MERCANTIL

E
LAWs
 What is law ..???
• “ Rules of conduct”
• Recognized and enforced
• By the state govt. or central govt.
(for what….???

1 To regulate the conduct of people

2 and to protect their right.
Classifications & Categories of Law
helpful to understanding Law
 PUBLIC LAW  COMMON LAW
 PRIVATE LAW  STATUTORY LAW

 Criminal law  LAW

 EQUITY
 Civil law

 Substantive law
 Procedural law
CONTRAST BETWEEN CIVIL AND CRIMINAL LAW

Civil Criminal

Nature Rights and duties Wrongs against

of individuals to society as a whole
each other
Person Initiating Plaintiff or person Either state, or
Action injured Central GOVT.

Burden of Proof Affected party. Beyond a

reasonable doubt

Result sought Money damages Death, fine or

or equitable imprisonment
remedy
Substantive v. Procedural Law

 Substantive law: General principles and

detailed rules defining legal rights and
duties.

 Procedural law: General principles and

detailed rules that define the methods of
administering the substantive law
SUBSTANTIVE LAW: General principles and
detailed rules defining legal rights and duties.
Example of a substantive law
Definition of minor: “a person below the age of
legal competence. For most purposes, in most
states, minority ends at age 18. For some purposes,
such as the purchase and consumption of alcoholic
beverages, it may end later, up to the age 21.”
Procedural Law Examples

•Rules of evidence such as the hearsay rule

•Method of filing a lawsuit such as the
requirement of a complaint and service of
summons
•To be able to seize assets of a judgment
debtor the law requires a creditor to file an
affidavit as to the debtor’s ownership of any
assets to be seized
What is Mercantile Law ?

Mercantile law means law

related to trade or
business/commerce. It is a
part of civil law not the
criminal law.
This law prevents the right
and obligation arising out of
business transactions.
MERCANTILE LAWS
INDIAN CONTRACT ACT, 1872

SALES OF GOODS ACT,1930

INDIAN PARTNERSHIP ACT, 1932

NEGOTIABLE INSTRUMENT ACT, 1881

Why is Indian Contract Act 1872
is important in our life ?
 Justas the safety of a person
depends upon the rule of
criminal laws, like the security
and the stability of the
business depends upon the
rules of Civil Laws (Contract
Act,1872).
 What constitutes Indian Contract
Act …..???
 Originally this act contained 266 sections in 11
chapters but in the year of 1930 its provisions relating
to “Sales of Goods” and in the year 1932 the provision
related to “Partnership” were separated from this act
and two new acts were emerged as the

Sales of Goods Act,1930

The Indian Partnership Act,1932
 When Indian Contract
Act has been enforced in
India…??
On 1st Sep. 1872, hence this
act does not apply on those
contracts which is entered
before 1st Sep.1872
What is extent of the applicability of this
Act….??

 It extend to all of India except the

state of Jammu & Kashmir.
 This act applies to all contracts in
India irrespective of the place
where contract is made.
 Type of Rights

RIGHT IN PERSONAM RIGHT IN REM

CONTRACT
CH-2
CONTRACT - According to sec.2(h), a contract is defined
as “An agreement enforceable before the law."
CONTRACT =AGREEMENT + ENFORCEABLE BY LAW

AGREEMENT - According to sec.2(e), every promise or set

of promises forming consideration for each other.
AGREEMENT=PROMISE +CONSIDERATION
PROMISE - According to sec.2(b), when the person to
whom the proposal is made ,signifies his assent thereto
,the proposal is said to be accepted. A proposal when
accepted, becomes PROMISE
PROMISE = OFFER + ACCEPTANCE
 Agreement Legal Obligation
Contract

“All contracts are agreement but all

agreements are not contracts.”

CONTRACT = AGREEMENT +
ENFORCIBILITY BEFORE LAW
PROPOSAL/OFFER - According to Sec2(a),when a person made a proposal,
when he signifies to another his willingness to do or to abstain from doing
something.

CONSENSUS - AD – IDEM
MEANS:- meeting of minds
or identity of minds
or receiving the same thing in same sense at same time. Eg if A says to B w
u purchase my blue car for Rs. 10,000? And B says “yes” to it, there is
consensus-ad-idem
 ENFORCEABLITY BY
o
LAW?
Free consent

Eg. Munna obtain consent to buy hospital of Dr Asthana by Guntip

o Parties Competent to contract

Eg.Chotu ( aged 12 years) want to sell his BMW.

o Lawful consideration

Eg.Munna offered Rs. 10,000 to circuit for murder of Rustam

o Lawful object
Eg. Munna and circuit entered in an agreement with an object
to kill Rustam.
 ESSENTIAL ELEMENTS OF A
VALID CONTRACT (Sec.10)
1.Offer & acceptance.
2.Intention to create legal relationship.
3.Consensus - ad - idem.
4.Consideration.
5.Capacity to contract.
6.Free consent.
7.Legality of object.
8.Possibility of performance.
9.Writing
 CLASSIFICATION OF CONTRACTS
(chapter 3)
 ON THE BASIS OF VALIDITY
VALID CONTRACT
VOIDABLE CONTRACT
VOID CONTRACT
ILLEGAL CONTRACT
UNENFORCEABLE CONTRACT
 ON THE BASIS OF FORMATION
EXPRESS CONTRACT
IMPLIED CONTRACT
QUASI CONTRACT

 ON THE BASIS OF EXECUTION

EXECUTORY CONTRACT
EXECUTED CONTRACT
UNILATERAL CONTRACT
BILATERAL CONTRACT (only offers are exchanged)
 TYPES
TYPES OF
OF CONTRACTS
CONTRACTS
ON THE BASIS OF VALIDITY

Valid contract
Voidable contact
Void contract
 Illegal contract
 Unenforceable contract
Valid contract - If all the condition of sec10 are fulfilled it is
called as a valid contract.
Voidable contract - A contract which is valid unless until
avoided by either of the parties. E.g.. A promises to sell his
car to B for Rs. 2,000. His consent is obtained by use of
force. The contract is voidable at the option of A. (burden to
prove lies on ‘A’
Void contract – A contract which ceases to be enforceable by
law becomes void when it ceases to be enforceable. E.g. Mr.
A and Mr. B contract to sale and purchase of house before
the time fixed for the delivery Mr. B becomes insolvent, the
contract BECOMES VOID.
Void contract
(a) Becomes void:- At the time of
formation of contract it was enforceable
by law and subsequently becomes void.
(b) Is void(Void - ab - initio):- If an
agreement is not enforceable by law it
remains a void agreement and never
becomes a contract. E.g. An agreement
with a minor is void- ab- intio
 Illegal contract – When object of the contract is
lawful at the time of formation of contract but
subsequently become illegal E.g. Mr. A contract
with Mr. B for the supply of gutkha pouches before
the supply is effected the govt. declares dealing
gutkha is illegal, the contract between A and B
becomes void.
Unenforceable contract - It is valid but due to some
technical defect the contract becomes void. In
case defects are removed the contract is
enforceable. E.g. lack of registration, lack of
signature etc.
 ON THE BASIS OF
FORMATION

• EXPRESS CONTRACT
• IMPLIED CONTRACT
• QUASI CONTRACT
 Express contract - When contracts are either
in writing or in oral.
 Implied contract - When contracts are
neither in writing nor in oral. E.g. When A gets
into a public bus.
 Quasi contract :- contracts created by law
regardless of an agreement. In other words
quasi contact is not a result of any agreement
which is intentionally made by the parties eg.
Mr. A leaves goods at Mr. B’s house by mistake
,Mr. B consume those goods now there is quasi
contract between Mr. A and B, Mr. B` is under
an obligation to pay.
 ON THE BASIS OF
EXECUTION
•Executed contract
•Executory contract
•Unilateral contract
•Bilateral contract
Executed contract - In a contract where both the
parties have performed their obligation, there is
remaining nothing to perform. E.g. A agrees to
paint a picture for B for Rs. 100. When A paints the
picture and B pays the price i.e. when both the
parties perform their obligations, the contract is said
to be executed.
Executory contract - In a contract where both the
parties are yet to perform their obligation. E.g. In
the above example , the contract is executory if A has
not yet painted the picture and B has not paid the
price.
 Unilateral contract - In a contract one party has
performed his obligation and other person is yet to
perform his obligation. E.g. A permits a railway
coolie to carry his luggage and place it in a
carriage. A contract comes into the existence as
soon as the luggage is placed in the carriage.
 Bilateral contract - In a contract where obligation
on the part of both the parties of contract are
outstanding at the time of formation of contract
thus executory contract and bilateral contract are
inter - changeable.
CONTINGENT CONTRACT – This type of
contract depends upon the happening of
an uncertain future event, cannot be
enforced until the event has happened . If
the event becomes impossible such
contracts becomes void. E.g. A contract to
pay B , a sum of money when B marries
C, C dies without being married to B ,the
contract becomes void.
ABSOLUTE CONTRACT – This type of
contract doesn't depend upon the
happening of any event.
 OFFER
& ACCEPTANCE

Chapter 4
 OFFER
According to Sec.2(a), when
a person made a proposal,
when he signifies to another
his willingness to do or to
abstain from doing
something.
 TYPES OF OFFER
 Express offer
 Implied offer
 Specific offer
 General offer
 Conditional offer
 Un conditional offer
 Cross offer
 Counter offer
 Standing offer
 TYPES OF OFFERS
• On the Basis of Formation (a) Express offer
(b) Implied offer
• On the Basis of Offeree (a) Specific offer
(b) General offer
• On the Basis of Condition (a) Conditional offer
(b) unconditional offer
• On the Basis of Nature (a) Counter offer
(b) Cross offer
(c) Standing offer
Express offer - When offer is given
to another person either in writing or in
oral.
E.g.-A gives an offer to B “Would you
like to buy my house” .
Implied offer - When offer is given
to another person neither in writing nor
in oral. E.g.-Bus stops at bus stop and
waiting for passengers to board in.
Specific offer - When offer is given to
a specific person. E.g.- Sonu offers to
sell his house to monu at a certain
price. The offer has been made to a
definite person, only monu can accept
it.
General offer - When offer is given to
entire world at a large. E.g.- A
Advertise in newspaper that I want
sell my house for Rs 10,000 .
 Conditional offer- An offer expressing some
conditions in it for the offeree to accept it, is
known as conditional offer. E.g.- A offer to B
“Mr. B would you like to sale us 100 shirts on
the condition that the payment will be made
after 7 days of goods delivered.

 Unconditional offer- An offer where offeree is

not require to consider any conditions before
accepting the same is known as Unconditional
Offer. E.g.- A offer to B “Mr. B would you like
to sale us 100 shirts”.
Cross offer - When both the persons are
making identical offers to each other in
ignorance of other’s offer. E.g.- A writes to B,
“will you buy my phone for Rs. 10,000?” On the
same day B wrote to A “will you sell your
phone for Rs. 10,000?” In ignorance of the offer
by A
Counter offer – When instead of accepting an
offer, the offeree accept the same subject to
certain conditions, he is said to make a counter
offer. E.g.- A offers to sell his house to B for
Rs.10 lakhs, he replied that he is ready to buy
for Rs, 8 lakhs, it amounts to counter offer.
Standing offer - An offer which remains
continuously enforceable for a certain
period of time.
 E.g.- BPL Ltd. Requires a large quantity of
its finished goods for the next 12 months
production period. It gave an advertisement
in the leading newspaper. Z accepted the
offer and fill a tender which is accepted by
BPL Ltd. Now onwards each offer given by
BPL to Z is an acceptance to tender i.e.
standing offer by Z.
ESSENTIAL REQUIREMENTS OF A VALID
OFFER
 Offer must be such as in law is capable of being
accepted and giving rise to a legal relationship.
A social invitation even if it is accepted, does not
create legal relations because it is not so
intended. An, offer, therefore, must be such as
would result in a valid contract when it is
accepted. Eg:- Ram amongst his friends said “I
am ready to sell my car at a good price”
 Terms of offer must be definite, unambiguous
and certain and not loose and vague. If the terms
of an offer are vague or indefinite, its acceptance
cannot create any contractual relationship. E.g.-
A says to B, “I will sell you a car.” A owns three
different cars. The offer is not definite.
 Offer must be communicated
Offer must be communicated- An offer, to be
complete, must be communicated to the person
to whom it is made. Unless an offer is
communicated to the offeree by the offeror or by
his duly authorised agent , there is no acceptance
of it. E.g.- S offered a reward to anyone who
returned his lost dog. F brought the dog to S
without having heard of the offer. Hence, F was
not entitled to the reward.
If offer is conditional the offer should
contain all of them
 When one person making an offer want to put
some conditions relating to transaction which are
not usual, he should incorporate all the conditions
in the offer. Conditions put after the offer made the
offer defective. E.g.- Sunil sent an offer to Anil to
sale the house in Rs.15,000. Anil received a letter
after 5 days of receipt of the offer that, all the
expense related to transfer of property should be
born by you. Condition separately sent have no
binding.
An offer must be different from
Invitation to Offer
 Sometimes offeree encourages the prospective
offerors to make a proposal, for the same he
advertises to invite offers. Such an
advertisement is not an offer, it is Invitation to
offer. After invitation to an offer someone
agrees to the offer it will be said he is making
an offer. E.g.- The Innovative Commerce hang
a hoarding “Come join new CPT batches from
tomorrow, last batch before June attempt” this
is invitation to offer. Now when you approach to
join classes it will be an offer from your side.
Offer should not contain a term the non-
compliance of which may be assumed to
amount to acceptance
A man cannot say that if acceptance is
not communicated by a certain time.
The offer would be considered as
accepted. A gave an offer to B that I
offer to sell my car in Rs.1,00,000 if I do
not receive any reply within 7 days, I
shall assume that you have accepted
the offer.
TENDER vs. OFFER

 A tender is an offer as it is in response to an

invitation to offer. The persons filling up the
tenders are giving offers. However, a tender
may be either :-
(a) Specific or definite; where the offer is to apply
a definite quantity of goods, or
(b) Standing; where the offer is to supply goods
periodically or in accordance with the
requirements of the offeree.
SPECIAL TERMS OF A CONTRACT

 Sometimes a contract is subjected to a special

terms and conditions which are either printed
on the back of a receipt, displayed in some
other manner. E.g.- insurance cover note.
A question arises that whether the terms and
conditions has binding or not……??
The answer will depend upon whether the same
were capable of being communicated when the
offeror was reading the offer.
Instance showed that the terms and
conditions had communicated to the
offeror
 If words are used on the face of the documents
suggesting that there are special terms and
condition appearing on the back of the receipt.
 When such words ‘see back’ are used.
 When words ‘please turn over’ are used.
The same shall be binding even though the
offeror says that I have never read the same or
I doesn't understand the language.
 TERMINATION OR LAPSE OF AN OFFER
An offer is made with a view to obtain assent
thereto. As soon as the offer is accepted, it
becomes a promise. But before it is accepted, it
may lapse due to the following reasons:-
 The offer lapses after stipulated or
reasonable time.
 An offer lapses by the death or insanity of
the offeror or the offeree before
acceptance.
 An offer terminates when rejected by the
offeree.
 An offer terminates when revoked by the
offeror before acceptance.

 An offer terminates by not being accepted in

the mode prescribed, or if no mode is
prescribed, in some usual & reasonable
manner

 A conditional offer terminates when the

condition is not accepted by the offeree.
ACCEPTANCE
 ACCEPTANCE
According to sec.2(b), when a
person made a proposal to
another to whom proposal is
made, if proposal is assented
there to, it is called acceptance.
Who can Accept…..????
• Acceptance may be given by any person
in case of general offer.

 Acceptance can be given only by specific

person to whom the offer is made.
 LEGAL RULES FOR
ACCEPTANCE
• Acceptance must be given as per the mode
prescribed by the offeror. E.g.- A sends an
offer to B and asks for an acceptance by
telegram. B accepted the offer by a letter, now
A may insist that the acceptance should be in
the prescribed mode.

•Acceptance must be given before the lapse

of time or within reasonable time.
•
• Acceptance must be communicated-
Acceptance is complete only when it is
communicated to the offeror. Mental
acceptance is no acceptance or acceptance
must not be derived from silence.
• Acceptance must be in response to an
offer- there can be no acceptance without
offer. Acceptance cannot precede offer.
 Acceptance must be
unconditional.
 In order to convert a proposal into
promise the acceptance must be
absolute and unqualified. Offer must
be accepted without any reservation
or variation. We have discussed
earlier that an conditional
acceptance turns out as “COUNTER
OFFER”.
COMMUNICATION
OF OFFER AND
ACCEPTANCE
 COMMUNICATION OF
PROPOSAL/ OFFER
 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.
E.g.- A proposes by letter, to sell a house
to B at a certain price. The communication
of proposal is complete when B receives
the letter.
 COMMUNICATION OF
ACCEPTANCE
The completion of communication
of acceptance has two aspects:-
 As against the proposer, and

 As against the acceptor.

 As against the proposer (offeror) - When it
is put into a course of transmission to him,
so as to be out of the power of the
acceptor.
 As against the acceptor- when it comes to
the knowledge of the proposer.
E.g.- A proposes by letter, to sell a house to
B at a certain price. B accepts A’s proposal
by a letter sent by post. The
communication of acceptance is complete
(1) as against A, when the letter is posted
by B. (2) as against B, when the letter is
received by A.
 REVOCATION OF PROPOSAL AND
ACCEPTANCE
 A proposal may be revoked at any time before
the communication of its acceptance is complete
as against the proposer, but not afterwards.
 An acceptance may be revoked at any time
before the communication of the acceptance is
complete as against the acceptor, but not
afterwards.
 In the previous eg. A may revoke his proposal at
any time before or at the moment by B posts his
letter of acceptance but not afterwards.
REVOCATION OF PROPOSAL AND
ACCEPTANCE

SIMILARLY In the previous e.g. ‘B’ may

revoke his proposal at any time before HIS
LETTER OF ACCEPTANCE REACHED WITH
‘A’.
 CONTRACTS OVER TELEPHONE,
TELEX, FAX OR THROUGH E-MAIL
FACE TO FACE CONTRACT
 When persons are face to face, one person making
the offer and the other accepting it, the contract comes
into existence immediately.
 IN the case of conversation over
telephone, the contract is formed as soon the offer is
accepted by the offeree . Provided offeree must make it
sure that words of his acceptance were duly heard by
the offeror , if therefore ,telephone suddenly goes dead
during conversation ,the acceptor must conform by
calling again.
 In case the contracts through telex, fax,
E-mail , the acceptor should ensure that
his telex , fax or e – mail message has
been duly received at the others end and
it readable to the offerror.
CONSIDERATION
CONSIDERATION
According to sec 2(d) consideration is defined
as “when at the desire of the promisor , or
promisee or any other person has done or
abstained from doing or does or abstains from
doing ,or promises to do or to abstain from
doing , something , such an act or abstinence
or promise is called a consideration for the
promise .
When a party to an agreement promises to
do something he must get “something” in
return .This “something” is defined as
consideration.

For example priyanaka agreed to sell her flat to

tarun for Rs 15 lakhs which she accepted Here
payment of Rs 15 lakhs by tarun is the
consideration for priyanka and priyanak’s flat is
the consideration for tarun
 RULES FOR VALID CONSIDERATION

LEGAL RULES AS TO CONSIDERATION

1)It must move at the desire of the promisor-
Consideration must be moved to promisee at the desire of
the promisor. If it is done at the desire of a person other than
promisor or voluntarily, it is not a valid consideration. E.g.-
Akshay saved Sunil’s goods from fire without being asked by
Sunil. Akshay cannot demand remuneration for this because
he did it voluntarily.
2)It may move from the promisee or any other
person - Consideration may move from
promisee or any other person i.e. even from a
stranger. This means a consideration may move
from a stranger to the contract or from
promisee himself. E.g.- An old lady by a gift
deed, made over certain property to her
daughter D, under the direction that she should
pay her aunt P (Sister of the old lady) a certain
sum of money annually. Later D refused to pay
the amount on the plea that no consideration
had moved from P to D. In this case P was
entitled to maintain suit as consideration had
moved from the old lady (sister of P) to the
daughter D.
 3)It must be past ,present or future – in
sec 2(d) the act uses words has done or
abstained from doing (past), does or
abstains from doing (present), or promises
to do or abstain from doing (future).
 Examples-
 Past consideration- You purchased this book
on credit 2 months ago for you this is past
consideration
 Present consideration- You purchased this
book today and paid Rs. 250 to shopkeeper
it is present consideration.
 Future consideration- shopkeeper promised
you to get this book by next week and you
deposited Rs. 250 with him. The coming
book is a future consideration for you.
 4)It need not be adequate – E.g. A agreed to
sell his house to B worth Rs. 1,00,00,000 in Rs.
10 only. Now, A cannot get back the house on the
plea that consideration is not adequate
(sufficient).
 5)It must be real – A consideration must be
real and of some value in the eyes of law. E.g.- A
promised to B if you make my dead dog alive I’ll
pay you Rs. 10,000. B tried for 7 days and
demanded Rs.500 for his hard work of 7 days B
cannot legally as the consideration to make a
dead dog alive is not real in the eyes of law.
 6)It must not be illegal , immoral or
opposed to public policy – As per sec 23
of the act every agreement the objective
or consideration of which is unlawful is
void.
 7) Promise to pay someone for what he is
legally bound to do is not good
consideration e.g. – A said thank you to
pilot of the plain for safe landing in a bad
weather. Pilot demands Rs.5000 for safe
landing from the passenger, he cannot
demand so.
 An agreement made without
consideration is void- In general it is said
that
“NO CONSIDERATION NO CONTRACT”
however there are certain situations
when an agreement even without
consideration is enforceable, these are as
follows:-
(a) Love & affection .
(b) Compensation for past voluntary service
(c) Promise to pay a time – barred debt .
(d) Agency
(A) LOVE AND AFFECTION- As per sec25(1)
an agreement made without consideration
is void unless
 It is expressed in writing and registered

under the law for the time being in force

and it is made out of natural love and
affection between the parties e.g.- A
executed a gift deed to his brother B to gift
him Rs. 50,000 this deed has been duly
stamped and registered with notary. Here
love and affection will be treated as
consideration from B to A.
(B) COMPENSATION FOR PAST VOLUNTARY SERVICE
A promise to compensate, wholly or in part, a person
who has already voluntarily done something for the
promisor, is enforceable even though without
consideration in simple words, a promise to pay for a
past voluntarily service is binding. E.g.- A finds B’s
purse and gives it to him. B promise to give A Rs. 50
this is a contract.
(C) TIME BARRED DEBT – A promise by a debtor to pay
a time barred debt is enforceable provided it is made
in writing and is signed by the debtor or by his agent
generally or specifically enforced in that behalf. A
debt is time barred by limitation if it remains unpaid
for a period of 3 yrs. E.g. D owes C Rs.1,000 but the
debt is barred by the Limitation Act. D signs a written
promise to pay C Rs. 500 on account of the debt. This
is a contract.
(D) AGENCY- No consideration is necessary to create an
agency.
 STRANGER TO CONTRACT
It is general rule of contract that only parties to contract
can sue & be sued on that contract . This rule is known
as ‘Doctrine of privity’ i.e. relationship between the
parties to contract .
Exceptions
1) Trust- The beneficiary in a Trust can enforce his right under
the trust though he is not a party to the contract between
the settler and the trustee. E.g. A Transfer certain properties
to be held by B in trust for the benefit of M. M can enforce
the agreement.
2) Family settlement – In case of a family settlement, the
members of the family who are originally not parties to the
settlement may enforce the settlement. E.g. a daughter
along with her husband entered into a contract with her
father whereby it was agreed that she will maintain her
mother and the property of the father will be conveyed to
them. The daughter subsequently refused to maintain the
mother. On a suit it was held that the mother was entitled to
require her daughter to maintain her, though she was a
stranger to the contract
3) Marriage settlement- In case of certain
marriage contracts, a female member can
enforce a provision for marriage expenses made
in the partition of the HUF.
4)Assignment of contract- In case of assignment
of a contract when the benefit under the
contract has been assigned, the assignee. E.g.
the official assignee on the insolvency of a
person can sue on the contract even though
originally they were not parties to it.
5)Covenants(conditions) running with land- In
case of a covenant running with a land, a
person who purchases the land with notice that
the owner of the land is bound certain duties,
the covenant may be enforced by receiver of the
seller.
6) Contract with Agent- A contract entered into
by the agent can be enforced by his principal if
the agent has acted within the scope of` his
authority and in the name of the principal. E.g.
Where a contract is entered into by an agent
the principle can sue on it.
7) Estoppels – When a promisor constitutes
himself as the agent of a third party by his
conduct a binding obligation is thereby incurred
by him towards the third party. E.g. If MR. A
receives some money from Mr. B to be paid
over to Mr. C and he Admits of his receipt to
Mr. C .Then Mr.C can recover this amount from
A who shall be regarded as agent of Mr. C
CAPACITY TO
CONTRCT
 WHO ARE COMPETENT TO
CONTRACT

Following are the condition for a person

to enter into contract
 He must be major
 He must be sound mind
 He must not be disqualified by any
other law.
Disqualified persons to enter
into a contract
a) Minor
b) unsound person
c) others
i.e. alien enemy,
insolvent,
convict,
company/corporation against MOA / AOA
.
 Minor

According to Indian majority act sec(3) minor

is defined as any person under the age of
18 years . In the following cases a person
is said to be minor if he does not
complete the age of 21 years
a) any person under the guardian & wards
act ,1890
b) any person which comes under
superintendence of law/legal representative
Rules governing minors
agreement

• Rule 1 : judges are counselors ,

jury is the servant ,
law is the guardian .
• Rule 2:in case minor entered into a
contract which is unlawful , illegal ,
immoral he is also prosecutable &
punishable under the relevant law.
Legal rules
 An agreement with minor is void ab initio. An agreement
with minor, therefore, can never be enforced by law.

 Minor can be a promisee or beneficiary-

In various decisions by competent court a minor can enforce an
agreements through court of law in which he is a beneficiary or
promisee and does not create any legal obligation on his part
subject to that he had performed his promise under the
agreement. E.g. Ishan, a minor sold goods on credit to Nisha, a
major. Ishan can recover the value from Nisha as Ishan is a
beneficiary in the agreement.

 Minor cannot “ratify” (adoption of an act that has already been

performed) his agreement on attaining the age of
majority.
 Restitution/Compensation may be possible
Restoring or returning the benefits received
means restitution. If a minor has received
benefit under an agreement from the other
party, and if he want to rescind from the
contract on the grounds of his minority the court
may require the minor to restore the benefit, to
the other party at the time of rescission of the
agreement.
 No estoppel and can plead minority. Rule
of estoppel means a person by
written/spoken words/by conduct
misrepresents another to believe about
some facts/things exists, he will not be
allowed to deny the existence of that
fact/things. A minor can always plead his
minority. E.g. Aman, a minor, by
fraudulently representing himself to be a
major, induced Sohan to lend Rs. 10,000.
Sohan lends the amount. Now Sohan
cannot sue Aman for recovery and can
not bring estoppel against the minor to
recover money.
POINTS TO BE REMEMBERED
 Contract by parent/guardian/manager- A minor’s
parent/guardian/manager can enter into a contract
on behalf of a minor with due authority and only if
the contract is entered for the benefits of the minor.
 Liabilities of the parents- The parents of a minor
are not liable for agreements made by their minor
however if minor act as their agent they will held
responsible.
 Liability for tort (civil wrong)- A minor is liable for a
tort committed by him but not liable for tort arising
out of a contract.
LIABILITY FOR NECESSARY OF
LIFE
 A minor (and also a person of unsound mind and a
person disqualified by any law in India) is not
personally liable for the payment of price of
necessaries of life supplied to him . However, a
person who furnishes such supplies is entitled to
be reimbursed from the property of the minor or
such other person incompetent to contract. This is
another example of a quasi-contract between the
minor and the supplier.
WHAT ARE NECESSARIES OF
LIFE…?
It may be noted that necessaries of life are those thing
without which an individual cannot reasonably exist.
Example-
 Things necessary for the livelihood of minor and his
dependents.
 Education and training
 Legal and consultation fee
 Public transport
 Expense on death ceremony of parents
 Medicines
 Things necessary looking to his status
 PERSONS OF UNSOUND
MIND
 According to sec(12) a person generally
sound , occasionally unsound can enter
into a contract when he of sound mind
 A person generally unsound occasionally
sound can enter onto contract when he
is sound mind .
 Sound mind for the purpose of making a
contract if ,at the time when he is ,entering in
to contract is capable of understanding the
terms of contracts and make a rational
judgment out of it.
Types of Persons of
Unsound Mind
1) Lunatic ,
2) Idiots ,
3) Drunken or intoxicated persons .
4) Seriously ill
5) Hypnotised persons
6) Mental decay
 IDIOT- An idiot is a person who is congenital
(by birth) unsound mind. Consequently an
agreement with an idiot is void ab initio.
 Lunatic- A lunatic is a person whose mental
control is disturbed. A lunatic may have lucid
intervals of sanity and insanity. He can make
contracts during those intervals when he is
sane. The contracts made by the guardian on
behalf of a lunatic can be enforced and his
estate is liable for the contracts.
 Seriously ill- A person suffering from high
fever is also not capable of understanding the
nature and implication of an agreement.
Therefore he cannot enter into contract
during the period of high fever.
 Drunkard- A drunken or intoxicant person are
temporarily incompetent to the contract. The
agreement under the effect of drink or
intoxicant is void.
 Hypnotised person- Hypnotism results in
temporary incapacity till a person is under
the effect of such
 Contracts by a person usually of
unsound mind- A person who is usually of
unsound mind, but occasionally of sound
mind, may make contract when he is of
sound mind.
 Contracts by a person usually 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.
BURDEN OF PROOF AND
OTHER RELATED PROVISION
 It is presumes that all person are of sound mind
unless otherwise proved. Agreement made in
ignorance of unsoundness of another person is
also void
 In case of a person who usually of sound
mind, and wants to resign the contract on the
ground of insanity ,burden of proof lies on him to
prove that he was of unsound mind at the time
of making the contract.
 PERSONS DISQUALIFIED BY
LAWS
 ALIEN ENEMY :- when an alien( citizen otherwise than of
India ) is declared as alien enemy (due to the declaration
of war with is country or otherwise) he cant enter in to a
contract with any Indian national so long as the declaration
is in force.
 FOREIGN SOVEREIGNS, DIPLOMATIC STAFF ETC.
 CORPORATION AND COMPANIES
 INSOLVENTS
 CONVICTS
 PERDANASHEEN WOMEN
 FREE
CONSENT
 FREE CONSENT
According to Sec 10 of the Indian Contract
Act one of the essentials of a valid contract is
“Free Consent”
Sec 13 defines “consent” as “Two or more
persons are said to consent when they agree
upon the same thing in the same sense”.
According to Sec 14, consent is said to be free
when it is NOT caused by:
1.Coercion
2.Undue influence
3.Fraud
4.Misrepresentation
5.Mistake
 COERCION
According to Sec 15 coercion means “Committing or
threaten to commit any act forbidden by Indian Penal
Code 1860 or unlawful detaining or threatening to
detaining any other persons property with a view to
enter into an agreement. It is immaterial whether the
IPC is or is not in force where the coercion is
employed”
The threat amounting to coercion need not necessarily
be from a party to contract , it may also proceed from
a stranger to the contract.
Example Himanshu threatens kamal to sell his land to
tarun for a sum of Rs 100000 instead of its market
value of Rs 500000 failing which he will be killed.
Kamal entered in to an agreement with tarun under
such threat for giving his land. The agreement is
caused under coercion
Consent is said to be caused by coercion when obtained by:
1.The committing or threatening to commit any act forbidden by
the Indian Penal Code
2.The unlawful detaining or threatening to detain any property
It is not important whether the IPC is or not in force where the
coercion is taking place.
For example A and B , both Indians are on a voyage trip to
America when the ship is on the Atlantic ocean B threatens a that
if doesn’t transfer his property to B’s name then he will push him
into the water.now though the IPC is not in force on the Atlantic
ocean it is still considered a coercion.
EFFECT WHEN COSENT MADE
THROUGH COERCION
• If consent of an agreement is caused by coercion, the
agreement is a contract which is voidable at the option if
the party whose consent was so caused.
• The party rescinding a voidable contract shall restore the
benefits received by him under the contract to person
from whom benefits were received.
• A person to whom money has been paid under coercion
must return it.
• The burden to proof that the contract was caused by
coercion lies on the party who wants to relief himself of
the consequences of the coercion
 Important cases:
1.Chikkim Ammiraju vs. Seshamma:
In this case a person threatened his wife and son that
he would suicide if she doesn’t transfer her property
in his brother’s favour. The wife and son executed
the release of the deed under the threat . Held the
threat of suicide amounted to coercion within Sec 15
and the release deed was therefore voidable.
This also is a very important case
to prove that threat to commit
suicide amounts to coercion
 2. Ranganayakamma vs. Alwar Setty:

A young widowed girl of 13 years was

forced to adopt a boy by her relatives who
prevented the removal of his body for
cremation until she consented. Held the
consent was not free but was induces by
coercion. Consequently the adoption was
set aside.
3.Muthia vs. Muthu Karuppa:
An agent refused to hand over the account book
of a business to the new agent unless the
principal released him from all liabilities. The
principal had to give a release deed, held the
deed was
given under coercion
and was voidable
at the option of the
principal.
4. Bansraj vs. Secretary of State:
The government gave a threat of
attachment against the property
of P for the recovery of the fine
due from his son. P paid the fine.
Held contract was
induced by
coercion
UNDUE INFLUENCE

Sometimes a party is compelled to enter into a

contract against his will as a result of unfair
persuasion by the other party.
Section 16 defines undue influence as follows
A contract is said to be induced by “undue
influence” where the relations subsisting betwee
the parties are such that one of the parties is in a
position to dominate the will of the other and use
that position to obtain an unfair advantage over
the other.
Essentials of undue influence

1. There are two persons

2. The relations are satisfying between
them
3. One must dominate the other
4. There must be unfair advantage
5. It involves the moral pressure
There is an undue influence between the following
persons:
-Principal and agent
-Superior and and subordinate
- Doctor and patient
- Father and son
- Teacher and student
- Promoter and company
- Master servant
- Spiritual advisor and devotee
Among the following relations there is no undue
influence
1.wife and husband
2.landlord and tenant
3.debtor and creditor

CASE: Ran Annapurna vs. Swami Nathan

A poor Hindu widow was persuaded by a money
lender to agree to pay 100% rate of interest on
money lent by him. She needed the money to
establish her right to maintenance. it was a clear
case of undue influence and the court reduced the
rate of interest to 24%
 FRAUD
According to Sec 17 fraud means and includes any of those acts
committed by a party to contract or with his connivance or by his agent
with an intent to deceive or induce a person to enter a contract: (by using
the following tricks)

1. The suggestion that a fact is true when it is not true and the person
making it does not believe in it to be true e.g.:- A sold a china made
duplicate cannon camera to B by suggesting that it is original.

2. The active concealment of a fact by a person having knowledge or

belief of the fact. EG A hide all scratches of a furniture by wax polish and
sold the same to B

3. A promise made without any intention of performing itEG: you buy

vehicle from our shop we will give you life time servicing if our rule will
not change in future.

4. Any other act fitted to deceive

5. Any such act or omission as the law specially declares to be fraudulent

Whether silence amounts to
Fraud..?
• As per explanation given to the sec 17,
mere silence as to facts likely to affect
the willingness of a person to enter into
a contract is not fraud. However, when
it is the duty of a person to speak or his
silence is equivalent to speech, the
silence amounts to fraud. E.g. A asked B
“if you do not deny I shall assume the
horse you are selling to me is sound and
healthy” B did not reply. Actually the
horse was ill. Here silence amounts to
fraud.
The essentials of fraud are:
1. There must be a representation or
assertion and it must be false
2.The representation must relate to a fact
3.The representation must have been made
with the intention of inducing the other
party to act upon it
4.The representation must have been made
with a knowledge of its falsity
5.The other party must have subsequently
suffered some loss
 MISREPRESENTATION
According to Sec 18 there is misrepresentation:
1 Positive assertions of unwarranted statements of
material facts believing them to be true. If a
person makes an explicit statement of fact not
warranted by his information (without any evidence),
under the honest belief as to its truth though it is not
true.
2 Breach of duty which brings an advantage to the
person committing it by misleading the other to
his prejudice:- where the statement when made
was true but subsequently before it was acted upon ,
it becomes false to the knowledge of the person
making it , in such a case the person making the
statement comes under an obligation to disclose the
change in circumstances to the other party.
3 Causing mistake about subject matter
innocently:- If one of the parties induces the other,
through innocently , to commit a mistake as to the
quality or nature of the thing bargained, there is
misrepresentation.

E.g. In a contact of sale of 500 bags of wheat the

seller made a representation that no sulphur
has been used in the cultivation of wheat ,
sulphur however has been used .
But buyer would not purchase the wheat if true
representation is disclosed by the seller .Thus it
becomes the case of misrepresentation.
 Important case:
Babul vs. R.A.Singh:
M was a marriage broker who gave Y (papa) the
photograph of a man and told him that the man was
young and rich. Y conveyed the same to his daughter
who agreed for the proposal. But on the day of
marriage it was discovered that the man was the age
of 60. There is fraud between M (broker) and Y.
whereas there is misrepresentation between Y (papa)
and his daughter.
 The essentials of
misrepresentation are as follows:

It must be a representation of a material

fact.
It must be made before conclusion of the
contract.
It must not be with the intention to deceive
the other party.
As per sec 20 of the Act when both
the parties to an agreement are under
mistake of fact essential to the
agreement, the contract is void.
Mistakes are classified on two basis:-
1. Mistake of Law
2. Mistake of Facts
 Mistake of law further can be divided
into two parts :-
Mistake of Indian Law
Mistake of Foreign Law

Mistake of facts can be divided into two

parts :-

Bilateral Mistake of Facts

Unilateral Mistake of Facts
Mistake of Indian Law (not void
or voidable)

 We all very well known that “Ignorance of

law is no excuse” in relation to ignorance of
Indian law. Mistake as to Indian laws does
not allow the parties any relief from the
implications of the contract. The contract
will have the same effect as if parties had
full knowledge of the law of the country.
 Mistake of Foreign Law

 Ignorance of foreign law is forgivable.

Therefore, the mistake of foreign law
will adversely affect the validity of a
contract. A mistake as to a law not in
force in India has the same effect as a
mistake of fact. The contracts caused
by mistake of fact by (both the
parties) are void.
 Bilateral mistake is a mistake made by both the
parties to an agreement. Where both the parties
to an agreement are under a mistake as to a
matter of fact essential to the agreement, they
are said to be at a bilateral mistake. Such
agreement is void.
It must satisfy the following conditions:-
 There must be a mistake as to the formation of an
agreement
 It must be mutual or bilateral i.e. both the parties
must have been under such mistake.
 It must relate to some fact, (not law) essential to
the agreement
 Mistake as to subject matter

 Where both the parties are under a mistake as to

subject matter of the agreement, the agreement
is void. Mistake as subject matter may be of the
following types:-
 Mistake as to identity of subject matter
 Mistake as to a existence of subject-matter
 Mistake as to quality of subject-matter
 Mistake as to quantity
 Mistake as to price (if both the parties are
working under a mistake as to the price, the
agreement is void).
 Where one of the parties to a contract is under a
mistake as to a matter of fact, it is unilateral
mistake. Such a contract is not voidable. Thus,
unilateral mistake does not generally affect
validity of a contract.
 E.g. kamal submitted a tender to government for
construction of a number of over bridges . Sunil
made a mistake in calculating the costs , and
therefore ,his offer was lower than other
tenders .Sunil’s tender was accepted. Now its
binding on Sunil although it was on erroneous
estimate on unilateral
UNLAWFUL
OBJECTIVES
&
UNLAWFUL
CONSIDERATION
UNLAWFUL OBJECT

 If the object of an agreement is the

performance of an unlawful act, the
agreement is unenforceable.
 For a contract to be valid only if the object
and the consideration should be legal.
 The word object means purpose or design.
 Unlawful agreements
An agreement forbidden (PUNISHABLE) by law [Sec
23]

An agreement defecting any provisions of law [Sec 24]

Case: Alexander vs. Rayson

A leased a flat to R at a rent of 1,200 pounds.
with the object of deceiving the rating authority
two agreements were entered, one for 450
pounds and one for 750 pounds. A sued R for
recovery of an installment of 750 pounds. Held
A could not recover and R was entitled to
remain in possession of the flat.
If it is immoral
Case: S.Yellappa vs. Y.Sabu
Cohabitation (living relationship) agreements are
immoral
Sumitradevi vs. Sulekha Kundu

An agreement between a husband and wife to

separate in future is immoral and void

An agreement opposed to public policy

 If it is fraudulent
EG :- Ajay and vijay entered in to contract
to defraud jitu
Defeats the provisions of law e.g.- A
promises to B that he will route A’s income
from his bank A/c so that A can avoid the
payment of Income tax in turn B will
receive 5% of tax saved.
Injury to person or property of others e.g.-
A and B entered into contract with C to
destroy D’s Godown.
Opposed to public policy (AGAINST
THE INTERST OF PULIC)
Trading with enemy
Stifling prosecution E.g. A promises to drop
prosecution which he has instituted against B for
robbery and B promise to restore the stolen property
the agreement is unlawful
Maintenance and champerty E.g. An agreement to
transfer % share in the property, if recover has been
held to be champertous and hence void.
Interfere with course of justice E.g. A agrees to pay
a bribe of Rs1000 to a judge It is unlawful and hence
void.
Trafficking public offices E.g. Ashok agrees
with Bala to procure a job in UPSE for a
consideration of Rs 1000
Marriage brokerage contract E.G. Ashok
engaged a panda from Haridwar to pay him
(panda) Rs500, if the panda procure him a
beautiful wife it is void.
Agreement tending to create interest
opposed to duty E.g. A agrees to pay Rs 500
to a municipal engineer not to report
unauthorized construction to the municipal
authorities. The agreement is void as it creates
interest opposed to duty.
Restricting personal freedom
Agreement in restraint of marriage E.g. A
agrees with B for good consideration that she
will not marry C. This is a void agreement.
Agreement in restraint of legal proceeding E.g.-
An action on dishonoured promissory note not
may be brought within 3 years under the
limitation act. If parties agreed that action shall
be brought within 2 years then such agreement
shall be void.
Agreement to commit crime
Agreement in restraint of trade
Agreement in restraint of trade
Every agreement by which anyone is restrained from
exercising a lawful profession , trade or business of
any kind is to that extent void . However according to
the explanation given to the section
An agreement not to carry business of which goodwill
is sold is not void :- a seller of goodwill of a business
may be restrained from doing business within a
specified area so long as the buyer or any person
deriving title to the goodwill from him carries on a like
buisness therein , provided that such limits appear to
the court reasonable regard being have to the nature
of the business.
 VOID AGREEMENT
 According to sec2(g) “an agreement not
enforceable by law is said to be void. There are
some agreements which have been expressly
declared as void by the contract act. Such
agreements are void because law declare them
void even though they may have all essentials of a
valid contract except the last term i.e. Expressly
declared void by the act.
Following are the agreements which
have been expressly declared void
 Agreement by incompetent persons e.g. minors,
persons of unsound mind and persons disqualified by
law of the land.
 Agreement made under bilateral mistake as to
material fact.
 Agreement of which the consideration or the object is
unlawful
 Agreement of which the consideration or the object is
unlawful in part and cannot be separated from the
lawful part.
 Agreements made without consideration with
certain exceptions.
 Agreement in restraint of trades.

 Agreement in restraint of legal proceedings

 Agreement in restraint of marriage

 Agreements the meaning of which is

uncertain
 Agreements by way of wager.

 Agreements contingent on impossible event

 Agreements to do impossible acts

 Reciprocal promises to do things illegal.

Agreements in restraint of marriage

 According to sec 26, every agreement in restraint

of marriage of any person is void although the
person is minor it is not void.
 E.g. Abhishek, promised not to marry any one
other than Anita, and further promised to pay Anita
a sum of Rs. 2,00,000 if he married somebody
else.
 Agreements with uncertain
meaning
 Agreements, the meaning of which is not certain or
capable of being made certain are void.
 E.g. A agrees to sell to B “ 50 tons of oil” A is
dealing in 15 type of oils and there is nothing
whatsoever mentioned in the agreement that what
kind of oil was intended to buy or sale. The
agreement is void for uncertainty.
 Wagering Agreements or Wager
(Sec 30)
A wagering agreement is an agreement in which one
person promises to another to pay money or
money’s worth by the happening of an uncertain
future event in consideration for other person’s
promise to pay if the event does not happen (which
is beyond the control of the either party). That
means if that certain future event happens or not in
both the situations one will win and otherone will
loose.
 Example:

In a wrestling bout, A tells B

that wrestler no.1 will win. B
challenges the statement of A.
They bet with each other over
the result of the bout. This is a
wagering agreement.
ESSENTIAL ELEMENTS OF
WAGER
 There are two persons.
 There must be an uncertain future event.
 No control over the event by both the parties.
 There must be a reciprocal promise.
 Following agreements are not
wagers (Exceptions)
 Commercial Transactions - A commercial
transaction which is done with an intention of
delivery of goods (commodity or security) and
payment of price it is not wager, if the intention is
not of taking/receiving delivery then will be
speculation and will be void.
 Option dealings – Option mean a right either to
buy/sell or not . Option dealings are not wagering
agreements and are not void.
 Authorised Lotteries – A lottery is a wagering
agreement. Therefore, an agreement to buy and
sell lottery tickets is a wagering agreement.
However, the government may authorize lotteries.
The persons authorised to conduct lotteries are
exempt from the punishment under Indian Penal
Code, still the contract is void.

 Crossword or Kaun Banega Crorepati kind of

competitions where skill plays a significant role in
the winning of a competition and awards depend
upon the best skilled performed the competition is
not wager.
 Chit fund schemes are not wagering
agreements because sooner or later
everyone get what he required to pay
over the period of the chit fund.
 Horse race according to section 30 a
subscription or contribution or an
agreement to subscribe or contribute
towards any plate ,prize or sum of
money of Rs 500 or more to be awarded
to the winners of a horse race , is not
unlawful.
Agreements to do Impossible Act

 An agreement to do an act impossible in

itself is void. agreement which is possible
at the time of making but becomes
impossible subsequently is not a void
agreement but a void contract.
CONTINGENT
CONTRACTS
Contingent Contract (sec
31)
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. It is also
called a conditional contract.
 Essential Elements of a Contingent
Contract:
 There are two persons.
 There must be an uncertain future event.
 Some control over the event but not absolute
control.
 There is no reciprocal promise between the
persons.
 Others may be interested in the contract.
 It is a valid contract.
 Example:
A contracts to pay
B Rs.10,000 if B’s
house is burnt. This
is a contingent
contract.
 Rules Regarding Contingent Contracts

 Contingent contracts dependent on happening of an

uncertain future event cannot be enforced until the
event has happened.( Sec 32 )- contingent contracts
dependent on the happening of some specific uncertain
future events can be enforced only when the event has
happened. Hence if the event is impossible, such
contracts become void. E.g. A contracts to pay B a sum
of Rs. 1 lakhs when B marries C. C dies without being
married to B. the contract becomes void because the
event becomes impossible.
 Contracts contingent on the non-happening of
an event- Where a contingent contracts is to be
performed if a particular event does not
happen, its performance can be enforced when
the happening of that event becomes
impossible.( Sec 33 ) e.g. Amit agrees to pay
Vipin sum of money if Sea Queen (Vipin’s
ship) does not return from Europe trip. The
ship sank. The contract can be enforced when
the ship sinks. If the ship returns from Europe
Trip, the contract becomes void, because the
event took place.
 Contingent contracts to do or not to do
anything, if a specified uncertain event does
not happen within a fixed time, may be
enforced if the event does not happen or its
happening becomes impossible before the
expiry of that time.( Sec 35 ) E.g.- amit
agrees to pay mukesh a sum of money if sea
queen (vipin’s ship) return from Europe trip
within 6 months from the date of contract.
The contract may be enforced if the ship
returns within 6 months and becomes void if
the ship is sunk within the year.
 Contracts contingent upon the non happening of an
event within the fixed time – where contingent
contract is dependant upon the non happening of
some specified uncertain future event within the time
fixed, the contract may be enforced when (i) the time
fixed is expired and such event has not happened
(ii) before the expiry of time, if it becomes certain
that the event will not happen. E.g. Amit agrees to
pay Vipin a sum of money if Sea Queen (Vipin’s
ship) does not return from Europe trip within 6
months from the date of contract. The contract may
be enforced if the ship does not return within 6
months, or sank within the year.
 Differences Between a Wagering Agreement and a
Contingent Agreement:

 Wager agreement  Contingent agreement

 There is a reciprocal promise.
 It is a void contract.
 Others are not interested in the
contract.
 It is contingent in nature.
 There is no reciprocal
promise.
 It is a valid contract.
 Others are interested in the
contract.
 It may not be wagering in
nature.
DISCHARGE OF
A CONTRACT
DISCHARGE OF A CONTRACT

DISCHARGE BY PERFORMANCE
DISCHARGE BY AGREEMENT OR
CONSENT
DISCHARGE BY IMPOSSIBILITY OF
PERFORMANCE
DISCHARGE BY LAPSE OF TIME
DISCHARGE BY OPERATION OF LAW
DISHARGE BY BREACH OF CONTRACT
DISCHARGE BY PERFORMANCE
ACTUAL PERFORMANCE
When both parties perform their promises
& there is nothing remaining to perform

ATTEMPTED PERFORMANCE
When the promisor offers to perform his
obligation ,but promisee refuses to accept the
performance. It is also known as tender
DISCHARGE BY
AGREEMENT OR CONSENT
• NOVATION (Sec 62): New contract substituted for old
contract with the same or different parties
• RESCISSION (Sec 62) : When some or all terms of a
contract are cancelled
• ALTERATION (Sec 62):When one or more terms of
• a contract is/are altered by the mutual consent of the
parties to the contract
• REMISSION (Sec 63) :Acceptance of a lesser
fulfilment of the promise made.
• WAIVER :Mutual abandonment of the right by the
parties to contract
• MERGER :When an inferior right accruing to a party to
contract merges into a superior right accruing to the
same party
DISCHARGE BY
IMPOSSIBILITY OF
PERFORMANCE
• KNOWN TO PARTIES
• UNKNOWN TO PARTIES
• SUBSEQUENT IMPOSSIBILITY
• SUPERVENNING IMPOSSIBILITY (Sec 56)
Destruction of subject matter
Non-existance of state of things
Death or incapacity of personal services
Change of law
 DISCHARGE BY
LAPSE OF TIME
• THE LIMITATION ACT 1963,
CLEARLY STATES THAT A
CONTRACT SHOULD BE PERFORMED
WITHIN A SPECIFIED TIME CALLED
PERIOD OF LIMITATION

• IF IT IS NOT PERFORMED AND IF

THE PROMISEE TAKES NO ACTION
WITHIN THE LIMITATION TIME,
THEN HE IS DEPRIVED OF HIS
REMEDY AT LAW
DISCHARGE BY OPERATION
OF LAW

DEATH
MERGER
INSOLVENCY
UNAUTHORISED ALTERATION OF THE
TERMS OF A WRITTEN AGREEMENT
RIGHTS & LIABILITIES VESTING IN THE
SAME PERSON
DISCHARGE BY BREACH OF
CONTRACT
ACTUAL BREACH :
 At the time of performance
 During the performance

ANTICIPATORY BREACH
 By the act of promisor
(implied repudation)
 By renunciation of obligation
(express repudation)
REMEDIES FOR
BREACH OF
CONTRACT
REMEDIES OF INJURED
PARTY
• A remedy is a means given by law for the
enforcement of a right
• Following are the remedies
• [1] Rescission of damages.
• [2] Suit upon quantum meruit.
• [3] Suit for specific performance.
• [4] Suit for injunction.
RESCISSION
When a contract is broken by one party,the other party may
sue to treat the contract as rescinded and refuse further
performance.In such a case,he is absolved of all his
obligations under the contract.
The court may give rescission due to
1)contract is voidable.2)contract is unlawful
The court may refuse to rescind if
1)Plaintiff has ratified the contract.2)Parties cannot be
restored to the original position.3)The third party has
acquired for value.4)When only a part is sought to be
rescinded.(sec 27 of specific relief act 1937)
DAMAGES
Damages are a monetary compensation
allowed to the injured party by the court for the
loss or injury suffered by him by the breech of
the contract.The objective of awarding damages
for the breech of contract is to put the injured
party in the same position as if he had not been
injured.This is called the doctrine of
restitution.The fundamental basis is awarding
damages for the pecuniary loss.
QUANTUM MERUIT
The phrase quantum meruit literally means
‘as much as earned’.A right to sue on a
quantum meruit arises when a contract,
partly performed by one party,has been
discharged by breach of contract by the
other party.This right is performed not on
original contract but on implied promise by
other party for what has been done.
 SPECIFIC
PERFORMANCE
• In certain cases of breach of contract damages
are not an adequate remedy.The court may,in
such cases,direct the party in breach to carry out
his promise according to terms of the
contract.This is a direction by the court for
specific performance of the contract at the suit of
the party not in breach
• Cases for specific performance to be enforced
• 1)when the act agreed to be done is such that
compensation is not adequate relief.2)when
there is no standard for ascertaining the actual
damage
• 3)when it is probable that compensation cannot
• be agreed to be done.
INJUNCTION
When a party is in breech of a negative term of
contract the court may,by issuing an
order,restrain him by doing what he promised
him not to do. Such an order of the court is
called injunction
Court refuses grant of injunction
[1] whereby a promisor undertakes not to do
something
[2] which is negative in substance though not in
form
QUASI
CONTRACTS
TYPES OF QUASI
CONTRACTS

– Supply of necessaries (Sec 68)

– Payment by a interested person (Sec 69)
– Obligation to pay for non gratuitous acts
(Sec 70 )
– Responsibility of finder of goods (Sec 71 )
– Mistake or Coercion (Sec 72 )
SUPPLY OF
NECESSARIES
According to sec 68 a minor is liable to pay
out of his property for ‘necessaries’ supplied
to him or to anyone whom he is legally bound
to support.The significance of this is that it
does not arise out of a contract as much so
as it arises out of a contract.the minor is not
personally liable and ‘necessaries’ include
food,clothing as well as education,They also
include watch bicycle etc.
OBLIGATION TO PAY FOR NON
GRATUITOUS ACTS
According to Sec 70 when a person lawfully
does or delivers anything for the other ,not
intending to do so gratuitously,and the person
derives any benefit from it,he is liable to
compensate,or restore the thing so done or
delivered.
Here three conditions must satisfy
[1] The thing must have been done lawfully
[2] The person intending to do it must not have
done it gratuitously
[3] The person must have derived benefit from
the act
PAYMENT BY A INTERESTED
PERSON
According to Sec 69 a person who is interested
in the payment of money which another is
bound by law to pay,and who therefore pays
it, is entitled to be reimbursed by the other.
The essential elements center around
[1] The payment made should be bona fide of
ones
interest
[2] The payment should not be a voluntary one
[3] The payment must be such that the other is
bound by law to pay
 RESPONSIBILITY OF THE
FINDER OF GOODS
According to Sec 71 a person who finds goods belonging to
another and takes them into his custody is subject to the
same responsibility as the bailee is bound to take as
much care of the goods as a man of ordinary prudence
would,In addition to that he must make efforts to trace
the owner.If he does not ,he will be guilty of wrong
conversation,and till the owner is found out the property
will vest with the finder,he can sell in case of
[1] goods are or perishable nature
[2] owner cannot be found out
[3] when owner refuses to pay for the lawful charges
[4] when the lawful charges amount to two thirds of thing
INDEMNITY
INDEMNITY (Sec 124)

A CONTRACT BY WHICH ONE PARTY

PROMISES TO ANOTHERR TO SAVE
HIM FROM LOSS CAUSED TO HIM BY
THE CONDUCT OF THE PROMISOR
HIMSELF , OR BY THE CONDUCT OF
ANY OTHER PERSON IS CALLED A
ESSENTIAL FEATURES OF
INDEMNITY
 There are two persons , the indemnifier the
indemnified or the indemnity holder
 There must be loss either by the promisor’s
conduct or by any other person’s conduct
 It is a contingent contract by nature
 It may be express or implied

Sec125 deals with the commencement of

the indemnifier’s liability. His liability
commences when the event causing the loss
occurs or when the event saving the
indemnified from the loss becomes
impossible
GUARANTEE
GUARANTEE

A CONTRACT OF GUARANTEE IS A CONTRACT TO

PERFORM THE PROMISE, OR DISCHARGE THE
LIABILITY,OF A THIRD PERSON IN CASE OF
HIS DEFAULT. THE PERSON WHO GIVES THE
GUARANTEE IS KNOWN AS THE ‘SURETY’, THE
PERSON IN RESPECT OF WHOM THE
GUARANTEE IS GIVEN IS KNOWN AS THE
‘PRINCIPAL DEBTOR’, AND THE PERSON TO
WHOM THE GUARANTEE IS GIVEN IS CALLED
THE ‘CREDITOR’. A GUARANTEE MAY BE EITHER
ORAL OR WRITTEN.
ESSENTIAL FEATURES OF
GUARANTEE
• Concurrence of three contracts
• Primary liability is that of the principal debtor
• In case the debtor is a minor , the surety’s
liability becomes primary
• All the essentials of a valid contract
• It may be in writing or oral
• There need not be full disclosure of facts to
the surety before he gives the guarantee
TYPES OF GUARANTEE

SPECIFIC GUARANTEE :
When a guarantee extends to a single
transaction or debt it is known as a specific or
simple guarantee
CONTINUING GUARANTEE :
When a guarantee extends to a series of
transactions
It is called continuing guarantee
BAILMENT
BAILMENT Sec 148
• The word Bailment is derived from the French
word “ballier” which means “to deliver” .
• Bailment means delivery of goods by one person
to another for some purpose ,upon a contract
,that they shall ,when the purpose is
accomplished ,be returned or otherwise disposed
of according to the instructions of the person
delivering them. The person delivering the goods
is called the ‘bailor’ and the person to whom
they are delivered is called the ‘bailee’.
Essentials of bailment
There are two persons namely Bailor and
Bailee.
Bailor means the person delivering the
goods, Bailee means the person to whom
the goods are delivered.
Their must be delivery of goods .
The goods must be in deliverable
condition.
Only the goods are delivered but
not the ownership of goods, their
must be purpose.
Bailey can use the goods.
Goods must be returned or
disposed off after the purpose is
accomplished.
Duties and rights of Bailor
and Bailee
Duties of bailor.
To disclose known faults.
To bear extraordinary expenses of
bailment.
To indemnify bailee for loss in case of pre
mature termination of gratuitous bailment.
To receive back the goods.
To indemnify the bailee.
Rights of bailor
Enforcement of rights.
Avoidance of contract. (Sec153)
 Return of goods lent gratuitously. (Sec 159)
Compensation from a wrong –doer. (Sec 180)
Rights of bailee
• Delivery of goods to one of several
joint bailor of goods. (Sec 165).
• Delivery of goods to bailor without title.
(Sec 166).
• Right to apply to court to stop delivery.
(Sec 167)
• Right to action against trespassers. (Sec
180)
• Bailee’ s lien.
PLEDGE
PLEDGE (SEC 172)
The bailment of goods as security for
payment of a debt or performance of
a promise is called “Pledge”.
The bailor in this case is called the
“pledger” or “pawnor” and the bailee
is called the “pledgee” or “pawnee”
RIGHTS AND DUTIES OF
PAWNOR AND PAWNEE
Rights of Pawnee.
Right of retainer.
Right of retainer for subsequent advances.
Right to extraordinary expenses.
Right against true owner, when the
Pawnor’s title is defective.
Pawnee’s rights where pawnor makes
default .
Rights of Pawnor

• Right to get back goods.

• Right to redeem debt.
• Presentation and maintenance of the
goods.
• Rights of an ordinary debtor.
AGENT
Sec 182 defines an agent as a
person employed to do any
act for another , or to
represent another in
dealings with third
personsthe person for
whom such act is done is s
called the principal
ESSENTIALS OF
RELATIONSHIP OF AGENCY

• Agreement between principal & agent

• Intention of agent to act on behalf of
the principal
• Anyone can be an agent
• Anyone can employ an agent
 CREATION OF AGENCY
• BY EXPRESS AGREEMENT
• BY IMPLIED AGREEMENT
Agency by estoppel
Agency by holding out
Agency by neccesity
• AGENCY BY RATIFICATION
• AGENCY BY OPERATION OF LAW
 REQUISITES OF VALID
RATIFICATION
• Agent must act as an agent for his principal
• Principal must be in existance at the time of contract
• Ratification must be with full knowledge of facts
• Ratification should be done within a reasonable time
of the performance of the act
• The act to be ratified should be of lawful nature
• The ratification can be done only to the whole
transaction & not any part of it (Sec 199)
• Ratification should be communicated with the party to
contract
• Ratification should not cause any damages to a third
party
• Ratification can only be of acts which principal had the
right to do
SUB-AGENT &
SUBSTITUTED AGENT

A sub agent is aperson employed &

acting under the control of the agent in
the business of the agency (Sec 191)

A substituted agent is a person named

by the agent, on an express or implied
authority from the principal, to act for
the principal (Sec 194)
 DIFFERENCES BETWEEN SUB- AGENT &
SUBSTITUTE-AGENT
SUB-AGENT SUBSTITUTE AGENT
1. He works under the 1. He works under the
agent pprincipal
2. There is no contact 2. There is a contract
between the agent between him & the
& the principal principal
3. Agent is wholly & 3. Agent is in no way
solely responsible responsible for the
for the acts of the acts of the
sub-agent substituted agent
 Termination of agency

• By act of parties
Agreement
Revocation by the principal
Revocation by the agent
• By operation of law
Performance of the contract
Expiry of time
Death of either party
Insanity of either party
Insolvency of either party
Destruction of the subject matter
Principal becoming an alien enemy
Dissolution of a company
Termination of sub-agents authority