Indian Contract Act,1872

• Law of Contract creates rights & duties between the parties. The Law Of
Contract lays down the legal rules relating to promises, their formation,
performance & their enforceability.
• The word ‘Contract’ is derived from the Latin word Contractus, which means
to work on contract. Law of Contract is based on the principle laid down in
Latin Phrase Pacta Sunt Servanda, which means agreements to be kept or
pacts must be kept.

• The Law of Contract in India is contained in the Indian Contract Act,1872

which extends to whole of India & came into force from 1st September,1872.
• The General principles of the law of contract applicable to all contracts are
laid down under Secs.1-75 of the act, Sections 124-238 deals with specific or
special kinds of contracts, eg. Indemnity, Guarantee, Bailment, Pledge,
Agency etc.
 Essentials of Valid Contract

• All such agreements which satisfy the conditions mentioned in

Section 10 of the Act,1872 are Contracts.
• Sec.10 states-” All agreements are contracts if they are made by the
free consent of parties competent to contract, for a lawful
consideration & with a lawful object & are not hereby expressly
declared to be void.”

• The essentials needed for a valid contract are as under-

• 1. An agreement between the 2 parties. An agreement is the result of a proposal or offer by
one party followed by its acceptance by the other.
• 2. Agreement should between parties who are competent to contract.
• 3. There should be a lawful consideration & lawful object in respect of the agreement.
• 4. There should be free consent of the parties, when they enter into agreement.
• 5. The agreement must not be one, which has been expressly declared to be void.
 Meaning of Contract

• Section 2(h) of Contract Act,1872 defines term Contract “as an agreement

enforceable by law”.
• All agreements are not contracts, only those agreements which satisfy the
essential requirements mentioned in Section 10 of the Indian Contract
Act, become Contracts. However, all contracts are agreements.
• A Contract is an agreement or set of promises giving rise to obligations
which can be enforced or are recognised by law.
• Proposal+Acceptance= Promise
• Promise+ Consideration=Agreement
• Agreement+Enforceable by Law= Contract
 Kinds of Contracts

• Contracts may be classified on the basis of enforceability, or mode of

creation , on the basis of extent of execution or on the basis of the form of
contract.
• A. From the point of view of enforceability-
• 1. Valid Contract
• 2. Voidable Contract
• 3. Void Contract
• 4. Illegal or unlawful contract
B. From the point of view of Mode of Creation
• 1. Express Contract- Where both the offer & acceptance
constituting an agreement are made in words spoken or written, it is an
express contract.
• 2. Implied Contract/Inferred Contract- Where the offer &
acceptance are made otherwise than in words i.e. by acts & conduct of
the parties, it is an implied contract.
C. From the point of view of Extent of Execution
• 1. Executed Contract- A Contract is said to be executed when
both parties to contract have completely performed their share of
obligation& nothing remains to be done by either party under the
Contract.

• 2. Executory Contract- A Contract is said to be executory when

either both the parties to contract have still to perform their share of
obligation or there remains something to be done under the contract on
both sides. They are also called Future Contracts.
D. From the point of view of Form of Contract
• 1. Ordinary Contract- A Contract between 2 or more persons,
with terms drafted as per mutual agreement between parties. There is
equality of rights between the parties.

• 2. Standard form Contract- When a large no of Contracts have

got to be entered by one person, from practical point of view , a standard
form for numerous contracts may be used. An insurance policy, shares or a
railway ticket are examples of standardized contracts.
 OFFER[section 2(a)]

• Offer or Proposal is considered as starting point of formation of Contract. Section 2(a)

of the Act defines’ Proposal’. The term Offer has been used in English Law & the term
‘Proposal’ under the Indian Law.

• Section 2(a) of the Indian Contract Act defines ‘Proposal’ as follows- “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’.

• Parties involved in Proposal

• 2 Parties are involved in Proposal-
• 1. Promisor/ Offeror- The person who makes the proposal is called the ‘Promisor’(Offeror).

• 2. Promisee/Offeree- The Person who accepts the proposal is called ‘Promisee’(offeree).

•
 Kinds of Offers

• Offers can be categorized into 2 categories i.e. General & Specific.

• When the offer is made to a specific or an ascertained person, it is

known as a Specific Offer while the general offer is made to the public or
world at large.
 General Offer

• General offer is made to the public or world at large. In case of general

offer, the contract is made only with that person who comes forward &
performs the conditions of the proposal, such performance amounts to
acceptance of offer[Section8]. The communication of acceptance is not
necessary in such cases.
• According to Section 8 of the act, “Performance of the conditions of
proposal, is an acceptance of the proposal.
 Leading Cases on General Offer

• 1. Carlill vs Carbolic Smoke Ball Company Ltd(1893)1 QB

256
• Facts of the Case
• The Carbolic smoke ball company was manufacturer of a medicine to prevent
influenza. Company offered to pay 100 pounds to anyone who contracts influenza
after consuming the medicine of the company in prescribed manner. Company
further stated that they had deposited 1000 pounds in the bank in order to show
sincerity. Plaintiff used the smoke ball according to directions but nevertheless
contracted the disease. Accordingly, Plaintiff sued the Company.
• Arguments of Defendant- It was contended by the Defendants that it was an offer,
the terms of which were too vague to be treated as a definite offer in as much as
there was no limit of time fixed for catching of the influenza, that the offer was not
made to any one person in particular & the Plaintiff had not communicated her
intention to accept & that there was no consideration for the promise.
 Decision in Carlill Case

• The Court rejecting all the contentions of the Defendant laid down the
following law-
• 1. Offer can be made to the world at large & contract is made with the person
who comes forward & accepts the offer.
• 2. In such cases, communication of acceptance is not necessary. Performance
of conditions is a sufficient acceptance without communication.
• 3. General offer is continuing in nature & it is open for acceptance to any no
of persons until it is retracted.

• Conclusion- In Carlill’s case, it was held by the court that there is no need to
communicate the acceptance in case of General Offer. If the person has
performed the conditions specified in the general offer then it is enough to
constitute the acceptance. This principle has been incorporated in Section 8
of Indian Contract Act.
2. Harbhajan Lal vs HarCharan Lal[AIR 1925 All539]
• In this case, a boy went missing & his father issued handbills to find the
boy & offered a reward of Rs.500 to anyone who finds the boy.
• The Plaintiff was at a railway station, there he saw the boy , overheard
part of the conversation , realized that the boy was the missing boy &
promptly took him to Railway Police Station & informed the boy’s father.

• Decision of Case- The court held that the handbill was a general offer
open to the world at large. It was capable of acceptance by anyone who
comes forward & accepts the conditions of the offer. Since the Plaintiff has
performed the conditions, it was held that he was entitled to reward.
 3. Lalman Shukla vs Gauri Dutt[(1913) 11 All
L.J.489]
• Facts of Case-In this case, the Defendant’s nephew absconded from
home. The Plaintiff, who was Defendant’s servant, was sent to search the
missing boy. After the Plaintiff had left in search of the boy, the defendant
issued handbills announcing a reward of Rs.501 to anyone who might find
out the boy. The Plaintiff came to know of this offer only when he had
already traced & informed defendant about the boy. The Plaintiff brought an
action to claim his reward.

• Decision-It was held that since the plaintiff was ignorant of the offer of
reward, his act of bringing the lost boy did not amount to acceptance of the
offer & therefore, he was not entitled to claim the reward. The Court held
that in order to constitute a contract, there must be an acceptance of an
offer & there can be no acceptance unless there is knowledge of the offer.
 Invitation to Treat/ Invitation to Offer

• An offer is the final expression of willingness by the offeror to be bound by his offer.
 When a party, without expressing his final willingness, proposes certain terms on
which he is willing to negotiate, he is said to make an invitation to offer. An
invitation to offer is not same thing as an offer. An invitation to offer is merely a
declaration of willingness to enter into the negotiations. Interested party may make an
offer based on the invitation to offer.
 Sometimes, a party makes alluring statement to the other party in order to attract him
towards the commodity. It is a statement made to the other party with a view to
bargain. The purpose is to let other party come forward & make an offer. It is also
called ‘invitation to treat’ under English Law.
 Ex- A Bookseller sends catalogue of books indicating price of various books to many
persons. This is an’ invitation to treat.’ Advertisements for bids/tenders are only
invitation to offer, bid/tender constitutes the offer which can be accepted or
rejected.
 Likewise, an inducement of special discount by a shopkeeper is a ‘commercial puff’
or an invitation to treat & not an offer.
 Harvey vs Facey
• In this case, Plaintiff telegraphed the defendants writing’ will you sell us
Bumper Hall Pen’. Telegraph the lowest cash price’. Defendants, replied
also by telegram,’ lowest price for Bumper Hall Pen is 900 pounds’.
• Plaintiff immediately sent the telegram stating’ we agree to buy Bumper
Hall Pen for 900 pounds asked by you’. Defendant refused to sell the
Bumper Hall Pen. The court held that mere quotation of lowest price does
not amount to offer. It is at best an invitation to offer.

• In Ghaziabad Dev. Authority vs UOI[ AIR 2000 SC 2003], the court

observed that when a development authority announces a scheme for
allotment of plots, the brochure issued by it for public information is an
invitation to offer.
 Essential Conditions of a Valid Offer(Proposal)

 1. Expression of Willingness to do/ Abstain from doing to obtain other’s

assent. An offer must be made to obtain the assent of the other. A casual
inquiry is not a proposal.

• 2. Intention to Create legal relation.

• 3. Express or implied offer.[Section9]
• 4. Certainty of Offer- The terms of the offer must be certain & not
vague.(Sec.29)
• 5. Communication of Offer- The Offer/Proposal must be communicated
to the other party.[Sec.3] . According to Sec.4, the communication of a
proposal is complete when it comes to the knowledge of the person to
whom it is made.
 Communication of Offer

• The question as to how an offer is communicated is explained in Section 3

of the act.
• An offer may be made by words of mouth, or by writing or conducting in a
manner, which has the effect of communicating the offer to the offeree.
• Sec.9 lays down that a proposal can be express or implied. An offer would
be an express offer when it is made by words of mouth or by writing.
• An offer made otherwise than in words, is said to be an implied offer. It is
an offer inferred from the conduct of the party.
 Communication of Offer- When Complete

• An offer to be valid must be communicated. Further, it must be

communicated to the person or persons to whom it is made.
• Sec.4 of the Contract Act lays down that “ the communication of a
proposal is complete when it comes to the knowledge of the person to
whom it is made.”

• It, thus, follows that an offer cannot be accepted unless & until it has been
brought to the knowledge of the person to whom it is made.
 Modes of Revocation of Offer[Section6]

• Sec.6 mentions various modes of Revocation of Offer . A

Proposal is Revoked in the Following ways-
• 1. By the communication of Notice of Revocation by the proposer to other
party
• 2. By lapse of time described in such proposal for its acceptance or if no
time prescribed, by lapse of reasonable time , without communication of
acceptance.
• 3. By failure of acceptor to fulfill a condition precedent to acceptance.
• 4. By the death or insanity of Proposer, if the fact of his death or insanity
comes to knowledge of acceptor before acceptance.
 Modes of Revocation of Offer[Section6]

• 1. By Notice of Revocation- An offer ripens into a contract after it is

accepted. Before it has been accepted, it creates no legal obligation & it may
be revoked at any time before it is accepted. A Proposal may be revoked by
the communication of notice of revocation by proposer to other Party. To be
effective, the notice of revocation has to be communicated by the
proposer(or his agent) & not by anybody else.

• 2.By Lapse of Time- A Proposal is revoked by the lapse of time prescribed

in such proposal for its acceptance or if no time is prescribed, by lapse of
reasonable time , without communication of acceptance.
• Sometimes, the Parties may expressly fix the time upto which the offer will
remain open. Ex- It may be stated that Offer is open till 10 th October, 4 PM.
Such an offer lapses automatically if it remains unaccepted till the stipulated
time & the same cannot be accepted further thereafter.
 3. By Failure to fulfill a Condition Precedent

• When the Offer is subject to some condition precedent, such a condition has got to be
fulfilled by the acceptor before making the acceptance. If the acceptor fails to fulfill the
condition precedent to acceptance, the offer stands revoked.
 In State of MP vs Goberdhan Dass[AIR 1973 SC 1164], tenders for the sale of certain
goods were invited subject to condition that 25% amount was to be paid when the
tender was accepted. A’s tender was highest & the same was accepted, but he failed to
fulfill this condition. It was held that no contract had arisen merely because A’s tender
was accepted.

 4. By Death or Insanity of the Offeror-An Offer is revoked by the death or

insanity of the Proposer, if the fact of his death or insanity comes to knowledge of
acceptor before acceptance. In India, the death or insanity of the Offeror does not
automatically make the offer to lapse. The offer stands revoked if the fact of death or
insanity comes to the knowledge of acceptor before acceptance. It means if the fact
of death or insanity has not come to knowledge of the offeree while he accepts the
offer, it is valid acceptance giving rise to Contractual Obligation.
 Revocation of Proposal

• Sec.5 provides that a proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer but not afterwards.
• Ex- A proposes, by a letter sent by post, to sell his house to ‘B’. B accepts the proposal by a letter sent
by post. A may revoke his proposal at any time before or at the moment when B posts his letter of
acceptance, but not afterwards.
 A Prospective resignation is an offer to quit a post & the same can be withdrawn before the offer is
accepted by a competent authority. A Prospective resignation can be withdrawn at any time before
it becomes effective & it becomes effective when it operates to terminate the employment.
 In Managing Committee, SGA High School vs State of Bihar & Ors[AIR 1981 Pat.271]- Dr.
Parmanand, the Secretary of the Managing committee of a School, sent his letter of resignation on
09.07.1980 requesting the Managing Committee to accept the same. He sent another letter dated
09.08.1980 withdrawing his resignation. The Managing Committee, which met on
11.08.80considered the resignation letter of Dr. Parmanand but ignored his subsequent withdrawl of
resignation & decided to accept the resignation.
 The Question before Court was whether the Resignor could withdraw resignation submitted by him.
 Decision of Court- It was held that Dr. Parmanand was free to withdraw the resignation before it
became effective by acceptance. It was held that in view of withdrawl of Resignation, resolution of
Managing Committee accepting the Resignation was invalid.
 Acceptance

• Offer alone is not sufficient to form an agreement. There cannot be

formation of an agreement without acceptance of the Offer. It is only after
the acceptance of the proposal that a contract between 2 parties can arise.
Sec.2(b) of the Act defines ‘acceptance’. It provides that when the person
to whom the proposal is made signifies his assent thereto, proposal is
said to be accepted. A Proposal, when accepted, becomes a Promise.
• Thus, acceptance is the assent given to a proposal. It is the sine qua non for
a Valid Contract.
 Sir William Anson has remarked:” Acceptance is to offer what a lighted
match is to a train of gunpowder. It produces something which cannot be
recalled or undone”.
 The Person making the proposal does not become bound thereby until its
acceptance. As soon as his proposal is accepted that is known as Promise,
whereby both the parties become bound.
 Effect of Acceptance

• A Contract is created only after an offer is accepted. Before the

acceptance is made neither party is bound thereby. After the Offer has
been accepted, it becomes a promise which, if other conditions of a valid
contract are satisfied, binds both the parties to Promise. After acceptance,
each party becomes legally bound by the promise made by him through
the medium of offer & acceptance of it. Until an offer is accepted, it
creates no legal rights & it may be terminated at any time.
 Just as when the lighted match comes in contact with gunpowder, there
would be an explosion & then it will not be possible to bring the things
back to Original position, similarly after the offer is accepted, it creates a
contract whereby both the parties become bound & none of them can
go back.
 Essentials of a Valid Acceptance

• In order that acceptance of an Offer can result in a contract, acceptance

must satisfy the following Requirements-
• 1. Acceptance should be communicated by the Offeree to the Offeror
 2. Acceptance should be absolute& Unqualified.
 3. Acceptance should be made in some usual & reasonable manner, unless
proposal prescribes the manner of acceptance.
 4. Acceptance should be made while offer is still subsisting.

 1. Acceptance should be Communicated- In order that the Acceptance can be

treated as valid, it is necessary that the same must be communicated to the
offeror by the Offeree or by some duly authorized person on his behalf. The
communication of acceptance is deemed to be made by any act or omission of
the party accepting, by which he intends to communicate such acceptance, or
which has the effect of communicating it.
 Essentials of Valid Acceptance

 In Felthouse vs Bindley,(1863)7 LT835, Felthouse wrote a

letter to his nephew offering to buy his horse for 30pounds.In the letter
containing the Offer it was also mentioned : “If I hear no more about the
Horse, I shall consider it mine for 30pounds. Nephew did not reply this
letter. He however, told his auctioneer, Bindley, that he wanted to reserve
this horse for his uncle & therefore, desired that the horse be not sold by
the auctioneer. The auctioneer(Bindley) disposed of the horse by mistake.
 Felthouse sued Bindley for the Tort of Conversion on the plea that Felthouse
had become the owner of the Horse which Bindley had disposed of.

 Decision- It was held that since the Nephew had not communicated the
acceptance to Felthouse, no contract had arisen in this case & therefore,
Felthouse had not become owner of the Horse.
 2. Acceptance should be absolute & unqualified

• Section 7(1) provides that in order to convert a proposal into a promise, the
acceptance must be absolute& unqualified. Mulla has called this as “Mirror Rule’.
Absolute & unqualified means the acceptance should not contain any condition or
stipulation. It should be exactly as the Proposal. Any departure or variance will not
constitute a valid acceptance. If the offer is accepted with variation it amounts to
Counter Offer. An acceptance with variance is no acceptance in eyes of law.

 3. Acceptance should be expressed in usual/prescribed

manner- According to Sec.7(2), acceptance must be expressed in some usual &
reasonable manner, unless the proposal prescribed the manner in which it is to be
accepted. It means that if the manner of acceptance has been prescribed by the
Proposal, acceptance has to be in that prescribed manner, otherwise the same may
be made in some usual or reasonable manner.
 Acceptance by Post, Telegram, Telephone or through personal messenger may be
considered to be the usual manner of acceptance.
4. Acceptance should be made while the Offer is
still subsisting
 After the offer has been withdrawn or has lapsed, there is nothing which
can be accepted. It is therefore, necessary that the acceptance should be
made while the offer is still alive & subsisting. Acceptance after the lapse
of offer cannot give rise to a Contract.
 Communication Of Acceptance

• For a concluded contract to arise, communication of acceptance must be

complete. Sec.4 provides that the Communication of acceptance is complete as
against the person who makes it in following situations-
 As against the Proposer: When it is put into a course of transmission to the
proposer so as to be out of the power of acceptor.
 As against the acceptor: Communication of acceptance is complete as against
the acceptor when it comes to knowledge of Proposer.
 The term ‘as against the proposer’ means binding against the proposer & the
term ‘as against the acceptor’ means binding against acceptor.
 Ex- A proposes to sell house to ‘B’ through a letter which is dispatched on 1 st
January. The letter reaches B on 4 th January. Here Communication of Proposal is
complete on 4th January. B writes his acceptance through a letter & puts it in
course of transmission on 6th January. Now, here acceptance is complete as
against proposer, A on 6th January. That letter reaches A on 8 th January. On 8th
January, communication of acceptance is complete as against acceptor.
Various Modes of Communication of Acceptance

• 1. Acceptance by Post- Sec.4 lays down that communication of

acceptance is complete as against the proposer, when it is put in course of
transmission to him so as to be out of power of acceptor, as against acceptor,
when it comes to knowledge of proposer.
• Ex- B accepts A’s proposal by a letter sent by post. The communication of
acceptance is complete as against A, when the letter is posted & as against B,
when letter is received by A.
 Thus, when the parties are at a distance & are contracting through post or by
messengers, proposer becomes bound as soon as acceptance is put in course of
transmission to him. But acceptor will become bound only when communication
of acceptance is received by Proposer, i.e. comes to knowledge of proposer.
 The proposer becomes bound immediately on the posting of letter to him & it
makes no difference that letter is delayed or lost in post & offeror never receives
it.
 Dunlop vs Higgins(1848)1 HLC 381

• Dunlop & Co. offered to sell 200 tons of iron pigs at 65 dollars per ton to
Higgins & Co. through their letters dated 22nd & 28th Jan, 1945. Higgins &
Co. received the letters on 30th January & replied the same day, indicating
their acceptance to purchase iron pigs according to Offer. Due to bad
weather, there was disruption in train services & acceptance letter instead
of reaching on 31st January reached Dunlop on 1st February. Dunlop & Co.
refused to supply iron pigs on ground that receipt of letter of acceptance
by them had been delayed.

• Decision- Dunlop &Co. had become bound by contract as soon as

letter of acceptance was posted to them, i.e. on 30th January,1945.
 [ Acceptance by Telephone/Telex]

• In case of acceptance by Phone, the contract is deemed to be complete

when the offeror hears the acceptance at his end rather than when the
acceptor speaks the words of acceptance.
• Sections 4&5 relate only to communications through post rather than
through telephone or telex. When the parties are at distance & they
contract through Post, then proposer becomes bound as soon as
acceptance is put in course of transmission.
 Bhagwandas vs Girdhari Lal &Co.[AIR1966
SC543]
• Facts of Case
 In this Case, the Plaintiff made an offer on Phone from Ahmedabad for purchase of cotton seed
cake from the Defendants. The defendants accepted this offer on phone at Khamgaon. The
defendants having failed to supply the cake were sued by the Plaintiffs to pay compensation
amounting to Rs.31,150 for breach of Contract. The Suit was filed at Ahmedabad. The
defendants contended that Ahmedabad Court had no jurisdiction because the Contract was
completed by the acceptance of Offer on telephone, at Khamgaon. On the other hand, Plaintiffs
pleaded that contract was struck when the acceptance was communicated to him at
Ahmedabad & therefore, the suit was within Jurisdiction of Ahmedabad Court.
 Decision- It was held that the Contract was made at Ahmedabad where the acceptance was
communicated & the cause of action for Breach of Contract in this Case had arisen within the
jurisdiction of Ahmedabad Court.
 So, the SC decided that communication of acceptance was complete in Ahmedabad & hence,
the Court had Ahmedabad had jurisdiction to try the Case.
 Therefore, now the law is well settled that where the Contract is made by Instantaneous
communication, the place of contract is where the acceptance is heard.
 Entores Ltd. Vs Miles Far East Corpn(1955)2
QB327
• In Entores Case, it was held that when the Contract is made through
instantaneous communication, then the Contract is Complete when the
acceptance is received by the Offeror & the contract is made where the
acceptance is received. Where the Proposal & acceptance is made by
letters, the contract is made at a place where the letter of acceptance is
posted.
 Revocation of Acceptance

• Since the acceptor does not become bound immediately on posting his
letter of acceptance, he is free to revoke the acceptance by adopting
speedier mode of communication, whereby his communication of
revocation of acceptance may reach earlier than his letter of acceptance.
 Sec.5 Para2 provides that an acceptance may be revoked at any time
before communication of acceptance is complete as against the acceptor
but not afterwards. So, acceptor can revoke the acceptance before it
comes to the knowledge of proposer.
 Example- If letter of acceptance is dispatched on 1st January which reaches
the Proposer on 5th January. Acceptance can be revoked before the letter
reaches the Proposer on 5th January.
 If the letter of acceptance & the letter of revocation reach together, then
also acceptance will be deemed to have been revoked, as both cancel
each other & thus, no binding Contract would come into existence.
 Tenders/Auctions

• A Tender is in same category as a quotation of prices. It is not an offer but

an invitation to Offer. When a tender is approved it is converted into a
‘standing offer’(Offer which is allowed to remain open for acceptance
over a period of time). A Contract arises only when an order is placed on
basis of Tender. A Standing offer can thus be revoked or withdrawn before
the order has been placed unless the tenderer has for some consideration
promised not to withdraw or where there is statutory prohibition against
withdrawl. Just as the tenderer has the right to revoke his tenders as to
future orders, so also the acceptor of tender has a right to refuse to place
any order or whatsoever.
 Rajendra Kumar Verma vs State of MP[AIR
1972 MP 131]
• In this case, it was held that any offer, including a standing offer, may be revoked
before the same has been accepted. Any restriction on right to revoke an offer is
void.
 In this Case, Respondent State invited tenders for sale of Tendu leaves. The Petitioner
submitted his tender & also deposited some security. Before date of opening of
Tender, he made an application withdrawing his tender & requested that on
stipulated date, tender be not opened. But the tender was opened & that being the
only tender, the same was also accepted. The Petitioner refused to execute the
agreement to purchase leaves.
 The government sold the leaves to someone else & then sued the petitioner to
recover damages, it relied upon a clause in tender notice according to which
petitioner having submitted his tender was not entitled to withdraw the same.
 Decision- It was held that inspite of such a clause, the tender or an offer could be
withdrawn & since the offer had been withdrawn, no contract had arisen between
parties & the petitioner could not be made liable. A person who makes an offer is
entitled to withdraw his offer or tender before its acceptance is intimated to him.
 Consideration[Section 2(d)]

 One of the essential elements of enforceability of agreements is ‘lawful consideration’

according to Section 10.
 ‘Consideration’ means “something in return”, i.e. quid pro quo that is an essential element to
find out the genuine intention of the parties of the promise to create legal relationship.
 Consideration is an essential component of a valid contract. Consideration is the price for the
contract. An agreement without consideration is void and thus not enforceable by law except
under certain circumstances.
  An agreement without consideration is a bare promise and exnudo pacto non aritio actio,
i.e., cannot be held to binding on the parties.
 Ex-A offers to sell his car to B for a sum of ` 1,00,000. B accepts the offer. In this contract,
• A is the promisor and it is his desire to sell his car for ` 1,00,000
• B is the promisee and on the desire of A he is purchasing the car for ` 1,00,000.
• The consideration for A’s promise, is a sum of ` 1,00,000 while consideration for B’s promise is
the car.
 In Currie v. Misa, it was defined, “A valuable consideration in the sense of the law may
consist either in some right, interest, forbearance, detriment, loss or responsibility, given,
suffered or undertaken by the other.”
 Meaning

 Term Consideration has been defined by Various jurists & authors differently. In simple
words, Consideration is Price of promise, it is a return or quid pro quo(something for
something), something of value received by the promisee as inducement of Promise.
 Consideration is the price of the contract and it can be right, interest or responsibility etc.
 Pollock- “The price for which the promise of the other is bought & the promise thus
given for value is enforceable”.
 Salmond & Winfield-” A promise without consideration is a gift, one made for
consideration is a bargain”.
 Blackstone-”Consideration is the recompense given by the party contracting with
other”.
 Justice Patterson-”Consideration means something which is of some value in the eyes of
law…… It may be some benefit to plaintiff or some detriment to defendant”.
 A Valuable consideration in the sense of law may consist either in some right, interest,
profit or benefit accruing to one party, or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by other.
 Essentials of Consideration

 1.Something should be done or abstained from doing at the

desire of the promisor only.
 2.Promisee or any other person has done or abstained from
doing something at the desire of the promisor.
 3. It can be Past, Present or Future.
 4.It is not necessary that Consideration must be adequate.
 5. Consideration must be Real and Not Illusory or Impossible.
 6. It must be Lawful.
 1.Consideration must proceed at the desire of
Promisor
• It is essential that Consideration must have been given at the desire of promisor, rather than
merely voluntarily or at instance of some 3 rd party. An act done at the promisor’s desire
furnishes a good consideration for his promise even though it is of no personal significance or
benefit to him.
• An act must have been done at the desire or request of the promisor. Voluntary acts or acts done
at the desire of the third party is not a consideration in the eyes of law.
• In, the consideration for promise had not moved at desire of Promisor but some other person &
it was held that the same was not a sufficient consideration to support the promise.
• Ex- B house is on fire. A rushes to B’s help and later demanded ` 10,000 from B. Is A justified in
claiming ` 10,000
• No, he is not justified as there is no consideration here. It is a voluntary act of A.
• But if A goes to B’s help at B’s request who promises, to give ` 10,000 to A for the help then B is
bound to pay. As the consideration for B is to get the help from A and consideration for A’s
promise is ` 10,000
 Durga Prasad vs Baldeo[(1880)3 All.221]

• Facts of Case- The Plaintiff constructed certain shops in a market at the

instance of the Collector of that place. Subsequently, the defendants
occupied one of the shops in the market. Defendants promised to pay
commission on articles sold to plaintiff in consideration of Plaintiff having
expended money in consideration.
• Decision- Plaintiff could not recover the Commission. Court held that act
of plaintiff was not at the desire of Defendants but it was on the order of
Collector & therefore , it did not furnish good consideration.
 2. Consideration may move from the promisee
or any other person

 Consideration may proceed from the promisee or any person.

 In Chinaya v. Ramayya, A, by a deed of gift, made over certain property
to her daughter, with a direction that the daughter should pay an annuity
to A’s brother. On the same day the daughter executed a deed in writing in
favour of the brother and agreed to pay the annuity. After that the
daughter declined to fulfil her promise and the brother sued to recover
the amount. The defendant (sister) contended that as there was no
consideration from the side of brother, and that he being the stranger to
the consideration had no right to sue. It was held that it is not necessary
that consideration must move from the promisee himself. Therefore, the
brother was entitled to maintain the suit.
 3. Consideration may be past, present or future

 A. Past Consideration:-
 Past consideration is a promise for a voluntary act done in the past to help the
party who is making promise to pay or to do something subsequently. It means
consideration is promised to pay later for an act done without any promise from
the other party. A promise is said to be given for past consideration when the
promisor’s motivation for making the promise is a past benefit he received that
gave rise to an obligation to make compensation.
• Ex-B house is on fire. A rushes to B’s help and saved his life. In a show of
gratitude, B promises to pay A ` 5,00,000 for the help provided by A. In this
case, B’s motivation for making this promise is the past benefit that A
provided which gave rise to the moral obligation to compensate A.
 B. Present Consideration

 When the promisor receives consideration simultaneously with his

promise, the consideration is termed as Present Consideration.
 Ex-A purchased goods from a shopkeeper of the worth of ` 10,000 A pays
money to the shopkeeper immediately. Consideration is “Present”.
 C.Future or Executory Consideration

 When a promise is to be executed on a future date it is called executory

consideration or future consideration.
 In this the promisor makes an offer for a future date and the promisee
promises to accept and execute the contract after that date this is future
consideration. In this case both parties move the consideration to a future
date. The liability becomes outstanding on both parties on a future date.

 Ex-Ruhi promises to sell and deliver a new wristwatch to Rekha after a

week. Rekha accepts the offer and promises to pay after one month of
receiving the watch. This is executory or future consideration.
 4. Consideration need not be Adequate

 What is important to convert agreement into contract is the presence of

the Consideration, but it is not essential that the consideration should be
adequate.
 It may or may not be adequate. Consideration should be of some value in
the eyes of the law.
 Ex- A agreed to sell his Mobile worth ` 40,000 for ` 2,000 with his free
consent. This is a valid Contract.
  A agrees to sell a horse worth ` 1,000 for ` 10. A denies that his consent to
the agreement was freely given. The inadequacy of the consideration is a
fact which the Court should take into account in considering whether or
not A’s consent was freely given.
 5. Consideration must be Real and Not Illusory
or Impossible
 Real consideration means that the consideration should not be physically
or legally impossible. Consideration is not real in the case of physical and
legal impossibility or uncertainty.
 Ex- A dentist says he will charge ` 10,000 or ` 6,000 for his services. This is
uncertain consideration and difficult to carry out because of the
uncertainty about the exact amount.
 A enters into contract with B that he will pay ` 5,00,000 to B if B will
murder C. This contract cannot be executed as consideration is illegal.
 6. Consideration must be Lawful

 Consideration should be lawful, otherwise the agreement

becomes void.
 According to section 23 of the Indian Contract Act
consideration is not lawful in the following situations:-
 When it is made of an act forbidden by law
 When it causes injury to a person or property of another
person.
 When it is declared as immoral or opposed to public policy.
 When a part of the agreement is unlawful the whole
agreement will become void except in those cases when the
unlawful part can be separated from the lawful one.
 Privity of Contract

 The Doctrine of Privity of Contract means that only those persons who are parties to
the contract can enforce the same. A Stranger to the contract cannot enforce a contract
even though the contract may have been entered into for his benefit. It means that a
contract is a contract between the parties only & no 3 rd party can sue upon it.
 Object- It is based on the principle that a contract is always a private relation
between contracting parties & strangers should not be permitted to acquire rights or
incur liabilities under a contract.
 In Tweddle vs Atkinson [(1861) 1 B &S 393], it was held that only parties to the contract
can sue each other. In that case, the Plaintiff, A married a girl B. After this marriage
there was contract in writing between A’s father & B’s father that each would pay a
certain sum of money to A & that A will have the power to sue for such sums. After the
death of the 2 fathers, A brought an action against the executors of B’s father to recover
the promised amount. It was held that A could not sue for the same.
 In the above stated case, the Plaintiff was both a stranger to contract as well as stranger
to consideration & he could not enforce the claim.
 Privity of Contract under English Law
 The Rule of Privity of Contract was reaffirmed by House of Lords in Dunlop
Pneumatic Tyre Co. Ltd vs Selfridge & Co.ltd[(1915) AC 847].
 In Dunlop’s Case, the Appellants(Dunlop Co.), who were manufacturers of
motor car tyres, sold some tyres to one Dew & Co. with an agreement that
these tyres will not be sold below the list price. Dew & Co. in their turn sold
some of these tyres to the Respondents(Selfridge & Co.) , with an agreement
between Dew & Co. & the respondents that respondents shall observe
conditions as to price & the respondents also promised that they would pay
to the appellants a sum of 5 Pounds for every tyre sold below the list price.
The Respondents sold some tyres below the list price & the appellants
brought an action against the respondents to recover damages for the same.
 Decision- The House of Lords held that Dunlop Co. could not bring an
action against Selfridge & Co. because there was no contract between the
2 parties.
 Privity of Contract under Indian Law

 The rule that ‘privity of contract” is needed & a stranger to the contract
cannot bring an action is equally applicable in India as in England. The
common law principle of privity of contract is generally applicable in India
with the effect that only a party to contract is entitled to enforce the
same.
 In Jamna Das vs Ram Avtar[(1911) 30 IA 7], A had mortgaged some
property to X. A then sold this property to B, B having agreed with A to
pay off the mortgage debt to X. X brought an action against B to recover
the mortgage money.
 Decision- It was held by the Privy Council that since there was no contract
between X & B, X could not enforce the contract to recover the amount
from B.
 Exceptions to Privity of Contract

 1. Beneficiaries under a Trust or Charge- Under this exception, a person in

whose favour a charge or trust Is created on some specific property may enforce it though
he is not a party to contract.

 In Nawab Khwaja Muhammad Khan vs Nawab Hussaini Begum[(1909-10)37 IA 152]  the

Privy Council firmly established an exception to the doctrine of privity of contract and allowed
an action by a stranger to the contract.
 In this case the appellant executed an agreement with the respondent’s father. By this
agreement he agreed that in consideration of respondent’s marriage with his son (both, bride
and bridegroom were minor at the time) he would pay to the respondent ` 500 per month in
perpetuity for her kharch-e-pandan (betelbox or betel leaf expenses) from the date of
marriage. He also charged his property in Agra and Dholpur with this money and mentioned
that in case of his death his heirs or representative would pay the money out of these
properties. The arrear of the money was claimed by the plaintiff after separation from her
husband. In this case it was held that she could enforce the promise in her favour. Although
she was not a party to the agreement but as the contract is entered for her benefits only so
she was clearly entitled to proceed in equity to enforce her claim.
 3. Provision for marriage expenses or
maintenance under family arrangement
 Where, under a family arrangement, the contract is intended to secure a benefit to a
3rd party, he may sue in his own right as a beneficiary.

 In Veeramma vs Appayya[AIR 1957 AP 965], under a family arrangement, the

father’s house was to be conveyed to his daughter & the daughter undertook to
maintain him in his lifetime. The daughter being a beneficiary under the compromise
arrangement, it was held that she was entitled to sue for the specific performance in
her favour.
 In Sundaraja Aiyangar vs Lakshmiammal[(1915) 38 Mad 788], the partition deed
between the male members of the family made a provision for the expenses for the
marriage of the plaintiff, Lakshmiammal , to be contributed by the defendants , i.e.
her father & brothers. She brought an action to enforce the agreement between the
defendants.
 Decision- It was held that even though the plaintiff was not a party to the contract,
yet the contract constituted a situation like trust in her favour & therefore, she was
entitled to the amount.
 2. Conduct, Acknowledgment or Admission

 Sometimes, there may be no privity of contract between the 2 parties , but if one of them
by his conduct, acknowledgment or admission recognises the right of other to sue him, he
may be liable on the basis of law of estoppel.
 In Narayani Devi vs Tagore Commercial Corporation Ltd.[AIR 1973 Cal.401], where there
was no contract between the Plaintiff & Defendants but the defendants in their agreement
with the plaintiff’s husband had agreed to pay a certain amount to the plaintiff’s husband
during his lifetime & thereafter to the plaintiff, the question of the right of plaintiff to sue the
defendants had arisen. It was established that the defendants had made certain payments to
the plaintiff after her husband’s death, in pursuance of agreement & had thereafter asked for
the extension of time to pay. Apart from that it was found that the defendants, by their
admission had earlier called upon the plaintiff to execute certain documents in this
connection, which implies that they considered the plaintiff to be entitled to certain rights.

 Decision- It was, therefore, held that the defendants had created such privity with
the plaintiff by their conduct & by acknowledgment & by admission, that the plaintiff was
entitled to her action even though there was no privity to contract between the plaintiff &
the two defendants, when the said contract was entered into.
 Exceptions under Section 25, Indian Contract Act

 In English law, a contract which is under the seal is enforceable without consideration.
 In Indian law, there are no such provisions but still, the general rule is the ex nudo pacto non-oritur
action, which means that no right of action arises from the contract which is entered into without
any consideration. Still, under Section 25 of the Indian Contract Act,1872, it provides certain
exceptions under Section 25 of the Indian Contract Act where Contracts without consideration are
Valid.
 Some of these Conditions are-
 1. Natural Love & Affection[Sec.25(1)]- In case of a contract entered into between the relatives or
on account of natural love and affection is enforceable without consideration. The meaning of love
and affection is not judicially construed but parties who are nearly related would have instinctive
love and affection. Expression ‘Near relative’ means parties related with blood or marriage.
 Four requirements to invoke this exception are-
 (a) Agreement in Writing
 (b) Agreement must be registered.
 © Agreement must be made on account of natural love & affection.
 (d) Agreement must be between parties standing in near relation to each other.
 Rajlukhy Dabee vs Bhoothnath Mukherjee
[(1899-1900)4CWN 488]
 The defendant promised to pay his wife a fixed sum of money every
month for her separate residence & maintenance.
 The Court refused to consider this agreement within this exception. The
Court held that there was no love or affection between the parties. It was
the quarrel between them which compelled them to separate.
 Ex- A, for natural love & affection, promises to give his son, B, Rs.1,000. A
puts his promise to B in writing & registers it. This is a contract.
 2. Past Voluntary Services[Sec.25(2)]

• It provides that if a promise is made to compensate a person, who has

voluntarily done something for the promisor, or something which the
promisor was compellable to do, then such promise is enforceable
without consideration.
• It must be noted that the service must be rendered voluntarily & not at
request. If it is rendered at request, it would be covered by past
consideration under Sec.2(d).
• Ex- If A finds B’s purse & returns it to B. B promises to pay 100 Rs to A. This
is a enforceable Contract.
 3. Promise to pay a time-barred debt[Section
25(3)]
 It provides that a promise to pay a time barred debt is enforceable.
 The only requirement is that the promise must be made in writing &
signed by the person charged with or his agent. A mere acknowledgment
of debt is not sufficient. Promise must be to pay whole or part of debt.
 Ex- If ‘A’ owes ‘B’ Rs.10,000 but the debt is barred by limitation. If A signs a
written promise to pay B Rs 10,000, then it is enforceable.

 4. Creation of Agency[Sec.185]- It provides that no consideration is

necessary to create agency.
 Adequacy of Consideration

 It is not necessary that the Consideration must be adequate. Indian

Contract Act does not provide any provision mandating adequacy of
consideration. Parties are free to mutually decide consideration.
 In Botton vs Madden[1873 LR9 QB55], court held that adequacy of
consideration is for the parties to consider at the time of making
agreement.
 Explanation 2 of Sec.25 provides that an agreement to which the consent
of promisor is freely given is not void merely because the consideration is
inadequate.
 The only requirement is that the consideration must be real & not illusory.
It must have some value in the eyes of law.
 The word ‘something’ used in Sec.2(d) indicates that consideration must
have some value in the eyes of law.
 Adequacy of Consideration

 SC in Chidambara Iyer vs P.S.Ranga Iyer[AIR 1955 SC 193], held that

something means some value in the eyes of law. It does not mean that
only parties regard it as valuable , law must also regard it as valuable.

 Inadequacy of consideration may be taken into account by courts to

determine whether the consent was freely given or not.
 Ex- ‘A’ agrees to sell a horse worth Rs.1,000 for Rs.10. A denies that his
consent to agreement was freely given. In this case, the inadequacy of
consideration will be a fact which the court will take into consideration in
deciding whether the consent of ‘A’ was freely given or not. If the court is
satisfied that the agreement was entered freely then agreement will be
valid notwithstanding the inadequacy of consideration.
 Capacity to Contract

• According to Sec.10 for enforceability of an agreement it is necessary that

parties should be competent to Contract.
• According to Section 11: “Every person is competent to contract who is
of the age of majority according to the law to which he is subject & who
is of sound mind & is not disqualified from contracting by any law to
which he is subject”.

• Sec.11 provides who are competent to Contract. It says that every person
is competent to Contract who is-
• A. Major
• B. Of Sound Mind
• C. Not disqualified from Contracting by law.
 Object of Section11

 The object behind this provision is that the parties must be mature
enough to assess the impact of contractual obligation so that they are in a
position to protect their interest.
 Sometimes, the parties are also exploited at the hands of others owing to
immaturity or incompetency. Such kinds of situations are sought to be
prevented by this provision.
 The law tends to protect the interests of weaker sections of society,
therefore policy of law is to discourage incompetent persons from
entering into contractual obligations.
 Position of a Minor

 Who is a Minor? A Person who has not attained age of majority is

a minor.
 Section 3 of Indian Majority Act,1875 provides about age of majority. It
states that a person is deemed to have attained majority when he turns
18, except in case of a person of whose person or property, a guardian has
been appointed by the court, in which case majority age will be 21 years.
 In England, age of Majority is 18 years.
 Who is a Sound Mind for Contract?[Sec.12]

 Sec.12 provides that a person is said to be of sound mind for the

purpose of making a contract if, at the time when he makes it , he
is capable of understanding it & of forming a rational judgment as
to its effect upon his interests.
 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.
 Ex- ‘A’, patient in a lunatic asylum, who is at intervals of sound mind
may contract during those intervals.
 Under Indian law, an agreement by a person of unsound mind is
void. He cannot derive any benefit from it.
 Nature of Minor’s Agreements

 English Law- Under English Law, minor’s agreement is

considered to be voidable contract. It is voidable at the option
of minor.
 However, under Infants Relief Act,1874, following categories of
agreement with minor are declared void-
 1. Agreement for account stated.
 2. Agreement for repayment of money lent or to be lent.
 3. Agreement for goods supplied or to be supplied, other than
necessaries.
 Indian Position

 There was a controversy in India whether minor’s agreement is void or voidable.

The controversy was resolved by Privy Council in Mohori Bibee vs Dharmodas
Ghoshe(1902-1903)AC 114. It was held that agreement by a minor was void.
 Facts of Case- The Plaintiff, Dharmodas Ghoshe, while he was a minor,
mortgaged his property in favour of Defendant, Brahmo Dutt, who was a
money lender to secure a loan. Plaintiff was a minor & he misrepresented
himself to be a major. The Plaintiff approached agent of Defendant for a loan.
The agent was aware that Dharmodas Ghosh was minor. Loan agreement was
made between Plaintiff & Defendant through agent. Defendant made part
payment of certain sum of money & minor /Plaintiff mortgaged his 2
properties.
 Plaintiff’s mother filed a suit for cancellation of mortgage on ground that he
was a minor. By the time of appeal to Privy Council, Defendant died & appeal
was prosecuted by his executors.
 Mohori Bibi vs Dharmodas Ghose

 Decision by Privy Council- PC held that minor’s

agreement is not a voidable contract. It is an agreement void
ab initio. Court held that according to Section 11, it is
necessary that contracting parties should be competent & it is
expressly provided that a person who is not a major can’t
enter into contract. There is no contract in 1st place, so there
is no question of it being voidable.
 Therefore, now the law is settled that minor’s agreement is
void ab initio.
Ratification of acts done on minor’s behalf
 A minor’s agreement being void ab initio, neither he can himself enter into
contract nor authorize an agent to do so on his behalf.
 Since after the ratification of an act done on behalf of a person, the act
gets the validity of a previously authorized act, it is necessary that the act
to be ratified must be such as could have been legally authorized.
 As a minor is incapable of either making a contract himself or
authorizing the same, he cannot legally ratify an act done on his behalf.
 No Estoppel against a Minor

 Section 115 of the Indian Evidence Act,1872 enumerates the doctrine of Estoppel.
 Estoppel is a principle of law by which a person is held bound by the representation made
by him or arising out of his conduct. It lays down that when one person has by his
declaration, act or omission caused or permitted another person to believe a thing to be
true & to act upon such belief, neither he nor his representative shall be allowed in any suit
or proceeding between himself & such person or his representative to deny the truth of
that thing.
 Thus, according to rule of Estoppel, if you make a statement today which misleads
another person, you are not allowed to deny the statement tomorrow when the
question of your liability arises.
 Regarding applicability of estoppel in case of minor’s agreement, it can be said that
doctrine of estoppel is not applicable in case of minor’s agreement. It is a settled
principle that estoppel does not operate against law.
 If the principle of estoppel will apply then the minor will be estopped / prevented
from denying his representation it means the agreement will be deemed to be valid.
This will go against the settled provisions of law that minor’s agreement is void.
 Doctrine of Restitution
 When a minor enters into an agreement with another & receives certain
benefits out of agreement, then the question is whether minor liable to
return benefit. Is Restitution applicable against minor?
 Position under English Law- According to English Law, if a minor
has obtained undue benefit in any transaction, he is required to restore
back the benefit so received by him, under equitable doctrine of restitution.
 Under the doctrine, he is asked to restore back the things taken by him. It is
applicable only to goods or property received by a minor so long as they can
be traced and are still in his possession. Since it is difficult to identify money
& to prove whether it is the same money or different one, the doctrine does
not apply to money. Even as regards goods or property, if the same have
been consumed or transferred & are no more traceable, doctrine of
Restitution does not apply there.
 No Estoppel against Minor

 In Vaikuntarama Pillai vs Authimoolam

Chettiar[I.L.R.(1915) 38 Mad.1071], the Madras HC has held
that as there is clear statutory provision that a minor being incompetent
to contract is incapable of incurring any liability for any debt, law of
estoppel cannot overrule this provision to make him liable.
 Leslie vs Sheill[(1914) 3 KB 607]

 Facts-In this case, the Defendant, a minor falsely misrepresented

himself to be a major & obtained 2 loans of 200 Pounds each from the
plaintiffs, who were money lenders. The Plaintiffs brought an action to
recover 475 Pounds , being the amount of loan taken & interest thereon.

 Decision of Court- It was held by the Court of Appeal that the

money could not be recovered. If that were allowed, that would amount
to enforcing the agreement to repay loan, which is void under the Infants
Relief Act,1874. It was explained that the object of doctrine of restitution
is to restore back the ill gotten gains taken by the minor, rather than
enforcing the contract. If a minor is asked to pay money which cannot be
traced & which he no more possesses, it would amount to enforcing the
agreement.
Indian Legal Position on Doctrine of Restitution

 In Khan Gul vs Lakha Singh, AIR 1928 Lah 609, the

question of compensation arose before the Lahore HC. In this case, the
Plaintiffs, who had advanced a sum of Rs.17,500 to a minor brought an
action against him to recover the amount. The minor was held liable to
refund the amount.
 According to Sir Shadi Lal, CJ, who decided the present case, asking a
minor to return the ill gotten gain in form of money, is not enforcement of
contract, but it is only restoration of pre-contract position. The relief is
allowed because one of the parties has unjustly benefitted at the cost of
other. Justice Shadilal held that Leslie Case is not applicable in India.
 In other words, it means that the rule of English Law laid down in Leslie vs
Sheill is not applicable in India.
 Current Indian Legal Position on Doctrine of
Restitution against Minor
 In accordance with the recommendation of Law Commission, the principle of
compensation has now been incorporated in Sec.33, Specific Relief Act,1963. This
provision now requires the payment of money compensation by a minor
irrespective of the fact whether the minor is the plaintiff or defendant in the case.
 So, the present Legal position in India can be summarized as follows-
 1. If a minor goes to the court as Plaintiff for the cancellation of an instrument, the
Court may, on adjudging the cancellation, require such a minor to restore the
benefit & to make such compensation to the other party as justice may require.
 2. When the minor is the Defendant in a case & he resists the enforcement of the
suit on the ground that he is incompetent to contract, the court may ask him to
restore such benefit to the other party, to the extent his estate has been benefitted
thereby.
 Through this provision, the parties are tried to be put to the pre-contract position.
The rule of English Law laid down in Leslie vs Sheill is not applicable in India.
 Contracts beneficial to a Minor

 While no liability can be incurred by a minor, he is not debarred from accepting a benefit.
If a minor has advanced mortgage money & there is a mortgage in his favour, he can sue
for enforcement of contract. For the same reason, if a contract is made on behalf of a
minor by his guardian & for benefit of minor, minor is entitled to sue on the Contract.

 In Great American Insurance Co.Ltd. Vs Madan Lal[AIR 1935 Bomb.353 ],

the guardian of a minor effected an insurance against fire in respect of minor’s property.
Insurance Company knew that owner of property was a minor. Subsequently, the property
insured got destroyed by fire. In an action by minor against Insurance Company to claim
compensation for loss to the property, it was pleaded by Defendant that since the Plaintiff
was minor, contract of Insurance was void.
 Decision- It was held that Minor was entitled to claim the amount.
 In Raghva Chariar vs Srinivasa[AIR 1917 Mad.630], it was held that if there is mortgage in
favour of a minor & the minor has advanced whole of mortgage money, then the Contract
is enforceable by the Minor or some person on his behalf.
 FREE CONSENT

 Section 10 mandates that in order to convert agreement into contract,

free consent is essential. Mere consent of parties will not be enough for
valid contract. One of the essentials of a valid contract mentioned in
Sec.10 is that the parties should enter into contract with their free
consent.
 Consent is defined in Section 13. It states 2 or more persons are said to
consent when they agree upon the same thing in same sense. It is known
as ‘Consensus-ad-idem’.(meeting of minds).
 The assent of Proposer & assent of acceptor makes consent of parties. If
there is no consent, there is no agreement. However, if there is consent
there is agreement but whether that agreement converts into contract or
not will depend upon the fact whether the consent is free or not.
 Meaning of Free Consent

 Section 14 defines ‘Free Consent’. According to Sec.14,

Consent is said to be free when it is not caused by-
 1. Coercion, as defined in Sec.15 or
 2. Undue Influence, defined in Sec.16 or
 3. Fraud, as defined in Sec.17 or
 4. Misrepresentation, as def. in Sec.18 or
 5. Mistake, subject to provisions of Sections 20,21& 22.
 If the consent of one of the parties is not free consent, i.e. it has been caused by
one or the other of the above stated factors, then Contract is not a valid one.
 These 5 elements are also called Vitiating elements. It is thus clear that nature of
consent is quite material. If the consent to an agreement is caused by Coercion,
Undue Influence, Fraud or Misrepresentation, the agreement is a Contract voidable
at the option of party whose consent was so obtained.[Sec.19& 19A]. If Consent is
caused by mistake, then agreement is Void.[Sections 20-22]
 1. Coercion

 Sec.15 defines the term ’Coercion’. Coercion is said to be there where the consent of a
person has been caused either by:-
 1. Committing or threatening to commit any act forbidden by the IPC or by
 2. Unlawful detaining or threatening to detain any property .

 Such an act should be to the prejudice of any person whatever . Ex- A threatens to shoot B if B
does not agree to sell his property to A at a stated price, B’s consent in this case has been
obtained by Coercion.
 For Coercion, it is not necessary that the IPC should be applicable at the place where the consent
has been so caused.
 In Ranganayakamma vs. Alwar Setti[I.L.R.(1889) 13 Mad.214], the question
before the Madras HC was regarding the validity of adoption of a boy by a widow, aged 13 years.
On the death of her husband, the husband’s dead body was not allowed to be removed from her
house for cremation, by the relatives of the adopted boy until she adopted the boy.
 Decision of Case- It was held that the adoption was not binding on the widow as her
consent had been obtained by Coercion.
Chikkan Ammiraju vs Chikkam Seshama[ILR
(1918) 41 Mad 33]
 In this case, the question before the Madras HC was that whether
coercion could be caused by a threat to commit suicide. In this
Case, A, a Hindu, by a threat of Suicide , induced his wife & son to
execute a release deed in favour of A’s brother in respect of certain
properties claimed as their own by the wife& the son.
 Decision- It was held by the Court that a threat to commit suicide
amounted to Coercion within the meaning of Sec.15 of Contract Act &
therefore, the release deed was Voidable. It was observed that the threat
to commit suicide could be considered to be an act forbidden by the IPC &
also the threat to kill oneself was an act where a person was acting to his
own prejudice & also to the prejudice of his wife & son & thus, the
requirements of Sec.15 were fulfilled.
 Krishan Lal Kalra vs NDMC[AIR 2001 Delhi
402]
 Facts of Case- The Plaintiff was given licence by the NDMC to run an
Open air Restaurant in Connaught Circus, New Delhi. The Lease was to expire on
31st May, 1978. The Plaintiff, who started running the restaurant under name
‘Rumble Open Air Restaurant” was allegedly thrown out of the premises after
taking forcible possession thereof without due process of law by the defendant
who sent demolition squad with Police force on 7th August, 1976. There was
also a threat that the Plaintiff would be detained under MISA, if he did not hand
over the possession of the property. The Plaintiff alleged that there was
Coercion & he filed the present suit claiming damages of Rs.10 lacs.
 Verdict of Case- It was held that a person is not bound by any act
done under duress or coercion. In this case, the threat that the Plaintiff
would be detained under MISA amounted to Coercion. The Plaintiff’s suit
was decreed for a sum of Rs.9,11,525.12 with cost as well as interest
@12% .
 Unlawful Detaining of Property

 According to Sec.15, Coercion could also be caused by the unlawful

detaining or threatening to detain any property , to prejudice of any
person whatever, with the intention of causing any person to enter into an
agreement.
 Ex- If an Outgoing agent refuses to handover the account books to the
new agent until the Principal executes release in his favour, it is coercion.
 If the Detention of property is not unlawful, there is no coercion.
 Difference between Coercion & Duress
Duress
1. It consists of actual violence or threat
to a person. Scope of Duress is narrower
than Coercion.
2. It only consists of fear of loss of life or
bodily harm.
3. It should be committed by the party to
Contract.
4. It should be directed against the party
to Contract or his Wife, Child or near
relative.
Coercion
1. Threatening to commit an act forbidden
by IPC also amounts to Coercion.
2. It also applies to loss to property or
goods.
3. It can be committed by the party to
Contract or any other person.
4. It can be directed against any person,
even to a stranger.
 UNDUE INFLUENCE

 Sec.16 defines Undue Influence. It is a subtle specie of fraud or Coercion

where the dominance is gained over victim’s mind. Here, there is no use of
physical force but mental or moral force is used to gain mastery over
other’s mind. If the consent has been obtained by Undue Influence,
contract is voidable at the option of party whose consent has been so
obtained.
 Essentials of UNDUE INFLUENCE

 In order to constitute Undue Influence, it is necessary to

prove that:-
 (1) Relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of other and
 (2) Such a person uses his dominant position to obtain an unfair
advantage over the other.
 It is to be noted that both these conditions have to be established by the
person seeking to avoid the transaction- he has to prove that other party
to transaction was in a position to dominate his will & that the other party
had obtained an unfair advantage by using that position.
 Person in Dominant Position & obtaining of
Unfair advantage
  In the following cases, a person is deemed to be in a
position to dominate the will of the another -
 1.  Where he holds a real or Apparent authority over the other or
 2. Where he stands in a fiduciary relation to the other or
 3.  Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by region of age , illness or mental or
bodily distress.
 Fiduciary Relationship

 It means a relationship of Confidence & Trust.

 If a person betrays the Confidence & trust reposed in him & gains an unfair
advantage over the other party in any contract, the suffering party has an option
to avoid the contract. The Principle of Undue Influence applies to every case
where influence is acquired & abused, where confidence is reposed & betrayed.
 Examples of Fiduciary Relationship are solicitor and client ,Trustee and
beneficiary, spiritual advisor & devotee, parent& child, husband and wife,
master and servant, Principal and agent , Landlord & Tenant, Doctor & Patient.
 in case of Fiduciary relationship if the person in a dominant position has gained
an undue advantage in any transaction ,the burden of proof lies on such a person
to show that transaction was without undue influence and in the absence of such
a proof the transaction is liable to be cancelled.
   The rule regarding Burden of Proof in such cases is contained in section 111 of
the Indian Evidence Act.
 Mannu Singh vs Umadat Pande[(1890) 12
All523]
  In this Case, the Plaintiff , an aged person executed a gift deed in respect of the
whole of his property in favor of the defendant who was Plaintiff’s Guru or
spiritual advisor. The only reason for the gift was his Desire to secure benefits
to his soul in the next world and also in view of the plaintiff having heard
recitation of the holy book, Bhagwat. Soon after the execution of the said
deed, the plaintiff applied for the cancellation of the same by a suit brought by
him under section 39 of the Specific Relief Act 1877. Section 111 of Indian
Evidence Act was applied to the situation, according to which in a case of
person being in position of active confidence, burden of proof lies on such a
person who enjoy such a confidence.
  Decision of Case- It was held that because of the Fiduciary relation between
the parties & the absurdity of the reason given by Plaintiff in gift deed & in view
of Sec.111 Evidence Act, defendant must prove the absence of undue influence
& since he has failed to prove the same, the Plaintiff is entitled to obtain the
cancellation of the deed.
 Merci Celine D’Souza vs Renie Fernandez[AIR
1998 Kerala 280]
 In this Case, the Plaintiff, a mentally infirm person incapable of protecting
his interest and totally dependent on Defendants for his existence, gifted
his property in favour of the defendants. It was found that the defendants
had obtained an unfair advantage & the gift deed was not attested by the
two witnesses as required by law.
 Decision- It was held that the settlement deed of the property was liable
to be set aside on the ground of Undue Influence.
 Takri Devi vs Rama Dogra[AIR 1984 HP 11]

 In this Case, an illiterate Old Lady living separately from her husband
gifted practically all her property, which included an apple orchard , valued
at Rs.2 Lakhs to the Donee, who was her Lawyer. There was no other
relationship between the Donor & Donee.

 Decision- It was held that there was Fiduciary Relationship between

the two, the Donee was in a position to dominate the will of the donor,
the transaction was unconscionable & there was presumption of Undue
Influence in the case.
 Effect of Undue Influence

 Sec.19A of the Indian Contract Act declares that when consent to an

agreement is caused by undue influence, the agreement is contract
voidable at the option of the party whose consent was so caused.
 FRAUD

 When the Consent of a party to the Contract has been obtained by Fraud,
consent is not free. In such a case, the contract is voidable at the option of
party whose consent has been so obtained. Fraud or Deceit, is also a tort.
Fraud is defined in Sec.17 of Indian Contract Act.
 Essential Ingredients of Fraud

 According to Sec.17, following are the essentials of Fraud-

 1. There should be a false statement of fact by a person who himself does
not believe the statement to be true
 2. The statement should be made with a wrongful intention of deceiving
another party thereto & inducing him to enter into contract on that basis.
 In Derry vs Peek[(1889) 14 AC 337], it was held that Fraud was proved
when it is shown that a false representation has been made-(i) Knowingly
or (ii) without belief in its truth or (iii) Recklessly, Carelessly whether it be
true or False.
State of AP vs T.Suryachandra Rao[AIR 2005
SC 3110]
 In this Case, the Respondents surrendered certain land as found surplus
under the AP Land Reforms(Ceiling on Agricultural Holdings) Act,1973.
Subsequently, it was noticed that the land which was surrendered had
already been acquired in proceedings under the Land Acquisition
Act,1898. The Respondent’s act of surrendering the land which had
already been acquired by the state & the same had vested in it, amounted
to Fraud.
 Decision- Holding it a case of Fraud on the part of Respondent, the Court
said “Fraud is an act of deliberate deception with the design of securing
something by taking unfair advantage of another. It is a deception in order
to gain by another’s loss.
 1. False statement of fact[Section 17(1)]

 In order to constitute Fraud, it is necessary that there should be a statement of fact

which is not true. Mere expression of opinion is not enough to constitute Fraud.

 In Kiran Bala vs Bhaire Prasad Srivastava[AIR 1982 MP 242], first

marriage of the appellant, Kiran Bala, had been annulled on ground that she
was of unsound mind at time of marriage. She was married to Respondent,
Bhaire Prasad Srivastava, the second time. The facts of the annulment of the
first marriage on ground that she was an idiot & also that she was under
treatment for mental ailment were not disclosed to bridegroom either by the
girl or her parents.
 Decision- It was held that it was not the duty of bridegroom to find out
these facts , but it was the duty of the girl or her parents not to conceal
these facts. Consent of the bridegroom was held to have been obtained by
Fraud & the 2nd marriage of the Appellant with the Respondent, was
therefore annulled by a decree of nullity under Section 12(1)© of HMA, 1955.
 Akhtar Jahan Begam vs Hazarilal

• A, sold some property to B stating in the sale deed that he would not be
liable to B if he suffered any loss owing to A’s defective title. A had, earlier
to this transaction , sold this property to somebody else, but did not
inform B about it.

• Decision- It was held that A had committed fraud & the contract was
voidable at the option of B.
 Derry vs Peek[(1889) 14 AC 337]

 In this Case, the Directors of a Company issued a prospectus stating that

they had got the authority to run tramways with steam or mechanical
power instead of animal power. In fact, a plan had been submitted for the
same & the Directors honestly believed that the Board of Trade, who had
to accord sanction for same would do so as a matter of course.BOT(Board
of Trade) refused the sanction & company had to be wound up.
 The Respondent, who had taken shares in company on the faith of
representation by Directors in the Prospectus, brought an action for Tort
of Deceit.
 Decision- It was held by the House of Lords that since the statement had
not been made with an intention to deceive, there was no Fraud. Fraud is
proved when it is shown that a false representation has been made-(1)
Knowingly or (2) without belief in its truth or (3) recklessly, carelessly
whether it be true or false.
 2. Wrongful Intention
 In order to constitute Fraud, it is necessary that a person should
intentionally make a false statement with an intent to deceive another
party thereto to induce him to enter into the Contract. If the intention to
deceive another party is absent, there is no Fraud.
 Mere Silence is no Fraud

 Mere Silence as to Facts is no Fraud. Explanation to Sec.17 states-” Mere

Silence as to facts likely to affect the willingness of a person to enter into a
contract is not Fraud, unless circumstances of the case are such that it is
the duty of the person keeping silence to speak or unless his silence, is in
itself, equivalent to Speech.”
 A Contracting party is not obliged to disclose each & everything to the
other party. If a person is to sell his goods, he is under no duty to disclose
the defects in his goods. If he makes false statement as to quality of goods,
it would be Fraud but if he merely keeps silence as regards defects in
them, there is no Fraud.
 Exceptions to Rule as to when Silence is also
Fraud
 Although as a general rule, mere silence as to facts do not amount to Fraud,
but in some exceptional circumstances keeping silence may be deemed to
be an act of Deception.
 In the following 2 Situations, keeping Silence is also counted as Fraud-
 1. When there is duty to Speak, keeping Silence is Fraud.
 2. When Silence is, in itself, equivalent to Speech, such Silence is a Fraud.

 Duty to Speak(Contracts Uberrima Fides)- When there is a duty to disclose

facts, one should do so rather than to remain silent. By remaining Silent,
one may be responsible for creating a false impression in minds of other.
Certain Contracts are Uberimma Fides i.e. contracts of utmost good faith.
Suppression of truth in such cases is equivalent to suggestion of Falsehood.
Contracts of Insurance are Contracts Uberrima Fides(of Utmost Good
Faith).
P.J. Chacko vs Chairman, LIC of India[AIR 2008
SC 424]
 In this Case, the Insured had undergone an operation for Adenoma
Thyriod, a major operation, 4 years prior to the date of proposal made by
him, without disclosing the fact while obtaining the insurance Policy. He
took the policy on 6th July, 1987 & within 6 months, i.e. on 21st Feb, 1988
he died. On the ground that the Insured suppressed material facts, the
Policy was repudiated by the Respondent on 10th Feb, 1989.
 Verdict- Upholding the Repudiation of Policy as Proper, the Apex Court
observed- “ It is true that LIC is State, its action must be just, fair &
reasonable but that does not mean that it shall be asked to make a charity
of public money. The Contracts of Insurance including Contracts of Life
Insurance are contracts Uberimma Fides & every material fact must be
disclosed, otherwise there is good ground for Rescission of Contract.
 Proof of Fraud

 Fraud is essentially a question of fact & the person who alleges that has to
prove the same. If the Plaintiff seeks the annulment of the Contract on the
ground of Fraud , he has to specifically plead the same & mention the
circumstances which can lead to the conclusion of existence of Fraud.
Merely making a mention of Fraud in the pleadings is not enough.
 Misrepresentation

 An innocent misstatement or false statement is known as

Misrepresentation. Sec. 18 of the Contract Act defines Misrepresentation.
 If one party, acting innocently, causes another party to make a mistake as
to substance of thing which is subject of agreement, there is said to be
misrepresentation.
 In case of misrepresentation, person making the statement is innocent &
he makes statement without any intention to deceive other party. His
statement is false although he believes that the same is true. Derry vs
Peek is also a case on Misrepresentation.
 In misrepresentation, there should be a false statement made innocently
i.e. without any intention to deceive.
Difference between Fraud & Misrepresentation

 1. In Fraud, there is malafide intention, while in Misrepresentation, there is a

bonafide belief of Defendant. In Fraud, the Defendant himself does not believe the
statement to be true by which he induces the Plaintiff, while in Misrepresentation,
the Defendant himself believes the statement to be true. In Fraud, false statement
made deliberately but in Misrepresentation, false statement made innocently.
 2. In Fraud & Misrepresentation, the aggrieved party has remedy to rescind the
contract under Sec.19 of Indian Contract Act. But in case of Fraud, victim can sue
under Law of Torts also. No remedy under law of Torts is available if it is an innocent
misrepresentation.
 3. When there is Misrepresentation by one party, contract is voidable at option of
other party , but no such remedy available if party seeking to avoid contract had
means of discovering the truth with ordinary Diligence. However, except in case of
Fraudulent silence, a person obtaining consent of other party by Fraud can’t be
allowed to say that other party could have discovered truth with ordinary Diligence.
 Mistake[Secs.20-22]

 Mistake may operate upon a contract in 2 ways. It may be either Mistake

of Fact or Law.
 S.20 will come into play:- 1. When both the parties to an agreement are
mistaken 2. their mistake is as to a matter of fact & 3. the fact about which
they are mistaken is essential to the agreement.

 Section 21&22 are supplementary Provisions to Sec.20. Section 21

emphasises that mistake should be of Fact & not of law. Sec. 21 states that
mistake of Indian law will not be excusable but mistake of Foreign law has
the same legal implications as a mistake of fact under Sec.20.
 Sec.22 deals with a situation where only 1 party is under mistake of fact,
in such a scenario the contract will be valid.
 Mistake

 Broadly speaking, there are certain facts which are essential to every
agreement. They are- 1. Identity of the Parties.2. The identity & nature of
the subject-matter of Contract & 3. The nature & contents of the Promise
itself. These are the material or the base upon which a contract stands,
any confusion regarding these elements may vitiate the Contract.
 VOID AGREEMENTS

• Giving the meaning of a Void Agreement, the act says in Sec.2(g): “ An

agreement not enforceable by law is said to be void”.
• Following kinds of agreements are declared to be void-
• 1. Agreement with a Minor
• 2. Agreement where both parties are under mistake of fact.
• 3. Agreements of which Consideration & Objects are unlawful in part.[Sec.24]
• 4. Agreements without Consideration[Sec.25]
• 5. Agreements in restraint of marriage[Sec.26]
• 6. Agreement in restraint of Trade[27]
• 7. Agreement in restraint of Legal Proceedings[Sec.28]
• 8. Agreements which are uncertain & ambiguous[Sec.29]
• 9. Agreements by way of Wager[Sec.30]
• 10. Agreements to do an impossible act[Sec.56]
 Consideration & Object unlawful in
Part[Sec.24]
• Section 24 provides that if any part of single
consideration for one or more objects, or any one or
any part of any one of several considerations for a
single object is unlawful, the agreement is void.
• If the part of consideration which is unlawful can be
severed from the other part which is lawful, the
court will enforce only the lawful part. If such
severance is not possible the whole agreement will
be void.
• For example, If 'A' agrees to supervise on behalf of
'B' a legal manufacture of indigo and illegal trade in
other articles and 'B' promises to pay a salary of Rs
10000/- to 'A' for both the jobs then the whole
agreement is void.
 Agreements in restraint of Marriage[Sec.26]

• Section 26 provides that every agreement in restraint of the marriage of

any person, other that minor is void.
• The policy of law is to discourage agreements which restrain freedom to
marry. The restraint may be absolute or partial. Any kind of restraint
makes the agreement void.
• A party may be restrained from marrying at all, or for a particular period
or class of persons, in all such cases the agreement is void.
• Ex- "A' agrees to pay "B" Rs 10000 if 'B' does not marry. This agreement
is void.
• Under English law, partial restraint on marriage is valid.
• Law Commission of India in its 13th report , recommended that law
should be amended to make partial restraint valid. However, no
legislative action has been taken in this regard till now.
 Penalty on Remarriage

• A penalty on Remarriage is not to be construed as restraint on marriage.

• In such kind of agreement, party is not restrained from remarriage. It is
only that upon remarriage the party will forfeit certain right.
 Agreements in Restraint of Legal
Proceedings[Sec.28]
• Section 28 provides that agreements in restraint of legal
proceedings are void.
• It provides that following kinds of agreements in restraint of
legal proceedings are void:
• (a) An agreement which restricts the parties from enforcing
their legal rights absolutely.
• (b) An agreement which limits the period of limitation
provided under the Limitation Act.
• (c) An agreement which extinguishes the rights of any party.
• (d) An agreement which discharges any party from any
liability.
 Rationale of Sec.28

• This provision is based on the principle that no one

can exclude others from the proceeding of the court.
No one can be denied justice by an agreement
between the parties.
 Absolute Restraint

• Section 28 will come into play when the restriction imposed upon the right to sue is
"absolute" in the sense that the parties are wholly precluded from pursuing their
legal remedies in the ordinary tribunals.
• A partial restriction will be valid.
• An illustration of partial restriction is the decision of the Calcutta High Court
in Continental Drug & Co Ltd v Chemoids & Industries Ltd.[AIR 1955
Cal.161] clause to be valid and binding, LAHIRI J said: "If there are two courts
which are equally competent to try the suit, an agreement between the parties that
the suit should be instituted in one of the courts cannot be said to be an absolute
restriction on the right legal proceedings. It has been established by a long line of
judicia
• The contract in question fell under the concurrent jurisdiction of both the Bombay
and Alipore courts, but the contract provided that "any dispute arising between the
parties, settlement of the same legally or other wise, will be decided in Bombay.”
• Holding the l decisions that such an agreement does not contravene the provisions
of Section 28 if the chosen court has jurisdiction to try the suit under ordinary law.
 Hakam Singh vs Gammon India Ltd.[AIR
1971 SC 740]
• The court here laid down." "It is not open to the parties by agreement to
confer jurisdiction on a court, which it does not possess under CPC. But
where two courts or more have under the Code of Civil Procedure
jurisdiction to try a suit, an agreement between the parties that the dispute
between them shall be tried in one of such courts is not contrary to public
policy. Such an agreement does not contravene Section 28 of the Contract
Act."
 Exceptions to Sec.28

• 1. Reference of Future disputes to arbitration- This

exception does not render void any agreement by
which two or more persons agree that any dispute
which shall arise between them shall be referred to
arbitration. However, the right to proceed against
arbitrator’s award award cannot be excluded by
Contract.
• 2. Reference of existing questions to arbitration- This
exception saves contracts to refer to arbitration
questions that have already arisen.
 Uncertain Agreements[Sec.29]
• Agreements, the meaning of which is not certain or capable of being
made certain are void.
• One of the most fundamental requirement of agreement is that it has to
be certain in order to be binding.
• House of Lords in Scammell v. Ousto[1941 AC 251] observed that
agreement should be sufficiently definite in order to enable the court
to give it a practical meaning. Its terms must be so definite or capable
of being made definite without further agreement of the parties, and
that promises and performances to be rendered by each party are
reasonably certain.
• Section 29 provides that agreements, the meaning of which is not
certain, or capable of being made certain, are void.
• Ex- 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.
 UNCERTAIN AGREEMENTS[SEC.29]

• The principle is that the parties must make their own contract. The Court will
not construct a contract for them when the terms are uncertain.
• In Guthing v. Lynn[ (1831)2 B and Ad 232], horse was bought for a certain price
and there was promise to give 5 pounds more if the horse proved lucky. The
agreement was held to be void for uncertainty. The court has no machinery to
determine what luck, bad or good, the horse had brought to the buyer.
• An agreement is not void for uncertainty when the terms are ‘capable of
being made certain’.
• For example, '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 of one
hundred tons of coconut-oil. This agreement is capable of being made certain
and hence it is not void.
• Therefore, it follows that if the agreement is uncertain but is ascertainable
then it is not void. Such kind of ambiguity can also be called partial or latent
ambiguity.
 WAGERING AGREEMENTS[SEC.30]

• Section 30 provides that agreements by way of wager are void.

The Act does not define the term 'wager’.
• Supreme Court in Gherulal Parekh v. Mahadeo Das[ AIR 1959 SC
781] held that Anson’s definition of wager as a promise to give
money or money's worth upon the determination or
ascertainment of an uncertain event brings out the true concept
of wager as envisaged in Section 30 of the Act.
 ESSENTIALS OF WAGERING AGREEMENT

• Justice Hawkins in Carlill vs Carbolic Smoke Ball Company gave

the definition of Wager.
• The Court laid down the following essentials of Wagering
Contract-
• 1. Uncertain Event-The performance must depend on an
uncertain event. Generally, wager contemplates a future event
but it may even relate to a past event which has already
happened but the parties are not aware of its result or the time
of happening.
• For example, A and B enter into a wagering agreement
whether it will rain or not. 'A' promises to pay Rs 1000 if it rains
and ‘B’ promises to pay Rs 1000 if it does not rain. Here, the
future uncertain event is rain.
 ESSENTIALS OF WAGERING AGREEMENT

• 2. Mutual chances of gain or loss:- Upon the determination of the

contemplated event, each party should have mutual chances of
winning or losing. If the circumstances are such that the party can only
win and cannot lose then it will not qualify to be a wager.
• 3. Neither Party to have control over the event- Neither party should
have control over the happening of the one way or the other. "If one
of the parties has the event in his own hands, the transaction lacks an
essential ingredient of a wager.”
• 4. No other interest in the event- Neither party should have any
interest in the happening of the event other than the sum or stake he
will win or lose. This is what marks the difference between a
wagering agreement and contract of insurance.
• Every contract of insurance requires for its validity the existence of
insurable interest. An insurance effected without insurable interest is
no more than wagering agreement and, therefore, void. "Insurable
interest" means the risk of loss to which the assured is likely to be
exposed by the happening of the event assured against.
• In a wager, on the other hand, neither party is running any risk of
 EFFECTS OF WAGERING TRANSACTIONS

• A wagering agreement being void cannot be enforced in any

court of law.
• Section 30 expressly declares that "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".
• Thus the amount won on a wager cannot be recovered.
 EXCEPTIONS OF WAGERING
AGREEMENTS
• 1. Horse Race- The section does not render void a subscription
or contribution, or an agreement to subscribe or contribute, toward any
plate, prize or sum of money, of the value or amount of five hundred
rupees or upwards to the winner or winners of any horse races.

• 2. Crossword Competitions- "If skill plays a

substantial part in the result and prizes are awarded according to the
merits of the solution, the competition is not a Lottery, Otherwise it
is." Thus, literary competitions which involve the application of skill
and in which an effort is made to select the best and most skillful
competitor, are not wagers.
Agreements to do Impossible act[Sec.56]
 CONTINGENT CONTRACT[31-36]
• S.31 defines Contingent Contract. 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.
• Unless that stipulated event happens or not
happens, contract is not enforceable.
 Essentials of Contingent Contract

• 1. There should be a contract to do or not to do something.

• 2. Such act or abstinence must be dependent on happening or non-
happening of some future event. The act may be a positive act (to do
something) or a negative act (abstain from doing something).
• 3. The said event must be collateral to such contract. It means that a
contract has already arisen but its performance cannot be demanded
unless contemplated event happens or not happens.
• Ex- A promises to sell goods to 'B' if India wins the match. It is a
contingent contract.
 Enforcement of Contingent Contract

• In case of contingent contract if the contingency is fulfilled according to

the wishes of the party then such contract is enforceable.
• If the contingency is not fulfilled then such contact becomes void. Rules of
enforcement of contingent contract has been laid down in Sections 32-36.
• 1. Contracts contingent on event happening- Sec.32 provides that
contingent contract dependent on happening of uncertain future event
cannot be enforced until that event happens.
• If the event becomes impossible the contract becomes void.
• For example, 'A' makes a contract with "B" to buy B's horse if 'A' survives
'C. This contract cannot be enforced by law unless and until "C" dies in A's
lifetime. In another example, 'A' contracts to pay "B" a sum of money
when 'B' marries 'C. C dies without being married to 'B'. The contract
becomes void.
 2. Contract Contingent on event non-
happening[Sec.33]
• Section 33 provides that contingent contract dependent on non
happening of uncertain future event can be enforced when the
happening of the event becomes impossible.
• For example, "A agrees to pay a sum of money if a certain ship does not
return. The ship is sunk. The contract can be enforced when the ship sinks.

• 3. Contracts contingent on happening of specified event within fixed

time:- Section 35 provides that contracts contingent on happening of
specified event within fixed time become void:-
• (i) If, at the expiration of the time fixed, such event has not happened, or
• (ii) If, before the time fixed, such event becomes impossible.
 4. Contracts contingent on Impossible
act[Sec.36]
• Contingent agreements to do or not to do anything , if an impossible
event happens, are void, whether the impossibility of the event is known
to the parties to the agreement at the time when it is made.
• Example, "A agrees to pay B Rs 1,000 if 2 straight lines should enclose a
space. The agreement is void.
 Breach of Contract

• When a party to the contract fails to perform the contract which is not
excused or dispensed with , then it is called the Breach of contract.

• Breach of Contract may be either-

• A. Actual Breach
• B. Anticipatory Breach.
 Anticipatory Breach of Contract[S.39]

• Anticipatory breach of contract occurs when prior to the date of

performance the promisor repudiates the contract.
• Ex- "A' contracts with 'B' to supply certain goods on 1st July. On 1st July 'A'
does not supply the goods. This is actual breach of contract.
• Similarly, if on 1st June 'A' informs 'B' that he will not be able to perform
the contract, then it is anticipatory breach of contract.

• The term 'anticipatory breach' is not used in Indian law. It is a concept of

English law. The concept of anticipatory breach is contained in Section 39
of the Act.
• In case of anticipatory breach of contract, the other party is excused from
performing the contract. The obligation under the original contract comes
to an end.
 Option in case of Anticipatory Breach of
Contract
• When a person makes anticipatory breach of contract, the other person
has 2 options available-
• 1. Rescind the contract immediately
• 2. Wait for the appointed day of performance.
 1. Rescind the Contract immediately
• Anticipatory breach of contract gives immediate right to action. It entitles the injured party to immediately sue.
• This right was recognized in Hochester v. De la Tour[118 ER 922]
• In this case 'A' engaged 'B' as a courier for accompanying him on a tour of Europe. Tour was to start from 1st
June.
• Prior to the date of start of tour i.e. on 11th May, 'A' informed "B" that his services were not needed.
• 'B'sued 'A' on 22 May.
• Decision- The court held that 'B' had right to bring the action even prior to the date of actual performance.
• It cannot be laid down as a rule that, where the agreement is to act on a future date, no action can be
brought for breach of agreement till the day for doing the act is arrived.
• Consequences when the Injured party rescinds the contract immediately-
• In case the injured party opts to rescind the contract immediately , the promisee is discharged from the
promise and the promisor is liable for compensation for breach of contract under Section 73 of the Act.

• Additionally , the Promisor will also be entitled to get compensation under Section 75 of the Act for non
fulfillment of the contract.
• The damages will be calculated on the date on which the anticipatory breach has been committed and not
on the date of performiance.
2. Wait for the Appointed date of Performance

• When the Contract is kept alive by the promisee, the promisor may
perform the same inspite of the fact that he had earlier repudiated it.
• In such a case the promisee has to accept the performance of the
contract.
• In case the contract is kept alive by the promisee, then promisee cannot
sue for damages for breach of contract.
• Promisor has the right to performs the contract anytime till the date of
performance of the contract.
 Quasi-Contract

• The term Quasi-Contract is not used in India. Chapter V of Indian

Contract Act uses the phrase “ of Certain relations resembling those
created by Contract".
• Sections 68-72 lay down 5 kinds of Quasi-Contractual
obligations.
• The Quasi-Contractual obligations are based on the principle
that Law as well as justice should try to prevent unjust
enrichment.
• Definition- Quasi- Contract is an obligation that the law creates
in the absence of an agreement between the parties.
• Quasi-Contracts are sometimes called implied-in-law contracts.
 Kinds of Quasi-Contracts[68-72]

• 1. Supply of Necessaries[68]
• 2. Payment by an Interested Person[69]
• 3. Liability to pay for Non-Gratituos acts[70]
• 4. Finder of Goods[71]
• 5. Mistake or Coercion[72]
 1. Supply of Necessaries[Sec.68]

• Minor's agreement being Void ab initio, he cannot, therefore, be asked to

pay for the services rendered or goods supplied to him.
• Sec. 68, however, permits reimbursement to a person, who supplies
necessaries to a minor or a lunatic Person.
• Such duty to reimburse is not there because of any Valid Contract with the
minor, but because the law recognises this to be a quasi-contractual
obligation.
 Conditions for Applicability of Sec.68

• Sec.68 permits reimbursement if-

 1. Necessaries are supplied
 2. to a person who is incapable of making a contract (eg. A minor or a
lunatic) or
 3. to a person who is dependent upon such person incapable of making
Contract i.e. a person whom the incapable person is legally bound to
Support,
 4.suited to that person's condition in life.

 Ex- A supplies B, a lunatic, with necessaries suited to his Conditions in life.

A is entitled to be reimbursed from B 's property.
 Reimbursement can be made from the property of the person. It is not
the personal liability.
 2. Payment by an Interested Person[Sec.69]

• Sec. 69 deals with reimbursement of such person who pays money due
by another person & in payment of which such person is interested.
• Following are the Conditions for liability under Sec 69:-
• 1. The Plaintiff should be interested in making payment.
• 2. Plaintiff should not be bound to pay.
• 3. Defendant should be under legal Compulsion to Pay.
• 4. Plaintiff should have made the payment to other person & not
himself.
• A Plaintiff is said to be interested in making payment if he suffers
any loss or injury if payment not made.
• If there is any legal obligation on part of plaintiff to pay , then in
that Case, this Section Can' t be applied.
 3. Liability to pay for Non-Gratituos
acts[Sec.70]
• Sec.70 provides for obligation of a person who enjoys the benefit of non-gratituos
or anything delivered to him.

 Following Conditions must be satisfied before Sec.70 can be

invoked: -
 1. Person should lawfully do something for another person or deliver
something to him.
 2. In doing such thing he must not intend to act gratituosly.
 3. The person for whom something is done, must enjoy the benefit.

 Ex- A, a tradesman, leaves goods at B's house by mistake. B treats the

goods as his own. He is bound to pay 'A' for them.
 one of the purposes of this section is to assure payment to person who has
done something for another voluntarily, with a thought of being paid.
 State of WB vs B.K.Mondal & Sons[AIR
1962 SC 779]
• The Plaintiff, on the request of an officer of State of WB undertook some
construction work.
• The State accepted the work but tried to escape the payment liability by
Contending that there was no valid contract as per requirements of Sec.
175(3) of Govt. of India Act, 1935.
• The SC held the State liable under Sec 70 of Contract Act, 1872.
 4. Finder of Goods[71]

• Sec. 71 provides that a person who finds goods belonging to

another & takes them into his Custody is subject to same
responsibility as a Bailee.
• A Bailee is bound to take as much Care of the goods as a man
of ordinary prudence would, under similar Circumstances,
take of his own goods.
 5. Mistake or Coercion[Sec.72]

• Sec.72 provides that a person to whom money has been paid or anything
delivered, by mistake or under Coercion, must repay or return it.
• Ex – A &B jointly owe Rs 100 to C. A alone pays the amount to C, & B, not
knowing this fact, pays Rs I00 over again to. C. C is bound to repay the
amount to B.
• There was a Controversy whether mistake Contemplated under this section
is mistake of fact or law or both.
• There was Conflicting decisions of various High Courts & therefore, this
Controversy was settled by Privy Council in Sri Sri Shiba Prasad Singh v/s
Maharaja Sirish Chandra Nandi, AIR 1949 PC 233.
• Court in this case held that mistake u/s 72 means mistake of fact as well as
mistake of law.
• SC in Sales Tax offices v/s Kanhaiya Lal Saraf,[AIR 1959 SC 135]
accepted this view of Privy Council.
 Sale of Goods Act, 1930

• The law relating to Sale of Goods was Originally Contained in Sections

76-126 of Indian Contract Act.
• With the passage of time, growth of trade & Commerce, it was realized
that law Contained was insufficient.
• Thus, in 1930, Ch VII, Sections 76 - 126 of ICA was repeated & Sale of
Goods Act, 1930 was enacted.
• The Act extends to Whole of India & Came into force on 1st July,
1930.

• This act deals with Sale of movable goods only.

• Law relating to immovable property Contained in Transfer of Property Act.
• Sale of Goods Act is based on General principles of Contract law.
 Sale & Agreement to Sale[Sec.4]

• Sec 4 in Sale of Goods Act, 1930 defines Sale & Agreement to sale.
• According to Sec. 4(1), a Contract of Sale of Goods is a Contract whereby
the seller transfers or agrees to transfer the property in goods to the buyer for
a price.
• A Contract of Sale may be absolute or Conditional.
• In a Contract of Sale, the property is transferred either immediately or it is
agreed to be transferred in future.
• Sec.4(3) of Sale of Goods Act,1930 says that where the transfer of the
property in the goods is to take place at a future time or subject to some
condition thereafter to be fulfilled, the Contract is called an Agreement to
Sale.
• An Agreement to Sale becomes a sale when the time elapses or the
conditions are fulfilled subject to which the property in goods is to be
transferred.
 State of Uttarakhand vs Khurana
Brothers[(2010) 14 SCC 334]
• In this case, SC held that essential feature that distinguishes the Sale from
an agreement to sell is that in a Contract of sale, the property in the goods
is transferred from the seller to buyer immediately, whereas in agreement
to sale, property is transferred on a future date.

 SC in Al Jazeera Steel Products Co. v/s MID India Power &. Steel Ltd.
[(2012) 11 SCC 458], held that agreement to sale Creates Jus in personam
while sale Creates jus in rem.
 Essentials of Sale

 1. Contracting Parties- (a) Seller (b) Buyer

 2. Price/Money Consideration
 3. Subject-matter(Movable Goods)- (a) Existing goods (b) Future Goods.
 1. Contracting Parties

 Sale is a bilateral Contract.

 It is essential that Seller & buyer are different persons. It is because in
Sale, the property in goods has to pass from one person to another.

 In Chittoor Motor Transport Co. Ltd. V/s ITO [AIR 1966 SC 570], a
Company transferred buses to a Partnership firm Consisting of Several
persons who were also members of the Company.
 Court held it to be Sale because Company is a separate legal entity..
 2. Price or Money Consideration

• The Consideration in Sale of Goods is called "Price". Section 2(10)

defines Price as money Consideration for Sale of Goods.
 If the goods are exchanged for for goods, it is not sale, it will be Called
"Barter" or "Exchange“.
 Ascertainment of Price[Sec.9]- Sec.9 provides that price in Contract of
Sale may be fixed by the Contract or may be left to be fixed in manner
agreed or determined by course of dealing between the parties.
 Price has to be fixed in terms of money.
 3. Subject-Matter(Movable Goods)

• Subject matter of Sale must be movable Goods.

• According to Sec. 2(7) of Sale of Goods act, goods means every Kind of
movable property other than actionable claims & money.
• They include Stock & Shares, growing Crops, Grass etc.

• SC in State of MP v/s Orient Paper Mills Ltd. [C1977) 2 SCC 77]held that
Standing Timber is a movable property if trees are agreed to be severed
under Contract.
 Existing & Future Goods [Sec.6] –Sec. 6 provides that Goods which form
the subject of Contract of Sale may be either Existing or Future Goods.
See 2 (6) defines Future Goods.
 Difference between Sale & Agreement to Sale
SALE[Section 4(1)] AGREEMENT TO SALE[Section 4(3)]
1. In Case of Sale, property in goods is 1. In agreement to Sale, transfer of
transferred from Seller to buyer. property in goods is to take place at a
future time or subject to fulfillment of
some Condition.
2. Sale refers to existing & specific goods. 2. Agreement to Sale refers to future or
sometimes to unascertained or existing
goods.
3. It is an executed contract. 3. It is an executory Contract.
4. The Goods belong to the Buyer. The 4. Goods remain with the seller unless &
Buyer is to suffer the loss if goods are until agreement to sale is converted into a
subsequently damaged or destroyed. sale.
5. In case of Sale, the unpaid Seller has 5. In case of agreement to Sale, the
only remedy to sue the buyer for Price, unpaid seller has additional remedy such
interest & cost. as right of stoppage in transit, right to sue
buyer for price, damages etc.
6. In Sale, Title of goods transfers to buyer 6. In Agreement to Sale, title of goods
with transfer of goods. remains with seller as there is no transfer
of goods.
 CONDITION & WARRANTY[SEC.12 ]

 When the terms of Contract of Sale are so important to the Contract that
the whole basis of Contract rests on those terms & any violation or non-
fulfillment of these terms may vitiate the substratum of Contract. Such
terms are known as Conditions.

 The term of lesser importance is known as Warranty.

 Breach of Warranty does not entitle the party to repudiate the Contract .
 It only entitles them to Damages for Breach.

 Breach of Condition entitles aggrieved party to repudiate the Contract.

 Sec. 12 provides that a stipulation in a Contract of Sale with reference to
goods may be a Condition or a Warranty.
 CONDITION & WARRANTY

 Sec 12 (2) provides that a Condition is a stipulation essential to the main

purpose of Contract.
 Sec.12(3) provides that a Warranty is a stipulation Collateral to the main
purpose of the contract.

 Sec. 12 (4) provides that whether a Stipulation in a Contract of sale is a

Condition or a warranty depends in each Case on the Construction of the
Contract.
 Baldry vs Marshall [(1926) 1 KB 260]

 The Plaintiff wanted to buy car for touring purpose. Defendant Suggested
that “Bugatti" car would be suitable & therefore, Plaintiff bought one. The
Car turned out to be unfit for touring purpose.
 The plaintiff sought to reject the Sale. The Court held that suitability of Car
for touring purpose was not a warranty but instead it was a Condition.
 Difference between Condition & Warranty

CONDITION[Sec.12(2)] Warranty[Sec.12(3)]
1. Condition is a Stipulation essential to 1. Warranty is a stipulation which is not
the main purpose of the Contract essential to the contract but is collateral
to the main purpose of contract.
2. The Breach of Condition gives rise to 2. Breach of Warranty does not give right
repudiate the Contract. to repudiate the Contract.
3. Breach of Condition not only gives a 3. Breach of Warranty gives right to claim
right to treat the Contract void but also damages only.
give a right to claim damages.
4. Under Certain Circumstances, breach of 4. Breach of Warranty can’t be treated as
the Condition Can be unilaterally treated Breach of Condition unilaterally by
as Breach of Warranty by affected party. affected party.
 Consequences of Breach of Condition

 1. If the Condition is broken, the affected party may repudiate the Contract.
He can also reject the goods. [Sec.12(2)]
 2. In case of Breach of Condition, the affected party may also claim
damages.
 3. The affected party, if he thinks fit, may treat the breach of condition as
Breach of Warranty. In such a case, he can’t avoid the contract but is
entitled to recover damages only.(Sec.59)
 4. No Remedy is available when fulfillment of condition is excused by law
by reason of impossibility or otherwise.[Sec.13(3)]
 Consequences of Breach of Warranty

 1. Breach of Warranty gives right to à claim for damages but not a right to
reject the goods & treat the Contract as repudiated.
 2. No remedy is available if the fulfillment of warranty becomes
impossible by any law or otherwise. [Sec.13(3)]
 3. The Buyer may sue the seller for damages for Breach of Warranty.
[Sec.59(1)(b)]
 CAVEAT EMPTOR[Let the Buyer beware]

 It is a Latin Expression.
 It means that "Let the Buyer Beware“.
 This provision is based on Sec 14 of the (English) Sale of Goods Act.
 It lays down the principle that it is for the buyer to satisfy himself that the
goods which he is purchasing are of the quality which he requires.
 The Buyer is liable for his choices. The Seller is not bound to supply goods
which should possess particular quality or be suitable for any purpose.
 Wallis vs Russel[(1902)2 IR 585]

• In this Case, Court held that this maxim means that the buyer should take
care & not take chance.
• It applies to the purchase of specific things upon which Buyer can
exercise his own Judgment.
• It also applies to where the buyer voluntarily chooses what he buys.
 Exceptions to Caveat Emptor

 1. Fitness for Buyer’s purpose

 2. Merchantable quality
 3. Usage of Trade
 4. Express terms.

 1. Fitness for Buyer’s purpose- See 16(1) provides this exception.

 This situation arises when the buyer tells the seller the purpose for which
he is purchasing the goods & he relies on the skill & judgment of seller.
 Suits for Breach of Contract

 Chapter VI of Sale of Goods Act, 1930 (Secs. 55-61) deals with Various
remedies in Case of Breach of Contract.

 * Seller's Remedies against Buyer-

 1. Sec. 55 - Suit for Price – Sec.55 provides that when the property in
goods has passed to the buyers, he becomes bound to pay the price, seller
may sue him for the price.

 2. Sec.56- Suit for Damages for non-acceptance:- Sec.56 provides that

where the buyer wrongfully neglects or refuses to accept & pay for the
goods, Seller may sue him for damages for non-acceptance.
 Buyer’s Remedies against Seller

 1. Damages for Non-Delivery[Sec.57]

 2. Specific Performance[Sec.58]
 3. Damages for Breach of Warranty[Sec.59]
 1. Damages for Non-delivery[Sec.57]

 Sec. 57 provides that where the seller wrongfully neglects or refuses to

deliver goods to the Buyer, the Buyer may Sue the Seller for damages for
non-delivery.

 2. Specific Performance[Sec.58]

 See. 58 provides that Court may order specific performance of

Contract without giving the defendant an option of retaining goods on
payment of damages.
 The Decree may be unconditional or upon such terms & conditions as
court may deem fit.
 3. Damages for Breach of Warranty[Sec.59]

 Sec. 59 provides that where there is breach & warranty by seller, the
Buyer not entitled to reject the goods.
 However, the Buyer has following remedies-
 A. He may sue the seller for damages for breach of warranty.
 B. He may set up against the seller the Breach of Warranty in extinction of
price.
 Production Sharing Contracts

 Production Sharing Contracts is a term used in the oil & natural gas
industry & refers to an agreement between Contractor & the Government
whereby the Contractor bears all exploitation risks , production &
development costs in return for its stipulated share of profit from
production resulting from this effort.

 Salient features of Production Sharing Contracts-

 These are special Contracts used in Oil & natural gas extraction industry.
 1. Parties → It is a Contract between –
 A. The Government (In whose Country the extraction taking place)
 B. The Contractor (s) (Company / Firm which will actually extract &
produce).
 2. Cost Oil & Profit Oil

 The Costs & amounts invested in these projects are huge.

 Therefore, the Contractor is allowed to reimburse himself all cost occurred.
 The income after deducting cost oil is shared b/w the Govt & Contractor. This
is known as ‘Profit Oil’.

 3. Royalty to Government-
 This Contract binds the Contractor to pay Certain amount to the
Government as a royalty as he is utilizing & exploiting the resources of that
Country.

 4. Tax on Profit Oil

 Contractor is liable to pay the tax on profit Oil & not on Cost oil.
 It is general practice to decide the rate of tax in advance in Contract itself.
 Legal Provisions

 Legal Provision regarding Production Sharing Contract is contained in Art

297 of Indian Constitution.
 Constitution declares the ownership of all natural resources is with Union
of India. Therefore, Central Govt. in the name of President of India Can
enter into the Contract.
 In addition to this, there are other laws & rules which provide for
extraction & exploitation of natural resources.
 They are-
 1. Oilfields (Regulation & Development) Act,1948
 2. Petroleum & Natural Gas Rules, 1959.
 Discharge of Contract

 When the Contract ceases to be binding on parties, then it is called

Discharge of Contract. It means termination of the contractual
relationship between the parties. When the rights and obligations arising
out of a contract are extinguished, the contract is said to be discharged.

 Modes of Discharge of Contract-

 1. Performance of Contract
 2. Breach of Contract
 3. Impossibility of Performance
 4. Novation & agreement
 5. Operation of Law.
 1. Discharge by Performance

 Performance of contract is the most usual mode of its discharge. 

 When the parties to a contract perform their shares of the obligations, the
contract is discharged.
 2. Discharge by Breach of contract

 Breach occurs where one party to a contract fails to perform its contractual obligations, or
the performance is defective, which leads to a discharge of contract.

 A Breach may be:-

• A. Anticipatory
• B. Actual breach

 Actual breach
• Actual breach refers to the failure to perform contractual obligations when performance is
due.

 Anticipatory
• Anticipatory is also known as ‘Breach by repudiation’. Where a person repudiates a
contract before the stipulated due date.
3. Discharge by Impossibility of Performance

 Sometimes after a contract has been established, something might occur,

though not at the fault of either party, which can render the contract
impossible to perform, or illegal, or radically different from that originally
undertaken, which leads to discharge of contract.
 The impossibility of performance may be of two kinds-
 1. Initial impossibility
 2. Subsequent Impossibility.
 4. Discharge by Agreement
• When the parties have made the contract and subsequently they decide to
mutually put the contractual obligation to an end, then they can put an end
to contract by way of agreement.
• As they create rights and liabilities for themselves with free consent, so
they are also free to put an end to such rights and liabilities.

• A. Novation-
• Novation means replacing the old thing by new one. Section 62 provides
that if the parties to the contract agree to substitute a new contract for it or
rescind or alter the contract, the original contract need not be performed.
• When the parties to the contract agree to substitute the existing contract for
a new contract that is called novation, Liability in the original agreement is
extinguished.
 Essentials of Novation

 1. There should be an old contract. It should not be a mere Agreement. There must
be element of enforceability in it. If the agreement is void then there is no question
of Novation.
 2. The old contract should not be breached. Novation is not possible after breach of
original contract.
 3. Where new contract is made between the same parties or different parties, it
should be valid and enforceable.
 4. There must be reference in the new contract that the old one is replaced by the
new one.

 Supreme Court in Lata Construction v. Ramesh chandra Ramniklal, [(2000) 1

SCC 586] held that one of the essential requirements of novation as contemplated
under Section 62 is that there should be complete substitution of a new contract in
place of the old.
 It is in that situation that old contract need not be performed.
 Alteration & Rescission of Contract

 Alteration of contract means change in one or more of the material terms

of the contract. Parties to the contract remain the same. Parties agree to
alter the previous contract by subsequent contract.
 In recession of contract both parties agree to rescind the contract i.e., put
an end to the contractual obligation.
 The previous contract is rescinded by the new contract. However, in this
case the parties do not undertake any new obligation. The only object of
the contract of recession is to put an end to the previous contract.
 Ex- on 1 January , "A" agrees with "B" to supply 10 bags of rice. Later, on
15th January they agree to rescind the contract made on 1st January. Here,
the previous contract comes to an end but no new obligation has been
created.
 5. Discharge by Operation of Law

 A Contract terminates by operation of law in the following cases:-

 1. Lapse of Time- The Limitation Act lays down that in case of breach of a contract, legal
action should be taken within a specified period, called the period of limitation, otherwise
the Promisee is debarred from instituting a suit and the contract stands discharged. Under
the Limitation Act, the limitation period for simple contracts is three years.
 2. Insolvency- A contract is discharged by insolvency of one of the parties to it when
Insolvency Court passes an order in this regard.
 3. Merger- When an inferior right contract merges into a superior right contract, the
former stands discharged automatically.
 Ex- When a man holding property under a contract of tenancy buys the property, his rights
as a tenant are merged into the rights of ownership. Similarly, where a part-time lecturer is
made full-time lecturer, the contract of part-time lecturership is discharged by merger.
 4. Unauthorised material alteration- A material alteration made in a written document
contract by one party without the consent of the other, will make the whole contract void.
The effect of making such an alteration is exactly the same as that of cancelling the
contract.
 Remedies for Breach of Contract
 1. Rescission of Contract-

 It is the most Common remedy.

 This entitles the injured party to recover Compensation for the loss
suffered by it due to breach of contract.
 Under this, Contract is set aside.
 Power or authority to rescind contract is given under Sec.27 of Specific
Relief Act,1963.
 It is a complete cancellation of contract which means all provisions will be
terminated.
 2. Specific Performance

 It is an equitable remedy given by the Courts under Specific Relief Act,

requiring the defendant to actually perform Contract according to it's
terms & Stipulations. [Secs. 9-25 of Specific Relief Act,1963].
 It is allowed when damages would not be an adequate remedy.
 Specific Performance of Contract consists in the contracting party’s exact
fulfillment of the obligation which he has assumed.
 3. Injunction

 Injunction is a judicial process whereby a party is ordered to refrain from

doing or to do a particular act or thing.
 It may be issued against individuals, Public or Private Bodies or even
against the state.
 Disobedience of the order of injunction is punishable as a Contempt of
Court.
 It is a preventive relief, it restrains other party from making breach of
contract.
 Injunction is issued under Specific Relief Act,1963[Sections 36-42] ,but
governed by rules of CPC.
 4. Damages

 The party who is injured by the breach of contract may bring an action for damages.
Damages means compensation in terms of money for the loss suffered by injured party.

 Kinds of Damages-
 1. General Damages- Those which arise naturally in the usual course of things from the
breach itself.
 2. Special Damages- Those which arise on account of the unusual circumstances affecting
the plaintiff. They are not recoverable unless the special circumstances are brought to the
knowledge of the defendant so that the possibility of the special loss was in the
"contemplation of the parties".
 3. Nominal Damages- Where the plaintiff suffered no loss the court may still award him
nominal damages (small sum of money) in recognition of his right.
 However, Sec. 73 does not give any cause of action unless and until damage is actually
suffered. "If actual loss is not proved, no damages will be awarded.
 “In State of M.P. v Recondo Ltd. (1989 MPLJ 822), a Government contract was terminated
before the expiry of the notice period in circumstances which did not entitle the contractor to
recover loss of profit, but he was allowed nominal damages.
 4.Damages

 4. Exemplary- These are awarded with a view to punishing the

guilty party for the breach and not by way of compensation.
 Thus these damages have no place in the law of contract.
 5. Liquidated- Sometimes the parties to a contract, at the time of
making the contract agreed to the amount of compensation payable
in the event of the breach of contract.
 Such amount, which has been agreed beforehand, may be either
liquidated damages or penalty.
 If the sum to be paid on the breach of contract is the genuine pre-
estimate of the prospective damages, it is known as liquidated
damages.
 6. Unliquidated-
 5. Quantum Meruit

 It literally means "as much as is earned" or "in proportion to the work

done".
 When the injured party has performed a part of his obligation under the
contract before the breach of contract has occurred, he is entitled to recover
the value of what he has done, under this remedy.
 SPECIFIC RELIEF ACT,1963

 This Act extends to the whole of India.

 Date of Enforcement- March 1,1964
 Meaning of Specific Relief
 Specific Relief is the remedy which aims at the exact fulfillment of an
obligation or the specific performance of Contracts.
 The Law of Specific Relief is a part of the law of procedure, as Specific
relief is a form of judicial redress.
 It is called specific because under it's procedure, the suitor gets his
relief in specie i.e. the very thing with the other party was bound to
perform or to forbear.
 Section 4- Specific Relief to be granted only for
enforcement of individual civil rights & not for
enforcing Penal laws.
 The use of word mere indicates that the relief is not available when sole
object is to enforce a Criminal Law.
 But, if enforcement of a penal law is only incidental or ancillary to the
grant of specific relief for any other purpose, such relief will be granted.
 If Plaintiff is asking for Specific relief in respect of an individual right,
such relief will not be denied, only because a penal law is also enforced
thereby.
 Calcutta HC in Commissioner v/s A.K. Mustafi [AIR 1979, NOC 87-
Cal] has observed that, since under a local act, demolition of a structure
does not attract a penal provision, Section 4 of the Act is not a bar to a suit
for demolition of an unauthorized construction.
Cases in which Specific Performance of Contract
Enforceable(Sec.10)
 Sec.10 enumerates the cases in which specific performance of contract is
enforceable-
 A. When there exists no standard for ascertaining the actual damage caused
by non-performance of act agreed to be done or
 B. When the act agreed to be done is such that compensation in money for
its non-performance would not afford adequate relief etc.
 Contract which cannot be Specifically
enforced(Sec.14)
 1. Where compensation in money is an adequate relief
 2. Contract which runs into minute or numerous details
 3. Contract which is determinable
 4. Contract involving performance of a continuous duty which court
cannot supervise
 5. Agreement to refer to arbitration.
 INJUNCTION[Sections 36-42]

 Halsbury defines Injunction as a judicial process whereby a party is

ordered to refrain from doing or to do a particular act or thing.
 An Injunction may be issued against individuals, Public bodies or even the
state. Disobedience of the order of an Injunction is punishable as a
Contempt of Court.

 There are basically 2 types of injunction as provide by Sec.36 of SRA,

1963- Temporary or Perpetual.
 Discretion of Court

 The jurisdiction of the court to grant injunctions, whether temporary, or

perpetual, is discretionary.
 It is the discretion of the court to grant or refuse such relief. The discretion
does not mean that court can act arbitrarily.
 The court is to be guided by the principles of justice, equity and good
conscience.
 Temporary Injunction[Sec.37(1) SRA]

 Temporary injunctions are such as are to continue until a specified time, or

until the further order of the court, and they may be granted at any stage of
a suit, and are regulated by the CPC, 1908.
 Order 39 Rule 1 CPC contains the provision regarding grant of
Temporary Injunction.

 To obtain temporary injunction, the plaintiff has to prove that there is a

prima facie case in his favour indicating existence of a legal right asserted
by him.
 It has to be shown by him that the balance of convenience is in his favour
so that mischief likely to be caused by the act of the defendant is
prevented."
Perpetual Injunction[Sec.37(2) &38 SRA,1963]

 A Perpetual Injunction can only be granted by the decree made at the

hearing and upon the merits of the suit: the defendant is thereby
perpetually enjoined from the assertion of a right, or from the commission
of an act, which would be contrary to the rights of the plaintiff.
 Section 37(2) is a general provision stating that a perpetual injunction can
only be granted by a decree made at the hearing and upon merits of the
case.