Indian Contracts Act of 1872

(Unit-1 continuation)
Exhibit-2
MBAE 134

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 Capacity to Contract

o Capacity to contract means,a party has the legal ability to enter into a
contract.
o Capacity also means a person has to be competent as defined by law.

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 Rule of Estoppel

Estoppel is a rule of evidence, which precludes a party to contradict his

previous representation or conduct

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 Minor & Rule of Estoppel

o If a minor falsely represents himself as a major and takes a loan or

enters into a contract, he can plead minority.
o The rule of estoppel cannot be applied against a minor. He can plea his
minority in defense.

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 Contract by a Guardian

o A guardian of a minor can enter into a valid contract on behalf of the

minor.
o Such a contract entered into, for the benefit of the minor, can also be
enforced by the minor.
o The Guardian cannot involve a minor for purchase of immovable
property.

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 Free Consent

o when both the parties agree to do a thing in the same sense .

o An agreement is incomplete without Free Consent

E.g: Purchase of House, which one?

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 Misrepresentation

o A false representation of fact without actually having any intention to

deceive the other party
o e.g: Seller of Goods.

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 Contracts opposed to public policy

i) Trading with alien enemy

ii) Promote hostile action in a friendly state
iii) Interfering with course of justice

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 Contracts opposed to public policy

iv) Stalling criminal prosecution

v) Influence election in public offices
vi) Tending to create monopolies-UTP (MRTP ACT)

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 Contracts opposed to public policy

vii) Restraint of a trade.

o The agreements which restrict trade are called agreements in restraint
of trade.
Madhav Vs Raj kumar.
(the objective of their agreement is elimination of competition but it is not on
reasonable basis. Hence it is held to be Void.)

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 Wagering Agreement

o The word ‘wager’ means ‘a bet’:

o something to be lost or won on the result of a doubtful issue”
o Therefore, wagering agreements are betting agreements.
( Lottery, horse race)

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 WA are void, but not Illegal

o WA have been declared as a void ab initio but there is no mentioning

of it being forbidden by the law.
o The law differs from state to state. Gujarat and Maharashtra, have
declared illegal and is forbidden by law.

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 Exceptions to Wager

1. Insurance Contract
2. Games involving skills
3. Horse Racing Competitions
4. Share Market Transactions
5. Is Rummy a game of skill?

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 Lawful Consideration & Objects

Consideration & Objects are lawful unless,

1. It defeats the purpose of the law
2. It is fraudulent
3. It involves injury to any other person or property

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 Lawful Consideration & Objects

4. Courts regard them immoral

5. opposed to public policy.

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 1. By Performance

1. Actual Performance
Both the parties perform their part.
2. Attempted performance
The Promisor honours the contract, but the Promisee refuses.

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 2. By Mutual Agreement (Implied Consent)

1. Novation
o To novate means ‘to replace’
o A contract is substituted for the old contract between the same or new
parties.

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 2. Discharge by Consent

2. Remission
Parties to a contract accept a lesser amount or lesser degree of
performance
3. Alteration
Changing the contract terms, discharging the old contract and forming a
new one

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 2. Discharge by Consent

4. Rescission
Dissolve the contract, no new contract is formed.
5. Waiver
Abandonment of a right.
6. Merger
Existing inferior rights to superior right by way of merger. (tenant &
owner of a house)

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 3. By Impossibility of Performance

1. Change in Law
2. Death of a person
3. Outbreak of war

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 Doctrine of Frustration

o It is a theory based on the maxim- Lex non cogit ad Impossibilia

o (the law does not force the impossible).
o Impossibility of carrying out contractual obligations leads to
frustration.

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 4. By Lapse of Time

Expiry of predetermined period

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 5. By Operation of Law

1. Insolvency
2. Death of the promisor.
3. Merger

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 Breach of Contract

Failure, to perform any promise all or part of the contract.

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Remedies for breach of contract

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 Remedies for Breach of Contract

1. Suit for Rescission

When breach by one party, the other party can rescind the contract.

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 Remedies for Breach of Contract

2. Suit for Damages

i) Ordinary damages- Arise in the usual course of business

ii) Nominal damages – small amount of compensation, as the plaintiff
did not suffer more.
iii) Special damages

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 Remedies for Breach of Contract

iii) Special damages,

o Special damages compensate quantifiable monetary losses suffered by
the plaintiff.
(Contractor & poor quality of construction.)

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 Remedies for Breach of Contract

3. Specific Performance
To undertake what is promised.
4. Suit for quantum Meruit
The person who has performed partly, is eligible to seek compensation
for the work he has already done.
5. Suit for Injunction
Court’s stay

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 Remedies for Breach of Contract

Case Laws: 1 (special damages)

o ‘P’ bought from ‘L’ some copra cake.
o He sold them to ‘B’ who in turn sold to various dealers, who sold the
same to various farmers for feeding the cattle.
o The copra cake happened to be a pesticide mixed one and many cattle
died.
o Various buyers sued ‘P’ and got damages. ‘P’ in turn sued ‘L’.
Held: As the copra was to be used to cattle, ‘L’ was liable to compensate
‘P’
‘Pinnock Bros Vs Lewis & Peat Ltd (1923)’
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 Remedies for Breach of Contract

Case Laws: 2 (Remote damages)

Hobbs v London & South Western Railway Co, 1875
o Mr Hobbs & Family traveled from Hampden to Wimbledon.
o The train went in wrong direction and the family had to get down at a
place, where there was no conveyance and no place to stay.
o They had to walk home for several miles at midnight on drizzling
night.

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 Remedies for Breach of Contract

o Mrs Hobbs got ill. Mr Hobbs filed a suit for

o (i) damages for inconvenience
o (ii) damages for wife’s illness.
The court awarded damages for (i) and no to (ii) as it was a remote
consequence.
‘Hobbs Vs London SW Railway Co (1875)’

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 6. Liquidated Damages

Both the parties agree for a sum as compensation in case of breach.

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 Indemnity

Indemnity is insurance compensation for damages.

e.g: Car insurance

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 Exceptions to the Indemnity

1. Life insurance:

Life cannot be valued in terms of money.

2. Personal accident insurance :
Body parts cannot be valued in terms of money.

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 Exceptions to the Indemnity

3. Valued Policy
The Policy holder and the insurer agree to the amount to be paid in the
event of total loss of property, regardless of value of property.

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 Types of Indemnity

1. Express Indemnity:
Written one
2. Implied Indemnity
The conduct of the parties involved.
(e.g: master-servant relationship)
The master is liable to indemnify his servant for the losses incurred
while on duty.

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 Types of Guarantee

1. Specific / simple guarantee

Guarantee for a single transaction or debt.
2. Continuing guarantee
Guarantee to a series of transactions.
3. Absolute Guarantee (unconditional guarantee by surety)
4. Conditional Guarantee
Not enforceable immediately, depending upon happening of some
contingency.

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 Types of Guarantee

5. Retrospective Guarantee (Given when the debt is already outstanding)

6. Prospective Guarantee (Given for future debt)
7. Limited Guarantee (For a single transaction)

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 Bailment

1. Bailment:
An act of delivering goods to a bailee for a particular purpose, without
transfer of ownership.
2. Bailor:
The person delivering the goods
3. Bailee:
The person to receives the goods.
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 Bailment

Example:
1. Delivering a car for repair.
2. Delivering a piece of cloth to a tailor, for stitching.

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 Types of Bailment

1. Delivery of goods to be held for the bailor’s use.

2. Hiring of Goods.
3. Delivering the Goods to a creditor as security for a loan
4. Delivery of Goods for repair.
5. Delivery of goods for inspection, reference & return.

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 Kinds of Bailment

1. Gratuitous Bailment
Bailment without consideration (out of love & affection) – Lend your
bike to a friend for use & return.
2. Non Gratuitous Bailment
Bailment for reward, for benefit of both
Hiring a car on payment of hire charges.

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 Rights & Duties of Bailor

1. To disclose faults in goods bailed

2. To provide necessary instruction.
2. To reimburse extraordinary expenses in case of gratuitous bailment
3. To indemnify bailee for any loss due to defect in the goods bailed.
4. Bear Risk for Loss: Bailor is to bear risk of loss or destruction of the
thing bailed if the bailee had taken prudent care of the goods.
5. To receive back the goods

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 Rights &Duties of Bailor

6. Enforcement of Bailee's duties

 Right to claim damages for loss due to bailee's negligence
 Right to claim compensation for damage due to
unauthorized use of the goods

7. To terminate bailment if the bailee uses the goods wrongfully

8. To demand return of goods at any time in case of gratuitous

bailment( no compensation involved-borrowing a friend’s car)

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 Rights & Duties of Bailee

1. To take reasonable care of goods delivered to him

2. Not to make unauthorized use of goods entrusted to him
3. Not to mix goods bailed with his own goods
4. To return the goods
5. To deliver any accretion to the goods
6. Enforcement of bailors' duties

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 Rights & Duties of Bailee

7. To deliver goods to one of several joint bailors

8. Right to deliver goods, in good faith to bailor without title
9. Right of lien
Lien is the right of the bailee to retain the goods of the bailor

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 Finder of Lost Goods

“ A person who finds goods belonging to another and takes them into
his custody, is subject to the same responsibility as a bailee.”

Duties:
1. Duty to find true owner
2. Duty to take reasonable care of the goods as a bailee

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 Finder of Lost Goods

o It was clearly mentioned in State of Bombay(Now Gujarat) Vs

Memon Mahomed Haji Hasam, 1967 that the position of the finder
of goods is similar to that of a bailee.

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 Termination of Bailment

o On the expiry of the stipulated period

o On the accomplishment of the specified purpose
o By bailees act inconsistent with conditions
o Termination of Gratuitous bailment

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Proceed to Exhibit-3

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