Indian Contract Act, 1872

[Act No. 9 of Year 1872, dated

25th. April, 1872]
 What is a Contract?
 2(h) An agreement enforceable by law is a contract;

 2(e) Every promise and every set of promises, forming the

consideration for each other, is an agreement;

 2(b) When a person to whom the proposal is made, signifies his

assent thereto, the proposal is said to be accepted. A proposal, when
a accepted, becomes a promise;

 2(c) The person making the proposal is called the "promisor", and the
person accepting the proposal is called "promisee",

 2(a) When one person signifies to another his willingness to do or to

abstain from doing anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal;

 2(d) When, at the desire of the promisor, the promisee or any other
person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing, something, such
act or abstinence or promise is called a consideration for the promise;
 What is a Contract?
 Elements of an agreement
Agreement = offer or proposal + an acceptance of that
offer or proposal
 Elements of a contract
Contract = Agreement (consensus ad idem) + legal
obligation, i.e. it should be enforceable by law

 “The law of Contracts is not the whole law of agreements

nor is it the whole law of obligations. It is the law of those
agreements which create obligations, and those
obligations which have, their source in agreements.” -
Salmond
 What agreements are contracts
 All agreements are contracts if they are made by
the free consent of parties competent to
contract, for a lawful consideration and with a
lawful object, and are not hereby expressly
declared to be void.
 Nothing herein contained shall affect any law in
force in India, and not hereby expressly
repealed, by which any contract is required to be
made in writing or in the presence of witnesses,
or any law relating to the registration of
documents. [Section 10]
 ESSENTIAL ELEMENTS OF A VALID
CONTRACT
 Agreement (Minimum two parties- offer and
acceptance- consensus-ad-idem)
 Intention to create legal relationship (Balfour v
Balfour [1919] 2 KB 571)
 Free and genuine consent (Meeting of Minds) (Sec 13, 14)
 Parties competent to contract (Sec 11)
 Real and Lawful consideration (Sec 23)
 Lawful object (Sec 23)
 Agreement not declared void or illegal (Sec 10)
 Certainty of meaning (Sec 29)
 Possibility of performance (Sec 56)
 Necessary legal formalities (Sec 10)
 Classification of Contracts
 Contracts may be classified in terms of their:
Validity or enforceability
Mode of formation
Performance
 Classification according to validity or
enforceability
Valid
Void
Voidable
Illegal
unenforceable
 Classification of Contracts
 Classification of Contracts according to validity or enforceability
 Valid
 Have all essential elements discussed earlier
 Void
 Contract not enforceable by law is said to be void
 A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable [Sec 2(j)] (subsequent impossibility or subsequent
illegality)
 An agreement not enforceable by law is said to be void; [Sec 2(g)]
 Voidable
 An agreement which is enforceable by law at the option of one or more of
the parties thereto, but not at the option of the other or others. Sec 2 (i)
 [Deficiency of free consent = M, F, UI, C, M]
 Illegal
 One the consideration or object of which (1) is forbidden by law; or (2)
defeats the provision of any law; or (3) is fraudulent; or (4) involves or
implies injury to person or property of another; or (5) the court regards it
immoral or opposed to the public policy.
 Also taints collateral transactions with illegality
 Unenforceable
 Is neither void nor voidable, but can not be enforced because it lacks some
item of evidence such as writing, registration or stamping.
 Classification of Contracts
 Mode of formation
 Express – terms stated in words (written or spoken)
 Implied- terms inferred from the roles and conduct of the parties
or circumstances.
 Quasi Contract (Sec 70)
 An obligation created by law (in the absence of an agreement) for certain
relations resembling those that are created by contract.

 Performance – extent to which performed

 Executed (wholly performed) and executory (partially performed)
 Unilateral (at the time of formation one party performs and other
promises to perform in the future) and Bilateral (both the parties
are obligated to perform their promises at some future time but
not necessarily at the same time)
 Offer and Acceptance
 OFFER / PROPOSAL
A proposal is defined as “When one person signifies to
another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that
other to such act or abstinence, he is said to make a
proposal”. [Section 2(a)]

The person making the proposal is called the "promisor",

and the person accepting the proposal is called
"promisee“. [Section 2(c)]
 Offer and Acceptance
 How an offer is made?
 Communication, acceptance and revocation of proposals:
The communication of proposals, the acceptance of proposals,
and the revocation of proposals and acceptance, respectively,
are deemed to be made by any act or omission of the party
proposing, accepting or revoking, by which he intends to
communicate such proposal, acceptance or revocation, or which
has the effect of communicating it. [Section 3]

 Thus an offer can be made (Express vs implied)

 by an act i.e. by words (written or verbal), by conduct (silence≠O)
or by omission (not to do something)
 Implied offer

 Offer implied from the conduct of the parties or from the

circumstances of the case is known as implied offer.
 Offer and Acceptance
 Specific and General Offer:
 an offer can be made either:
 To a definite person or a group of persons, or
 To the public at large
 Carlill v. Carbolic Smoke Ball Co.

 Cross offer, Counter offer and Standing offer

 Cross offers are offers that the parties make to each other, in
ignorance of each others offers. Cross offers are identical.
 A counter offer, on the other hand is a rejection of the original
offer. It is a new offer that needs acceptance by the original
promisor before a contract is made.
 Standing offer: An offer that is kept open for acceptance over
a period of time.
Offer and Invitation to Offer
Basis for Comparison Offer Invitation to Offer
When one person
When a person expresses
expresses his will to
something to another
another person to do or not
Meaning person, to invite him to
to do something, to take
make an offer, it is known
his approval, is known as
as invitation to offer.
an offer.

Section 2 (a) of the Indian

Defined in Not Defined
Contract Act, 1872.

To receive offers from

people and negotiate the
Objective To enter into contract.
terms on which the
contract will be created.
Essential to make an
Yes No
agreement
An Invitation to offer,
The Offer becomes an becomes an offer when
Consequence
agreement when accepted. responded by the party to
whom it is made.
 Essential Requirements of a valid offer
 Must intend to create and be capable of creating a legal obligation.
[Balfour v. Balfour]

 Terms must be definite, unambiguous and certain or capable of being

made certain [Section 29].

 Must be made with a view to obtain acceptance [Section 2a].

 It must be communicated to the offeree before it can be accepted.

[Lalman Shukla V. Gauri Datt]

 It may be conditional. (Special Terms)

 The special terms, forming the part of the offer, must be dully brought to
the notice of the oferee at the time the offer is made.
 By drawing his attention to them specifically (writing clearly, expressed, or
communicated)
 By inferring that a man of ordinary prudence could find them by exercising
ordinary intelligence
 The terms and conditions must be reasonable.
 Essential Requirements of a valid offer
 Offer must be distinguished from mere declaration of intention or an
invitation to offer.
 D are Statements made without an intention to create a binding legal
obligation; amount to a mere declaration of intent and not to a proposal.
 An offer is distinct from an invitation to offer. College prospectus for admission,
company prospectus, advertisement of auction sale, invitation for tenders,
display of goods, general advertisement of goods etc. (final expression of
willingness)

 The offer must not contain a term the non-compliance of which may be
assumed to amount to acceptance.
 A statement of price (or Query) is not an offer. (Harvey v. Facey)
 A tender is an offer as it is in response to a invitation to offer.
 Specific or Definite
 Standing

 Two identical cross offers do not make a offer.

 Where two parties make identical offers to each other, in ignorance of each
other’s offer, the offers are known as cross-offers and neither of the two can be
called an acceptance of the other and, therefore there is no contract.
Summary of Balfour v. Balfour, 2 K.B.
571 (1919).
 Facts: Mr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon and visited England on a vacation. The
plaintiff remained in England for medical treatment and the defendant agreed to send her a specific
amount of money each month until she could return. The defendant later asked to remain separated and
Mrs. Balfour sued for restitution of her conjugal rights and for alimony equal to the amount her husband
had agreed to send.
 Mrs. Balfour obtained a decree nisi and five months later was granted an order for alimony. The lower
court entered judgment in favor of the plaintiff and held that the defendant’s promise to send money was
enforceable. The court held that Mrs. Balfour’s consent was sufficient consideration to render the
contract enforceable and the defendant appealed.
 Issues
 Must both parties intend that an agreement be legally binding in order to be an enforceable contract?
 Under what circumstances will a court decline to enforce an agreement between spouses?
 Holding and Rule
 Yes. Both parties must intend that an agreement be legally binding in order to be an enforceable contract.
 The court will not enforce agreements between spouses that involve daily life.
 Agreements between husband and wife over matters that affect their daily lives are not subject to contractual
interpretation, even when consideration is present. Spouses normally intend that the terms of their agreements can be
varied as situations develop. The court held that it was presumed that the parties made the agreement as husband
and wife and did not intend that it could be sued upon. The court held that as a matter of public policy it could not
resolve disputes between spouses.
 Note : Contracts related to the social aspect of marriage will not be enforced by the courts. Contracts
between spouses related to business relationships can be enforced, however. Courts are willing to
support negotiated divorce settlements and written statements of support.
Rose and Frank Co. v J.R. Crompton
and Bros. Ltd.
 Facts: Rose and Frank Co. were the exclusive American distributor for J.R. Crompton's new paper
product. In their agreement there was a clause included stating that the arrangement was not intended to
be a formal legal agreement and would not be subject to legal jurisdiction of either the US or the UK. J.R
Crompton cancelled the agreement because they were unhappy with Rose and Frank Co.'s proceedings
and Rose and Frank Co. sued for breach. They were successful at trial, which J.R. Crompton appealed.
 Issue: Can a clause be put in a contract saying that it is not legally binding, or is there a contract
anyway?
 Decision: Reversed the judgment of the Court of Appeal
 Reasons: Scrutton, writing for the majority, stated that although in business relations it is generally
assumed that a contract has been intended, here there is a specific clause stating the intention of the
parties not to be bound in a legal contract. In contract law it is the intentions of the parties that matters,
and here they are clearly stated. As the parties did not intend to be bound, there is no legally enforceable
contract.
 Atkin, in the dissent, agreed that the document did not form a legally binding contract, but held that the
orders and responses between the parties in the process of business constituted enforceable contracts
of sale.
 Ratio:
 It is generally assumed that parties in business relationships intend to be bound.

 If parties expressly state in an agreement that they do not wish to be bound, the courts must respect their actual
intentions.
Harvey v. Facey (1893)
 Facts – Letters were written back and forth
 Harvey – Will you sell us bumper hall pen? Telegraph lowest price -answer paid.
 Facey – Lowest price for bumper hall is $900.
 Harvey – We agree to buy bumper hall for the sum of $900 asked by you.
 Harvey sued for specific performance of this agreement and for an injunction to restrain the town of
Kingston from taking conveyance of the property (Facey was previously engaged in negotiations to
sell the land to Kingston)
 Issue
 Was there an explicit offer from Facey to sell the land for $900 to Harvey?
 Holding
 No, there was not.
 Rule
 An offer CAN NOT be implied by writing. It can only be concrete and sound…The appellants can’t
imply that Facey made an offer when he, as a matter of fact, did not make an offer.
 Reasoning
 (from Harvey) 1st question was willingness to sell, 2nd question asks the lowest price.
 Facey only replied to the second question in regards to the price.
 Harvey treated his response as an unconditional offer to sell them the price named…Only binding
aspect is the lowest price in regards to a contract being formed.
 Agreement could have ONLY been legit if Facey responded to the third telegram from Harvey.
 Disposition
 Reversed, judgment to the trial court in favor of Harvey is restored.
Bhagwandas Goverdhandas Kedia vs M/S.
Girdharilal Parshottamdas
 Facts – The respondents entered into a contract with the appellants by long-distance
telephone. The offer was spoken by the respondent at Ahmedabad and the acceptance
was spoken by the appellants at Khamgaon. Alleging breach of the said contract the
respondents filed a suit at Ahmedabad. On the issue of jurisdiction raised by the
appellants, the trial court found that the Ahmedabad Court had jurisdiction to try the suit.
The High Court rejected the appellant's revision petition whereupon by special leave, he
came to this Court.
 Contention(s):
 Defendants contended that according to the section 2, 3 and 4 of ICA, the place where the
offer is accepted is the place where the contract is made and therefore Ahmedabad trial
court did not have the jurisdiction to try the suit.Holding
 Observation
 the contract act does not expressly deal with the place where a contract is made. The conversation
over telephone is analogous to the conversation when the parties are in presence of each other,
wherein, the negotiations are concluded by instantaneous speech and therefore communication of
the acceptance becomes a necessary part of the contract and the exception to the rule on grounds
of commercial inexpediency is inapplicable.
 Further, in case of correspondence by post or telegram, a third agency intervenes which is
responsible for effective transmission of letters at every instance, however, in case of telephonic
conversation, once the connection has been established, there is no need of any third agency to
transmit the correspondence between the parties. Disposition
 Hence, as against cases of correspondence by post or telegram, in present case where
there was correspondence by telephone, contract was formed when acceptance was duly
communicated to the offeror and hence, at Ahmedabad.
 Revocation/ Termination of Offer
(Sec 6)
 An offer lapses
 after stipulated or reasonable time.
 by death or insanity of the offeror or the offeree before
acceptance.
 An offer terminates
 when revocation is communicated by the offeror before
acceptance
 By not being accepted in the mode prescribed, or if no mode is
prescribed, in some usual and reasonable manner.
 When the condition is not accepted in case of a conditional offer.
 By rejection/ counter offer by offeree (acceptance of offer but
subject to certain condition or qualification).
 Subsequent illegality or destruction of the subject matter.
 Acceptance
 When a person to whom the proposal is made,
signifies his assent thereto, the proposal is said
to be accepted. A proposal, when accepted,
becomes a promise. [Section 2b]

 Acceptance how made? May be express or

implied.
It is express when signified either in writing, or by word
of mouth, or by performance of some required act.
Implied when it is to be gathered from surrounding
circumstances or the conduct of the parties.

 Who can accept?

 Essentials of a valid acceptance
 Must be made by offeree.
 Must be absolute and unqualified.
 Must be communicated.
 Acceptance by performing conditions, or receiving
consideration.
 Must be according to the mode prescribed.
 Must be given within the time specified or within a
reasonable time. (before the offer lapses)
 Must be in response to an offer.
 It cannot be applied from silence.
 Communication of offer acceptance and
revocation
 Communication when complete [Sec. 4]
 The communication of a proposal is complete when it comes to
the knowledge of the person to whom it is made.

 The communication of an acceptance is complete

 as against the proposer, when it is put in a course of transmission to
him so at to be out of the power of the acceptor;
 as against the acceptor, when it comes to the knowledge of the
proposer.

 The communication of a revocation is complete

 as against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of
the power of the person who makes it;
 as against the person to whom it is made, when it comes to his
knowledge.
 Communication of offer acceptance and
revocation
 Revocation of Proposals and acceptance [Sec 5]
 A proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards.
 An acceptance may be revoked at any time before the communication
of the acceptance is complete as against the acceptor, but no
afterwards.

 Revocation how made [Sec 6]

 A proposal is revoked –
 (1) by the communication of notice of revocation by the proposer to the
other party;
 (2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a reasonable
time, without communication of the acceptance;
 (3) by the failure of the acceptor to fulfill a condition precedent to
acceptance; or
(4) by the death or insanity of the proposer, if the fact of the death or
insanity comes to the knowledge of the acceptor before acceptance.
 Consideration
 What the promisor demand as the price of his promise.

 Something of value given by both parties to a contract that induces them to

enter into the agreement to exchange mutual performances.

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

 In Currie V. Misa C was termed as “a valuable C in the sense of the law

may consist either some right, interest, profit or benefit accruing to one
party, or some forbearance, detriment, loss or responsibility given, suffered
or undertaken by the other.”

 Thus the term ‘consideration’ is used in the sense of ‘quid-pro-quo’ which

means ‘something in return.’ This something may be some benefit, right,
interest or profit or it may also be some forbearance, detriment, loss or
responsibility upon the other party.
 Consideration
 Importance of consideration:
 A promise without C is purely gratuitous and, however sacred
and binding in honor it may be, cannot create a legal obligation.

 Contract = promise + the C for the promise

 Thus generally, a contract can not be thought of without
consideration. “No consideration, no contract” is the rule of law.
 Abdul Aziz V. Mazum Ali (Re-construction of Mosque)
 and Kedar Nath V. Gori Mohamed (Construction of Town Hall)

 Since agreement Sec 2(e), is a promise in exchange for a

promise, each promise forming consideration for other. It will
therefore be an inconsistency to think of an agreement and
consequently contract without C.

 Thus, we can say:

 Except in certain cases, a contract without C cannot be thought
of and if made, it is devoid of any legal obligation.
 Rules as to consideration
 C must move at the desire of the promisor. (Durga Prasad v. Baldeo)
 C may move from the promisee or any other person.
 Stranger to contract V. stranger to C (Chinnayya v. Ramayya)
 A stranger to consideration can sue but a stranger to a contract
can not (“privity of contract”). Exceptions:
 Beneficiary in a trust
 Provision of marriage expenses of female in joint hindu family
 Family members who were not part in a family settlement
 Assignment to a contract
 An acknowledgement of a liability
 Contracts entered into through agent
 C need not be adequate.
 C must be real and valuable.
 Physical impossibility, legal impossibility, uncertain consideration, illusory consideration
 C must be legal.
 C may be present (executed), future (executory) or past.
 Must be something which the promisor is not already bound to
do.
 Exceptions to the rule
“No Consideration no contract”
 An agreement without C is valid if:
 It is expressed in writing and
 It is registered (under the law of R), and
 It is made on account of natural love and affection, and
 Made between parties standing in a near relation to each other. [Section
25(1)]

 A promise without C is valid if, “it is a promise to compensate wholly or

in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to
do”. [Section 25(2)]

 A promise to pay, wholly or in part a debt which is barred by the law of

limitation can be enforced if (a) it is in writing, and (b) is signed by the
debtor or his authorised agent. [Section 25(3)]

 Creation of Agency
 Completed gift
Legality of object (Sec 23-24)
 What consideration and objects are lawful, and what not
 The consideration or object of an agreement is lawful, unless -It is
forbidden by law; or is of such nature that, if permitted it would
defeat the provisions of any law or is fraudulent; or involves or
implies, injury to the person or property of another; or the Court
regards it as immoral, or opposed to public policy.

 Every agreement of which the object or consideration is unlawful is

void.
 Agreements void, if consideration and objects unlawful in
part
 If any part of a single consideration for one or more objects, or any
one or any part of any one of several consideration of a single
object, is unlawful, the agreement is void.
 Capacity of Contract
 Who are competent to contract [Sec 11]
 Every person is competent to contract who is of the age of
majority according to the law to which he is subject, and who is
sound mind and is not disqualified from contracting by any law to
which he is subject.

 Incapacity may arise from:

 Minority
 Mental incompetence
 Status (disqualified by law)
Minority
 According to section 3 of Indian Majority Act, 1875, a minor is a person
who has not completed 18 years of age. However, in following cases, a
minor attains majority after 21 years of age:
 Where a guardian of minor’s person or property has been appointed under
The Guardians and Wards Act, 1860, or
 Where the superintendence of minor’s property is assumed by a Court of
Wards.

 Minor’s Contract
 A contract with or by a minor is void and a minor, therefore, cannot, bind
himself by a contract. (Mohiri Bibi v. Dharmodas Ghose, 1903)
 A minor can be a promisee or a beneficiary.
 A minor’s agreement can not be ratified by the minor on his attaining
majority.(void ab-initio: Ramaswami V. Chattiar)
 Minor’s Contract
 If a minor has received any benefit under a void contract, he can not be
asked to refund the same.
 A minor is always allowed to plead minority even in case of
misrepresentation. (Doctrine of estoppel) Leslie v. Shiell
 A minor cannot be a partner in a partnership.
 Minor’s parents/guardians are not liable to a minor’s creditor for the
breach of contract by the minor whether the C is for necessaries or not.
 A minor can act as an agent and bind his principal by his acts without
incurring personal liability.
 A minor’s estate is liable to a person who supplies necessaries of life to
a minor, or to one whom minor is legally bound to support (Sec 68)
 “goods suitable to the condition in life of the minor and to his actual
requirements at the time of sale and delivery.(Nash v. Inman and Roberts v.
Gray)
 goods and services like defending a suit, education, medical, legal advice
etc.- both.
Mental incompetence
 What is a sound mind for the purposes of contracting (Section 12)
 A person is said to be of sound mind for the propose of making a contract, if, at the
time when he makes it, he is capable of understanding it (terms) and of forming a
rational judgment as to its effect upon his interest.
 A person who is usually of unsound mind, but occasionally of sound mind, may make
a contract when he is of sound mind.
 A person who is usually of sound mind, but occasionally of unsound mind, may not
make a contract when he is of unsound mind.

 Lunatics- suffers from intermittent intervals of sanity and insanity

 Idiots- completely lost his mental power; is permanent
 Drunken or intoxicated- suffers from temporary incapacity

 Agreements entered into by persons of unsound mind are void.

Mental incompetence
 68. Claim for necessaries supplied to person
incapable of contracting, or on his account
 If a person, incapable of entering into a contract, or anyone whom
he is legally bound to support, is supplied by another person with
necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the
property of such incapable person.
Incompetence through status

Incompetence may arise from political,

corporate, legal status etc.
Alien- alien friend (country is at peace)and alien
enemy (country is at war)
C made before the war are dissolved or suspended
Companies or corporations- beyond the
Memorandum or Object
Insolvent-until obtain a certificate of discharge
Free Consent
 Two or more person are said to consent when they
agree upon the same thing in the same sense. (Sec
13) (Bala Devi v. S. Mazumdar)

 "Free consent" defined (Sec 14)

Consent is said to be free when it is not caused by –
1. coercion, as defined in section 15, or
2. undue influence, as defined in section 16, or
3. fraud, as defined in section 17, or
4. misrepresentation, as defined in section 18, or
5. mistake, subject to the provisions of section 20,21, and 22.
Consent is said to be so caused when it would not have been
given but for the existence of such coercion, undue influence,
fraud, misrepresentation, or mistake.
Free Consent- Coercion
 "Coercion" is the committing, or threatening to commit, any act 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. (Sec 15)
 Explanation: It is immaterial whether the Indian Penal Code (45 of 1860) is
or is not in force in the place where the coercion is employed.
 Include fear, physical compulsion and menace to goods.
 It may proceed from or may be directed against persons who are stranger to
contract.

 Threat to commit suicide? Ammiraju vs Seshamma- forbidden is wider than

punishable
 Threat to file a suit
Free Consent- Undue Influence
16. "Undue influence" defined
1. A contract is said to be induced by "undue influence" where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the will
of the other and uses that position to obtain an unfair advantage over the other.
2. In particular and without prejudice to the generally of the foregoing principle, a person is
deemed to be in a position to dominate the will of another -
a) where he hold a real or apparent authority over the other, or where he stands in a fiduciary
relation (holding of something in trust for another) to the other; or
b) where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
3. Where a person who is in a position to dominate the will of another, enters into a
contract with him, and the transaction appears, on the face of it or on the evidence
adduced, to be unconscionable, the burden of proving that such contract was not
induced by undue influence shall be upon the person in a position to dominate the will
of the other.
4. Parent and child, guardian and ward, doctor and patient, spiritual guru and disciple,
lawyer and client, trustee and beneficiary etc.
Coercion Distinguished from Undue
Influence

S. Point of Coercion Undue Influence

No difference
1.
Mode of It involves the physical force or threat. It involves moral or mental pressure.

Operation
2.
Relationship Existence of relationship between the Some kind of relationship between the

b/w parties parties is immaterial. parties is absolutely necessary.

3.
Nature of act Coercion entails committing or Committing or threatening to commit

threatening to commit an act forbidden by any illegal act is not the subject
IPC or detaining or threatening to detain
matter of undue influence.
any property of another person.
Coercion Distinguished from Undue
Influence
4 Presumption by The law under no circumstances presumes Law in certain types of relationships can

law the use of coercion. presume undue influence e.g., in case of

a contract with a pardanashin woman.

5 Rights available The contract is voidable at the option of the In case of undue influence, the Court

party whose consent has been obtained by has the discretion to direct the

coercion. But any benefit received by the aggrieved party to return the benefit in

aggrieved party has to be restored to the whole or in part, or rescind the contract

other party under Section 64. without any such direction.

6. Nature of Coercion not only renders the contract Undue influence involves no criminal

liability voidable, at the option of the aggrieved liability except an action on the contract.

party, party exercising it exposes itself to

criminal liabilities too.

7. Third party Coercion may proceed from even a stranger. It is always employed by one contracting

party upon the other.

Free Consent- Misrepresentation
"Misrepresentation" means and includes –
1. the positive assertion, in a manner not warranted by the
information of the person making it, of that which is not true,
though he believes it to be true;
2. any breach of duty which, without an intent to deceive, gains an
advantage to the person committing it, or anyone claiming under
him; by misleading another to his prejudice, or to the prejudice of
any one claiming under him;
3. causing, however innocently, a party to an agreement, to make a
mistake as to the substance of the thing which is subject of the
agreement.

 Misrepresentation may be innocent, negligent, or willful

 Distinction between fraud and misrepresentation
 Intention (not/to deceive), belief, remedy, discovery of truth
Free Consent- Misrepresentation
 There should be a representation or assertion, made
innocently, believing it to be true and without an intent to
deceive the other party.
 The representation or assertion should be of facts material to
the agreement. A mere expression of opinion or hearsay, or
commendation (i.e., reasonable praise) cannot be regarded
as misstatement of facts even if the same turn out to be
untrue.
 The statement must be untrue or turned out to be untrue but
was made with an honest belief in its truth.
 The person to whom the misrepresentation was made must
have relied on it in the sense that it must have induced him to
enter in to the contract.
 A party cannot complain of misrepresentation if ‘he had the
means of discovering the truth with ordinary diligence’.
Free Consent- Misrepresentation
 Classification.
 Unwarranted Statements of Material Facts. Where a person makes a positive statement of
material facts not warranted by his information say without any reasonable ground, believing it to
be true though it is not true, such act amounts to misrepresentation.
 Breach of Duty which brings Advantage to the Person Committing it When a person
commits a breach of duty which, without an intent to deceive, brings an advantage to him or
anyone under him by misleading another to his prejudice or to the prejudice of anyone claiming
under him it amounts to misrepresentation.
The above provision presupposes:
 That the representor owes a duty to the representee in respect of the statement;
 That the representor makes a statement innocent or negligent;
 That the representee is misled to his prejudice; and
 That the representor derives some benefit and causes loss to the other party.
 Inducing Mistake about Subject matter: If one of the contracting parties leads the other,
however innocently, to commit a mistake as to the nature or quality of the subject matter, there is
misrepresentation. The cases of concealment or suppression of vital information may also fall
under this group. This is so because the concealment or suppression of material facts by one
party may induce other party to commit a mistake about the subject matter of the agreement.
Free Consent- Fraud
"Fraud" means and includes any of the following acts committed
by a party to a contract, or with his connivance, or by his agents,
with intent to deceive another party thereto or his agent; or to
induce him to enter into the contract;
1.the suggestion as a fact, of that which is not true, by one who
does not believe it to be true;
2.the active concealment of a fact by one having knowledge or
belief of the fact;
3.a promise made without any intention of performing it;
4.any other act fitted to deceive;
5.any such act or omission as the law specially declares to be
fraudulent. (Sec 17)

6.Silence??
Duty to speak (utmost good faith) and where equivalent to speech
Free Consent
 19. Voidability of agreements without free consent
 When consent to an agreement is caused by coercion, [***] fraud or
misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused. A party to
contract, whose consent was caused by fraud or misrepresentation,
may, if he thinks fit, insist that the contract shall be performed, and
that he shall be put on the position in which he would have been if
the representations made had been true.
 Exception : If such consent was caused by misrepresentation or by
silence, fraudulent within the meaning of section 17, the contract,
nevertheless, is not voidable, if the party whose consent was so
caused had the means of discovering the truth with ordinary
diligence.
 Explanation : A fraud or misrepresentation which did not cause the
consent to a contract of the party on whom such fraud was
practised, or to whom such misrepresentation was made, does not
render a contract voidable.
Free Consent
 19-A. Power to set aside contract induced by
undue influence - When consent to an
agreement is caused by undue influence, the
agreement is a contract voidable at the option of
the party whose consent was so caused.

 Any such contract may be set aside either

absolutely or, if the party who was entitled to
avoid it has received any benefit thereunder,
upon such terms and conditions as the Court
may deem just.
Free Consent- Mistake

Mistake may be defined as a erroneous

belief concerning something. It is of two
kinds:
Mistake of law- of the country and foreign law
Mistake of fact- bilateral and unilateral
Free Consent- Mistake of Fact
Bilateral Mistake- when both parties to the
agreement are under a mistake of fact
essential to an agreement; the agreement
is void ab initio.
Mistake as to the existence of the subject
matter
Mistake as to the identity of the subject matter
Mistake as to the title to the subject matter
Mistake as to the quantity of subject matter
Mistake as to the quality of subject matter
Mistake as to the price of the subject matter
Free Consent- Mistake of Fact
 Unilateral mistake- a contract is not voidable
merely because it was caused by one of the
parties to it being under a mistake as to a matter
of fact. (Sec 22)
 Exception to the above rule
Where the mistake is as to the nature of the contract.
Mistake as to the identity of the person contracted with
Free Consent- Mistake of Law

Effect of mistake as to law: A contract is

not voidable because it was caused by a
mistake as to any law in force in India;

but mistake as to a law not in force in India

(Law of a foreign country) has the same
effect as a mistake of fact and agreement
in such a case is void.
Understanding the difference
 Misrepresentation occurs when a person makes an untrue assertion of fact (or in some
cases an omission of fact). It is based on someone's actions.
 Fraud is essentially knowing or intentional misrepresentation, and is differentiated from
negligent misrepresentation and innocenent misrepresentation. Negligent
misrepresentation occurs when a person did not know he or she was making a
misrepresentation when he or she should have known that he or she was doing so.
Innocent misrepresentation is where there was a misrepresentation but the person making
the misrepresentation had no duty to know that it was.
 Mistake is where someone believes that a fact was true when in fact it was not. It is based
on someone's belief.
 Difference in remedy:
 Mistake voids a contract, so third party rights are irrelevant.
 Misrep, however, merely makes a contract voidable.

 Mutual or common mistake--for example where the subject matter of a contract is destroyed or
rendered substantially different after formation
 Mistake of identity
 In Spice Girls Ltd v Aprilia World Service (2002) the Spice
Girls had made a misrepresentation by conduct when they
participated in a photo shoot to promote a contract with
Aprilia. At the time of entering the contract Aprilia believed
that all the Spice Girls would remain members of the group
until the end of the tour. However, at the time of entering the
contract, the Spice Girls were aware that Geri Halliwell, one of
the members of the group, was going to leave the group on
27 May 1998. Aprilia claimed that the Agreement had been
induced by misrepresentation.

 Misrepresentation had also taken place, according to the

Court of Appeal, by the group members participating in such
things as logos, images and other material which suggested
that there were five members of the Spice Girls.
Performance of the Contract (Sec 37-67)
Obligations of parties to contract (Sec 37)
 The parties to a contract must either perform,
or offer to perform, their respective promises,
unless such performance is dispensed with or
excused under the provision of this Act, or of
any other law.

 Promises bind the representative of the

promisor in case of the death of such
promisors before performance, unless a
contrary intention appears from the contract.
Performance of the Contract (Sec 37-67)
Effect of refusal to accept offer of performance (Sec 38)
 Where a promisor has made an offer of performance to the
promisee, and the offer has not been accepted, the promisor
is not responsible for non-performance, nor does he thereby
lose his rights under the contract.
 Every such offer must fulfill the following conditions –
 (1) it must be unconditional;
 (2) it must be made at a proper time and place, and under such
circumstances that the person to whom it is made may have a
reasonable opportunity of ascertaining that the person by whom it is
been made is able and willing there and then to do the whole of
what he is bound by his promise to do;
 (3) if the offer is an offer to deliver anything to the promisee, the
promisee must have a reasonable opportunity of seeing that the
thing offered is the thing which the promisor is bound by his promise
to deliver. An offer to one of several joint promisees has the same
legal consequences as an offer to all of them.
Performance of the Contract (Sec 37-67) –
Who should perform?

Person by whom promises is to be

performed (Sec 40)
 If it appears from the nature of the case that it
was the intention of the parties to any
contract that any promise contained in it
should be performed by the promisor himself,
such promise must be performed by the
promisor.
 In other cases, the promisor or his
representative may employ a competent
person to perform it.
Performance of the Contract (Sec 37-67)
 Contracts which need not be performed
If the parties mutually agree to substitute the original
contract by a new one or to rescind (to repeal or annul)
or alter it (Sec 62).
If the promisee dispenses with or remits (diminish),
wholly or in part the performance of the promise made
to him or extends the time for such performance or
accepts any satisfaction for it (Sec 63).
If the person, at whose option the contract is voidable,
rescinds it (Sec 64).
If the promisee neglects or refuses to afford the
promisor reasonable facilities for the performance of his
promise (Sec 67).
Performance of the Contract (Sec 37-67)
Performance of Joint promises
Devolution of Joint Liabilities (Sec 43)
 When two or more persons make a joint promise, the promisee may, in the absence
of express agreements to the contrary, compel any one or more of such joint
promisors to perform the whole promise.
Each promisor may compel contribution: Each of two or more joint promisors may
compel every other joint promisor to contribute equally with himself to the
performance of the promise, unless a contrary intention appears from the contract.
 Sharing of loss by default in contribution: If any one of two or more joint promisors
make default in such contribution, the remaining joint promisors must bear the loss
arising from such default in equal shares.
Effect of release of one joint promisor (Sec 44)
 Where two or more persons have made a joint promise, a release of one of such joint
promisors by the promisee does not discharge the other joint promisor, neither does it
free the joint promisor so released from responsibility to the other joint promisor or
joint promisors.
Devolution of joint rights (Sec 45)
 When a person has made a promise to two or more persons jointly, then unless
contrary intention appears from the contract, the right to claim performance rests, as
between him and them, with them during their joint lives, and, after the death of any
one of them, with the representative of such deceased person jointly with the survivor
or survivors, and, after the death of the last survivor, with the representatives of all
jointly.
Performance of the Contract (Sec 37-67)
Time, Place and Manner of Performance
Time for performance of promise, where no application is to be made and no time is
specified (Sec 46) - Where, a promisor is to perform his promise without application by the
promisee, and no time for performance is specified, the engagement must be performed within
a reasonable time.
Time and place for performance of promise, where time is specified and no application
to be made (Sec 47) - When a promise is to be performed on a certain day, and the promisor
has undertaken to perform it without the application by the promisee, the promisor may perform
it at any time during the usual hours of business on such day and at the place at which the
promise ought to be performed.
Application for performance on certain day to be at proper time and place (Sec 48) -
When a promise is to be performed on a certain day, and the promisor has not undertaken to
perform it without application by the promisee, it is the duty of the promisee to apply for the
performance at a proper place within the usual hours of business.
Place for the performance of promise, where no application to be made and no place
fixed for performance (Sec 49) - When a promise is to be performed without application by
the promisee, and no place is fixed for the performance of it, it is the duty of the promisor to
apply to the promisee to appoint a reasonable place for the performance of the promise, and to
perform it at such a place.
Performance in manner or at time prescribed or sanctioned by promise (Sec 50) - The
performance of any promise may be made in any manner, or at any time which the promisee
prescribes or sanctions.
Performance of the Contract (Sec 37-67)
Performance of Reciprocal promises
 51. Promisor not bound to perform, unless reciprocal promisee ready and willing to
perform
 When a contract consists of reciprocal promises to be simultaneously performed, no
promisor need perform his promise unless the promisee is ready and willing to
perform his reciprocal promise.

 52. Order of performance of reciprocal promises

 Where the order in which reciprocal promises are to be performed is expressly fixed
by the contract, they shall be performed in that order, and where the orders is not
expressly fixed by the contract, they shall be performed in that order which the nature
of transaction requires.

 53. Liability of party preventing event on which contract is to take effect

 When a contract contains reciprocal promises and one party to the contract prevents
the other from performing his promise, the contract becomes voidable at the option of
the party so prevented; and he is entitled to compensation from the other party for any
loss which he may sustain in consequence of the non-performance of the contract.

 54. Effect of default as to the promise which should be performed, in contract consisting or
reciprocal promises
 When a contract consists of reciprocal promises, such that one of them cannot be
performed, or that its performance cannot be claimed till the other has been
performed, and the promisor of the promise last mentioned fails to perform it, such
promisor cannot claim the performance of the reciprocal promise, and must make
compensation to the other party to the contract for any loss which such other party
may sustain by the non-performance of the contract.
Performance of the Contract (Sec 37-67)
Effect of Failure to perform at a fixed time (Sec 55)
 When a party to a contract promises to do a certain thing at or before a
specified time, or certain thing at or before a specified time and fails to do
such thing at or before a specified time, the contract or so much of it as
has not been performed, becomes voidable at the option of the promisee,
if the intention of the parties was that time should be of essence of the
contract.
 If it was not the intention of the parties that time should be of the essence
of the contract, the contract does not become voidable by the failure to do
such thing at or before the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to him by such
failure.
 If, in case of a contract voidable on account of the promisor's failure to
perform his promise at the time agreed, the promisee accepts
performance of such promise at any time other than agree, the promisee
cannot claim compensation of any loss occasioned by the non-
performance of the promise at the time agreed, unless, at the time of
acceptance, he give notice to the promisor of his intention to do so.
 Discharge of Contract
 A contract may be discharged (Rights and
obligations created by it come to an end) in
following ways:
By performance or tender
By mutual consent
By subsequent impossibility
By operation of law
By breach

 By performance or tender:
the obvious mode of discharge is by performance,
that is, the parties have performed or offer to
perform, their respective promises.
The offer of performance or tender has the same
effect as performance.
 Discharge of Contract
 By mutual consent:
 If the parties to a contract agree to substitute a new contract
for it, or to rescind or alter it, the original contract is
discharged. [Sec 62]
 Novation – substitution of new contract for the original one;
either between same parties or different parties.
 Rescission – cancellation of all or some of the terms by mutual
agreement
 Alteration – changing of certain terms by mutual agreement
 Remission – acceptance of a lessor some than what was
contracted for or a lesser fulfillment of the promise made.
(without consideration)
 Waiver – relinquishment or abandonment of a right.
 Merger – where an inferior right possessed by a person
coincides with a superior right of same person.
 Discharge of Contract
By subsequent impossibility [Sec 56]
An agreement to do an act impossible in itself
is void.
Contract to do an act afterwards becoming
impossible or unlawful: A contract to do an act
which, after the contract is made, becomes
impossible or, by reason of some event which
the promisor could not prevent, unlawful,
becomes void when the act becomes
impossible or unlawful.
Subsequent impossibility in England is
referred to as ‘Doctrine of Frustration’.
 Discharge of Contract
By subsequent impossibility [Sec 56]
A contract is deemed to have become
impossible of performance under following
circumstances:
Destruction of subject matter of the contract.
By the death or disablement of the parties.
Subsequent illegality
Declaration of war
Non-existence or non-occurrence of a particular
state of things
 Discharge of Contract
Exceptions: apart from cases mentioned above,
impossibility does not discharge contract.
Some of the circumstances in which a contract is
not discharged on the ground of subsequent
impossibility are:
Difficulty of performance
Commercial impossibility
If the third person, on whose work the promissor relied
fails to perform
Strikes, lockouts and civil disturbances
Failure of one of the objects
 Discharge of Contract
Effect of Supervening Impossibility
 A contract to do an act which, after the contract is made,
becomes impossible or, by reason of some event which
the promisor could not prevent, unlawful, becomes void
when the act becomes impossible or unlawful.

 Where one person has promised to do something which

he knew or, with reasonable diligence, might have known,
and which the promisee did not know to be impossible or
unlawful, such promisor must make compensation to such
promisee for any loss which such promisee sustains
through the non-performance of the promise.

 When an agreement is discovered to be void, or when a

contract becomes void, any person who has received any
advantage under such agreement or contract is bound to
restore, it, or to make compensation for it, to the person
from whom he received it.
 Discharge of Contract
By operation of law
Discharge under this head may take place as
follows:
By death
By insolvency
By merger
By the unauthorized alteration of terms of a written
document
 Discharge of Contract
By breach of Contract
Breach may arise in two ways:
Anticipatory breach – when a party repudiates the
C before the time fixed for performance arrived or
when a party by his own act disables himself from
performing.
Consequences: promisee may either
• (1) rescind the contract and treat the contract as at an
end, and at once sue for damages, or
• (2) may elect not to rescind but to treat the C operative
and wait for the time of performance and then hold the
other party liable for the consequence.
In later case the party who has repudiated may still
perform if he can.
Thus the C is discharged only when the aggrieved
party accepts the repudiation of the contract i.e.
elects to rescind the contract.
 Discharge of Contract
 Actual breach – may take place
 (a) at the time when performance is due – person does not perform his
part at the stipulated time.
 55. Effect of failure to perform at fixed time
 When a party to a contract promises to do a certain thing at or before a
specified time, and fails to do such thing at or before the specified time, the
contract or so much of it as has not been performed, becomes voidable at
the option of the promisee, if the intention of the parties was that time should
be of essence of the contract.
 If it was not the intention of the parties that time should be of the essence of
the contract, the contract does not become voidable by the failure to do such
thing at or before the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to him by such
failure.
 If, in case of a contract voidable on account of the promisor's failure to
perform his promise at the time agreed, the promisee accepts performance
of such promise at any time other than agreed, the promisee cannot claim
compensation of any loss occasioned by the non-performance of the
promise at the time agreed, unless, at the time of acceptance, he give notice
to the promisor of his intention to do so.
 (b) during the performance one party fails or refuses to perform his
obligation.
 Remedies for Breach of a Contract

As soon as either party commits a breach

of the contract, the other party becomes
entitled to any of the following relief:
Rescission of the contract
Damages for the loss sustained or suffered
A decree for specific performance
An injunction
Suit on Quantum Meruit
 Remedies for Breach of a Contract
 Rescission of the contract
 When a breach is committed by one party, the other party may
sue to treat the contract as rescinded. In such a case the
aggrieved party is freed from all obligations under the contract.
 Person rescinding the C is entitled to compensation for any
damage which he has sustained because of non-fulfillment of C.

 Damages
 Generally speaking are of four kinds:
 Ordinary damages
 Special damages
 Vindictive, or Punitive or Exemplary damages
 Nominal damages
Remedies for Breach of a Contract
 A decree for specific performance
 Where damages are not adequate remedy, the court may direct the
party in breach to carry out his promise according to terms of the
contract. This is called specific performance of contract. Generally it
is granted where:
• Monetary compensation is not an adequate relief
• The contract is of a personal nature
• Where it is not possible for the Court to supervise the performance of
the contract
• The contract is made by a company beyond its objects
 An injunction
 Means an order of the court. Where a party is in breach of a
negative term of contract (does something which he promised not to
do) , the Court may, by issuing an order, prohibit him from doing so.
 Suit on Quantum Meruit
 Means as much as is merited (earned). The normal rule is that
unless a party has performed his promise entirely, it can not claim
performance from other. However there are certain exceptions to
this rule.