LSB

UNIT – I
 The Law of Contracts: Definition of Contact Offer and Acceptance
 Essential Elements of a Valid Contract:
 Free Consent – Competency of Parties
 Lawful Consideration
 Legality of Object.
 Void, Voidable, Unenforceable and Illegal Contracts
Performance of Contracts:
 Privity of Contracts – Assignment of Contracts
 By Whom Contract must be Performed
 Time and Place of Performance
 Performance of Reciprocal Promises
 Contracts which need not be performed,
Discharge of Contracts: By Performance, By Agreement, By Impossibility, By Lapse of
Time, By Operation of Law and By Breach of Contracts
 Remedies for Breach of Contracts.

Definition of Law:
The system of rules which a particular country or community recognizes as regulating the
actions of its members and which it may enforce by the imposition of penalties.

Introduction:
 Indian Judicial System is one of the oldest legal systems in the world today.
 It is largely based on English common law.

Constitution of India:
 The fountain source of law in India
 It came into effect on 26 January 1950 and is the world’s longest written constitution
 It contains 395 articles and 12 schedules, 22 parts and numerous Amendments
 It gives basic framework for Indian Judicial System
 Defines the powers, duties, procedures and structure of the various branches of the
Government at the Union and State levels.
 It elaborates about the fundamental rights, duties of the people and the directive principles of
State policy.

Features of Indian Judicial System

 Integrated: Court system to deliver and to administer state and union laws
 Common law system: law is developed by the judges through their decisions, orders or
judgments. These are also referred to as precedents
 The adversarial system: In an adversarial system, there are two sides in every case and each
side presents its arguments to a neutral judge who would then give an order or a judgment
based upon the merits of the case.

Sources of Law:
Primary sources:
1. Customary law
 Customary laws are central to the very identity of indigenous peoples and local communities, de- fining
rights, obligations and responsibilities of members)
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2. Statute (Legislation)
3. Constitution

Secondary sources
 Case law: judgment of Supreme Court and High Courts

Classification of Law
 Criminal law: Offenses against society or State such as theft, murder, rape, extortion, etc.,
 Real estate: Real estate disputes, property tax, transfer of property, ownership of property,
etc.,
 Civil law: Deeds, leases, will mortgages, agreements, contracts, power of attorney etc.,
 Tax law: Income tax, wealth tax, gift tax, estate duty, capital gain tax etc.,
 International law: Against breach of internationally accepted set of rules on various affairs.
 Labour law: Matters between employers and employees
 Copyright, IRP, Patenting etc: Protection of intellectual property.
 Miscellaneous: Family law, constitutional law, corporate law, patents, excise law, customs
and transportation

Contract Law:

 The law relating to contracts in India is contained in the Indian Contract Act 1872.
 The rights and obligations created by a contract are honored.
 Legal remedies are available to the parties in case of failure to perform the agreement.

 The act has 266 sections

 General principles of Law of contract: 1-75
 Sales of Goods Act : 76-124
 Special kinds of contract : 125-238
 Partnership : 239-266

Law of contract is the branch of law which determines the circumstances in which a promise
or an agreement shall be legally binding on the person who is making it.
Ex. Taking a video from a library, booking an orchestra, taking a taxi

Definition:
A contract is an agreement to do or not to do an act. It is legally binding, enforceable at law
 Every agreement and promise enforceable at law is a contract
 Thus there are two elements of a contract
 Agreement
 Enforceable at law
 An agreement is defined in section 2(e) as “every promise or every set of promises forming
consideration for each other”.
 A promise is defines in section 2 (b) as “a proposal when accepted becomes a promise”.
 There must be a proposal or offer by one party and its acceptance by other party for making
an agreement.
 Thus agreement = offer + acceptance
 All contracts are agreements but all agreements are not contracts

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 Contract:

 According to section 2(h), a contract is defined as an agreement enforceable before the law.

Agreement:

According to section 2(e), every promise or set of promises forming consideration for each
other.

An analysis of the definition given above reveals the following characteristics of an agreement:

(a) Plurality of persons:

There must be two or more persons to make an agreement because one person cannot enter
into an agreement with himself.

(b) Consensus ad idem:

The meeting of the minds is called consensus-ad-idem. It means both the parties to an
agreement must agree about the subject matter of the agreement in the same sense and at the same
time.

Promise:

According to section 2(b), when a person made a proposal to another to whom proposal is
made, if proposal is assented there to.

Offer:

According to Section 2(a), when a person made a proposal, when he signifies to another his
willingness to do or to abstain from doing something.

Obligation:

An obligation is the legal duty to do or abstain from doing what one has promised to do or
abstain from doing.

Agreements which are not Contracts:

1. Agreements in which the idea of bargain is absent and there is no intention to create legal
relations are not contracts.
2. Agreements relating to social matters: An agreement between two persons to go together to
the dinner, or for a walk, does not create a legal obligation on their part to abide by it.

Domestic arrangements between husband and wife:

 In Balfour v. Balfour (1919) 2 KB 571, a husband working in Ceylon, had agreed in writing
to pay a housekeeping allowance to his wife living in England.
 On receiving information that she was unfaithful to him, he stopped the allowance: Held, he
was entitled to do so.

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  This was a mere domestic arrangement with no intention to create legally binding relations.
Therefore, there was no contract.

Based on
1. Validity
2. Formation
3. Performance

1. Based on Validity or enforceability

a) Valid contracts
b) Void contracts
c) Void agreements
d) Voidable contracts
e) Unenforceable contracts
f) Illegal agreements

a).Valid contracts:
 A valid contract is an agreement which is binding and enforceable by law
 An agreement which fulfills the essentials of section 10 of Indian Contract Act 1872.
 Example: ‘A’ offers to sell his house for 10 lakhs to ‘B’. B agrees to buy this at the price. It
is a valid contract.

b).Void contracts:
 A contract which ceases to be enforceable by law becomes void under Section 2(j)
 Initially a contract cannot be void
 An agreement which was legally enforceable when entered into but which has become void
due to supervening impossibility of performance
 Example: a contact between a citizen of India and Pakistan is a valid contract during peace
period but if war breaks out, the agreement would become void
 It is not unlawful, but it is destitute of legal effects.

c).Void agreements:
 According to sec 2(g), an agreement which is not enforceable by law by either of the parties
is void.
 No legal rights or obligations can arise out of a void agreement.
 It is void ab initio ie, from the very inception
 Example: an agreement with a minor or an agreement without consideration.

d).Voidable contract:
 According to section 2(i), an agreement which is enforceable by law at the option of one or
more of the parties but not at the option of the other or others is a voidable contract
 Example: absence of free consent

Difference between void and voidable:

 A void agreement, from the very beginning has no legal effects, it is unenforceable at law
 Voidable is one in which one party may affirm or reject at his option. It is valid and
enforceable
 Defect in a void agreement is curable
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e).Unenforceable contract:
 Valid but cannot be enforced due to technical defect like absence of written form or proper
stamp.
 Such contracts cannot be enforced by the courts until defects are rectified.

f) Illegal contract:
 A contract which is either prohibited by law otherwise against the policy of law is an illegal
agreement.
 If it defeats the provisions of law
 If is fraudulent
 It involves or implies injury to the person or property of other
 If the court regards it as immoral, or opposed to public policy
 Example: Contracts for dacoity or smuggling of goods
 All illegal agreements are void but all void agreements are not illegal.

2. Based on Formation
a) Express contract
b) Implied contract
c) Constructive or quasi contract
d) E-com contracts/ contracts over internet
e) Standard form contracts

a).Express contract:
 Express contract is one entered into by words which may be either spoken or written
 Where the proposal and acceptance is made in words it is an express contract

b).Implied contract:
 Where a proposal or acceptance is made in words, it is an implied contract
 Implied contract can be smelled out of the surrounding circumstances and the conduct of the
surrounding circumstances and the conduct of the parties who made them.
 Example : salary for workers (bound to pay salary)

c).Constructive or quasi contract

 This type of contract have little affinity with a contract
 Such a contract does not arise by virtue of an agreement.
 The parties act as there is a contract
 It is a contact in which there is no intention on either side to make a contract, but law
imposes a contract.
 Ex. Mr.X supplied Y, a lunatic, with necessaries suitable to his conditions in life. X is
entitled to be reimbursed from Y’s estate or property

d).E-com contracts
 Contract entered into using internet
 They are also called Electronic Data Interchange (EDI) contracts or cyber contracts

e).A standard form contract (adhesion or boilerplate contract)

 It is a contract between two parties where the terms and conditions of the contract are set by
one of the parties, and
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  The other party is placed in a “take it or leave it” position with little or no ability to negotiate
terms more favorable to it.
 Example: Insurance, Hotel ticketing

3. Based on Performance or execution

a) Executed contract
b) Executory contract

a).Executed contract:
 A contract is said to be executed when both the parties to a contract have completely
performed their share of obligation and nothing remains to be done.
 Example: A sells a TV set to B for Rs.20,000. B pays the price and A hands over the TV set.

b).Executory contract:
 Contract in which both the obligations are outstanding either partly or wholly.

Essentials of a contract:

1. An Offer and acceptance

 Lawful offer and lawful acceptance
 Must satisfy the requirements of the Contract Act
2. Intention to create legal relationships
 Agreements of social or domestic nature do not constitute legal relations
3. Mutual and Lawful consideration for an agreement
 The price paid by one party for the promise of the other
4. Parties should be competent to enter contract
 Major, sound mind and not disqualified by any law
5. Free consent of both the parties
 The consent should be made
 It should be free of any pressure or misunderstanding
 It will become void/voidable- coercion, undue influence, fraud, mis-representation,
mistake
6. Lawful object
 Must not be fraudulent or illegal or immoral or opposed to public policy
7. Certainty
 The terms of agreement must not be vague or uncertain
8. Possibility of performance
 Do not act impossible in itself is void
 Impossible physically or legally
9. Contract should not have been expressly declared as void under Contract Act or any
other law
 All agreements are not contract but all contracts are agreements.
10. Writing and Registration
 To be valid, must be written and registered

The Proposal or Offer

1. An offer may be ‘expressed or implied’

 Either by words or by conduct
 Expressed offer - By words, spoken, written is called expressed offer
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  Implied Offer- inferred from the conduct of a person or circumstances of the case
 Ex. Stepping into taxi or eatables at restaurant
2. Intention to create legal relations
3. Legal consequences
 Must be capable of imposing sanction in the form of compensation to the aggrieved
party
4. Assent of other party
5. Offer must be addressed
6. Terms
 Must be definite
7. Communication
 In person, oral, written
 By post, By telephone, by telegram or telex
8. Invitation for offer is different from legal offer
 Invitation to an offer is not an absolute offer
 Invitation is just an enquiry

*****
Lapse of an Offer:

An offer may come to an end in any of the following ways stated in Section 6 of the Indian
Contract Act:

1. By communication of notice of revocation:

 An offer may come to an end by communication of notice of revocation by the offeror.
 It may be noted that an offer can be revoked only before its acceptance is complete for
the offeror. In other words, an offeror can revoke his offer at any time before he becomes
bound by it.
 Thus, the communication of revocation of offer should reach the offeree before the
acceptance is communicated.

2. By lapse of time;
 Where time is fixed for the acceptance of the offer, and it is not accepted within the fixed
time, the offer comes to an end automatically on the expiry of fixed time.
 Where no time for acceptance is prescribed, the offer has to be accepted within
reasonable time.
 The offer lapses if it is not accepted within that time. The term ‘reasonable time’ will
depend upon the facts and circumstances of each case.

3. By failure to accept condition precedent:

 Where, the offer requires that some condition must, be fulfilled before the acceptance of
the offer, the offer lapses, if it is accepted without fulfilling the condition.

4. By the death or insanity of the offeror:

 Where, the offeror dies or becomes, insane, the offer comes to an end if the fact of his
death or insanity comes to the knowledge of the acceptor before he makes his acceptance.
 But if the offer is accepted in ignorance of the fact of death or insanity of the offeror, the
acceptance is valid.

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  This will result in a valid contract, and legal representatives of the deceased offeror shall
be bound by the contract. On the death of offeree before acceptance, the offer also comes
to an end by operation of law.

5. By counter – offer by the offeree:

 Where, a counter – offer is made by the offeree, and then the original offer automatically
comes to an end, as the counter – offer amounts to rejections of the original offer.

6. By not accepting the offer, according to the prescribed or usual mode:

 Where some manner of acceptance is prescribed in the offer, the offeror can revoke the
offer if it is not accepted according to the prescribed manner.

7. By rejection of offer by the offeree:

 Where, the offeree rejects the offer, the offer comes to an end. Once the offeree rejects
the offer, he cannot revive the offer by subsequently attempting to accept it.
 The rejection of offer may be express or implied.

8. By change in law:
 Sometimes, there is a change in law which makes the offer illegal or incapable of
performance.
 In such cases also, the offer comes to an end.

An Offer must be distinguished from:

(a) A mere statement of intention:

 A person who attended the advertised place of auction could not sue for breach of contract if
the auction was cancelled (Harris v. Nickerson (1873) L.R. 8 QB 286).
(b) A mere communication of information in the course of negotiation:
 A statement of the price at which one is prepared to consider negotiating the sale of piece of
land (Harvey v. Facey (1893) A.C. 552).
 An offer that has been communicated properly continues as such until it lapses, or until it
is revoked by the offeror, or rejected or accepted by the offeree.

Revocation of Offer:

 An offer may be revoked by the offeror at any time before acceptance.

 Like any offer, revocation must be communicated to the offeree, as it does not take effect
until it is actually communicated to the offeree.
 Before its actual communication, the offeree, may accept the offer and create a binding
contract.
 The revocation must reach the offeree before he sends out the acceptance.
 An offer to keep open for a specified time (option) is not binding unless it is supported by
consideration.
Acceptance:

 A contract emerges from the acceptance of an offer.

 Acceptance is the act of assenting by the offeree to an offer.
 Under Section 2(b) of the Contract Act 1872 when a person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted.
 A proposal, when accepted becomes a promise.
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 Rules Governing Acceptance:

1) An offer can be accepted only by the person to whom it is made:

 The offeree only has to accept the offer.
 In case it is accepted by any other person no agreement is formed.
 However, in case authority is given to another person to accept the offer on behalf of the
person to whom it is made, it is a valid acceptance.

2) Acceptance should be unconditional and absolute:

 Section7 (I) states that the acceptance should be absolute and unconditional.
 The acceptor should accept the offer in total.
 If it is qualified or conditional, it ceases to be valid. In fact, a qualified or conditional
acceptance is nothing but a counter-offer.

3) Acceptance should be communicated:

 The party accepting the offer must communicate his acceptance to the offeror.
 Acceptance is not a mental resolve but some external manifestation.
 The acceptance can be communicated in writing or word of mouth or also by conduct.
 An agreement does not result from a mere state of mind.
 As regards unilateral contracts (e.g., offer of reward) it is impossible to the offeree to
communicate his acceptance otherwise than by performing the contract. In the case of
bilateral contracts, acceptance must be communicated.
 The offeror can‘t force a contract on offeree by fixing the mode of refusal.
 The acceptance should be communicated only to the offeror and not to somebody else.

4) Acceptance should be according to the prescribed form:

 Unless specified in the offer, the acceptance must be in some usual and reasonable
manner.
 The proposer has the right to prescribe the manner of acceptance.
 He may require it to be oral or in writing or to be communicated to him by phone or
telephone etc.
 He can also waive his right or may ask the offeree to express acceptance by some gesture.
 Once he prescribes the mode of communication later he can‘t say that it was insufficient.
 If the offeree does not signify his assent to the offeror according to the mode prescribed,
it becomes deviated acceptance and strictly speaking it is no acceptance at all. However,
such a rigid rule is not followed in India.
 In the case of deviated acceptance the proposer may insist for the acceptance in the
prescribed manner.
 He then has to do this within a reasonable time after communication of acceptance to
him.
 Otherwise it will be presumed that the proposer has accepted the deviated acceptance.
 Section 7 of the Act does not tell that deviated acceptance is no acceptance.

5) Acceptance must be provoked by offer:

 The acceptor must be aware of the offer.
 Even if he fulfills the conditions mentioned in the offer, if he is ignorant of the offer
itself, he can‘t give a valid acceptance. [Lalmann Shukla V, Gouridutt].

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6) Acceptance must be given before the offer lapses or is revoked:
 Where a time limit has been fixed, the acceptor has to accept the offer within such time.
 Where no time limit is prescribed the acceptance has to be within the reasonable time.
 An offer once dead can‘t be accepted unless there is a fresh offer.

7) Provisional acceptance is no acceptance:

 A provisional acceptance does not make a binding agreement unless final approval is
given.
 The offer may be withdrawn before giving final approval.
 However, whether an agreement is provisional or final depends upon the intention of the
parties.

Contract by post:

 Under English Law, the proposer is legally bound by the acceptance effected through
postal medium when the letter is prepared, addressed, stamped and mailed even though it
is delayed or lost in transit.
 Indian Law (Sec. 4) lays down that the communication of an acceptance is complete as
against the proposer when it is put in 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.
 The distinction between English Law and Indian Law lies with regard to the position of
the acceptor.
 While under English Law, the acceptor is bound by acceptance the moment the letter is
mailed properly, under Indian Law the communication of acceptance is complete as
against, the acceptor only when it comes to the knowledge of the proposer.

Lawful Consideration
(Legal Rules as to Consideration):

1. It must move at the desire/request of promisor

 An act constituting consideration must have been done at the desire or request of the
promisor.
 If it is done at the instance of a third party or without the desire of the promisor, it will
not be a good consideration.
 Example: A saves B’s goods from fire without being asked to do so. A cannot demand
payment for his services.

2. It may move from the promisee or any other person

 Consideration may move from promisee or any other person, i.e., even a stranger.
 This means that as long as there is consideration for a promise it is immaterial who has
furnished it.
 But the stranger to consideration will be able to sue only if he is a party to the contract.

3. It may be an act, abstinence, or forbearance or a return promise

 Forbearance to sue-If a person who could sue another for the enforcement of a right
agrees not to pursue his claim, this constitutes a good consideration for the promise by
the other person. This results in a benefit to the person not sued and a detriment to the
person who could sue.
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  Compromise of a disputed claim- Compromise is a kind of forbearance. Originally,
the claim should be reasonable and the person claiming should honestly believe that it
is a valid claim. He should also act bona fide (in good faith).
 Composition with creditors- A debtor who is financially embarrassed may call a
meeting of his creditors and request them to accept a lesser amount in satisfaction of
their debt. If the creditors agree to it, the agreement is binding both upon the debtor
and the creditors and this amount to a compromise of the claims of the creditors.

4. It may be past, present, or future

(a)Past Consideration:
 When consideration by a party for a present promise was given in the past, i.e., before
the date of the promise, it is said to be past consideration.
 Ex: A renders some service to B at latter’s desire. After a month B promises to
compensate A for services rendered to him. It is past consideration. A can recover
promised amount.
(b)Present or Executed Consideration:
 When consideration is given simultaneously with promise, i.e., at the time of promise,
it is said to be present consideration.
 Ex: A receives Rs. 50 in return for which he promises to deliver certain goods to B.
The money A receives which he promises to deliver certain goods to B. The money A
receives is the present consideration for the promise he makes to deliver the goods.
(c)Future or Executory consideration:
 When consideration from one party to the other is to pass subsequently to the making
of the contract, it is future or executory consideration.
Ex:D promises to deliver certain goods to P after a week; P promises to pay the price
after a fortnight. The promise of D is supported by the promise of P. Consideration in
this case is future or executory.

5. It need not be adequate

 Consideration, as already explained, means “something in return”.
 This something in return need not necessarily be equal to “something given”.
 The law simply provides that a contract should be supported by consideration.
 So long as consideration exists, the Courts are not concerned as to its adequacy,
provided it is of some value.
Ex: A agrees to sell a horse worth rs.1000 for Rs.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.

6. It must be real and not illusory

 Although consideration need not be adequate, it must be real, competent and of some
value in the eyes of the law.

 There is no real consideration in the following cases:

(a)Physical Impossibility:
 A promises to put life in to B’s dead wife and B should pay him Rs.500.A’s promise
is physically impossible of performance.

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 (b)Legal Impossibility:
 A owes Rs 100 to B. He promises to pay Rs.20 to C, the servant of B, who in return
promises to discharge A from the debt. This is legally impossible because C cannot
give discharge for a debt due to B, his master [Harvey vs. Gibbons, (1675)].

(c) Uncertain consideration:

 A engages B for doing a certain work and promises to pay a “reasonable” sum. There
is no recognized method of ascertaining the “reasonable” remuneration. The promise
is unenforceable as consideration is uncertain.

(d) Illusory consideration:

 Two of the crew of a ship deserted it half way through a voyage. The captain thereby
promised to divide the salary of the deserters among the rest of the crew if they
worked the vessel home. Held, they could not recover the amount as the consideration
was illusory. They were already under an obligation to bring the vessel home.

7. It must be something which the promisor is not already bound to do

 A promise to do what is already bound to do, either by general law or under an
existing contract, is not a good consideration for a new promise, since it adds nothing
to the pre-existing legal or contractual obligation.
 Likewise a promise to perform a public duty by a public servant is not a
consideration.
 Ex: A promised to pay B, who had received summons to appear at a trial in a civil
suit, a certain sum being a compensation for the loss of time during his attendance.
 Held, the promise was without consideration, for B was under a duty imposed by law
to appear and give evidence.(Collins v. Godefroy (1831))

8. It must not be illegal, immoral, or opposed to public policy

 The consideration given for an agreement must not be unlawful.
 Where it is unlawful, the Court does not allow an action on the agreement.

*****
Stranger to Contract:

 It is a general rule of law that only parties to a contract may sue and be sued on that contract.
This rule is known as the “Doctrine of privity of contract.”
 Privity of contract means relationship subsisting between the parties who have entered in to
contractual obligations.
 It implies a mutuality of will and creates a legal bond or tie between the parties to contract.

Two Consequences of the” Doctrine of Privity of Contract”:

 A person who is not a party to a contract cannot sue upon it even though the contract is for
his benefit and he provided consideration.
 A contract cannot confer rights or impose obligation arising under it on any person other
than the parties to it.
 Thus, if there is a contract between A and B, C cannot enforce. [Dunlop Pneumatic Tyre
Co.Ltd. Vs. Selfridge & Co.Ltd.,( 1915)]

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  S bought tyres from the Dunlop Rubber Co. and sold them to P, a sub-dealer, who agreed
with S not to sell below Dunlop’s list price and to pay the Dunlop Co., 5 pounds as damages
on every tyre P undersold.
 P sold two tyres at less than the list price and thereupon the Dunlop Co. sued him for the
breach.
 Held, the Dunlop Co. could not maintain the suit as it was a stranger to the contract.

Exceptions to the rule Stranger to a contract cannot sue:

1.A trust or charge:
 A person (called beneficiary) in whose favor a trust or other interest is created can enforce it
even though he is not a party to the contract.
 Ex: A agrees to transfer certain properties to be held by T in trust for the benefit of B. B can
enforce the agreement (i.e., the trust) even though he is not a party to the agreement [M.K.
Rapai vs. John(1965)]

2. Marriage settlement, partition or other family arrangements.

 Example: Two brothers, on a partition of joint properties, agreed to invest in equal shares a
certain sum of money for the maintenance of their mother.
 Held, she was entitled to require her sons to make the investment. [ShuppuAmmal vs.
Subramaniam (1910) Madras High Court.]

3. Acknowledgement or estoppels:
 Where the promisor by his conduct, acknowledges or otherwise constitutes himself as an
agent of a third party, a binding obligation is thereby incurred by him towards the third party.
 Example: ‘A’ receives some money from ‘T’ to be paid over to ‘P’. A admits of this receipt
to ‘P’. ‘P’ can recover the amount from ‘A’ who shall be regarded as the agent of ‘P’.

4. Assignment of contract:
 Where a benefit under a contract has been assigned, the assignee can enforce the contract
subject to all equities between the original parties to the contract
 e.g. the assignee of an insurance policy.

5. Contracts entered in to through an agent:

 The principal can enforce the contracts entered in to by his agent provided the agent acts
within the scope of his authority and in the name of the principal.

A contract without Consideration is void-Exceptions:

 An agreement made without consideration is void.

 Section25 and Section185 dealt with the exceptions to this rule.
 In such cases agreements are enforceable even though they are made without consideration.
These cases are
1. Love and affection Sec.25(1)
 Such agreement made without consideration is valid if:
 It is expressed in writing
 It is registered under the law
 It is made on account of love and affection, and
 It is between parties standing in a near relation to each other.

13
2. Compensation for voluntary services
 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 voluntary service is binding.

3. Promise to pay a time barred debt

 Such promise without consideration is valid if:
 It is made in writing
 It is signed by the debtor or his agent, and
 It relates to a debt which could not be enforced by a creditor because of limitation.
 Note: According to the Law of limitation, a debt which remains unpaid or unclaimed
for a period of 3 years becomes a time barred debt which is legally not recoverable.

4. Completed gift
 The rule “No consideration, no contract” does not apply to completed gifts.
 e.g., X transferred some property to Y by a duly written and registered deed as a gift.
This is a valid contract even though no consideration.

5. To create an agency
 No consideration is necessary to create an agency.

6. Charitable subscription
 Where the promisee on the strength of the promise makes commitments, i.e., changes
his position to his detriment

 ‘Object’ means ‘purpose or design’

Unlawful object and consideration: Section (23)

1. If it is forbidden by law, the agreement is void

 Punishable by the criminal law of the country
 Prohibited by special legislations or regulations made by competent
authority/legislature
2. If permitted , it would defeat the provision of any law
3. If it is fraudulent
4. If it involves or implies injury to a person or property of another
5. If the court regards it as immoral
6. If the court regards it as opposed to public policy
 Trading with an alien enemy
 Agreements interfering with the course of justice
 Agreements for stifling criminal prosecution
 Agreements creating an interest opposed to duty
 Agreements unduly restraining personal liberty
 Agreements interfering with parental duties
 Marriage brokerage agreements – the payment of money in consideration for
arranging bride or bride-groom to one party or both

*****

14
 Competency of Parties:
Section 11: Every person is competent who is
1. Majority age
2. Sound mind
3. Not disqualified from contracting by any law to which he is subject

Who is Minor?

 According to section 3 of the Indian Majority Act, 1875, a minor is a person who has not
completed eighteen years of age

The parties who enter in to contract must have capacity to do so.

 Capacity here means competency of the parties to enter in to contract.

 According to Sec.10 an agreement becomes a contract if it is entered in to between the
parties who are competent to contract
 Section 11 declares the following persons to be incompetent to contract;
1. Minor
2. Persons of unsound mind
3. Persons disqualified by any law to which they are subject.

1. Minors
 According to Indian Majority Act, 1875, a minor is a person who has not completed 18 years
of age.
 In the following two cases, he attains majority after 21 years of age.
(1) Where a guardian of a minor’s person or property has been appointed under the Guardians
and Wards Act, 1890 or
(2) Where the superintendence of a minor’s property is assumed by a Court of Wards.

Minor’s Agreements:

1. An agreement with or by a minor is void and inoperative ab initio. [Mohiribibi vs.

Dharmodas Ghose (1903) Calcutta High Court]
In this case a minor mortgage his house in favor of a money lender to secure a loan of
Rs.20,000 out of which the mortgagee (the money lender) paid the minor a sum of Rs.8000.
Subsequently the minor sued for setting aside the mortgage, stating that he was underage when he
executed the mortgage.

Court held, the mortgage was void and, therefore, it was cancelled. Further the money
lender’s request for the repayment of the amount advanced to the minor as part of the consideration
for the mortgage was also not accepted.

2. He can be a promisee or a beneficiary:

Incapacity of a minor to enter in to a contract means incapacity to bind himself by a contract.
There is nothing which debars from becoming a beneficiary. Such contracts may be enforced at his
option, but not at the option of the other party. [Sharafat Ali Vs. Noor Mohammed (1924)].

Example: M, aged 17, agreed to purchase a second-hand scooter for Rs.5,000 from S. He paid
Rs.200 as advance and agreed to pay the balance the next day and collect the scooter. When he

15
came with the money the next day, S told him that he had changed his mind and offered to return
the advance. S cannot avoid the contract, though M may, if he likes.

3. His agreement cannot be ratified by him on attaining the age of majority.

“Consideration which passed under the earlier contract cannot be implied in to the contract
which the minor enters on attaining majority.” (Nazir Ahmed Vs. JiwanDass)

Consideration given during minority is no consideration. If it is necessary a fresh contract may

be entered in to by the minor on attaining majority provided it is supported by fresh consideration.
[S.Shanmugam Pillai vs.K.S.Pillai (1973) SC].

4. If he has received any benefit under a void agreement, he cannot be asked to compensate or
pay for it.
Sec.65 provides for restitution in case of agreements discovered to be void does not apply to a
minor.
Example: M, a minor, obtains a loan by mortgaging his property. He is not liable to refund the
loan. Not only this, even his mortgaged property cannot be made liable to pay the debt.

5. He can always plead minority:

Even, if he has, by misrepresenting his age, induced the other party to contract with him, he
cannot be sued in contract for fraud because if the injured party were allowed to sue for fraud, it
would be giving him an indirect means of enforcing the void agreement.

The Court may, where some loan or property is obtained by the minor by some fraudulent
representation and the agreement is set aside, direct him, on equitable considerations, to restore the
money or property to the other party. Whereas the law gives protection to the minors, it does not
give them liberty “to cheat men.”

6. He cannot enter in to a contract of partnership.

He may be admitted to the benefits of an already existing partnership with the consent of the
other partners.

7. He cannot be adjudged insolvent.

This is because he is incapable of contracting debts.

8. He is liable for the ‘necessaries’ supplied or necessary services rendered to him or anyone
whom he is legally bound to support.

9. He can be an agent.
 An agent is merely a connecting link between his principal and third party.
 As soon as the principal and the third party are brought together, the agent drops out.
 A minor binds the principal by his acts without incurring any personal liability.

10. A minor is liable in tort (A civil wrong).

 Where a tort arises out of contract a minor is not liable in tort as an indirect way of enforcing
a invalid contract.

16
 Minor’s Liability for Necessaries of Life:

 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.(Section.68).
 The claim arises not out of contract but out of what is known as ‘quasi contracts’.
 Again it is only the property of the minor that is liable for meeting the liability arising out of
such contracts. He is not personally liable.
 The law has provided this exception intentionally because if it were not so, it would be
impossible for minors even to live.

What are necessaries of life?

The term necessaries is not defined in, ICA, 1872. The English Sale of Goods Act 1893 defines
it in Sec.2 as “goods suitable to the condition in life of such infant or other person, and to his actual
requirement at the time of sale and delivery”.

Such goods need not necessarily belong to a class of goods, but they must be (I) suitable to the
position and financial status of the minor, and (ii) necessaries both at the time of sale and at the time
of delivery

2. Persons of Unsound Mind.

One of the essential conditions of competency of parties to a contract is that they should be of
sound mind.Sec.12 lays down a test of soundness of mind. It reads as follows:

1. “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 and of forming a rational judgment as to
its effect upon his interests.
2. A person, who is usually of unsound mind but occasionally of sound mind, may make a
contract when he is of sound mind.
3. A person, who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.”

Examples:
A patient in a lunatic asylum, who is at intervals of sound mind, may contract during those
intervals.

A sane man who is delirious from fever, or who is so drunk that he cannot understand the
terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract
while such delirium or drunkenness lasts.

Soundness of mind of a person depends upon two facts:

1. His capacity to understand the contents of the business concerned, and

2. His ability to form a rational judgment as to its effect upon his interests.

 If a person is incapable of both, he suffers from unsoundness of mind. Whether a party to a

contract is of sound mind or not is a question of fact to be decided by the Court. There is a
presumption in favor of sanity.
 If a person relies on unsoundness of mind, he must prove it sufficiently to satisfy the Court.
17
 Contracts of Persons of Unsound Mind:
1. Lunatics:
 A lunatic is a person who is mentally deranged due to some mental strain or other personal
experience.
 He suffers from intermittent intervals of sanity and insanity. He can enter in to contract when
he is of sound mind.

2. Idiots:
 An idiot is a person who has completely lost his mental powers.
 He does not exhibit understanding of even ordinary matters. Idiocy is permanent whereas
lunacy denotes periodical insanity with lucid intervals.
 An agreement of an idiot, like that of a minor, is void.

3. Drunken or intoxicated persons:

 A drunken or intoxicated person suffers from temporary incapacity to contract, i.e., at the
time when he is so drunk or intoxicated that he is incapable of forming a rational judgment.
 However, persons of unsound mind are liable for necessaries supplied to them or to anyone
whom they are legally bound to support.

Persons disqualified by law :( other persons):

1. Alien Enemies
2. Foreign Sovereigns
3. Convicts
4. Insolvents

1. Alien enemies:
 Contracts with alien enemy [an alien whose State is at war with the Republic of India] may
be studied under two heads, namely:

(a) Contracts during the war, and

(b) Contracts made before the war

During the continuance of the war, an alien enemy can neither contract with an Indian subject
nor can he sue in an Indian Court. He can do so only after he receives a license from the Central
Government.

Contracts made before the war may either be suspended or dissolved. They will be dissolved if
they are against the public policy or if their performance would benefit the enemy. For this purpose
even an Indian who resides voluntarily in a hostile country, or who is carrying on business there
would be treated as an alien enemy.

2. Foreign sovereigns, their diplomatic staff and accredited representatives of foreign states:
They have some special privileges and generally cannot be sued unless they of their own submit
to the jurisdiction of our law Courts. An Indian has to obtain prior sanction of the Central
government in order to sue them in our law Courts.

3. Convicts:
 A convict when undergoing imprisonment is incapable of entering in to contract.

18
4. Insolvents:
 When a debtor is adjudged insolvent is deprived of his power to deal in that property.
 It is only the official Receiver or Official Assignee who can enter in to contracts relating to
his property, and sue and be sued on his behalf.

Free Consent:
 Meaning of “Consent” [Sec.13]
 Consent means acquiescence or an act of assenting to an offer.
 “Two or more persons are said to consent when they agree upon the same thing in the same
sense”.
Meaning of “Free Consent” [Sec.14]

Consent is said to be free when it is not caused by

1. Coercion as defined in Section15
2. Undue Influence in Section16
3. Fraud as defined in Section17
4. Misrepresentation as defined in Sec.18 or 5.
Mistake, subject to the provisions of Sec.20, 21 or Sec.22].

Coercion [Sec.15]

When a person is compelled to enter in to a contract by the use of force by the other party or
under a threat, “coercion” is said to be employed.

Coercion is the committing or threatening to commit, any act forbidden by the Indian Penal
Code,1860 or unlawful detaining, or threatening to detain, any property, to the prejudice of any
person whatever, with the intention of any person to enter in to an agreement.(Sec.15)

Examples
 A threatens to shoot B if he (B) does not release him (A) from a debt which A owes to B. B
releases A under the threat. The release has been brought about by Coercion.
 A threatens to kill B if he does not lend Rs.1, 000 to C. B agrees to lend the amount to C.
The agreement entered in to under coercion.

Effect of Coercion:
 When consent to an agreement is caused by coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused
(Sec.19).
 According to Sec.72, a person to whom money has been paid, or anything delivered by
mistake or under coercion, must repay or return it.

Threat to commit suicide-Does it amount to coercion?

(Chikham Amiraju vs.Seshamma (1917) Madras HC)

In this case, a person held out a threat of committing suicide to his wife and son if they did not
execute a release in favor of his brother in respect of certain properties. The wife and son executed
the release deed under the threat. Held, “the threat of suicide amounted to coercion within Sec 15
and the release deed was, therefore, voidable”.

19
 Threat to commit suicide-Does it amount to coercion?
[Purabi Mukherjee vs. Basudev Mukherjee (1969) Calcutta]:

 It was observed that, “one committing suicide places himself or herself beyond the reach of
the law, and necessarily beyond the reach of any punishment too.

 But it does not follow that suicide is not forbidden by the Penal Code. Sec.306 of the Penal
Code punishes abetment of suicide. Sec.309 punishes an attempt to commit suicide.

 Thus suicide as such is no crime, as indeed, it cannot be. But its attempt is: its abetment too
is. So, it may very well be said that the Penal Code does forbid suicide.” As such a threat to
commit to suicide amounts to coercion.

Duress:
 In the English Law, the near equivalent of the term “coercion” is “duress”.
 Duress involves actual or threatened violence over the person of another (or his wife, parent,
or child) with a view to obtaining his consent to the agreement.
 If the threat is with regard to the goods or property of the other party, it is not duress.”

Undue influence: Section 16(1):

Definition:
“A contract is said to be induced by ‘undue influence’. Where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the will of other. He
uses that position to obtain an unfair advantage over the other.

A person is deemed to be in a position to dominate the will of another. Section 16(2):

Where he holds real or apparent authority over the other. (Ex) the relationship between master and
servant, doctor and patient.

 Where he stands in a fiduciary relation.[Relation of trust and confidence] to the other.

 E.g., father and son, solicitor and client, trustee and beneficiary, and promoter and company.
 Where he makes a contract with person whose mental capacity is temporarily or permanently
affected by reason of age, illness or bodily distress. (Ex) Between a medical attendant and
his patient.

Difference between Coercion and Undue Influence:

Coercion Undue Influence

1.The consent is given under the threat of 1. The consent is given by a person who is
an offence (Forbidden by Indian Penal so situated in relation to another that the
Code) other person is in a position to dominate the
will of the other.
2. Coercion is mainly of physical character. 2. Undue influence is of moral character.
(Violent force) (Mental pressure)
3. It involves criminal act. 3. No criminal act is involved.
4. There must be an intention of causing 4. Uses to obtain an unfair advantage over
any person to enter in to contract. the other.

20
 Legality of Object:

 An agreement is a contract if it is made for a lawful consideration and with a lawful object
(Sec.10)
 Every agreement of which the object or consideration is unlawful is void.

The consideration or object of an agreement is unlawful if

(a) It is forbidden by law; or
(b) If it is of such a nature that, if permitted it would defeat the provisions of any law.
(c) It is fraudulent; or
(d) It involves or implies injury to the person or property of another; or
(e)The Court regards it as immoral, or opposed to public policy.
 No action is allowed on an illegal agreement.

Void Agreements:

 A void agreement is one which is not enforceable by law. [Sec.2(g)]

 The following agreements are declared to be void.
1. An agreement made by incompetent persons (Sec.11).
2. Agreement made under mutual mistake of fact (Sec.20)
3. Agreements the consideration or object is unlawful (Sec.23)
4. Agreements the consideration or object is unlawful in part (Sec.24)
5. Agreement made without consideration is void (Sec.25)
6. Agreement in restraint of marriage (Sec.26)
7. Agreement in restraint of trade (Sec.27)
8. Agreement in restraint of legal proceedings (Sec.28)
9. Agreement the meaning of which is uncertain (Sec.29)
10. Agreement by way of wager (Sec.30)
11. Agreement contingent on impossible events (Sec.36)
12. Agreement to do impossible acts. (Sec.56)

Agreements contingent on impossible events:

 According to Section 36 of the Indian Contract Act,1872 contingent agreements to do or not

to do anything, if an impossible event happens are void whether the impossibility of the
event is known or not to the parties to the agreement at the time when it is made.
 Ex: A agrees to pay Rs.1,000 if B marries C (a Hindu) who is already married to D . This is a
void agreement.

Contingent Contracts:
 Contingent contract is a contract to do something, if some event, collateral to such contract,
does or does not happen.

Characteristics of a contingent contract:

1. Its performance depends upon the happening or non-happening in future of some event.
2. The event must be uncertain.
3. The uncertain future event must be collateral to the contract.

21
 Three essential elements of contigent contract:

1. Its performance depends upon the happening or non-happening in future of some event
2. The event must be uncertain
3. The event must be collateral. (Incidental to the contract)

A contract which is contingent or dependent upon the occurrence or nonoccurrence of some

event is called a contingent contract. Insurance contracts are good examples of contingent contracts
where the insurance company is required to compensate the policy holder only if a specified future
event (accident, hospitalization, etc.) happens.

Contingent Contract Types

1. Contracts contingent upon the occurrence of an uncertain event:

These contracts become valid only if the uncertain event mentioned in the contract occurs.
For instance, let's say A and B enter into a contract wherein A promises to sell his goods in transit
to B provided the goods safely reach the harbour. Since, the sale of goods by A is dependent upon a
condition (that the goods reach the harbour), this is a contingent contract. If the ship does not make
it to the harbour, the contract becomes void.

2. Contracts contingent upon the non-occurrence of an uncertain event:

Sometimes, a contingent contract may depend upon the non-occurrence of an uncertain

event. For example, if A promises to sell his goods in transit to B if the ship carrying the goods does
not come back, then the contract becomes valid if the ship sinks in the sea; if it safely reaches the
harbour, the contract becomes void.

3. Contracts contingent upon the occurrence of an uncertain event within a specified

timeframe:

In these contracts, the event must occur within the period specified in the contract. For
example, A promises to sell the goods in transit to B, if the ship carrying the goods safely arrives
the harbour within eight days. If the ship comes on the ninth day or anytime thereafter, the contract
becomes void.

4. Contracts contingent upon the non-occurrence of an uncertain event within a specified

timeframe:

For example, let's say, A contracts to sell the goods in transit to B if the ship carrying the
goods does not reach the harbour within eight days. Then, the contract becomes void if the ship
arrives on the sixth day or any time before eight days. On the other hand, if the ship does not come
until eight days, the contract becomes valid; it does not matter whether or not it comes or does not
come after the eighth day has passed.

5. Contracts contingent upon an impossible event:

If the performance of a contract is dependent upon an impossible event, such a contract is ab

initio void, i.e., void right from the beginning. For example, A promises to pay B $7,000 if B

22
marries C, who died five years back. Now, since C is already dead, it's not possible for B to marry
her. So, the contract becomes null and void.

Performance of Contract:

The parties to a contract either perform or offer to perform their respective promises.
By whom the contract must be performed?
(a) By promisor himself
(b) By agent
(c) By legal representative
(d) By Joint promisors
(e) By Third Party

Who must perform?

(a) Promisor:
 If it appears from the nature of the case that it was the intention of the parties to any contract
that any promise contained in it should be performed by the promisor himself, such promise
must be performed by the promisor.
 Ex: X promises to marry Y. X must perform this promise personally.
 Ex: X promises to paint a picture for Y. X must perform the promise personally

(b) Promisor’s Agent:

 If it was not the intention of the parties that the promise should be performed by the promisor
himself, such contracts can be performed by the promisor himself or any competent person
employed by him.
 Ex: A promises to pay B a sum of money. A may perform this either by personally paying
the money to B, or by causing it to be paid to B by another, and if A dies before the time
appointed for payment, his representatives must perform the promise, or employ some proper
person to do so.

(c) Legal Representatives:

 In case of death of promisor, his legal representative can perform the contract unless a
contrary intention appears or the contract is of personal nature.
 Ex: X promises to marry Y. X dies. X’s legal representatives cannot perform this promise.

(d) Third Party

(e) Joint Promisors

*****

Who can demand performance?

(a) Promisee:
 It is only the promisee himself. In case of his death, the legal representative, who can
demand performance.
 Ex: X promises Y to pay Rs.1000 to Z. It is only Y who can demand performance and not Z.

(b) Joint Promisees:

 In case of joint promisees, any of the joint promisees can demand performance.
23
  When all promisees die, the legal representatives of all the deceased persons can demand
performance.

(c) Performance from X on specified day.

 If Y and Z die before that specified day, the representatives of Y and Z jointly can demand
the performance from X on specified day.

(c) Third Party:

 A third party can also demand the performance of the contract in some exceptional cases
like beneficiary in case of trust, the person for whose benefit the provision is made in family
arrangements.

(d) Legal representative:

 In case of death of the promisee, his legal representative can demand performance unless a
contrary intention appears from the contract or the contract is of a personal nature.
 Ex: X promises to marry Y on the specified day. Y dies before the specified day. The legal
representatives of Y cannot demand performance of the promise from X because the
contract is of personal nature.
*****
Discharge of Contract:

 A contract is said to be discharged when the obligations created by it come to an end.

 Contract comes to an end
 Rights and obligations terminated

The various modes of discharge of contract are as follows:

1. Discharge by performance
2. Discharge by agreement or consent
3. Discharge by impossibility
4. Discharge by lapse of time
5. Discharge by operation of law
6. Discharge by Material alteration
7. Discharge by breach of contract.

1. Discharge by performance:
 It takes place when the parties to a contract fulfill their obligations arising under the contract
within the time and the manner prescribed.
 Actual performance
 Attempted performance
Actual Performance:
 Promise may be either for doing or not doing same thing
 Both the parties do what they have promised to do, the contract is said to be performed
 Both parties get released from their obligations in that contract ie contract comes to an end
Attempted Performance:
 The promisor is ready and willingness to perform
 The promisee refuses to accept the performance
 This is equally treated as equivalent to actual performance except in case of payment of
money
 An Attempted Performance to be legally valid -> requirements
 Must be unconditional
24
  Must be made at reasonable place and time
 Reasonable opportunity to ascertain capability
 Reasonable opportunity for inspection of goods
 It must have been made to the promisee or proper person

2. Discharge by agreement or consent:

 Section 62 and 63
 The contract rests on the agreement of the parties.
 The parties may get discharged from the obligations of performance of contract by
agreement or mutual consent.
 The discharge by consent may be express or implied.
 When one fails to perform promise, another can rescind the contract without losing its right

Section 62:
(a) Novation:
 When a new contract is substituted for an existing one, either between the same parties or
between the one of the parties and the third party.
 Existing contract is replaced by new one
 Existing discharge, new contract comes into existence
(b) Rescission:
 When all or some of the terms of contract are cancelled.
 Means cancellation of terms of a contract
o Partial Rescission
 Some terms may be cancelled
 Contract will be performed by remaining terms
o Absolute Rescission
 Entire contract is cancelled, need not be performed

(c) Alteration:
 When one or more terms of the contract is/are altered by the mutual consent of the parties to
a contract.
 If it is mutual contract, need not be performed and is discharged
 Both parties are legally bound by new contract

(d) Remission:
 Acceptance of a lesser fulfillment of the promise made
 The promisee accepts it for the performance of the whole promise. Ie, acceptance of lesser
performance than what was actually due in a contract.

(e) Waiver:
 Intentional relinquishment or giving up of a right by a party entitled thereto under a contract.

(f) Merger:
 When an inferior right accruing to a party under a contract merges in to a superior right
accruing to the same party under a new contract.

25
 3. Discharge by impossibility:
 Impossibility of performance may be

(1) Initial impossibility or (2) Supervening impossibility

(1)Initial impossibility:
 An agreement to do an impossible act in itself is void.

(2)Supervening impossibility:
 Impossibility which arises subsequent to the formation of contract (which could be
performed at the time when the contract was entered in to) is called supervening
impossibility.
 The cases covered by of supervening impossibility include:
(a) Destruction of the subject mater
 Without any fault of parties
(b) Non-Existence or non-occurrence of a particular state of things
 Any change in the state of things formed the basis of contract
 State of things which ought to have occurred does not occur.
(c) Death or incapacity for personal service
 Depends on personal skills/qualifications
 Illness, incapacity, death of that party
(d) Change of law or stepping in of a person with statutory authority
 New law/ ordinance enacted after the contract
 The performance of contract becomes impossible
(e) Outbreak of war
 Entered into a contract during war
 It is unlawful
 It is impossible for performance

The following cases are not covered by supervening impossibility:

(a) Difficulty of performance
(b) Commercial impossibility
(c) Failure of a third person on whose work the promisor relied
(d) Strikes, lock outs and civil disturbances
(e) Failure of one of the objects
 The contract is not- discharged in these cases.

4. Discharge by lapse of time:

 Parties normally prescribe time
 If time is not fixed – reasonable period of time
 Time differs – nature, circumstances, intention
 Time factor – under Indian limitation Act, ie, 3 years
 Afterwards court will not allow enforcement of contract
 If the contract is not performed within the period of limitation and if no action is taken by the
promisee in a law court, the contract is discharged.

5. Discharge by operation of law:

 Law comes into force
 The parties released from their obligations
 This includes discharge by,
26
 (a) Death of promissory
 If promisor dies after having made a contract of a personal nature, comes to
an end. Ie, special skill, talent on the part of promisor to perform
(b) Merger
 Same matter, one of the contract party is having superior right and another
one having inferior right
 When two contracts merge/coincide, superior right will exist, inferior right
will vanish
(c) Insolvency
 Declared by court of law – released from performing
 Official assignee, official receiver - appointed by court.
 Transferred his rights, liabilities
 After certificate of discharge, he is discharged from all obligations prior to
his declaration as an insolvent
(d) Unauthorized alteration of the terms of a written agreement
(e) Rights and liabilities becoming vested in the same person.

6. Discharge by Material alteration

 Promisee or his agent makes any material alteration, without the consent of the other party
ie, contract, terms of conditions

 To be legally effective, must satisfy the following conditions

(a) Alteration or change in the document must be related to a contract
(b) If consent of the other party has not been taken for such alteration, it is
unilateral in nature
(c) Alteration made with regard to a contract must be material alterations
Eg. Promissory note becomes invalid due to material alteration/ change in ti
made by one of the parties without the consent of the other

7. Discharge by breach of contract

 If a party breaks his obligation which the contract imposes, there takes place breach of
contract.
 Refusal of performance on the part of parties
 Breach of contract may be,

(a) Actual breach

 Generally, time of performance while making a contract
 Must perform within stipulated time
 Failure or refusal within due date – breach of contract
 Other party entitled to treat breach of contract – can move against the party
making breach of contract

(b) Anticipatory breach/ constructive breach

 Before due date of performance of contract, promisor refuses or disable
himself from performing his promise
 Promisor either informs the promisee regarding his refusal/ may do some
act which is inconsistent with the contract or render him disabled from
performing his promise
 Anticipatory or constructive breach of contract may take place because of
either of the two causes
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 i. Express repudiation of any contract by any party before the date of
performance
ii. The act of any party making the performance of the contract
impossible

Remedies for Breach of Contract:

1. Rescission
 Setting aside of the contract
 Court may allow the aggrieved party to treat the contract come to an end, ie, terminate all
liabilities
 When there is breach of a contract by a party, the injured party may sue to treat the contract
as rescinded.
 He is also absolved of all the obligations under the contract.
 Rescission not allowed under –
o The party wishing to set aside the contract has expressly or impliedly ratified the
contract
o Where only a part of the contract is sought to be set aside and that part cannot be
separated from the rest of the contract
o Without fault of either party, there is a change in the circumstances since the making
of the contract. The parties cannot be substantially restored to the position in which
they were, before the contract was made.
o Where during the subsistence of the contract, third parties have acquired rights in the
subject matter of the contract in good faith and for value

2. Damages
 Damages are monetary compensation awarded to the injured party by Court for the loss or
injury suffered by him.

Damages may be of four types:

(i) Ordinary Damages:
 These are damages which actually arise in the usual course of things from the breach of a
contract.
 Due to ordinary course of events from the breach of contract
 Direct loss suffered by the aggrieved party
 Estimated on the basis of circumstances prevailing on the date of the breach of the contract
 Subsequent circumstances tending to change the quantum of the damages are ignored

(ii) Special Damages:

 Under special circumstances
 Indirect loss suffered by the aggrieved party on account of breach of contract
 They can be recovered only when special circumstances/special losses were made known to
the party at the time of the making of the contract
 Damages which may reasonably be supposed to have been in the contemplation of both the
parties at the time when they made the contract as the probable result of the breach of it, are
known as special damages and may be recovered.

(iii). Vindictive or Exemplary Damages:

 These damages are allowed in case of the breach of a contract to marry or dishonor of a
cheque by a banker wrongfully without proper reason
 Heavy in punishment
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  Object is to be prevent parties from committing a breach
 Cheques dishonor will lead to loss to the prestige, Goodwill of customer

(iv). Nominal Damages:

 Quiet small in amount
 Never granted by way of compensation for the loss
 Simply to recognize the right of the party to claim damages for the breach of the contract
 Where the injured party has not suffered any loss by reason of the breach of a contract, the
Court may award a very nominal sum as damages.

3. Quantum meruit:
 As much as merited or as much as earned
 Contract is unenforceable due to some technical fault
 A right to sue on a quantum meruit (as much as earned) arises where a contract, partly
performed by one party, has become discharged by the breach of the contract by the other
party.
 This right is founded on the implied promise by the other party arising from the acceptance
of a benefit by that party.
 Entitled to reasonable compensation in spite of the fact that the agreement is void

Liquidated Damages and penalty:

 ‘Liquidated damages’ represent a sum, fixed or ascertained by the parties in the contract,
which is a fair and genuine pre estimate of the probable loss that might ensue as a result of
breach.
 A ‘penalty’ is a sum named in the contract at the time of its formation, which is
disproportionate to the damage likely to accrue as a result of breach the Courts in India allow
only ‘reasonable compensation’.

4. Specific Performance:
 In certain cases the Court may direct the party in terms of the contract to actually carry out
the promise, exactly according to the terms of the contract.
 This is called “specific performance of the contract”.
 In those cases monetary compensation will not be an adequate remedy or actual damages
cannot accurately be assessed.
 Specific performance of an agreement will not be granted if the agreement has been made
without consideration, or the court cannot supervise its execution or it will not be fair and
justice or if the contract is of a personal nature.
 In contracts of sale of land and rare articles, courts generally order for specific performance
of the contract

5. Injunction:
 It is a mode of securing the specific performance of the negative terms of a contract.
 Where a contract is of a negative character ie a party has promised not to do something and
he does it and thereby commits a breach of a contract, the aggrieved party may, under certain
circumstances, seek the protection of the court and obtain an injunction, forbidding the party
from committing breach.
 An injunction is an order of the court instructing a person to refrain from doing some act
which has been the subject matter of contract
 Courts may, at their discretion, grant a temporary or a perpetual injunction for a definite
period
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  For example, an industrial plant dumping waste into a lake may be served an injunction to stop that activity

6. Restitution
 Restitution means an act of restoration
 A person who has been unjustly enriched at the expense of another must make compensation
to the other.

 The principle of restitution applies in the following circumstances

(a) In case of voidable contracts - Section 64
 A party rescinding a voidable contract is required by law to restore back to the
other party any benefits that he might have received from him
 Contracts become voidable at the option of party whose consent is obtained by
fraud, coercion, misrepresentation, or undue influence
 In certain cases, contracts become voidable subsequently because of the default of
any one party in the performance of the contract

(b) In case of contract becoming void

 When a contract becomes void, all parties who have received benefit under the
contract must restore it back to the person from whom it has been received

(c) In case of an agreement is discovered to be void

 The principle of restitution is also applied where an agreement is void ab initio,
but the fact is unknown to both parties
 For example, a mutual mistake regarding existence of any subject matter

*****
Questions:
1. What is contract? What are its essential elements?
2. State different types of contract?
3. What is offer and acceptance?
4. Discuss the various types of offer?
5. Can a minor enter into contract? Can he receive benefits of contracts?
6. Can a person occasionally unsound in mind enter into contract?
7. What are voidable contracts?
8. What are the requisites of a valid tender?
9. How contracts can be discharged
10. When contracts can be treated as impossible
11. State few remedies for breach of contact
12. How are contracts classified on the basis of validity?
13. Explain the term ‘capacity to contract’.
14. How are contracts classified on the basis of validity?
15. Explain the term ‘capacity to contract’.
16. "Explain the various modes of discharge of a contract by mutual agreement."
17. "How are contracts classified according to validity and formation?"
18. "Explain the liability for misstatements in prospectus."
19. "Explain the various cases of discharge of a contract by mutual agreement."
20."How are contracts classified according to validity and formation?"
21. "Explain the various cases of discharge of a contract by mutual agreement."
22."Explain the constitution and powers of courts of enquiry."
23. What are the legal rules as to offer?
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24."Explain discharge of contract by supervening impossibility."
25. "What do you understand by time and place of performance of a contract? Are they always
mentioned in the contract?"
26. "How are contracts classified on the basis of validity?"
27. Explain the term ‘capacity to contract’.
28. "Explain the various modes of discharge of a contract by mutual agreement."
29. "Explain discharge of contract by supervening impossibility."
30. "Briefly classify contracts and examine their legal consequences."
31. ‘‘A contract without consideration is void’’. Comment.
32."What are the essential requisites of a valid tender of performance? What is the effect of
refusal to accept correct tender of goods and money?"
33. ‘‘Impossibility of performance is, as a rule, not an excuse for non-performance of a contract’’.
Discuss."
34. "Under what circumstances is the object or consideration of a contract deemed unlawful?
Illustrate with examples."
35. Distinguish between offer and acceptance. Describe lawful consideration.
36."What is contract? Explain the essential elements of contract."
37."What are the remedies available to an aggrieved party for breach of contract?"
38. Distinguish between offer and acceptance. Describe lawful consideration.
39."What is contract? Explain the essential elements of contract."
40. "What are the remedies available to an aggrieved party for breach of contract?"
41. ‘‘Where a party to a contract refuses altogether to perform, or is disabled from performing his
part to it, the other party has right to rescind it’’. Discuss fully this statement in the light of
the provisions of the Indian Contract Act, 1872."
42."Explain discharge of contract by supervening impossibility."
43."Briefly classify contracts and examine their legal consequences."
44. ‘‘A contract without consideration is void’’. Comment."
45. ‘‘Impossibility of performance is, as a rule, not an excuse for non-performance of a contract’’.
Discuss."
46. "Under what circumstances is the object or consideration of a contract deemed unlawful?
Illustrate with examples."
47. Distinguish between offer and acceptance
48. Describe lawful consideration
49."What is contract? Explain the essential elements of contract."
50. "What are the remedies available to an aggrieved party for breach of contract?"
51. Distinguish between offer and acceptance. Describe lawful consideration.
52."What is contract? Explain the essential elements of contract."
53."What are the remedies available to an aggrieved party for breach of contract?"
54. “If a contract is broken, the law will endeavor so far as money can do it to place the injured
party in the same positions as if the contract has been performed”. Discuss."
55. ‘‘Where a party to a contract refuses altogether to perform, or is disabled from performing his
part to it, the other party has right to rescind it’’. Discuss fully this statement in the light of
the provisions of the Indian Contract Act, 1872."
56."Explain discharge of contract by supervening impossibility."
57."Briefly classify contracts and examine their legal consequences."
58. ‘‘A contract without consideration is void’’. Comment."
59."What are the essential requisites of a valid tender of performance? What is the effect of
refusal to accept correct tender of goods and money?"
60."Write briefly about the essential elements of a valid contract."
61. Distinguish between offer and acceptance.
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62. Explain the legal rules as to consideration.
63. Describe lawful consideration.
64."What is contract? Explain the essential elements of contract."
65. "What are the remedies available to an aggrieved party for breach of contract?"
66.“If a contract is broken, the law will endeavor so far as money can do it to place the injured
party in the same positions as if the contract has been performed”. Discuss."
67."What are the remedies available to an aggrieved party for breach of contract?"
68."What is contract? Explain the essential elements of contract."
69.“If a contract is broken, the law will endeavor so far as money can do it to place the injured
party in the same positions as if the contract has been performed”. Discuss."
70."Distinguish between executed contract and executor contract."
71. "Define the term offer. Distinguish between offer and acceptance."
72. "What are the different modes of discharge of contracts? Explain the discharge of contract by
performance or tender."
73."How are contracts classified on the basis of validity?"
74."Name the cases in which a contract is not discharged on the ground of supervening
Impossibility."
75."Explain the various cases of discharge of a contract by mutual agreement."
76. "A music hall was agreed to be let out on certain dates but before those dates it was
destroyed by fire. Is the promisor absolved from performing the contract? Give reason in
support of your answer."
77."How are contracts classified on the basis of validity?"
78."Name the cases in which a contract is not discharged on the ground of supervening
impossibility."
79."Briefly classify contracts and examine their legal consequences."
80."Who is competent to a contract? Can anyone enter into a contract?"
81."State and explain the legal rules as to consideration."
82. Discuss the law relating to minor’s agreements.
83."What do you understand by time and place of performance of a contract? Are they always
mentioned in the contract?"
84."How are contracts classified on the basis of formation?"
85."What are the exceptions to the rule that a contract without consideration is void?"
86. Explain the legal rules as to consideration. "Describe
(a) Express contract
(b) Unilateral contract."
87."Define the term ""Contract"" and differentiate it with an agreement."
88."Define contract. What are the essential elements of a valid contract?"
89. Discuss the law relating to minor’s agreements.

Additional Notes:
The doctrine of privity of contract is a common law principle which provides that a contract cannot confer
rights or impose obligations upon any person who is not a party to the contract. The premise is that only parties to
contracts should be able to sue to enforce their rights or claim damages as such.

*****

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