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1
LAW OF CONTRACTS 2 '-' ..

LLB (3YDC) I SEMISTER

PAPER I - LAW OF CONTRACTS

CONTENTS
PART - A QUESTIONS

1. What is Contract?

2.. What are the essential elements of a valid contract? ~.

3. Write a short note on Otter. ~.

4. Define Acceptance. V·
5. Define Consideration.
'-'
27.
6. What is free consent?

7. Name the contracts which are forbidden by law.

'rs.
~.
8. Revocation of proposal and acceptance through different modes.
w.
9. Explain the doctrine of Privity of contract.

10.What are the wagering contracts?

11.What are the Conditions for the Enforcement of a Contingent Contract? ,,"_

\.I.
12.Write about Contingent contracts. :n.
13.What are void and voidable contracts?
'-'
34.
14.Liquidated damages. ~.
'-to
IS. Write a short note on Novation.

16.Explain the term Rescission.

17.Uberrimae fidei.
""
'-'
I 8. Reciprocal Promises.

19.Appropriation of payments.
..,
40.
4'(
'"'-'
42.

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•*- 2

PART - B QUESTIONS
LAW OF CONTRACTS

• 20.What are Quasi Contracts?

• 21.Under which circumstances Quasi contracts apply?

• 22.Explain the Principle of Quantum Meriut.

• 23. What are the remedies for the breach of the contract and what are they'?

• Explain.

•
24.What is meant by Duty to mitigate?
25.How a contract is discharged?

• 26.What is meant by Preventive Relief or Injunction? Write about kinds o f

• injunctions.

• 27.What is a Counter offerand a Cross Offer?

• 28.Explain in detail about Executory contract and Executed contracts.

29.Minors are incapable of entering into contract? Explain with case law.

• 30.What are Remote damages? When they can be claimed?

• 31.What is Doctrine of Frustration and conditions necessary for this

H•_
doctrine?
32.What is a standard form of contract?

• 33.What is appropriation of payments? What are its essential elements?

• 34.What is Anticipatory Breach of a contract?

• 35.When an offer is said to be lapsed? Explain.

36. What is a declaratory decree? State the law with regard to declaratory

• decree.

• 37. What is Misrepresentation? Distinguish it from fraud.

38. Discuss the Rule laid down in Hadley and Baxendale.

• 39. All contracts are agreements but all agreements are not contracts.

• Discuss.

• 40. Accord and satisfaction.

• 41. Nudum Pactum.

• 42. Unlawful agreements.

• JB SERIES
3 LAW OF CONTRACTS

Law of Contracts
Part A - Answers
1. What is a contract?

Ans: In simple terms, a contract means when two parties put into writing an
agreement which contains certain obligations (promises) which are to be
performed by such parties. and when sllch written agreement becomes
enforceable by law, it becomes a Contract.
Contract Act defines a Contract as "An agreement which is enforceable
by Law". An Agreement is a settlement between two parties, which contains
obligations or promises which both parties need to fulfill. When sllch an
agreement is made binding by Law it becomes a Contract.
Pollock- "Every agreement and promise enforceable by law is a contract". \.I
Now after examining the definitions of contract we can say that- Ace
Contract = Agreement + Enforceability Mi
Illustration: A contracted with B tor purchase of 10 bags of cement of a certain .,_,.
quality, for Rs 3,000. In this case, B's promise is to provide A with 10 bags of •
cement of that quality only for which A has contracted and A's promise is to
duly pay B Rs.3,OOO.In this case. both have to perform something for the other.
thus it is a case of reciprocal promise.
•
Charity is not a case of reciprocal promise, because a person doing charity, does
not expect anything in return. w.
Contracts in India is primarily governed by INDIAN CONTRACT ACT,
1872 ("Contract Act").!t contains basic elements of a contract and several
general rules which apply to contracts. It does not impose any positive duty on
k a
e

the parties rather, it states various formalities regarding contracts.

2.What are the essential elements of a valid contract?

Essentials of a valid contract I

Ans: Section 10 states conditions which are required for a contract to be valid.

~ Offer: Firstly, there must be an offer from either party, without an Offer a
contract cannot arise.
~ Acceptance of the offer: Secondly, the Offer must be accepted by the
person to whom it was intended or made.
Example: An offer made by A to B has to be accepted by B only.
~ Consensus ad-idem":Consensus ad-idem means meeting of minds. It
means that parties to the contract should accept the terms ofthecontract in
the "same sense". Thus parties to the contract must have the same
understanding of the terms of the contract. •
Example: 1 A contracted with B to purchase rice. Now A wanted a special
type of rice, however, B thought of it to be normal rice. In this case,

JB SERIES .,-,
•• LAW OF CONTRACTS

•
'\CTS

although there is a valid acceptance but there lacks meeting of minds

• between the parties; meeting of minds concerning the type or quality of

nee.

• Example:2 if A contracted with B to buy stocks. What A meant was stocks

•
".t!'f' an
he
in a company, whereas B understood it to he his livestock (farm animals).
In this case, the understanding was not in a similar sense.
~ Competancy:Parties must be competent to contract. They must be legally
capable to contract i.e., the parties must he mentally sound, they must be
~les rna j ors etc.
~ Consideration: For the performance of promises there must be a
cehle consideration. Something to be given in return for performance of
-ntains promise from both parties to the contract.
Lean y Lawful object :The object of the contract must be lawful.

• ~ According to section 10, consideration and object of the contract should

be lawful and is an essential element ora contract.

•
~.in
ags of
Accordingly, Section 23 defines Unlawful consideration and object is one
which is either,
• forbidden by law;
• or is of such a nature, that if permitted. then it would defeat the provisions
~.to oflaw;
other.

•
• or the purpose of the contract is fraudulent:
• or involves or implies giving injury or damage to someone or to someones

•
., does property;
• or the court considers it as immoral or against public policy.
~T, If a contract shows any of these elements then it is unlawful and void U/S 23.
eWral Free consent :According to section 10 of contract act 1872 " agreements are
j~on contracts if they are made by free consent".
Section 14 of the contract 1872 act defined free consent as consent not

• given under coercion, undue influence, fraud, misrepresentation and mistake.

••
alid.
3. Write a short note on Offer.

Ans: An offer is the first thing for the formation of a contract. A person making

•
)ffer a
an offer is called an "offeror"/"proposer" and a person to whom the offer is
made called an "Offeree" / "proposee",
JWhe . According to section2(a) of the Contract act, an offer/proposal is:
.An offer simply means willingness, to do something (a positive act) or to
II. It not do something (a negative act). It must be noted that if an offer is not
made, to get the acceptance of the other party, then it cannot be construed as
r.in an offer under the Contract Act.
same

•
:pecial
• se,
.An offer must be made with the object of getting a favourable response from
the intended acceptor. Thus, there may be 'positive' or 'negative'
acts which the proposer may be willing to do.

• JB SERIES
 5 LAW OF CONTRACTS

Essential elements of an Offer

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unax
• Offer must be communicated to the offeree. Mode of communication could
be any but should be reasonable. An offer must be clear, specific and I~l
capable of being understood. nus-
l~(l
• An offer should be lawful and not to do something illegal.
• Offer can be express or implied. An express otter is one which is made in ~~~(
words, whereas an implied offer is in fcrrcd Irorn the conduct of the offeror.
• An offer can be revoked at any time he lore its acceptance by the intended t\_,
acceptor. Deft
j:\Jf
• An offer must be made with an intention to get acceptance thereto.
Esse
• A promise consists of an offer and an acceptance of that offer. Once these
V.
two conditions are satisfied there is a prom ise and when both parties have to
perform their respective promises.
• Contract act defines an Offerer as "Prom isor" and the person who is
accepting the offer as "Promisee".
Offer and Invitation to offer
There is a difference between an offer and an invitation to offer. An invitation
for others to make an offer is not an offer within the meaning of "Offer" under
the Indian Contract Act 1872.
Sometimes a person may not make an offer t<?sell his goods, but makes
a statement or conducts in such a way, to make other persons make an offer to
him. This is an invitation to offer.
Such situations generally include advertisements, tenders, goods on
display, auction etc. In case of an auction, when the auctioneer starts the bid by
quoting a price, it is basically for others to make him an offer with the amount
in addition to the minimum price, which the auctioneer had announced.
Similarly, when a company floats tender for construction of a building, it
basically is asking others (builders) to make them an offer by quoting the price
of construction.
This is because an offer is an offer to buy and there is no offer to sell.
\.:
6
4. Define Acceptance.
'-'
Ans: The second step in the formation of a contract is the acceptance of the
offer.Acceptance means when the person to whom the offer was made, has
given his assent to such offer- Section 2(b) of Contract Act.
Once the offer is accepted and such acceptance has been communicated,
to the offeror, the parties are bound by their respective promises. Just like an
offer, even an acceptance can be revoked before the communication of
acceptance reaches the offerer.

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• 6 LAW OF CONTRACTS

Performance of an offer, in ignorance of the said offer is not an

•
~
• ld
and
acceptance. Therefore an act done, amounting to acceptance, but acceptor being
unaware of the offer, it is not a valid acceptance .
In the case of La 1man Shukla v GauriDutt (1913) the defendant's boy went

•
~
missing, accordingly, his servant-Plaintiff was sent to search for the boy, in the
meantime a missing poster was released by the defendant. promising to pay a
certain sum. to the person who finds the boy. The servant. unaware of such an
Hlin
offer succeeded to find the boy. Once he knew about such an offer he asked for
the consideration. but the same was denied. The court ruled in favour of the
~!~d

•
Defendant. by holding that Plaintiff was ignorant or an offer and thus the
performance of the promise does not amount 10 acceptance.
Essential elements of an acceptance
.se 1. Acceptance should be absolute and unconditional. and must be made when
lito the offer is subsisting.
2. Acceptance to offer can be expressed or implied i.e. conducting in a
'_is manner which implies acceptance.
Eg: I f a watch is taken by someone to test it. be fore making the final

•:. purchase and the person pledges it, this amounts to an implied
acceptance.
3. Acceptance must be communicated in a reasonable manner, or, if any,

•
akes
r.
must be communicated through a reasonable medium. like telephone,
mail, WhatsApp message, automatic reply to emails. if there are no
exceptions
4. Traditionally acceptance was made through posts or letters. If an
acceptance is intended to be made through a post, it will be deemed
i_on accepted when the letter of acceptance is posted and it is out of the reach
J!y of the acceptor.
m nt However with the advent of instant communication like telephone, offer is

•••
mg, It
:.e
accepted, when the offeror hears the acceptance on his part.
5. Acceptance or communication of acceptance bya third person or a
stranger is not a valid acceptance. If a contract mentions a specific
person to whom acceptance is to be communicated, then acceptance shall
e. be deemed to be valid if it is made to that person only.

•
o~he
6. Acceptance can be either in express words or can be implied i.e. by
conducting in a reasonable manner which signifies acceptance.
Eg. A offered B to sell his watch for Rs.IOOO .and lends it. for his
satisfaction. B, in turn, pledges it or further sells it. The act of B is conduct
e.as amounting to a valid acceptance.
Eg: In a contract of sale, acceptance is when an act by the purchaser does
lAd, an act which is in consistent with the ownership of the seller.

itan
o of

• ~

• "~
~.

1
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7 LAW OF CONTRACTS

5. Define Consideration.
Ans: Consideration means value given for the performance of a promise. It
need not necessarily be money, however, it should be something which has been •
agreed by the parties and has some value.
Usually, a contract without consideration is void, however, exceptions to this
rule are specified in Section 25 of the Contract Act.
Essential elements for valid Consideration
I. It has to be at the desire of the promisor. which means that it should
originate from the promisor out of his own accord and not at the instance
of a third party. •
2. Accordingly, the performance of a legal duty is thus not a consideration.
3. Consideration could be:
• Past Consideration, when the promisor has received consideration M
before the date of the performance of the contract by any party. Eg. whi<
Advance money paid. c~t
• Present Consideration, when consideration is provided immediately vJh
when the contract is made or executed. Thus it is also
called "executed consideration. ,-,i..
,..,

• Future Consideration, when consideration is paid after making of the Ans

contract. In consideration given for 'construction contracts'- ~s
Constructed building is given after the execution of the contract. E.g.
4. It must not be illegal or void or impossible to perform. 1,-"
5. Illusionary Consideration can be tangible or intangible. Consideration is
not void just because it is inadequate, provided it was at the desire of the s'Wi
promisor. d-fe
6. It must be real, not Performance of service like teaching, labour. Jfttl
6. What is free consent? ~(

Ans: According to section 10 of the contract act, a contract is valid if it was \.;1
entered into by free consent of the parties. Section 14 of the contract act defined
free consent as consent not given under coercion, undue influence, fraud,
misrepresentation and mistake.
• Coercion (Section 15)
Section 15 says that acts amounting to coercion must be to the prejudice of
the other. It means that the act of coercion must be harmful to the other
person.
Eg: A husband threatens his wife that he will commit suicide unless she
releases a property. This amounts to coercion to the prejudice of the wife.
• Similarly threatening to divorce and because of this she is made to sign a •
contract also amounts to coercion.

• Undue influence
According to section 16 if consent has been obtained by a person who is in a
dominant position compared to the other person, then it is undue influence.

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•
~_CTS
8 LAW OF CONTRACTS

•
OlTIlSe.It
Example: an employer-employee relationship,
lawyer - Client relationship etc.
Doctor-patient relationship,

1.
• been

this
• Fraud:Fraud includes concealing any fact by the party who is aware of
the existence of such fact.According to Sec 17 Fraud can be committed
either by one contracting party or by the agent of any contracting party.

•
Eg: Making a statement that a product is of good quality, despite knowing
that the product is of substandard quality ..
i~f:0Uld • Misrepresentation: When false statements are innocently made without
I tance the intention to deceive. then it amounts to misrepresentation.

•
.ratron.
• Not qualified to contract: It means a person not permitted to enter into a
contract. Eg alien enemy, convicts of a crime, an insolvent person,unsound

•
ideration
1•. Eg.
person. Minor etc.
Conclusion: These are the most basic and elementary principles of a contract,
which are to be fulfilled. In valid contract, both parties who involve in the
contract are legally bound to fulfill their obligations or promises which are
I.ately within the contract.
i.also
7. Name the contracts which are forbidden by law.
I.the Ans: A contract is forbidden by law if it is either against any law, both
ntracts' - substantive and procedural.
t. E.g. An agreement to sell liquor without a licence, despite the law mandating to
have a licence.
·.nis In a particular case the Plaintiff owner of a bar and having the licence to
sell liquor transferred the management of the bar and liquor sale to the

•
e of the
defendant who had no such licence. The court held that transferring business

•s
and sale of liquor to a person who didn't have the license, was prohibited by law
and thus cannot be enforced.
Section 26 to 30 deals with such contracts. There are those contacts which have
been expressly declared void by the Contract Act.
I.ed
• Agreements restricting a marriage (section 26)

•
.of
There is only one exception to section 26 i.e. an agreement in restraint of
marriage of a minor. This is because marriage with a minor is out rightly
against Public policy and against section 10 of the Contract Act.
~'her • Agreements restricting trade (section 27)
Section 27 says that every agreement by which a person is restrained from
~~she exercising a lawful profession, trade or business of any kind, is to that extent
w e. void.

wna • Agreements in restraint of proceedings (section 28)

According to Section 28(a) a contract prevents a party to initiate a suit

w• na
renee.
against the other party, then that agreement is void. However, an agreement
which provides for arbitration when a dispute arises, then that clause is not
void.

~
• Wi
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 9
LA W OF CONTRACTS

• Wagering agreements section 30: A wagering agreement is one whose

outcome is based on a future uncertain event and upon the happening of that
uncertain event one party will gain and the other party will lose and the loser s
shall pay the winner a sum of money or any other stake is void. '-'e
It must be noted that an insurance contract is not a wagering contract, an
insurance contract falls under Contingent contracts.
.'-', r

,-,t
\

8. Revocation of proposal and acceptance through different modes.

Ans: Revocation means "cancellation" and it is a type 0 f remedy for buyers
when the buyer accepts a nonconforming good from the se ller.
.W'

~s
~

Section 5 of the Indian Contract Act, lays down the rules of revocation of > ]
proposals and acceptances i.e. A proposal may be revoked at any time before '-"t
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.
Eg: Jay proposes, by a letter sent by a post, to sell his house to Veeru and Veeru
accepts the proposal. In this case, Jay may revoke his proposal at any time
before or at the moment when Veeru posts his letter of acceptance, but not
afterwards. And Veeru may revoke his acceptance to any time before or at the t

moment when Veeru posts his letter of acceptance, but not afterwards. '-'(
Modes of Revocation
Section 6 of the Indian Contract Act, 1872 provides various modes of
revocation which are as follows:
• Notice of revocation: In this Case, revocation has to be made before the
acceptance. The communication of revocation to be effective must reach
the offeree before he mails his acceptance and makes it out of his power. A
\.t
revocation is effective only when it is brought to the mind of the person to
whom the offer is made.
9·C
In Ramlalsao Gupta v. .M.E.R. Malak, unfortunately the letter of
revocation was reached at wrong address and earlier it was being sent by fax. A~
The court held that the same to be of no effect. avai
In Alfred Schonlank & Anr. V. MuthunayanaChetti, the defendant PI\J
offered the plaintiff a sale of indigo proposal and also told him that within eight Exs
days he can reply to the proposal. The defendant revoked the offer on the fourth an~
day on the other hand plaintiff on the fifth day accepted the offer. The court
held that in case there is no consideration for the promise to keep offer open for '-'
strar
a certain time then its nothing but a bare promise only and at the same time exl"
these acceptance was of no use in the eyes oflaws. Exc
A~
fol!r
\.,

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•1i- 10 L1\W OF CONTRACTS

~ Lapse of time: Where an offer says that it shall remain open for acceptance
Jose up to a certain date, it has to be accepted within that date. It has been
o hat
w ser
suggested by the Calcutta High Court that in such a case it is enough if the
acceptor has "posted the acceptance before the stipulated time", even if it

• reaches the offerer after the stipulated date.

• Where an offer was to last until the end of March and on 28th March,

•
act, an
telegram for the acceptance of offer was sent by the offeree hut the same
was received by the offerer on 30th March. The court he ld that the

~ers
• acceptance was val id.
• Where no time is specified within which the offer should be accepted it is a
, settled principle that the offer must be accepted within a reasonable time .

ie of .,. By failure to accept condition precedent: Where some preconditions are

there for offer before the acceptance is made, it lapses if acceptance is made
before
without fulfillment of the particular condition precedent. In the case of State
b&ot
of West Bengal v. Mahendra Chandra Das, a salt lake was offered by
-.the way of lease with the condition that on deposit of a sum of money within a
) not

s, specified period but the defendant even after the expiration 0 f the stipulated

~.
t.
t
time didn't deposit the sum of money. The court held that this entailed
cancellation of the allotment.
~ By death or insanity of offerer: With the death of the offeror. an offer will
not be terminated necessarily and the same will open until the offeree
comes to know the death of the offeror.

• Conclusion :Thus, The Indian Contract Act, 1872 not only provide
provisions to enter into the contract but it also provide provisions for the

•
o.the
t reach
termination of a contract which is entered into by the parties. The
provisions and rules of revocation are laid down under section 5 and modes
of revocation in section 6 of this respective Act. Overall revocation means
"taking back" or it is called as a way of termination of an offer.
•. A
rson to

b
•
tt~ of
ax.
ffl
~
""

~
9. Explain the doctrine of Privity of contract

Ans: The law does not allow a stranger to file a suit on the contract. This right is
available only to a person who is a party to the contract and is called Doctrine of
Privity of Contract.
rAant
Example:Peter has borrowed some money from John. Peter owns a property
ight
and decides to sell it to Arjun. Arjun promises to pay John on behalf of Peter.
:'!rth
However, if Arjun fails to pay, then John cannot sue since Arjun is a
e.urt
:\ stranger to the contract. It is important to note that the Doctrine of Privity has
pen for "._

~ exceptions which allow a stranger to enforce a claim as given below.

lame ~
ty
%
e
Exceptions to the Doctrine of Privity of Contract:

•
"::~

i A stranger or a person who is not a party to a contract can sue on a contract in the

• following cases:

•
JaRIES
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f;
h
r
j

~
11 LAW OF CONTRACTS 12

Trust: If a contract is made between the trustee of a trust and another party, then ~
the beneficiary of the trust can sue by enforcing his right under the trust, even ifhe ~'1

is a stranger to the contract. COl

Eg: Arjuns father had an illegitimate son, Ravi. Before he died, he put Arjun in twit
possession of his estate with a condition that Arjun would pay Ravi an amount of pen
Rs 500.000 and transfer half of the estate in Ravi's name, once he hecomes 21 M~
years old.
VI
After attaining that age when Ravi didn't receive the money and ove
asked Arjun about it. he denied giving him his share. Ravi filed a suit for ._",
recovery. The Court held that a trust was formed with Ravi as the beneficiary for a Raj
certain amount and share of the estate. Hence, Ravi had the right to sue upon the VI
contract between Arj un and his father, even though he was not a party to it.
Family Settlement: If a contract is made under a family arrangement to benefit a ~
stranger (person not a party to the contract), then the stranger can sue in his own p'vi
right as a beneficiary of the contract. ~
Example: Peter promised Nancy's father that he would marry Nancy else would ~'
pay Rs. 50,000 as damages. Eventually, he married someone else, thereby
breaching the contract. Nancy filed a case against Peter which was held by the
Court since the contract was a family arrangement with Nancy as the beneficiary. j"11
Example: Ritika was living in a Hindu Undivided Family (HUF). The family had ~,
made a provision tor her marriage. Eventually, the family went through a partition 1()
and Ritika filed a suit to claim her marriage expenses. The Court held the case pTrt
because Ritika was the beneficiary of the provision despite being a stranger to the ~l
contract.
Assignment of a Contract:If a contract is made for the benefit of a person, then f\.,1
Rs.
he can sue upon the contract even though he is not a party to the agreement. It is
important to note here that nominees of a life insurance policy do not have this ~
right. Ess

Acknowledgment or Estoppel: If a contract requires that a party pays a certain 1~

~'~c;
amount to a third-party and he/she acknowledges it, then it becomes a binding
obligation for the party to pay the third-party. The acknowledgment can also be b~i
implied. tv
Exa
Eg :Peter gives Rs. 1,000 to John to pay Arjun. John acknowledges the receipt of
funds to be paid to Arjun. However, he fails to pay him. Arjun can sue John for 2\.,
recovery of the amount. WIll
a'-t
A Covenant Running with the Land : When a person purchases a piece of land
with the notice that the owner of the land will be bound by all duties and liabilities
affecting the land, then he can sue upon a contract between the previous land-
2'-'
that
owner and a settler even if he was not a party to the contract. t~
Example :Peter owned a piece of land which he sold to John under a covenant Ev~
that a certain part of the land will be maintained as a public park. John abided by A'lr
the covenant and eventually sold the land to Arjun. Though Arjun was aware of
~
the covenant, he built a house in the specific plot. When Peter came to know of it,

JB SERIES
 "• 12 LAW OF CONTRACTS

~-
he filed a suit against Arjun. Although Arjun denied liability since he was not a
l~en party to the contract, the Court held him responsible for violating the covenant.

-
nllWhe
Contract through an Agent: Ir a person enters into a contract through an agent,
where the agent acts within the scope of his authority and in the name of the
.jun m
person (principal).
).of
Example :Vidya purchases a property from Krishna. Rajiv is already living in the

•
nes 21
property on a three-year lease. As a part of the purchase agreement, Vidya takes
over the lease. There are some leakages in the house that Krishna promises to fix,
:~nd as a part of the contract. A fe" months go by and the leakages are still not fixed.
lir"'for
Rajiv calls Vidya, the new owner, and she says that it is Krishna's responsibility .
• ra Can Rajiv file a suit for repairs against Krishna?
'On the

•
nefit a
iawn
Since there is no contract between Rajiv and Krishna about repairing
the leakage, ifhe files a suit it will probably be dismissed by the Court. Krishna
had agreed tocarry out the repairs in his purchase.
Raj iv, on the other hand, can sue Vidya for not performing her obligations
according to the lease contract.
·Id
wou
~by

::.,.
by the

ily had
10. What are the wagering contracts?
Ans: Wagering Contract is one in which there are two necessary parties
between which the contract has been made and wherein, the first party promises
to pay a certain sum of money to the second party on the happening of a
u.on
particular event in the future and the second party agrees to pay to the first party
le.as-e
on not happening .
~"'the

•
n, then
1.t is
Example 1: A and B agree with each other that if it rains on Tuesday, A will pay
Rs. 100 to Band ifit does not rain on Tuesday, B will pay A Rs. 100.

•
ve this Essentials of a Wagering agreement:

1. Dependence on Uncertain Event :One of the important essentials of a

c~~in
wagering agreement is that it must depend upon an uncertain event. Event may
).mg
:1_ be be past, present or future, but the parties must be unaware of its future or the
time of its results or the time of its happening.
Example: A football match between team A and team B is to start on 30th June
:.of 2016. C and D enter into an agreement that C will pay Rs 500 to D if team A
ohn for

•
oLJand
l~ties
wins, and if team B wins, D will pay Rs 500 to C. This is a wagering agreement
and is void.

2. Mutual Chance of Gain or Loss:Another element of wagering agreement is

Wnd- that each party to the agreement should stand to win or lose as per the result of
the uncertain event.
).lant Example :A cricket match is to start at Hyderabad between India and South
ided by Africa. If India wins the match,A agrees to pay B Rs .500, whereas if South
Aof Africa wins the match,B agrees to pay Rs. 500 to A. This is a wagering
.fit,

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LAW OF CONTR/\CTS

agreement. In this case, each party has the chances to win or lose. Here the gain 1~
of one party will be the loss of the other and vice versa. ~.
Ans:
3. No Other Interest in the Event: Neither party should have any interest in C\.fl
happening or non-happening of the event other than the sum he will win or lose.
If either party has some other interest other than the sum he will win or lose. it .\.f 1
will not be a wager. r
Example: A, a owner of a house. insures his house against fire with GIC. A has
to pay an Insurance premium or Rs.50 per month as per the terms of contract. If
the house is destroyed by tire. GIC will pay the actual amount of loss suffered
by him. Here A has interest in his house. Further on thehappening of the event
i.e. fire, A will not get anything. Hence it is not a wager.
U1
• 1
4. No Control over the Event: The parties to the contract should not have any \.t
I
control over the happening of the event one way or the other. If one party has
the events in his hands, the transaction will not be a wager. \.t
d
Example:A and B enter into an agreement that if A resigns his job. B will pay
~
him Rs 500 to A and A will pay Rs 500 to B if he does not resign his job.Here J.,
A has the event under his control. Hence it is not a wager. \i
Exceptions: •
The following transactions are not wagers:
l. Contracts ofInsurance are not wagers •
Insurance contracts are contracts of indemnity. They are entered into, to
safeguard the interest of one party to the contract. In this contract, the insured .~

has insurable interest in the property or life Hence, it is not a wager. Wager ~
means a bet. It is a game of chance where the probability of winning or losing is \.If
uncertain. The chance of either winning or losing is wholly dependent on an n
uncertain event.
1.~
Parties involved in a wagering contract mutually agree upon the nature of
the agreement that either one will win. Each party stands equally to win or lose .., t]
the bet. The chance of gain or the risk of loss is not one sided.
The essence of a wagering contract is that neither of the parties should have any \....
interest in the contract other than the sum, which he will win or lose. Parties to a a
wagering contract focus mainly on the profit or loss they earn. \.r
2. (
Example 1: A and B agree with each other that A will pay Rs.I00 to B, if it
~
rains on Tuesday. B will pay A Rs 100 if it will not rain on Tuesday. Such an
agreement is a wagering agreement and hence is void. '"
~
Example 2: There is an agreement between A and B which provides that if
Indian Cricket Team beats Pakistan Cricket Team, A will pay Rs 1,000 and if 3.~
Pakistan Cricket Team beats Indian Cricket Team, B will pay Rs 10. The L-
agreement is a wager agreement. A
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14 LAW OF CONTRACTS

11. What are the Conditions for the Enforcement of a Contingent

tltgain Contract?
Ans: There are certain essential conditions lor the performance of a contingent
elst in contract. These are also different types of contingent contracts .
• se. • The contract is contingent on the happening of an event- The contract is
lose, it

•
'. A has
11a. If
not enforceable if the event does not happen.

• The contract is contingent on the non-happening of an event- In case of

a contingent contract based on the non-occurrence of an uncertain future
uired event, the promisor is liable for his performance if the event does not
~ ent happen. In case the specified event takes place, the contract becomes void.

•
.»any
has
• The contract is contingent on the conduct of a person whose action makes
fulfilling of the condition impossible.
Example: A promises to pay ten thousand rupees to B if he marries C. In
case C marries D, then the event of B marrying C is rendered impossible. A
divorce between C and D or the death of D is possible later and only. in
i'pay such a case, the contract will become valid. Otherwise, the contract
teere becomes void.

• • The contract is contingent on the happening of the event within a fixed

time.

•
It~ to
n red
• The contract is contingent on the non-happening of the event within a
fixed time.

Rules for the Contingent Contract:

In the Indian Contract Act, sections 32 to 36 define some rules for the
.~r
sing IS enforcement of contingent contracts between parties. These rules are
• an mentioned below.

1. Contracts contingent on the occurrence of an event: A contingent

t.of
contract is usually based on the occurrence of some uncertain events. In

•
)r lose
these cases, the promisor is liable to do or not to do something when that
event occurs. However, the law cannot enforce the contract until the
ve J(Ya occurrence of the event. If the occurrence of the event becomes impossible
due to any reason, then the contingent contract becomes void.
2. Contracts contingent when the event does not occur: A contingent
~~fit
contract can also be based on a non-happening event. In this case, the
l.an promisor will do or not do something when the event does not occur.
Contrary to the above rule, the contingent contract becomes void when the
event takes place.
t! if
3. When a living person does something to make the occurrence of the
.if
event impossible

•
I. The
As per section 32 of the Indian Contract Act, if the contract is contingent
depending on the actions of a person, then the occurrence of the event

• ,;
~

~
• I~
JB SERIES

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 15 16 \.f
LAW OF CONTRACTS

becomes impossible when that person does something to make the event c-
impossible to happen. ,-,r
car
4. Contracts Contingent when the event occurs within a Specific Time • \.11
cor
In some contingent contracts. a party promises to do or not do something on
the occurrence of an uncertain event within a specific time period. The
\.-rc
F.x
contract becomes void when the event does not occur or the time period is
over. ","0
~ln
En~(
]2. Write about Contingent contracts. Sec~T
enforce
Ans: Under Section 31 of The Contract Act 1872, contingent contracts are Ru~
defined as follows: "If two or more parties enter into a contract to do or not do the hal
something, if an event which is collateral to the contract does or does not happen, voi~
then it is a contingent contract".
Illusrr
Insurance contracts, indemnity contracts. and guarantee contracts are some pre~~
examples of contingent contracts.
JuliLJ
Example: Peter is a private insurer and enters into a contract with John for fire the CoT
insurance of John's house. According to the terms, Peter agrees to pay John an
Rut..;
amount of Rs 5 lakh if his house is burnt against an annual premium of Rs 5,000. contra,
This is a contingent contract.
suc\..,:
Here, the burning of the house is neither a performance promised as a part happer
of the contract nor a consideration. Peter's obligation arises only when the spe-.,i
collateral event occurs.
Illustr
Essentials of Contingent Contracts
whi'"
• Depends on happening or non-happening of a certain event: The contract contra
is contingent on the happening or the non-happening of a certain. These said imp~~
events can be precedent or subsequent, this will not matter
Rut,.
for example: Peter promises to pay John Rs 5,000 if the Rajdhani Express somet
reaches Delhi on time. This is a contingent event.
34 'C 1

• The event should be collateral to the contract: It is important that the how a
event should not be a part of the contract. It cannot be the performance wh"
promised or a hi for a promise. Illustl
Example: Peter enters into a contract with John and promises to deliver 5 Juli",
television sets to him. John promises to pay him Rs 75,000 upon delivery. impos:
This is normal contract. Ruft.,
Where as Peter enters into a contract with John and promises to deliver 5 Tilll'"
television sets to him if Brazil wins the FIFA. This is a contingent contract do ~
since Peter's obligation arises only when Brazil wins the Cup which is a contJ
collateral event. before
• The event should not be a mere will of the promisor: The event cannot be [ spe'\;
a wish of the promisor. f
" Exam
~ leav\.,r

JB SERIES
 "• 16 LAW OF CONTRACTS

~
For example: Ashok promises to pay Rahul Rs 50,000 ifhe leaves Mumbai
etlivent for Dubai on August 30, 2018. This is a contingent contract. Going to Dubai

1. can be within Raul's will but is not merely his will.

• The event should be uncertain : If the event is sure to happen, then the
contract is due to be performed. This is not a contingent contract. The event
.on should be uncertain.
)d. The Example: Ram promises to pay GopalRs 500 if it rains in Mumbai in the
Ad IS
month of July 2018. This is not a contingent contract because in July rains are

• almost a certainty in Mumbai.

Enforcement of Contingent Contracts

•
i.are
Sections 32 - 36 of the Indian Contract Act, 1872. list certain rules for the
enforcement of a contingent contract.
Rule 1 -Contingent contracts on the happening of an event impossible :If
·,dO the happening of the event becomes impossible, then the contingent contract is
hu' en, void. This rule is specified in Section 32 of the Indian Contract Act, 1872.
Illustration :Peter promises to pay John Rs 50.000 if he can marry Julia, the
~'ll1e prettiest girl in the neighborhood. This is a contingent contract. Unfortunately,

r.
f! tire
an
, 5,000.
Julia dies in a car accident. Since the happening of the event is no longer possible,
the contract is void.
Rule 2 - Contingent contracts on an Event not happening :A contingent

•
contract might be based on the non-happening of an uncertain future event. In
such cases, the promisor is liable to do or not to do something if the event does not
s a part happen. If that event happens, then the contingent contract is void. This rule is
l.the specified in Section 33 of the Indian Contract Act, 1872.

•
;Wact
: saId
Illustration : David promises to pay John Rs 50,000 if the ship named Titanic
which leaves on a dangerous mission does not return. This is a contingent
contract. This contract is enforceable by law if the ship sinks making its return
impossible. On the other hand, if the ship returns, then the contract is void.

•
ress
Rule 3 - Contingent contracts on the conduct of a living person who does
something to make the event or conduct as impossible of happening :Section

•
thithe
'"
~.

"
34 of the Indian Contract Act, 1872 states that if a contract is a contingent upon
how a person will act at a future time, then the event is considered impossible
r· nee

~_r 5
iI when the person does anything which makes it impossible for the event to happen.
Illustration: David promises to pay John Rs 5,000 if he marries Julia. However,
Julia marries Oliver. Julia's act thus renders the event of John marrying her
ellery. impossible.
Rule 4- Contingent contracts on an Event happening within a Specific
~.r 5 Time :There can be a contingent contract wherein a party promises to do or not
.ontract do something if a future uncertain event happens within a fixed time. Such a
c1tis a contract is void if the event does not happen and the time lapses. It is also void if
before the time fixed, the happening of the event becomes impossible. This rule is
tAt be specified in Section 35 of the Indian Contract Act, 1872. .

•
Example: David promises to pay John Rs 5,000 if the ship named Titanic which
leaves on a dangerous mission returns before June 01, 2019. This contract is

•
J.RIES
JB SERIES
 17 1~
LA\N OF COrHRACTS

enforceable by law if the ship returns within the fixed time. On the other hand, if S~i
the ship sinks, then the contract is void. th=«
Rule 5 -Contingent Contract on an Event not happening within a Specific to~()
Time si\_;l1
Contingent contracts might be based on the non-happening of an uncertain future Then
event within a fixed time. In such cases, the promisor is liable to do or not do t~
something if the event does not happen \\ ithin the said time. Also, if it becomes The I
certa in that the event will not happen be lore the time has expired, then it can be th"_'r
enforced by law. This rule is speci fied in Section 35 of the Indian Contract Act influ,
1872.
p~
Example: Peter promises to pay John Rs S.OOO if the ship named Titanic which F~-.f
leaves on a dangerous mission does not return before June 01, 2019. This contract exlre
is enforceable by law if the ship does not return within the fixed time. Also, if the si\_,t
ship sinks or is burnt, the contract is en forced by law since the return is not freel)
possible.
~
Rule 6- Contingent contracts on an Impossible Event :If a contingent 14. L
contract is based on the happening or non-happening of an impossible event, then v
such a contract is void. This rule is specified in Section 36 of the Indian Contract
Act 1872. A\.,
pay tl
Example: David promises to pay Paul Rs 50,000 if the sun rises in the west the
next morning. This contract is void since the happening of the event is impossible. A~
must
thkt
13.What are void and voidable contracts? th~~

Ans: Section 2(g) of the Indian Contract Act, 1872, states that contracts or
al~
agreements that are not enforceable by law are known as void contracts. When
dispn
there is no agreement existed between the parties, no obligations by either of
the parties have to be fulfilled. pr<J.,r,
dan-«
\w
The grounds for a contract to be rendered void
W......,
l.Incompetence :There are many ways in which a contract can become void. If
To~
one party is incompetent, they legally become unable to agree to a contract. This
cri\.,.
can include one of the people entering into a contract while being incapacitated
or unable to make a proper judgement. •
2. Inclusion of an unlawful object or consideration: The contract can also be
considered void if an unlawful object or consideration is involved in the •
agreement.
3. Impossibility of performance : This Occurs when any aspect of the
contract becomes impossible to carry out by one of the parties.
Example: If A enters into a contract with B to smuggle contraband items into a
city, then such agreement will not be enforceable under the law. This is because
the subject matter of the contract is illegal and opposed to public policy.
Voidable contracts:

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1R LAW OF CONTRACTS

Section 2(i) of the Indian Contract Act, 1872 defines voidable agreements as
rtJjnd, if
those which are valid as long as one of the parties or both the parties can decide
to void their agreement. Mostly, cases involving a voidable contract relate to a
"cific situation where there was a lack of free consent from one of the parties.
Therefore, if the party accepts the terms of the contract. it remains valid, and if
l~ture
they don't. then the contract between them ceases to exist.
ir not do
The basis for deciding whether a contract is voidable at the option of either of
~mes
the parties depends on factors such as coercion. misrepresentation, undue
it can be
influence. and so 011. Since it's at the option of one of the parties, the aggrieved
r. Act,
party gets to decide whether or not to make the contract void.
For example: A holds B at gunpoint and asks her to sell him her house at an
i~hich
extremely lo« price, and B does so accordingly, tearing for her life. In this
.. tract
situation, B was coerced into an agreement by A, and thus her consent was not

••
so, if the

I.gent
not
freely obtained. Therefore, she can choose to void the contract on this basis .

14. Liquidated damages.

~then
tract Ans: Liquidated Damages means the amount that a contracting party agrees to
pay the other party for breaching the agreement.
l~the A liquidated damages clause specifies a predetermined amount of money that
).ible. must be paid as damages for failure to perform under a contract. The amount of
the liquidated damages is supposed to be the parties' best estimate at the time

•
tAtts or
they sign the contract of the damages that would be caused by a breach.
While liquidated damages provisions can have advantages, they are not
always enforceable. If the predetermined amount of damages ends up grossly
I
.,hen I disproportionate to the actual harm suffered, courts will refuse to enforce the
~i rcr of Ift provision on the grounds that it is a penalty instead of an estimate of actual

• I
,_
;~
Wt
damages.

•
~
~
t~ When Will a Liquidated Damages Clause be Enforceable?
void. If
l~his I To be enforceable, a liquidated damages clause should meet the following
criteria.
aiated I
If
§
• To be enforceable, the damages should be either uncertain or difficult to
quantify at the time the contract is entered into.

,..
~
jj;

'lobe ~'
• The amount is reasonable and not a penalty. If the amount of the
the It~
l!"

~ liquidated damages is grossly disproportionate to the actual harm

a
II incurred, a court will likely find it is a penalty or punishment and will not
the I enforce the provision.
I
II
~
1S into a I Benefits of a Liquidated Damages Clause
.ause
I • liquidated damages clauses have certain benefits. They are

• • They establish some predictability and can act as a type of insurance

against the cost of a breach.

•
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J8 SERIES
 19
LA W OF CONTRACTS "
20

• Both parties have the advantage of being able to weigh the cost of
performance against the cost of breach. £..AI
• The suffered party never has to prove actual damages, which can be a with
time consuming and difficult task. ~
• This clause gives both parties the opportunity to settle on an amount that
thcy think is fair instead of leaving this decision to the courts.
CO'
com
15. Write a short note on Novation. j~(
Ans: Novation is the act of replacing a legitimate existing contract with a new cr-it
contract. where the transfer i,smutually agreed by both parties concerned. t~(
Novation takes place when either a new contract is substituted for an
existing one between the same parties, or, a contract between two parties is '-'
to th
rescinded in consideration of a new contract being entered into on the same IV
terms between one of the parties and a third party. Novation is of two types. novi
They are: li\.ll
• A novation involving a change of parties
~~~
• A novation involving the substitution of the new contract in the place of old W""1

Conditions for Novation:

'-'
14.1
• Novation can happen only to an already existing contract. Ans:
• Novation can happen only with the consent of the parties. C~l

Change of Parties Section 62 of contract Act 1872. ~

C~l
Illustration: A owes money to B under a contract. It is agreed between A, B
and C, that B shall henceforth accept C as his debtor, instead of A. The old debt c~
of A to B is at the end, and a new debt from C to B has been contracted. If A is victi:
a debtor and the creditor agrees to accept B in his place as the debtor. Now the uJ\.rJ
original contract between the creditor B and debtor A is cancelled. brins
b~
Effect of the Novation: Gt.;
The effect of a novation is extinction of the original contract, and its substitution • l',.

with a new contract, under which the same rights and obligations in future are to \wi
be enjoyed and performed by different parties. And the outgoing party (A) will a
be released from all liabilities under the contract. .'-1'
Substitution of New Agreement
When the parties to a contract agree to substitute a new contract for it, the
original contract is discharged and need not be performed. In other words, it
.T...,
~
1•

means that if the new contract changes the heart of the contract or the root of the •
primary contract only then it will be considered Novation.

-
•
•
~ICTS
20 I ,A\IIJ (IF CONTRACTS

So the question arises what happens if the heart of the contract is not
't. changed but only minor changes are made. Any minor change to the contract
with the consent of both parties is called Material alteration to the contract
.a and it is legally binding on both the parties.
Case law Nagendra Kumar Brijraj Singh v Hindustan Salts Ltd,
).that

• In the above case the defendants advertised that there were vacancies in their

i•_
company at a certain salary. The petitioner got selected for the job. The day he
joined he was offered the job at a lesser pay scale. He consented to this new
new contract which offered him lesser pay than what was advertised. I Ie later sued
the defendants for the advertised pay.
an The court quashed this claim and said that since the plaintiff agreed
d.r
to the new contract which offered lesser pay the contract had been novated and
Pjies is
hence it is valid. Pay scale is the heart of the contract and changes to that
t same
novates ( makes new contract) the contract. Hence defendants were held not
vW ypes. liable.

•
:"old
;
"
"

t.:;

es
~)
In another case ofJuggilalKamlapat v N.V. Internationale, the Calcutta High
Court also held that "For novation to take effect, modification to the contract
must go to the root of the original contract and change its essential character".

• 16. Explain the term Rescission.

• Ans: Rescission is one of the modes of discharging a contract/ terminating a

contract .Rescission is a remedy made available when the underlying basis for

• ~
I~
making a contract is fundamentally tainted. The contract can be rescinded, at
the option of the affected party. The remedy of rescission means that an entire

•
:IA,B
o debt
§
I
~
!t
~i
~
~
contract is set aside.
In contract law, rescission is an equitable remedy which allows a
contractual party to cancel the contract. Parties may rescind if they are the

:.1!A is
ow the
fii'
it
~
victims of a vitiating factor, such as misrepresentation, mistake, duress, or
undue influence. Rescission is the unwinding of a transaction. This is done to
i
• I
~
bring the parties, as far as possible, back to the position in which they were
before they entered into a contract.

•'W tion
Ireare to
Grounds to Rescind
• Misrepresentation: Whether innocent, negligent Rescission for
misrepresentation applies in cases where a party relied on a statement by the
other party to enter the contract, and the statement was not true.
• will
• Law of mistake: when one or both the parties made a relevant mistake of

•
.~~' the
N ds, it
~~
~.
'1')
f"':

~
law for making a contract.
• Bribery and corruption
The outcome of rescission is:
_fthe ~-"
~
• Whatever was done by the parties by making the contract is reversed

I
•
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 ;i
~ \..r
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~

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! '-'
22
LAW OF CONTRACTS

• The parties are put back in the position they would have been in, as if the
contract never even been made. That's the status quo ante
• It's treated as "non-existing".
~~
~
,
\.I]
eacl
~

The Result of Rescission: ~ &..cc

~
When a contract is rescinded, the courts may order For a contract where f'J: ~I
ownership of physical property was transferred from one party to another, to be
returned to the original owner. (:i<
Bars to Rescission
1°
For the remedy of rescission to be available: ~s
• the. contracting party seeking the remedy must not have affirmed the
contract
pers
V
• restitutio in integrum must be substantially possible: both sides of the
transaction must be able to be undone ..
V<
Rec
• a bona fide purchaser for value without notice must not have taken an V1
interest in property which would be affected by the rescission pror
'~
If those bars to rescission have not been satisfied, rescission should be available lVIu
as a remedy for the causes of action to which it applies as a remedy. ilft{t
17. Uberrimae fidei. ~f
u:
~e
Ans: It means "utmost good faith" in Latin. It requires parties to certain tlie
contracts to exercise the highest standard of full disclosure of any relevant
conditions, circumstances or risks to their counter parties. According to this 1\J
principle, the insurance contract must be signed by both parties (i.e. insurer and t\.tl
insured) in an absolute good faith or belief or trust. The person getting insured COil
must willingly disclose and surrender to the insurer his complete true ~]
information regarding the subject matter of insurance. The insurer's liability gets IInp
void (i.e. legally revoked or cancelled) if any facts, about the subject matter of dt.i:
insurance are either omitted, hidden, falsified, distorted or presented in a wrong
manner by the insured. Ii (
~~.

Thus the insured must reveal the exact nature and potential of
the risks that he transfers to the insurer, while at the same time the insurer must UC·
make sure that the potential contract fits the needs of, and benefits, of the (\.;:
insured.
H,er,
The principles underlying this rule were stated by Lord Mansfield in the p~
leading and often quoted case of Carter v Boehm
or w
The principle of Uberrirnaefidei applies to all types of insurance contracts. ,~
LIC v. G.M.Channabsernrna, (AIR 1991 SC 392) - In a landmark decision the
SC has held that the onus of proving that the policy holder has failed to disclose ~~
information on material facts lies on the corporation.
s(,
It is the fundamental principle of insurance law that utmost good
faith must be observed by the contracting parties and good faith forbids either \..;'
party from non-disclosure of the facts which the parties know.
~

JB SERIES
,.
•
r_CTS
22 L!\\AJ OF COI'JTRACTS
~-----------------------------------------------
In contract law, the implied covenant of good faith and fair
:*he dealing is a general presumption that the parties to a contract will deal with

•
each other honestly, fairly, and in good faith so as to not destroy the right of the
other party to receive the benefit of contract.
In Criminal law - Indian Penal Code, "good faith" is defined
~_here under section 52 as Nothing is said to be done or ; believed in good faith which
1Ito be is done or believed without due care and attention.

• 18. Reciprocal Promises.

Ans: Reciprocal Promise is a promise when someone expresses his willingness

t.• to do (or not to do) something, he said to make a proposal. When the other
person (to whom the proposal is made) accepts the proposal. the proposal
becomes a promise. Such promises that form an agreement arc called

-•
l_lable
Reciprocal Promises.
Section 2(f) of the Indian Contract Act, 1982 talks about what are reciprocal
promises. Reciprocal promises are which form a part of the consideration.
Types of Reciprocal Promises
Mutual and independent: It states that the two promises of the parties are
independent of each other and they do not have to rely on each other for

••
certain
performance.
Illustration: There is a contract where A will give chocolates to Band B will
give Pokemon cards to A.A can fulfill his promise even if B does not give him
I the pokemon cards i.e- the absence of Pokernon cards does not make the
.vant performance of his promise impossible.
~ to this The same goes for B. Thus while the acts are binding, they are mutually
a and exclusive and are thus independent of each other.
;,ured Conditional :When the performance is dependent upon the prior performance
e true of the other party. If the first party fails to perform his promise, then it will be
il gets
na ter of
impossible for the second party to perform his side of the contract.
Illustration: if A promises to give money to B, if B promises to buys Maggi

.1
wrong

of
rer must
.fthe
for A. If A defaults, i.e- he fails to pay B, then it will be impossible for B to
hold up his side of the contract as he won't be able to buy the Maggi if A does
not pay him. Thus, this type of contract is considered a conditional contract.

Concurrent
Here, parties promise to do acts that have to be performed simultaneously. A
I_n the party will be exempted from doing their promise if the other party is not ready
or willing to do their promise. Here 'readiness' means financial abilities and
·.s. 'willingness' is perceived through the action of the party.
i.nthe Illustration : P is supplying coats to R. P will only supply the coats if R
dIsclose

•
financially can buy and is willing to buy, and R will only pay ifP is willing to
sell and has the goods ( coats) to sell.
&od ~~
er

• I
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 23 24 \...f
LAW OF CONTHAllS
\.,
19. Appropriation of payments.

Ans: Appropriation means' application' of payments. In case of a creditor and a

'-"
20. "
debtor, Section 59 to 61 lay down certain rules regarding the appropriation of '-'
payments. When a debtor pays an amount to the creditor, the creditor is to take
note of these sections before applying the payment to a particular debt. because
A'C
agreer
the creditor would be inclined to appropriate the payments to the debt which is
not likely to be realized easily. on '-"
om
Essential elements: coV
recozr
• When money is paid. it is applied according to the express will of the payer
and not the rece iver. coIi..tl
• If the party to whom the money is offered does not agree to apply it
ari~d
according to the express will of the party offering it, he must refuse it and
stand upon the rights which the law gives him. Thf C
con~i
• Appropriation is therefore. a primary right of a debtor
pe\_.:l
• Appropriation rules apply only in case of several and distinct debts.
• Appropriation do not apply where there is only one debt, though payable by Exam
installments. bas~t
COP~'ll
• Sections 59 to 61 lay down three rules regarding appropriation of payments
based on English law. Jo~~
Theyare: the~:.1

• Where payment of debt to be discharged is indicated: when a debtor Althoi

owed several debts to one person. (Sec.59): Debtor may express his Qu~-
intentions expressly or impliedly under the circumstances. If there is no
FeM
express intimation by the debtor, but from the circumstances, it is implied
that the debtor intended appropriation to a particular debt, the debtor's
intentions must be followed, if the money is accept
1!w11
~ <;"
• Where payment of debt to be discharged is not indicated: (Sec.60): If a 2~
debtor does not exercise his right, the creditor has the right to appropriate
the payment to any lawful debt though barred by the law of limitation. It is
\..)s
a settled law that a creditor is entitled to adjust the debts from any security Sev
in the creditor's custody. The time barred debt remains a debt even if the Ifape
remedy to recover it is barred. cus~
• Where the debtor does not intimate and the creditor fails to
1. 1
appropriate: (Sec.61):Where neither party makes any appropriation and if 2~'
3. R
the debts are of equal standing, the payment shall be applied in discharge of
each proportionately.
:~r,
Exh\

assU

an<\.;
..
•
iJTRACTS
24
LAW OF CONTRACTS

•
'etor and a
'opriation of
20. What are Quasi Contracts?
Part -B Answers

(.s to take Ans: A quasi contract is a contract that is created by a court order, not by an
ebt. because agreement made by the parties to the contract.
..:_which is There are cases where the law implies a promise and imposes obligations

• on one party while conferring rights to the other even when the basic elements of a
contract are not present. These promises are not legal contracts, but the Court

;,
t_c payer

"tand
recognizes them -as relations resembling a contract and enforces them like a
contract.
These promises/ relations are Quasi contracts. These obligations can also
arise due to different social relationships.
The core principles behind a Quasi Contract are justice, equity and good

ts .•
)table by
conscience. It is based on the maxim: "No man must grow rich out of another
persons'loss."
Example: Peter and Oliver enter a contract under which Peter agrees to deliver a

•
payments
basket of fruits at Oliver's residence and Oliver promises to pay Rs 1,500 after
consuming all the fruits. However, Peter erroneously delivers a basket of fruits at

ator
• John's residence instead of Olivers. When John gets home he assumes that
the fruit basket is a birthday gift and consumes them.

Although there is no contract between Peter and John, the Court treats this as a
Quasi-contract and orders John to either return the basket of fruits or pay Peter.
~'no Features of a Quasi Contract
_lied
tor s

I•.:
1. It is usually a right to money and is generally (not always) to a liquated
sum of money
Ifa 2. The right is not an outcome of an agreement but is imposed by law.
. late 3. The right is not available against everyone in the world but only against a
tl. It is
s curity
specific person(s). Hence it resembles a contractual right.
Section 71 - Responsibility of Finder of Goods
14Jthe If a person finds goods that belong to someone else and takes them into his
custody, then he has to adhere to the following responsibilities:

~Ind
• if
c rge of
1. Take care ofthe goods as a person of regular prudence
2. No right to appropriate the goods
3. Restore the goods to the owner (if found)

•• Example :Peter owns a flower shop. Olivia visits him to buy a bouquet but
forgets her purse in the shop. Unfortunately, there are no documents in the purse
to help ascertain her identity. Peter leaves the purse on the checkout counter
assuming that she would return to take it.

• i
John, an assistant at Peter's shop finds the purse lying on the counter
and puts it in a drawer without informing Peter. He finished his shift and goes

• _aSERIES
~
.~
'f
~

J JB SERIES
-.".
LJ 76 '-'
LAW Of- lUN I KACfS

home. When Olivia returns looking for her purse, Peter can't find it. He is liable .'-t
'" .-.,
for compensation since he did not take care of the purse which any prudent man V'
would have done. tl1
Section 72 - Money paid by Mistake or Under Coercion \..-l(
If a person receives money or goods by mistake or under coercion, then he is • T
liable to repay or return it. .'-N
Example. Peter misunderstands the terms of the lease and pays .ft.;},
municipal tax erroneously. After he realizes his mistake, he approached the • PI
municipal authorities for reimbursement. He is entitled to be reimbursed since V'
he had paid the money by mistake.
Similarly, money paid by coercion which includes oppression, extortion or any
such means, is recoverable.

21. Under which circumstances Quasi contracts apply?

Ans: As per Sections 68 -72 of the Indian Contract Act, 1872there are five
circumstances under which a Quasi contract applies .They are \.1\1
)r S
).- Section 68 - Necessaries Supplied to Persons Incapable of Contracting
V
: If Peter supplies necessaries suited to the condition in life of John re
((lunatic) who is incapable to enter into a contract with the Peter ,then he '-i
(supplier) can get reimbursement from the property of the incapable IT
person. The same thing applies in case of minor also. This is termed as a ....r
Quasi contract and Peter is entitled to reimbursement from John's property

However, to establish his claim, Peter needs to prove two things:

• John is a lunatic.
• The goods supplied were necessary for John at the time they were sold/
supplied. 22.~
).- Section 69 - Payment by an Interested Person: If a person pays the
money on someone else's behalf which the other person is bound by law to
'-'
An1}
pay, then he is entitled to reimbursement by the other person.
one=e
Example: If the owner of land fails to pay tax to government, if the lease
holder pays the tax on behalf of his owner, then the tenant is entitled to
reimbursement by the owner.
~~p
alreu
).- Section 70 - Obligation of Person enjoying the benefits of a Non- When
Gratuitous Act: Imagine a person lawfully doing something or delivering
con\J
something to someone without the intention of doing so gratuitously and the breach
other person enjoying the benefits of the act done or goods delivered. In such ma~
a case, the other person is liable to pay compensation to the former for the to the;
act, or goods received. This compensation can be in money or the other \J
person can, if possible, restore the thing done or delivered. other 1
However, the plaintiff must prove that: whi~
• The act that is done or thing delivered was lawful
• He did not do so gratuitously '-'

JB SERIES
..
•
II CTS
26 LP.'.'VOF CONTRt~.CTS

~liable • The other person enjoyed the benefits

l~man ~ Section 71 - Responsibility of Finder of Goods: If a person finds goods

• that belong to someone else and takes them into his custody, then he has to
adhere to the following responsibilities:
• Take care of the goods as a person of regular prudence
• No right to appropriate the goods
• Restore the goods to the owner (if found)
• Peter owns a flower shop. Olivia visits him to buy a bouquet but forgets her
purse in the shop. Unfortunately, there are no documents in the purse to hclp
ascertain her identity. Peter leaves the purse on the checkout counter
assuming that she would return to take it.

•• • john. an assistant at Peter's shop finds the purse lying on the counter and
puts it in a drawer without informing Peter. He finished his shift and goes
home. When Olivia returns looking for her purse, Peter can't find it. He is
liable for compensation since he did not take care of the purse which any

•
rve
prudent man would have done.
I'" Section 72 - Money paid by Mistake or Under Coercion: Ifa person
lecting receives money or goods by mistake or under coercion, then he is liable to
o~ John repay or return it.
~en he Example: Peter misunderstands the terms of the lease and pays
~pable municipal tax erroneously. After he realizes his mistake, he approached the
l~d as a municipal authorities for reimbursement. He is entitled to be reimbursed
since he had paid the money by mistake.
• Similarly, money paid by coercion which includes oppression, extortion or
any such means, is recoverable .

• sold/
22. Explain the Principle of Quantum Meriut.
As the
biJaw to Ans: It means, payment in proportion to the amount of work done. Normally
one cannot claim performance from another unless one has performed his
tM lease obligation in full. However in some cases, anyone who has performed some
nlWled to
work under a contract can claim remuneration for the work which he has
eN
a on-
already done.
When parties enter into a contract there is a possibility for the breach of the
l.ering
contract and breach of a contract can happen due to many reasons. For any
y and the
fa such
breach of a contract to happen, it is necessary that the remedies should also be
made or should be given by any Court. Out of five remedies which are available
~wor the to the aggrieved party, one is a suit upon quantum meruit.
t_ other Quantum meruit involves cases where someone gets a benefit while the

• other party gets nothing. In contracts, this refers to the benefit or enrichment

•
which one party receives as a result of the other party's actions.

•
eSERIES
JB SERIES
"..., 28 \..t-
LI LAW OF CONTRACTS

In other words, it means that the other party who has received the services
. ~(

-11
is unjustly benefited and must return it to the party who provided such benefit.
For example, 'S' is the daughter and 'M' is the father. They entered into an · 'tfn
agreement where 'M' asked'S' to provide medical care for him while he was \..'1
4. SUI
sick. In return, 'M' agreed not to write a will and agreed to give his estate to'S'
~I
after he dies with an intent to give her a fair portion for the services rendered.
pel
However. 'M' soon died, leaving all of the estates for his brother and nothing
~
for ·S'. Here 'M' was unjustly enriched as he received the services but in return
.S' received nothing. 24.\.11'1
In this example, 'S' seeks to recover a portion of "M's" estate by
claiming the remedy of quantum meruit. This principle is based upon the idea
that recovery should be granted to one party where they have not received the a t<r+ c
value tor the services they rendered or when another party was unfairly and oftfre' !
unjustly enriched.
Conclusion :After a proper analysis of the remedy of quantum meruit, it is clear Egv
that the law requires it to be fair and reasonable. The theory supports equality of after 0
ten~
the parties and helps to ensure that if a person provides a service or a good, then
he should receive the benefit of the contract and in corollary, if that person HV
receives nothing, then that person can avail the remedy by filing a suit to find
upon quantum meruit. si~
eleven
23. What are the remedies for the breach of the contract? And what are ExJwi,
they? Explain.
we\.)
Ans: The Indian Contract Act lays out all the provisions for the performance of a owner
contract. It also contains the provisions in case of breach of contract by either ow\."
party. to the
anov
Remedies for Breach of Contract IS com
When a promise or agreement is broken by any of the parties it is called breach of
WhYn
contract. So when either of the parties does not fulfill their obligation as per the
terms of the contract, it is a breach of contract. ~t
damag
There are a few remedies for breach of contract available to the suffered party.
becV
They are
losses.
~ Recession of Contract: When one of the parties to a contract does not fulfill
his obligations, then the other party can rescind the contract and refuse the '-'
performance of his obligations. 25· V
• As per section 65 of the Indian Contract Act, the party that rescinds the
contract must restore any benefits he got under the said agreement. And An~
contra,
section 75 states that the party that rescinds the contract is entitled to receive
damages and/or compensation for such a recession. way\.i
~ Sue for Damages :Section 73 clearly states that the party who has suffered,
since the other party has broken promises, can claim compensation for loss or
• Di:
...,
the
damages caused to them in the normal course of business.
~
There are two types of damages according to the Contracts Act 1872.

JB SERI
 •
)•r ACTS
28 L/\W OF CONTR!\CTS

• Liquidated Damages: Sometimes the parties to a contract will fix the

lwervlces
amount payable in case of a breach. This is known as liquidated damages.
l'!!l!nefit.
• Unliquidated Damages: Here the amount payable due to the breach of
~into an
contract is assessed by the courts or any appropriate authorities.
iTrhe was
4. Sue for Specific Performance: If any of the parties fails to perform the
~. to'S'
contract. the court may order them to do so. This is a decree of specific
; rendered.
performance and is granted instead of damages.
1aothing
l~ return
24. What is meant by Duty to mitigate?
. '.tate by
)~he idea Ans: Mitigation in law is the principle that a party who has suffered loss from
·wed the
! rly and
a tort or breach of contract has to take reasonable action to minimize the amount
of the loss suffered.

•
1

Eg: A tenant who signs an agreement to rent a house for a year, but moves out
, it is clear
after only one month and stops paying rent. The landlord may be able to sue the
.lityof
tenant for breach of contract:
~d, then
h.person However. the landlord must mitigate damages by making a reasonable attempt
l~ a suit to find a replacement tenant for the remaining year. The landlord may not
simply let the house lie empty for eleven months and then sue the tenant for
eleven months' rent
.at are Example: A builder is contracted to complete a job for Rsl,OO,OOOover a 4

t.•
mance ofa
either ~
I
week period (at Rs25,000 per week) by a home owner. After 2 weeks, the home
owner decides to cancel the builder's contract for no valid reason. The builder is
owed Rs 50, OOO.underthe contract. The builder has a right under the contract

•
jteach of ~
Ii

~
to the balance amount Rs50,000. However, the builder has a duty to try to find
another paid job during that two weeks. This is reasonable. The duty to mitigate
is common sense. If you suffer losses, you do what you ever can to minimise it.
When does the duty tomigate arise?
.per the .~
It arises , only if you claim damages from another. If you are claiming
'"

I
~.t
damages, you do not need to show that you mitigated your losses. It only
tel party.
0'
becomes an issue if the party you are suing claims you did not mitigate your
losses. They may do this to limit the amount of damages they owe you.
fulfill ~

•
refuse the :r
25. How a contract is discharged?
!~nds the
~t. And Ans: The discharge of a contract happens when the obligations created by a
llreceive contract on one party or all parties involved come to an end. There are many
ways in which a contract is discharged.
leuffered, • Discharge by Performance: When the parties to a contract fulfill the
for loss or obligations arising under the contract within the time and manner prescribed,

• then the contract is to be discharged by performance.

•
'2.

JB SERIES
.JBSERIES
 29 30 \.of
LA W OF CONTRACTS

Example: David agrees to sell his cycle to John for an amount ofRs 10,000
to be paid by John on the delivery of the cycle. As soon as it is delivered, John
pays the promised amount.
• Since both the parties to the contract fulfill their obligation arising under the V
contract, then it is discharged by performance. Now, discharge by the h
performance of a contract can be by: \.;ti
•I
• Actual performance: As shown in the example above. actual performance is
when all the parties to a contract do what they had agreed for under the '-'d
contract. p
•
Attempted performance: On the other hand. it is possible that when the
brSf
promisor attempts to perform his promise. the promisee refuses to accept it. In V
C
such cases, it is called attempted performance or tender.
• Bilateral Discharge: The contract will be mutually discharged where the v
o
parties agree to release one another from any further obligations existing
from the original contract. The contract is discharged despite the parties
'-t
failing to fully or partially discharge all their obligations. InPu
~p
• Accord and Satisfaction: Accord and satisfaction occurs where one party
accords the release of another party, who is in breach of the original
agreement, from its obligations in return for the satisfaction for the
performance of another obligation. vp
• Unilateral Discharge: Unilateral Discharge Occurs where one party has
Di,,:
completed its part of the bargain and agrees to release the other party from AproJ
its outstanding obligations under the contract. The agreement is only
or~
binding if supported by consideration or made under seal.
Eg: J
• Discharge by the Impossibility of Performance: (Doctrine of frustration) mo~
: If it is impossible for any of the parties to the contract to perform their of'tbe
obligations, then the impossibility of performance leads to a discharge of the .'-1
contract. If the impossibility exists from the start, then it is impossibility
ab-initio. However, the impossibility might also arise later due to: Vp
• An unforeseen change in the subject matter.
• Destruction of the subject is essential to the performance. ~i
Eg:
• The non-existence or non-occurrence of a particular state of things which
V
was considered a given for the performance of the contract h
• A declaration of war
\.t.
Eg: Paul enters into a contract with John to marry his sister Lucy within one •I
year. However, Paul meets with an accident and becomes insane. The ~
impossibility of performance leads to a discharge of the contract.
• Discharge of a Contract by Lapse of Time: The Limitation Act, 1963
prescribes a specified period. If the promisor fails to perform and the
'-i
promisee fails to take action within this specified period, then the
latter(promise) cannot seek remedy through law. It discharges the contract
due to the lapse of time.
 ..
•
1jACTS
30 LAW OF CONTRACTS

Example: John takes a loan from Peter and agrees to pay installments every
~10,000
month for the next five years. However, he does not pay even a single
eM{J,John

•
~.
ider the
installment. Peter calls him a few times but then gets busy and takes no
action. Three years later, he approaches the court to help him recover
his money. However, the court rejects his suit since he has crossed the time-
limit of three years to recover his debts.
• Discharge of a Contract by Operation of Law: A contract can be
r"nce is
discharged by operation of law which includes insolvencv or death of the
hit promisor.
Discharge by Breach of Contract: If a party to a contract I~lilsto perform his
.n the
obligation according to the time and place specified. then he is said to have
:cept it. In

•
vhere the
; .isting
committed a breach of contract.
• Also, if a party repudiates a contract before the agreed time of performance
of a contract, then he is said to have committed an anticipatory breach of
contract.
Iljarties In the below both cases, the breach discharges the contract:
1. Actual breach: In the case of an actual breach. the promisee retains his
).party right of action for damages
original
2. Anticipatory breach: An anticipatory breach of contract the promisee
• the cannot file a suit for damages. It also discharges the promisor from
performing his part of the contract
,_ has
Discharge of a Contract by Remission
l~from A promisee can waive or remit the performance of promise of a contract, wholly
• only
~!. or in part. He can also extend the time agreed for the perfonnance of the same .

>. I
sltion)
Eg: John owes to Peter 20,000 rupees. Peter repays only (15000) a part of the
money he owes to John. However, John agrees to accept it as a final settlement
their fJ of the debt. John's act of remission discharges the contract.
ge of the I
• Discharge by Non-Provisioning of Facilities: In many contracts, the
tA
L-WJ ~
t.i
i} promisee agrees to offer reasonable facilities to the promisor for the

• I performance of the contract. If the promisee fails to do so, then the promisor
is discharged of all liabilities arising due to non-performance of the contract.

.
IAhich

it" one ~
!
~
"-~
~
Eg: Jacob agrees to fix John's garage floor provided he keeps his car out for at
least 6 hours. Jacob approaches him a few times but John is reluctant to get
his car out. John fails to provide reasonable facilities to Peter (an empty
floor). This discharges him of all obligations arising under the contract.
• Discharge of a Contract due to the Merger of Rights: In some situations,
ne. The I it is possible that inferior and superior right coincides in the same person. In
such cases, both the rights combine leading to a discharge of the contract
ct,
• 1963 ~ m
governing the inferior rights.
• the ~& Eg: Rihcards rents John's apartment for two years. After one year of the
~

liU::~I contract, he offers to buy the property from John, who agrees. They enter
into a sale contract and Richards becomes the owner of the apartment. Here

• Peter has two rights;

• JB SERIES
 31 32
'-'
LAW OF CONTRACTS
\.,
Osne accorded by the lease agreement making him the renter and second by the • 1
sale agreement making him the owner. \.ts
The former being an inferior right merges with the superior one and • T
discharges the lease contract. \.tt.
~t
Novation: Another way to discharge a contract is novation. which simply tt
means substituting the old contract for a new one with different
terms. Novation would be used if a new party takes over the responsibilities of '-' .
mind,
an original party to the contract. un~tl
landrn:
!;j \.;
26. What is meant by Preventive Relief or Injunction? Write about kinds of W This c
injunctions.
ThM
Ans: Definition: An injunction is a legal remedy imposed by the court where
go'( :r
whiCh
one party is refrained from doing something or directed to do a particular thing,
as the case may be. The court's decision is binding and non-compliance can "A\.,Jt,
result in heavy penalties or imprisonment in certain cases.
Requirements of the injunction.
\.,
Injunctions are granted when one party seeks an injunction and convinces the •1
court that not granting it will cause irreparable damage. It is a valid principle in ~
most jurisdictions. Irreparable damage means that the damage caused cannot be vI
compensated by money or any other type of payment. v
The party must prove that there is no other remedy available and if the
court balances the interests of both parties then the interests lean toward the ')
party seeking an injunction. -."
Types of Injunctions The cr
The Specific Relief Act, 1963 section 37 provides two kinds of Injunctions: act~
1. Perpetual Inunction ofwa;
2. Temporary Injunction unt~
The section reads as: 27.~1
• "Temporary injunctions are such as to continue until a specified time, or
until further order of the court and they may be granted at any stage of a An~
suit, and are regulated by the Code of Civil Procedure, 1'908. theM
• A perpetual injunctions can only be granted by the decree made at the giv~
hearing and upon the merits of the suit, the defendant is thereby mat
perpetually enjoined from the assertion of a right, or from the commission
of an act which would be contrary to the rights of the plaintiff'.
Temporary Injunctions features: neg~
• These are also known as Preliminary Injunctions,
• These are invoked as a provisional remedy to prevent any damage to the
UnYe
subject matter. W~
may!
• The main purpose of it is to prevent the delusion of the rights of the parties
and to provide immediate reliefwhen needed.
ma~

-
...._-------------------
•
•
lj"RACTS
32 LA\v or CONTRACTS

• They are non- conclusive and do not decide the merits of the case or any
:::_d by the
issues involved.
and • They are used as a tool to prevent any threatened harm or irreparable
.me
damage till the suit is decided and the parties seek a final remedy.

•
ich simply
.ifferent
• It is for a period specified by the court and the decision of the court as to
the motion of injunction is discretional and not automatic.
The discretion must be exercised, keeping the facts of the case in
mind, towards the temporary injunction which helps maintain the status quo
silities of
until the trial is final. This discretionary power has been exercised in many

•
landmark cases like Siegel vs. Lepore.

•
ut kinds of This category will cover the following cases:
There are no provisions specifically laid down in the Specific Relief Act but it is
governed by the Rule 1 & 2 of Order XXXIX, Civil Procedural Code. 1908,
>_where which reads as follows:
• thing,
ce can "A temporary injunction may be granted in the following cases:

•
nethe ~
~
~~
"
~.

p
~,
\~
1. For the protection of interest in the property
• That property in dispute is in danger of being wasted or alienated by any
party to the suit or wrongfully sold in execution of a decree; or
'inciple in
anot be • That the defendant threatens to remove or dispose of his property with a
view to defraud his creditors; and
:'
lAthe :t • That the defendant threatens to dispossess the plaintiff or otherwise cause
Ii;:

v_the 1*.
g injury to the plaintiff in relation to any property in dispute in the suit.

•• I
The court may by the order grant an interlocutory injunction to restrain such
unchons: action or make such order for the purpose of staying and preventing the damage

• ~
of wasting, alienation, sale or disposition of the property as the court thinks fit
until the disposal of the suit.

• J
i 27.Wbat is a Counter offerand a Cross Offer?

I
tIe, or
1 ofa Ans:A counteroffer is a response given to an initial offer. A counteroffer means
the original offer was rejected and replaced with another one. The counteroffer
~he I gives the original offeror three options: accept the counteroffer, reject it, or

•
nmission
make another offer.

• We may find these counter offers in real estate deals, employment

negotiations, and car sales.

•
I_to the
~
fj
e
~
t~
Understanding Counteroffers
When two parties get together to negotiate a transaction or business deal, one
I
~
may put an offer on the table. A counteroffer is a reply to that original offer and
:ttparties
may change the terms of the deal, including the price. The price may be greater

•
·JBSERIES
JB SERIES
 LA W m CUN I HACTS 34
~~
or less than what was originally quoted depending on who makes it. So if the for Rs.
person receiving the original offer doesn't accept or reject it, they may decide to kno\.tr
renegotiate with a counterofTer.
other r

are~.
Eg;Ms. X decides to put her house on the market for Rs30,000. Mr. Y views it
and makes an offer of Rs25,000 instead. Ms. X decides to make a counteroffer 28.~
ofRs28,000 instead, thus putting the onus on Mr. Y to accept reject or counter
that offer and continue negotiations again. Ans~
areW
There is no limit to the number of times each party can counter during have c
negotiations. When countering back. and forth, each offer should present a price conv
less than the previous offer. This conveys to the seller that the buyer is nearing such cc
the final offer.
'-'H
A counteroffer is generally conditional. When the seller receives a low inv<u
offer, the seller can counter with a price that is deemed reasonable. The buyer .•.
can either accept that offer or counter again. The seller can counter the offer. Exav
The person receiving the counteroffer does not have to accept it. debate.
sig~
Eg: A sel1er wants to sell a vehicle for Rs. 20,000. A buyer arrives and offers purcha
Rs 15,000 for the vehicle. The offerer provides a counteroffer. asking for con~
Rs 16,000 with the objective of obtaining a higher price. If the offeree declines, some r
the offerer cannot force the buyer to purchase the vehicle at Rs 15,000, even
though the buyer suggested that price. .
Kinds
.'tt'"
Cross Offer:
~
• C
Where two persons make identical offers to each other, and both such persons
do not know about each other's offer, then such offers are known as cross-offer.
The essentials of a cross offer are as follows: "
,,'-'
E
• Same offer to one another: The first pre-requisite of a cross offer is that ~
two or more persons should make similar offers with the same details. F
• Without knowledge: Such identical offers must be made in ignorance of \.t
the offer made by the other party. A

• The terms and conditions: The terms and the object of the offers must be \r
the same. A set of offers would be considered to be cross offers only when
\.I
the terms and conditions as well as the object of the offers are the same. If Execu
not, then such offers cannot be called a cross offer but a counter offer. Wht'\_,
notaUl
A cross offer does not mean acceptance of the offer. No binding contract is His '-'
created.
•

Illustration: A from Delhi by a letter offers to sell his house to B of Bombay • rl

for Rs. 10 lakh. At the same time, B also makes an offer to A to buy A's house \.;

JB SERIES V
 ..
•
JiiRACTS _! 4
~3~ ---------------------- LA':'; or CONTRACTS
~

t)., eOciidfethtoe
,I"~
.....,..""." for Rs. 10 lakh. Both the parties made an exact offer to each other without
~ ," knowing about the offer being made by the other. The two letters cross each
other. There is no concluded contract between A and B because both the parties
• are made a cross offer.
.iews it
28.Explain in detail about Executory contract and Executed contracts.
ounteroffer
.ounter

111 ·
during]
•
:e. a p~lce
!Ii
Ans: An executory contract is a contract made by two parties in which the terms
are set to be fulfilled at a later date. The contract stipulates that both sides still
~ have duties to perform before it becomes fully executed. In an executory
contract, the consideration is either the promise of performance or art obligation. In
I
such contracts, the consideration can only be performed sometime in the future.
"wearing:
Before signing, or "executing" a contract, it is very important for all parties
involved to read and understand all of the terms contained within.
• a low
~i\!rs It
• buyer] Example: John has been looking at a TV he wants to purchase. After some
the
•
r offer. ~ debate, he finally decides to go lease it instead. John enters the electronics store.
signs a lease agreement that states the he will pay RsIOOO per month until the
purchase price has been paid in full. Until John makes the final payment, the
• offers contract has not been fulfilled. There are many types of executory contracts,
asking for some more complex than others.
e4lclines,
Kinds of executory contracts:
':' evenl " Rental lease: Tenant is required to pay the landlord rent; landlord required
to provide living space. "
" Car lease: Consumer makes lease payments to the dealership; the
c~ersons dealership provides the car in return. Etc.
:r.-offer.
" Breaching an Executory Contract
Either ( any of the two parties) party to a contract can breach that contract

:.s.
.•
er IS that by failing to fulfill their duties as outlined in the agreement.
For example, if Jim enters into an executory contract to lease a car, then
fails to make the required monthly payments, he has breached the contract.

•
irance of
As a result, the dealer may repossess the car, and sue Jim in civil court for
uncollected payments.
's~ust be
)~when
~Ine.If
) r.
Executory Contracts in Bankruptcy:
When an individual who is party to an executory contract files bankruptcy, he is
not automatically relieved from his performance under the terms of the contract.
atis His options include

•
).ombay
A's house
• confirming in writing that he intends to continue to fulfill the terms of the
contract, or
• rejecting the contract within the bankruptcy.

• JB SERIES
 -----;\.--

35

---LA W OF CONTRACTS 36
~\."
Eg: If Jim wants to keep his leased car, he can reaffirm the lease, keep the car,
Exceot
and continue making the lease payments as agreed. Ifhe wants to be relieved
For"'(
from the burden oflease payments, Jim can return the car to the dealer and put
exce'vi
the contract into the bankruptcy.
Executed contracts. .~
Definition: An executed contract is an agreement or Contract between two or '--'tilt
more parties that has been signed and is binding to all parties involved. It is a
fully implemented contracLAlso. the term applies to a contract that has been V
completely fulfilled and it has come to a conclusion. • A
\"".o(l

In most executed contracts the promises are made and then immediately Tn
completed. The buying ofgoods and/or services usually falls under this category. ~I

There is no confusion about the date of execution of the contract since in most till

cases it is instantaneous. The buying of goods and/or services Usually falls under
this category.
'n11
1
'-'
en
Eg : Lucy goes to the local coffee shop and buys a cup of coffee. Peter sells her
the coffee in exchange for the cash payment. So it can be said that this is an
30. ~h
executed contract. Both parties have done their part of what the Contract stipulates.
\".;f
Ans: [
29. Minors are incapable of entering into contract? Explain with case law. reasu
ordinar
rem...."
Ans: The terms "minor" and "infant" are used in law to describe a person who
is under the legal' age of an adult.An "adult" is a person who is 18 Rerr\..r:
older. A contract with minor stands null and void since either party can not a natur
impose it. And even after the person attains majority, the and~
same agreement cannot be ratified by him ..
Case law: TheU
MohiriBibi v. DharmodasGhosh The pr
The case goes back to the year 1903 in which, for the first time, the land\."i1
Council held that a minor's contract is void-ab-initio i.e it is void from party ii
beginning. wer~
Facts of the case - The plaintiff DharmodasGhosh, When he was a minor, the usi
cons~
mortgaged his property to the defendant, a moneYlender. At that ti
result r-
defendant's attorney had the knowledge about plaintiff's age. The plaintiff 1
paid only Rs 8000 but refused to pay rest of the money. The plaintiffs This~
was his next friend (legal guardian) at that time, so he commenced an ackn[ ~
against the defendant saying that at the time of making of a Contract, he was the oM:
minor, so the contract being a void one, he is not bound by the same. \""
• The court held that unless the parties have competence under Section 11
the Act, no agreement is a contract.
• The court also held that The doctrine of estoppel does not apply to the c
in which the person knows the real facts, before hand and here the nTTr'Tlir
of the defendant knew that the plaintiff is a minor.
•
•
'j"RACTS I 36
LAW OF CONTRACTS

~e car,
~t!reved
i Exception to general rule
~ For providing protection to a minor, his agreement is void. But there are certain
end put ~,:;exceptions as well.
• When minor has performed his obligation: In a contract, a minor can be

•
1 two or
.isa
a promisee but not a promisor. So if the minor has performed his part of
the promise, but the other party hasn't the minor being in the position of a
promisee he can enforce the contract.
• A contract entered into by guardian of minor for his benefit: In that

•
IS been
case, a minor can sue the other party when it does not perform its promise.
In the case of Great American Insurance v. MadanLal[l] the guardian on
the behalfofher son entered into an insurance contract in respect of fire for
the minor's property. When the property was damaged and minor asked for
the compensation, the insurer denied it by saying that a contract with a
minor is a void one. But later the court held that this contract was
enforceable, and he is liable to pay compensation.

30. What are Remote damages? When they can be claimed?

Ans: Definition: Any damage occurring from a defendant's act that cannot
reasonably be anticipated by the defendant, or that is not the natural and
ordinary result of such act. A defendant will typically not be held liable for
remote damages to a plaintiff's person or property.
'e,aon who Remote damages are damages from an injury not occurring directly from and as
I ~ 18 or a natural result of the wrong complained of. They are damages of an unusual
twan not and speculative nature.
,rliy, the

• The General Principle

The principle governing the remoteness of damages was elaborated in the

•the Privy,
i.m the
landmark case of Hadley v. Baxendale. The rules stated in this case were that a
party injured by a breach of contract could recover only those damages which
were either to be considered "reasonably as arising naturally, i.e., according to
the usual course of things" from the breach, or could reasonably have been
)~ minor, considered by both parties at the time they entered into the contract as the likely
tiit time, result of the breach.
tmriff later This is the basis for understanding special damages. In this case, the Court
:P'-'mother ~ acknowledged that the defendant's failure to send the crankshaft for repair was
1-- an action iI the only cause for the plaintiffs' mill to stop, resulting in loss of profits.
:,. was a;
i
::.n 11 eni
i
t_he case i
Iwttorney"

•
.JBSERIES
JB SERIES
 J"' '-'
iii
:ft

37 ~
,~
L;\\\' cr CCNTRACTS 38

31. What is Doctrine of Frustration and conditions necessary for this

32. ~j
1-
I
doctrine ?
Ans\Jl I
negotia
Ans: Section 56 deals with the doctrine of frustration as being acts which ~ refe~
cannot be performed. ~
leave it
The conditions necessary for the application of Sec.56 beha~(
• There exist a valid and subsisting contract between the parties:- who~l
Existence of a valid contract is the foremost condition for the application ,.; not neg
of Section 56. (
~,
• There must be some part of the contract which is yet to be performed:- efficien
Only if there is some part of the contract \\ hich is yet to be performed and havt\.tl
without performing it the ultimate purpose of the contract is not fulfilled. negotia
• The contract after it is entered into becomes impossible of serv~
performance:- The contract after it has been entered into must become
impossible to perform and cannot be performed and therefore contract
stands void.
ordi\.j
Generally, frustration of contract can be in the following cases consun
I. Death or incapacity of a party:- Where a party to the contract has died cOIl\.lJ
after entering into contract or the party is incapable of performing the even if
contract, in such a situation the contract will be void (Robinson vs. in tl'-'1
Davison).
away fi
2. Frustration by virtue of legislation:- Where, a law promulgated after the '-'
contract is made, makes the performance of the agreement impossible and wher-
thereby the agreement becomes void ( Rozan Mian v Tahera Begum). term~(
3. Frustration due to change of circumstances:- This particular situation pncl.)
deals with those cases where there was no physical impossibility visibTe,
performance of the contract, but because of the change in circumst ..u"",,,,..,,
~
the main purpose for which the contract was entered has been defeated.
Types of impossibility:
Initial impossibility: Initial impossibility deals with those cases where
contract was impossible to perform from the very beginning.
For example If a married man knowing that he cannot marry again promises
do so, then he is bound to compensate the other party.
Subsequent impossibility:- It deals with cases where the contract was poss
to perform when it was entered but because of some event, the performance wil
become impossible or unlawful and therefore it discharges the party
performing it.
For example, If A purchased Tickets from B for watching a cricket match
he pays 50% as an advance. If the match is cancelled then A cannot
from B as the cancellation of match was beyond the control of A.
Limitation: This doctrine will also not be applicable in cases where there was
mere delay in performance and contract can still be performed.
Conclusion: This doctrine is treated as an exception to the general rule
provides for compensation in case of breach of contract.
 •
•
•
jNTRAl IS 38 LAW OF CONTRACTS

.".or this, 32. What is a standard form of contract?

Ans: Standard Form Contracts are agreements that employ standardized, non-
negotiated provisions, usually in preprinted forms. These are sometimes
Is which referred to as "boilerplate contracts," "contracts of adhes ion," or "take it or

•
.rties:-
leave it" contracts. The terms, often portrayed in tine print, are drafted by or on
behalf of one party to the transaction - the party with superior bargaining power
who routinely engages in such transactions. With lew exceptions, the terms are
Plcation not negotiable
<-
by the consumer.
Standard form, business-to-consumer contracts fulfill an important
'(wmed:- g, efficiency role in the mass distribution of goods and services. These contracts
r!red and i
have the potential to reduce transaction costs by eliminating the need to
''4II ed. '" negotiate the many details of a contract for each instance a product is sold or a
service is used. However, these contracts also have the ability to trick or abuse
c.e consumers because of the unequal bargaining power between the parties.

•
ract For example, where a standard form contract is entered into between an
ordinary consumer and the salesperson of a multinational corporation, the
consumer typically is in no position to negotiate the standard terms; indeed, the
• died ] company's representative often does not have the authority to alter the terms,
~g the l even if either side to the transaction were capable of understanding all the terms
n~n vs. in the fine print. These contracts are typically drafted by corporate lawyers far
away from where the underlying consumer and vendor transaction takes place.
~rthe The danger of accepting. unfair or unconscionable terms is greatest
i_and where these artful drafters of such contracts present consumers with attractive
n). terms on the visible or "shopped" terms of most interest to consumers, such as
seation price and quality, but then slip one-sided terms benefiting the sel1er into the less
Jility of visible, fine print clauses least likely to be read or understood by consumers.
l&ces,
In many cases, the consumer may not even see these contracts until the
ltili' transaction has occurred. In some cases, the seller knows and takes advantage
of the knowledge that consumers will not read or make decisions on these unfair

.s
111

J.ible
the

to
terms.
The following are some potential solutions or partial solutions to standard
contracts.

nee will • Contracts should be transparent and accessible. This means, that standard
)erom form contracts must be disclosed prior to the consumer transaction;
• Disclosures should be clear and simple, not pages upon pages of illegible
t.and and incomprehensible fine print; they must be easy to read and understand;
• The public and private sectors should test these disclosures in real life
situations to make sure consumers can understand the terms in a timely
manner before the point of sale;
• : Consumers need to pay attention to the contents of contracts, to prevent
against fraud and deception, and to demand accessible, fair contracts;

• JB SERIES
 LA W OF CONTRACTS _I _40
__ ~

• : Regulators responsible for regulating industries require copies of thei • ~~

contracts to be submitted to the government agencies and be easily if
obtainable from government databases, if not from the industries ~ the
themselves. \i'.
Mf
• : Regulators must do more to remove unfair and deceptive practices in : t
~
business-to-consumer standard form contracts. : rerr
• : Certain provisions should be banned from contracts or not enforced by • \J}I
the courts. including the seller's unilateral modification of terms. etc apr
• : The private and public sectors need to teach consumers how to ~
understand the importance of fair contract terms, . dis:
• : The media needs to report about businesses that are doing the right thing
\.,
34. Wh:
by consumers by making their contracts accessible and fair;
Ans:V\.
• Finally, Courts should consider changing the presumption of enforceability
perform,
of harmful terms not knowingly agreed to but buried in the fine print in
standard form contracts. unwi~:
contract.
\..;
33. What is appropriation of payments? What are its essential elements? The proi
• \.II
Ans: Appropriation means 'application' of payments. In case ofa creditor and • Imj
debtor, Section 59 to 61 lay down certain rules regarding the appropriation 0 Exa...,1
payments. When a debtor pays an amount to the creditor, the creditor is to take contract,
note of these sections before applying the payment to a particular debt, Rs 5~(
the creditor would be inclined to appropriate the payments to the debt which antict~t
not likely to be realized easily . WhelP" ,
.Essential elements:
• When money is paid, it is applied according to the express will of the
and not the receiver.
• If the party to whom the money is offered does not agree to apply
according to the express will of the party offering it, he must refuse it
stand upon the rights which the law gives him. per
\.;1
• Appropriation is therefore, a primary right of a debtor
• Ch
• . Appropriation rules apply only in case of several and distinct debts. . ~,
• Appropriation do not apply where there is only one debt, though pay
by installments.
• Sections 59 to 61 lay down three rules regarding appropriation
payments based on English law laid down. They are :
• Where payment of debt to be discharged is indicated: when a deb
owed several debts to one person. (Sec.59): Debtor may express
intentions expressly or impliedly under the circumstances. If there is
express intimation by the debtor, but from the circumstances, it is imp
that the debtor intended appropriation to a particular debt, the de
intentions must be followed, if the money is accept
 •
•
)IRACTS _'; 40
..-::::._------------- LAW Cif CCiI-..J
j KAll~ _

)1 ~~sti~~i'
• .Where payment of debt to be discharged is not indicated: (Sec.60) :If
a debtor does not exercise his right, the creditor has the right to appropriate
~ustries the payment to any lawful debt though barred by the law of limitation. It is
a settled law that a creditor is entitled to adjust the debts from any security
in the creditor's custody. The time barred debt remains a debt even if the
remedy to recover it is barred.
l_ced by • Where the debtor does not intimate and the creditor fails to
appropriate: (Sec.61) :Where neither party makes any appropriation and
if the debts are of equal standing, the payment shall be applied in
:~ow to

• discharge 0 f each proportionately.

•
right thing 34. What is Anticipatory Breach of a contract?
Ans: An anticipatory breach is a breach of contract before the time of
)~a.bili~y performance. So, if a promisor denies to perform his promise and signifies his
l~nnt In unwillingness before the time for performance, then it is an anticipatory breach of

• contract.

I..0
The promisor can convey his unwillingness either by:
rl.ts? • Expressing it in words (spoken or written)
• Implying it by his conduct
and a
Example: Peter enters into a contract with John on June 01, 2018. As per the
iriation of
contract, Peter agrees to sell his guitar to John on June 10. 2018, for an amount of
take
Rs 5,000. However, he sells this guitar to Oliver on June 07, 2018. Hence, it is an
t, because anticipatory breach of contract due to Peter's conduct.
t&ich is
When a promisor refuses to perform his promise leading to an anticipatory

•
_payer
breach of contract, the promisee is excused from further performance of his
obligations. Also, he can either:
• Treat the contract as cancelled and file a suit against the other party for
damages arising from the breach.
'.ply it • This suit can be filed immediately without waiting until the date of
rse it and

•,- performance specified in the contract.

OR
• Choose not to cancel the contract performance.
• However, he will need to keep the contract alive for the benefit of
l.yable all parties involved.

ie:m of 35. When an offer is said to be Lapsed? Explain.

Ans: An offer made subject to a specified time limit lapses after that time has
.ebtor passed; all other offers lapse after a reasonable time. Death of the offeree causes
press his an offer to lapse, but death of the offeree does not always do so..... An offer
_is no lapses if one or more conditions are not fulfilled.
:;.plied
~btor's An offer lapses under the following circumstances :

• • An offer lapses by the death or insanity of the offeror or the offeree

• JB SERIES
 41 42
LAW OF CONTRACTS
\"
• Before acceptance: If the offeror dies 37. WI
• If the offeree becomes insane before acceptance, ~p
• The offer lapses provided that the fact of his death or insanity comes to the anot\_.;
knowledge of the acceptor before acceptance
with the
Where time is prescribed
fact ...,.
Where in a contract, a fixed time has been prescribed to the offeree to to a cor
communicate the acceptance, the offeree is bound to accept the offer within the
Typh'.
fixed time so prescribed because after the expiry of the fixed time the offer
lapses. 1. FV
Where no time is prescribed is mad(
intel\.,J
In the contracts where no time is specified within which the offer should be
belief il
accepted it is a settled principle that the offer must be accepted within a
reasonable time. 2 .~,
contr=c
beli~1
By failure to accept a condition precedent
3.ID\.,jf
Where the offer is subject to conditions precedent that is some preconditions fault ca
have to be complied with before the acceptance is made. If the acceptance is Fra~
made without fulfilment of the condition precedent then the offer lapses then another
and there. ConWt
1, ,
36. What is a declaratory decree? State the law with regard to '-'j
declaratory decree.
\;
(
ADS. A declaratory decree is a decree that declares the rights of the plaintiff.
DiftV
This is a binding statement, according to which the court declares certain
existing rights in favour of the plaintiff. The declarative decree only exists when 1.
the plaintiff is deprived of the rights he / she is entitled to. Here, the plaintiff '-'
obtains special relief from the defendant who rejected the plaintiff s rights.
~
According to Section 34 of the Special Relief Act of 1963, anyone who is
entitled to any legal nature or any property right may bring a law suit against ~
anyone who refuses or intentionally denies that he has such nature or right, and
\..f
the court may make a declaration in his discretion that he is so entitled. 4.
The stipulations of the declarative decree would only allow the plaintiff \w
to survive and be strengthened even under adverse attacks so that the attack on
the plaintiff could not weaken his case. In the case of Naganna v. Sivanappat'I V
through arguments, it encourages the plaintiff to come forward and enjoy their
\.I
rights. If any defendant refuses to provide the plaintiff with any rights that the
plaintiff should have, it gives them the power to sue and obtain special relief. 38. C
Ans
cont~
put,
Iwr

J8 SERI
 •
• -~
i
i)
~4~L -------------------- L_A_\\_'O_r_c_O_r_JT_R_A_CT_5___

I~ 37.
•
What is Misrepresentation? Distinguish it from fraud.

Any representation by words or other means made by one person to

.s to the another that, under the circumstances amounts to assertion not in accordance

•
with the facts is called misrepresentation. It is an untrue statement of a material
fact made by one party which effects the other party's decision in corresponding
qiferee to to a contract.
. ~thin the Types of Misrepresentation
e,e offer 1 . Fraudulent misrepresentation: It will happen when a false representation
is made and the party making the representation knew it was false or rmade
intentionally as to whether it was correct or incorrect - the lack 0 f an accurate
!ould 'be belief in its truth "viii present it a fraudulent misrepresentation.
jeithin a 2 . Negligent misrepresentation: It means a declaration made by one

• contracting party to another negligently or without reasonable grounds for

believing its truth.

•
:c~ditio~s
;.ance IS
3.Innocent misrepresentation: Misrepresentation made completely without
fault can be described as an innocent misrepresentation.
Fraud: A deceptive act done intentionally by one party in order to influence
aites then another party to enter into a contract is known as fraud. Section 17 of Indian
Contract act provides two essentials to prove that an act is fraud.

•
regard to
1. A person should make a false statement having the knowledge that the
facts are false.

• 2. The second condition is that there should be a wrongful intention to

deceive the other party.

x.
;!.aintiff.
'es certain
when
.~intiff
Differences between Fraud and Misrepresentation
1. Fraud is an intentional misrepresentation made in order to deceive
someone, misrepresentation on the other hand is an innocent statement
made without any intention to deceive.
2. Intention differentiates the two; it is an important element as fraud is
).who is intentional while Misrepresentation is not.
uit against 3. The aggrieved party inn fraud has a right to sue but it is not so in
l~t, and misrepresentation.
4. The party who made a fraudulent statement cannot take the defence that

'-1' ur
e p amn
• ckon
ranappalli.
the other party had means to discover the , in cases of misrepresentation
this defence can be taken .
5. Fraud is defined in Section 17 and misrepresentation is defined in
Section 18 of the Indian Contract Act, 1872.
:rttY their
t~hat the
38. Discuss the Rule laid down in Hadley and Baxendale.
fIIl!!Ifief

• Ans. Theoretically, there may be endless consequences of a breach of

contract and the Defendant cannot be held liable for all of it. Hence, a limit is

• put on the liability beyond which the damage is said to be too remote and,

• SERIES
JB SERIES
 LAW OF CONTRACTS
\.f
therefore, irrecoverable. The classic contract-law case of Hadley v. Element
Baxendale draws the principle that consequential damages can be recovered
l~r
only if, at the time the contract was made, the breaching party had reason to
foresee that, consequential damages would be the probable result of breach. 2"\Jr
3. C
This formulation diverges from both the general principle of expectation
damages in contract law and the principle of proximate cause outside the law of 4~'
contract.
All~l
The facts of the case are as follows: The Plaintiff was the owner of a steam-
All (\.,.1
driven mill which had a broken crankshaft. They had to send the broken part always
from Gloucester. in the west of England, to Greenwich, near London, whereir
Wit~t
would be used as a model in the manufacture of a replacement part. It was are Azn
important to have the part transported quickly, as the Plaintiff did not have a
All~
spare, and was losing profits while the engine was out of order. Pickfords, the Only th(
shipping firm, was late in the delivery of the part, and the Plaintiff sued for the no l~l
lost profits caused by the delay.
hencc.il
Issues When)
The main issue in the case was: Whether or not the loss of profits resultant An \-lIl
from the mill's closure was too remote for the claimant to be able to claim? conditic
Summary of court decision and judgment Acc~
The Trial Court left the case generally to the jury, which awarded the Plaint" is ma-le
damages of £25 above and beyond £25 that Pickford had already paid ' cont~1
court, The Exchequer Chamber reversed, but not on the theory of remoteness.
On the facts, the Court found that losses of this kind did not arise according
~j:~
the usual course of things, and the plaintiffs had failed to disclose their p All \.,;'
loss of profits at the time of making the contract. Only damage that could cornpet
foreseen (or contemplated as some judges continue to insist) at the time of ... r rv ..,...
rj are tv
into the contract, is recoverable in damages. The court concluded that An agl
Plaintiff had failed to satisfy either test of reasonably arising natural damages sati~
reasonable contemplation. The two branches of the court's holding have ('{)nn~'Il • 1
to be known as the first and second rules of Hadley v. Baxendale. ~

39. All contracts are agreements but all agreements are not
'-1
Discuss.

Ans. A contract is an agreement in writing between two or more persons •

~
their reciprocal rights and duties regarding past or future performances

Agreement: An agreement is defined as "every promise and set of promises l

forming the consideration for each other is an agreement" in section 2(e) of •

~
Indian contract Act, 1872. When a proposal is made by one party and same
accepted by another party it becomes a promise and when this promise is .
some consideration by aby of the parties is an agreement.
1jACTS -r, _:::44.:_:__------ LA_W_O_F_C_O_N_T_R_A_CT_S_

a.:v
'iIl£ v.~ i Elements of a agreement are:-
recovered: 1. Presence of parties
.on to' 2. Promise
If breach. 3. Consideration
:retation' 4. Consensus parties

•
he law of
All Contracts are Agreements

All Contracts are agreements as lor the formation of a contract an agreement is

)~n pa~ti always necessary. There cannot be a contract where there is no agreement.
.ere "l Without an agreement a contract cannot be formed. Therefore, All Contracts
t~t was;.,.'.'are Agreements.
It..rave a: All Agreements are not Contracts
oJlk;, the] Only those agreements become contract which gives rise to a legal obligation. If
dTor the] no legal duty is enforceable by an agreement, it can never be a contract. And
i hence agreement is a broader term than Contract.

,. I
• II When Agreement becomes Contract

rAltant An agreement is regarded as a contract when it is enforceable by law. The

conditions of enforceability are stated in S. 10 of the Indian contract act 1872.
According to section I0, an agreement becomes a contract when the agreement
F8ntiff is made for some consideration between the parties which are competent to
a~ into contract and are entering into Contract with their free consent and has a lawful
o.ess. objective.
r~g to What Agreements are Contracts?
lo"ntial All agreements are contracts if they are made by the free consent of parties
oat be competent to contract, for a lawful consideration and with a lawful object, and
or~ntry are not expressly declared to be void.
• the An agreement becomes a contract when the following conditions are
rages or'
.. satisfied:-
.me • There is some consideration for it. (S. 2( d) and S. 25) An agreement

•
without consideration is void and it cannot form a valid Contract as a
void agreement is not enforceable by law
For example, If A promises to give to B Rupees 10,000 without any
consideration, it will be a void agreement.

• The parties are competent to contract. (S. 11 and S. 12) : Every person
;;Iout
is competent to contract who has attained the age of majority, is of sound

"
~es,
Of the
mind and is not disqualified by any law from contracting.

• Their consent is free. (S. 13-22) : The parties should enter into a contract
by their free consent. There should not be any coercion, undue influence
_is
, misrepresentation, fraud and mistake.
is with

"..
JB SERIES
 45 LAW OF (UN I KALI ~

• Their object is lawful. (S. 23-30) The object and consideration need to '-'A
be lawful. Every agreement of which object or consideration is unlawful agrVll
is a void agreement that th
For example, A, Rand C enter into an agreement for division among lea~)
them of the gains acquired by them by fraud will form a void agreement
as the object is unlawful. FlI~l'

40. Accord and satisfaction.

V
Ans. The Doctrine of Accord and Satisfaction means discharge of one's cnorm
contractual obligations by way of performing substituted obligations. It is a eaC\J)
mode of one's discharge from his /her contractual obligations wherein parties to Anson
a contract perform a new set of obligations in substitution of older contractual cle~t
terms. In the Boghara Polyfab Case the Supreme Court of India has explained wither
the Doctrine as follows:
per~
"While discharge of contract by pel/orl71ance refers to fulfilment of the
contract by performance 0/011 the obligations in terms of/he original contract,
UnC
•
discharge by "accord and satisfaction" refers to the contract being discharged
by reason of performance of certain substituted obligations. The agreement by
which the original obligation is discharged is the accord, and the discharge of
•
the substituted obligation is the satisfaction. '.'A contract can be discharged by
the same process which created it, that is, by mutual agreement. ,.
In the aforesaid matter, the Supreme Court has further explained that as the
42.'d.
discharge of contract is also done by mutual consent, such discharge can happen A"l}
pertor
either by performing modified obligations or by entering into a whole new
contract in substitution of the original contract. Essentially, the discharge of eyv
There
one's contractual obligations by way of performing the original terms of the
unlV'
contract is substituted by either a whole new contract or a new set of obligations
within the same contract. agreei
In~
Applicability of the Doctrine: The Privy Council has applied the said Doctrine
mmor
in a matter where one party had accepted the receipt of payment made in lieu of y
a settlement by the other party. The Supreme Court has also relied on the said
judgment while adjudicating ~mthe Boghara Polyfab Case. tht,
•
41. Nudum Pactum.
ADs. The term 'Nudum Pactum' has been derived from Latin term which means
a naked agreement. As per law, a contract is only enforceable when there is
consideration which is t the basic requirement of a valid contract. If there is no
consideration that is a nudum pactum, and hence such a contract is neither
enforceable nor valid .
. Example: Joe and Ann agree that Joe will sell his truck to him in three
months. However, during those three months, he decides not to sell his truck
after all and withdraws from the promise. Legally, there has been no breach of .
contract as no consideration was made.
 • r
• I 46
I AW OF CONTRACTS

I
-_TS
A nudum pactum might be made verbally or in writing. Since these
dto
!
in wful I~ agreements are unenforceable, they may not be pursued in court. This indicates
that these agreements do not come under the categories of agreements that can
• ,
I
~~
t
lead to legal action.
The contract, on the other hand, is regarded as legitimate if it is sealed.
Furthermore, some contracts, such as bills of exchange, sealed documents, and

• promissory notes, bear consideration as a result of their forms. Even if there is

no formal consideration inside them, thev_, are regarded as ~genuine.

•
---
No nudum pactum is enforced under English law. Every day. an
tt
~.
enormous number of agreements are formed. and it would be absurd to treat
)~~leIS !
each one as a legally enforceable contract.
IS a
aws to
Itractual
I
~
it,
Anson states that when one understands the history of assumption it would be
clear that even in ancient days there was speculation that an agreement which is
(.ined without any consideration is legally binding and can parties be bound to
perform such agreements.

• the
onlracl,
c.rged
Under English law contracts can be formed in two ways namely,
• contract with consideration : Contract with consideration is an agreement
that satisfies all the six essentials of a valid contract
'11/
'1
by
ge of
• contract by a seaL : Contract with consideration is an agreement that
satisfies all the six essentials of a valid contract

1.
".d by

).new
the
happen
42. Unlawful agreements.
Ans. unlawful agreements are those which are not enforceable by the law i.e
performance of the agreement can be done but there is no legal recourse in the
eye of law.
large of There are some basic elements which makes the contract illegal or
;.' the unlawfuL Indian Contract Act 1872 deals with the conditions when the
i,ions agreement becomes void.
Incompetency - When the parties entering into a contract are incompetent i.e.
)Irine minor, Act 1982, a person of unsound mind.etc.
1 u of Illegal intention - If the subject matter of the contract is not authorized by
t.said the provisions of law. Then the contract is considered to be 'illegal'.
• When the terms and conditions of the contract are mistaken by either

1.ans
• of the party - When the terms and conditions of the contract have not
been understood by the party or are vague in nature.
• Mistake and Fraud -When the terms of the contract are misrepresented
*re is by either of the party or influence a person to enter into a contract
• s no fraudulently then the contract considered to be illegaL
iiither • Forbidden by law - If an agreement is such a nature, that it would defeat
the provisions oflaw the contract is considered to be "void".
l.hree • Injury to a person or a property - when the contract is of a nature that
is truck it would cause injury to a person or a property then the contract is
·eh of considered to be "void".

•
.IERIES
JB SERIES
 r
~
Ii
~~ "
47
LAW OF CONTRACTS
~
ft
e
48
"'-'
• Opposed to public policy -when the agreement
policy then the contract is considered to be "void".
IS opposed to public I
t.
4J
Examples of illegal contracts 1. A I
Here, are some examples of illegal contracts
• Contracts for the sale, or distribution of illegal substances i.e. drugs.
"':
• Contracts of activities which are considered illegal by the law.etc
C'
...,
Ans F

Conclusion: If the terms of the Contract are illegal or opposed to the public •

·
policy then the contract is considered to be "null" in the eyes of Jaw and it
cannot be enforceable in the court.
-
1ssM

•
1I..e
V

'-'
'-'
U
W
Issues
Wa~
Does tl
Jud~

~~~~

~~~~
Atk·
rela~
was",

Judl!.l
promis
hus~
RefC

W
W

'"
"
"I
.- LAW OF CO['HR,t'lCTS
.AfjS _I 48

wliel Part- C Answers

;•;.
1. A husband promised to wife that he would give Rs 3000 every month
to her for running the family, however, he committed a breach of that

..
promise. Can the wife sue her husband for breach of contract?

Ans: Facts in the case:

• A husband promised to give Rs 3000 every month for running the

Ii.
j n
I family.

• II
• He committed a breach of that promise,
Issues of the case:

••
,
• Can the wife sue her husband for breach of the contract.
• Principle: This case similar to a famous case Balfour Vs Balfour
The Plaintiff and the Defendant were a married couple. The Defendant

•
husband and the Plaintiff wife lived in Ceylon where the Defendant
worked. In 1915, while the Defendant was on leave, the couple returned

• to England. When it was time to return to Ceylon, the Plaintiff was

advised not to return because of her health. Prior to the Defendant

• returning, he promised to send the Plaintiff £30 per month as support.

The parties' relationship deteriorated and the parties began living apart.

• The Plaintiff brings suit to enforce the Defendant's promise to pay her
£30 per month. The lower court found the parties' agreement

•.. constituted a contract

Issues in the case:
Was Mr. Balfour offer intended to be legally binding?

•
Does the husband's promise to pay £30 per month constitute a valid contract?
Judgment in Balfour v Balfour 1919: The court said that it is essential that

• both the parties should intend that an agreement be legally bounding so to

become an enforceable. Also the court will not interfere between the spouses in

•• their day to day affairs. The agreement was purely social and domestic nature
and therefore it was presumed that the parties did not intend to be legally bound.
Atkin held that the law of contract was not made for personal family
relationships. As there was no intend to be legally bound when the agreement

• was agreed upon, there can be no legally binding contract.

• Judgement: Based on the above judgement in the given case also her husband's

•
promise also was not intended to be legally binding. So his wife cannot sue her
husband for breach of contract as there is no valid contract at all.

• Refer: Another case law: Smith Vs Huges.

••
• J8 SERIES
 49
LAW OF CONTRACTS

2. A agrees to pay B a sum of money if B marries C , C married D. what is

the remedy available to B ?
Ans: Facts of the case:
• A agrees to pay B a sum of money if B marries C. '-'I
• B married D. can rp~c
• What is the remedy available to B? ~
4. A. ~ J
Issues in the case: hi~h
• Whether C married D with or without the consent of A? kU'
recov
• Whether A knows about that marriage before contracting with B?
• Whether A is liable to B? Ans~
• Principle: Doctrine of Frustration applies here. Frustration of contract
is the general law's method of allowing parties to be relieved of their Faclr!fc
legal obligations. It only applies to contracts which have become •A "I
impossible to perform. • A~o
A supervening event changes the c ircurnstance , of performance of the • AV
contract so significantly, that the parties no longer need to perform the • Hew
contract. The supervening event terminates the contract. '-'
Issues i
• Judgement: In the given case a supervening event C marrying D)
changed the circumstances
significantly
of performance of the contract
and terminates the contract that the parties no longer
so · ~
Princ-n
need to perform the contract.
• k'Is
Frustration of a contract occurs without the fault or control of either party, and h' J

therefore, a party should not be made to compensate in such event. However, • irt(
not providing adequate compensation may also cause loss to the other party. ~
But in the given case there is no loss of that sort. So A need not compensate B Facts ir
and also B do not have any remedy except marrying another suitable person. • I\.I~
•
3. A owes to B Rs. 2000/- but the debt is barred by the limitation Act. A •
orally promises to pay the debt can B recover the none. This. _'"',
Ans: case~
Facts in the case : hous...,
1. A owes to B Rs 2000. The nu
2. That debt is barred by Limitation Act. defm\.,r
3. A promises to pay the debt. parties:
Facts in issue: Indi,,-,
1.Can A recover the debt barred by the Limitation Act? contrac
2. Ifhe can recover, how can he? legal~
For ex;
Time-barred debts are debts that Act.~
collectors to sue you for collection. Time-barred debt is also Rule'",
as debt that is beyond the statute of limitations which is no no longer Ie
• A~
collectable. But Creditors and debt collectors can still collect time-barred de
~
with calls and letters. At the same time borrowers must have a moral obligat
•.. I I
:!.,. SiS -I· : repaytime-barred debt, but not a legal obligation.iecourts"::~::::::::(t:em
W to pay as time barred debts not enforceable by law.

••
Iii·

In the given case the borrower himself orally promised to repay.So B

can recover the money from A.

•• ,>
4. A a minor entered into a contract with B a money lender and mortgaged
his house for Rs 20,000 by misrepresentation himself as major after
knowing the fact that A is minor B wants to cancel the contract and

I
;!' recover the money advanced to A . Advice B ?
? Ans:
!l<
o act B Facts of the case:
•

if their i • A a minor entered into a contract with B a money lender

,ame I • A mortgaged his house for Rs 20,000 by misrepresentation himself as major.

~the I
,r.the '
I
• After knowing the fact that A is minor B wants to cancel the contract.
• He wants to recover the money advanced to A .

Issues in the case:

ieD) • Can B, a money lender cancel the contract and recover his money?
act so
Principle:
leger • A is a minor entered into a contract with B a money lender and mortgaged
his house for Rs 20,000" by misrepresentation himself as major
t_and
• After knowing the fact that A is minor B wants to cancel the contract and
>1iver, recover the money advanced to A.
L~
Facts in Issue:
tlWe B • Is A a minor competent to enter into a contract?
son.

A• • Is such contract is a valid contract?

• Can B , a money lender cancel it and recover is advanced money?

• This case is similar to a famous case MohiriBibi v. DharmodasGhose. In this

case,a minor had borrowed some money from a money-lender by mortgaging his

•• house.
The money-lender moved to take possession of the minor's house when he
defaulted payment. The court, however, said since an agreement with minor

•
parties is void, the money-lender could not enforce this contract.
Indian courts have repeatedly used this judgment to abrogate minors from

• contractual obligations. Hence, minors cannot enter into agreements unless some
legal provisions allow them.

•
id debt
.wn
For example: A minor cannot transfer property as per the Transfer of Property
Act. He can, however, receive property from other persons under a legal contract.
Rules relating to Agreement with Minor Parties
• Although, as a general rule, a contract with minors is void, we must keep in
_ ally
ebts mind the following rules as well:
liiltion

JB SERIES
 51 LAW OF CONTRACTS
r_--
I 52

• A contract with a minor is void and, hence, no obligations can ever arise on s~j
him thereunder. t\J
• The minor party cannot ratify the contract upon attaining majority unless a law • Dut

~
f\..(I
specifically allows this.
r.n1(
• No court can allow specific performance of a contract with minors because it

•
is void altogether.
The Partnership Act also prohibits minors from becoming partners in a firm.
· \_,<j
WIt}
They can. however, receive the benefits of partnership and ratify the same
upon attaining majority. \.:T
• The rule of estoppel under evidence law does not apply to minors under
contractual obligations. In other words, even if a minor forms a contract
claiming majority age, legal obligations cannot arise against him.
· ...,.
of tl

him
~
• Parents or guardians of minors can name them in contracts only if it benefits
them. But even in this case, the minor cannot be personally liable. • rOll
Judgement: So based on the above reasons in the given case also B the money
gtfo
lender cannot sue A a minor and recover his money he lent. \,:
Judge
5. A a singer promised to perform a concert in B theatre. But one day 0"'V
before the performance A met an accident which made her fail to perform
the promise. B wants to claim damages against A for breach of contract
.decide?
Ans: Facts of the case:
• Aa singer promised to perform a concert in B theatre. AnsW'
• One day before the performance A met an accident
• The singer fail to perform the promise.
• B wants to claim damages against A for breach of contract.
.~
• P.

1;1
1:

Issues in the case: Can B claim damages against A for breach of contract? • Wh;
PriVI
Principle: Discharge of contract by impossibility of performance usually ,-.".uv
'U".. before
when the contractual duty cannot be performed because of death, illness, or a bre~.
reason caused by the other party .... Subjective impossibility occurs when thereb)
promisor is unable to perform the service due to death or illness.

6. X finds a purse on the road, lost by Y. What is liability of X towards Y?

Ans: Facts of the case:

~f

• X finds a purse on the road U

eac
• It was lost by Y.
Issues in the case: An\.,
• What is liability of X towards Y?
Principle: Since the position of the finder of the goods is that of a bailee
is supposed to take the same amount of care with regard to the goods as
expected of a bailee under section 151 of Indian Contract Act. He is

"'--------------
 • r
•
JNTRACTS
• -0'
t
~ 52 L;"\/J OF corn-RACTS

subject to all the duties of a bailee, including a duty to return the goods after
r .. arise on'
the true owner is found. His / liabilities are
• Duty to proper and reasonable care: According to Section 151, the
:wsalaw
finder of goods should take such care of the goods as a man of ordinary
prudence would take of his own goods .
.• ause it
• Duty not to make unauthorized use of goods (section 153 & 154) :if the
finder of goods make any unauthorized use of the goods found inconsistent
•• a firm.
with the condition of the bailment, he is liable to make compensation to the

1.
, lbe same ~.
• e
t-

I
owner of goods for any damage arising to the goods from or during such use
of them.

.Iunder
a contract

i.t benefits
I
!"J
~
!;

N
• Duty not to mix goods (section 155 - 157): Ifhe mixes the goods found to
him thefinder of goods is bound to bear the expense of separation, and any
damage arising from the mixture.
• Duty to return goods (section 160 & 161) :It is the duty of the tinder of the
goods to return or deliver the goods found to the true owner as per his
timoney! directions before the expiration of the time period specified by him.
~ Judgement: As per the above rules X should hand over the goods to Y the
I
owner of the goods.
t~e day'
:.rform
contract 7. A promised to supply some fruits to B on 1 January 2013 but A on 20

• December 2012 expressed his inability to deliver the goods. what is the
remedy available to B against A ?

•• Ans: Facts of the case:

• A promised to supply some fruits to Bon 1 January 2013.

~•.?
• A on 20 December 2012 expressed his inability to deliver the goods.
Issues in the case:
• what is the remedy available to B against A ?
Principle : Anticipatory breach of contract. When a person repudiates a contract
llyoccurs before the stipulated time, for its performance has arrived, it is an anticipatory
1e, or a breach. If one of the parties to a contract breaks the contract the party injured
w~n the thereby has a right of action for damages as well as he is also discharged from
performing his part of the contract (Section 64).
Judgement: As per the above principle in the given also
.IV? B can claim damages from A.

• 8. A offers through a letter to sell his car to B for Rs 15000/- B at the same

• time offers by a letter to buy A car for Rs 15000/- . The two letters cross

•
each other in post. Is there a concluded contract between A and B.
Ans:
Facts of the case:
b!lee he • A offers through a letter to sell his car to B for Rs 15000/ B at the same time
• as is offers by a letter to buy A car for Rs 15000/

•
'e is also

JB SERIES
 S3 LAW OF CONTRACTS

• .The two letters cross each other in post.

Issues in the case: 10.A~

Principle: When two (or) more identical offers exchanged between the parties D co,,'
in ignorance at the time of each other's offer, the offer are called as cross offers. Fact\;f
Such offers are not valid offers. In such a case, the courts construe one offer as • A, r
the offer and the other as the acceptance. Thus a cross offer will 110tcreate any
contract
• 1\..,1
Issm
Thus there was no conc Iuded contract between' A' and' B
• d..b
Case law :An important case in this aspect is the English case of Tinn v. Prin<\)'
Hoffman, the defendant wrote to the complainant an offer to sell him 800 tons joint liab
of iron at 69s per ton. at the same time the complainant also wrote to the joint )...0
defendant an offer to buy the iron at similar terms. The issue in this case was death. io
that, was there any contract between the parties, and would simultaneous offers \.f
be a valid acceptance. The court held that these were cross offers that were or mf"~
made simultaneously without knowledge of one another and would not bind the expre~
parties. pro?\_,')
Judgem
Judgement: As per the above principle there was no concluded contract C to \.I:
between 'A' and 'B entitled
fromv
9. A promised a subscription of Rs 5000 to cyclone relief fund. He does not
pay is there any legal remedy against him?
11. X'-'
pI
Ans:
comV
Facts of the case : the mot
lega~
• A promised a subscription ofRs 5000 to cyclone relief fund.
• He does not pay . Fac,,:
Issues in the case: • Xp:
V
• Is there any legal remedy against him ? • B 0':
t~
Principle: It's a gratuitous promise. One person promises to do somethi
but the other (you) does not promise anything. The promise to pay Iss~
donation is not enforceable.
.\.,
In legal language, "the offer to pay the subscription Rs.5000 a
not supported by consideration" from the promisee. Pri~
this ago
As there is no consideration provided by one party, there is no contract.
Thi"
Judgement: Basing on t he above principle in the given case also the there isl
no legal remedy through the court of law becausethere is no considera Fac",
provided by one party, there is no contract at all. When there is no con propert
there will be no question of enforcibility of it in the court. hiss'_'

J8
 • i~
•'i ACTS
I
_I 54
LI\W OF cnl\JTR i'I.CTS

• ~ 10. A ,B, C jointly promise to pay D Rs 3000 A and B are untraceable. can
•. i
D compel C to pay him in full ?
e parties ~
)e,ffers. f Facts of the case:
offer as • A, B , C jointly promise to pay 0 Rs 3000.
~.any • A and B are untraceable.

• Issues in thiscase :
• Can D compel C to pay him in full ?

•
v.
~.tons
Ie
Principle: Section 42 of the Indian Contract Act, 1872 provides for devolution of
joint liabilities in a contract. It states that when two or more persons han? made a
joint promise, they are required to perform the promise jointly, and on one of theirs
death, jointly with the legal representatives of the promisor.

v.
:.as
Anyone of joint promisors may be compelled to perform.-When two
us offers
or more persons make a joint promise, the promisee may, in the absence of
express agreement to the contrary, compel anyone or more or such joint
promisors to perform the whole of the promise.
Judgement: As per the above given principle in the given case D can compel
La C to pay him in full as per section 42 of the Contract Act 1872. Later C is

• entitled to recover the money he paid on behalf of them, if they are traced if not
from their legal heirs.

• 11. X promises to drop a prosecution which he instituted against B as B had

committed extortion .How ever B gives an undertaking that he shall repay

•• the money and things which he took away through extortion. Examine the
legal position of such an agreement.

Facts of the case :

• • X promises to drop a prosecution which he instituted against B as B had

committed extortion.

•
)ething
• B gives an undertaking that he shall repay the money and things which he
took away through extortion.

•W I
pay the

a is
••
Issues in the case:

• What is the legal position of such an agreement? .

Principle: According to Section 23 this agreement is void. Because the object of

this agreement is unlawful.
tet. I This case is similar to a Leading case: William v. Bayley
:.ere is :
i<lrration Facts of the case: In Williams v Bayley, a father agreed to mortgage his
.tract property to a bank if the bank would return to him promissory notes on which
his son had forged his signature.

• JB SERIES
 1#
~
.""
i·J

~
\.,.,
55
LAW UI- lUN IKAll~ 56
B" \.,
The bank had hinted at prosecution and 'transportation' of the son if the father i
t~
14. A pay
did not agree to execute the mortgage. The agreement to execute the mortgage da ug""" ,
was set aside because undue influence had been proved. examples
JUdgement :Based on the above Rule undue influence and the judgement
ADS: Fac
'-'
given in the case William vsMaylc in the case also undue influence is
clearlyvisible. \.I
• Apa
<\Jg
12. A proposes by a letter to sell his house to B at a certain price. B accepts • C di.
A proposal by a letter scnt by a post. Explain the legal position and when Iss~
acceptance is complete.
• W~a
Facts of the case : • ~l
• A proposes by a letter to sell his house to B at a certain price. Princv
• B accepts A proposal by a letter sent by a post. A contrac
Issues in the case: may s\...6
• What is the legal position and when acceptance is complete? contract
Impos~
Principle : According to section 4 of Indian Contract Act, 1872, the where~
communication of a proposal is complete when it comes to the know ledge contra
the person to whom it is made. Here when'B' receives the letter of pro JUJUI ••_.
commo
then the communication of proposal is complete. Superven
A may revoke his proposal at any time before or at the moment when B posts explaiv
his letter of acceptance, but not afterwards. 1. Destru
On th4Jc
13. A promises B to sell his car for Rs 1,50,000 on a certain date. B agrees liable to
to pay the price on receipt of the car. A refused to sell his car to B . Explain reasork
the future consequences in the above agreement. ? 2. Chont.
Thep~
Facts of the case: law. I\,;,
3. Non-c
• A promises B to sell his car for Rs. 1,50,000 on a certain date.
• B agrees to pay the price on receipt of the car. Whe~
, certam st
• A refused to sell his car to B.
f\.;
Issues in the cases : . the

• What are the future consequences in the above agreement?

Principle: When a party to a contract has refused to perform, or disabled
himself from performing his promise in its entirety, the promisee may put an
end to the contract, unless he has signified, by words or conduct, his
acquiescence in its continuance.

Judgement: Based on the above principlethe promisee may put an end to the
contract. S60 in the given case also B also can put and end to his contract with
A.
•
•
:jNTRACTS ~ )6 l/\W OF CONTRACTS

wge father I· 14. A pays B Rs 10,0001in consideration of B promise to marry C . A

e~ortgage . daughter, C dies before marriage? Explain the fate of B with suitable

:.
•
.ernent
examples?
Ans: Facts of the case:

• A pays B Rs 10,0001 in consideration of B promise to marry C . A 's

•
e B accepts
r_nd whes
daughter.
• C dies before marriage.
Issues in the case;

•
Ie
~ • What is the fate of the B?
~ • Explain with suitable examples'?

•
ll{
~ r.
Principle:

•
A contract, which at the time was entered into, was capable of being performed
may subsequently become impossible to perform or unlawful. In such cases the

•_72,
lOW ledge
contract becomes void. This is known as the doctrine of Supervening
Impossibility. It is also known as the Doctrine of Frustration. Frustration occurs
where it is established that due to subsequent change in circumstances, the
contract has become impossible to perform or it has been deprived of its
• ropos commercialpurpose .
Supervening impossibility may occur in many ways, some of which are
explained below:
Itposts

•
~rees
1.Destruction of the subject matter of contract
On the destruction ofthe subject matter, a contract is discharged and no party is
liable to perform. Eg: because of death, illness, destruction due to fire or a
J xpJain reason caused by the other party etc.

• 2. Change of Law
The performance of a contract may become unlawful by a subsequent change of

• law. In such cases, the original contract becomes void.

3. Non-concurrence of circumstances

•• When a contract is entered into on the basis of the continued existence of a

certain state of things, the contract is discharged if the state of things change.
Eg: A & B contract to marry each other.. Before the marriage A becomes mad.

• Thus the contract becomes void.

Discharge of contract by impossibility of performance usually occurs when

)•. an
thecontractual duty cannot be performed because of death, illness, or a reason
caused by the other party.... Subjective impossibility occurs when the promisor
is unable to perform the service due to death or illness.

•1_0 the
." with

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----------------------:---------~f,: LAW Uf-CON fRAClS

~, \.,
15. A invites B to dinner, B accepts the invitation but does not turn up at 17. X ag
the dinner can A sue B for the loss he has suffered? 20144Jt
X and Y.
Ans: Facts of the case:
• A invites B to dinner. Ans: '-'
• B accepts the invitation.
Facts ~t
• But does not turn up at the dinner
Issues of the case: • \..f(
20
• Can A sue B for the loss he has suffered?
Issue~
Principle:An offer must be such that when accepted it will result in a valid • W}
contract. A mere social invitation cannot be regarded as an offer. because if
Princi~:
such an invitation is accepted it will not give rise to any legal relationship.
(Writ) "I j
Eg : 'A' invited 'B' to dinner and °8° accepted the invitation. It is a mere social
Judge~1
invitation. And 'A' will not be liable if he fails to provide dinner to B.
to clac,
To be enforceable by law and to become a contract an agreement must
of the cor
been made with a view to create legal relations. Here, an invitation is accepted
with a view to create friendly relations and as a result it's not a contract. '-'
18. Mr.I
Judgement: No. As an agreement has not been entered with a view to
ac~
legal relations and, an invitation has been
acceptedwith a view to create friendly relations and as a result it's ADS: \.;
contract, and A cannot sue B in the court of law.

16. X a minor borrowed from Y a sum of Rs. 10,000 the payment of the
.
• F-~·
~]

loan was guaranteed by Z who is a major, X refuses to pay. Can Y hold Z ·V

liable for the money? Issues

Facts of the case: • cYl

to pav
\..t
• X a minor borrowed from Y a sum ofRs. 10,000. 14
• The payment of the loan was guaranteed by Z who is a major. \.r
• X refuses to pay. a gr.

Issues in the case:

• Can Y hold Z liable for the money?
Principle:
• A contract with a minor is void and, hence, no obligations can ever arise
on him thereunder.
• The minor party cannot ratify the contract upon attaining majority unless
law specifically allows this.
• No court can allow specific performance of a contract with minors
it is void altogether.

Judgement :Based on the above rule Y cannot hold Z liable for the
money he lent to a minor.
 • r
,!'RACT 1..
'··.
::. X agreedto let his hallto Y for somepublicentertain:::::O~:::st

•• ,
• c, 2014. On 20 July, 2014 the hall was destroyed by fire Discuss, the rights of
i
~
X and Y.

f· Ans:
, Facts of the Case:

•• " • X agreed to let his hall to Y for some public entertainment on 15t August
2014 . On 20th July, 2014 the hall was destroyed by fire.
Issues in the case:
• What are the rights of X and Y.
Principle: Doctrine of frustration, impossibility of performance.
IS~.
~e
, .•
must
i.cepte
SOCI
(Write a few lines about Doctrine of Frustration in the exam)
Judgement: Based on the above principle Doctrine of Frustration Y has no right
to claim any damages due to the hall was destroyed by fire and the performance
of the contract has become impossible.

act.

• 18.Mr.Lal offers to donate RS. 50,000 to the orphanage. The orphanage

accepts the offer, Can the orphanage recover.

•• Ans:

• Facts of the case:

• Mr.Lal offers to donate Rs. 50,000 to the orphanage.
)~e
{1tld Z • The orphanage recover the amount from Mr.Lal.

• Issues of the case:

• Can the orphanage recover the amount through court of law. IfMr.Lal fails

• to pay the amount.

• Principle:

• It's a gratuitous promise. One person promises to do something but the

other (you) does not promise anything. The promise to pay the donation is

•
not enforceable.
In legal language, "the offer to pay the donation Rs.50,000 a is not

•
er arise
supported by consideration" from the promisee.

• As there is no consideration provided by one party, there is no contract.

Judgement: Basing on t he above principle in the given case also the

•w
unless a
orphanage cannot recover the amount through the court of law becausethere is
no consideration provided by one party, there is no contract at all. When
ause there is no contract there will be no question of enforceability of it in the
COurt.

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\."
19. Mr.Pradeep hired a godown from Mr.Dinesh for a period of ten months
and paid the whole rent to him in advance. After four, months the god Own 20. Vi
was destroyed by fire and Pradeep claimed a refund of a proportionate release
amount of the rent. Is the claim valid. the v~,
Ans: Facts of the case:

• Mr.Pradeep hired a godown from Mr.Dinesh for a period often months

.
Fact~t

.~I
'\

• Mr.Pradeep paid the whole rent to him in advance

• A ncr four ,months the godown \\ as destroyed by fire.
• Pradeep claimed a refund of a proportionate amount of the rent. Issu\):
• I~
Issues of the case: Prin\_;
commit!
• Is the claim ofPradeep valid?
Codt\.('
Principle: There exist a valid and subsisting contract between The doctrine of , property
frustration is present in India u/s. 56 or the Indian Contract Act 1852. It says any ~~
that any act which was to be performed after the contract is made becomes
unlawful or impossible to perform, and which the promisor could not prevent, intim~(
then such an act which becomes impossible or unlawful will become void. isno~
The conditions necessary for the application of Section 56 Technil
The parties:- Existence of a valid contract is the foremost condition for the
application of Section 56. The valid contract includes a contract entered into •
between competent persons and which is followed by some consideration.
•
• There must be some part of the contract which is yet to be performed:-
Section 56 will have applicability only if there is some part of the contract
which is yet to be performed and without performing it the ultimate purpose Ca~
of the contract is not fulfilled. prohihi
adop~
• The contract after it is entered into becomes impossible of performance:-
Another important condition for the application of section 56 is that the clear'-'i
contract after it has been entered into has become impossible to perform and cont\_;;
cannot be performed and therefore contract stands void.
Jud~
Doctrine of frustration as enshrined in Section 56 of the Indian contract act A coei
1872 deals with those cases where the performance of contract has been to cCV
frustrated and the performance of it has become impossible to perform due to consen
any unavoidable reason or condition. This doctrine is treated as an exception to ~
the general rule which provides for compensation in case of breach of contract. 21. 'n
But section 56 only deals with cases of subsequent impossibility as opposed to salm\.t
cases of initial impossibility. Fact, ~
Judgement: Based on the above principle in the given case also Doctrine of • TITr
Frustration applies and Mr. Pradeep cannot claim the remaining months rent. • I\.,

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 • I
o• TRACTS
I LAW Of- (UNIKALI~

el:0nths
e down 20. A tells his wife that he would commit suicide if she does not give a
i.te release deed in favour of his brother. She does so under this threat. Decide
the validity of this contract.

•
. _nths
~
~
"
L~
II
Facts
•
of the case:
A tells his wife that he would commit suicide.

•
~
I/i, • He said so ifshe does not give a release deed in favour of his brother.
• She does so under this threat..

•• Issues in the case:

• Is such contract is a valid contract?
Principle: Section 15 of the Indian Contract Act.1872 states that coercion is

•
.ine of
52. It says
committing or threatening to commit, any act is forbidden by the Indian Penal
Code (45 of 1860) or the unlawful detaining or threatening to detain any
property, to the prejudice of any person whatever. with the intention of causing
any person to enter into an agreement.
:.comes Coercion means forcing an individual to enter into a contract. When
:AJ.event, intimidation or threats are used under pressure to gain the party's consent, i.e. it
is not free consent.
Techniques for causing coercion:
>I_or the
• Threatening to commit any act which is prohibited by the Indian penal
~,d into Code.

•
rformed:-
!e ntract
~purpose
• Detaining not as per law or even threatening to detain any property,
with the sole intention of compelling a person to enter into a contract.

Case law: Ranganayakamma Vs Alwar Sett; In this case the widow was

•
>.nce:-
prohibited from removing the corpse of her husband until she consented for the
adoption.
The court said that her consent was not free and it was coerced. It is
clear that coercion is committing or threatening to commit any act which is
~ the contrary to law.
and

1
•
l.t act
been
Judgement: Based on the above principle in the given case It is clear that
A coerced his wife give a release deed in favour of his brother by threatening
to commit suicide if she does not give in his brother's favour. So it is not a free
!ue to consent of A's wife. Hence it is a invalid contract.
ep ion to
.tract. 21. The wife of person died from tin poisoning ca used by the tinned
salmon(fish)bought from a dealer. What damages can the husband claim.

•
'posed to
Facts of the case:
• The wife of person died from tin poisoning.
lAif
t. • It was caused by the tinned salmon(fish)bought from a dealer

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61
LAW Uf- C.ONI HAC!S ---:T,-,-'
~6_2

Issues in the case: 2. Pro,

• What damages can the husband claim ~
Principle: This case is similar to the case of DONOG HUE v DAVID 3. It cr
STEVENSON. In this case Donoghue was drinking a hottle of ginger beer in 4.Ik
a cafe in Paisley, Renfrewshire. Unknown to her or anybody else, a decomposed 5 Con
snail was in the bottle. She fell ill, and subsequently sued the ginger beer 6:I~l
manufacum-. Mr Stevenson.
Judgemel
...,
lhe House of Lords held that the manufacturer owed a duty
care to her. wh ich was breached because it \\ as reasonably foreseeable that has sUI
desire oTtl
failure to ensure the product's safety would lead to harm to consumers.
timely U
was also a sutliciently proximate relationship bctv, ccn consumers and prod
manu Iacrurers. money pn
Judgement: Same principle appJies to the given case also because it V
23. A, B a
reasonably foreseeable that failure to ensure the product's safety would lead DcomL)
harm to consumers. There was also a sufficiently proximate relati
between consumers and product manufacturers. In the given case the dealer Facts \;1
liable to pay heavy damages to the person who lost his wife because consumi
the poisoned salmon (fish). .
• A,
~

22. A, who is B's friend seeks the help of a few persons in putting down a
fire in B's house. B promises to give a Rs 10,000 for his timely help. Can A
.~
Issues in t

recover the amount? PrinciI\.l

joint liabil
Facts of the case:
joint pt\J)
death, j (1in
• A, who is B's friend seeks the help of a few persons.
• He sought the help in putting down a fire in B'shouse. A~
• B promises to give a Rs 10,000 for his timely help. Can A recover the
amount?
Issues in the case:

• Can A recover the amount?

Principle: Consideration

According to section 2(d) of the Indian Contract Act "when at the desire
of the promisor, promisee or any other person has done or abstained fro
v
doing or does or abstains from doing or promises to do or to abstain
doing something such act or abstinence, or promise is called a
consideration for the promise." "
U
Essentials V
1. Something should be done or abstained from doing at the desire of
the promisor only.
• r
• I L/\\/'./or ccr~TR:\CTS

•
2. Promisee or any other person has done or abstained from doing
something at the desire of the promisor.

'-bi
nger beer
i.mposed
r
3.
4.
5.
6.
It can be Past, Present or Future.
It is not necessary that Consideration must be adequate.
Consideration must be real and not Illusory or impossible.
It must be Lawful.

Judgement: As per the above principle in the given case Promisee (A)
has sought the help of a few persons in putting down a lire in 8's house at the
desire of the promisor ( 8 ). For that promised to pay him Rs 10.000 tor his
timely help. So it is a valid contract between B and A : So A can recover the
money promised by B to A.

>.
ause it w
lead
~e.Jiltionsh
23. A, Band C jointly promise to pay DRs.
D compel C to pay him in full.

Facts of the case :

3000.A and untraceable. Can

1l1eealer is
• A, 8 , Cjointly promise to pay 0 Rs 3000.
w sum • A and B are untraceable.
Issues in this case :
Ana • Can D compel C to pay him in full ?
pean A
Principle: Section 42 of the Indian Contract Act, 1872 provides tor devolution of

• joint liabilities in a contract. It states that when two or more persons have made a
joint promise, they are required to perform the promise jointly, and on one of theirs

•
vtthe
death, jointly with the legal representatives of the promisor.
Anyone of joint promisors may be compelled to perform.-When
more persons make a joint promise, the promisee may, in the absence of express
two or

agreement to the contrary, compel any 1[one or more] of such joint promisors to

• perform the whole of the promise

•'.
Judgement: As per the above given principle in the given case 0 can
compel C to pay him in full as per section 42 of the Contract Act 1872. Later C
is entitled to recover the money he paid on behalf of them. If they are traced if not
from their legal heirs.

~.sire
l~from __ 000__
18l'from

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