INDIAN CONTRACT ACT, 1872

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What is Law?
Law means a ‘set of rules’ which governs our behaviours and relating in a civilized society. So
there is no need of Law in a uncivilized society.

Why Should One Know Law?

One should know the law to which he is subject because ignorance of law is no excuse.
Sources of Mercantile Law in India

English Indian Status Judicial Customs and

Mercantile Law Decisions Usages

STUDY NOTE – 1 : INDIAN CONTRACT ACT, 1872

Section 1:- Commencement and applicability:-

Short Title Extent and commencement

The Indian Applicable to First day of

contract Act whole Indian September
1872 except the state 1872(1st Sept.
of Jammu & 1872)
Kashmir

➢ Prior to this English law of contract was followed in India.

➢ It has XI chapter.
➢ Law of contract creates jus in personem and not in jus in rem.
➢ The Indian Contract Act consists of the following two parts:
(a) General principals of the Law of Contract.
(b) Special kinds of contracts.
➢ The general principals of the Law of Contract are contained in Sections 1 to 75 of the
Indian Contract Act. These principles apply to all kinds of contracts irrespective of their
nature.
➢ Special contracts are contained in Sections 124 to 238 of the Indian Contract Act. These
special contracts are Indemnity, Guarantee, Bailment, pledge and Agency.
Note: In our discussion on this part of the book, unless otherwise stated, the sections mentioned
are those of the Indian Contract Act, 1872.

Contracts as Defined by Eminent Jurists

1. “Every agreement and promise enforceable at law is a contract.” – Pollock
2. “A Contract is an agreement between two or more persons which is intended to be
enforceable at law and is contracted by the acceptance by one party of an offer made to
him by the other party to do or abstain from doing some act.” – Halsbury
3. “A contract is an agreement creating and defining obligation between the parties” –
Salmond
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DEFINITIONS (Sec 2)
1. Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the
assent of that other person either to such act or abstinence, he is said to make a
proposal.

2. Acceptance 2(b):- When the person to whom the proposal is made, signifies his
assent there to , the proposal is said to be accepted.

3. Promise 2(b) :- A Proposal when accepted becomes a promise. In simple words,

when an offer is accepted it becomes promise.

4. Promisor and promise 2(c) :- When the proposal is accepted, the person making the
proposal is called as promisor and the person accepting the proposal is called as
promisee.

5. Consideration 2(d):- When at the desire of the promisor, the promisee or any other
person has done or abstained from doing something or does or abstains from doing
something or promises to do or abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.

❖ Price paid by the one party for the promise of the other Technical word meaning QUID-
PRO-QUO i.e. something in return.

6. Agreement 2(e) :- Every promise and set of promises forming the consideration for
each other. In short, agreement = offer + acceptance.

7. Contract 2(h) :- An agreement enforceable by Law is a contract.

8. Void agreement 2(g):- An agreement not enforceable by law is void.

9. Voidable contract 2(i):- An agreement is a voidable contract if it is enforceable by Law

at the option of one or more of the parties there to (i.e. the aggrieved party), and it is
not enforceable by Law at the option of the other or others.

10. Void contract :- A contract which ceases to be enforceable by Law becomes void
when it ceases to be enforceable.

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ESSENTIALS OF A VALID CONTRACT

“All agreements are contracts, if they are made –

➢ by free consent of the parties, competent to contract,
➢ for a lawful consideration and
➢ with a lawful object, and
➢ not hereby expressly declared to be void.” - Sec.10.

ESSENTIALS OF VALID CONTRACT

Offer + acceptance = Promise

+
consideration
=
Agreement
+
enforceability By Law

Contract
1. Proper offer and proper acceptance with intention to create legal relationship.
Cases;- A and B agree to go to a movie on coming Sunday. A does not turn in resulting
in loss of B’s time B cannot claim any damages from B since the agreement to watch a
movie is a domestic agreement which does not result in a contract.
➢ In case of social agreement there is no intention to create legal relationship and
there the is no contract (Balfour v. Balfour)

➢ In case of commercial agreements, the law presume that the parties had the
intention to create legal relations.
➢ [an agreement of a purely domestic or social nature is not a contract ]

2. Lawful consideration :- consideration must not be unlawful, immoral or opposed to

the public policy.

3. Capacity:- The parties to a contract must have capacity (legal ability) to make valid
contract.
Section 11:- of the Indian contract Act specify that every person is competent to
contract provided.
(i) Is of the age of majority according to the Law which he is subject, and
(ii) Who is of sound mind and
(iii) Is not disqualified from contracting by any law to which he is subject.

➢ Person of unsound mind can enter into a contract during his lucid interval.
➢ An alien enemy, foreign sovereigns and accredited representative of a foreign
state. Insolvents and convicts are not competent to contract.

4. Free consent :- consent of the parties must be genuine consent means agreed upon
samething in the same sense i.e. there should be consensus – ad – idem. A consent is

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said to be free when it is not caused by coercion, undue influence, fraud,

misrepresentation or mistake.

5. Lawful object
• The object of agreement should be lawful and legal.
• Two persons cannot enter into an agreement to do a criminal act.
• Consideration or object of an agreement is unlawful if it
(a) is forbidden by law; or
(b) is of such nature that, if permitted, would defeat the provisions of any
law; or
(c) is fraudulent; or
(d) Involves or implies, injury to person or property of another; or
(e) Court regards it as immoral, or opposed to public policy.

6. Possibility of performance:
• The terms of the agreement should be capable of performance.
• An agreements to do act, impossible in itself cannot be enforced.
Example : A agrees to B to discover treasure by magic. The agreement is void because
the act in itself is impossible to be performed from the very beginning.

7. The terms of the agreements are certain or are capable of being made certain [29]
Example : A agreed to pay Rs.5 lakh to B for ultra-modern decoration of his drawing
room. The agreement is void because the meaning of the term “ ultra – modern” is not
certain.

8. Not declared Void

• The agreement should be such that it should be capable or being enforced by law.
• Certain agreements have been expressly declared illegal or void by the law.

9. Necessary legal formalities

• A contract may be oral or in writing.
• Where a particular type of contract is required by law to be in writing and
registered, it must comply with necessary formalities as to writing, registration
and attestation.
• If legal formalities are not carried out then the contract is not enforceable by law.
Example : A promise to pay a time. Barred debt must be in writing.

❖ Agreement is a wider term than contract where as all contracts are agreements. All
agreements are not contracts.

All Contracts are Agreements, but all Agreements are not Contracts

The various agreements may be classified into two categories:

Agreement not enforceable by law Agreement enforceable by law

Any essential of All essentials of

a valid contract a valid contract
is not available. are available

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Conclusion:
Thus we see that an agreement may be or may not be enforceable by law, and so all agreement
are not contract. Only those agreements are contracts, which are enforceable by law, In short.

Contracts = Agreement + Enforceability by Law

Hence, we can conclude “All contracts are agreement, but all agreements are not contracts.”

Distinction between Contract & Agreement

Basis Contract Agreement
1. Section : Sec. 2(h) Sec. 2(e)
2. Definition : A contract is an agreement Every promise or every set of
enforceable by law. promises forming consideration for
each other is an agreements.
3. Enforceability : Every contract is enforceable Every promise is not enforceable.
4. Interrelationship A contract includes an agreement. An agreement does not include a
contract.
5. Scope : The scope of a contract is limited, as Its scope is relatively wider, as it
it includes only commercial includes both social agreement and
agreements. commercial agreements.
6. Validity : Only legal agreements are called An agreement may be both legal
contracts. and illegal.
7. Legal : Every contract contains a legal It is not necessary for every
Obligation obligation. agreement to have legal obligation.

Types of contracts :-

(1) (2) (3) (4)

On the Basis On the Basis of On the Basis of On the Basis
of creation Validity execution of Liability
a. Express contract a. Valid contract a. Executed contract a. Bilateral contract
b. Implied contract b. Void contract b. Executed contract b. Unilateral
c. Tacit contract c. Voidable contrac t c. Partly executed and contract
d. Quasi contract d. Unenforceable party executory
e. E contract contract
e. Illegal contract

(a) Express contract :- A contract made by word spoken or written. According to sec 9 in
so for as the proposal or acceptance of any promise is made in words, the promise is said
to be express.
Example : A says to B ‘will you purchase my bike for Rs.20,000?” B says to A “Yes”.

(b) Implied contract:- A contract inferred by

❖ The conduct of person or
❖ The circumstances of the case.

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By implies contract means implied by law (i.e.) the law implied a contract through
parties never intended. According to sec 9 in so for as such proposed or acceptance is
made otherwise than in words, the promise is said to be implied.
Example:
A stops a taxi by waving his hand and takes his seat. There is an implied contract that A
will pay the prescribed fare.

(c) Tacit contract: - A contract is said to be tacit when it has to be inferred from the
conduct of the parties. Example obtaining cash through automatic teller machine, sale
by fall hammer of an auction sale.

(d). Quasi Contracts are contracts which are created -

• Neither by word spoken
• Nor written
• Nor by the conduct of the parties.
• But these are created by the law.
Example:
If Mr. A leaves his goods at Mr. B’s shop by mistake, then it is for Mr. B to return the
goods or to compensate the price. In fact, these contracts depend on the principle that
nobody will be allowed to become rich at the expenses of the other.

(e). e – Contract: An e – contract is one, which is entered into between two parties via the
internet.

(a) Valid contract:- An agreement which satisfies all the requirements prescribed by law
On the basis of creation

(b) Void contract (2(j)):- a contract which ceases to be enforceable by law because void
when of ceased to be enforceable
When both parties to an agreement are:-
Under a mistake of facts [20]
Consideration or object of an agreement is unlawful [23]
Agreement made without consideration [25]
Agreement in restrain of marriage [26]
Restraint of trade [27]
Restrain legal proceeding [28].
Agreement by wage of wager [30]

(c) Voidable contract 2(i) :- an agreement which is enforceable by law at the option of
one or more the parties but not at the option of the other or others is a voidable
contract.
Result of coercion, undue influence, fraud and misrepresentation.

(d) Unenforceable contract: - where a contract is good in substance but because of some
technical defect i.e. absence in writing barred by imitation etc one or both the parties
cannot sue upon but is described as unenforceable contract.
Example: Writing registration or stamping.

Example: An agreement which is required to be stamped will be unenforceable if the

same is not stamped at all or is under stamped.
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(e) Illegal contract:- It is a contract which the law forbids to be made. All illegal
agreements are void but all void agreements or contracts are not necessary illegal.
Contract that is immoral or opposed to public policy are illegal in nature.
❖ Unlike illegal agreements there is no punishment to the parties to a void agreement.
❖ Illegal agreements are void from the very beginning agreements are void from the very
beginning but sometimes valid contracts may subsequently becomes void.

(a) Executed contract :- A contract in which both the parties have fulfilled their obligations
under the contract.
Example: A contracts to buy a car from B by paying cash, B instantly delivers his car.

(b) Executory contract:- A contract in which both the parties have still to fulfilled their
obligations.
Example : D agrees to buy V’s cycle by promising to pay cash on 15th July. V agrees to
deliver the cycle on 20th July.

(c) Partly executed and partly executory:- A contract in which one of the parties has
fulfilled his obligation but the other party is yet to fulfill his obligation.
Example : A sells his car to B and A has delivered the car but B is yet to pay the price.
For A, it is excuted contract whereas it is executory contract on the part of B since the
price is yet to be paid.
On the basis of liability for performance:-

(a) Bilateral contract:- A contract in which both the parties commit to perform their
respective promises is called a bilateral contract.
Example : A offers to sell his fiat car to B for Rs.1,00,000 on acceptance of A’s offer by
B, there is a promise by A to Sell the car and there is a promise by B to purchase the car
there are two promise.

(b) Unilateral contract:- A unilateral contract is a one sided contract in which only one
party has to perform his promise or obligation party has to perform his promise or
obligation to do or forbear.
Example :- A wants to get his room painted. He offers Rs.500 to B for this purpose B says to A
“ if I have spare time on next Sunday I will paint your room”. There is a promise by A to pay Rs
500 to B. If B is able to spare time to paint A’s room. However there is no promise by B to Paint
the house. There is only one promise.
Difference Between Void and Voidable Contract
Matter Void contract Voidable contract
Definition It means contract which cease to It means an agreement enforceable
be enforceable. by law by one or more parties.
Nature Valid when made subsequently It remains voidable until cancelled by
becomes unenforceable. party.
Rights or remedy No legal remedy. Aggrieved party has remedy to
cancel the contract.
Performance of Party can’t demand performance If aggrieved party does not cancel it
contract of contract within reasonable time, performance

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can be demanded.
Reason Due to change in law or If consent is not obtained freely.
circumstances
Damages Not available Can demand in certain cases.

Difference between Void and illegal Agreement

Matter Void agreement Illegal agreement
What Void agreement is not prohibited It is prohibited by law.
by law.
Effect on collateral Enforced Not enforced.
transaction
Punishment No Yes
Void ab initio May not be void ab initio Always void initio

Contract of record:
It is either a judgment of a court of a Recognizance.
A Judgment is an obligation imposed by a Court upon one or more persons in favour of
another or others. In real sense, it is not a contract, as it is not based upon any agreement
between two parties.
Recognizance is a Bond by which a person undertakes before a Court of Magistrate to
observe some condition e.g. to appear on summons.
Contracts of record derive their binding force from the authority of the Court.

Contract under Seal:

(a) A contract under Seal is one which derives its binding force from its form alone.
(b) It is in writing and signed, sealed and delivered by the parties.
(c) It is also called a Deed or a Specialty contract.

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OFFER
Offer(i.e. Proposal) [section 2(a)]:-When one person signifies to another his willingness to do
or to abstain from doing anything, with a view to obtaining the assent of that other person either
to such act or abstinence, he is said to make a proposal.

To form an agreement, there must be at least two elements – one offer and the other acceptance.
Thus offer is the foundation of any agreement.

“When one person signifies to another his willingness –

• to do or to abstain from doing anything,
• with a view to obtaining the assent of that other to such act or abstinence, he is said to
make a proposal.”

The person who makes an offer is called “Offeror” or “ Promisor” and the person to whom the
offer is made is called the Offeree” or “Promisee”.

Example
Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case, Mr. A is making
an offer to Mr. B. Here A is the offeror and B is the offeree.

Essentials elements of an offer:-

(1) There must be two parties.

(2) The offer must be communicated to the offeree.

(3) The offer must show the willingness of offeror. Mere telling the plan is not offer.

(4) The offer must be made with a view to obtaining the assent of the offeree.

(5) A statement made jokingly does not amount to an offer.

(6) An offer may involve a positive act or abstinence by the offeree.

(7) Mere expression of willingness does not constitute an offer.

A tells B’ that be desires to marry by the end of 2008, if does not constitute an offer
of marriage by A’ to B’ A further adds will you marry me. Then it become offer.

Legal Rules as to valid offer:-

1. Offer must be communicated to the offeree: The offer is completed only when it has
been communicated to the offeree. Until the offer is communicated, it cannot be
accepted. Thus, an offer accepted without its knowledge, does not confer any legal rights
on the acceptor.
Example:
A’s nephew has absconded from his home. He sent his servant to trace his missing
nephew. When he servant had left, A then announced that anybody who discovered the
missing boy, would be given the reward of Rs.500. The servant discovered the missing
boy without knowing the reward. When the servant came to know about the reward, he
brought an action against A to recover the same. But his action failed. It was held that the

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servant was not entitled to the reward because he did not know about the offer when the
discovered the missing boy.
[Lalman Shukla v. Gauri Datt (1913) All LJ 489]

2. The offer must be certain definite and not vague unambiguous and certain.
Example:
A offered to sell to B. ‘a hundred tons of oil’. The offer is uncertain as there is nothing to
show what kind of oil is intended to be sold.

3. The offer must be capable of creating legal relation. A social invitation is not create
legal relation.
Example:
A invited B to a dinner and B accepted the invitation. It is a mere social invitation. And
A will not be liable if he fails to provide dinner to B.

4. Offer may be express and implied

The offer may be express or implied; An offer may be express as well as implied. An
offer which is expressed by words, written or spoken, is called an express offer. The
offer which is expressed by conduct, is called an implied offer [Section 9].

5. Communication of complete offer

Example:
A offered to sell his pen to B for Rs.1,000. B replied, “I am ready to pay Rs.950”. On
A’s refusal to sell at this price, B agreed to pay Rs.1,000. held, there was not contract at
the acceptance to buy it for Rs.950 was a counter offer, i.e. rejection of the offer of A.
Subsequent acceptance to pay Rs.1,000 is a fresh offer from B to which A was not bound
go give his acceptance.

6. Counter offer – A counter offer amounts to rejection of the original offer

7. Cross offer do not conclude a contract

8. An offer must not thrust the burden of acceptance on the offeree.

Example:
A made a contract with B and promised that if he was satisfied as a customer he would
favorably consider his case for the renewal of the contract. The promise is too vague to
create a legal relationship.
➢ The acceptance cannot be presumed from silence.
➢ Acceptance is valid only if it is communicated to the offeror.

9. Offer must be distinguished from invitation to offer.

Example:
Menu card of restaurant is an invitation to put an offer.
Example ;
Price – tags attached with the goods displayed in any showroom or supermarket is also
an invitation to proposal. If the salesman or the cashier does not accept the price, the or
the cashier does not accept the price, the interested buyer cannot compel him to sell, if he
wants to buy it, he must make a proposal.
Example:
Job or tender advertisement inviting applications for a job or inviting tenders is an
invitation to an offer.
Example:
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An advertisement for auction sale is merely an invitation to make an offer and not an
offer for sale. Therefore, an advertisement of an auction can be withdrawn without any
notice. The persons going to the auction cannot claim for loss of time and expenses if the
advertisement for auction is withdrawn.

10. Offeror should have an intention to obtain the consent of the offeree.

11. An answer to a question is not a offer.

Offer Invitation to offer

➢ Show his readiness to enter into a ➢ Person invites offer to make an offer to
contract, it is called as an offer him.

➢ Purpose of entering contract ➢ Purpose of enter offer

➢ Results in a contract ➢ Results in offer.

Example Example
Application filled in by a prospective Issue of prospectus by a Company, an
applicable to the Institution, a student seeking education Institution.
admission in educational Institution.

KINDS OF OFFER

Express Implied Specific General Cross offer Counter Standing

offer offer offer offer offer Open and
Continuou
s offer

I. Express offer - When the offeror expressly communication the offer the offer is said
to be an express offer the express communication of the offer may be made by
Spoken word
Written word

II. Implied offer – when the offer is not communicate expressly. An offer may be implied
from:-
The conduct of the parties or
The circumstances of the case

III. Specific:- It means an offer made in

(a) a particular person or
(b) a group of person: It can be accepted only by that person to whom it is made
communication of acceptance is necessary in case of specific offer.

IV. General offer: - It means on offer which is made to the public in general.
• General offer can be accepted by anyone.
• If offeree fulfill the term and condition which is given in offer then offer is
accepted.
• Communication of acceptance is not necessary is case of general offer

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Example
Company advertised that a reward of Rs.100 would be given to any person who would
suffer from influenza after using the medicine (Smoke balls) made by the company
according to the printed directions.
One lady, Mrs, Carlill, purchased and used the medicine according to the printed
directions of the company but suffered from influenza, She filed a suit to recover the
reward of Rs.100. The court held that there was a contract as she had accepted a general
offer by using the medicine in the prescribed manner and as such as entitled to recover
the reward from the company.
Carlill v Carbilic Smoke Ball Co. 1893

V. Cross offer:- When two parties exchange identical offers in ignorance at the time of
each other’s offer the offer’s are called cross offer.

Two cross offer does not conclude a contract. Two offer are said to be cross offer if
1. They are made by the same parties to one another
2. Each offer made in ignorance of the offer made by the
3. The terms and conditions contained in both the offers’ are same.

Example : A offers by a letter to sell 100 tons of steel at Rs.1,000 per ton. On the same
day, B also writes to A offering to buy 100 tons of steel at Rs.1,000 per ton.

When does a contract come into existence: - A contract comes into existence when any of the
parties, accept the cross offer made by the other party.

VI Counter offer :- when the offeree give qualified acceptance of the offer subject to
modified and variations in the terms of original offer. Counter offer amounts to rejection
of the original offer.
Legal effect of counter offer:-
(1) Rejection of original offer
(2) The original offer is lapsed
(3) A counter offer result is a new offer.

In other words an offer made by the offeree in return of the original offer is called as a
counter offer.
Example:
A offered to sell his pen to B for Rs.1,000. B replied, “ I am ready to pay Rs.950.” On
A’s refusal to sell at this price, B agreed to pay Rs.1,000. Held, there was not contract as
the acceptance to buy it for Rs.950 was a counter offer, i.e. rejection of the offer of A.
Subsequent acceptance to pay Rs.1,000 is a fresh offer from B to which A was not bound
to give his acceptance.

VII Standing, open and continuous offer:- An offer is allowed to remain open for
acceptance over a period of time is known as standing, open or continually offer. Tender
for supply of goods is a kind of standing offer.
Example:
When we ask the newspaper vendor to supply the newspaper daily. In such case, we do
not repeat our offer daily and the newspaper vendor supplies the newspaper to us daily.
The offers of such types are called Standing Offer.

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LAPSE OF AN OFFER

An offer should be accepted before it lapses (i.e. comes to an end). 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 before 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
acceptance 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 valied. 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.

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ACCEPTANCE
Acceptance 2(b):- When the person to whom the proposal is made, signifies his assent there
to , the proposal is said to be accepted.
Legal Rules for the Acceptance

1. Acceptance must be absolute and unqualified

Example: A offers to sell his house to B for Rs. two lakhs. B accepts the offer and
promises to pay the price in four installments. This is not pay the acceptance as the
acceptance is with variation in the terms of the offer.

2. Acceptance must be communicated: Mere mental acceptance is no acceptance, But

there is no requirement of communication of acceptance of general offer.
Example The manager of Railway Company received a draft agreement relating to the
supply of coal. The manager marked the draft with the words “Approved” and put the
same in the drawer of his table and forgot all about it. Held, there was no contract
between the parties as the acceptance was not communicated. It may however, be
pointed out that the Court construed a conduct to parties as railway company was
accepting the supplies of coal from time to time.

3. Manner of acceptance
General rule say that it must be as per the manner prescribed by offeror. If no mode is
prescribed in which it can be accepted, then it must be in some usual and reasonable
manner.

4. If there is deviation in communication of an acceptance of offer, offeror may reject

such acceptance by sending notice within reasonable time. If the offeror doesn’t send
notice or rejection, he accepted acceptance of offer.
Example: A offers B and indicates that the acceptance be given by telegram. B sends his
acceptance by ordinary post. It is a valid acceptance unless A insists for acceptance in the
prescribed manner.

5. Acceptance of offer must be made by offeror.

Example : A applied for the headmastership of a school. He was selected by the
appointing authority but the decision was not communicated to him. However, one of
members in his individual capacity informed him about the selection. Subsequently, the
appointing authority cancelled its decision. A sued the school for breach of contract. The
Court rejected the A’s action and held that there was no notice of acceptance.
“Information by unauthorized person is as insufficient as overhearing from behind the
door”.

6. Acceptance must be communicated to offeror

7. Time limit for acceptance

• If the offer prescribes the time limit, it must be accepted within specified time.
• If the offer does not prescribe the time limit, it must be accepted within reasonable
time.
Example : A applied (offered) for shares in a company in early June. The allotment
(Acceptance) was made in late November. A refused to take the shares. Held, A was
entitled to do so as the reasonable time for acceptance had elapsed.

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8. Acceptance of offer may be expressly (by words spoken or written); or impliedly (by
acceptance of consideration); or by performance of conditions (e.g.in case of a general
offer)

9. Mere silence is not acceptance of the offer

Example A offers to B to buy his house for Rs.5 lakhs and writes “If I hear no more
about it within a week, I shall presume the house is mine for Rs.5 lakhs. “B does not
respond. Here, no contract is concluded between A and B.

10. However, following are the two exceptions to the above rule. It means silence
amounts as acceptance of offer.
• Where offeree agrees that non – refusal by him within specified time shall amount
to acceptance of offer.
• When there is custom or usage of trade which specified that silence shall amount to
acceptance.

11. Acceptance subject to the contract is no acceptance

If the acceptance has been given ‘subject to the contract” or subject to approval by
certain persons, it has not effect at all. Such an acceptance will not create binding
contract until a formal contract is prepared and signed by all the parties.
General Rules as to Communication of Acceptance
1. In case of acceptance by post
Where the acceptance is given by post, the communication of acceptance is complete as
against the proposer when the letter of acceptance is posted. Thus, mere posting of letter
of acceptance is sufficient to conclude a contract. However, the letter must be properly
addressed and stamped.

2. Delayed or no delivery of letter

Where the letter of acceptance is posted by the acceptor but it never reaches the offeror,
or it is delayed in transit, it will not affect the validity of acceptance. The offeror is
bound by the acceptance.

3. Acceptance by telephones telex or tax

If the communication of an acceptance is made by telephone, tele-printer, telex, fax
machines, etc, it completes when the acceptance is received by the offeror. The contract
is concluded as soon as the offeror receives not hears the acceptance.

4. The place of Contract

In case of acceptance by the post, the place where the letter is posted is the place of
contract. Where the acceptance is given by instantaneous means of communication
(telephone, fax, tele-printer, telex etc.), the contract is made at the place where the
acceptance is received,

5. The time of Contract

In case of acceptance by post, the time of posting the letter of acceptance to the time of
contract. But in case of acceptance by instantaneous means of communication, the time
of contract is the time when the offeror gets the communication, the time of contract is
the time when offeror gets the communication of acceptance.
6. Communication of acceptance in case of an agent.
Where the offer has been made through an agent, the communication of acceptance is
completed when the acceptance is given either to the agent or to the principal. In such a
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case, if the agent fails to convey the acceptance received from offeree, still the principal
is bound by the acceptance.

7. Acceptance on loudspeakers
Acceptance given on loudspeaker is not a valid a acceptance.

Particulars Offer Acceptance

When • Communication of a • As against the offerer/
Communication is proposal is complete when Proposer: When it is put in
complete [Sec.4] it comes to the knowledge a course of transmission to
of the person to whom it is him so as to be out of the
made. power of the Acceptor.
• Example : A proposes by • As against the
letter, to sell his Tonga to B Offeree/Acceptor: When it
at Rs.10,000. comes to the knowledge of
Communication of the the Proposer. (See separate
proposal is complete when question above)
B receives the letter.
When Revocation can • Offer/proposal may be • Acceptance may be revoked
be made [Sec.5] revoked at any time before at any time before the
the communication of its communication of acceptor,
acceptance is complete, as but not afterwards.
against the proposer, but • Example: T sends to S by
not afterwards. post, an offer to sell his
• Example: U sends a letter cycle. S sends his
to Y proposing to sell his acceptance via post, S could
land. Y sends his revoke his acceptance, upto
acceptance by post. U can any time before or at the
revoke the offer at any time moment when he posts his
before or at the moment letter of acceptance, but not
when Y posts his letter of afterwards.
acceptance, but not
afterwards.
When communication • As against the offeror: • As against the Offeree:
of revocation is When it is put into a course When it comes to his
complete [Sec.4] of transmission to the knowledge.
person to whom it is made, • Example : Communication
so as to be out of the power of revocation is complete
of the person who makes it. only when H receives the
• Example : S proposes to H telegram.
by letter. H sends his • When H revokes his
acceptance by letter. acceptance, it is complete
Suddenly, S sends a when he dispatches the
telegram revoking his offer. telegram.
Revocation is complete as
against S when the telegram
is dispatched; H’s
revocation of acceptance is
complete when S receives
such telegram.
Accepted is lighted match, while offer is a train of gun powder
Sir willian Anson.
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CAPACITY TO CONTRACT

Parties unable to Enter into a contract

Minor A person of unsound mind Person disqualified by law

Lunatic Idiot Drunken and Intoxicated

Alien enemy Foreign Sovereign Convict Corporation and Company Insolvent

1. Who is competent to make a contract:-

Section 11. Every person is competent to contract who is of age of majority according to the
Law to which he is subject, who is of sound mind and not is disqualified from contracting by
any Law to which he is subject.

Age of majority:- According to section 3 of Indian majority Act-1875 every person domiciled
in Indian attains majority on the completion of 18 years of age.

Exception: - 21 years- in the following cases.

a. Where a guardian of a minor’s person or property is appointed under the Guardian and wards
Act, 1890.

b. Where minor’s property has passed under the superintendence of the court of words.

Position of Agreements by Minor:-

1. Validity: - An agreement with a minor is void-ab-initio
[ Mohoribibee v. Dharmodas Ghose]
Example :
Mr. D, a minor, mortgaged his house for Rs.20000 to a money – lender, but the
mortgagee, i.e. the money – lender, paid him a sum of Rs.8000. Subsequently, the minor
sued for setting aside the mortgage. Held that the contract was void, as Mr. D was minor
and therefore he is not liable to pay anything to the lender.

2. A minor’s has received any benefit under a void contract, he cannot be asked to return
the same.

3. If a minor has received any benefit under a void contract, he cannot be asked to return
the same.

4. Fraudulent representation by a minor- no difference in the status of agreement. The

contract remains void.

5. A minor with the consent of all the partners, be admitted to the benefits of an existing
partnership.

6. Contracts entered into by minors are void-ab-initio. Hence no specific performance

can be enforced for such contracts.

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7. Minor’s parent/guardians are not liable to a minor’s creditor for the breach of
contract by the minor.

8. A minor can act as an agent but not personally liable. But he cannot be principal.

9. A minor cannot become shareholder of a the company except when the shares are
fully paid up and transfer by share.

10. A minor cannot be adjudicated as insolvent.

11. Can enter into contracts of Apprenticeship, Services, Education, etc:

(a) A minor can enter into contract of apprenticeship, or for training or instruction in
a special art, education, etc.
(b) These are allowed because it generates benefits to the Minor.

12. Guarantee for and by minor

A contract of guarantee in favour of a minor is valid. However, a minor cannot be a
surety in a contract of guarantee. This is because, the surety is ultimately liable under a
contract of guarantee whereas a minor can never be held personally liable.

13. Minor as a trade union member

Any person who has attained the age of fifteen years may be a member for registered
trade union, provided the rules of the trade union allow so. Such a member will enjoy all
the rights of a member.

EXCEPTION

• Contract for the benefit of a minor.

• Contract by Guardian
Benefit of a minor by his guardian or manager of his estate.

a. within the scope of the authority of the guardian.

b. Is for the benefit of the minor.

• Contract for supply of Necessaries.

Example :
Food, clothes, bed, shelter, shoes, medicines and similar other things required for the
maintenance of his life or for the life of his dependents, expenses for instruction in grade
or arts; expenses for moral religions or intellectual education, funeral expenses of his
deceased family members, marriage expenses of a dependent female member in the
family; expenses incurred in the protection of his property or personal liberty, Diwali
pooja expenses, etc. have been held by courts to be necessaries of life. However, the
things like earrings for a male, spectacles for a blind person or a wild animal cannot
be considered as necessaries.
• Liability for tort: A minor is liable for a tort, i.e., civil wrong committed by him.
Example :
A, a 14 – year – old boy drives a car carelessly and injures B. He is liable for the accident
i.e., tort.

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A person of unsound mind

Lunatic Idiot Drunken and Intoxicated

Person of Unsound Mind

A person who is usually of unsound mind, but occasionally of sound mind can make a contract
when he is of sound mind. Similarly, a person who is usually of sound mind, but occasionally of
unsound mind, may not make a contract when he is of unsound mind.

 At time of entering into a contract, a person must be sound mind. Law presumes that
every person is of sound mind unless otherwise it is proved before court. An agreement
by a person of unsound mind is void. The following are categories of a person
considered as person of a unsound mind.

 An idiot
An idiot is a person who is congenital (by birth) unsound mind. His incapacity is
permanent and therefore he can never understand contract and make a rational judgment
as to its effects upon his interest. Consequently, the agreement of an idiot is absolutely
void ab initio. He is not personally liable even for the payment of necessaries of life
supplied to him.

 Delirious persons
A person delirious from fever is also not capable of understanding the nature and
implications of an agreement. Therefore, he cannot enter into a contract so long as
delirium lasts.

 Hypnotized persons
Hypnotism produces temporary incapacity till a person is under the effect of artificial
induced sleep.

 Mental decay
There may be mental decay or senile mind the to old age or poor health. When such
person is not capable of understanding the contract and its effect upon his interest, he
cannot enter into contract.

 Lunatic is not permanently of unsound mined. He can enter into contract during lucid
intervals i.e., during period when he is of sound mind.

Generally of Occasionally of Capacity to Example

Contract
Unsound Sound Mind Can enter into a A patient in a lunatic asylum,
Mind Contract when he who is at intervals of sound
is of Sound Mind. mind, may contract during
those intervals.
Sound Mind Unsound Mind Cannot make a A sane man, who is delirious
Contract when he from fever or who is so drunk
is of Unsound that he cannot understand terms
Mind. of a contract or form a
judgment, cannot contract

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while such delirium or

drunkenness lasts.

 Drunken person
An agreement made by intoxicated person is void.

Person Disqualified by law

Alien enemy Foreign Sovereign Convict Corporation and Company Insolvent

Person Disqualified by Law

 Body corporate or company or corporation

Contractual capacity of company is determined by object clause of its memorandum of
association. Any act done in excess of power given is ultra – virus and hence void.

 Alien enemy
• An ‘alien’ is a person who is a foreigner to the land. He may be either an ‘alien
friend’ or an ‘alien enemy. If the sovereign or state of the alien is at peace with the
country of his stay, he is an alien friend. An if a war is declared between the two
countries he is termed as an alien enemy.

• During the war, contract can be entered into with alien enemy with the permission of
central government.

(Discuss in class)

 Convict can’t enter into a contract while he is undergoing imprisonment. But he can
enter into a contract with permission of central government while undergoing
imprisonment. After the imprisonment is over, be becomes capable of entering into
contract. Thus the incapacity is only during the period of sentence.
 Insolvent
When any person is declared as an insolvent, his property vests in receiver and therefore,
he can’t enter into contract relating to his property. Again he becomes capable to enter
into contract when he is discharged by court.

 Foreign sovereigns, diplomatic staff and representative of foreign staff can enter into
valid contract. However, a suit cannot be filed against them, in the Indian counts without
the prior sanction of the central Government.

Third party to a contract cannot sue or a stranger to a contract cannot sue.

Only those persons, who are parties to a contract, can sue and be sued upon the contract.
This Rule is called “Doctrine of privities of contract.” Exception.

i. Trust:- In case of trust a beneficiary can sue upon the contract.

Example:
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A transferred certain properties to B to be held by him in trust for the benefit of C. In this
case, C although not a party to the trust, can sue for the benefits available to him under
the trust.
This exception to the rule of Privity of contract has been recognised in a well known case
of khwaja Mohd. Khan v. Hussaini Begum (1910) 32 All 410.

ii. Family settlement / Marriage contract:- In case of family settlement members who
were not originally party to the contract can also sue upon it.
A female members cone force a provision for marriage expenses made on partition of
HUF.
Example:
H sued her father – in – law K to recover Rs.15,000 being arrears of allowance called Pin
money payable to her by K under an agreement between K and H’s father, consideration
being H’s marriage to K’s son D. Both H and D were minors at the time of marriage.
Held, the promise can be made enforceable by H.

Provision of marriage expenses of female members of a Joint Hindu Family, entitles the
female member to sue for such expenses on a partition between male members.,

Two brothers, on partition of family joint properties, agreed to invest in equal shares for
their mother’s maintenance. Held, the mother was entitled to require her sons to make
the investment.

iii. Acknowledgement of liability:- Where a person admits his Liability thereafter if he

refused be will be stopped from denying his liability.
Example
X receives money from Y for paying it to Z. X admits the receipt of that amount to Z. Z
can recover the amount from X, even though the money is due from Y.

iv. Assignment of contract. Assignee (the person to whom benefits of contract are
assigned) can enforce upon the contract..

v. Contract entered into through an agent.

vi. Covenants running with land.

Stranger to consideration:- “Stranger to contract” must be distinguished from a

stranger to consideration need not necessarily be provided by the promises if may flow
from a third party also such a person is ‘ stranger to consideration,.
( Chinnaya Vs Ramayya).

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CONSIDERATION

MEANING

1.(a) Consideration is a quid pro quo i,e something in return it may be –

(i) some benefit right, interest, loss or profit that may accrue to one party or,
(ii) some forbearance, detriment, loss or responsibility suffered on undertaken by the
other party [currie V mussa]

(b) According to Sir Frederick Pollock, “consideration is the price for which the promise
of the other is bought and the promise thus given for value is enforceable.

2. Definition [Sec 2(d)]:- when at the desire of the Promisor, the promise or any other
person.
(a) has done or abstained from doing , or [Past consideration]
(b) does or abstains from doing, or [Present consideration]
(c) promises to do or abstain from doing something [Future consideration ] such act or
abstinence or promise is called a consideration for the promise.

3. Example
(i) ‘P’ aggress to sell his car to ‘Q’ for Rs.50,000 Here ‘Q’s Promise to pay Rs50,000 is
the consideration for P’s promise and ‘P’s promise to sell the car is the consideration for
‘Q’s promise to pay Rs.50,000.
(ii) ‘A’ promises his debtor ‘B’ not to file a suit against him for one year on ‘A’s
agreeing to pay him Rs.10,000 more. Here the abstinence of ‘A’ is the consideration for
‘B’s Promise to pay.

Legal Rules for valid consideration

1. Consideration must move at the desire of the promisor.

D constructed a market at the instance of District collector. Occupants of shops
promised to pay D a commission on articles sold through their shops. Held, there
was no consideration because money was not spent by Plaintiff at the request of
the Defendants, but at instance of a third person viz. the Collector and, thus the
contract was void.
Durga Prasad v. Baldeo

2. Consideration may move from the promisee or any other person who is not a
party to the contract. [Chinnaya’s Vs Ramayya]
A owed Rs.20,000 to B. A persuaded C to sign a Pro Note in favour of B. C
promised B that he would pay the amount. On faith of promise by C, B credited
the amount to A’s account. Held, the discharge of A’s account was consideration
for C’s promise.
National Bank of Upper India v. Bansidhar
3. Consideration may be past, present, Future:
• Under English law, Past consideration is no consideration.
• Present consideration :- cash sale

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• Future or executory consideration:- A Promises to B to deliver him 100

bags of sugar at a future date . B promise to pay first on delivery.

4. Consideration should be real and not illusory. Illusory consideration renders

the transaction void consideration is not valid if it is.
(i) Physically impossible (ii) Legally not permissible
(iii) Uncertain (iv) illusory (fulfillment of a pre existing
obligation)

5. Must be legal:-
Consideration must not be unlawful, immoral or opposed to public policy.

6. consideration need not be adequate. A contract is not void merely became of

the fact that the consideration is inadequate. The law simply requires that contract
should be supported by consideration. So long as consideration exists and it is of
some value, courts are not required to consider its adequacy.
Example:
A agreed to sell a watch worth Rs.500 for Rs.20, A’s consent to the agreement
was freely given. The consideration, though inadequate. Will not affect the
validity of the contract. However, the inadequacy of the consideration can be
considered in order to know whether the consent of the promisor was free or not .
[Section 25 Explanation II]

7. The performance of an act what one is legally bound to perform is not

consideration for the contract mean’s something other than the promisor’s
existing obligation –

A contract not supported by consideration is void .

Ex. Nudo Pacto non oritur action, i,e, an agreement without consideration is void.
Ex
ceptions to the Rule “ No consideration . No contract”.

1. Written and registered agreements arising out of love and affection:- [25 (1)]
• Expressed in writing and registered under law for the time being in force for
registration of document
• Natural love and affection
• Between parties standing in a near relation to each other
Example:- An elder brother, on account of natural love and affection, promised to pay
the debts of his younger brother. Agreement was put to writing and registered. Held,
agreement was valid.

Exception: - Rajlukhy Dabee Vs Bhootnath Mukharjee

Example: A Hindu husband by a registered document, after referring to quarrels and
disagreements between himself and his wife, promised to pay his wife a sum of money
for her maintenance and separate residence. Held that the promise was unenforceable
since natural love and affection was missing.

2. Promise to compensate [25(2)]

• Promise to compensate wholly or in part
• Who has already voluntarily done something for the promisor
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• Something which the promisor was legally compellable to do.

Example:- A finds B’s purse and give to him. B Promise to give A Rs.500. This is a
valid contract.

3. Promise to pay a time – barred debt. [Sec 25(3)]

• A debt barred by limitation con not recovered. Hence, a promise to pay a such a
debt is without any consideration.
• Can be enforced only when – in writing and sighed by Debtor or his authorized
agent.
Example : A owes B Rs.10,000 but the debt is barred by Limitation Act. A signs a
written promise to pay B Rs.8,000 on account of debt. This is a valid contract.
4. Completed gift- gift do not require any consideration.

5. Agency (185) – According to the Indian contract Act. No consideration is necessary to

create an agency.

6. Bailment (148)- consideration is not necessary to effect a valid bailment of goods. It is

Called Gratuitous Bailment.

7. Remission (63).

8. Charity- If a person promises to contribute to charity and on this faith the promises
undertakes a liability to the extent not exceeding the promised subscription, the contract
shall be valid.

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FREE CONSENT
According to section 13. Two persons are said to have consented when they agree upon same
thing in the same sense.
In English law, this is called ‘consensus – ad – idem’

Effect of absence of consent:

 When there is no consent at all, the agreement is void – ab – initio’.
It is not enforceable at the option of either party

Example 1:-
X have two car one Maruti car and one Honda city car. Y does not know that X has two
cars Y offers to buy car at Rs.50,000. Here, there is no identity of mind in respect of the
subject matter. Hence there is no consent at all and the agreement is void – ab – inito.

Example 2:-
An Illiterate woman signed a gift deed thinking that it was a power of attorney – no
consent at all and the agreement was void – ab – inito [ Bala Devi V S. Manumdats ]

Free consent
 Consent is said to be free when it is not caused by [ Section 14]
(a) coercion [Section 15]
(b) Undue influence [Section 16]
(c) Fraud [Section 17]
(d) Misrepresentation [ Section 18]
(e) Mistake [Section 20, 21,22]

Effect of absence of Free Consent :- If consent coercion, undue influence, fraud ,

Misrepresentation the contract is voidable at the option of party whose consent was not free [19,
19A]

Coercion [Section 15]

(a) Committing any act which is forbidden by the IPC
(b) Threatening to commit any act which is forbidden by the IPC.
(c) Unlawful detaining of any property or
(d) Threatening to detain any property.

Essential elements of coercion

Above four [a – d]
(e) coercion need not necessary proceed from party to contract.
(f) Coercion need not necessary be directed against the other contracting party.
(g) It is immaterial whether the IPC is or is not in force at the time or at the place where
the coercion is employed [Bay of Bengal caption]

Effect of threat to file a suit:- A threat to file a suit (whether civil or court) does not amount
to coercion unless the suit is on false charge. Threat to file a suit on false charge is an act
forbidden by the IPC and thus will amount to an act of coercion.

25
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Effect of Threat to commit suicide:- Threat to commit suicide amounted to coercion and the
release deed was example discussed in class.
Therefore voidable. [Chikham Ammiraju v seshama]

Duress V Coercion
English Law - Duress does not include detaining of property or threat to detain property.
- Duress can be employed only by a party to the contract or his agent.
Effect:- when coercion is employed to obtain the consent of a party the contract is
voidable at the option of the party where consent was obtained by coercion.

A threat to strike by employees in support of their demands is not regarded as coercion. This is
because the threat to strike is not an offence under the I.P.C. it is a right given under the
Industrial Disputes Act.

Detaining property under mortgage: Detention of property by a mortgage until the payment of
loan does not amount to coercion.

Undue influence [Section 16]

Meaning of undue influence :- dominating the will of the other person to obtain an unfair
advantages over the others.
(a) where the relation subsisting between the parties must be such that one party is in
position to dominate the will of the other.
(b) The dominant party use his position.
(c) Obtain an unfair advantage over the other .

Presumption of domination of will:-

Circumstances Examples
Where he holds a real or apparent authority Master and servant, parent and child, Income
over the other Tax officer and assesses principal and a
Where he stands in a Trust fiduciary (benefit) Temporary Teacher.
relation to the other Trustee and beneficiary spiritual Guru and his
Mental Capacity of a person is temporarily or disciples, solicitors and clients. Guardian and
permanent effected by reason of age, illness or wards
mental or bodily distress Relationship between medical attendant and
ward.
Example :-
A Poor Hindu widow agreed to pay interest at 100% P. a because she need the money to
established her right of maintenance. It was held that the lender was in position to
dominate the will of widow.

No. Presumption of Domination of will:-

➢ Landlord and Tenant
➢ Creditor and Debtor
➢ Husband and wife (other than Pardanashin)
➢ Principal and Agent

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Effect of undue Influence:-[Section 19A]

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

Burden of Proof:- A contract is presumed to be induced by undue influence if the following

two condition:-
➢ A party has the position to dominate the will of the others
➢ The transaction is unconscionable (unreasonable)
In such a case dominant party is under the burden to prove the undue influence was not
employed.

[Unconscionable transactions:- if transaction appears to unreasonable the dominant party to

prove that there is no undue influence. ]
➢ Any other transaction:- weaker party to prove the influence was employed]

Where some transaction is entered into in the ordinary course of business, but due to certain
contingencies, one party is able to make the other party agree to certain terms and conditions
then it is not undue influence.
Example :
A applies to a banker for a loan at a time when there is stringency in the money market.
The banker declines to make the loan except at an unusually high rate of interest. A
accepts the loan on these terms. This is a transaction in the ordinary course of business,
and the contract is not induced by undue influence.
Example :
A spiritual guru induced his chela to donate all his property to the ashram and said that in
return of it, he will certainly get salvation. The chela did the same. Held, that this is a
case, of undue influence so it becomes void.

Contract with Pardanashin woman;-

Induced by undue influence

Burden of Proof – Full disclosure is made to pardanashin women
Pardanashin Women - Understand the contract
- Receipt of competent independent advice .

Rebutting presumption:-

➢ Dominant party – full disclosure

➢ Price was adequate
➢ Receipt of competent independent advice before entering into contract – weaker party.

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Undue influence Vs Coercion

Similarities: - Voidable at the option of aggrieved party:-

Coercion (15) Undue Influence (16)

Meaning – using or threat to use physical - Involves use of moral force (mental
force pressure)
- obtain the consent of party (intention) - Obtain an unfair advantage (intention)
- Punishment under IPC - Not criminally liable
- Parties – Stranger - Between the parties to the contract
- Relationship – Immaterial - One party dominate the other party
- Voidable at the option of aggrieved - Voidable or court set aside
party - Benefit – order of court – Back
- Benefit - Back

Fraud (17)

 The term fraud means a take representation of facts made willfully with a view to deceive
the other party.
 Sec.17- fraud means any act committed by a party to a contract or with his connivance or
by his agent with intent to deceive another party there to or his agent or to induce to enter
into contract.

Essentials of fraud :-
(a) By a party to the contract

(b) There must be representation – [an opinion a statement of expression – does not
fraud].

(c) The representation must be false.

(d) Before conclusion of contract.

(e) The misrepresentation must be made willfully.

(f) The misrepresentation must be made with a view to deceive the other party.

(g) The other party must have actually been deceived.

(h) The other party have suffered a loss.

Fraud – definition include

 The suggestion, as to fact, of that which is not true by one who does not believe it to be
true.
 The active concealment of a fact by one having knowledge or belief of the fact.
Ex. A furniture dealer conceals the crakes in furniture by polish work.

 A promise made without any intention of performing it.

 Any other act fitted to deceive.
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 Any such act or omission as the law specially declared to be fraudulent.

Ex:- T bought a cannon from H. It was defective, but H had plugged it. T did not examine the
cannon, but it burst when he used it. Held as the plug had not deceived T, he was liable
to pay for the cannon.

Ex.: Where the representation was true at the time of when it was made but becomes untrue
before the contract is entered into and this fact is known to the party who made the
representation. If must be corrected. If it is not so corrected it will amount to be fraud.

When the silence amount to fraud:-

(a) General rule:- Mere (only) Silence as to facts likely to affect the willingness of a person
to enter into a contract is not fraud.

EXCEPTION

where the circumstances of the case are such that regarding being had to them. It is duty of the
person keeping silence to speak. Such duty arises in the following two cases.

(1) Duty to speak exists where the parties stand in a fiduciary relationship, e.g. father and
son, guardian and ward, trustee and beneficiary etc. or where contract is a contract of
ubberima fidei (requiring utmost good faith), e.g. contracts of insurance.

Ex.:- A sells by auction to B a horse which A knows to be unsound. B’ is A’s daughter and has
just come of age. Here the relation between the parties would make it A’s duty to tell B
is the horse is unsound.

(2) When silence itself equivalent to speech. B says to A “ if you do not deny it I shall
assume that the horse is sound”. A say nothing – A’s silence equivalent to speech. A can
held liable to fraud.
[Half Truth is worse than a blatant: - Example – company pay dividend – in class room]

Effect of Fraud:-
Sec. 19: A contract induced by fraud is voidable at the option of the
party defrauded. Till the exercise of such option, the Contract is valid.

1. Rescinds of contract
2. Right to insist upon performance
3. Right to claim damages – if he suffered loss.

Exception : The contract is not voidable in the following cases.

➢ When the party who consent was caused by silence amount to fraud and be has the means
of discovering the truth with ordinary diligence. [ Ex class room]
➢ When the party give the consent in ignorance of fraud.
➢ When the party after become aware of fraud takes a benefit.
➢ When the parties can’t be restored to their original position.
➢ Where interests of third parties intervene before the contract is avoided.

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Misrepresentation (section 18)

Misrepresentation is when a party (person) asserts something which is not true though he
believes is to be true. In other words misrepresentation is a falls representation made innocently.
An agreement is said to be influenced by misrepresentation if all the following conditions are
satisfied.
(a) The party makes a representation of a fact [The representation by a stranger (By
anyone with his connivance or by agent) to the contract does not affect the validity
of the contract.
(b) The misrepresentation was made innocently i.e. if was not made with a view to
deceive the other party.
(c) The other party has actually acted believing the misrepresent to be true.

Misrepresentation include:-
➢ Unjustified statement of facts – positive assertion – Believe true really not true no basis
misrepresentation
➢ Breach of duty.
➢ Inducing other to make mistake as to qualify or nature of subject matter.

Effect of Misrepresentation:-

(1) Right to Rescind contract:-

Can’t do
➢ Discovering the truth with ordinary diligence.
➢ Give consent in ignorance of misrepresentation
➢ Become aware of misrepresentation takes a benefit
➢ Where an innocent third party before the contract is rescinds acquires consideration
some interest in the property passing under the contract.
➢ Where the parties can’t be restored to their original position.

(2) Right to insist upon performance.

Ex.:- Unlike Fraud he cannot sue for damage.

Fraud (17) Misrepresentation (18)

Meaning :- wrongful representation is made Meaning - innocently without any intention to
Willfully to deceive the party. Deceive the other party.

Knowledge of falsehood. - The person making the wrong

- The person making the wrong statement believes it to be true.
statement does not believe it to be true.
- Right to claim damage - Can’t claim damage

Means of discovering of truth - In case of misrepresentation the

- In case of fraud the contract is voidable contract is not voidable if the aggrieved
even though the aggrieved party had party had the means of discovering the
the means of discovering the truth with truth with ordinary diligence….
ordinary diligence.

Exception :- Silence

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[Type here]

MISTAKE

Mistake Erroneous Belief about some facts

Mistake of Fact Mistake of Law [21]

Unilateral [22] Bilateral [20] Mistake of Indian Mistake of foreign

Law Law
One party Under Both parties under
Mistake of fact Mistake of facts the contract is valid same as mistake fact

The contract is valid the contract is void void

[Not voidable and void] Both parties under

mistake

Exception: - Where contract is not valid (void)

1. Identity of persons contract with

Ex. :- A woman, falsely misrepresenting herself to be wife of a well known Baron obtained two
pearl necklaces from a firm of jewelers on the pretext of showing them to her husband
before buying. She pledged them with a broker who took them in good faith. Held that
there was no contract between jeweler and woman and even an innocent buyer or a
broker did not get a good title. Broker must return necklaces to jeweler. Jeweler intended
to deal not with her but with quite a different person, i.e., wife of a Baron.

2. as the nature of the contract

Ex.:- illiterate man sign Bill of exchanges by means of false, representation that it was a mere
guarantee. It was held that he was not liable for bill of exchange because never intended
to sign the bill of exchange

Bilateral Mistakes:-

Subject matter Possibility

Existence Quantity Quality Prices Identity Title Legal Physical

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[Type here]

EVERY AGREEMENT OF WHICH THE OBJECT OR

CONSIDERATION IS UNLAWFUL IS VOID [SEC 23]

(a) It is forbidden by law – law would also include the rules regulations, notifications etc.
under or issued under the authority given by a statute.
Ex.:- A sold liquor without license to B. The sale is unlawful as the sale of liquor without
license is forbidden by the law, i.e., The Excise Act. Hence, A cannot recover the price.

Ex.:- a Hindu already married and his wife alive entered into a marriage agreement with Y an
unmarried girl. The agreement is void because the second marriage is forbidden by
Hindu Law.

(b) If it defeats the Provisions of any Law.

- not directly prohibited by any Law
Ex.:- A’s estate is sold for arrears of revenue under the provision defaulter is prohibited from
purchasing the state upon an understanding with A becomes the purchaser and agrees to
convey the estate to A . Upon receiving from him the price which B has paid. The
agreement is void.

(c) If it is Fraudulent
Ex.: Object or consideration of an agreement is fraudulent. An agreement with such an object
or consideration is unlawful and void.

(d) If it involves or Implies injury to a person or property of another.

Ex. :- Where it create injury to a person or to the property of another. An agreement with such
an object or consideration is unlawful and void.

(e) If the court regards it as immoral.

 X gave Rs. 10,000 to Y a married woman to obtain a divorce from her husband. X
agrees to marry when divorce taken. X would not recover the amt.

1. Partially unlawful Object or consideration [Sec. 24]: An Agreement is void if -

(a) any part of a single consideration for one or more objects is unlawful; or
(b) any one or any part of one of several consideration for a single object, is unlawful.

2. Example: B is a licensed manufactured of permitted chemicals. A promise B to

supervise B’s business and combine it with the production of some contraband items
together with the permitted items. B promises to pay A, Salary of Rs.10,000 p.m.
Agreement is void, object of A’s promise and consideration for B’s promise being
partially unlawful.

3. Lawful Consideration enforceable: When there are several distinct promises made for
one and the same consideration and one or more of them are of such nature that law will
not enforce it, only such of the promises as are unlawful cannot be enforced. Other which
are lawful, can be enforced.

4. Test of Severability:
(a) If illegal part cannot be severed from legal part of a covenant, contract is
altogether void.
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[Type here]

(b) If it is possible to severe them, whether the illegality be due to Statute or

Common Law, bad part alone may be rejected and good retained.

In case of pre – existing civil liability, the dropping of criminal proceedings need not
necessarily be a consideration for the agreement to satisfy that liability.
Union Carbide Corpn. v. UOI

Illegal agreement – Void – ab – intio

- Punishable by the criminal Law of the country or by any special legislation regulation
effect of illegal agreement.

- Collateral transactions – illegal

- No action can be taken for the recovery of money paid or property transferred.

- If illegal part can’t be separated from the legal part.

Whole agreement is altogether illegal. [Sec.57]

- If separated
- Legal part – enforces illegal part – reject.

- Reciprocal promises – In respect of reciprocal promises the agreement as to illegal

promise is void.

Agreement opposed to public policy:-

Alternative promises: where in alternative promises one part is illegal, only the legal pent can be
enforced. [Sec. 58]

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VOID AGREEMENT

2(g)- Void agreement is an agreement which is not enforceable by Law – void – ab – inito.

(1) Agreement by or with person’s incompetent to contract [10, 11]

(2) Agreement entered into through a mutual mistake [20]
(3) Object or consideration – unlawful [23]
(4) Consideration or object partially, unlawful [24]
(5) Without consideration [25]
(6) Restraint of marriage [26]
(7) Restraint of trade [27]
(8) Legal proceeding [28]
(9) Consideration identified [29]
(10) Wagering agreement [30]
(11) Impossible agreement [56]
(12) An agreement to enter into an agreement in the future.

Agreement in Restraint of marriage [26]

Every agreement in restraint of marriage of any person other than a minor, is void, Any
restraint of marriage whether total or partial is opposed to public policy.

Ex. A promised to marry else except Mr. B, and in default pay her a sum of Rs.1,00,000. A
married someone else and B sued A for recovery of the sum. Held, the contract was in
restraint of marriage, and as such void.
Ex. The consideration under a Sale Deed was for marriage expenses of a minor girl aged 12.
Held the sale was a void transaction being opposed to public policy.
Ex. Two co-widows – agreement – is one of them remarried – she shout forfeit her eight to
her share in the deceased husband’s property was not void because no restraint was
imposed upon either of the two widows from remarrying.

Ex. Wife to divorce herself and to claim maintenance from the husband on his marrying a
second wife was not void because no restraint was impose upon husband from marrying
a second wife.
Agreement in Restrain of trade [27]

Every agreement by which anyone is restrained from exercised a Lawful profession, trade
or business of any kind is void .

Burden for Proof :-

Party supporting the contract:- must show that the restraint is reasonably necessary to protect
public interest. Party challenging the contract:- restraints is injurious to the public.

Ex. : In Patna, 29 out of 30 manufacturers of combs agreed with R to supply combs only to
him and not to anyone else. Under the agreements R was free to reject the goods if he
found no market for them. Held, the agreement amounted to restraint of trade and void.

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Exception to Sec. 27

(1) Sale of goodwill: - Seller of goodwill of a business may agree with the buyer to restrain
from carrying on business.
(a) Must relate to same business
(b) Restriction shall apply within specified Local limits.
(c) Restriction shall apply within a reasonable time period
(d) The specified local limits – depends on nature of business.

(a) Restriction on existing partner [11(2)]

- Not carry on business other than business of the firm till he is partner.

(b) Restriction on outgoing partner [36]

- Not carry on a similar business after retirement
- Local limits + specified period – local limit – nature of business

(c) Sec. 54: Upon or in anticipation of dissolution of Firm. Partners may agree that some or all
of them will not carry on business similar to that of the Firm within specified periods or local
limits.
(d) Sec. 55(2) : Partner may agree with due buyers of Goodwill, not to use the Firm name or
carry on Firm’s business or solicit clients of the Firm.
(e) Sec. 55(3): Upon sale of Firm’s Goodwill, a partner may agree that he will not carry on any
business similar to Firm’s within specified periods or local limits.

Exception under judicial interpretations :-

(a) Trade combination.

- Traders may from associations among them to regulate the business or to fix
prices.
- Such agreement like opening and closing of business venture, licensing of
traders, supervision and control of dealers, etc. are valid even if they are in
restraint of trade.
- But, a Combination that tends to create monopoly; or when two enter into an
agreement to avoid competition, they are against public policy and hence void.
(b) Sale dealing agreement: - Agreements to deal in the products of a single manufacturer
or to sell the whole produce to a single dealer are valid if their terms are reasonable.
Ex.: .( Discuss in class)

Agreement – buyer of goods for Delhi market not to sell them in Chennai is valid.
- Not to sell any other firm – valid.

(c) Service agreement.

- Agreement: Employers may enter into agreements with employees – (i) not to
engage in other work during the tenure of his employment; or (ii) not to engage in
similar work after his termination.
- During Employment: The first restraint is always valid, e.g. doctors may be paid
non practicing allowances to avoid practicing when they are employed in a
hospital.
- After termination of service: The second restraint is valid only is it is to protect
the trade interests or the employer. It may be imposed to prevent the outgoing

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employee from using trade secrets he had learnt during his tenure, to the
detriment of his previous employer.
- Valid Agreements : Requiring employees to serve the organization for a few
years after training leaving; or execution of a bond requiring employees leaving
the organization to pay compensation to the employer are valid.

- Use of Personal Skills: The employer cannot prevent the employees from using
his personal skills and knowledge to his benefit; e.g. an employer cannot restrain
an employee to act in theatre plays or in perforating an art.

Agreement in Restraint of legal proceedings [28]

 Agreement restricting enforcement of rights:

- An agreement by which any party is restricted absolutely from enforcing his legal rights
under any contract is void.
- Agreements Limiting period of limitation:- An agreement which limits the time within
which an action way be brought is void.
- A partial restrain is not void, eg.

Ex. 1: A clause in a contract that any dispute arising between the parties shall be subject to
jurisdiction of a court at a particular place only, is valid.

Ex. 2: An agreement is not void merely because if provides that any dispute arising between two
or prove person shall be referred to arbitration.
- That has arises.
- Which may arise
- Which has already arisen?

Ex. 3: An agreement not to go in appeal to higher court against the judgment of a lower court
not amount to restart of legal proceeding.

An agreement the meaning of which is not certain (Sec 29):

1. An agreement is called an uncertain agreement when the meaning of that agreement is

not certain or capable of being certain. Such agreements are declared void u/s 29.

2. Areas of uncertainty: Uncertainty may relate to – (a) Subject Matter of Contract; or (b)
Terms of contract.

(a) Subject Matter: There may be uncertainty as regards – (i) existence; (ii) quantity
(iii) quality; (iv) price; or (v) title to the subject matter.
(b) Terms of Contract: There may be uncertainty as regards – (i) existence (ii)
quality; (iv) price; or (v) title and other terms in the contract.
Example:
1. A says to B “I shall sell my house; will you buy?” A says, “Yes, I shall buy”. Due to
uncertainty of price, the agreement is void and unenforceable. There is binding contract.
2. A agreed to pay a certain sum, when he was able to pay. Held, the agreement was void
for uncertainty.
3. D agrees to sell his white horse, for Rs.5,000 or Rs.10,000.

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WAGERING AGREEMENT [30] :-

An agreement between two persons under which money or money’s worth is payable by one
person to another on the happen or non happening of a future uncertain event is called a
wagering agreement.
- X promise to pay Rs. 1000 to Y if it is rained on a particular day, and Y promise to pay
Rs.1000 to X if it did not.
- Wagering agreement is promise to give money or money’s worth upon the
determination of uncertain event.- Sir Willian Anson.

Essential elements of wagering agreements

(1) The must be a promise to pay money or money’s worth

(2) Performance of a promise must depend upon determination of uncertain event. It

might have already happened but the parties are not aware about it.

(3) Mutual chancels of Gains or Loss.

(4) Neither party to have control over the events

(5) Neither party should have any other interest in event.

(6) One party is to win and one party is to lose.

Ex. 1:- Agreement to settle the difference between the contract price and market price of certain
goods or shares on a particular day.

Ex. 2: A lottery is wagering agreement. Therefore, an agreement to buy and sell lottery tickets
is a wagering agreement. Section 294 – A of the Indian Penal Code declares that drawing
of lottery is an offence. However, the government may authorize lotteries. The persons
authorized to conduct lotteries are exempt from the punishment. But, the lotteries still
remain a wagering transaction.

Ex. 3: However, if the crossword puzzle prizes depend upon sameness of the competitor’s
solution with a previously prepared solution kept with the organizer or newspaper editor,
is a lottery and, therefore, a wagering transaction.

Ex. 4: However, when any transaction in any commodity or in shares with an intention of
paying or getting difference in price, the agreement is a wager.

Agreement not held as wagers:-

 Prize in terms of Prize competition Act, 1955 not exceeding Rs.1000 is not wagering
agreement.

 Horse race [500] – An agreement to contribute a plate or prize.

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[Type here]

 Contract of insurance utmost in good faith eg. Favour in public policy.

 Share market transaction A commercial transaction should always be distinguished
from a pure speculative transaction. A commercial transaction is done with an intention
of delivery of goods (commodity or security) and payment of price. Therefore, it is not
wagering agreement.

 Crossword competition involving skill for its solution. If skill plays an important role in
the result of a competition and prize depend upon the result, the competition is not
Involve applications of skill and prizes are awarded to the participants on the basis of
merit of their solutions and not on chance. Therefore, such competitions are valid and
are not wagers.

 Athletic Competitions also fall in the category of games of skill. Therefore, these are
also not wagers.

Example: A and B, two wrestlers, agreed to enter into a wrestling contest in Ahmedabad on a
certain day. They further agreed that a party failing to appear on the fixed day was to forfeit
Rs.500 and the winning party will receive a sum of Rs.1,000. Held, it was not a wagering
agreement.
 Contribution to chit fund is not wager – contributions made by the members are
refunded by draw of lots.

Effects of wagering agreements:-

 Agreement is void.
 No suit can be filled for any recovery of the amount won on any wager.
 It is not illegal. Any agreement collateral to wagering agreement is valid.
 However, it is illegal in state of Maharashtra and Gujarat.

ILLEGAL AGREEMENT
 Agreement which is prohibited by law is illegal agreement.
Example Agreement to commit crime.

 Effects of illegal agreement:

• It is always void.
• Any collateral transaction to illegal agreement is also void.
• No action is allowed on illegal agreement.

Void Agreement Illegal agreement

Meaning Not enforceable by Law Forbidden by any law

One in another All void agreement is not All illegal agreement are void
illegal
Reason 10,29,56 Against the provisions of law

Punishment Not liable to punished Party are criminally liable

Void – ab – initio A valid – collateral – is not Illegal, collateral – illegal

void

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CONTINGENT CONTRACT
MEANING

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
 A contract to pay B Rs.10,000 if B house is burnt.
 A promise to pay B Rs.1,00,000 if a certain, ship does not return within a year.

Essential features of a contingent contract :-

(a) It is a contract to do or not to do something

(b) Dependent on happening or non happening of an event

(c) Such on event is a collateral event (i.e. it is collateral) to the contract i.e. the event
must not depend upon the mere will of party.

(d) The event is uncertain

Rules regarding contingent contract.

CONTINGENT UPON

Happening of Non – Future Happening of Non – Impossible

Uncertain Happening of conduct of Specified Happening of Events
Future Event Uncertain a living Uncertain Event Specified
Future Event person within Fixed time Uncertain Event
within Fixed
Time
[Sec. 32] [Sec. 33] [Sec. 34] [Sec.35] [Sec. 35] [Sec.36]

(1) Contracts contingent upon the happing of an event enforced – such event has
happened [32]
Void – such event because impossible [happening of such event]

Ex.:- A contract to pay B a sum of money when B marries e dies without being married to B
contract – void

(2) Non happening of a future event:- [33]

Enforced :- when the happening of such events becomes impossible.
Void:- such event has happened.

Ex.:- A agrees to pay B sum of money if a certain ship does not return. This ship is sunk. The
contract can be enforced when the ship sinks.

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(3) Happening of an event within a specified time [35]

Enforce :- when such event has happened within the specific time.
Void :- When the happening of such event because impossible before the expiry of
specified time.
When such event has not happened within specified time.
A promise to pay B sum of money if a certain ship return within a Year.
Enforce :- ship returns within the year .
Void :- If the ship is burnt within the year / not come within the year.

(4) Non – happening of an event within a fixed time [35]

Enforce :- When the happening of such event because impossible before the expiry of
specified time.
 When such event has not happened within the specified .
Void:- When such event has happened within the specified period.

(5) Future conduct of a living person. [34]

Enforced:- When such person acts in the manner as desired in the contract.
Void :- When such person does anything which makes the desired future conduct of such
person – impossible – dependent upon certain contingency.
- A agrees to pay B a sum of money if B marries C . C married D. The marriage of B to C
must now considered impossible, although it is possible that D may die any that C may
afterwards marry B.
(6) Impossible events [36]
- Such an agreement can not be enforced since it is void whether the impossibility of the
event was known to the parties or not is immaterial.
• A agrees to pay B Rs.1,000 if two parallel straight lines should enclose a space.
Agreements are void.
• A agrees to pay B Rs.1,000 if B will marry A’s daughter C and C was dead at the time
of the agreement. Agreement is void.

Wagering agreement Contingent agreement

1. Defined Not defined u/s 30 Defined o/s 31

2. Meaning Promise to give money or To do or not to do something

money’s with upon the if some event. Collateral to
determinative of an uncertain such contract does or does not
event. happen
3. Nature of uncertain event Contingent nature Not be a wagering nature

4. Void / valid. Void Valid

5. Interest No other interest in the subject Have real interest outcome of

matter of the agreement the uncertain gain.
except within of loss of
wagering amt.
A wagering agreement is A contingent contract the not
essentially of a contingent be a wagering nature.
nature. Not consist a reciprocal
Consists of reciprocal promises future event is fully
promises futures event is the collateral.
sole determine factor
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PERFORMANCE
Sec 37:- That the parties to a contract must either perform or offer to perform, their respective
promises unless such performance is dispensed with or excused under the provisions of
contract Act, or of any other law.

Performance: - Two types

1. Actual performance – actually performed – liability of such a party comes to an end.

2. Attempted performance or tender of performance refusal to accept offer of

performance by promise [38]
Offer Does not
Promisor promisee attempted performance
of performance accept

Promisor is not responsible for non performance and they can sue the promisee for breach of
contract – nor he (promisor) thereby lose his rights under the contract.
Essential of
Valid tender

Of exact
amount and in
Reasonable
Unconditional At a proper For whole legal tender At proper opportunity to
money
place obligation time Promisee

A. Tender or offer of performance to be valid must satisfy the following conditions:-

(i) It must be unconditional
Ex :- ‘X’ offers to ‘Y’ the principal amount of the loan. This is not a valid tender
since the whole amount of principal and interest is not offered.
(ii) It must be made at a proper time and place.
Ex:- If the promisor wants to deliver the goods at 1 am. This is not a valid tender
unless it was so agreed;
(iii) Reasonable opportunity to examine goods.
Ex:- Delivery of something to the promise by the promisor promise must have
reasonable opportunity of inspection.
(iv) It must be for the whole obligation :- goods and amount.
Ex:- ‘X’ a debtor, offer’s to pay ‘Y’ the debt due in installments and tenders the
first installment. This is not a valid tender minor deviation – not invalid [Behari
lal v ram gulam]
(v) It must be made to the promise or his duty authorized agent.
Ex:- It must be person who is willing to person his part of performance.
(vi) In case of payment of money, tender must be of the exact amount due and it must
be in the legal tender.

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Type of Tender
❖ Tender of goods and services
When a promisor offers to delivery of goods or service to the promise, it is said to be
tender of goods or services, if promisee does not accept a valid tender, It has the
following effects:
(i) The promisor is not responsible for non – performance of the contract.
(ii) The promisor is discharged from his obligation under the contract. Therefore,
he need not offer again.
(iii) He does not lose his right under the contract. Therefore, he can sue the promise.
❖ Tender of money
Tender of money is an offer to make payment. In case a valid tender of money is not
accepted, it will have the following effects:
(i) The offeror is not discharged from his obligation to pay the amount.
(ii) The offeror is discharged from his liability for payment of interest from the date
of the tender of money.

Effect of refusal of party to perform promise Wholly Sec 39.

Promisor – Refuse – Promise – wholly

Promisee can put – can end of the contract or – he can continue the contract if he
has given his consent either by words or – by conducts in its continuance.

Result – claim damages. [compensation]

Ex:-
(Refer Class Notes)

Who can demand performance?

1. Promisee – stranger can’t demand performance of the contract.

2. Legal Representative – legal representative can demand Exception performance.

- contrary intention appears from the contract
- contract is of a personal nature.

3. Third party – Exception to “stranger to a contract”

Person by whom promise is to be performed Sec 40.

[who will perform the contract ]

1. Promisor himself :- include personal skill, taste or art work.

Ex:- ‘A’ promises to paint a picture for ‘B’ as this promise involves personal skill of ‘A’. If
must be performed by ‘A’.

2. Promisor or agent :- [does not involves personal skill]

3. Legal Representative [does not involve personal skill and taste]

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4. Third person [Sec 41] :- Acceptance of promise from the third party:-
If the promisor accepts performance of a contract by a third party, he can’t after wards
enforce the performance against the promisor although the promisor had neither
authorized not ratified the act of the third party.

[In other meaning once the promise accepts the performe from a third person, he cannot
compel the promisor the perform the contract again]

Performance of Joint Promises:-

Two or more person make a promise

➢ Performed by all the joint promisor [42]

➢ All the joint promisor – liable

➢ Thus in India the liability of joint promisors is joint as well as several.

In England, however the liability of the joint promisors is only joint and not several and
accordingly all the joint promisors must be sued jointly.

➢ Liability of joint promisor [43]

1. Liability – joint as well as several [unless express A + B + C 900 D. D may compel

either A, B or C or any of two of them or all of them.
2. Where a joint promisor has been compelled to perform the whole promise, be may
compel every other joint promisor to contribute equally with himself to the performance
of the promise (unless a contrary intention appears from the contract).
C – 9000 – D A + B – C
3000 3000

3. If any one of the joint promisors make default in such contribution, the remaining joint
promisors must bear the loss arising from such default in equal shares

A + B + C – 9000 (A) – Insolvent

B + C = 4500 + 4500 = 9000
Sec 44:- Release of one joint promisor :- where one of the joint promisors is released other joint
promisors shall continue to be liable.
[In English law if one joint promisor – discharge then all the joint promisors discharge]

Sec 45:- Rights to claim performance of joint [Devolution of joint rights]

1. During their joint lives – all the joint promisors .

2. After the death of any of them – The representative of such deceased promise jointly
with the surging promise

3. With the representatives of all jointly.

Ex:- ‘A’ in consideration of Rs 50,000 lent to him by ‘B’ and ‘ C’ promises ‘B’ and ‘C’
jointly to replace them that sum with interest on a day specifies.
- ‘B’ dies. The right to claim performance rests with ‘B’ representatives jointly with ‘c’
during ‘C’ life.
- And after ‘C’s death with the representatives of ‘B’ and ‘C’ jointly .

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Time place and manner of performance [46 – 50]

1. No time is specified for performance [Sec 46]
➢ Time of performance is not specified + promisor agreed to perform without, a demand
from the promise the performance must be made within a reasonable time. Reasonable
time – in each particulars case – a question of fact.

2. Time specified but hour not mentioned [47].

Time of performance specified + promisor agreed to perform without application by the
promisee
➢ Performance must perform on the day fixed during the usual business hours and at the
place at which the promise ought to be performed.

3. Where Time is fixed and application to be made [48]

➢ Proper place and within the usual hour of business
➢ Promisee to apply for performance

4. Performance of promise where no place is specified and no application is to be made by

the promise [49]
➢ It is the duty of the promisor to apply to the promise to appoint a reasonable place for the
performance and perform it at such appointed place.

5. Performance in manner or at time prescribed or sanctioned by promise [50]

➢ In such prescribed manner and
➢ Prescribed time
Ex:- ‘A’ desires ‘B’ who owes him Rs 10,000 to send him a promissory note for Rs 10,000
by Post. The debt is discharged as soon as ‘B’ puts into the post a letter containing the
promissory note duly addressed to ‘A’.

Performance of reciprocal promises

Reciprocal Promise :- Promises which form the consideration or part of consideration for each
other as called reciprocal promises.

1. Mutual and Independent:- Such promises all to be performed by each party independently
without waiting for the other party to perform his promise can’t excuse himself on the
ground of non-performance by the default party.
deliver on Paying
X Y Y 6thmay
the goods 10th may the price
Y – Price – non Payment
X – goods delivered

2. Mutual and Dependent:- Sue damage . The performance of promise by one party depended
on the prior performance of the promise by other party.
[The party at fault becomes liable to pay compensation to the other party may sustain by the
non performance of the contract – [54]

3. Mutual and concurrent: - when reciprocal promises are to be performed simultaneously a

promisor need not perform his part unless the promise is ready and willing to perform [51]

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deliver Pay
A B
the goods The Pr ice

Order of performance of reciprocal promises [52]

➢ Where the order in which reciprocal promises one to be performed is expressly fixed by
the contract – they must be performed in that order.
➢ Order is not expressly fixed – nature of transaction requires
Ex :- ‘A’ and ‘B’ contract that ‘A’ shall build a house for ‘B’ at a fixed price ‘A’ promise
to build the house must be performed before its promise to pay for it.

Sec 53 :- One party preventing – voidable at the option of the other party so prevented.
- Compensation for loss

Sec 54 :- Legal and illegal

Legal – valid, illegal – void

Sec 58:- alternative promise, one branch being illegal legal branch alone can be enforced.
A – B – 1000 rupees
Deliver – rice + smuggled goods

Time as the essence of the contract (Sec 55):-

Where time is essence – the concerned parties must perform their respective promises within the
specified time.

Time are fact :- time is specified for the performance of the contract is not by itself sufficient to
prove that time is essence of the contract.
- Intention of the parties.

Time is generally considered to be the essence of the contract :-

(a) where the parties have expressly agreed to treat as the essence of the contract.

(b) Delay operates as an injury to the party and

(c) Nature and necessities of the contracts requires it to be performs within the specified
time.
- Delivery of the goods – considered – essence of the contract payment of the price
– No
[However in case of sale and purchase of an immoral property, the time is
presumed to not the essence of the contract]

Time is essence of the contract – party tails to perform

- In time – the contract becomes voidable at the option the other party.

Time is not essence – only claim damages for delay in performance

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Assignment of contract :- (a) by – operation of law

- Death
- Insolvency
(b) By an act of parties

Assignment is a made of transferring rights.

tranfer rights
Assignment another person
and int erest

Rules regarding assignment

(a) The liabilities or obligations under a contract can’t be assigned

(b) The rights and benefits under a contract which not of a personal nature can be assigned.

(c) An actionable claim can always be assigned

Succession Assignment
Meaning Deceased person Person – another person
- Legal represent
Time On the death of a person During the life time of a person
Voluntary Act Not voluntary automatic by Voluntary
operation of law
Written No. required Required assignment deed
document
Scope Liability and rights Rights

Appropriation of Payments :- [ Sec 59 – 61]

➢ Appropriation means application of payments – The question of appropriation of

payments arises when a debtor owes several debts to the same creditor and make a
payment that is not sufficient to discharge the whole indebtness.

1. Appropriation of Payments
Sometimes, a debtor owes several distinct debts to the same creditor and he makes a
payment which is insufficient to satisfy all the debts. In such a case, a question arises as
to which particular debt the payment is to be appropriated. Section 59 to 61 of the Act
lay down following rules as to appropriation of payments which provide an answer to
this question.
 Appropriation as per express instructions
Every debtor who owes several debts to a creditor has a right to instruct his creditor
to which particular debt, the payment is to be appropriated or adjusted. Therefore,
where the debtor expressly states that the payment is to be applied to the discharge
of a particular debt, the payment must be applied accordingly.
Example : A owes B three distinct debts of Rs.2,000, 3,000 and 5,000. A sends
Rs.5,000 and instructs B that the payment should be appropriated against the third
debt. He is bound to appropriate the payment against the third debt only.
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2. Application of payment where debt to be discharge is not indicated [60]

If section 60 is attracted, the creditor shall have the discretion to apply such payment for
any lawful debt which is due to him from the person making the payment.
Example: A owes to B, among other debts, the sum of Rs.520. B writes to A and
demands payment of this sum. A sends to B Rs.520. This payment is to be applied to the
discharge of the debt of which B had demanded payment.

3. Application of payment where neither party appropriates [61]

The payment shall be applied in discharge of the debts in order of time whether they are
or are not based by the limitation Act 1963, if the debt are of equal standing (i.e. payable
on the same date) the payment shall be applied in discharge of each of these debt
proportionately.

➢ First interest then principle

➢ Director of payer not receiver.
➢ Right primary of the debtor

[whatever is paid, paid according to the intention of paying it]

➢ [Quickquid soivitur , sovitur secundum modem solventies]

Example: A owes B, the following debts:
Amount of Positions of
the debt the debt
Rs.2,000 Time barred
Rs.1,000 Time barred
Rs.2,000 Due on 10th June
Rs.3,000 Due on 20th September
A sends Rs. 1,500 in the month of June. He neither expressly intimates nor circumstance
of the case imply as to which debt the amount is to be applied. Moreover, B also does not
appropriate the payment at his own discretion. Therefore, the payment will be
appropriated in order of time. However, here in this case two debts are of equal standing.
The payment will, therefore, be appropriated in order of time but to all equal standing
debts. In this case, Rs.1,500 will be appropriated towards the first two debts of equal
standing proportionately, i.e. in the ratio of 2:1.

DISCHARGE OF A CONTRACT

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Discharge of a contract means termination of contractual relation between the parties to a

contract in other words a contract is discharged when the rights and obligations created by it are
extinguished (i.e. comes to an end).
Mode of
discharge of
contract

1. By 6. By 4. By lapse 5. By breach of
performance impossibility of of Time contract
• Actual performance • Actual
• Attempted • Anticipatory

2. By mutual 3. By Operation of law

agreement 1. Death
(By implied consent) 2. Merger
1. Novation – Sec 62 3. Insolvency
2. Rescission – Sec 62 4. Unauthorized alteration
3. Alteration – Sec 62
4. Remission – Sec 63
5. Waiver
6. Merger

Discharge by performance

fulfillment of obligations by a party to the contract within the time and in the manner prescribed
in the contract.
(a) Actual performance – no party remains liable under the contract. Both the
parties performed.

(b) Attempted performance or tender.:- Promisor offers to perform his obligation

under the contract but the promise refuses to accept the performance. It is called
as attempted performance or tender of performance
➢ But the contract is not discharged.

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Discharge by mutual agreement

(a) Novation [Sec 62] – Novation means substitution of a new contract in the place
of the original contract new contract entered into in consideration of discharge of
the old contract. The new contract may be.
➢ Between the same parties (by change in the terms and condition)
➢ Between different parties (the term and condition remains same or changed)

Following conditions are satisfied :-

(1) All the parties must consent to novation

(2) The novation must take place before the breach of original contract.

(3) The new contract must be valid and enforceable.

Example:
o A owes B Rs.50,000. A enters into an agreements with B and gives B a mortgage
of his estate for Rs.40,000 in place of the debt of Rs.50,000. (Between same
parties)
o A owes money Rs.50,000 to B under a contract. It is agreed between A, B & C
that B shall henceforth accept C as his Debtor instead of A for the same amount.
Old debt of A is discharged, and a new debt from C to B is contracted. (Among
different parties)

(b) Rescission [62]:- Rescission means cancellation of the contract by any party or all
the parties to a contract. X promises Y to sell and deliver 100 bales of cotton on 1st
oct his go down and Y promises to par for goods on 1st Nov. X does not supply the
goods. Y may rescind the contract.

(c) Alteration [62] :- Alteration means a change in one or more of the terms of a
contracts with mutual consent of parties the parties of new contracts remains the
same.
Ex:- X Promises to sell and delivers 100 bales of cotton on 1st oct. and Y promises to
pay for goods on 1st Nov. Afterwards X and Y mutually decide that the goods shall
be delivered in five equal installments at is godown . Here original contract has been
discharged and a new contract has come into effect.

(d) Remission [63]:- Remission means accepting a lesser consideration than agreed in
the contract. No consideration is necessary for remission. Remission takes place
when a Promisee-

(a) dispense with (wholly or part) the performance of a promise made to him.
(b) Extends the time for performance due by the promisors
(c) Accept a lesser sum instead of sum due under the contract
(d) Accept any other consideration that agreed in the contract

➢ A promise to paint a pictured for B. B after words for him to do so. A is no longer
bound to perform the promise.

(e) Waiver:- Intentional relinquishment of a night under the contract.

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(f) Merger :- conversion of an inferior right into a superior right is called as merger.
(Inferior right end)

Basis Novation Alteration

1. Meaning It is substitution of an existing It is alteration to some of the
contract with new one. terms and conditions of the
original Contract.
2. Change in parties It is made by – (a) change in Terms of the contract may be
the terms of the contract or (b) altered by mutual agreements
change in the Contracting by the same contracting
Parties. parties. So, there is no change
in the parties.
3. New Contract A New Contract comes into It is not essential to substitute
existence in place of the old a new contract in place of the
one. old contract.
4. Performance Old contract need not be Old contract as per the altered
performed New contract must terms shall be performed.
be performed.

Discharge by operation of law

(a) Death :- involving the personal skill or ability, knowledge of the deceased party one
discharged automatically. In other contract the rights and liability passed to legal represent.
Example : A promises to perform a dance in B’s theatre. A dies. The contract comes to an
end.

(b) Insolvency:- when a person is declared insolvent. He is discharged from his liability up to
the date of insolvency.
Example: A contracts to sell 100 bags of sugar to B. Due to heavy loss by a major fire
which leaves nothing to sell, A applies for insolvency and is adjudged insolvent. Contract
is discharged.

(c) By unauthorized material alteration – without the approval of other party – comes to an
end – nature of contract substance or legal effect.
Example : A agrees upon a Promissory Note to pay Rs.5,000 to B. B the amount as
Rs.50,000. A is liable to pay only Rs.5,000.

(d) Merger: When an inferior right accruing to a party in a contract mergers into a superior
right accruing to the same party, then the contract conferring inferior right is discharged.

Example: A took a land on lease from B. Subsequently, A purchases that land. A becomes
owner of the land and ownership rights being superior to rights of a lessee, the earlier
contract of lease stands terminated.

5. Rights and liabilities vest in the same person: Where the rights and liabilities under a
Contract vest in the same person, the contract is discharged.
Example: A Bill of Exchange which was accepted by A, reaches A’s hands after being
negotiated and endorsed through 4 other parties. The contract is discharged.

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Discharge by Lapse of time

Where a party fails to take action against the other party within the time prescribe under the
limitation Act, 1963. All his rights to come end. Recover a debt – 3 Years recover an
immovable property – 12 years
Ex.:- On 1st July 20X1 X sold goods to Y to Rs 1,00,000 and Y had made no payment till
August 20X4. state the legal position on 1st Aug 20X4
(a) If no. credit period allowed Ans. (Refer Classroom)
(b) If 2 month credit period allowed.

Discharge by Breach of contract

Failure of a party to perform his part of contract

(a) Anticipatory Breach of contract :- Anticipatory breach of contract occurs when the
part declares his intention of not performing the contract before the performance is due .
(i) Express repudiation: - 5 agrees to supply B 100 tunes of specified category of
iron on 15.01.2006 on 31.12.2005. 5 express his unwillingness to supply the iron to
B.
(ii) Party disables himself: - Implied by conduct.
Ex.:- 5 agrees to sell his fiat car to B on 15.01.2006 on 31.12.05 5 sells his fiat car
to T.

(b) Actual Breach of contract :- If party fails or neglects or refuses to perform his
obligation on the due date of performance or during performance. It is called as actual
breach.

During performance – party has performed a part of the contact.

Consequences of Breach of contract:- The aggrieved party (i.e. the party not at face it ) is
discharged from his obligation and get rights to proceed against the party at fault. The various
remedial available to an aggrieved party.

Discharge by Impossibility performance

(a) Effect of Initial Impossibility
(b) Effect of supervening. Impossibility

(a) Initial Impossibility – at the time of making contract

➢ Both parties know – put life into deed body – void .
➢ Both don’t know – void.
➢ One know – compensate to other party

(b) Effect of super vanity Impossibility:-

➢ Where an act becomes impossible after the contract is made – void
➢ Becomes unlawful, beyond the control of promisor – void
➢ Promisor alone knows about the Impossibility – compensate loss.
➢ When an agreement is discovered to be void or where a contract becomes void
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Sing
Benefit must refund X Y. y
Ad.1000

Cases when a contract is discharged on the group of super vent Impossible

(a) Distraction of subject matter - Failure of the ultimate purpose of contract – king
coronate process.
(b) Death of personal Incapacity Example : (Refer Classroom)

(c) Declaration of war Example : (Refer Classroom)

(d) change of Law Example : (Refer Classroom)

(e) Non existence or Non occurrence of a particular state of thing necessary for performance.

Example : (Refer Classroom)

No Super Impossibility – does not become void

➢ Difficulty of performance – coal – transport

➢ Commercial Impossibility

➢ Default of a third party

➢ Strikes, knockout and civil disturbance.

➢ Partial Impossibility – coronation of king and to sailing around the lake by boat.

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REMEDIES FOR THE BREACH OF CONTRACT

Remedy means course of action available to an aggrieved party when other party breaches the
contract.
Remedies for
Breach of contract

1. 2.Suit for 3.Suit for 4.Suit for 5.Quantum

Rescission damage specific Injunction Meruit
of contract performance

RESCISSION OF CONTRACT – SEC 39

 It means right to party to cancel contract.

 In case of breach of contract, other party may rescind contract.

Effect of Rescission of Contract

 Aggrieved party is not required to perform his part of obligation under contract.
 Aggrieved party claims compensation for any loss.
 Party is liable to restore benefit, if any.

When can Court Grant Rescind Contract?

Court can rescind the contract in the following situation:

 Contract is voidable.
 Contract is unlawful.

SUIT FOR DAMAGES

 It means monetary compensation allowed for loss.

 Purpose is to compensate aggrieved party and not to punish party as fault.

 In India, rules relating to damages are based on English judgment of Hadley vs

Baxendale.
The facts of case were – H’s mill was stopped due to the breakdown of the shaft. He delivered
the shaft to common carrier to repair it and agree to pay certain sum of repair it and agree to pay
certain sum of money for doing this work. H has informed to B that delay would result into loss
of profit. B delivered the shaft after reasonable time after repair. H filed suit for loss of profit. It
was held that B is not liable for loss of profit. The court laid down rule that damage can be
recovered if party has breach of contract.

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KINDS OF DAMAGES

The following are the different kinds of damages:

 Ordinary damages
These are the damages which are payable for the loss arising naturally and directly as
result of breach of contract. It is also known as proximate damage or natural damage.

 Special damages

These are damages which are payable for loss arising due to some special circumstances.
It can be recovered only if special circumstances which result in special loss in case of
breach of contract and party have notice of such damage.

Example: A sends sample of his products for exhibition to an agent of a railway

company for carriage to “New Delhi” for an exhibition. The consignment note stated:
“Must be at New Delhi, Monday Certain.” Due to negligence of the company, the goods
reached only after the exhibition was over. Held, the company was liable for the loss
caused by late arrival of the products because the company’s agent was aware of the
special circumstances.

 Exemplary or punitive or vindictive damages

These damages are allowed not to compensate party but as mean of punishment to
defaulting party. The court may award these damages in the case of:
• Breach of contract to marry – loss based on mental injury.
• Wrongful dishonor of cheque – smaller amount, larger the damage.

 Nominal damages
Where party suffers no loss, the court may allow nominal damages simply to establish
that party has proved his case and won. Nominal damage is very small in amount.

 Damages for inconvenience

If party has suffered physical inconvenience, discomfort for mental agony as result of
breach of contract, party can recover the damage for such inconvenience.
Example: A photographer agreed to take photographs at a wedding ceremony but failed
to do so. The bride brought an action for the breach of contract. Held, she was entitled to
damages for her injured feelings.

 Liquidated damages and penalty

Party may specify amount at the time of entering into contract. The amount so specified
may be (a) liquidated damage, or (b) penalty.

If specified sum represent, fair and genuine pre – estimate damages likely to result due to
breach, it is called liquidated damage.

But if specified sum is disproportionate to the damages, it is called as penalty.

As regard the payment of liquidated damages and penalty court can’t’ increase amount of
damages beyond the amount specified in the contract.
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Example : A gives B, a bond for the repayment of Rs.1,000 with interest at 12 per cent,
at the end of six months, with a stipulation that, in case of default, the interest shall be
payable at the rate of 75 per cent, from the date of default. This is a stipulation by way of
penalty, and B is only entitled to recover from A such compensation as the Court
considers reasonable.

 Forfeiture of security deposit

Any clause in contract entitling the aggrieved party to forfeit security deposit in the
nature of penalty and court may award reasonable compensation.

 Payment of interest
• It is permissible.
• If interest is in nature of penalty, court may grant relief.
• If no rate of interest is specified in contract party shall be liable to pay as per the
law in force or as per custom or usage of trade.

 Cost of suit or decree

The court has also discretion to award cost of suit for damages in addition to the
damages for breach of contract.

Suit for Specific Performance

It means, demanding an order from court that promise agreed in contract shall be carried out.

 When is specific performance allowed?

• Where actual damages arising from breach is not measurable.
• Where monetary compensation is not adequate remedy.

 When specific performance is not allowed?

• When damages are an adequate remedy.
• Where performance of contract requires numbers of minute details and therefore
not possible for court to supervise.
• Where contract is of personal in nature.
• Where contract made by company beyond its power. (ultra – vires)
• Where one party to contract is minor
• Where contract is inequitable to either party.
Example : A agree to sell B, an artist painting for Rs.30,000. Later on, he refused to sell
it. Here B can file suit against A for specific performance of the contract.

Suit for Injunction

 It means stay order granted by court. This order prohibits a person to do particular act.
 Where there is breach of contract by one party and order, of specific performance is not
granted by court, injunction may be granted.
Example: Film actress agreed to act exclusively for W for a year and for no one else.
During the year she contracted to act for Z.

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QUASI CONTRACT
[Contracts implied in law or implied contract]

It means a contract which lacks one or more of the essentials of a contract.

Quasi contract are declared by law as valid contracts on the basis of principles of equity i.e. no
person shall be allowed to enrich himself at the expense of another the legal obligations of
parties remains same.

Nature of Quasi contracts:-

(a) A quasi contract does not arise from any formal agreement but is imposed by law.

(b) Every quasi contract based upon the principle of equity and good conscience.

(c) A quasi contract is always a right to money and generally though not always to a
liquidated sum of money.

(d) A suit for its breach may be filed in the same way as in case of a complete contract.
(e) The right grouted to a party under a quasi contract is not available to him against the
whole world but against particular person(s) only.

(f) A suit for breach of a quasi contract may be filed in the same way as in case of an
ordinary contract

(g) Although there is no contract between the parties under a quasi contracts, yet they are put
in the same position as if he were a contract between them .

Provisions relating to various quasi contracts are contained in section 68 to sec 72 of the
contract Act, 1872.

TYPES OF QUASI CONTRACTS

Sec. 68 Sec. 69 Sec. 70 Sec. 71 Sec.72
Supply of Reimbursement Obligation to pay for Responsibility of Person receiving
Necessaries of money due benefit out of non – Finder of Goods goods are money
gratuitous act by mistake

Sec. 68: If a person, incapable of entering into a contract, or anyone whom he is legally
bound to support, is supplied by another person, with necessaries suited to his condition in life,
the person who has furnished such supplies is entitled to be reimbursed from the property of
such incapable person.
1. Meaning of Necessaries:
(a) Necessaries normally include articles required to maintain a particular person in
the state, degree and station in life in which he is.

(b) They are essentials to run a life.

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(c) An item will not be considered necessary, if a person already has sufficient
supply of things of such kind.

(d) Necessaries include Services rendered to a person.

(e) What constitutes necessaries depends on the circumstances of each case.

2. Only property liable: person not liable:

(a) It is only the property (movable and immovable) of the incapable person they
shall be liable.
(b) He cannot be held liable personally.
(c) Where he doesn’t own any property, nothing shall be payable.

3. Example: (i) A supplies B, a lunatic, with necessaries suitable to his condition in life. A
is entitled to be reimbursed from B’s property. (ii) A who supplies the wife and children
of B, a lunatic, with necessaries suitable to their condition in life, is entitled to be
reimbursed from B’s Property.

Payment By a person who is interested in a transaction [69]

Condition of section [69]

Sec. 69; A person, who is interested in the payment of money and pays such money, which
another is bound by low to pay, is entitled to be reimbursed by the other.

(a) one party is legally bound to make a payment

(b) Some other persons make such payment
(c) The person making such payment is not legally bound to make such payment
(d) The person making such payment is interested in paying such amount

Legal effect of sec 69.:- If all the conditions of sec 69 are satisfy the person who is interested in
paying such amount shall be entitled to recover the payment made by him.

Ex.:- The goods belonging to A were wrongfully attached in order to realize arrears of
Government revenue due by G. A paid the amount to save the goods from sale at was held that
A was entitled to recover the amount from G.

Obligation of person enjoying benefit of non-gratuitous act [70]

Conditions of section 70.

Sec.70 : Where a person, lawfully does anything for another person, or delivers anything to him;
not intending to do so gratuitously, and such other person enjoys the benefits thereof, then he is
bound to make compensation to the other in respect of, or to restore the thing so done or
delivered.
(a) A person has lawfully done something for another person or delivered something to
another person.
(b) Such person must have acted voluntarily and non – gratuitously.
(c) The other person has enjoyed the benefit of the act done for him or the thing delivered to
him.

Legal effect of sec 70.

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➢ If the conditions of sec70 are satisfied, there will be quasi contract between the parties.
➢ Consequently, the party who has done something or delivered a thing shall be entitled to
recover its value from the person who obtained the benefit of the same.
Ex.:- A a trades man leaves goods at B’s house by mistake, B treat the goods as his own, He is
bound to pay A for them.

➢ A saves B’s property from fire. A is not entitled to compensation from B if the
circumstances show that be intended to act gratuitously.

Finder of Goods [71]

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

A finder of goods has same rights and duties at that of bailee.

➢ Duty to take reasonable care of the goods
➢ Duty not to use the goods for his own purpose.
➢ Duty not to mix the goods with own goods
Right to recover expenses, reward, sell the goods

Ex.:- X a guest found a diamond ring at a birthday party of Y. X told Y and other guests about
it. He has performed his duty to find the own. If he is not able to find the owner he can retain the
ring as bales.

Money paid under a mistake or conversion [72]

Sec. 72: A person to whom money has been paid, or anything delivered by mistake or under
coercion, must repay or return it.
Conditions of Sec. 72
(a) A person has (i) paid money to another person or
(ii) Delivered something to another person
(b) Such person must have acted
➢ Under a mistake or under coercion.

Legal effect – quasi contract, recover its value from the person who obtained the benefit of
same.
Example: (i) A and B jointly owe Rs.1,000 to C.A alone pays the full amount to C and B not
knowing this fact, pays Rs.1,000 again to C.C is bound to repay the amount to B. (ii) A Railway
Company refuses to deliver certain goods to the Consignee except upon payment of an illegal
charge for carriage. The Consignee pays the sum charged in order to take delivery of goods. He
is entitled to recover so much of the charge as was illegally excessive.

(c) A + B . – 100 – A – 100, B – 100, B – return.

Compensation for failure to discharge obligation created by quasi contract [73]

When an obligation created by quasi contract is not discharged the injured party is entitled to
reline the same compensation from the party in default as if such person had, contracted to
discharge is and broken his contract.

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Quantum meruit: - [as much as is earned]

One party preventing the other:- If a party prevents the other party from completing his
obligation under the contract the aggrieved party may claim payment on quantum merit for the
part of contract already performed by him.

(a) In case of void agreement or contract that becomes

➢ Any person who has received any advantage under such agreement or contract is bound
to restore if or to make compensation for it, to the person from who received it.
Ex.:(1)- A – B – 10000 – to marry c (A’s daughter) – C – death of the time of
performance of contract – B must repay A Rs 1000.
Ex.(2):- A – B decline 250 quince of rice before the 1st of May. A delivers 130 qu. Only
before that day and none after. B retains the 130 qu. after the first of May. He is bound to
pay A for them.
Ex(3):-A singer – two nights in every week during the next two month and B any ages to
pay her Rs 100 for each night’s performance on the sixth night, A willfully absent
perfect. B must pay a for the five night on which she had sung.

(b) In case of Act preventing the completing of contract:-

If a party does not complete the contract or prevents the other party to complete the contract the
aggrieved party can sue or quantum meruit.
Ex.c:- owner – P write a book to be published as series in his magazine. After a few
series were published the publication of the magazine was stopped. It was held that P
could claim payment on quantum meruit for the part already published.

(c) In case of divisible contract :-

(1) If the contract is divisible and
(2) If the party not at default has enjoyed benefit of the point performance.
(3) the contract is party performed

If the above condition an satisfied, the party at fault may claim on payment on quantum meruit
for the part of contract performed by him be con recover such proportion of the contract price as
the work done, by him bears to the work under the contracts.

(d) In case of indivisible contract performed completely but Badly.

➢ Contract is indivisible
➢ Lump sum consideration
➢ Completely performed
➢ Performed badly

The party at fault may recover the contract price (Lump sum price) less the deduction made for
done badly.

Ex.:- X agreed to decorate Y’s flat for a lump sum of Rs20,000. X did the complete work but Y
complained of faulty work man stop. It costs Y another Rs3000 to remedy the defect. X could
recover only Rs 17000 from Y.

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(e) In case of Non – gratuitous Act – Three condition

(i) The thing must have been done or delivered lawfully.

(ii) The person who has done or delivered the thing must not have intended to do so gratuitously
And
(iii) The person from whom the act is done must have enjoyed the benefit of the act.

Ex.:- A, a tradesman leaves goods at B’s shop be mistake B treats the good as his own. He is
bound to pay A for them.

Difference between Quasi Contract and Contract

Matter Quasi – contract Contract

Intentionally Form It is not intentionally formed It is intentionally formed by
but law imposes upon the parties.
parties.
Essentials of contract A quasi – contract does not A contract possesses all the
possess all the essential of a essentials of a valid contract.
valid contract.
Obligations Obligations are implied upon Obligations are mutually
by the law. created by the parties.
Foundation It is founded upon the It is founded upon general
principle of equity. principal of law of contracts.

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