LL.B.

– 1ST SEM
SUBJECT – CONTRACT-I
Meaning of Contract
What is a contract?

A contract is an agreement between parties reduced in writing giving effect

to the purpose of the parties. Section 2(h) of the Indian Contract Act, 1872,
as follows ‘’ An agreement enforceable by law is a contract’’. Two essentials
for a contract- (1) an agreement, and (2) the agreement should comply with
the law.

According to Anson, “ the law of contract is that branch of law which

determine the circumstances in which a promise shall be legally binding on
the person making it”.
Essentials of valid contract
1. Offer and acceptance: - These must be two parties to an agreement,
i.e., one party making the offer and other party accepting it. The term
of the offer should be definite and the acceptance of the offer must be
absolute and unconditional. The acceptance should be according to the
mode prescribed in the arrangement and must be communicated to
the offeror.
2. Intention to create legal relationship: When the two parties go into
an agreement, their intention should be to create legal relationship
between them. If there is no such intention on the part of the parties
there is no contract between them.
Example – A husband promised to pay his wife a household allowance
of 30 every month. Later the parties separate and the husband failed to
pay the amount. The wife sued the husband for the allowance. It was
held by the court that such agreement were outside the realm of the
contract altogether
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3. Lawful Consideration: - An agreement to be enforceable by the law must
be supported by consideration. ‘Consideration’ means an advantage or
benefit moving from one party to other. The agreement is legally
enforceable only when both the parties give something and get something
in return. Consideration need not necessarily be a cash or kind. But it
must be real and lawful.
4. Parties to be competent to contract: - The parties to the agreement
must be capable of entering into a valid contract. Every person is
competent to contract if he (i) is the age of majority. (ii) is of sound mind,
and (iii) is not disqualified from contracting by any law to which he is
subject.
5. Free and genuine consent: It is essential to the creation of every
contract that there must be free and genuine consent[6] of the partiesto
the agreement. The consent of the parties is said to be free when they
agree about the subject-matter of the contract in the same sense and at
the same time.
6. Lawful object – The object of the agreement must be lawful. In the other
words, it means that the object must not be (a) illegal (b) immoral, or (c)
opposed to public policy.
7. Agreement not declared void: The agreement must not have been
expressly declared void by law in force in the country.
8. Certainty and possibility of performance: The agreement must be
certain not vague or indefinite. If it is vague and it is not possible to
ascertain its meaning, it cannot be enforced
9. Necessary legal formalities: A contract may be performed by words
spoken or written. As regards the legal effects, there is no difference
between a contract in writing and a contract made by word of mouth. It is,
however, in the interest of the parties that the contract should be in
writing. There are some other formalities also which have to be complied
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 with in order to make an agreement legally enforceable. Thus Where
there is a statutory required that a contract should be made in writing or
in the presence of witness or registered, the required statutory
formalities must be complied with.

Types of Contract

1. Voidable contract: An agreement which is enforceable by law at the

option of one or more of the parties thereto, but not at the option of the
other or others, is a voidable contract. This happens .when the essential
'element of free consent in a contract is missing. A voidable contract
continues to be valid till it is avoided by the party entitled to do so.

Example: X promises to sell his motor-cycle to Y for Rs. 15,000. His

consent is obtained by use of force. The contract is voidable at the
option of X. He may avoid the contract or elect to be bounded by it.

2. Void agreement and void contract: An agreement not enforceable by

law is said to be void [Sec. 2 (g)]. A void agreement does not create any
legal rights or obligations. A contract which ceases to be enforceable by
law becomes void when it ceases to [3] be enforceable [Sec. 2 (j)]. A
contract, when originally entered into, may be valid and binding on
the parties, e.g., a contract to import goods from a foreign country. It
may subsequently become void, e.g., when a war breaks out between
the importing country and the exporting country.
3. Illegal agreement: An illegal agreement is one which is against some
rule of basic public policy or which is criminal in nature or which, is
immoral. Such an agreement is a nullity. All illegal agreements are
void but all void agreements or contracts are not necessarily illegal. An
illegal agreement is not only void as between the immediate parties
but has this further effect that even the collateral transactions to it
become tainted with illegality. A collateral transaction is one which is
subsidiary,Incidental or auxiliary to the original contract.
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 Example: Y borrows Rs. 20,000 from X and enters into a contract with
an alien to import prohibited goods. X knows the purpose of the
loan. The transaction between Y and X is collateral to the main
agreement. It is illegal since the main agreement is illegal. If the main
agreement is void, the collateral transactions to it are not affected. In
the above example, if Y had entered into a void agreement with a
minor, the contract between Y and X would not have been affected.
4. Express contract: If the terms of a contract are expressly agreed upon
(whether by words spoken or written) at the time of formation of the
contract, the contract is said to be an express contract. Where the offer
or acceptance of any promise is made in words, the promise is said to
be express.
5. Implied contract: An implied contract is one which is inferred from
the acts or conduct of the parties or course of dealings between them.
It is not the result of any express promise or promises by the parties
but of their particular acts. It may also result from a continuing course
of conduct of the parties. Where the proposal or acceptance of any
promise is made otherwise than in words, the promise is said to be
implied.
Examples: A fire broke out in P's farm. He called upon the Fire Brigade
to put out the fire which the latter did. P's farm did not come under the
free service zone although he believed to be so. It was held by the court
that he was liable to pay for the service rendered as the service was
rendered on an implied promise to pay [Upton Rural District Council v.
Powell].
6. Quasi-contract: A quasi-contract is not a contract at all. A quasi-
contract is created by law. It resembles a contract in that a legal
obligation is imposed on a party who is required to perform it. It rests
on the ground of equity that "a person shall not be allowed to enrich
himself unjustly at the expense of another."

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 Example: T, a tradesman, leaves goods at C's house by mistake. C
treats the goods as his own. C is bound to pay for the goods.
7. E-Commerce contract: An E-commerce contract is one which is
entered into between two parties via Internet. In Internet various
individuals or companies create networks which are linked to
numerous other networks. This expands the area of operation in
commercial transactions for any person.
8. Executed contract: 'Executed' means that which is done. An executed
contract is one in which both the parties have performed their
respective obligations.
Example: X agrees to paint a picture for Y far Rs. 5,000. When X
paints the picture and Y pays the price, i.e., when both the parties
perform their obligations, the contract is said to be ceased.
9. Executory contract: 'Executory' means that which remains to be
carried into effect. An executory contract is one in which both the
parties have yet to perform their obligations. Thus in the above
example, the contract is executory if X has not yet painted the picture
and Y has not paid the price. Similarly, if X agrees to engage Y as his
servant from the next month, the contract is executory.
10. PARTLY EXECUTED AND PARTLY EXECUTORY - A contract may
sometimes be partly executed and partly executory. Thus if Y has paid
the to price X and X has not yet painted the picture, the contract is
executed as to Y and executory as to X.
11. Unilateral contract : A unilateral or one-sided contract is one in
which only one party has to fulfill his obligation at the time of the
formation of the contract, the other party having fulfilled his obligation
at the time of the contract or before the contract comes into existence.

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 Example: X permits a railway coolie to carry his luggage and place it in
a carriage. A contract comes into existence as soon as the luggage is
placed in the carriage. But by that time the coolie has already
performed his obligation. Now only X has to fulfill his obligation, i.e.,
pay charges to the coolie.
12. Bilateral contract: A bilateral contract is one in which the
obligations on the part of both the parties to the contract are
outstanding at the time of the formation of the contract. In this sense,
bilateral contracts are similar to executor contracts.
Offer and Invitation to Offer
An offer and invitation to offer are two different terms, which must not be
confused with one another. An offer is a proposal
while an invitation to offer (treat) is inviting someone to make a proposal.
In an offer, there is an intention to enter into a contract, of the party, making
it and thus it is certain. On the other hand, an invitation to offer is an act
which leads to the offer, which is made with an aim of inducing or
negotiating the terms.
So, in an invitation to offer, the offeror, does not make an offer, rather
invites other parties to make an offer. Hence, before simply responding to an
offer, one must know the difference between offer and invitation to offer,
because that makes a difference in the rights of parties.
Meaning of Offer

An offer is an expression of a person showing his willingness to another

person to do or not to do something, to obtain his consent on such
expression. The acceptance of the offer by such person may result in a valid
contract. An offer must be definite, certain and complete in all respects. It
must be communicated to the party to whom it is made. The offer is legally
binding on the parties.

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Example:

 A tells to B,”I want to sell my motorcycle to you at Rs. 30,000, Will you
purchase it?”
 X says to Y,”I want to purchase your car for Rs. 2,00,000, Will you sell it
to me?”

Meaning of Invitation to offer

An Invitation to Offer is an act before an offer, in which one person induces

another person to make an offer to him, it is known as invitation to offer.
When appropriately responded by the other party, an invitation to offer
results in an offer. It is made to the general public with intent to receive
offers and negotiate the terms on which the contract is created.

The invitation to offer is made to inform the public, the terms and conditions
on which a person is interested in entering into a contract with the other
party. Although the former party is not an offeror as he is not making an
offer instead, he is stimulating people to offer him. Therefore, the
acceptance does not amount to a contract, but an offer. When the former
party accepts, the offer made by the other parties, it becomes a contract,
which is binding on the parties.

Example:

 Menu card of a restaurant showing the prices of food items.

 Railway timetable on which the train timings and fares are shown.
 Government Tender

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 Difference Between Offer and Invitation to Offer

BASIS FOR
OFFER INVITATION TO OFFER
COMPARISON
Meaning When one person When a person expresses
expresses his will to something to another person, to
another person to do invite him to make an offer, it is
or not to do something, known as invitation to offer.
to take his approval, is
known as an offer.
Defined in Section 2 (a) of the ot Defined
Indian Contract Act,
1872.
Objective To enter into contract. To receive offers from people
and negotiate the terms on
which the contract will be
created.
Essential to Yes No
make an
agreement
Consequence The Offer becomes an An Invitation to offer, becomes
agreement when an offer when responded by the
accepted. party to whom it is made.

There are following types of offer:

 General offer: The type of offer which is made to the public at large.
 Specific offer: The type of offer made to a particular person.

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  Cross offer: When the parties to the contract accept each other’s offer
in ignorance of the original offer, it is known as the cross offer.
 Counter offer: This is an another type of offer in which the offeree
does not accept the original offer, but after modifying the terms and
conditions accept it, it is termed as a counter offer.
 Standing offer: An offer which is made to public as a whole as well as
it remains open for a specific period for acceptance it is known as
Standing offer.

Acceptance
Acceptance means giving consent to the offer. It is an expression by the
offeree of his willingness to be bound by the terms of the offer
Example:- X offers to sell his car to Y for Rs 1lakh. Y agrees to buy the car
for Rs 1lakh. Y’s act is an acceptance of X’s offer.
Essential of a Valid acceptance
1. Communication Of Acceptance- The above definition clearly requires
that the assent should be signified. It may be signified or expressed
by an act or omission by which the party accepting intends to
communicate his assent or which has the effect of communicating it.
[S.3] A very common instance of an act amounting to acceptance is the
fall of the hammer in the case of an action sale.
Example - Where a contract was required by law to be signed by the
parties and the contract was on two papers, one map plan signed by
one but not the other, the court said that no contract resulted.
2. Mode of Acceptance- The acceptance must be expressed in some
usual and reasonable manner unless the proposal prescribed the
manner in which it is to be accepted.
3. Absolute and unconditional acceptance- In order to convert a
proposal into a promise the acceptance must be absolute and
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 unconditional. Any departure from the terms of the proposal will
vitiate the acceptance.
4. Acceptance of before lapse of offer- Offer should be accepted before
it lapsed. An acceptance of an after its lapse cannot create a binding.
5. Acceptance by Conduct: - Another common example of acceptance by
conduct is an action in the term of the offer. All cases of general offer
which are a kind of unilateral contract, demand some act in return for
the promise to pay.
6. Communication to Offeror himself- Further, acceptance must be
communicated to the offeror himself. A communication to any other
person is an ineffectual as if no communication has been made.
7. Communication by Acceptor Himself- The natural corollary of the
principal is that the communication of acceptance should be from a
person who has the authority to accept. Information received from an
unauthorized person is ineffective.
8. Mode of Acceptance- Acceptance should be made in Prescribed
Manner: Acceptance has to be made in the manner prescribed or
indicated by the offer or. An acceptances given in any other manner
may not be effective,
Ex- A offered to buy flour from B requesting that acceptance should be
sent by the wagon which brought the offer. B sent his acceptance by
post, thinking that the words reach the offeror speedily. But the letter
arrived after the time of the wagon. A was held to be not bound by the
acceptance.
9. Acceptance should made before the offer lapses -An offer lapses in
the circumstances provided for in Section 6. According to this section,
‘’A proposal is revoked.

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 Mere Silence is an Acceptance
An agreement is also formed of a promise with a lawful consideration
for both the parties. Similarly, a promise comprises of its own parts, offer
and acceptance.
This is where the whole idea begins. An offer is made by one individual
or a group (called offeror) to another individual or a group (called offeree)
in order to seek an acceptance from the other party. If an offer is accepted
by valid means, the proposal becomes a promise.
All this process sounds like an easy path to follow, but sometimes it can be
confusing. The problems arise a lot in the first stage itself, i.e. Making an
offer and its acceptance. Common among them is difference of minds. A legal
maxim Consensus ad idem means the meeting of minds, is one of the main
principles behind offer and acceptance. Therefore, acceptance should be
absolute and unqualified just like the offer.
Mere silence under Indian law, which has its roots in the English law, is not
considered as a valid acceptance. However, acceptance can be either
expressed or implied. The confusion regarding whether an acceptance can
be done on mere silence basis is clear under the Indian contract law which
remains as invalid but the question of an act done in silence may amount to
as acceptance or mere silence is the base of the acceptance itself. This makes
way for anomalies in the interpretation leading to ambiguities. Therefore, it
is subjected to deliberation which the research will try to further pertain on.
When Can Silence Be A Valid Acceptance
From the earlier stated definition of acceptance, it is clear that an
acceptance should be signified. It can be done in various ways. It can be
either Expressed acceptance or an Implied one. Expressed acceptance
consists of spoken words, written assent, for ex. Emails and letters. On the
other hand, Implied acceptance is a bit more complicated. It is basically an
act which shows one party assent to the proposal by doing such an act
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which can clearly depict the consent of it.
There is also another way called Acceptance by Conduct. When someone
acts in accordance with the terms in the offer it is a valid form of acceptance.
Under Section 8, it is mentioned Performance of the conditions of a
proposal, or the acceptance of any consideration for a reciprocal promise
which may be offered with a proposal, is an acceptance of the proposal. It
can be said that this is an acceptance by performance. Just the performance
of the conditions of the proposal and providing and accepting the
consideration asked for in a reciprocal proposal is enough acceptance on the
part of the offeree.
This can be studied from the decision of the Calcutta High Court in
Hindustan Coop Insurance Society v. Shyam Sunder case. In this case, the
proposer of the agreement, on the request of the organizer of the company
agreed to insure his life. The company sent their doctor for his medical
check-up and after which he was found to be first class.
Communication of Offer And Acceptance
The communication of offer and acceptance must complete so as to bind the
concerned parties because as soon as the communication is complete the
parties loose the right of withdrawal or revocation.
The legal provisions relating to the communication of offer and acceptance
are as under:
1. Communication of offer :- The communication of offer is complete
when it comes to knowledge of the person to whom it is made. In case
an offer is made by post its communication will complete when the
letter containing the offer reaches the offeree.
Example X of Agra sends a letter by post to y of Delhi offering to sell
his car for Rs 1,00,000. The letter is posed on 1st January and this
letter reaches on 7th January .The communication of the offer is
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 complete on 7th January. The communication of the offer is complete
on 7th January.
2. Communication of Acceptance :- The communication of acceptance
at complete different time for the proposer And acceptor .The rules
regarding the communication of acceptance are as under :
 As against the proposer- the communication of acceptance
complete. When it is put in a course of transmission to him, so as
to be out of the power of the acceptor. In the case of acceptance
made by post ,the proposer becomes bound by the acceptance as
soon as the properly addressed and stamped letter of acceptance
is duly posted even if such letter of acceptance is lost or delayed
in post
 As against the acceptor - the communication of acceptance
complete. When it comes to the knowledge of the proposer .In
case of acceptance made by post ,the acceptor becomes bound by
the acceptance only when the letter of acceptance is actually
received by proposer.
3. Communication of Revocation [section4] The communication of
revocation is complete at different times for person who makes it and
the person to whom it is made .The rules regarding the communication
of revocation are as under;
 As against the person who makes it - the communication of
revocation complete. When it is put in a course of transmission to
the person to whom it is made so as to be out of the power of the
person who makes it.
 As against the person to whom it is made- the communication
of revocation complete. When it comes to his knowledge.
Examples X proposes by latter to sell his car to Y for Rs
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 1,oo,ooo.Y accepts X’s proposal by a letter sent by post .If X
revokes his proposal by telegram, the revocation of offer is
complete as against X when the telegram is dispatched and it is
complete as against Y when Y receive the telegram .If Y revokes
his acceptance is complete against Y when the telegram is
dispatched and as against X when it reaches him.
Mode of Revocation of Proposal
1. Notice of Revocation- Section 5 provides that of “its acceptances are
complete as against the proposer, but not afterwards. We know that as
against the proposer, the communication of acceptance is complete “
when it is put in a course of transmission to him, so as to be out of the
power of the acceptor.
Ex- A proposes by letter sent by post, to sell his house to B. B accepts
the proposal at any time before or at the moment when B posts his
letter to acceptance, but not afterwards.
2. By Death or insanity of Offerer : An offer lapses on the death or
insanity of the offeror , provided that the fact comes to the knowledge
of the offeree before he makes his acceptances have right under it. A
person who is not a party to the Contract cannot have any right under
it. This principle is popularly known as “privity of contract”
3. Lapse of reasonable time- A proposal (offer) is revoked by the lapse
of time prescribed in such proposal for its acceptance or if no time is so
prescribed by the lapse of a reasonable time.
4. By Failure to Accept Condition Precedent -Where the offer is subject
to a condition precedent, it lapses if it is accepted without fulfilling the
condition.
Ex- Where a salt lake was offered by the lease on deposit of sum of
money within a specified period, and the intended lessee did not
deposit the amount for 3 long years, it was held that this entailed
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 cancellation of the allotment
5. By Failure to Accept Condition Precedent -Where the offer is subject
to a condition precedent, it lapses if it is accepted without fulfilling the
condition.
Ex- Where a salt lake was offered by the lease on deposit of sum of
money within a specified period, and the intended lessee did not
deposit the amount for 3 long years, it was held that this entailed
cancellation of the allotment
Capacity to contract
According to section 11 every person who
1. Has attained the age of majority,
2. is of sound mind and
3. Is not otherwise disqualified from contracting, is competent to
contract.
Position of Contracts with minors
In India, the age of majority is regulated by the Indian majority act (Act IX of
1875). Every person domiciled in India attains majority on the completion
of 18 years of age. The position of a minor as regards his agreement may be
summed up as follows:
1. An agreement with minor is void ob initio: the reason for this rule is
that it is presumed in law that a minor cannot understand the
implications of his acts and therefore cannot be bound by any promise
made by him. Example: A minor executed a mortgage for Rs. 20,000
and received Rs. 10,500 from the mortgagee as advance. Then he sued
for setting aside the mortgage. The mortgagee claimed refund of Rs.
10,500 which he had paid. Held, an agreement by the minor was void,
and the mortgagee could not recover the amount of Rs. 10,500.
(MOHIRI BIBI VS. DHARMODAS GHOST)
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2. Estoppel does not apply against a minor: If a minor misrepresents
his age and induces another to enter into a contract with him,
estoppels will not apply against him.
3. Minor not liable in contract or tort arising out of a contract: A
minor is not liable in a contract because he is incapable of giving a valid
consent. But a minor can be made liable if a tort is committed by him.
Where a tort arises because of a contract, a minor cannot be made
liable even in tort because that would be an indirect way of enforcing a
contract.
Example: a minor obtained a loan by falsely representing his age. The
lender filled a case of tort of deceit end claimed damages. Held, that
loan could not be recovered as it would be indirectly enforcing a
contractual obligation.
4. Doctrine of restitution: if a minor obtains some goods by
misrepresenting his age, he can be compelled to restore it, but only if it
is traceable. If it is not traceable minor cannot be asked to restored.
5. No ratification on attaining majority: A minor cannot ratify an
agreement on attaining majority which he had entered into during
minority. Ratification relates back to the date of the act and therefore a
contract which was void ab initio cannot be validated by subsequent
ratification.
Example: K, an infant, speculated and lost heavily on the stock
exchange. He became liable to the share brokers for E 547. On his
attaining the age of majority, he gave two bills for f 50 each in
satisfaction of the original debt. Held, K could not be liable on the
bills.
6. Minor cannot become a partner: A minor cannot enter into
partnership agreement. But a minor may be admitted to the benefits of
a partnership with the consent of all the partners. He can become a full
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 fledged partner on attaining majority [section 30, Indian Partnership
Act, 1972).
7. Minor cannot be adjudged insolvent: A minor cannot be adjudged
insolvent as he is incapable of contracting a debt.
8. Beneficial contracts: where a minor has already given the full
consideration to be supplied by him and there is nothing that remains
to be done by him under the contract, a minor can enforcethe contract.
9. Minor liable for necessaries: a minor is liable for necessaries
supplied to him or any one whom he is legally bound to support, to the
extent of his estate (sec. 68). The term 'necessaries' is not defined in
the Indian Contract Act, 1892. The English sale of goods Act, 1893
defines necessaries as follows: "Goods suitable to the condition in life
of such infant or other person, and to his actual requirement at the
time of sale and delivery.
Persons of unsound mind
In India law one of the essential conditions of competence of parties to a
contract is that the parties should be of sound mind. Sec. 12 lays down a test
of soundness of mind.
It reads as follows:
 "A person is said to of sound mind for the purpose of making a
contract, if at the time when he makes it, if he is capable of
understanding it, and of forming a rational judgment as to its effect
upon his Interests.
 A person who is usually of unsound mind, but occasionally of sound
mind, may makes a contract when he is of sound mind.
 A person who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound mind."
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The following persons have been held to be persons of unsoundmind:
1. Lunatics: A lunatic is a person who is mentally deranged due to
some mental strain or other personal experience. He suffers from
intermittent intervals of sanity and insanity. He can enter into a
contract only duringthe period when he is of sound mind.
2. Idiots: An idiot is a person who has completely lost his mentally
powers. He does not exhibit understanding of even minor objects. An
agreement with an Idiot is void.
3. Drunken or intoxicated persons: a drunken person suffers from
temporary incapacity to contract, i.e., at the time when he drunk, so
that he is Incapable of forming a rational judgment. A contract by
drunken person may be ratified by him when he Is sober.
Person disqualified by Law
1. Alien enemies: An alien is a person who is a citizen of a foreign
country. An alien may be An alien friend; or An alien enemy.
 Contract with an alien friend (an alien whose state is at peace with
the Republic of India), subject to certain restrictions, are valid.
Contracts with alien enemies (an alien whose state is at war with
therepublic of India) may be studied under two heads:
 Contract made before the war: These contracts may either be
suspended or dissolved. Contracts will be dissolved if they are
against the public policy or if their performance would help the
enemy.
 Contracts made during the war: During the continuance of the
war, an alien enemy can neither contract with an Indian citizen nor
can he sue in an Indian Court. He can sue in an Indian Court only
after receiving a license from the Central Government.

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 2. Foreign sovereigns: Foreign sovereigns and accredited
representatives of a foreign States cannot be sued unless they on their
own, submit to the jurisdiction of our law courts.
3. Corporations: A corporation is an artificial person created by law. It
does not have any physical existence. It can sue and be sued but only
through an agent.
4. Insolvent: When a debtor is adjudged insolvent, whole of his property
vests in the official Receiver or Official Assignee. As such, the insolvent
Is deprived of all power to deal in that property. He also suffers from
certain disqualifications which are removed when the court passes an
order of discharge.
5. Convicts: A convict is incapable of entering into a contract when
undergoing imprisonment. He can, however, enter into, or sue on, a
contract if he is lawfully at large under a license called ticket of leave.
This incapacity to contract, or to sue on a contract, comes to an end
when he completes the sentence or when he is pardoned.
CONSIDERATION
Meaning of consideration- "when, at the desire of the promisor, the
promise or any other person
 Has done or abstained from doing, (past consideration) or
 Does or abstains from doing (present consideration) or
 Promises to do or to abstain from doing something, (future
consideration) Such act or abstinence or promise is called
consideration".
Legal requirement regarding consideration
1. Consideration must move of the desire of promisor: To make a
contract binding and enforceable the consideration must be supplied at
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 the desire of the promisor. If it is done at the desire of the third party
or without the desire of the promisor, it will not be good consideration.
Example- An agreement between the plaintiff and defendant whereby
the latter promised to pay the former a commission on articles sold in
his shop in a market in return of his spending money in its
construction at the request of collector of the town is void for the
plaintiff did not construct the market at the instance of the defendant.
2. Consideration may move from promisee or any other person: As
long as there is a consideration for a promise, it is immaterial who has
furnished it. It may move from the promisee or any other person.
Example- A made over certain property to her daughter under a deed
of a gift with a direction that the daughter should pay an annuity to A’s
brother as has been done by A. On the same day, the daughter executed
a writing in favour of A’s brother agreeing to pay the annuity. The
daughter refused to fulfill her promise afterwards and A’s brother sued
her under the agreement. It was held by the court that he was entitled
to recover the amount of annuity as the consideration on this behalf
had moved from A.
3. Consideration may be past, Present or future: The definition of
consideration clearly state that the consideration may be past, present
or future.
a. Past consideration: consideration is said to be past
consideration when something is provided to or done for the
promisor before he gives the promise.
b. Present/Executed consideration: when the consideration is
given simultaneously with the promise, i.e., at the time of
making the promise, it is said to present or executed
consideration. Example, cashsales.
c. Future/ Executory consideration: when the consideration from
20
 one party to another is to move at some future dates after
making the promise, it is called future or executory consideration
4. Consideration need not to be adequate: the law simply provides
that a contract should be supported by a consideration. However, it is
not concerned about the adequacy of the consideration, provided it is of
some value.
5. Consideration must be real and not illusory: consideration,
although need not be adequate, must be real, competent and of some
value in the eyes of law. It must not be impossible or illusory. The
following are not real consideration:
 Physical impossibility
 Legal impossibility
 Uncertain consideration
 Illusory consideration

6. Consideration must be legal: The consideration should not be illegal,

immoral or opposed to public policy. Every agreement whose
consideration is unlawful is void.
7. Consideration must not be something which the promisor is
already bound to do: If a person is already bound to do something
under law or as an official duty or under some contract and he
promises to do the very same thing to form an agreement then this
promise would not form any consideration for other person'spromise.
Suit by third party on an agreement or Privity of Contract
Though the Indian Contract Act the consideration for an agreement may
proceed from a third party, the third party cannot sue on agreement. Only a
person who is party to a contract can sue on it. This is called Privity of
Contract.

21
Though a stranger to consideration can sue because the consideration can
be furnished or supplied by any person whether he is the promisee or not,
but a stranger to a contract cannot sue because of the absence of privity of
contract (i.e. relationship subsisting between the parties to a contract).
Example:- X owes Y Rs 1lakh and sells his property to Z. Z promises to pay
off X’s debt to Y. Z fails to pay. Y can’t sue Z because he is a stranger to a
contract.
Exceptions:
1. In the case of trust, beneficiary can enforce his right under the trust
though he was not a party to the contract between the settler and the
trustee.
2. In the case of a family settlement, if the terms of the settlement are
reduced into writing, the members of family who originally had not
been parties to the settlement may enforce the agreement.
3. In the case of certain marriage contract, a female member can
enforce a provision for marriage expenses, made on the partition of the
Hindu undivided family.
Example, A provision is made for the marriage expenses of the female
member of a Hindu family on partition of the joint family properly
between the male members. The female member is entitled to sue the
parties to the partition deed to enforce the provisions in her favour.
4. In case of assignment of a contract, when the benefit under a
contract has been assigned, the assignee can enforce the contract.
5. In the case of an estoppels by acknowledgement of liability or part
performance thereof, that is when, one admits the liability. Example, if
L gives to M Rs. 2000 to be given to N, and M informs N that he is
holding the money for him, but after awards M refuses to pay the
money N will be entitled to recover the same from the former.
22
 6. In case of covenant running with the land, the person who purchase
land with notice that the owner of land is bound by certain duties
affecting land, the covenant affecting the land may be enforced by the
successor of the seller.
Validity of an agreement without Consideration
The general rule, as laid down in sec.25, is that an agreement made without
consideration is void. Sec. 25, however, gives three exceptions to the general
rule. In such cases, the agreements are contracts even though made without
consideration. These cases are:
1. Natural love and affection [Sec. 25 (I)] - Where an agreement is
expressed in writing and registered under the law for the time being
in force for the registration of the documents and is made on account
of natural love and affection between the parties standing in a near
relation to each other, it is enforceable even if there is no
consideration. There are four essential requirements of such an
agreement:
 it Is in writing;
 it is registered;
 it is made on account of natural love and affection; and
 the parties stand in a near relation to each other.
The term 'near relative is not defined in the Act, but when parties are
related by blood or marriage, they are definitely covered. 'Natural love
and affection' implies a degree of instinctive love and affection
between parties in near relatives.
Examples - A, for natural love and affection, promises to give his son,
N,Rs 1,00,000. A puts his promise to N in writing and registers it. This
is acontract.

23
2. Compensation for past voluntary service [Sec. 25 (2)] - Where
there is an agreement to compensate wholly or in part, a person who
has already voluntarily done something for promisor, or something
which the promisor was legally compellable to do, the agreement is
valid even though without consideration. In simple words, a promise to
pay for a past voluntary service is binding.
Example
 A finds B's purse and gives it to him. B promises to give A Rs. 500.
This is a contract.
 A support B's infant son. B promises to pay A's expenses in so
doing. This is a contract.
3. Promise to pay a time barred debt [sec. 25 (3)] - A promise by a
debtor to pay a time barred debt is enforceableprovided it is
 Made in writing; and
 Signed by the debtor or by his agent.
 The promise may be to pay the whole or any part of the debt.
 A debt is barred by limitation if it remains unpaid or unclaimed for
aperiod of three years.
Example: A owes 8 Rs. 1,000, but the debt is barred by the limitation
act. A signs a written promise to pay B Rs. 700 on account of the debt.
This is a contract.
4. Agency: According to Section 185 of the Indian Contract Act, no
consideration is necessary to create an agency.
5. Completed gift: In case of completed gifts, the rule of no consideration
no contract does not apply. Explanation (1) to section 25 states
"nothing in this section shall affect the validity as between the donor
and donee, of any gift actually made." Thus, gift do not require any
consideration.
24
 CONSENT
"Two or more person are said to consent when they agree upon the same
thing in the same sense", To constitute consent both the parties have the
same thing in mind and the same thing is understood in the same sense by
them. The validity of an agreement depends not only upon the consent but
upon its freeness also.
What is free consent — "Consent is said to be free when It is not
caused by"
• Coercion, as defined In section 15, or
• Undue Influence, as defined in section 16, or
• Fraud, as defined in section 17, or
• Misrepresentation, as defined in section 18, or
• Mistake, subject to the provisions of sections 20, 21 and 22.

COERCION
Coercion means compelling a person to enter into a contract under a
pressure or a threat, According to Section 15, a contract is said to be caused
by coercion when it is obtained by-
 committing any act which is forbidden by the Indian Penal Code; or
threatening to commit any act which is forbidden by the Indian Penal
Code;
 unlawful detaining of any property; or
 threatening to detain any property.
Example- A Hindu widow was forced to adopt a child under the threat that
the dead body of her husband would not be allowed to be removed
otherwise. Subsequently she applied for the cancellation of adoption. Held
her consent was obtained by coercion and the adoption was set aside.

25
Consequences to coercion
 Contract become voidable
 If the aggrieved party opts to rescind the voidable contract it must
restore the benefits received by it if ant to the person from whom it
was received.
UNDUE INFLUENCE
Undue influence — A contract is said to be Induced by "under influence"
where the relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other. A person is deemed to
be in a position to dominate the will of another-
1. Where he hold the real or apparent authority over the other, or
where he stands in a fiduciary relation to the other; or Where he
makes a contract with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or
mental or bodily Distress.
Ex- X being in debt to y the moneylender of his village contracts a
fresh loan on terms which appear to be unconscionable. It lies on Y
to prove that the contract was not induced by undue influence.
2. The aggrieved party must prove that the other party was in a
position to dominate his will and he actually used his influence to
obtain unfair advantage.
3. When the presumption of influence is raised?- the presumption
of under influence is raised in the following cases:
 Father and son
 Guardian and ward
 Trustee and beneficiary
 Religious guru and disciple
26
 Difference between Coercion and Undue Influence

Basis Coercion Undue Influence

Coercion can be defined as

an act where force is used Undue influence can be
as a tool for making a defined as an act of
Meaning
party who is generally influencing the will of a
unwilling to come into a person by another.
contract.

Nature of It is regarded as a criminal It is not regarded as a

offence offence. criminal offence.

It is covered under Section It is covered under Section

Legal
15 of the Indian Contract 16 of the Indian Contract
provisions
Act, 1872. Act, 1872.

There is an already
Relationship of There is no established established relationship
contracting relationship between the between the contracted
parties contracting parties. parties i.e., a fiduciary
relationship.

Psychological pressure
Threat, physical violence and/or subjecting a person
Actions
or force. to a social pressure or
dilemma.

Coercion is generally used Undue influence is used as

Aim as a tool to force a person a tool in case one of the
to enter into a contract contracting parties has an

27
 with the other party, ill intention to take
usually for the benefit of advantage of the other
the other party. parties’ position.

Burden of Lies with the aggrieved Lies with the party who is
proof party in a dominating position

A teacher tells his student

“A” threatens to kill “B” if
to sell him his car for a very
“C” does not sell his
Example low price in return for full
property to him. Here, “A”
marks in the final
is forcing “C”.
examination.

Contract with a pardanashin women

pardanashin women means a women who, according to the costumes of her
community, lives in complete seclusion from social interaction with the
people outside her family. There always a presumption of undue influence
in the case of contract with pardanashin women. The burden of proof lies on
the other party to show that there was no undue influence which can be
established by proving that
• The terms of contracts were fully explained to her
• She understood the implication of the terms of the contract
• She freely consented
• She was in receipt of competent and independent advice in
thisregard
FRAUD
The term ‘fraud’ means a false representation of fact made willfully with a
view to deceive the other party. "Fraud" means and includes any of the
following acts committed by a party to contract, or with his connivance, or
28
by his agents, with intent to deceive another party thereto his agent, or to
induce him to enter into the contract: • The suggestion as a fact, of that
which is not true, by one who does not believe it to be true:
Example-
A sells by auction to B, a horse which A knows to be unsound. A says nothing
to B about the horse’s unsoundness. This is not fraud.
When silence amount to fraud ?
In the followingcircumstances silence will amount to fraud:
 Silence is fraud if the circumstances of the case cast a duty upon the
person keeping silence to speak.
 Silence is fraud where silence in itself is equivalent to speech
(Explanation to section 17).
 Half truth. If the party keeping silence, volunteers to disclose a state
of fact partly as a result of which the undisclosed part renders the
disclosed part false, then there is duty cast upon him to disclose the
full facts.
 Change of circumstances — there may be a situation when a
representation was true at the time of making, but later on become
false due tot changed circumstances. In such a case, a duty is cast upon
the person who made the representation to disclose the change in
circumstances to the other party.
 If a seller fails to inform the buyer as to latent defect in the goods,
his silence amounts to fraud?
 If a trustee does not make full discloser of facts to the beneficiary while
entering into a contract with him as to the property of which he is a
trustee his silence as to any material facts to fraud. Fraud is an

29
 intentional. Misrepresentation of material faces induces other to enter
into a contract.
Effect of fraud:
 The aggrieved party can rescind the contract if fraud is caused his
consent.
 Alternatively the aggrieved party may insist that the contract shall be
performed and that he shall be put in the same position in which he
would have been if the representation made had been true.[22]
 The aggrieved party can sue for damages if he suffers some loss.
MISREPRESENTATION
The term ‘Misrepresentation’ means a false representation of fact made
innocently or non- disclosure of a material fact without any intention to
deceive the other party Or in other words,
Any breach of duty which, without an intent to deceive, gains an advantage
to the person committing it, or anyone claiming under him; by misleading
another to his prejudice, or to the prejudice of anyone claiming under him;
Essential of element of misrepresentation-
1. The misrepresentation must be of facts.
2. It must be made before entering into a contract.
3. The representation must be innocently made without the intention to
deceive the other party.
4. The misrepresentation must have caused the other party to enter into
a contract.
Ex- A told his wife within the hearing of their daughter that the bridegroom
proposed for her was a young man. The bridegroom however was over
30
sixty years The daughter gave her consent to marry him believing the
statement by her father. It was held by the Court that the consent was
vitiated by misrepresent and fraud.
Effect of misrepresentation:
1. When consent to an agreement is caused by misrepresentation, the
contract is voidable at the option of other party whose consent was
caused by misrepresentation.
2. The aggrieved party can rescind the contract or alternatively insist that
the contract shall be performed and that he shall be put in the position
in which he would have been if the representation madehad been true.
3. If the party whose consent was caused by misrepresentation had the
means to discovering the truth with ordinary diligence, then the
contract is not voidable.
MISTAKE
Mistake is an erroneous belief concerning something. Mistake may be of
law or of facts.
Mistake of law:
1. Mistake of law in force in India- "A contract Is not voidable because it
was caused by a mistake as to any law in force in India; but mistake as
to a law not in force in India has the same effect as a mistake of fact".
2. Mistake of foreign law- mistake of foreign law makes the contract
voidable if there is a bilateral mistake.
Mistake of facts-
1. Unilateral mistake of facts: contract caused by mistake of one party
as to matter of fact. A contract is not voidable merely because it was
caused by one of the parties to it bring under a mistake as to a matter
31
 of fact.
Exception: In the following cases unilateral
mistake make theagreement void:
 Mistake as to identity is.
 Mistake as to the character of the written document.
2. Bilateral mistake of facts- bilateral mistake is mistake of both the
parties which may be a common mistake or a mutual mistake. Mistake
is common where both the parties make the same mistake.
Example- X buys’ a painting believing it to be worth Rs 50,000 while
in fact it is worth only Rs 5,000. The contract is not void as only X is
making mistake.
Instances of bilateral mistakes- the following are the instances of
bilateral mistakes:
1. Existence of the subject matter – A contract entered into on the
assumptions that the subject matter of contract exist at the time of
contract, becomes void, if known to the parties, the subject matter has
ceased to exist or has never been in existence at the time of contract.
2. Ex- A being entitled to an estate for the life of B agrees to sell it to C B
was dead at the time of the bargain though neither party was aware of
his fact The agreement is void.
3. Identity of subject matter- where one party intends to contract with
regard to one thing while the other intends another things there is no
agreement and hence no contract.
4. Quality and substance of the subject matter – if there is mistake of
both the parties and it is as to the existence of some quality which
makes the things without the quality essential different from the things
as to it was believed to be, the agreement is void. However, it may be
32
 noted that mistake as to the quality of the subject matter will not
render the agreement void in all cases owing to the application of the
rule of caveat emptor.
5. Quantity of subject matter: mistake as to quantity of subject matter
arises when the quantity of subject matter is substantially different
from the subject matter contracted to be sold and brought is
substantially differ from the quantity intended to sold and brought.
6. Title of subject matter: If one person agrees to buy a property from
another and neither of them knows that is already belongs to the buyer
there is mistake as the person cannot buy his own property.
7. A false and fundament assumption: The fundamental assumption on
the basis of which the contract was made found to be false, the
agreement is void.
8. Possibility of performance: where there is bilateral mistake
regarding the possibility of performance of the contract, the agreement
in such case is void.
Doctrine of Frustration

The general rule of contracts states, that the parties to a contract have to
fulfill their obligations under the contract and in case of breach, the party
breaching the contract has to compensate the other for the damages caused.
The doctrine of frustration is an exception to this rule.

The doctrine of frustration basically talks about the impossibility of

performance of the contract. It means a contract cannot be executed because
of an incident beyond the control of parties. The performance of such a
contract becomes frustrated i.e. it becomes complicated, impossible or even

33
illegal. The frustration of contract can be due to any unforeseen, impossible
events and events out of control of the parties.

According to section 56, an agreement to do an impossible act is in itself

void. Further, it states that when a contract to do an act becomes impossible,
or, by reason of some event which the promisor cannot prevent, it becomes
unlawful, the whole contract becomes void when the act becomes
impossible or unlawful.

Conditions required to prove frustration of contract

The frustration of contract can be proved upon the fulfillment of the following
conditions-

 The existence of a valid contract;

 The contract is not performed yet;
 The performance of the contract has become impossible;
 The impossibility has occurred due to event uncontrollable by both the
parties.

Grounds for Doctrine of Frustration

1. Impossibility of performance

The doctrine of frustration arises from the impossibility to complete an

activity. But the principle cannot be limited to physical impossibilities.

It was held in Satyabrata Ghose vs. Mugneeram Bangurn & Co & Anr., that
the term ‘impossible’ has not been used in section 56 of the Contract Act in
the sense of physical or literal impossibility. It is not necessary that the
performance of act be literally impossible but it may be impracticable and if
an event totally changes the very foundation of the contract, it can be said
34
that the promisor finds it impossible to do the act which he promised to do.
Therefore, when we say the object of contract is lost, the contract is said to
be frustrated.

2. Destruction of subject matter

The doctrine of frustration applies when there is the destruction of the

subject matter of contract.

In Taylor vs. Caldwell, where Taylor had entered into an agreement to

perform at an event, but on the day of the event, the hall where the event
was to take place burned down. The burning of the hall depicts the
impossibility of carrying forward the contract. This shows that the
destruction of the subject matter of contract will make the contract
automatically frustrated.

3. Death or incapacity of a party

If the contract demands the personal performance of the parties, the death
or incapacity of the party will make the contract void because the contract
cannot be performed anymore.

4. Frustration by legal or government intervention

Where, a law is promulgated after a formation of a contract, making the

performance impossible then the contract becomes void.

5. The frustration of contract due to change of circumstances

This situation occurs when there is no physical impossibility of performance

of the contract, but due to change in circumstances, the main reason for
which the contract was formed is defeated. The changed circumstances
35
dissolve the contract and the parties are absolved from the performance of
the contract.

6. The Intervention of War

The intervention of war makes the performance of contract difficult, thereby

making the contract void.

The effect of the doctrine of Frustration

 The contract is frustrated automatically– The general rule is that

the occurrence of the frustrating event puts an end to the contract
automatically. The parties are not required to rescind the contract as
the obligations of the parties get terminated immediately after the
contract is frustrated.
 Further obligations are discharged- Both the parties are discharged
from any obligations after the contract is said to be frustrated.
 Accrued obligations- The legal rights or obligations already accrued
before the frustrating event occurred are left undisturbed.

Discharge of a Contract
Discharge of contracts:
1. Discharge by performance:
Discharge by performance takes place when the parties to the contract fulfill
their obligations arising under the contract. In such a case, the parties are
discharged and contract comes to an end. The performance of contract may
be:
 Actual performance: Where both the parties perform their promises.
 Attempted performance: Where a party offers to perform his
obligation under the contract but the other party refuses to accept his
36
 performance.
2. Discharge by agreement or consent:
The contractual obligation may be discharged by agreement among the
parties to the contract. The parties to the contract may agree to rescind the
contract, alter the contract or substitute it with a new contract. In such a
case, the original contract gets discharged. A contract may terminate by
mutual consent in any one of the following ways:
 Novation: Novation take place when:
o A new contract is substituted for an existing one between the
sameparties; or
o A new contract is substituted for an existing one where the
contract on the same terms is entered into between one of the
parties and a third party. In novation, the original contract is
discharged and need not be performed. However, the novation
should take place before the expiry of the time for the
performance of the original contract.
 Alteration: the parties to a contract may mutually decide to alter
certain terms of the contract. When the parties to a contract, agree to
alter the contract, the original contract is rescinded and need not be
performed. For alteration, the benefiting party has to pay some
consideration to the other party.
 Rescission: Rescission means termination of a contract. Where parties
mutually decide to cancel the terms of the contract, the contract need
not be performed. In rescission, the old contract is cancelled and no
new contract comes into existence.
 Remission: remission is said to be done where a party to the
contract agrees to: Dispense with (waive the performance); or Accept a
lesser amount or lesser degree of performance for full discharge of
37
 contract; or Extends the time of performance.
o For remission, no consideration is required to be paid by the
benefiting party. Once the party agrees for remission, it cannot be
revoked. However,the remission may be conditional.
 Waiver: Waiver means abandonment or intentional relinquishment of
a right under a contract. A promise may dispense with the performance
of a promise. When a party waives his right under a contract the other
party is released from his obligation. Consideration is not necessary for
waiver.
3. Discharge by lapse of time:
The right and obligation under a contract can be enforced only within a
specified periods called the ‘periods of limitation’. The limitation act has
prescribed the period of limitation for various contracts. After the expiry of
the limitation period, the contractual right cannot be enforced and the
contract comes to an end due to lapse of limitation period.
4. Discharge by operation of law:
A contract may be discharged by operation of law in the following cases:
 Death of the promisor: Contracts, the performance of which involves
personal skill or ability of the promisor, comes to an end with the
death of the promisor.
 Insolvency: When a person is declared insolvent by insolvency Court,
he is discharged from all his liabilities incurred prior to his
adjudication.
 Merger: When an inferior right accuring to a party in a contract
merges into a superior right accruing to the same party, then the
contract conferring inferior right is discharged. By unauthorized
alteration of terms of a written document: where any of the parties to a
38
 contract makes any material alteration to the term of the contract
without seeking the consent of the other party, the contract can be
avoided by the other party as his will.
Quasi Contract
Meaning
Quasi-Contracts arises when one person has done something for another or
paid money on his behalf to third party then the court comes forward on
the ground of “equity” saying that the person receiving the benefit must
make compensation to the other otherwise he would become rich on the
expenses of the other.” For Example – A person to whom money has been
paid or anything delivered by mistake must repay or return it as if there was
a contract between the parties to that effect. Such obligation, for want of
proper name, it appears, are called Quasi-Contracts under the English
Law.
Types of Quasi-Contract

1 – Section 68

It states that a person is not capable of entering into any contract. Therefore,
the supplies are provided to him or anyone the incapable person is legally
bound to support by the third party. The supplier third party is entitled to
recovering the price of such supplier from the unable person’s property.

2 – Section 69

It states that if a person is interested in paying money and pays on behalf of

another person, he is bound to pay by the law. So then, the person who
made the payment is entitled to reimbursement by another party (on behalf
of whom he has paid).

39
3 – Section 70

It states that the receiving party has enjoyed the same benefits if a person
does anything for the other person lawfully or delivers something without
intending to do the same gratuitously. Then, such a receiving party is bound
to compensate the former party.

4 – Section 71

It states that if a person finds goods that belong to another party and takes
such goods into his custody, then the former has responsibility the same as
that of a bailee.

5 – Section 72

It states that if a person has been paid or delivered mistakenly or under

coercion, he must repay or return.

Quantum Meruit
The term ‘quantum meruit’ means as much as merited or ‘as much as
earned’. In other work, it means payment in proportion to the amount of
work done. Generally, one cannot claim performance from another unless
one has performed his obligation in full but in certain cases, a person who
has performed some work under a contract can claim remuneration for
the work which he has already done.
Cases in which the Claim of Quantum Meruit arises
1. In case of void agreement or contract that becomes void
2. In case of non-gratuitous act
3. In case of act preventing the completion of contract
4. In case of divisible contract

40
 5. In case of indivisible contract performed completely but badly
Contingent contract
Contingent Contracts

An absolute contract is one where the promisor performs the contract

without any condition. Contingent contracts, on the other hand, are the ones
where the promisor performs his obligation only when certain conditions are
met.

If you look at the contracts of insurance, indemnity or guarantee, they have

one thing in common – they create an obligation on the promisor if an event
which is collateral to the contract does or does not happen.

For example, in a life insurance contract, the insurer pays a certain amount if
the insured dies under certain conditions. The insurer is not called into action
until the event of the death of the insured happens. This is a contingent
contract.

Essentials of Contingent Contracts

1] Depends on happening or non-happening of a certain event
The contract is contingent on the happening or the non-happening of a
certain event. These said events can be precedent or subsequent, this will not
matter.

2] The event is collateral to the contract

It is important that the event is not a part of the contract. It cannot be the
performance promised or a consideration for a promise.

Example - Peter enters into a contract with John and promises to deliver 5
television sets to him. John promises to pay him Rs 75,000 upon delivery. This
41
is NOT a contingent contract since John’s obligation depends on the event
which is a part of the contract (delivery of TV sets) and not a collateral event.

3] The event should not be a mere will of the promisor

The event cannot be a wish of the promisor.

Example - Peter promises to pay John Rs 5,000 if Argentina wins the FIFA
World Cup provided he wants to. This is NOT a contingent contract. Actually,
this is not a contract at all.

Peter promises to pay John Rs 50,000 if he leaves Mumbai for Dubai on

August 30, 2018. This is a contingent contract. Going to Dubai can be within
John’s will but is not merely his will.

4] The event should be uncertain

If the event is sure to happen, then the contract is due to be performed. This is
not a contingent contract. The event should be uncertain.

Peter promises to pay John Rs 500 if it rains in Mumbai in the month of July
2018. This is not a contingent contract because in July rains are almost a
certainty in Mumbai.

Enforcement of Contingent Contracts

Sections 32 – 36 of the Indian Contract Act, 1872, list certain rules for the
enforcement of a contingent contract.

1 – Contracts Contingent on the happening of an Event

A contingent contract might be based on the happening of an uncertain future
event. In such cases, the promisor is liable to do or not do something if the
event happens. However, the contract cannot be enforced by law unless the
42
event takes place. If the happening of the event becomes impossible, then the
contingent contract is void. This rule is specified in Section 32 of the Indian
Contract Act, 1872.

Example - Peter promises to pay John Rs 50,000 if he can marry Julia, the
prettiest girl in the neighborhood. This is a contingent contract. Unfortunately,
Julia dies in a car accident. Since the happening of the event is no longer
possible, the contract is void.

2 – Contracts Contingent on an Event not happening

A contingent contract might be based on the non-happening of an uncertain
future event. In such cases, the promisor is liable to do or not do something if
the event does not happen. However, the contract cannot be enforced by law
unless happening of the event becomes impossible. If the event takes place,
then the contingent contract is void. This rule is specified in Section 33 of the
Indian Contract Act, 1872.

Example - Peter promises to pay John Rs 50,000 if the ship named Titanic
which leaves on a dangerous mission does not return. This is a contingent
contract. This contract is enforceable by law if the ship sinks making its return
impossible. On the other hand, if the ship returns, then the contract is void.

3 – Contracts contingent on the conduct of a living person who does

something to make the event or conduct as impossible of happening
Section 34 of the Indian Contract Act, 1872 states that if a contract is a
contingent upon how a person will act at a future time, then the event is
considered impossible when the person does anything which makes it
impossible for the event to happen.

Example - Peter promises to pay John Rs 5,000 if he marries Julia. However,

Julia marries Oliver. Julia’s act thus renders the event of John marrying her
43
impossible. (A divorce is still possible though but the happening of the event is
considered impossible.)

4 – Contracts Contingent on an Event happening within a Specific Time

There can be a contingent contract wherein a party promises to do or not do
something if a future uncertain event happens within a fixed time. Such a
contract is void if the event does not happen and the time lapses. It is also void
if before the time fixed, the happening of the event becomes impossible. This
rule is specified in Section 35 of the Indian Contract Act, 1872.

Example - Peter promises to pay John Rs 5,000 if the ship named Titanic
which leaves on a dangerous mission returns before June 01, 2019. This
contract is enforceable by law if the ship returns within the fixed time. On the
other hand, if the ship sinks, then the contract is void.

5 – Contracts Contingent on an Event not happening within a Specific

Time
Contingent contracts might be based on the non-happening of an uncertain
future event within a fixed time. In such cases, the promisor is liable to do or
not do something if the event does not happen within the said time. The
contract can be enforced by law if the fixed time has expired and the event has
not happened before the expiry of the time. Also, if it becomes certain that the
event will not happen before the time has expired, then it can be enforced by
law. This rule is specified in Section 35 of the Indian Contract Act, 1872.

Example - Peter promises to pay John Rs 5,000 if the ship named Titanic
which leaves on a dangerous mission does not return before June 01, 2019.
This contract is enforceable by law if the ship does not return within the fixed
time. Also, if the ship sinks or is burnt, the contract is enforced by law since
the return is not possible.

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6 – Contracts Contingent on an Impossible Event
If a contingent contract is based on the happening or non-happening of an
impossible event, then such a contract is void. This is regardless of the fact if
the parties to the contract are aware of the impossibility or not. This rule is
specified in Section 36 of the Indian Contract Act, 1872.

Example - Peter promises to pay John Rs 50,000 if the sun rises in the west
the next morning. This contract is void since the happening of the event is
impossible.
WAGERING CONTRACT

Wagering Contract is one in which there are two necessary parties between
which the contract has been made and wherein, the first party promises to
pay a certain sum of money to the second party on the happening of a
particular event in the future and the second party agrees to pay to the first
party on not happening of that particular event. The basic fundamental of a
wagering agreement is the presence of two parties who are of sound mind
to get profit or loss. A Wager in the common language means Betting or
Gambling. The basic meaning of the term wager is betting.

ESSENTIALS OF A WAGERING CONTRACT:

1. Equal opportunity:

One of the main points in a wagering contract is that there should be an

equal chance for both to either win or lose depending upon the outcome of
the future event.

45
2. Uncontrollable:

These events are futuristic which may or may not take place and it should be
beyond the control of either of the party because if either of the party has
control over it then it would not amount to wager.

3. No Outside Interest:

Both the parties should have a single interest as to the profit or loss in the
result of the event and there should not be any outside or personal interest
attached with the uncertain event as that will not amount to wager as well.

4. Dependency:

The wager agreement is fully dependent upon the happening of the

futuristic event whether it is contrasted with the past, present or future as
to the result of that event.

5. Promise:

The wager contract should contain an important clause which should state
that the parties promise to pay the money or money’s worth to the other
party on the happening of the event and this should be agreed upon by both
the parties.

Differences between Contingent Contracts and Wagering Contracts

Factors Contingent Contracts Wagering Contract

It is a contract to do or not It is a promise to give

Meaning
to do something with money or money’s worth

46
 reference to a collateral with reference to an
event happening or not uncertain event happening
happening. or not happening.

Reciprocal It may not contain It consists of reciprocal

promises reciprocal promises. promises.

Uncertain The uncertain event is the

The event is collateral.
event core factor

A wagering agreement is
Nature of Contingent contract may
essentially contingent in
contract not be wagering in nature.
nature.

Contracting parties has

The contracting parties
Interest of interest in the subject
have no interest in the
parties matter in a contingent
subject matter.
contract.

Mutuality Contingent contract is not A wagering contract is a

of loss and based on the doctrine of game, losing and gaining
gain mutuality of loss and gain. alone matters.

Effect of Contingent contract is A wagering agreement is

contract valid. void.

Standard Form contract

Standard Form Contract may be understood as the contract made in the
standardized form. It is called ‘contract of adheson’. In the case of standard

47
form contract one party has printed forms of contract containing a large
number of terms and conditions .The terms and conditions often contain the
clause restricting the liability or excluding the liability of the party who has
prepared it. The other party has no opportunity to bargain. He has
opportunity only to make the contract on term and conditions contained in
the printed form or to refuse to enter into the contract on the said the term
and conditions.
He can not alter the terms and conditions. He has no opportunity even to
discuss them .actually he does not negotiate but merely adheres. The Life
insurance Corporation ,Railway authorities. City corporations dry clearness
etc. daily enter into several contracts in standardized forms.
Uniformly and certainly of terms and conditions of the contract are the main
advantages of making of contract in standardized form and on account of
these advantages the horizon thereof has much expanded and it is still
expanding.
Principles developed by the Court for the protection of the weaker
party
1. Reasonable notice of terms and conditions :- It has been made clear
by the Court that the terms and conditions including exemption clause
will be binding only if the other party has notice thereof at the time of
contract A person who sings a document is normally bound by them
,even though he had not read them and even though he is ignorant of
their precise legal effect.
Example - When a customer puts his money in an automatic machine
and thereafter gets a ticket through the machine , the conditions
including the exemption clause will be binding on him only if the notice
of such conditions is given to him before the ticket comes out of the
machine.
2. Terms in contractual document :- To claim the protection of the
48
 exemption clause it must be proved that it is contained in a contractual
document .if the exemption clause is contained in a document which
is not a contractual document , the protection of the exemption in
clause cannot be claimed.
3. No fraud or misrepresentation. –The exemption clause or limiting
the liability clause contained in the printed form will be binding on the
other party only when his consent to such clause has not been
obtained by the fraud or misrepresentation .if a party misleads the
other party about the existence or effects of the term and conditions
including the exemption clause and limiting the liability clause he
cannot claim the protection of the clause
4. Term and conditions must be reasonable :- The terms of the
contract including the exemption clause or limiting clause must be
reasonable .if the terms of contract are against the public policy they
are treated as unreasonable and they are not enforced .
5. Strict constructions of exemption clause (contra proferentem ).- A
person can get rid of his legal liability only by using the clear words.
6. No fundamental breach of contract (Doctrine of fundamental
breach of contract ).- To prevent unreasonable consequences of the
exemption clause the court has developed the doctrine of fundamental
breach of contract .Every contract contains some fundamental
obligations must be performed .if the party to the contract fails to
perform his fundamental obligation under the contract ,he will be held
liable for breach of contract and will not be protected under
exemption clause.
Agreements against public policy as declared by Courts

 Trading with an enemy: If any contract is made with an alien

enemy without the government’s permission, it is considered as
illegal. An alien enemy is a person who holds the citizenship of a
49
 country, having war with India. These kinds of agreements are
considered illegal on ground of public policy as their performance
will require communication with the enemy and it can confer a
benefit.
 Champerty and Maintenance: Champerty is a type of bargaining in
which a third party offers assistance in recovering property, and in
return demands a share of the recovered property. Maintenance
implies helping a third party in litigation or through financial help,
and no benefits are attached. Both Champerty and Maintenace are
illegal in the English law but in India, it depends on the facts of the
case.

 Stifling prosecution: It refers to making money out of crime and it

is considered as abuse of law. As per law, a person should be
punished for committing an offence, if the charges against him are
proved by court of law. An agreement for suppressing criminal
charges is illegal and void.
In the case of Veerayya v. Sobhanandri a person entered into
agreement for taking back the charge of S. 420 of Indian Penal Code,
1860 against the accused. It was observed that since the offence was
compoundable, permission of court is required and hence the
agreement was declared as void.

 Interference in the course of justice: Interference with course of

justice is not allowed. If an agreement is found to do so, it can be
declared as void.
Illustration : A person ‘A’ is convicted of committing murder. His
friend ‘P’ goes to judge to make an agreement to give order in favour
of ‘A’. The same agreement is void.

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 Sale/transfer of public offices and titles: Agreements for
trafficking by means of selling or transfer of seats in appointment to
public officers hampers the rights of deserving candidates and is
unlawful in the eyes of law. Same applies to titles. Titles represent
excellence in any field and by means of selling it, its whole purpose
and object is destroyed. In the case of Sushil Kumar Yadunath Jha
v. Union of India, a person agreed to transfer his post in
government office in lieu of Rs. Five thousnad. The agreement was
declared as void.
 Agreement creating corrupt public life: An agreement inducing
corruption in public offices is against public policy. If such kind of
agreements is permitted, undoubtedly, the level of corruption will
increase and the employees will become inefficient. An agreement
which leads to personal interest other than duty is unlawful. In the
case of Rattan Chand Hira Chand v. Askar Nawaz Jung, two
parties entered into an agreement in which one party has to use his
influence the minister, it was held to be void as it tried to corrupt the
decision making machinery. It was also observed that the nature of
an act can be against public policy based on consideration or acts to
be performed.
 Restraint of personal liberty: Personal liberty is guaranteed under
Indian Constitution. Any agreement causing restraint to the right of
personal liberty is not lawful in the eyes of law.
 Restraint of parental rights: As per law, right of guardianship vests
in father till a child is minor and it transfers to mother as soon as the
child turns major. Any agreement for sale or transfer of guardianship
rights is declared as void. In Re Caroll Case.

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 Breach of Contract
A breach of contract occurs when one of the parties of the contract do not
abide by the terms of the contract. The breach in a contract happens even
when there is a failure in the performance of the contract. But such breach of
contract comes with some remedies which provide the aggrieved party for
the damages. This article deals with the breach of a contract, its types and
the remedies for breach of contract.

Types of Breach of Contract

1. Anticipatory
Anticipation by one of the parties is the anticipatory breach. The breach will
occur either expressly or through conduct. The party will intimate
eventually that he or she is going to commit a breach. The aggrieved party
will not have sufficient in the loss if there is compensation and if he waits for
the actual breach.

Illustration: In the Hochster v. De La Tour, it was decided that if there is a

rejection of the contract before the performance, then claim for the damages
can be made. In accordance with that, De la Tour agrees to employ Hochster
as their for 3 months. De La Tour appoints Hochster in April to start work
from June. But De La Tour withdraws the appointment by May. Hochster
sues them. De La Tour argues that Hochster is under the terms or obligation,
stating that he should be ready to perform until the 3 months is due. But
Lord Campbell CJ dismisses the argument and awards Hochster with the
damages.

2. Actual
The refusal to abide by the contract is an actual breach. If one of the party
withdraws to perform before the due date or if he performs incompletely,
then he commits a breach.

52
Illustration: Poussard was to perform opera in the London run for 3
months. The producers found a substitute when she was ill. The producers
refuse to take her back when she returned. The court was with the
producers as it discovered their defence justifiably. The court did not award
her with the damages. The contract claims that she must perform from the
first day. Failure to oblige by the contract made the producers reject her
contract.
Remedies for the Breach of Contract
1. Suit for Rescission
if one party breaches the contract, then the other party need not oblige to
the contract. The contract stands cancelled if the aggrieved party cancels it.
The aggrieved party can file for the damages. Generally, the suit for the
damages accompanies the cancellation of the contract by the aggrieved
party. This suit is for obtaining the damages of the breach.

2. Suit for Injunction

A restraint order from the court is an injunction. The court has the power to
restrain a person from doing a certain act. If the defendant does something
that he should not perform, then the aggrieved party can file a suit for
injunction. This shall be temporary or permanent.

3. Suit for Specific Performance

A remedy which is given by the court to both parties to perform according to
the contract. This is one of the most common suits. The aggrieved party will
not receive adequate relief of the monetary compensation.

4. Suit for Quantum Meruit

Quantum Meruit for contracts means the reasonable value of services. If a
person hires someone and the contract is incomplete or un-performable,
then the employer can sue the defendant for the services and the value of
53
improvements made. The law states that the employer has to pay the
employee an amount that he deserves for his services. If the employee is
under an express contract for a specific amount, then he cannot abandon the
contract and suit for the Quantum Meruit.

5. Suit for Damages

In simple words, damages are the certain amount of money which the
defendant has to pay for breaching the contract or non-compliance with the
terms and conditions of the contract to the plaintiff who has suffered loss
because of the breach. It is a claim which a plaintiff makes for the breach of
contract from the defaulting party.

Damage
The term “damage” has been derived from the Latin term “damnum” which
means hurt, loss or injury or damage. Damage is generally understood as
any harm or loss caused either to a person or to his property because of any
wrongful act or omission of a person. In terms of law, damages are the
compensation in monetary terms for the loss or injury that occurred either
in person or property.
Damages are nothing but compensation in financial or monetary terms
ordered to be paid by a person whose act has caused wrong or harm or loss
or injury to a person.

In simple words, damages are the certain amount of money which the
defendant has to pay for breaching the contract or non-compliance with the
terms and conditions of the contract to the plaintiff who has suffered loss
because of the breach. It is a claim which a plaintiff makes for the breach of
contract from the defaulting party.

54
Essential Elements

1. A valid contract has to be there for making a successful claim.

2. Another party to the contract must have breached the contract in order
to get a claim.
3. Due to such breach of contract, the party making claim must have
suffered some loss.
4. The loss that occurred due to the defaulting party must be either the
direct loss or the immediate loss to the party claiming compensation.

Types of Damages in Contract Law

1. General damages & Special damages:

It is one type of damages. General damages are considered as those damages

that occur naturally due to the normal course of events. In such case of
damages, the party suffered damage may get the compensation in monetary
terms due to the occurred injuries like inability or disability to perform
certain actions.

Special damages are those damages that occur only due to some special
circumstances. Special damages do not occur due to breach of terms and
conditions on the part of the defendant but because of some special
circumstances; the defendant could not fulfill the terms & conditions of the
contract; if the circumstances were reasonable, the contract may have been
fulfilled.

2. Nominal Damages:

In such a case, there is no such actual loss but the compensation is awarded
because of the infringement of legal rights due to the breach of terms &
conditions of the contract. Nominal damages are provided when no such
55
actual damage has caused to the plaintiff but his legal rights have been
hampered.

3. Substantial damages:

These damages are either general damages or special damages. In such

cases of damages, the extent of the breach can be determined or analyzed or
has been established. In such types of damages, there is a complete default
or failure in performing the term and conditions of the contract at the end of
one party.

4. Exemplary damages:

Exemplary damages are also referred to as punitive damages. Exemplary

damages are given with the aim to compensating the plaintiff for the loss
that occurred to him but in some exceptional cases, the punishment can also
be given to the defendant. Basically, exemplary damages are applied to
punish the defaulting party in the contract for the breach and also with an
object to prevent any such breach in the future.

5. Liquidated and unliquidated damages:

In the case of liquidated damages, the parties to the contract fix a certain
amount for the compensation in case of certain specific types of damages as
liquidated damages. In other cases where the courts instead of parties to the
contract determine the damages to be paid by the defaulting party; such
damages are known as unliquidated damages.

6. Consequential damage & incidental damages:

Consequential damages are the other type of damages which are consequent
or the result of any physical damage that occurred to the party claiming for
the loss. The term “incidental damages” is referred to the harm or injury that
56
occurred to the plaintiff after knowing the breach of contract; for instance-
the cost of buying or replacing or returning the goods came defective.

7. Pecuniary damages & non-pecuniary damages:

Pecuniary damages are those which can be quantifiable by the court by

assessing the loss or injury suffered by the plaintiff. In the case of pecuniary
damages, the question of the amount of compensation in monetary terms is
directly related with the loss. Non-pecuniary damages are those losses or
injury which cannot be directly or clearly quantified or determined because
the loss in such cases is more subjective.

Contracts which cannot be specifically enforced

 Where compensation in money is an adequate relief: Here the

court will not order specific performance of contract as it is expected
that the plaintiff will bank upon the normal remedy for breach of
contract i.e. remedy of compensation. For example contract of
mortgage of immovable property (Rambai v. Khimji)[3], contract of
sale of goods (Bharat v. Nisarali) [4], contract of repair of premises
etc.
 Where a contract runs into minutes or numerous detail: These
contracts includes contract which depends upon the personal
qualification or the violation of the parties or is of such nature that the
court cannot enforce specific performance of its material terms.
In Robinson Davison [5], it was held by the court that the contract to
perform in concert depends upon the personal kill of defendant’s wife,
and the contract cannot be specifically enforced due to her illness. The
other example is construction contract where the detailed terms of
contract are not explained.
 Contracts of determinable nature: Determinable contract means a
contract which can be determined or revoked or put to an end by a
57
 party to the contract. For example in case of partnership at will any
partner can retire by giving notice in writing to other partners and can
dissolve the firm.
 Contracts which involve the performance of continuous duty
which court cannot supervise: Earlier under Specific Relief act, 1877
the continuous duty which court cannot supervise is considered over a
period of 3 years which was omitted under Specific Relief Act, 1963
and no time limit restricted for the performance of a continuous duty.
These include contract of appointment of employees for continuous
service or contract to execute sale deed every year. In Central Bank v.
Vyankatesh [6], the defendant was required to execute deed every year
for the period of 25 years and contract is held to be specifically
unenforceable.
 Contract of arbitration: According to Section 14(2), a contract to
refer present or future differences to arbitration shall not be
specifically enforceable.

Void Agreement
Those agreements which are legally enforceable can be termed as contracts
whilst those which are unenforceable by law are called void agreements.
These agreements are generally those which are concerned with immoral
elements or go against the public policies of the state. Section 2(g) of the
Indian Contract Act, 1872 defines void agreements.

Kinds of agreements/contracts which are void.

1. Agreements in which a part of consideration or object is unlawful

This is mentioned in Section 24 of the Act. The basic essence of this
statement is that if the consideration, as a whole or in part is unlawful or if
the end product of the agreement is illegal then the agreement is declared
58
void. The contract would, however, be considered valid after deleting the
unlawful clauses.

For example, if there is an agreement between A and B for the exchange of

drugs and medicinal herbs for 5000, then the agreement stands void even
though the consideration of the agreement is legal. This is because the object
of the agreement is illegal. But in this case, if we remove the drugs from the
object then the agreement would be termed valid.

2. Agreements without consideration

If there is no consideration in a contract then it will be considered as void
contract. however, there are some exceptions when there is no contract atill
contract is valid.

3. Restraint of marriage
Section 26 of the Act mentions that all agreements in restraint, either partial
or full, of a marriage except that with a minor, would be void.
For example, if Ria’s father provides Amit with some incentives only to
prevent him from marrying his daughter, then such an agreement would
stand void in the eyes of the law, provided the parties involved are not
minors.
In the case of Shrawan Kumar v. Nirmala, the plaintiff held that the
defendant had promised to marry him and therefore her present marriage
should be injuncted by the court. This petition was dismissed by the
Allahabad High Court on the grounds of restraint of marriage.
The philosophy behind this law is the fact that marriage is a sacred social
institution and nothing should be allowed to interfere with it or restrict it,
until and unless it involves minors. Therefore, an agreement in restraint of
marriage of adults is void whereas the same in the case of the minor would
not be held void. But this clause doesn’t apply in case of remarriage.
59
4. Restraint of trade
This is dealt with under Section 27 of the Act. The freedom to practice any
form of trade and occupation is a fundamental right guaranteed by the
Constitution of India under Article 19(1). Hence, any agreement in restraint
of trade and occupation would be deemed as void. The restraint can be both
partial and complete.
This was brought out in the case of Madhub Chander v. Raj Coomar, where
the defendant had proposed to pay the plaintiff a certain amount of money if
the latter agreed to shut down his shop in a particular locality. However,
upon shutting down his shop, the plaintiff was denied payment by the
defendant. The court here, ruled that the defendant did not own any money
to the plaintiff since the agreement was void (as it was in restraint of trade),
even though it imposed partial restraint i.e. extended to only a particular
locality.
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd.
In the said case, Thorsten Nordenfelt was a producer of firearms in Sweden
and England. Thorsten sold his business to an organization, which at that
point moved the business to Maxim Nordenfelt. Then, Thorsten went into a
concurrence with Maxim that he would not take part in the assembling of
weapons for a period of 25 years, other than what he produces for the
benefit of the organization. Afterward, Thorsten broke his promise asserting
that the understanding was not enforceable as it was in restriction of trade.
The decision of the court was in support of Thorsten. In common law, a
reasonability test is pursued. An agreement in restriction of trade is
legitimate, if:

 There is a substantial interest that the party forcing the restriction is

attempting to secure.
 The restriction is no more than what is important to secure this
interest.
 Restriction isn’t in opposition to public interest.
60
Exceptions to Section 27

 Sale of Goodwill
According to this, a person who buys the business goodwill of another
person is thereby privileged to impose certain restrictions on the business
activities of the latter. The restrictions include preventing the seller from
carrying out similar business within local limits only. This is done to protect
the rights of the purchaser. However, the restraint should be reasonable
according to the nature of the business under consideration.

 Partnership Act
There are three provisions of the partnership act that provide for restriction
of business. They are [8]:

1. Section 11, which states that none of the partners would carry on
any business till the continuity of the business.
2. Section 36, which provides the remaining partners to prevent the
outgoing partner from opening any business similar to theirs’ in the
same locality subject to certain restrictions.
3. Section 54, which prevents all the partners from engaging in any
business of similar kind after dissolution of the firm/business.
Firm Daulat Ram vs. Firm Dharm Chand, where two ice factory owners
constituting a partnership agreed that only one factory will be worked at a
time and its profits distributed among them. The restraint was held to be
justified.

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