Contract

Act,1872
BUS 361

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 Chapter – 1
Nature and Essential
of a Contract

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Business Law
 What is a Contract?

• A legally binding agreement. In other words,… “A

promise or set of promises which the law will
enforce”.

• The agreement will create rights and obligations that

may be enforced in the courts.

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What is a Contract?

The normal method of enforcement is an action

for damages for breach of contract, though in
some cases the court may order performance by
the party in default.
Contract Act, 1872

Notion of Free Contract

The parties must have entered into the
agreement freely.
The purpose of the agreement must not be
illegal or contrary to public policy.
 
Form of Contracts
1) Written
2) Oral
3) Partly oral and written
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Contract Act, 1872

Essential of Valid Contract

1) Agreement- One party make the offer, another
party accepts the offer and both achieve consensus
ad idem (meeting of the minds)

2) Consideration- Both parties must have provided

consideration, ie, each side must promise to give or
do something for the other.

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Essential of Valid Contract

3) Intention to create legal relations- The parties

must have intended their agreement to have legal
consequences. The law will not concern itself with
purely domestic or social agreements.

4) Capacity- The parties must be legally capable

of entering into a contract.

5) Absence of Vitiating factors- Absence of factors

that are going to invalidate a contract, ie : duress
or undue influence, mistake, misrepresentation,
illegality
Contract Act, 1872

2 classes of Contract

•Deed: A deed is a formal legal document signed,

witnessed and delivered to effect a conveyance or
transfer of property or to create a legal obligation.

• Simple contracts are informal contracts and may be

made in any way – in writing, orally or they may be
implied from conduct
 
 

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Bilateral & Unilateral

Bilateral contracts

• A promise by one party in exchanged for

a promise by another party
Offeror and Offeree
• A one to one contract. Example : Sale of
goods contract
• The Buyer promises to pay the price
• The Seller promises to deliver the goods
Unilateral contracts

• A promise by one party in exchanged for an

action by another party

Example: X promises a reward to anyone who

will find his lost wallet. X bound himself to the
promise, but no one is bound to search for the
lost wallet. But if Y, having seen the offer,
recovers the wallet and returns it, he is entitled to
the reward.
Contract Act, 1872

Enforceability Void contracts

• The whole transaction is regarded as a nullity, as though as there has been no contract
between the parties.

• Any goods or money obtained under the agreement must be returned.

• Where items have been resold to a 3rd party, they may be recovered by the original
owner
 

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Voidable contracts

A voidable contract will operate as a valid

contract unless and until one of the parties takes
steps to avoid it.

• Anything obtained under the contract must be

returned, insofar as this is possible.

• If goods have been resold before the contract

was avoided, the original owner will not be able
to reclaim them.
Contract Act, 1872

Chapter – 2

OFFER
AND
ACCEPTA
NCE
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Contract Act, 1872

OFFER AND ACCEPTANCE

• Formation of Agreement required two steps ,
making of a proposal by one person and
acceptance of this proposal by other.
• Agreement= Offer + their acceptance

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Contract Act, 1872

The Proposal or Offer

definition: “When one person signifies to
another his willingness to do or to
abstain from doing anything, with a view
to obtaining the assent (acceptance) of
that other to such act or abstinence, he
is said to make a proposal”
e.g. R tells S : “ I am ready to sell my machine for
Rs.9000,are you ready to buy”.
This is clear offer from R to S.

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Contract Act, 1872

Requirements for Valid Offer

1.Offer must be expressed or implied
-Must be made in a manner which leave no doubt about
it.
-Proposal made in words, the promise is said to be
express, and proposal made otherwise than in words, it is said
to be implied.
e.g. B tells S : “Can you repair my computer?” –
Express
offer
A street seller of photo-albums quietly extends a
piece before a passer –by who takes it in his possession.-
Implied offer to sell.
2.Offer must intend to create legal
relation 3.Offer must be certain and not vague in
meaning- Offer must be definite and certain in
meaning 16
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Contract Act, 1872

4.Offer may be specific or General

There must be destination of offer.

-If offer is targeted for one specific person, it is
called a specific offer.
-If it is targeted for the whole world at large, it
is called general offer. e.g. Advertisement

5. Offer must be communicated

Lalman Shulka vs Gauri Dutt

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Lalman Shulka vs Gauri Dutt

Gauri Dutta Vs. Lalman Shukla Allahabad High Court

(1913)
There are three main Characters in this case. Servant
(Lalman Shukla) Gauri Dutt Nephew

One Fine Day Gauri Dutt Nephew Nephew Went Missing

Lalman Shukla was sent for the search Gauri Dutt Called
servant with railway and other expenses. Gauri Dutt
Gauri Dutt Announced who so ever finds the missing
nephew will be rewarded with Rs.500.
Suddenly after some time Lalman Shukla brought back
nephew at home.
Gauri Dutt vs Lalman Shukla

But, Gauri Dutt refuses to give reward money of Rs. 500

to Lalman Shukla.

Now Question Arises 1) Does it become contract?

2) Is he liable to get money from Gauri Dutt or not?

CONTRACT: An agreement enforceable by law is a

contract.
Offer + Acceptance = Agreement

Agreement + Enforceable by law = Contract

 
Essential of Offer & Acceptance

OFFER
• Existence of two parties.
• Offer may be express or implied.
• Offer must be communicated
• Offer must be made to create legal obligation.

ACCEPTANCE
• Acceptance must be made within a Reasonable time .
• Acceptance may be express or implied.
• Acceptance must be communicated to the Offeror
 Judgment

According to Contract Act 1872, Lalman shukla is not

liable to get award money because offer given by the
Gauri dutt was not accepted by the Lalman Shukla, so
Gauri Dutt bound to refuse the claim made by Lalman.
6.Offer must be distinguished from
invitation to offer

e.g. Availability of Books in Book Store being

available for letting out. Display of suit with
price tag-All are example of invitation to offer.
Advertiser may or may not sell this.

e.g. Publishing of Time Table by railways are

example of expression of an intention.
Contract Act, 1872

What is difference between Invitation to Offer and General

Offer?
Invitation to Offer: Aims at taking the customer to the
advertiser to start negotiation.
General Offer: Aims at leading the offeree (to whom offer
made) to the performance of specified condition which
would amount to acceptance of offer.
7.An Offer should not contain a term forcing an action
on Offeree
e.g. B tells S that in case no reply is receiving from S
within 7 days , it will treated as acceptance of his offer.
S are not bound by this offer.

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Contract Act, 1872

The Acceptance

“When a person to whom the proposal is made , signifies

his assent thereto, the proposal is said to be acceptance.”
A proposal , when accepted become a promise.
Requirements for Valid Acceptance
1.By a proper person-
-The proper person to accept the offer is the one to
whom it is targeted.
-Offeror cannot be forced to be bound in a contract
with a person with whom he did not want to be involved.

2..Within proper time

Time specified by Offeror.
e.g. Advertisement of IPO

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Contract Act, 1872

3.Must be absolute and unqualified(total and without

condition)
Offeree should neither add to nor reduce from the
offer anything from his side.
-B offer to sell his Car to S at tk.200,000. S accept the
offer with the condition that payment shall take after
a month.
This is counter offer from S to B. The offer
from B stand rejected.

4. Must be Communicated
Mental acceptance is no acceptance.

5. Must be given in a proper Mode.

-If Offeror prescribed ay mode of acceptance , it must
be adopted by offeree for acceptance. E.g. by fax, by
mail, by registered post etc

e.g. A makes an offer to B and says : “If you accept the

offer, replay by e-mail only.” B send the reply by post.
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Contract Act, 1872
6.Accepatnce must succeed the offer
Two identical cross offers can not form an
agreement.
e.g. A sends a letter to B containing an offer. Almost
at the same time, B also sends a latter to A containing an
offer on exactly same lines The two offer cross each other
during postal journey. So they called identical cross offer.
Can both of them together form an agreement between A and
B on the logic that they represent a common desire and
common understanding ?
Only two offer are made and there is no
acceptance.

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Contract Act, 1872

7. Offer once rejected can not be accepted.

B makes an offer to give job to S tk. 7000 pm salary. S says,
“No, I want Rs. 8000 pm month. B refuses. S says, “ Alright , I will
work for Rs.7000”. B says , “I am not interested in you.” There is no
contract between B and S because B’s initial offer came in to end
with its rejection by S through a counter offer. Now, it is S’s offer to
work for Rs. 7000 which B is rejecting. (Hyde vs Wrench)

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Hyde v Wrench (1840) 49 ER 132

Facts
The defendant, Mr Wrench, offered to sell the farm he
owned to the complainant, Mr Hyde. He offered to sell the
property for £1,200, but this was declined by Mr Hyde.
The defendant decided to write to the complainant with
another offer; this time to sell the farm to him for £1,000.
He made it clear that this would be his final offer
regarding the property. In response, Mr Hyde offered
£950 for the farm in his letter. This was refused by Mr
Wrench and he confirmed this with the complainant. Mr
Hyde then agreed to buy the farm for £1,000, which was
the sum that had previously been offered.  However, Mr
Wrench refused to sell his farm.
Hyde v Wrench (1840) 49 ER 132

Held
The court dismissed the claims and held that there was
no binding contract for the farm between Mr Hyde and Mr
Wrench. It was stated that when a counter offer is made,
this supersedes and destroys the original offer. This
original offer is no longer available or on the table. In this
case, when Mr Hyde offered £950, he cancelled the
£1,000 offer and could not back track and accept.
Contract Act, 1872

Communication of Offer, Acceptance and

Revocation
1. Communication of Offer
An offer is said to have been made when it
comes to knowledge of the other person for
whom it was intended.
2. Communication of Acceptance
For Acceptance two steps required: (i)
Offeree transmits his acceptance and (ii)
Message reaches the Offeror.
Brogden Vs Metropolitan railways Co.

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Brogden Vs Metropolitan railways Co.

The complainants, Brogden, were suppliers of coal to the

defendant, Metropolitan Railway. They completed
business dealings regarding the coal frequently for a
number of years, on an informal basis. There was no
written contract between the complainant and the
defendant. However, the parties decided that it would be
best for a formal contract to be written for their future
business dealings. The Metropolitan Railway made a
draft contract and sent this to Brogden to review.
Brogden Vs Metropolitan railways Co.

The complainant made some minor amendments to this

draft and filled in some blanks that were left. He sent this
amended document back to the defendant. Metropolitan
Railway filed this document, but they never
communicated their acceptance of this amended contract
to the complainants. During this time, business deals
continued and Brogden continued to supply coal to the
Metropolitan Railway.
Brogden Vs Metropolitan railways Co

Held
The House of Lords held that there was a valid contract
between suppliers, Brogden and the Metropolitan
Railway. The draft contract that was amended constituted
a counter offer, which was accepted by the conduct of the
parties. The prices agreed in the draft contract were paid
and coal was delivered. Although there had been no
communication of acceptance, performing the contract
without any objections was enough.
Communication of acceptance from
offeree and offeror

i. Communication of acceptance from offeree is binding

upon the Offeror as soon as the latter of acceptance is
posted so as to be beyond the Offeree’s control.

ii. Communication of acceptance from offeree is

binding upon the offeree himself only when it comes
to the knowledge of the Offeror.
Contract Act, 1872

e.g. Mr. X sends a latter of offer to Y on August 5 which

may reach Y on August 10. Y post his latter of
acceptance on August 1 5 which may comes to
knowledge of X on August 20.
Offer said to be made on = August 10
Offer said to be accepted for Y on = August 1 5
Offer said to be accepted for X on = August 20
Position of time gap between August 1 5 to August 20 =
This time is available for Y to withdraw his acceptance.

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Contract Act, 1872

3.Communication for Revocation

Sec 5 provide rule about revocation of offer and
acceptance. It states:
“A proposal may be revoked at any time before the
communication of its acceptance is complete from
acceptor as against the proposer, but not afterward.”
“An acceptance may be revoked at any time before the
communication of the acceptance is complete as
against the acceptor ,but not afterward.”

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Contract Act, 1872

X makes an offer to Y on 5th May, it reach to Y on 10th May.

Y posted of his acceptance to X on 15th May. It reaches to X
on 20th May.

X send withdrawal of his offer on 9thMay, it reaches to

Y on 14th May.
-It will come to effect on 14th May only, even though X
send on 9thMay. It is called revocation of offer.

Y send withdrawal of his acceptance on 17th May , it reaches

to X on 19th May.
-It will come to effect on 19th May only, not on 17th May. It is
called revocation of Acceptance.

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Contract Act, 1872

1. X makes an offer to Y on 1th May, it reach to Y on 5th June.

When Offer is completed?
-It is competed only on 5th June.

2. Y posted of his acceptance to X on 10th June. It reaches

to X on 30th June. When acceptance is completed?
- It is completed only on 30th June.

3. X want to withdraw his offer, which is the last date?

-It must be before 10th June, not thereafter.

4. Y want to cancel his acceptance, which is the last date

for cancellation?
-It must be before 30th June, not thereafter.

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usinusinesesss LLawaw
Contract Act, 1872

• Loss of letter of Acceptance in the Postal transit

– Acceptance is complete as against Offeror as soon
as the latter of acceptance is posted. The contract
is completed even if the latter of acceptance lost in
the post.
– But it is important that the latter of acceptance is
correctly addressed, sufficiently stamped and
posted.
• Contract over telephone or telex or oral
communication
– The offeree must make sure that his acceptance is
properly received i.e. heard and understood by the
Offeror.

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Contract Act, 1872

When does an offer come to an end?

An offer come to end by Two Revocation or laps

and Rejection of Offer.

A. Revocation or laps or Withdrawal of Offer By

communication of notice of revocation by Offeror
before its acceptance is completed against him

1. By laps of time
- X offer Y to sell some goods on 1 s t May and
agreed to give him three days time to accept. Y
accepted
offer on 5 t h May.

3. By non-fulfillment of condition by offeree

- X offer to sell some goods to Y, if Y give full
amount before certain date. 40
Contract Act, 1872
4. By death of Offeror
- If offeree accept the offer in ignorance of the
death of Offeror, the acceptance is valid.

5. If counter offer is made

6. If Offer is not accepted according to prescribed

mode

7. If law is change

B. Rejection of Offer by Offeree

1.Express Rejection i.e. by words written or spoken
2.Implied rejection
-when offeree make counter offer
-When offeree make conditional acceptance
-Not following prescribed time

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Contract Act, 1872

Legal Rules as to Consideration

1.Consideration at the desire of the promisor

e.g. A saves B’s goods from fire without being asked to do
so. A can not demand payment for his service.
2. Consi. from promisee or any other person.
It is immaterial who provides the consideration for a
person’s promise so long as consideration is there.
3. Con. may be past, present or future.
Past Con. : A finds B’s Son and B promises to pay
A 10000.
Present Con. : At the time of making promise
Future Con. : A promises to deliver goods to B when the
ship arrives and b promises to pay A Rs 1000 against the
receipts of goods. Its future, as both the parties will
perform after the arrival of ship.

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Contract Act, 1872

4. Con. need not be adequate

e.g. X sell his house worth Rs 1 lac for Rs. 100 to Y.
5. Con. must be real and not illusory.
i. Physically Impossibility
e.g. X promises to put life into Y’s dead wife should Y
pay him Rs. 500.
ii. Legal Impossibility
iii. Uncertain Consideration
6.Con. must be something which promisor not already bound
to due.
e.g. There was a promise to pay to the Vakil an additional
sum if the case was successful.
7.It must not be illegal, immoral or opposed to public policy.

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Contract Act, 1872

Exceptions
1.Love and Affection
e.g. A father promises to pay his son 1000 out of affection and
love and registers it. It’s a contract
2.Compensation for voluntary services
e.g. X finds Y’s purse and give it to him. Y promises to give X
Rs.
50. This is contract.

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Contract Act, 1872

Capacity to Contract

‘Capacity’ means Competency of the parties to enter into a valid contract.

Sec.11 declares the following persons to be incompetent to contact:

i. Minor
ii. Persons of Unsounded Mind
iii. Persons disqualified from any other law.

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Contract Act, 1872

Minor
• a person who has completed his 18th
year of age is considered too be
minor.

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Contract Act, 1872
• Law Relating to minor’s Agreements:
“NO LEGAL ACTION TAKEN AGAINST MINOR”

1.Absolutly Void
Agree. of minor is absolutely void and nullify.
e.g. A minor take loan of Rs. 20000 from moneylender and
put mortgage of his house in favor of moneylender. Later,
minor started an action to get the mortgage cancelled.

2. Agree. may be enforced for minor’s benefits.

e.g. A minor may give loan to a person and the
borrower may refuse to return money on the ground
that agreement is void.
-Fundamental rule, aim to protect the minor.

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Contract Act, 1872

3. “Rule of Estoppel” does not apply against minor

-If minor mislead the other party to believe that he is
of the majority age, and then some benefits get under an
agreement , he will be permitted to deny latter the fact that
he was of minority age. Thereby , he will have no liability
towards the other party.

4. Normally , no restitution would be permitted

-No recovery from Minor

5.Apprenticeship agreements are enforceable

Such Agreement are made for minor’s benefit to enable him
to acquire skill under trained person for future.

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Contract Act, 1872
6. Service argee. for minor is not enforceable
e.g. Film Producer agreed with the guardian of minor girl to
give to the girl the role in his film. Later, he gave role to
other girl. Can girl make case on Film producer?

7. Normally , specific performance of promises shall not be

ordered.
Agree. By minor may be ordered for specific performance if
some condition are satisfied.
i. It is made by guardian on behalf
ii. The Guardian is competent to make that agreement
iii. The agreement for minor’s benefit

8. No ratification on attaining majority age.

e.g. K (minor) take loan from B of Rs.10000 and give
promissory note in favor of B .K will not be liable under this
P/Note even after attaining majority age by K.

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Contract Act, 1872

9. Minor’s liability for necessaries

If person provide any support or necessities to minor who
are not enable to make contract, this person who had
provide necessity have right to reimburse from the
property of the minor, because it is benefit of the minor.
10. Minor as a member of partnership firm
-Minor can not be partner.
11. Minor as shareholder
A minor can become a shareholder in a company
through his guardian who will act as his trustee.
Minor directly can not entered into contract with the
company.
12. Minor as an agent
A minor can be appointed as a agent because agent do not
incur personal Liability

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Contract Act, 1872

13. Position of Minor’s Parents

-Parents are not liable for Minor’s act
14. Position of a joint contract of major and minor
-Minor will not be liable major (adult) are liable.
15. Insolvency of Minor
- Court can not be declared insolvency by court.

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Contract Act, 1872

Continued
• Contracts by person of unsound mind
– Contracts by lunatics
– Contracts by drunkards
• Contracts with Parda-Nishin women.
• Contracts by married women
• Contracts by corporation
• Contracts by insolvents

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Contract Act, 1872

Free Consent

According to Sec. 13 ‘Two or more person are said to consent when

they agree upon the same things in the same sense.’
This mean that there should be perfect identity of mind
(consensus ad idem) regarding the subject-matter of contract.
According to Sec. 14 consent is said to be free when it is not
caused by any of the following :
1. Coercion
2. Undue Influence
3. Fraud
4. Misrepresentation
5. Mistake

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Contract Act, 1872

• i. A has two cars, one blue and other red. He wants to

sell his blue car. B who knows of only A’s red car, offer
to purchase A’s car for Rs. 20000. A accept the offer
thinking that it is for his blue car. This is no consent
because both the parties are not understanding the
same things in the same sense.

• ii. If B goes to A and on the point of pistol asks A to

sell his red car for sum of Rs. 20000 to him, there is
consent because both are understanding that red car
is the subject matter of the consent, but the consent
is not free because it has been obtained by Coercion.

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Contract Act, 1872

Undue Influence
• Undue influence is the improper use of any power
possessed over the mind of the contracting party.
• According to Sec. 16 a contract is said to be affected by
undue influence when:
-(a) the relation subsisting between the parties are such
that one of the parties is in a position to dominate the
will of the other, and
(b) Use that position to obtain an unfair advantages over
other.

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Contract Act, 1872

• The person deemed to be in position to dominate the will

of the other.
- Where he holds a real or apparent authority over the
other like master and Servant , child and parents.

-Where he stand in a fiduciary relationship (Mutual

trust and confidence) like religious guru and follower,
doctor and patients, lawyer and clients.

- Where he makes a contract with a person

whose mental capacity is temporarily or
permanently affected by reason of age, illness or
mental or body distress.

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Contract Act, 1872

Burden of Proof
• The person who claim undue influence has to prove
that it was the cause of contract. He has to prove
that pre-existing relationship, the position of
domination, and the misuse of the position.

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Contract Act, 1872
Difference Between Coercion and Undue Influence
1. Mode of Obtaining Consent
- In Coercion ,Consent obtained by threatening to act.
- In U.I. , Consent obtained by using dominating power.
2. Type of Force
-In Coercion, physical force is exercised.
- In U.I. , Moral forced is used.
3. Existence of Relationship
-relationship between the promisor and the promisee is not
necessary.
-Some sort of relationship MUST exist between the two
parties to the contract.

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Contract Act, 1872

FRAUD
• Fraud means method of misleading a person deliberately
to cause in him a wrong understanding of so as to
obtaining that’s person’s consent for a contact.

• E.g. M falsely tells R that the car that he was offering to

sell was once owned by Sachin Tendulkar. This is a fraud
against R committed to obtain his consent to purchase
the car.

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Contract Act, 1872

MISREPRESENTATION
• Misrepresentation is a false representation made
innocently without any intention of deceiving the other
party. It may include two things:
(a) Wrong statement of a material facts not known to be
false
(b) Non-disclosure of the facts where there is a large
duty to disclose without any intention to deceive.

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Contract Act, 1872
Diff. between Fraud and Misrepresentation
1. Intention:
- In fraud, there is intention to deceive (mislead to
somebody).
-In Mis. , there is no intention to deceive.

2. Consequence:
-In Fraud, damage can be available to the affected
party for the loss suffered .
-In Mis. , no such damage are available.

3. Defense:
-In Fraud, the guilty party does not have any defense
in its favor.
In Mis. , the guilty party have defense in its favor.

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Contract Act, 1872

Mistake
• A mistake means an error in understanding the
fact relevant for formation of a contract.

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Contract Act, 1872

Case law
- X, a poor widow, borrowed Rs. 3000 from a money-lender at
100% per annum rate of interest for the purpose of enabling her
to establish her right of maintenance. Is she liable to replay the
loan on these terms?
- No, this is an unconscionable transaction and thus
amount to a contract caused by undue influence.
• A woman went to a jeweller, falsely represented herself to
wife of Sachin Tendulkar and took with her a ring on the pretext
be a
of getting the approval of her husband . She deposit the ring with
Mr. Kambli. Can the jeweller recover the ring from Mr. Kambli?
- Yes, because , there was a mistake of identity on the part of
the jeweller, Thus the agreement was void.

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Contract Act, 1872

Void Agreement
1. Agreement made by incompetent parties
2. Everybody is able to make contract except Minor,
Person of Unsounded mind,
Person who are disqualified by any other law.

2. Agree. the consideration or object of which is unlawful

in part.
3. I will kill you Mr. if you will give mw 100 bottle wine.

3. Agree. Made without consideration.

4. Agree. in restraint of marriage.
Freedom of choice in marriage has been guaranteed to
every person who is major in age.

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Contract Act, 1872

5. Agree. in restraint of trade. X and Y were competitor

shopkeeper in a locality in Surat. Y agreed to pay X , a sum of
money if he would close his business in that locality.. X did so
but Y refuse to pay money.
6. Agree. in restraints of legal proceeding
7. Agree. the meaning of which is uncertain.
8. Agree by way of wager.
A agrees with B that if there is a rain on a certain day,
A will pay B Rs. 50. If there is no rain B will pay Rs. 50.
A bet on horse race.
A bet on winning or loosing of cricket match.
9. Agree to do impossible act.
10. Agreement made under a mutual mistake of the fact.

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Contract Act, 1872

• Agreement void where both parties are

under mistake as to matter of fact. Where
both the parties to an agreement are
under a mistake as to a matter of fact
essential to the agreement, the agreement
is void.
• Explanation.-An erroneous opinion as to
the value of the thing which forms the
subject-matter of the agreement is not to
be deemed a mistake as to a matter of
fact.
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Contract Act, 1872

• Illustrations (a) A agrees to sell to B a specific

cargo of goods supposed to be on its way
from England to Bombay. It turns out that,
before the day of the bargain, the ship
conveying the cargo had been cast away and
the goods lost. Neither party was aware of
the facts. The agreement is void.
• (b) A agrees to buy from B a certain horse. It
turns out that the horse was dead at the
time of the bargain, though neither party
was aware of the fact. The agreement is
void.
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Contract Act, 1872

Effect of mistakes as to law

• .-A contract is not voidable because it was
caused by a mistake as to any law in
force in [India];
• Contract caused by mistake of one party
as to matter of fact.- 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.

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Contract Act, 1872

Consideration valid or not ??

• What considerations and objects are
lawful and what are not.-The consideration
or object of an agreement is lawful,
unless- it is forbidden by law ; or is of such
a 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.
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Contract Act, 1872

• . Illustrations
(a) A agrees to sell his house to B for 10,000 rupees. Here
B's promise to pay the sum of 10,000 rupees is the
consideration for A's promise to sell the house, and A's
promise to sell the house is the consideration for B's
promise to pay the 10,000 rupees.
(b) A promises to pay B 1,000 rupees at the end of six
months, if C, who owes that sum to B, fails to pay it. B
promises to grant time to C accordingly. Here the
promise-of each party is the consideration for the
promise of the other party and they are lawful
considerations.

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Contract Act, 1872

(c) A promises, for a certain sum paid to him by B,

to make good to B the value of his ship if it is
wrecked on a certain voyage. Here A's promise
is the consideration for B's payment and B's
payment is the consideration for A's promise and
these are considerations.
(d ) A promises to obtain for B an employment in
the public service, and B promises to pay 1,000
rupees to A. The agreement is void, as the
consideration for it is unlawful
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Contract Act, 1872

Agreement in restraint of trade

void.-
• Every agreement by which any one is restrained from
exercising a lawful profession, trade or business of any
kind, is to that extent void. Saving of agreement not to
carry on business of which good-will is sold.-
• Exception 1.-One who sells the good-will of a business
may agree with the buyer to refrain from carrying on a
similar business, within specified local limits, so long as
the buyer, or any person deriving title to the good-will
from him, carries on a like business therein, provided
that such limits appear to the Court reasonable, regard
being had to the nature of the business.

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Contract Act, 1872

Agreements inrestraint of legal

proceedings void.-
• Every agreement,- (a) by which any party thereto is
restricted absolutely from enforcing his rights under or in
respect of any contract, by the usual legal proceedings in
the ordinary tribunals, or which limits the time within
which he may thus enforce his rights; or (b) which
extinguishes the rights of any party thereto, or
discharges any party thereto from any liability, under or
in respect of any contract on the expiry of a specified
period so as to restrict any party from enforcing his
rights, is void to that extent. Saving of contract of refer to
arbitration dispute that may arise.

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Contract Act, 1872

Agreements void for uncertainty.-

Agreements, the meaning of which is not certain,
or capable of being made certain, are void.
Illustrations (a) A agrees to sell to B " a hundred
tons of oil ". There is nothing whatever to show
what kind of oil was intended. The agreement is
void for uncertainty.
(b) A agrees to sell to B one hundred tons of oil of
a specified' description, known as an article of
commerce. There is no uncertainty here to make
the agreement void.

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Contract Act, 1872

(c)A, who is a dealer in coconut-oil only, agrees

to sell to B "one hundred. tons of oil". The nature
of A's trade affords an indication of the meaning
of the words, and A has entered into a contract
for the sale of one hundred tons of coconut-oil.

(d)A agrees to sell to B " my white horse for

rupees five hundred or rupees one thousand".
'There I is nothing to show which of the two
prices was to be given. The agreement is void,

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Contract Act, 1872

Agreements by way of wager void.-

A wager agreement between two parties to the
effect that if a given uncertain event happens,
one party shall pay a certain sum to the other
and on the contrary event happening. For eg. If
the event turns out one way, one party shall lose
and the other shall gain.
Agreements by way of wager are void ; and no suit
shall be brought for recovering anything alleged
to be won on any wager, or entrusted to any
person to abide the result of any game or other
uncertain event on which any wager is made.
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Contract Act, 1872

CONTINGENT CONTRACTS
• "Contingent contract" defined.-A "
contingent contract " is a contract to do or
not to do something, if some event,
collateral to such contract, does or does
not happen. Illustration A contracts to pay
B Rs. 10,000 if B's house is burnt. This
is a contingent contract.

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Contract Act, 1872

Enforcement of contracts
contingent on an event happening
• Contingent contracts to do or not to do anything if an
uncertain future event happens cannot be enforced by
law unless and until that event has happened. If the
event becomes impossible, such contracts become void.
Illustrations
• (a) A contracts to pay B a sum of money when B marries
C. C dies without being married to B. The contract
becomes void.
• (b) A makes a contract with B to sell a horse to B at a
specified price, if C, to whom the horse has been
offered, refuses to buy him. The contract cannot be
enforced by law unless and until C refuses to buy the
horse.
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Contract Act, 1872

Enforcement of contracts contingent on

an event not happening.-
• Contingent contracts to do or not to do
anything if an uncertain future event does
not happen can be enforced when the
happening of that event becomes
impossible, and not before.
• Illustration A agrees to pay B a sum of
money if a certain ship does not return.
The ship is sunk. The contract can be
enforced when the ship sinks.

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Contract Act, 1872

Expiry of time
• Illustrations
• (a) A promises to pay B a sum of money if a
certain ship returns within a year. The contract
may be enforced if the ship returns within the
year, 'and becomes void if the ship is burnt
within the year.
• (b) A promises to pay B a sum of money if a
certain ship does not return within a year. The
contract may be enforced if the ship does not
return within the year, or is burnt within the year.

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Contract Act, 1872

Agreement contingent on
impossible events void.-
• Contingent agreements to do or not to do
anything, if an impossible event happens, are
void, whether the impossibility of the event is
known or not to the parties to the agreement at
the time when it is made.
• Illustrations
• (a) A agrees to pay B 1,000 rupees if two
parallel lines should meet. The agreement is
void.
• (b) A agrees to pay B 1,000 rupees if B will
marry A's daughter C. C was dead at the time of
the agreement
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Contract Act, 1872

Cases
• In carew Co. Ltd v North Bengal, where two sugar
manufactures had entered into an agreement allocating
zones to procure sugar for meeting the needs of their
respective factories and each undertook not to draw any
cane from the zones alloted to the other factory, it was
held that the agreement was in restraint of trade and
therefore void.
• Similarly where four ginning factories entered into an
agreement fixing uniform rate for ginning cotton and
pooling their earnings to be divided between them in
certain proportions, it was held that such an agreement
was valid and enforceable.
• A combination which tends to create monopoly and
which is against the public interest is void.

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Contract Act, 1872

• IN Attwood v. Lamount where the contract of service is

provided that on termination of employment the tailor
would not carry on similar business within 10 miles of his
employer, the agreement was void.
• But if same restriction is made while the term is on, it is
not restraint from trade.
• A, in bombay, enters into a contract with B in madras
with a condition that all disputes will be subject to
bombay jurisdiction. This limits the right of B to sue only
in Bombay court in case of dispute. Such an
agreement is valid.
• A agrees to sell B hundred tons of oil. The agreement is
void for uncertainty as there is nothing whatever to show
what kind of oil was intended.
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Contract Act, 1872

• An agreement to pay certain sum when able to pay is

void or not ?
• A agrees to sell B “ all the grains in my grainary at
Ramnagar. Is there any uncertainty ?
• A contracts to pay B a sum of money when B
marries to
C. C dies without being married to B. The contract
• becomes void.
A agrees to pay Re 1000 if two parallel lines meet. The
• agreement is void.
A agrees with B to put life into a dead man. The
• agreement is void.
Money lent for the purpose of gambling can be
recovered even though lent with the knowledge of the
parties. 84
Contract Act, 1872

• A having advanced money to his son, B,

during his minority, upon B's coming of
age obtains, by misuse of parental
influence, a bond from B for a greater
amount than the sum due in respect of the
advance.

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Contract Act, 1872

Quasi Contract

• There is no offer, no acceptance, no consensus ad

idem and in fact neither agreement nor promise.

• These contact constituted by the Law, and therefore

termed as Quasi Contact.

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Contract Act, 1872

Kinds of Quasi Contracts

1. Supply of necessaries
2. Payment by an interested person
3. Obligation to pay for non-gratuitous acts
e.g. Mr. X , a trader, leaves goods at Y’s house by
mistake. Y treats the goods as his own. He is bound to
pay for them to X.
4. Responsibility of Finder of Goods
Mr. X picks up a diamond on the floor of Y’s shop. He
hands it over to Y to keep it till true owner is found out.
No one appears to claim it for quite some weeks inspite
of the wide advertisement in the newspapers. X claims
the diamond from Y who refuse to return. Y is bound to
return the diamond to X who is entitled to retain the
diamond against the whole world except true owner.

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Contract Act, 1872

The finder can sell the goods in the following cases:

• 1.When the things found is in danger of perishing

• 2.When the owner cannot be found out
• 3. When the owner is found out, but he refuse to pay the
lawful charges of the finder

5. Mistake or coercion
e.g. A and B jointly owe Rs. 100 to C. A alone pays the
amount to C. and B not knowing this fact, and pays Rs.
100 to C again. C is bound to pay the amount to B.

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Contract Act, 1872

Quantum Meruit
• Quantum Meruit means “as much as earned”.

• When a person has done some work under a contact, and

some event happens which makes the further
performance of the contact impossible, then the party
who has performed the work can claim remuneration for
the work he has already done.

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Contract Act, 1872

The claim for quantum meruit arises in the

following cases
1. When an agreement is discovered to be void.
e.g. GE was employed as a managing director in a
company. After he rendered service for three months. It
was found that the director were not qualified to appoint
him.
2. When something is done without any intention to do
so gratuitously.
3. When there is an express or implied contract to render
service, but there is no agreement as to remuneration.
In such cases, reasonable remuneration is payable.
e.g. There was an implied agreement between P and a fire
brigade for the services of the brigade.
4. When an indivisible contract is completely performed but
badly.
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Contract Act, 1872

Kinds of Contracts

Classification of Contract

Enforceability Mode of
Extent of
Creation Execution

Express Contr. Implied Cont.

Valid Illegal Void Unenforceable

Executed Executory

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Contract Act, 1872
1. Classification of Contract on the basis of Enforceability:
a. Valid Contract:
Contract which satisfy all the essential elements of a
valid contract as laid down be Section 10.
b. Void Contract:
An agreement may be enforceable at the time when it
was made but later on, due to certain reason, it become void
and unenforceable.
c. Illegal Contract:
All illegal agreement are void but all void agreement are
not necessarily illegal.
e.g. An agreement with minor is void but not
illegal.
d. Unenforceable Contract:
Certain contract become void because the law court will
not enforce them due to not fulfillment of certain formalities.

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Contract Act, 1872

2. Classification of Contract on the basis of Mode of

Creation
a. Expressed Contract:
Contract is made by words spoken or written.
b. Implied Contract:
Contract which come into being on account of the act of
the parties and not by their express words, written or spoken.
3. Classification of Contract on the basis of Extent of
Execution
a. Executed Contract
Where both the parties to the contract have fulfilled their
respective obligation, the contact said to executed.
b. Executory Contract
Where one or both the parties to the contact still to
perform certain things in future or under the terms of the
contract something remains to be done, the contract is
termed as an executory contract.
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Contract Act, 1872

Thank
You

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