can be enforced when the
happening of that event become impossible.
Example:
A agrees to pay a sum of money, if a certain ship does not return. The contract can be enforced only when the ship sunk and its
return is not possible.
(v) Difference between Contingent Contract And wagering Agreement:
•• A wagering agreement is essentially of a contingent nature whereas a contingent contract may not be of a
wagering nature.
•• A wagering agreement is void whereas a contingent contract is valid
•• In a wagering agreement, the parties have no other interest in the subject matter of the agreement except the
winning or losing of the amount of wager. In other words, a wagering agreement is a game of chance. This is not
so in case of contingent contract.
•• In a wagering agreement the future event is the sole determining factor while in a contingent contract the
future event is collateral.
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S. No. Wagering agreement Contingent contract

1. No legal obligation. Legal obligation.
2. Void in nature. Valid in nature.
3. Non enforceable. Enforceable by Law.
4. All wagering are contingent. All contingent are not wagering.
5. speculative trading. No speculative trading.
6. Real interest of parties. No real interest of parties.
UNIT - IX: DISCHARGE OF PERFORMANCE

Performance means the doing of something, which is required by a contract. Discharge by performance takes place
when the parties to the contract fulfill their obligation arising under the contract with in the time and in the manner
prescribed. A contract can be discharged by:
(i) Performance: It is the most usual made of its discharge. It may be
(a) Actual Performance: - Performance should be complete, precise and according to the terms of the
agreement.
(b) Attempted Performance: It is not an actual performance but it is only an offer to perform the obligation
under the contract where the promisor offers to perform his obligation, but the promise refuses to
accept the performance.
(ii) Agreement or consent: The law of rule in this regard is as follows: a thing may be destroyed in the same manner
it is constituted. This means a contractual obligation may be discharged by agreement, which may be express or
implied. The various cases of a discharge of a contract by mutual agreement are dealt in Section 62 and 63 and are
discussed below:
•• Novation [Section 62]: It takes place where (i) a new contract is substituted for an existing one between the
same parties, (ii) a contract between two parties is rescinded cancel in consideration of a new agreement
being entered into on the same terms between one of the parties and a third party. The consideration for
the new contract is discharge for of the old contract. Novation should take place before expiry of the time of
the performance of the original contract.
•• Rescission [Section 62]: It takes place when all or some of the terms of the contract are cancelled.
•• Alteration: It takes place when one or more of the terms of the contract is altered by mutual consent of the
parties to the contract.
•• Remission is the acceptance of a lesser sum than what was contracted for or a lesser fulfill of the promise
made.
•• Waiver: It takes place when parties to a contract agree that they shall no longer be bound by the contract.
Consideration is not necessary for waiver.
•• Merger: It takes place when an inferior right accruing to a party under a contract merges into a superior
right accruing to the same party under the same or some other contract.
Example:
P hold a property under a lease. He later buys the property. His rights as a lease merge into his rights as an owner.
(iii) Impossibility of performance:
•• Known to the parties: This is known as absolute impossibility. In this case, agreement is void ab initio.
•• Unknown to the parties: Where at the time of making the contract both the parties are ignorant of the
impossibility. As in the case of destruction of subject matter to the ignorance of both the parties, the contract
is void on the ground of mutual consent.
•• Supervening impossibility
(a) An excuse:
•• Destruction of subject matter of contract: Subject matter of a contract is destroyed within out any fault of
the parties to the contract, the contract is discharged.
Example:
C let a music hall to T for a series of concerts on certain days. The hall was accidently burnt down before the date of the
first concert. Held, the contract was void.
•• Non-existence of a state of a thing: When certain things necessary for performance cease to exist, the
contract becomes void on the ground of impossibility.
Example:
A and B contract to marry each other. Before, the time fixed for the marriage, A goes mad. The contract becomes void.
•• Death or incapacity for personal services: Where the contract depends on the personal skills or
qualification of a party, the contract is discharged on the illness or death of that party.
•• Change in law
•• Outbreak of war: A contract entered into with an alien enemy during war is unlawful and therefore
impossible of performance.
(b) Not an excuse:
•• Difficulty of performance: A contract is not discharged by the fact that performance becomes difficult to
perform due to some uncontemplated events or delays.
•• Commercial impossibility: A contract is not discharged because expectations of higher profit is not
realized, or the necessary raw material is available at a higher price.
•• Impossibility due to failure of a third person.
•• Strikes, lockouts, civil disturbances
•• Failure of one of the object: When a contract is entered into for a several objects, the failure of one of them
does not discharge the contract.
(iv) Discharge by lapse of time.
(v) Discharge by operation of law
•• By death: In contract involving person skill or liability, the contract is terminated on death of the promisor.
•• By merger.
•• By insolvency: When a person is adjudged insolvent, he is discharged from all liabilities.
•• By unauthorized alteration of terms of a written agreement: Where a party to a contract makes any
material alteration in the contract without the consent of the other party, the other party can avoid the
contract.
•• By rights and liabilities becoming vested in the same person.
(vi) Breach of contract: Breach of contract means a breaking the obligation which a contract imposes. It occurs when
a party to the contract without lawful excuse does not fulfill his contractual obligation or by his own act makes it
impossible that he should perform his obligation under it.
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UNIT - X: BREACH OF CONTRACT

Breach of contract means a breaking the obligation which a contract imposes. It occurs when a party to the contract
without lawful excuse does not fulfill his contractual obligation or by his own act makes it impossible that he should
perform his obligation under it. Breach of contract may be
(i) Actual breach of contract: It may take place
(a) At the time when performance is due.
(b) During the performance of the contract.
(ii) Anticipatory breach of contract: It occurs when a party to an executory contract declares his intention of not
performing the contract before it is due.
REMEDIES FOR BREACH OF CONTRACT

When contract is broken, the injured party has one or more of the following remedies:
(i) Rescission of the contract
(ii) Suit for damages
(iii) Suit upon quantum meruit
(iv) Suit for specific performance of the contract.
(v) Suit for injunction.
(i) Rescission: When a contract is broken by one party, the other party may sue to treat the contract as rescinded and
refuse further performance.
Example:
A promises B to supply 10 bags of cement on a certain day. B agrees to pay the price after the receipt of the goods. A does not
supply the goods. B is discharged from the liability to pay the price.

(ii) Damages: Damages are the monetary compensation allowed to the injured party by the court for the loss or injury
suffered by him by the breach of a contract. When a contract has been broken the injured party is entitled to
(a) Such damages which naturally arose in the usual course of things from such breach.
(b) No compensation to be given for any indirect loss or damage.
(c) Such damages which the parties knew when they made the contract, to the likely to result from breach.
(iii) Suit upon quantum meruit: “Quantum meruit” means quantity merit or as much as is earned. A right to sue on
a quatummeruit arises where a contract, partly performed by one party, has become discharged by the breach of
the contract by the other party. The normal law is that unless a party has performed its promise entirely, he cannot
claim performance from the other.
(iv) Suit for specific performance: Where damages are not an adequate remedy in the case of breach of contract,
the court may on its discretion on suit for specific performance direct in party in breach, to carry out his promise
according to the terms of the contract.
(v) Suit of injunction: Where a party to a contract is negotiating the terms of a contract, the court may by issuing an
injunction order” restrain him from doing what he promised not to do.
Breach of Contract
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R Breach of contract before Breach of contract on due

E due date of contract date of performance
C
A ( Breach in advance)
P
Note Note:
Breach can be -oral
Breach
andcan be oraldepending
written & written depending
upon theupon the nature
nature & requirementofofcontract
and requirement contract.
Remedies for Breach of Contract
Rescind the Suit for Quantum Suit of Suit for specific

contract damages meruit injunction performance
(as much as order (+ ve remedy )
earn) (-ve remedy)
If one party is not Mr. A breaches the When party other When aggrieved party When aggrieved
performing the contract to deliver than performing is willing to stop other party is not
contract than goods to Mr. B worth party breach the party from doing an willing to accept
other party shall `10,000 and Mr. B contract than party act which such party is any other remedy
Q also be free from purchase goods from performing can under obligation not to other than
U its obligation to the market `12,000. claim the amount do. Then such specific
I perform So Mr. B can claim ` for the work already aggrieved party can performance of
C 2000 from Mr. A perform move to the court for contract
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R Kinds of Damages
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A
P Ordinary Special Nominal Remote Exemplary or
Damages damages damages damages Vindictive damages
Claim by party Claim by party if No actual loss Damage which To set an example
regarding actual there is breach of if there but can’t be in the society
loss suffer due to special condition aggrieved recovered Example: Salman
breach of contract which was in the party may (indirect loss) khan was put
knowledge of party moved to the behind the bars
before performance court because for 5 years
of contract there could
Hadley Vs have been
Baxendale
UNIT - XI: QUASI CONTRACT

WHAT DO YOU UNDERSTAND BY TERM “QUASI-CONTRACT” AND WHAT ARE INCLUDED IN IT?
Quasi-Contract is the name given to the relationship under which a person may receive a benefit to which the law
regards another person as better entitled or for which the law considers that one party should pay to the other person,
even though there is not contract between the parties.
Important thing to note down is that in Quasi-Contracts, there is not agreement or contract between the parties
but still they are put in the same position as if there were a contract between them. These relationships are termed
as “Quasi-Contract” or “Constructive contracts”. These relationships are aerated not by personal willingness of the
parities but by the court or law.
Basic Of Quasi-Contract
Law of Quasi-Contract is based on the ground of Equity that a person shall not benefit himself unjustly at the expense
of another. This is also known as law of restitution.
Conclusion: From the law of quasi contract we conclude following things:
(a) The defendant has been enriched by the receipt of a benefit.
(b) This enrichment is at the expense of plaintiff and.
(c) The retention of enrichment is unjust
Strictly speaking, a quasi-contract is not a contract at all, as in quasi-contract there is no intention of the parties to
enter there to but such contracts are created by a law. This thing is also observed in case of Miller V/s Scholas.
Kinds of Quasi-Contract
(a) Supply of necessaries [Section 68]: As we know that law has specially declared some persons incapable of making
contracts such as minor, insolvent, lunatic etc. Now if such persons are supplied with necessaries suited to his
condition in life then in spite of having not capable of making contract, they would be liable for such necessaries.
The law would assume there exist a Quasi-Contract between them. But important thing to remember is that only
property of such person can be used for claiming damages.
Condition To Be Followed
Following conditions must be satisfied to make a claim under this section-
•• The person, to whom the supply of necessaries is made, should be an incapacitated person such as minor,
lunatic etc., or dependent on him such as his wife or children.
•• Articles supplied should be articles of necessaries which cover not only the items of bare necessaries such as
food, clothes and shelter but they cover all such things which can reasonable be considered as necessaries in
the class of society to which the incompetent person belongs.
•• Necessaries must not have been supplied gratuitously out of mere kindness, favour or pity etc.
(b) Payment By An Interested Person [Section 69]
A person who is interested in the payment of money on behalf of another who is bound by law to pay, is entitled to
be reimbursed by another on the ground of existence of Quasi-Contract.
CASE LAW Abid Hussain Vs Ganga Sahai
In the above case, some revenues arrears were due by G to the Govt. But the goods belonging to A were wrongfully attached
by Govt. in order to relies the arrears of G. A paid the amount to save the goods Held, he could revert the amount from G.
(c) Essential Conditions For [Section 69]

(a) The person making the payment is interested in the payment of money.
(b) The payment should not be a voluntary .
(c) The payment must be to another person.
(d) The payment must be one, which the other party was legally bound to pay.
Example
A is a tenant of B. A did not pay the electricity charges and this may lead to disconnection of electricity in the premises.
A, therefore, will also bear the hardship. Just to avoid disconnection of electricity, A makes payment of the electricity
bill, A can recover such charges from B.
(d) Obligation To Pay For Non Gratuitous Act [Section -70]
When a person lawfully does anything for another person, not intending to do so gratuitously and such other
person enjoys the benefit thereof, the latter is bound to make compensation on the ground of Quasi-Contract.
Example
A, a trades man leaves goods at B’s house by mistake. B treats goods as his own.
He is bound to pay A.
Conditions For [Section 70]:
(a) The thing must have been done lawfully.
(b) The person doing the act should not have done it gratuitously.
(c) The person for whom act has done must have enjoyed the benefit.
(f) Responsibility of Finder Of Goods [Section 71]
A person, who finds goods belonging to another and takes them into his possession, is subject to the same
responsibility as a bailee.
Being a bailee, he is responsible to take as much care of goods as a man of ordinary prudence would under similar
circumstance, take of his own goods of the same bulk, quality and value.
The finder of goods must try to find out its owner and if the owner is found out, he must give possession of the
goods to him. If he does not try to find out the owner of goods found, he will be guilty of wrongful conversion of the
property.
Till the real owner is traced, the property in goods vests in the finder and he will retain the goods as his own against
the whole world except the owner.
But he can sell the goods in following case:
(a) When the thing found is in danger of perishing.
(b) When the owner could not be traced
(c) When the owner refuses to pay expenses
(d) When the expenses of finder exceeds two third of the value of goods.
(e) Lien- The finder of goods can lawfully retain the goods with himself (i.e. he can exercise his right of lien
against the goods) until he is paid compensation for the expense. Incurred by him.
(f) Right to Sue. He can sue the real owner, for the reward, if any, offered by the real owner of the goods
found and also can retain the goods until he receives such reward.
Kinds of Quasi Contract
[Section 68] [Section 69] [Section 70] [Section 71]

↓ ↓ ↓ ↓
Supply of Payment by Non Finder of
necessaries an interested gratuitous goods
Q person bailment
U (with money)
I
C [Section 69] Payment By Interested Person
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E Person making Payment was Payment to Other party
C payment was voluntary other person was legally
A interested in the bound to pay
P payment of money
Abid Hussain
Vs
Ganga Sahib
Held: Some revenue arrears were due by G to the Govt. But the goods belonging to A were
wrongfully attached by Govt. in order to relies the arrears of G. A paid the amount to save the
Duties of Finder of Goods
To take To trace true owner Not to use goods

reasonable care
of goods as a
man of ordinary
prudence
Rights of Finder of Goods
Rights to claim Right to be indemnified for Right to sue for Right to lien
lawful charges loss if any reward if any (to retain)
Right of Finder to Sell goods
Goods are of Owner not Owner found If expenses incurred

perishable nature found after but refuses to exceeds 2/3rd of
pay expenses value of goods &
owner is not found
WHAT DO YOU UNDERSTAND BY “QUANTUM MERUIT”. IN WHICH CASES IT ARISES ?

Quantum Meruit is the right given to a person to receive remuneration for the part of action or promise, which he had
performed under any contract.
Literal meaning of Quantum meruit is “As much as Earned” or “As much as is meritted”. When a person has done
some work under a contract and the other party repudiates the contract or some event happens which makes the
further performance of the contract impossible, then the party who had performed the work can claim remuneration
for the work he has already done.
The claim for Quantum Meruit arises only when the contract is discharged and not earlier. If the contract still exists, the
a party not in defeat can claim damages and not quantum meruit. The claim for Quantum meruit can be made only by
the party who is not in default.
Claim for Quasi Contract arises in the following cases

(i) When an agreement is discovered to be Void:
When an agreement is discovered to be void, any person who has received any benefit is bound to restore it to
another person.
CASE LAW Craven V/s Connon Ltd.

In this case, Craven was employed as a managing director in Connon Ltd. After he rendered 3 month’s service, it was found
that his appointment was disqualified. Held, Craven could recover remuneration for 3 months receive an on ground of
quantum Meruit.
(ii) When Something Is Done Without Any Intention To Do So Gratuitously (Section 70): When one person does or
intend to do any lawful act for another not so gratuitously, then the other person is bound to make compensation
to such person.
Example:
A tradesman leaves goods at B’s premises by mistake. B, treating the goods as his owned, consumed it. He is bound to pay
for the goods.
(iii) When There Is Contract For Services Rendered If No Remuneration: If no remuneration has been decided or
agreed at the time of service agreement then a reasonable remuneration is payable. That reasonable remuneration will
be determined by the court and would be quantum Meruit for person who rendered services.
Example: A fire broken out in the house of A who called the fire brigade for extinguishing the fire. A is bound to pay
reasonable amount to brigade for its services.
(iv) When The Completion Of Contract Is Prevented By The Act Of Another Party: In such case a party who has been
prevented from completing the contract can sue another party, to pay for the work he has done on the ground of
quantum meruit
CASE LAW De Remedy Vs Harding

In this case, Prinapal (H) revoked his agent’s authority before the completed his duties. Held the agent (De Remady) could
recover quantum meruit for the work he has done.
(v) When An Indivisible Contract Is Performed But Badly:

If a contract for a lumpsum is completely performed but badly, the person who has performed the contract can
claim the lump sum but the other party can make deduction for bad work.
CASE LAW Dakin Ltd. Vs Lee
In this case A agreed to repair B’s house for £ 265, payable on completion in accordance with specification. He did the
repairs but defective. Held A was entitled to recover £ 265 but B can deduct the loss of defective work.
UNIT-XII: INDEMNITY AND GURANTEE

[SECTIONS 124 TO 147] CONTRACT OF INDEMNITY AND GUARANTEE
[Section 124] Meaning of Indemnity

•• A contract of indemnity is a contract by which one party promises to save the other party from loss caused to
him by the conduct of the promisor himself, or by the conduct of any other person (Section 124).
•• For example, A contracts to indemnify B against the consequence of any proceedings which C may take against B
in respect of a certain sum of ` 300. This is a contract of indemnity. The contract of indemnity may be express or
implied.
•• The person who promises to indemnify or make good the loss is called the indemnifier and the person whose loss
is made good is called the indemnified or the indemnity holder.
[Section 125] Rights of Indemnity Holder when Sued

Under Section 125, the promisee in a contract of indemnity, acting within the scope of his authority, is entitled to
recover from the promisor—
•• All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to
indemnify applies.
•• All costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene
the orders of the promisor, and acted as if it would have been prudent for him to act in the absence of any contract
of indemnity, or if the promisor authorised him to bring or defend the suit.
•• All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not
contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in
the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit.
[Section 126] Meaning of Contract of Guarantee

A contract of guarantee is a contract to perform the promise, or discharge the liability of a third person in case of
his default.
•• The person who gives the guarantee is called the Surety.
•• The person for whom the guarantee is given is called the Principal Debtor.
•• The person to whom the guarantee is given is called the Creditor.
A guarantee may be either oral or written, although in the English law, it must be in writing.
Example:
A advances a loan of ` 5,000 to B and C promises to A that if B does not repay the loan, C will do so. This is a contract
of guarantee. Here B is the principal debtor, A is the creditor and C is the surety or guarantor.
A contract of guarantee must also satisfy all the essential elements of a valid contract.
Section 127 provides that anything done or any promise made for the benefit of the principal debtor may be a sufficient
consideration to the surety for giving the guarantee.
Example:
B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of
the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This
is sufficient consideration for C’s promise.
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DISTINCTION BETWEEN INDEMNITY AND GUARANTEE

A contract of indemnity differs from a contract of guarantee in the following ways:
•• In a contract of indemnity there are only two parties: the indemnifier and the indemnified. In a contract of
guarantee, there are three parties; the surety, the principal debtor and the creditor.
•• In a contract of indemnity, the liability of the indemnifier is primary. In a contract of guarantee, the liability of the
surety is secondary. The surety is liable only if the principal debtor makes a default, the primary liability being that
of the principal debtor.
•• The indemnifier need not necessarily act at the request of the debtor; the surety gives guarantee only at the
request of the principal debtor.
•• In the case of a guarantee, there is an existing debt or duty, the performance of which is guaranteed by the surety,
whereas in the case of indemnity, the possibility of any loss happening is the only contingency against which the
indemnifier undertakes to indemnify.
•• The surety, on payment of the debt when the principal debtor has failed to pay is entitled to proceed against the
principal debtor in his own right, but the indemnifier cannot sue third-parties in his own name, unless there be
assignment. He must sue in the name of the indemnified.
EXTENT OF SURETY’S LIABILITY [SECTION 128]

The liability of the surety is co-extensive with that of the principal debtor unless the contract otherwise provides. A
creditor is not bound to proceed against the principal debtor. He can sue the surety without suing the principal debtor.
As soon as the debtor has made default in payment of the debt, the surety is immediately liable. But until default, the
creditor cannot call upon the surety to pay. In this sense, the nature of the surety’s liability is secondary.
Kinds of Guarantees
A contract of guarantee may be for an existing debt, or for a future debt. It may be a specific guarantee, or it may be a
continuing guarantee.
A specific guarantee is given for a single debt and comes to an end when the debt guaranteed has been paid.
A continuing guarantee is one which extends to a series of transactions (Section 129). The liability of surety in case of
a continuing guarantee extends to all the transactions contemplated until the revocation of the guarantee.
Revocation of Continuing Guarantee

A continuing guarantee is revoked in the following circumstances:
(a) By notice of revocation by the surety (Section 130): The notice operates to revoke the surety’s liability as regards
future transactions. He continues to be liable for transactions entered into prior to the notice.
(b) By the death of the surety (Section 131): The death of the surety operates, in the absence of contract as a revocation
of a continuing guarantee, so far as regards future transactions.
Rights of Surety
A surety has certain rights against
•• The creditor [Section 141]
•• The principal debtor [Sections 140 and 145]
•• The co-securities [Sections 146 and 147].
(a) Surety’s rights against the creditor: Under Section 141 a surety is entitled to the benefit of every security which
the creditor has against the principal debtor at the time when the contract of suretyship is entered into whether the
surety knows of the existence of such security or not; and, if the creditor losses or, without the consent of the surety
parts with such security, the surety is discharged to the extent of the value of the security.
(b) Rights against the principal debtor: After discharging the debt, the surety steps into the shoes of the creditor or is
subrogated to all the rights of the creditor against the principal debtor. He can then sue the principal debtor for the
amount paid by him to the creditor on the debtors default; he becomes a creditor of the principal debtor for what
he has paid.
In some circumstances, the surety may get certain rights even before payment. The surety has remedies against
the principal debtor before payment and after payment. In Mamta Ghose v. United Industrial Bank where the
principal debtor, after finding that the debt became due, started disposing of his properties to prevent seizure by
surety, the Court granted an injunction to the surety restraining the principal debtor from doing so. The surety can
compel the debtor, after debt has become due to exonerate him from his liability by paying the debt.
(c) Surety’s rights gains co-sureties: When a surety has paid more than his share of debt to the creditor, he has a
right of contribution from the co-securities who are equally bound to pay with him. A, B and C are sureties to D for
the sum of ` 3,000 lent to E who makes default in payment. A, B and C are liable, as between themselves to pay `
1,000 each. If any one of them has to pay more than `1,000 he can claim contribution from the other two to reduce
his payment to only ` 1,000. If one of them becomes insolvent, the other two shall have to contribute the unpaid
amount equally.
Discharge of Surety
A surety may be discharged from liability under the following circumstances:
•• By notice of revocation in case of a continuing guarantee as regards future transaction.
•• By the death of the surety as regards future transactions, in a continuing guarantee in the absence of a contract to
the contrary.
•• Any variation in the terms of the contract between the creditor and the principal debtor, without the consent of
the surety, discharges the surety as regards all transactions taking place after the variation.
•• A surety will be discharged if the creditor releases the principal debtor, or acts or makes an omission which
results in the discharge of the principal debtor.
•• Where the creditor, without the consent of the surety, makes an arrangement with the principal debtor for
composition, or promises to give time or not to sue him, the surety will be discharged.
•• If the creditor does any act which is against the rights of the surety, or omits to do an act which his duty to the
surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby
impaired, the surety is discharged.
•• If the creditor loses or parts with security which at the time of the contract the debtor had given in favour of
the creditor, the surety is discharged to the extent of the value of the security, unless the surety consented to the
release of such security by creditor in favour of the debtor. It is immaterial whether the surety was or is aware of
such security or not.
A Surety has Rights Against
Creditor Principal debtor Co – sureties
Right to be Right to Right to lien

relieved of liability indemnity on goods in any
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C Before Right of Right of Right of On payment Co – sureties Liability of co – Release of
K payment of set off equities subrogation of the liable to sureties bound a co
the guaranteed debt
contribute in different –surety
R guaranteed equally sums
E debt
C
A
P Extend of Sureties Liability
Liability of surety is Surety liability can’t Surety liability is

equal to the liability of be more than that of limited
creditor principal debtor
1. Surety
Note.1.can claim
Surety can payment
claim paymentfromfrom
co –cosurety if made
– surety if madepayment tocreditor
payment to creditoronon
hishis behalf.
behalf.
Note Note.2.
2. Right ofRight of surety
surety is afterisrescind
after rescind of contract.
of contract.
Discharge of Surety
Revocation By act of parties Invalidation of

contract
[Section 133] [Section 164] [Section 139] [Section 135]

Variance in Payment of Creditors act or Compounding
terms of loan by debtor omission impairing between creditor &
contract surety eventual debtor
[Section 130] [Section 62] [Section [Section 142] [Section 143] Guarantee given [Section 144]
By notice By Novation 131] Guarantee Guarantee but failure of Guarantee on contract
Q By given under obtained consideration that creditor shall not
U Novation fraud act on it until a co –
I
surety joins
C
K
Kinds of Guarantee
R
E
C
A Specific guarantee [Section 129]
P Continuing guarantee
Guarantee is given in
respect of transaction is Guarantee given in respect of series of transition and can be
irrevocable revocked by
Notice by surety to Death of surety By other

creditor modes
[Section [Section 139] [Section 162] [Section 133] [Section 134] [Section 135]
141] By act or By novation By variance in By release or discharge By compounding with
By loss of omission the term of of the principal debtor the principal debtor
security impairing contract
UNIT-XIII: BAILMENT AND PLEDGE
CONTRACT OF BAILMENT AND PLEDGE

(a) [Section 148] Bailment: A bailment is a transaction whereby one person delivers goods to another person for
some purpose, upon a contract that they are, when the purpose is accomplished to be returned or otherwise
disposed of according to the directions of the person delivering them.
The person who delivers the goods is called the bailor and the person to whom they are delivered is called the
bailee.
(b) Gratuitous Bailment: A gratuitous bailment is one in which neither the bailor nor the bailee is entitled to any
remuneration. Such a bailment may be for the exclusive benefit of the bailor,
Example
When A leaves his dog with a neighbour to be looked after in A’s absence on a holiday. It may again be for
exclusive benefit of the bailee, Example: where you lend your book to a friend of yours for a week. In neither
case any charge is made.
A gratuitous bailment terminates by the death of either the bailor or the bailee (Section 162).

(c) Bailment for Reward: This is for the mutual benefit of both the bailor and the bailee. For example, A lets out a
motor-car for hire to B. A is the bailor and receives the hire charges and B is the bailee and gets the use of the car.
Where, A hands over his goods to B, a carrier for carriage at a price, A is the bailor who enjoys the benefit of carriage
and B is the bailee who receives a remuneration for carrying the goods.
(d) Duties of Bailee
The bailee owes the following duties in respect of the goods bailed to him:
The bailee must take as much care of the goods bailed to him as a man of ordinary prudence would take
••
under similar circumstances of his own goods of the same bulk, quality and value as the goods bailed.
•• The bailee is under a duty not to use the goods in an unauthorised manner or for unauthorised purpose.
•• He must keep the goods bailed to him separate from his own goods.
(a) If the bailee without the consent of the bailor, mixes the goods of the bailor with his own goods, and the
goods can be separated or divided, the property in the goods remains in the parties respectively; but the
bailee is bound to bear the expenses of separation, and any damages arising from the mixture.
(b) If the bailee without the consent of the bailor mixes, the goods of the bailor with his own goods, in such
a manner that it is impossible to separate the goods bailed from the other goods and deliver them back,
the bailor is entitled to be compensated by the bailee for the loss of goods.
•• He must not set up an adverse title to the goods.
•• It is the duty of the bailee to return the goods without demand on the expiry of the time fixed or when the
purpose is accomplished.
•• In the absence of any contract to the contrary, the baliee must return to the bailor any increase, or profits
which may have accrued from the goods bailed; for example, when A leaves a cow in the custody of B to be
taken care of and the cow gets a calf, B is bound is deliver the cow as well as the calf to A’.
(e) Particular and General Lien
•• A particular lien is one which is available only against that property of which the skill and labour have been
exercised. A bailee’s lien is a particular lien.
••A general lien is a right to detain any property belonging to the other and in the possession of the person
trying to exercise the lien in respect of any payment lawfully due to him.
Thus, a general lien is the right to retain the property of another for a general balance of accounts but a particular
lien is a right to retain only for a charge on account of labour employed or expenses bestowed upon the identical
property detained.
The right of general lien is expressly given by Section 171 of the Indian Contract Act to bankers, factors, warfingers,
attorneys of High Court and policy-brokers, provided there is no agreement to the contrary.
Duties of bailor
•• The bailor must disclose all the known faults in the goods and if he fails to do that, he will be liable for any
damage resulting directly from the faults.
•• In the case of bailment for hire, a still greater responsibility is placed on the bailor. He will be liable even if he did
not know of the defects.
•• It is the duty of the bailor to pay any extraordinary expenses incurred by the bailee.
•• The bailor is bound to indemnify the bailee for any cost or costs which the bailee may incur because of the
defective title of the bailor of the goods bailed.
Termination of bailment
•• Where the bailee wrongfully uses or dispose of the goods bailed, the bailor may determine (terminate) the
bailment.
•• As soon as the period of bailment expires or the object of the bailment has been achieved, the bailment
comes to an end, and the bailee must return the goods to the bailor.
•• Bailment is terminated when the subject matter of bailment is destroyed or by reason of change in its nature,
becomes incapable of use for the purpose of bailment.
•• A gratuitous bailment can be terminated by the bailor at any time, even before the agreed time.
•• A gratuitous bailment terminates by the death of either the bailor or the bailee.
Finder of Lost Goods

The position of a finder of lost goods is exactly that of a bailee.
The rights of a finder are that he can sue the owner for any reward that might have been offered, and may retain the
goods until he receives the reward.
But where the owner has offered no reward, the finder has only a particular lien and can detain the goods until
he receives compensation for the troubles and expenses incurred in preserving the property for finding out the true
owner. But he cannot file a suit for the recovery of the compensation [Section 168].
Thus, as against the true owner, the finder of goods in a public or quasi public place is only a bailee; he keeps the article
in trust for the real owner.
As against every-one else, the property in the goods vests in the finder on his taking possession of it.
The finder has a right to sell the property:
(a) Where the owner cannot with reasonable diligence be found,
or
(b) When found, he refuses to pay the lawful charges of the finder and
•• If the thing is in danger of perishing or losing greater part of its value, or
•• When the lawful charges of the finder for the preservation of goods and the finding out of the owner amounts
to two-thirds of the value of the thing.
Carrier as Bailee
A common carrier undertakes to carry goods of all persons who are willing to pay his usual or reasonable rates. He
further undertakes to carry them safely, and make good all loses, unless they are caused by act of God or public enemies.
Carriers by land including railways and carriers by inland navigation, are common carriers. Carriers by Sea for hire are
not common carriers and they can limit their liability. Railways in India are now common carriers.
Inn-keepers: The liability of a hotel keeper is governed by Sections 151 and 152 of the Contract Act and is that of an
ordinary bailee with regard to the property of the guests.
[Section 172] Pledge

Pledge or pawn is a contract whereby an article is deposited with a lender of money or promisee as security for the
repayment of a loan or performance of a promise. The bailor or depositor is called the ‘’Pawnor’’ and the bailee or
depositee the “Pawnee”.
Since pledge is a branch of bailment, the pawnee is bound to take reasonable care of the goods pledged with him. Any
kind of goods, valuables, documents or securities may be pledged.
The following are the essential elements of a pledge:
•• The property pledged should be delivered to the pawnee.
•• Delivery should be in pursuance of a contract.
•• Delivery should be for the purpose of security.
•• Delivery should be upon a condition to return.
Rights of the Pawnee

No property in goods pawned passes to the pawnee, but the pawnee gets a “special property to retain possession even
against the true owner until the payment of the debt, interest on the debt, and any other expense incurred in respect
of the possession or for preservation of the goods pledged”. The pawnee must return the goods to the pawnor on the
tender of all that is due to him.
The pawnee cannot confer a good title upon a bona fide purchaser for value.
If the pawnor makes a default in payment of the debt or performance of the promise at the stipulated time, the
pawnee may-
•• File a suit for the recovery of the amount due to him while retaining the goods pledged as collateral security.
•• Sue for the sale of the goods and the realisation of money due to him.
•• Himself sell the goods pawned, after giving reasonable notice to the pawnor, sue for the deficiency, if any, after
the sale.
Note [Section 176] If after sale of the goods, there is surplus, the pawnee must pay it to the pawnor.
Rights of Pawnor
On default by pawnor to repay on the stipulated date, the pawnee may sell the goods after giving reasonable notice
to the pawnor. If the pawnee makes an unauthorised sale without giving notice to the pawnor, the pawnor has the
following rights:
(i) He can file a suit for redemption of goods by depositing the money treating the sale as if it had never taken place;
or
(ii) He can ask for damages on the ground of conversion.
Pledge by Non-owners
Ordinarily, the owner of the goods would pledge them to secure a loan but the law permits under certain circumstances
a pledge by a person who is not the owner but is in possession of the goods.
Thus, a valid pledge may be created by the following non-owners.
•• A mercantile agent: Where a mercantile agent is, with the consent of the owner, in possession of goods or the
documents of title to goods, any pledge made by him, when acting in the ordinary course of business of a mercantile
agent, is as valid as if he were expressly authorised by the owner of the goods to make the same. But the pledge is
valid only if the pawnee acts in good faith and has not at the time of the pledge notice that the pawnor has not the
authority to pledge.
•• Pledge by seller or buyer in possession after sale: A seller, left in possession of goods sold, is no more the owner,
but pledge by him will be valid, provided the pawnee acted in good faith and had no notice of the sale of goods to
the buyer.
•• Pledge where pawnor having limited interest: When the pawnor is not the owner of the goods but has a limited
interest in the goods which he pawns.
•• Pledge by co-owner in possession: One of the several co-owners of goods in possession thereof with the assent
of the other co-owners may create a valid pledge of the goods.
Q
U
I
C
K
R
E
C
A
P
Q Rights and Duties of Bailor

U
I
C
K Rights Duties of Bailor
R
E
C Right to Right to be Bailee has a Right to be Right of
A knows defect paid if right to indemnified for lien [to
P or fault if any consideration reimburseme losses if any retain
nt [repayment goods of
To disclose To indemnify To receive back To indemnify

known Bailee for loss the goods the Bailee
faults in case of
premature
Note: - Bailee can only exercise lien in respect to related goods i.e., particular lien.
Termination of Bailment
On the expiry On the Inconsistent Destruction of the Death of

of the period achievement of use of goods subject matter the bailor
the object or bailee
Note :- Pledge is a kind of bailment whereas bailment isn’t a kind of pledge.

Possession must be
Rightful Not for particular purpose Continuous
Possession must be
By statute By express or By dealing

implied between the
contract parties in a
Types of Lien
[Section 170] [Section 171]
Particular Lien General Lien
Particular lien is available to bailee General lien means right to retain

against only those goods in which goods or property of another until
he has rendered service by all claims of holder are satisfied
involving labour
Q
U Payment Banker retain both until claim
I satisfy
C
K
R
piece of cloth
E given 2 securities
to make coat
C A promise to B (tailor) Mr. X Banker
A deliver the coat
P
Loan against one

Deliver
security
Note: If goods were destroyed or stolen in which there is no fault of bailee, then Bailee is entitled to be paid for
service performed before they were destroyed.
Extinguishment of Lien
Abandonment Payment or tender Loss or surrender of

of the amount due possession of the goods
Right to suit against wrong doer Apportionment of relief
Mr. X Owner of goods
Found
Dog Lost Mr. Y
Mr. Y
Note:- If lawful charges incurred by finder exceed the amount of reward declared by owner then
finder can claim amount of reward only.
To take reasonable care of Not to use Not to mix To trace

goods as a man of goods with his actual
ordinary prudence goods owner
UNIT- XIV: AGENCY

[SECTION 182] DEFINITION OF AGENT
•• An agent is a person who is employed to bring his principal into contractual relations with third-parties.
•• As the definition indicates, an agent is a mere connecting link between the principal and a third-party.
•• During the period that an agent is acting for his principal, he is clothed with the capacity of his principal.
Creation of Agency
A contract of agency may be express or implied, but consideration is not an essential element in this contract (Section 185).
(a) Express Agency: A contract of agency may be made orally or in writing. The usual form of written contract of
agency is the Power of Attorney, which gives him the authority to act on behalf of his principal in accordance with
the terms and conditions therein. In an agency created to transfer immovable property, the power of attorney must
be registered. A power of attorney may be general, giving several powers to the agent, or special, giving authority to
the agent for transacting a single act.
(b) Implied Agency: Implied agency may arise by conduct, situation of parties or necessity of the case.
(i) Agency by Estoppel : Estoppel arises when you are precluded from denying the truth of anything which
you have represented as a fact, although it is not a fact. Thus, where P allows third-parties to believe that
A is acting as his authorised agent, he will be estopped from denying the agency if such third-parties
relying on it make a contract with A even when A had no authority at all.
(ii) Wife as agent: Where a husband and wife are living together, the wife is presumed to have her husbands
authority to pledge his credit for the purchase of necessaries of life suitable to their standard of living.
But the husband will not be liable if he shows that
•• He had expressly warned the trademan not to supply goods on credit to his wife; or
•• He had expressly forbidden the wife to pledge his credit; or
•• His wife was already sufficiently supplied with the articles in question; or
•• She was supplied with a sufficient allowance.
Similarly, where any person is held out by another as his agent, the third-party can hold that person liable for the acts of
the ostensible agent, or the agent by holding out. Partners are each others agents for making contracts in the ordinary
course of the partnership business.
(c) Agency of Necessity : In certain circumstances, a person who has been entrusted with anothers property, may have
to incur unauthorised expenses to protect or preserve it.
Such an agency is called an agency of necessity. For example, A sent a horse by railway and on its arrival at the
destination there was no one to receive it. The railway company, being bound to take reasonable steps to keep the
horse alive, was an agent of necessity of A.
A wife deserted by her husband and thus forced to live separate from him, can pledge her husbands credit to buy
all necessaries of life according to the position of the husband even against his wishes.
(d) Agency by ratification: Where a person having no authority purports to act as agent, or a duly appointed agent
exceeds his authority, the principal is not bound by the contract supposedly based on his behalf. But the principal
may ratify the agents transaction and so accept liability. In this way an agency by ratification arises. This is also
known as ex post facto agency—agency arising after the event.
Ratification is effective only if the following conditions are satisfied:
•• The agent must expressly contract as agent for a principal who is in existence and competent to contract.
•• The principal must be competent to contract not only at the time the agent acted, but also when he ratified
the agents act.
•• The principal at the time of ratification has full knowledge of the material facts and must ratify the whole
contract, within a reasonable time.
•• Ratification cannot be made so as to subject a third-party to damages, or terminate any right or interest
of a third person.
•• Only lawful acts can be ratified.
Classes of Agents
Agents may be special or general or, they may be mercantile agents:
(a) Special Agent: A special agent is one who is appointed to do a specified act, or to perform a specified function.
He has no authority outside this special task. The third-party has no right to assume that the agent has unlimited
authority. Any act of the agent beyond that authority will not bind the principal.
(b) General Agent: A general agent is appointed to do anything within the authority given to him by the principal in
all transactions, or in all transactions relating to a specified trade or matter. The third party may assume that such
an agent has power to do all that is usual for a general agent to do in the business involved. The third party is not
affected by any private restrictions on the agents authority.
Sub-Agent
•• A person who is appointed by the agent and to whom the principal’s work is delegated to known as subagent.
•• Section 191 provides that “a sub-agent is a person employed by, and acting under the control of the original agent
in the business of the agency.” So, the sub-agent is the agent of the original agent.
•• As between themselves, the relation of sub-agent and original agent is that of agent and the principal. A subagent
is bound by all the duties of the original agent.
•• The sub-agent is not directly responsible to the principal except for fraud and wilful wrong.
•• The sub-agent is responsible to the original agent. The original agent is responsible to the principal for the acts of
the sub-agent.
•• As regards third persons, the principal is represented by sub-agent and he is bound and responsible for all the acts
of sub-agent as if he were an agent originally appointed by the principal.
An agent must not delegate his authority to sub-agent. This rule is based on the principle: Delegatus non-protest
delegare—a delegate cannot further delegate [Section 190].
But there are exceptions to this rule and the agent may delegate :
•• Where delegation is allowed by the principal.
•• Where the trade custom or usage sanctions delegation.
•• Where delegation is essential for proper performance.
•• Where an emergency renders it imperative.
•• Where nature of the work is purely ministerial.
•• Where the principal knows that the agent intends to delegate..
Mercantile Agents
[Section 2(9)] of the Sale of Goods Act, 1930, defines a mercantile agent as “a mercantile agent having in the customary
course of business as such agent authority either to sell goods or consign goods for the purposes of sale, or to buy goods,
or to raise money on the security of goods”. This definition covers factors, brokers, auctioneers, commission agents etc.
Factors
A factor is a mercantile agent employed to sell goods which have been placed in his possession or contract to buy goods
for his principal. He is the apparent owner of the goods in his custody and can sell them in his own name and receive
payment for the goods. He has an insurable interest in the goods and also a general lien in respect of any claim he may
have arising out of the agency.
Brokers
A broker is a mercantile agent whose ordinary course of business is to make contracts with other parties for the sale and
purchase of goods and securities of which he is not entrusted with the possession for a commission called brokerage.
He acts in the name of principal. He has no lien over the goods as he is not in possession of them.
Del Credere Agent

A del credere agent is a mercantile agent, who is consideration of an extra remuneration guarantees to his principal that the
purchasers who buy on credit will pay for the goods they take. In the event of a third-party failing to pay, the del credere agent
is bound to pay his principal the sum owned by third-party.
Auctioneers
An auctioneer is an agent who sells goods by auction, i.e., to the highest bidder in public competition. He has no
authority to warrant his principals title to the goods. He is an agent for the seller but after the goods have been knocked
down he is agent for the buyer also for the purpose of evidence that the sale has taken place.
Partners
In a partnership firm, every partner is an agent of the firm and of his co-partners for the purpose of the business of the firm.
Bankers
The relationship between a banker and his customer is primarily that of debtor and creditor. In addition, a banker is an
agent of his customer when he buys or sells securities, collects cheques dividends, bills or promissory notes on behalf
of his customer. He has a general lien on all securities and goods in his possession in respect of the general balance due
to him by the customer.
Duties of the Agent

An agent’s duties towards his principal are as follows (which give corresponding rights to the principal who may sue for
damages in the event of a breach of duty by the agent):
•• An agent must act within the scope of the authority conferred upon him and carry out strictly the instructions of
the principal.
•• In the absence of express instructions, he must follow the custom prevailing in the same kind of business at the
place where the agent conducts the business.
•• He must do the work with reasonable skill and diligence whereby the nature of his profession, the agent purports
to have special skill, he must exercise the skill which is expected from the members of the profession.
•• He must disclose promptly any material information coming to his knowledge which is likely to influence the
principal in the making of the contract.
•• He must not disclose confidential information entrusted to him by his principal.
•• He must not allow his interest to conflict with his duty. Example: He must not compete with his principal.
•• The agent must keep true accounts and must be prepared on reasonable notice to render an account.
•• He must not make any secret profit and he must disclose any extra profit that he may make.
Where an agent is discovered taking secret bribe, etc., the principal is entitled to :
•• Dismiss the agent without notice.
•• Recover the amount of secret profit.
•• Refuse to pay the agent his remuneration.
He may repudiate the contract, if the third-party is involved in secret profit and also recover damages.
Rights of Agents
•• Where the services rendered by the agent are not gratuitous or voluntary, the agent is entitled to receive the
agreed remuneration, or if none was agreed, a reasonable remuneration. The agent becomes entitled to receive
remuneration as soon as he has done what he had undertaken to do.
•• Certain classes of agents, Example: factors who have goods and property of their principal in their possession, have
a lien on the goods or property in respect of their remuneration and expense and liabilities incurred.
•• He has a right to stop the goods in transit where he is an unpaid seller.
•• As the agent represents the principal, the agent has a right to be indemnified by the principal against all charges,
expenses and liabilities properly incurred by him in the course of the agency.
Extent of Agent’s Authority

The extent of the authority of an agent depends upon the terms expressed in his appointment or it may be implied by
the circumstances of the case. The contractual authority is the real authority, but implied authority is to do whatever
is incidental to carry out the real authority. This implied authority is also known as apparent or ostensible authority,
Thus, an agent having an authority to do an act has authority to do everything lawful which is necessary for the purpose
or usually done in the course of conducting business.
An agent has authority to do all such things which may be necessary to protect the principal from loss in an
emergency and which he would do to protect his own property under similar circumstances. Where butter was
becoming useless owing to delay in transit and was therefore sold by the station master for the best price available as it
was not possible to obtain instructions from the principal, the sale was held binding upon the principal.
Responsibilities of Principal to Third-parties

The effect of a contract made by an agent varies according to the circumstances under which the agent contracted.
There are three circumstances in which an agent may contract, namely—
•• The agent acts for a named principal.
•• The agent acts for an undisclosed principal.
•• The agent acts for a concealed principal.
(a) Disclosed principal: Where the agent contracts as agent for a named principal, he generally incurs neither rights
nor liabilities under the contract, and drops out as soon as it is made. The contract is made between the principal
and the third-party and it is between these two that rights and obligations are created. The legal effect is the same
as if the principal had contracted directly with the third-party.
The effect is that the principal is bound by all acts of the agent done within the scope of actual, apparent or
ostensible authority. This ostensible authority of the agent is important, for the acts of a general agent are binding
on the principal if they are within the scope of his apparent authority, although they may be outside the scope
of his actual authority. Therefore, a private or secret limitation or restriction of powers of an agent do not bind
innocent third-party.
(b) Undisclosed principal: Where the agent disclose that he is merely an agent but conceals the identity of his
principal, he is not personally liable, as the drops out in normal way. The principal, on being discovered, will be
responsible for the contract made by the agent.
(c) Concealed principal: Where an agent appears to be contracting on his own behalf, without either contracting
as an agent or disclosing the existence of an agency (i.e., he discloses neither the name of the principal nor his
existence), he becomes personally liable. The third-party may sue either the principal (when discovered) or the
agent or both. If the third-party chooses to sue the principal and not the agent, he must allow the principal the
benefit of all payments made by him to the agent on account of the contract before the agency was disclosed. The
third-party is also entitled to get the benefit of anything he may have paid to the agent.
If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfil
the contract if he can show that, if he had known who was the principal in the contract, or if he had known that the
agent was not the principal, he would not have entered into the contract.
Principal Liable for Agent’s Torts [Section 238]

If an agent commits a tort or other wrong (Example: misrepresentation or fraud) during his agency, whilst acting within
the scope of his actual or apparent authority, the principal is liable. But the agent is also personally liable, and he may
be sued also. The principal is liable even if the tort is committed exclusively for the benefit of the agent and against the
interests of the principal.
Personal Liability of Agent to Third-party
An agent is personally liable in the following cases:
•• Where the agent has agreed to be personally liable to the third-party.
•• Where an agent acts for a principal residing abroad.
•• When the agent signs a negotiable instrument in his own name without making it clear that he is signing it only
as agent.
•• When an agent acts for a principal who cannot be sued ( Example: he is minor), the agent is personally liable.
•• An agent is liable for breach of warranty of authority. Where a person contracts as agent without any authority
there is a breach of warranty of authority. He is liable to the person who has relied on the warranty of authority and
has suffered loss.
•• Where authority is one coupled with interest or where trade, usage or custom makes the agent personally liable,
he will be liable to the third-party.
•• He is also liable for his torts committed in the course of agency.
Meaning of Authority Coupled with Interest [Section 202]

An agency is coupled with an interest when the agent has an interest in the authority granted to him or when the agent
has an interest in the subject matter with which he is authorised to deal. Where the agent was appointed to enable him
to secure some benefit already owed to him by the principal, the agency was coupled with an interest.
The principal laid down in Section 202 applies only if the following conditions are fulfilled:
•• The interest of the agent should exist at the time of creation of agency and should not have arisen after the
creation of agency.
•• Authority given to the agent must be intended for the protection of the interest of the agent.
•• The interest of the agent in the subject matter must be substantial and not ordinary.
•• The interest of the agent should be over and above his remuneration.
Termination of Agency
An agency comes to an end or terminates:
•• By the performance of the contract of agency.
•• By an agreement between the principal and the agent.
•• By expiration of the period fixed for the contract of agency.
•• By the death of the principal or the agency.

•• By the insanity of either the principal or the agent.
•• By the insolvency of the principal, and in some cases that of the agent.
•• Where the principal or agent is an incorporated company, by its dissolution.
•• By the destruction of the subject-matter.
•• By the renunciation of his authority by the agent.
•• By the revocation of authority by the principal.
When Agency is Irrevocable

Revocation of an agency by the principal is not possible in the following cases:
•• Where the authority of agency is one coupled with an interest, even the death or insanity of the principal does not
terminate the authority in this case.
•• When agent has incurred personal liability, the agency becomes irrevocable.
•• When the authority has been partly exercised by the agent, it is irrevocable in particular with regard to obligations
which arise from acts already done.
Appoint
Mr. X Mr. Y
Principal To act on his behalf To represent

Agent
him to 3rd party
Agency
Q
U Essentials Rules
I
C
K Agreement between Whatever a person can do personally, he
Principal & Agent can do through an agent
R
E Intension of the agent to act He is who does an act through other
C on behalf of principal does it by himself
A
P
Agent
Who can employ Who can act
Capable to enter into contract Any person
Needn’t have contractual capacity

Q Creation of Agency
U
I
C
K Express Implied Operation of Law Agency by
Agreement Agreement Ratification
R
E
C Formal deed
A
P Agency by Agency by Agency by
estoppel holding out necessity acted for
X Y
without his consent
Agent exceeding Person Husband

his authority in entrusted and
&
emergency with other’s Wife Subsequent
property
Consent
Requisites of Valid Ratification
Agent must purport Owner found but Within Principal is empowered Must be
to act as agent for refuse to pay lawful reasonable to ratify acts communicated
principal charges time
Principal must be in Ratification must be Whole transn to

existence at time of with full knowledge be ratified
contract
Kinds of Agents
Authority Nature of work
Special Universal
Commercial Non – Commercial
Agent Agent
Or Agent
Mercantile Agent
General Attorney
Agent
Solicitor
Insurance agent
Factor Auctioneer Broker Banker Commission Del credere

Agent Agent
Possession Appointed to Buy Receives Does any act Agent

of goods for sell goods by (+) and
& for his (+)
selling inviting bids Sell Make receivable Guarantor
from public (+) payment called
Pledge Commission
Q
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K
R
E
C
A
P
Q
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K
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A
P
JOINT VENTURE/ FOREIGN COLLABORATION/MULTINATIONAL AGREEMENTS

International business professionals use the term “modes of entry” to describe the different methods and approaches
available to enter markets and conduct business in other countries. One mode of entry is the joint venture where two
or more organizations join together in a cooperative effort to further their business goals. The joint venture is one
of the most common and effective means of conducting business internationally. The joint venture documents and
agreements are critical to the success of the venture. The joint venture agreement forms the basis of the understanding
between and among the parties. It is relied upon to ensure that all parties understand their roles, rights, responsibilities,
and remedies in the conduct of the venture. Organizations enter into joint ventures in good faith but closely scrutinize
the joint venture documents if anything goes awry.
The importance of the documents and the purpose of this part is to cover, step by step, the critical elements to
consider and include in joint venture agreements. Equity participation, for example, may or may not be as important
as operational control. Technical participation in the venture may or may not be as important as the intellectual
property rights that may result from the venture. A key to developing joint venture agreements is to determine goals
and objectives in advance and ensure that the interests are reflected in the agreement.
Selection of a good local partner is the key to the success of any joint venture. Personal interviews with a prospective
joint venture partner should be supplemented with proper due diligence. Once a partner is selected generally the parties
highlighting the basis of the future joint venture agreement sign a memorandum of understanding or a letter of intent.
Before signing the joint venture agreement, the terms should be thoroughly discussed to avoid any misunderstanding
at a later stage.
Negotiations require an understanding of the cultural and legal background of the parties.
It is difficult to prepare a set frame of the terms and conditions. The conditions may differ according to the requirements.
While drafting a foreign collaboration agreement, the following factors should be kept in mind:
•• Capability of the collaborator and the requirements of the party are clearly indicated.
•• Clear definitions of technical terms are given.
•• Specify if the product shall be manufactured/sold on exclusive or non-exclusive basis.
•• Terms and conditions regarding nature of technical know-how, disclosure of drawings, specifications and other
documents, furnishing of technical information in respect of processes with flow charts etc., plant outlay list of
equipment, machinery and tool with specification have to be provided.
•• Provisions for making available the engineers and/or skilled workers of the collaborator on payment of expenses
relating to their stay per diem etc. are given.
•• Details regarding specification and quality of the product to be manufactured are given.
•• Quality control and trademarks to be used are also specified.
•• Responsibility of the collaborator in establishing or maintaining assembly plants should be clearly determined
and provided for.
•• If sub-contracting of the work is involved, clarify if there would be any restrictions.
•• The rate of royalty, mode of calculation and payment etc. Also, make provision as to who will bear the taxes/cess
on such payments.
•• Use of information and industrial property rights should also be provided for in the agreement.
•• A clause on force majeure should be included.
•• A clause that the collaborating company has to train the personnel of Indian company within a specified period
should be incorporated The clause should also specify the terms and conditions of such assistance, place of
training, period of training and fees payable.
•• A comprehensive clause on arbitration containing a clear provision as to the kind of arbitrator and place of
arbitration should be included.
•• There should be provision in the agreement for payment of interest on delayed payments.
E-CONTRACT
Electronic Contracts
Electronic contracts are not paper based but rather in electronic form are born out of the need for speed, convenience
and efficiency. In the electronic age, the whole transaction can be completed in seconds, with both parties simply
affixing their digital signatures to an electronic copy of the contract.
There was initially an apprehension amongst the legislatures to recognize this modern technology, but now
many countries have enacted laws to recognize electronic contracts. The conventional law relating to contracts is not
sufficient to address all the issues that arise in electronic contracts. The Information Technology Act, 2000 solves some
of the peculiar issues that arise in the formation and authentication of electronic contracts As in every other contract,
an electronic contract also requires the following necessary ingredients:
•• An offer needs to be made
•• The offer needs to be accepted
•• There has to be lawful consideration
•• There has to be an intention to create legal relations
•• The parties must be competent to contract
•• There must be free and genuine consent
•• The object of the contract must be lawful
•• There must be certainty and possibility of performance.

Chapter - 7 Indian Contract Act, 1872

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Chapter - 7 Indian Contract Act, 1872

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Unit - I: Nature of contract Unit - XI: Quasi Contract

UNIT - I: NATURE OF CONTRACT

Essential Elements of A valid contract

•• Proposal when accepted, becomes a promise.

Intention to create legal relationship

CASE LAW Balfour Vs Balfour

•• Consideration means price, need not be money.

Agreement not declared void

Necessary legal formalities

Signed by parties in presence of witness

(a) Classification According to Validity

(iii) Void agreement or contract

(v) Unenforceable contract

(B) Classification According to Mode of Formation

(iii) Quasi contract

(C) Classification According to Performance

(ii) Executory Contracts

Valid Void Unenforceable Illegal/ unlawful

Void – abinitio Void Void – able

Validity Formation Performance

Valid Void Unenforceable Illegal/ unlawful

Void – abinitio Void Void – able

Write Short Notes on Following:

(b) Jus in Rem

MEANING OF SPECIAL TERM IN A CONTRACT AND RULES REGARDING IT

Rules Regarding Special Terms in a Contract

CASE LAW Olley Vs Marlborough Court Ltd

UNIT - II: OFFER AND ACCEPTANCE

CASE LAW Harris V/s Nickerson

(iv) Offer must be communicated

CASE LAW Lalman Shukla Vs Gauri Dutt

(v) Offer must be made with the view to obtain assent

ACCEPTANCE AND ITS ELEMENTS

Elements of Acceptance or Rules Regarding Acceptance

CASE LAW Neal Vs M erret

( ii) It must be communicated to the offeror

CASE LAW Felthouse Vs Bindley

(iii) It must be according to prescribed or reasonable mode

COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

3. Revocation of proposals and acceptances

UNIT - III: CONSIDERATION

ESSENTIAL ELEMENTS OF CONSIDERATION

CASE LAW Chinnaya Vs Ramayya

4. Consideration need not be adequate

CASE LAW RamchandraVs Kalu Raju

9. It must not be unlawful Consideration can be

Note: Past consideration is no consideration

Past Present Future

Q PositiveNote: Past consideration is no consideration under English Law.

Indian Law English Law

CASE LAW Dunlop tyre Co. Ltd. Vs Selfridges co. Ltd.

CASE LAW Khwaja Md. Khan Vs Hussaini Begum

2. In case of family settlement or partition of the family property

CASE LAW Shuppu Ammal Vs Subramaniyam

3. Acknowledgement of debt or loan

CONTRACT WITHOUT CONSIDERATION

CASE LAW Vankataswamy Vs Rangaswamy

2. Compensation For Past Voluntary Services [Section 25 (2)]

UNIT - IV: CAPACITY TO CONTRACT

[Section 11] Is Competent to Contract

Rules Regarding Agreement with the Minor and its Position

CASE LAW Mohiri Bibi Vs Dharmodas Ghose

(b) He can be a promisee or beneficiary