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Essential elements of valid contract

Q. Define Contract and explain essential elements of valid contracts. / All contacts are
agreement but all agreements are not contracts.
Introduction- Any commercial activity requires „understanding‟ among people concerned. This
understanding is often reduced into writing to give effect to the intention of the parties. Such
formal versions are known as contracts. These contracts define the rights and obligations of
various parties to facilitate easy performance of the contractual obligations.
The Indian Contract Act, 1872 codifies the legal principles that govern such „contracts‟. The Act
basically identifies the ingredients of a legally enforceable valid contract in addition to dealing
with certain special type of contractual relationships like indemnity, guarantee, bailment, pledge,
quasi contracts, contingent contracts etc.

What is a Contract? While all contracts are agreements, all agreements are not contracts. An
agreement which is legally enforceable alone is a contract. Agreements which are not legally
enforceable are not contracts but remain as void agreements which are not enforceable at all or
as voidable agreements which are enforceable by only one of the parties to the agreement.
The above observation would raise a question in our minds as to what is the exact meaning of
the words „agreements‟ and „contracts‟.
An Agreement is a promise or a commitment or set of reciprocal promises or commitments. An
Agreement involves an offer or proposal by one person and acceptance of such offer or
proposal by another person. If the agreement is capable of being enforced by law then it is a
contract.

Definitions of contract and agreement now let us take a look at the definitions of contract and
agreement u / Indian Contract Act.

Definition of Contract: Sec. 2 (h) defines „Contract is an agreement enforceable by law.‟

This definition based on Pollock‟s definition which is as follows:-
„Every agreement and promise enforceable by law is a contract‟
Sir William Anson defines contract as „a legally bind agreement between 2 or more persons
by which rights are acquired by 1 or more to act or abstaining from doing something.
According to Salmond - A Contract is an agreement creating and defining obligations between
the parties.

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Sec. 2 (h) if we read contract essentially consist of following elements: 1) An agreement 2) Its
enforceability by law

Sec. 2 (e) defines agreement

An agreement means every promise and every set of promises forming consideration means
agreement.

Essential Elements of Valid Contract - According to section 10 all agreements are contract if
they are made by the pre consent of parties competent to contract for lawful consideration with
lawful object. In order to become a contract the agreement must have following essential.

1) Offer and Acceptance: There must be two parties to contract one party making offer and
the other accepting it. The terms of offer must be definite and the acceptance must be absolute
and unconditional. The acceptance must also be according to the mode prescribed in the offer.

2) Intention to Create a Legal Relationship: When the two parties enter into agreement they
must have an intention to create a legal relationship between them.
Balfour vs. Balfour (1919) a husband promised to pay maintenance allowance every month
to his wife, so long as they remain separate. When he failed to perform this promise, she
brought an action to enforce it. As it is an agreement of domestic nature, it was held that it does
not intend to create any legal obligation.

3) Lawful Consideration: An agreement to be enforceable by law must be supported by

Consideration. Consideration means an advantage and benefit moving from one party to
another. In simple words it means „something in returns‟. The agreement is legal enforceable
only when both parties give something and get something in return. A promise to do something
and get nothing in return is usually not enforceable by law. Consideration need not necessarily
to be adequate. It may be past present or future.
A agrees to sell his books to B for ` 100, B‟s promise to pay ` 100 is the consideration for A‟s
promise to sell his books and A‟s promise to sell the books is the consideration for B‟s promise
to pay ` 100.

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4 Capacity of parties / competency: The parties to the agreement must be capable of
entering into a valid contract. Every person is competent to contract if he
a. is of the age of majority
b. is of sound mind, and
c. Is not disqualified from contracting by any law to which he is subject.
Flow in capacity to contract may arise form minority, lunacy, idiocy, drunkenness, etc., and
status. If a party suffers from any flow in capacity, the agreement is not enforceable except in
some special cases.

5) Free and genuine consent: It is essential to the creation of every contract that there must
be a free and genuine consent of the parties to the agreement. The consent of the parties is
said to be free when they are of the same mind on all the material terms of the contract.
The parties are said to be of the same mind when they agree about the subject matter of the
contract in the same sense and at the same time (sec. 13).
There is absence of free consent if the agreement is induced by coercion, undue influence,
fraud, misrepresentation, etc. (sec. 14).
E.g. A threatened to shoot B if he (B) does not lend him ` 2000 and B agreed to it. Here the
agreement is entered into under coercion and hence voidable at the option of B.

6. Lawful object: The object of the agreement must be lawful. In other words, it means that the
object must not be (a) illegal, (b) immoral, or (c) opposed to public policy (Sec. 23). If an
agreement suffers from any legal flaw, it would not be enforceable by law.

7. Agreement not declared void: The agreement must not have been expressly declared void
by any law in force in the country. (Secs. 24 to 30 and 56).
An illegal agreement is an agreement expressly or impliedly prohibited by law. A void
agreement is one without any legal effects.
For Example: Threat to commit murder or making/publishing defamatory statements or entering
into agreements which are opposed to public policy are illegal in nature. Similarly any
agreement in restraint of trade, marriage, legal proceedings etc. are classic examples of void
agreements.

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8. Certainty and possibility of performance: The agreement must be certain and not vague
or indefinite (sec.29) If it is vague and it is not possible to ascertain its meaning it cannot be
enforced.
Example a) A agrees to sell to B a hundred of tons of oils." There is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainty.
Montreal Gas Co. V. Vasey. [1900] On December 10 th, 1886, the company entered into a
contract with Vasey for the sale to him of ammoniacal (containing ammonia) liquor produced by
them by the terms of which the company agreed to deliver to Vasey during a period of five years
from May 1, [Link] December 20, 1886, five days after the execution of the contract, the
president of the company wrote to Vasey the following letter:
“Referring to the contract made with you on the 15th inst., for the sale of ammoniacal liquor, I
may say that, if we are satisfied with you as a customer, we would favorably consider an
application from you, at the expiration of the term, for a renewal of the same for another period."
At the expiration of the contract of December 15, the company refused Vasey's application for a
renewal. Vasey thereupon brought his action against the company, seeking to recover damages
for alleged breaches of the contract of December 15, 1886, and also for the refusal to renew the
original contract, which, as Vasey alleged, they were bound to do according to the terms of the
letter of December 20. Held, that the letter did not constitute a contract or agreement liable of
legal enforcement.

9). Legal formalities: A contract may be made by words spoken or written. As regard the legal
effects there is no difference between contracts made by word of mouth. It is, however in some
other formalities also which have to be complied with in order to make an agreement legally
enforceable. In some cases the document is incorporated is to be stamped. In some other
cases, a contract besides being a written one &, has to be registered. Thus, where or in the
presence of witness or registered, the required statutory formalities must be complaint with.

Difference between agreement and contract.

Contract
1. A Contract is defined under Sec.2 (h).
2. A Contract is an agreement enforceable at law.
3. Its scope is limited.
4. Only valid agreement are called
5. A contract is enforceable.

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6. A contract arises out of an agreement. Therefore, a contract includes an agreement.
7. A contract must have all the essentials of a valid contract like consideration, capacity, free
consent, etc.
Agreement
1. An agreement is defined under Sec.2 (e)
2. Every promise or set of promises form-ing consideration for each other is an agreement.
3. Its scope is very wide.
4. An agreement may be both legal and illegal
5. An agreement may or may not be enforceable.
6. An agreement does not arise out of a contract. Therefore, an agreement does not include a
contract.
7. An agreement has only an offer and its acceptance. It need not have other essentials.

Types of Contract Now let us discuss various types of contracts - Types of Contracts on the
basis of Validity Formation & Performance

I. Types of Contracts on the basis of Validity

[Link] Contract: Sec.2 (j) states as follows: “A contract which ceases to be enforceable by
law becomes void when it ceases to be enforceable”. Thus a void contract is one which cannot be
enforced by a court of law.
Example: Mr. X agrees to write a book with a publisher. After few days, X dies in an accident.
Here the contract becomes void due to the impossibility of performance of the contract.
It may be added by way of clarification here that when a contract is void, it is not a contract at all
but for the purpose of categorizing it, it has to be called a [void] contract.

2. Voidable Contract: Section 2(i) defines that an agreement which is enforceable by law at the
option of one or more parties but not at the option of the other or others is a voidable contract.
This in fact means where one of the parties to the agreement is in a position or is legally entitled
or authorized to avoid performing his part, then the agreement is treated and becomes voidable.
Such a right might arise from the fact that the contract may have been brought about by one of
the parties by coercion, undue influence, fraud or misrepresentation and hence the other party
has a right to treat it as a voidable contract.

3. Illegal Contract: Illegal contract are those that are forbidden by law. All illegal contracts are

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hence void also. Because of the illegality of their nature they cannot be enforced by any court of
law. In fact even associated contracts cannot be enforced. Contracts which are opposed to public
policy or immoral are illegal. Similarly contracts to commit crime are illegal contracts.

II. Classification of contracts according to the formation

1. Express Contracts: A contract would be an express contract if the terms are expressed by
words or in writing. Section 9 of the Act provides that if a proposal or acceptance of any promise
is made in words the promise is said to be express.
2. Implied Contracts: Implied contracts in contrast come into existence by implication. Most often
the implication is by law and or by action. Section 9 of the Act considers such implied contracts
when it lays down that in so far as such proposal or acceptance is made otherwise than in words,
the promise is said to be implied.

III. Classification of contracts is possible on the basis of their performance.

1. Executed Contract: The consideration in a given contract could be an act. When the
act is done or executed then the contract is an executed contract.
2. Executory Contract: In an executory contract the consideration is mutual promise or
obligation. Such consideration is to be performed in future only and therefore these contracts are
described as executory contracts.

Difference between a void contract and a voidable contract- The differences are elaborated
hereunder:
(a) Definition: A void contract cannot be enforced at all. A voidable contract is an agreement
which is enforceable only at the option of one of the parties but not at the option of the other.
Therefore „enforceability‟, divides the two types of contracts.
(b) Nature: By nature, a void contract is valid at the time when it is made but becomes
unenforceable and thus void on account of subsequent developments or events like supervening
impossibility, subsequent illegality etc., Repudiation of a voidable contract also renders the
contract void. Similarly a contingent contract might become void when the occurrence of the event
on which it is contingent becomes impossible.
On the other hand voidable contract would remain valid until it is rescinded by the person who has
the option to treat it as voidable. The right to treat it as voidable does not invalidate the contract
until such right is exercised. All contracts caused by coercion, undue influence, fraud,

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misrepresentation are voidable. Generally, a contract caused by mistake is void.
(c) Rights: As regards rights of the parties, in the case of a void contract there is no legal remedy
for the parties as the contract cannot be performed in any way. In the case of voidable contract
the aggrieved party has a right to rescind it within a reasonable time. If it is so rescinded, it
becomes void. If it is not rescinded, it is a valid contract.
2. Offer and Acceptance

Introduction - When two parties choose to enter into a contract, the first thing that occurs is an
offer. The offer can be money or another thing of value in exchange for performance by the
other party. In contract law, an offer is a promise in exchange for performance by another party.
An offer can be revoked or terminated under certain conditions.
In the law of contracts, acceptance is one person's compliance with the terms of an offer made
by another. To complete the contract, the acceptance must be absolute and communicated to
the party making the offer.
For creation of every agreement, there must be a definite offer by one person to another and its
unqualified acceptance by the person to whom the offer is made. An offer is a proposal by one
party to another to enter into a legally binding agreement with him.
There must be two parties to contract one party making offer and the other accepting it. The
terms of offer must be definite and the acceptance must be absolute and unconditional. The
acceptance must also be according to the mode prescribed in the offer.

Offer
Sec. 2 (a) A person is said to have made a proposal, when he
"Signifies to another
His willingness to do or to abstain from doing anything,
With a view to obtaining the assent of that other to such act or abstinence."

For example, A says to B, "Will you purchase my car for Rs. 5,000?" A, in this case, is making
an offer to B as he signifies to B his willingness to sell his car to B for Rs. 5,000 with a view to
obtaining B's assent to purchase the car.

The person making the offer is known as the offeror, proposer, or promisor.

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The person to whom it is made is called the offeree or proposer. When the offeree accepts the
offer, he is called the acceptor or promisee.

What constitutes an offer? Legal rules as to offer.

Not every proposal made by an offeror is legally regarded as an offer. The tests to determine
whether or not an offer has actually been made with the help of its legal rules, they are as
follows:
1) Offer must be such as in law is capable of being accepted and giving rise to legal
relationship. A social invitation, even if it is accepted, does not create legal relations because it
is not so intended. An offer, therefore, must be such as would result in a valid contract when it is
accepted.

2) Terms of offer must be definite, unambiguous and certain and not loose and vague. If
the terms of an offer are vague or indefinite, its acceptance cannot create any contractual
relationship.
A says to B, “I will sell you a car.” A owns three different car he intend to sell. The offer is not
definite.

Taylor v. Portington, (1855) A offered to take a house on lease for three years at ₤ 285 per
annum if the house was “put into thorough repair and drawing rooms handsomely decorated
according to the present style: Held, the offer was too vague to result in a contractual relation
as the term handsomely decorated is vague.
Gould v. Gould, (1970) A husband on leaving his wife promised to pay her ₤ 15 a week “so
long as I can manage it”. Held, even though the husband and wife, who lived apart because of
break-up of their marriage, could enter into a legally binding agreement, the vague or
discretionary term “so long as I can manage it” indicated an intention not to create legal
relations
But if the agreement contains machinery for ascertaining a vague term, the agreement is not
void on the ground of its being vague.
Foley v. Classique coach‟s ltd., 1934 F sold a piece of land to a motor company subject to an
agreement that the company should buy all their petrol from F at a price to be agreed by the
parties from time to time. Any dispute was to be submitted to arbitration. The price was never
agreed and the company refused to buy. Held, there was a binding contract to buy petrol of
reasonable quality at a reasonable price to be determined in case of dispute by arbitration.

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3) An offer may be distinguished from:
i) An invitation to make an offer or do business. Display of goods by a shopkeeper in his
window, with prices marked on them, is not an offer but merely an invitation to the public to
make an offer to buy the goods at the marked prices. Likewise, quotations, catalogues,
advertisements in a newspaper for sale of an article, or circulars sent to potential customers do
not constitute an offer. They are instead an invitation to the public to do not constitute an offer a
person, in case the prices of the goods are marked, cannot force the seller to sell the goods at
those prices. He can, at the most, ask the seller to sell the goods to him, in which case he
would be making an offer to seller and it is up to the seller to accept the offer or not.
Pharmaceutical society of Great Britain v. boots cash chemists, (1953)
Goods are sold in a shop under the self-service system. Customers select goods in the shop
and take them to the cashier for payment of the price. The contract, in this case, is made, not
when a buy and receives the price.

ii) Newspaper advertisements are not offers. A recognized exception to this is a general offer
of reward to the public. Thus when a advertises in a newspaper that he would pay Rs100 to
anyone who finds and returns her lost dog, the offer is addressed to the first person who by
performing the required act with knowledge of the offer of reward, creates an agreement.

iii) A statement of price is not an offer - A mere statement of price is not constructed as an
offer to sell.

Harvey to Facey, (1893) there are three telegrams were exchanged between Harvey and
Facey.
a) “Will you sell us your Bumper Hall Pen? Telegraph lowest cash price – answer paid.” (Harvey
to Facey)
b) “Lowest price for Bumper Hall Pen £ 900.” (Facey to Harvey)
c) “We agree to buy Bumper Hall Pen for the sum of £ 900 asked by you.” (Harvey to Facey)
Held, there was no concluded contract between Harvey and Facey
The first telegram asked two questions:
i) The willingness of Facey to sell, and
ii) The lowest price.

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Facey replied only to the second question and gave his lowest price, i.e. he supplied mere
information and no offer had been made by him to sell. There could be a contract only if he had
accepted Harvey‟s last telegram.

4) Offer must be communicated – An offer, to be complete, must be communicated to the

person to whom it is made. Unless an offer is communicated to the offeree by the offeror or by
his duly authorized agent, there can be no. acceptance of it.
An acceptance of an offer, in ignorance of the offer, is no acceptance and does not confer any
right on the acceptor.
Fithc vs. Sneadakr (1868) S offered a reward to anyone who returned his lost dog. F brought
the dog to S without having heard of the offer. Held F was not entitled to the reward.
Lalman vs. Gauri Dutt, (1913) G sent his servant, L, to trace his missing nephew. She then
announced that anybody who traced his nephew would be entitled to a certain reward. L traced
the body in ignorance of this announcement. Subsequently when he came to know of the
reward, he claimed it. Held, he was not entitled to the reward.

5) Offer must be made with a view to obtaining the assent – The offer to do or not to do
something must be made with a view to obtaining the assent of the other party addressed and
not merely with a view a disclosing the intention of making an offer.

6) Offer should not contain a term the non-compliance of which may be assumed to
amount to acceptance – Thus a man cannot say that if acceptance is not communicated by a
certain time, the offer would be considered as accepted.
Felthouse vs. Bindley (1862) where A writes to B, “I will sell you my horse for Rs. 5,000/- and
if you do not reply, I shall assume you have accepted the offer, “there is no contract if B does
not reply. „B is under no obligation to speak.

Cross Offer - When two parties make identical offers to each other, in ignorance of each other‟s
offer, the offers are cross offers. In such case, the Court will not construe one offer as the offer
and the other as the acceptance and as such there can be no concluded contract.

A, by a letter offers to sell his car to B for Rs. 10,000 B, by a letter which crosses A‟s letter in the
post, offers to buy it for Rs. 10,000. The offers are cross- offers and no binding contract will

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arise. Both A and b are ignorant of each other‟s offer. There can be no automatic acceptance of
each other‟s offer, rather a new acceptance from either of the two parties would be required.
Tinn V. Hoffman 1873 Blackburn J stated:
When a contract is made between two parties, there is a promise by one in consideration of the
promise made by the other; there are two positive minds, the parties agreeing in opinion and
one having promised in consideration of the promise made by the other – there is an exchange
of promises.
But I do not think exchanging offers would, upon principle, be at all the same thing. The promise
or offer made on each side in ignorance of the promise or offer made on the other side, neither
of them can be construed as an acceptance of the other.
Acceptance
A contract comes into being from the acceptance of an offer. When the person to whom the
offer is made signifies his assent thereto, the proposal is said to be accepted. Thus, acceptance
of the offer must be absolute and unqualified. It cannot be conditional.
Contract takes place on the acceptance of an offer so the acceptance is an expression by the
offeree of his willing to be bound by the offer.

Definition: Sec 2 (b) When a person to whom the proposal is made signifies to accept there to
the proposal is said to be accepted. The proposal when accepted it becomes premise.
E.g. If A says to B 'will you purchase my car for Rs. 25,000/- . If B is ready to purchase the car
from A for same price it means B had accepted the proposal of A.
The person making the proposal is called the promisor or offeror and the person accepting
proposal is called promisee or an offeree.

Types of Acceptance
Express Acceptance An acceptance is express when it is communicated by words spoken or
by written or by doing same required acts.
Implies Acceptance An acceptance is implied when it is to be gathered by surrounding to
certain changes of the conduct of parties.

Who can accept the offer?

In case of specific offer: When an offer is made to particular person, if can be accepted by him
alone. If it accepted by any other person there is not valid acceptance. The rule of law is clear

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if u propose to make a contract with A, B cannot be himself substitute for A without your
consent.
In case of General Offer When offer is made to world at large any person or persons with
notice of the offer may come forward and accept the offer. When offer is accepted by the
particular person there is contract between the offeror and that particular person. If large
number of persons accepted the offer, there is many contract as the number of persons
accepted the offer
Carlill vs. Carbolic Smoke Ball Company 1893 A company advertise in several newspaper
that the reward of pound 100 would be given any person who is contacted with influenza after
using smoke ball tablets of the company according to printed direction. Mrs. Carlill use the
smoke ball according to the direction of company but contacted with influenza. The court held
that she could recover the amount, by using the smoke ball she had accepted the offer.

Essentials of valid acceptance or legal rules of valid acceptance

1) Acceptance must be absolute and unqualified: As per section 7 of the Act, acceptance is
valid only when it is absolute and unqualified and is also expressed in some usual and
reasonable manner unless the proposal prescribes the manner in which it must be accepted. If
the proposal prescribes the manner in which it must be accepted, then it must be accepted
accordingly.
Erollope & Colls Ltd. V. Atomic Power Construction Ltd. (1963) If there is a variation in the
terms of the acceptance, it is not an acceptance, but a counter-offer, which the proposer may or
may not accept. A counter-offer destroys the original offer. Thereafter the offeree cannot revert
or return to the original offer and purport to accept it.
Neale vs. Merret 1930 M offered to sell his land to N for £ 280. N replied purporting to accept
the offer but enclosed a cheque for £ 80 only. He promised to pay the balance of £ 200 by
monthly installments of £ 50 each. It was held that N could not enforce his acceptance because
it was not an unqualified one.

2) Acceptance communicated & should be in described manner: If the proposal describes

any manner of acceptance, acceptance must be in that manner. Only when the manner and
acceptance has not been describe. It must be made in same usual and reasonable manner.
Acceptance by post, telegram, telephone or through the personal messenger may be consider
to be usual manner of acceptance if not manner of acceptance is describe but if manner of
acceptance is describe, the acceptance must be made in that manner.

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e.g. : P offer to Q to buy bicycle for Rs. 500/- Q may accept this offer by stating so orally, or
thorough telephone, or by writing letter or by sending telegram to that effect.
Mental Acceptance – Mental acceptance is not sufficient in law. Silence cannot amount to
acceptance. Mere excommunicated or mental acceptance is not acceptance. Acceptance to be
complete must be communicated by word or conduct by the promisee to the promisor. Mere
intention to accept an offer does not give rise to a contract. There must be same external act of
that intent by speech, writing or other act.
e.g.: A tells B that he intend to buy C's office but does not tell to anything of its intention where
cannot be contract there is between A & B.

3) Acceptance by conduct: As already elaborated above, acceptance has to be signified

either in writing or by word of mouth or by performance of some act. The last of the method,
namely „by some act‟ has to be understood as acceptance by conduct. In a case like this where
a person performs the act intended by the proposer as the consideration for the promise offered
by him, the performance of the act constitutes acceptance. In other words, there is an
acceptance by conduct.
For example, where a tradesman receives an order from a customer, and the order is executed
accordingly by the trader, there is an “acceptance by conduct” of the offer made by the
customer. The trader‟s subsequent act signifies acceptance.
Brogden vs. Metropolitan Railway Co. (1877) it is an English contract law case, which
established that a contract can be accepted by the conduct of the parties. A contract inferred by
behavior can be binding. A mere mental assent to the agreement's terms would not have been
enough, but having acted on the terms made it so. The written contract was valid despite no
communication of the acceptance. The acceptance took place by performing the contract
without any objection as to the terms.
Section 8 of the Act very clearly in this regard lays down that “the performance of the
condition(s) of a proposal constitutes an acceptance of the proposal.

4) If must be given by the party or parties to whom the offer is made.

Powel V/S. Lee (1908) only the offeree can accept an offer to be legally effective. That is to say
communication of acceptance should be from a person who has the right to accept. Information received
from unauthorized person is null. (i.e. invalid)

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5) It must be given before the offer laps or withdrawn. The offer was no longer open as due
to the nature of the subject matter of the contract the offer lapsed after a reasonable period of
time.
Ramsgate Victoria Hotel v Montefiore (1866) the defendant offered to purchase shares in the
claimant company at a certain price. Six months later the claimant accepted this offer by which
time the value of the shares had fallen. The defendant had not withdrawn the offer but refused
to go through with the sale. The claimant brought an action for specific performance of the
contract.
Held: The offer was no longer open as due to the nature of the subject matter of the contract the
offer lapsed after a reasonable period of time. Therefore there was no contract and the
claimant's action for specific performance was unsuccessful.

6) It cannot be implied from silent- It cannot be implied from silent. The acceptance of an
offer cannot be implied from the silent of the offeree or his failure to answer.
e.g. : A wrote to B 'I offer you my car for Rs. 10,000/- If I do not answer from you in 7 days I
shall assumed that you accept it. B did not reply at all there is no contract.

7) If the act is done by the ignorance of an offer, it is not a valid acceptance of an offer. If
the promisee does not know who has made the proposal and if the promisee is also ignorance
regarding the content of proposal but promisee accept the proposal for such acceptance
promisor is not binding.
Lalman vs. Gauri Dutt, (1913) G sent his servant, L, to race his missing nephew. He then
announced that anybody who traced his nephew would be entitled to a certain reward. L traced
the body in ignorance of this announcement. Subsequently when he came to know of the
reward, he claimed it. Held, he was not entitled to the reward.

Communication of Offer and Acceptance One important common requirement for both „offer‟
and „acceptance‟ is their effective communication. Effective and proper communication prevents
revocation and misunderstanding between parties. The communication is important because
parties are separated by and distance. In which case the modes of communication like,
post/courier, telegram, fax, email, telephone etc., become very relevant because the method of
communication would also decide the „time‟ of „offer‟ and „acceptance‟.
The Indian Contract Act, 1872 gives a lot of importance to “time” element in deciding when the
offer and acceptance is complete.

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Communication of Offer and Acceptance when complete?
Communication of offer: In terms of Section 4 of the Act, “the communication of offer is
complete when it comes to the knowledge of the person to whom it is made”.
Therefore knowledge of communication is of relevance. Knowledge of the offer would appear
when the offer is given in writing or made by word of mouth or by some other conduct. This can
be explained by an example.
Where „A‟ makes a proposal to „B‟ by post to sell his house for ` 5 lakhs and if the letter
containing the offer is posted on 10th March and if that letter reaches „B‟ on 12th March the offer
is said to have been communicated on 12th March when B received the letter. Thus it can be
summed up that when a proposal is made by post, its communication will be complete when the
letter containing the proposal reaches the person to whom it is made.

Communication of acceptance: There are two issues for debate & understanding. They are:
What are the modes of acceptance? And when is acceptance complete?
Let us, first consider the modes of acceptance. Section 3 of the Act prescribes in general
terms two modes of communication namely, (a) by any act and (b) by conduct which has the
effect of communicating it to the other.

Communication by act - would include any expression of words whether written or oral.
Written words will include letters, telegrams, faxes, emails and even advertisements. Oral words
will include telephone messages. Again communication would include any conduct intended to
communicate like positive acts or signs so that the other person understands what the person
„acting „ or „making signs‟ means to say or convey.

Communication by conduct - Communication can also be by a conduct on the part of one

person to convey his willingness or assent. However silence would not be treated as
communication by „omission‟.
Brogden vs. Metropolitan Railway Co. (1877) It is an English contract law case, which
established that a contract can be accepted by the conduct of the parties.

Let us now come to the issue of when communication of acceptance is complete?

In terms of Section 4 of the Act, it is complete,

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(i) As against the proposer, when it is put in course of transmission to him so as to be out of
the power of the acceptor to withdraw the same;
(ii) As against the acceptor, when it comes to the knowledge of the proposer.

Where a proposal is accepted by a letter sent by the post, the communication of acceptance will
be complete as against the proposer when the letter of acceptance is posted and as against the
acceptor when the letter reaches the proposer.
For example If „B‟ accepts, A s proposal and sends his acceptance by post on 14th, the
communication of acceptance as against „A‟ is complete on 14th, when the letter is posted.
As against „B‟ acceptance will be complete, when the letter reaches „A‟.
Here „A‟ the proposer will be bound by B‟s acceptance, even if the letter of acceptance is
delayed in post or lost in transit. But it is necessary the letter is correctly addressed, sufficiently
stamped and duly posted. In such an event the loss of letter in transit, wrong delivery, non-
delivery etc., will not affect the validity of the contract.
So it is essential in this case that the letter reaches the proposer. If there is no delivery of the
letter, the acceptance could be treated as having been completed from the viewpoint of
proposer but not from the viewpoint of acceptor. Of course this will give rise to a difficult
situation of only one party to the contract being treated as bound by the contract though no one
would be sure as to where the letter of acceptance had gone.

Communication of special conditions: Sometimes there are situations where there are
contracts with special conditions. These special conditions are conveyed tacitly and the
acceptance of these conditions are also conveyed by the offeree again tacitly.
Lily White vs. R. Muthuswami 1966 where a launderer gives his customer a receipt for clothes
received for washing. The receipt carries special conditions and are to be treated as having
been duly communicated to the customer and therein a tacit acceptance of these conditions is
implied by the customer‟s acceptance of the receipt.

Revocation of Offer and Acceptance- If there are specific requirements governing the making
of an offer and the acceptance of that offer, we also have specific law governing their
revocation.
In terms of Section 5 of the Act a proposal can be revoked at any time before the
communication of its acceptance is complete as against the proposer. An acceptance may be

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revoked at any time before the communication of acceptance is complete as against the
acceptor.

When offer can be revoked? Sec 5 (1) an offer may be revoked at any time before the
communication of its acceptance is complete.

How an Offer can be revoked? Sec 6

a) By communication of notice of revocation by the offeror at any time before its acceptance is
complete as against him. Sec 6 (1)
b) By lapse of time if it is not accepted within the prescribed time. Sec 6 (2)
The time for acceptance can lapse if the acceptance is not given within the specified time and
where no time is specified, then within a reasonable time. This is for the reason that proposer
should not be made to wait indefinitely. It was held in Ramsgate Victoria Hotel Co vs.
Montefiore.
c) By non-fulfillment by the offeree of a condition precedent to acceptance. Sec 6 (3)
Where the acceptor fails to fulfill a condition precedent to acceptance the proposal gets
revoked. This principle is laid down in Sec. 6 of the Act. The offeror for instance may impose
certain conditions such as executing a certain document or depositing certain amount as
earnest money. Failure to satisfy any condition will result in lapse of the proposal.
Suppose where „A‟ proposes to sell his house to be „B‟ for ` 5 lakhs provided „B‟ leases his land
to „A‟. If „B‟ refuses to lease the land, the offer of „A‟ is revoked automatically.
d) By death or insanity of the offeror Death or insanity of the proposer would result in
automatic revocation of the proposal but only if the fact of death or insanity comes to the
knowledge of the acceptor S. 6 (4)
e) If a counter offer is made to it: Where an offer is accepted with some modification in the
terms of the offer or with some other condition not forming part of the offer, such qualified
acceptance amounts to a counter – offer.
Hyde vs. Wrench, (1840) W offered to sell a farm to H for £ 1000. H offered £ 950. W refused
the offer. Subsequently, H offered to purchase the farm for £ 1000. Held, there was no contract
as H by offering £ 950 has rejected the original offer. The counter offer to a proposal amounts
to its rejection.

Revocation of Acceptance: Sec. 5 expressly permits the revocation of the acceptance through
the following provisions.

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The acceptance may be revoke at any time before the communication of acceptance is
complete against the promisee but not afterward.
e.g.: A was sale his car to B for Rs. 50,000/- B is ready to purchase the car for same price and
such acceptance is communicated by B to A by letter. Here B can revoke his acceptance before
letter sent by B reaches to A but not afterwards.

Revocation of Acceptance under English Law According to English Law once the letter of
acceptance is posted if binds both the parties and their appearance to no scope of revocation of
acceptance by sending telegram or to the telephone call

3. Consideration

Consideration is one of the essential elements to support a contract. Subject to certain

exceptions, an agreement made without consideration is nudum pactum (a nude contract) and
is void.

Consideration is a technical term used in the sense of quid pro quo (i.e., something in return).
When a party to an agreement promises to do something, he must get “something” in return.
This “something” is defined as consideration. In the words of Pollock, “consideration is the price
for which the promise of the other is bought, and the promise thus given for value in
enforceable.”
Example: A agrees to sell his car to B for Rs. 10,000/- Car is the consideration for B and price is
the consideration for A.
Currie vs. Misa (1875) in this English case consideration was defined by Lush J. as follows:
“A valuable consideration in the sense of the law may consist either in some right, interest, and
profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility

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given, suffered or undertaken by the other.” But to this definition there should be added that “the
benefit accruing or the detriment sustained was in return for a promise given or received.”
Thomas vs. Thomas (1842) Justice Patterson defines consideration in the following words:
“Consideration means something which is of some value in the eye of law … It may be some
benefit to the plaintiff or some detriment to the defendant.”

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

Analysis of definition of consideration:

1) An act, i.e. doing of something - In this sense consideration is in an affirmative form.
Example: A promises B to guarantee payment of price of the goods which B sells on credit to C.
Here selling of goods by B to C is consideration for A‟s promise.

2) The abstinence or forbearance, i.e., abstaining or refraining from doing something. In this
sense consideration is in a negative form.
Gousmohoddin vs. Appasahib, (1976) L filed a suit against T, his tenant, for possession of
premises and arrears of rent. The suit was decreed in his favour. In execution, L obtained an
order for attachment of movable property of T. In consideration of T agreeing not to appeal
against the decree L allowed him one month‟s time to pay the balance of decrial amount and
vacate the premises. Held, the agreement was valid.

3) A Return Promise - Where it consists only of a promise, it is executory. For example where
A pays ` 5000/- to „B‟ requesting „B‟ to deliver certain quantity of rice, to which B agrees, then
here consideration for B is executed by „A‟ as he has already paid ` 5000/-whereas „B‟s promise
is executory as he is yet to deliver the rice.
Insurance contracts are of the same type. When A pays a premium of ` 5000/- seeking
insurance cover for the year, from the insurance company which the company promises in the
event of fire, the consideration paid by A to the insurance company is executed but the promise
of insurance company is executory.

Legal Rules as to Consideration

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1) It must move at the desire of promisor: An act constituting consideration must have been
done at the desire or request of the promisor. If it is done at the instance of a third party or
without the desire of the promisor, it will not be a good consideration.
Durga Prasad vs. Baldeo (1880) the plaintiff Durga Prasad on the request of the collector of
the town, built at his own expense a shopping complex in a market the shops were occupied by
the defendants Baldeo and others who in consideration of the plaintiff Durga Prasad spent
money over the construction, promised to pay him commission on articles sold by them,
subsequently, defendants refused to pay any commission and hence Durga Prasad sued them.
The plaintiff's action to recover the commission was rejected.

2) It may move from the promisee or any other person: Under the English Law,
consideration must move from the promisee [Tweddle vs. Atkinson, (1861)]. Under the Indian
Law, consideration may move from the promisee or any other person. i.e., even a stranger.
This means that as long as there is consideration for a promise it is immaterial who has supplied
it. But the stranger to consideration will be able to sue only if he is a party to the contract.
Chinnaya vs. Ramayya (1882) „A‟ by a deed of gift made over certain property to her daughter
(D) with condition that her brother (B) should be paid allowance by D. On the same day, D
executed a document agreeing to pay allowance accordingly but failed to pay after sometime. B
sued D. It was contended on behalf of D, that there was no consideration from B and hence
there was no valid contract. This plea was rejected on the ground that the consideration did flow
from B‟s Sister(A) to „D‟ and such consideration from third party is sufficient to enforce the
promise of D to pay allowance to A‟s brother (B)

3) It may be an act, abstinence or forbearance or a return promise - (Explained above –

analysis of definition of consideration)

4) It may be past, present or future: The words used in Sec. 2 (d) are: “…has done or
abstained from doing (past), or does or abstains from (present), or promises to do or to abstain
from doing (future) something….” This means consideration may be past, present or future.

a) Past Consideration: When consideration by a party for a present promise was given in the
past, i.e., before the date of the promise, it is said to be past consideration.
A renders some service to B at his desire. After a month B promises to compensate A for the
services rendered to him. It is past consideration. A can recover the promised amount.

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b) Present or executed consideration: When consideration is given simultaneously with
promise, i.e., at the time of the promise, it is said to be present consideration. A can recover the
promised amount.
Ex.: A receives Rs. 50/- in return for which he promises to deliver certain goods to B. The
money A receives is the present consideration for the promise he makes to deliver the goods.

c) Future or executory consideration: When consideration from one party to other is to pass
subsequently to the making of the contract, it is future or executory consideration.
Ex.: D promises to deliver certain goods to P after a week: P promises to pay the price after a
two days. The promise of D is supported by the promise of P. Consideration in this case is
future or executory.

5) It need not be adequate: Consideration, as already explained, means “something in return”.

This “something in return” need not necessarily be equal in value to “something given”. The law
simply provides that a contract should be supported by consideration. So long as consideration
exists, the Courts are not concerned as to its adequacy, provided it is of some value. “The
adequacy of the consideration is for the parties to consider at the time of making the agreement,
not for the Court when it is sought to be enforced.
According to Anson,” consideration need not be adequate to the promise but it must be of some
value in the eyes of law …”
Bolton vs. Madden, (1873) “Consideration must, however, be something to which the law
attaches value though it need not be equal in value to the promise made. The Courts do not
exist to repair bad bargains.
In Chijjitumal vs. Rampal Singh AIR, 1968, the Supreme Court repeated that consideration
need not be material and may be even absent. In the said case, the father had died leaving his
house to two sons. They had agreed to partition the house which did not admit the division in
exactly equal parts and one of the sons had agreed not to construct a door at a certain place in
his portion of the house.
In a dispute, the agreement was challenged on the ground that it was without adequate
consideration. The Supreme Court came to the conclusion that the motive for the said
agreement at the time when it was made, was to avoid any dispute in future, and held that it
was sufficient consideration.

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6) It must be real and not illusory: Although it is not necessary that the consideration must be
adequate, it is however, necessary that the consideration should be real and not illusionary. It
must be something which has some value in the eyes of the law.
The following are instances of consideration which are not real –
Physical impossibility A promise to find lost treasures by magic – the consideration is said to
be sham or absolutely hypothetical and illusionary because such a contract is impossible to be
performed.
Legal Impossibility
Uncertain Consideration A engages B for doing a certain work and promises to pay a
“reasonable” sum. There is no recognized method of ascertaining the “reasonable”
remuneration. The promise is unenforceable as consideration is uncertain.

7) It must be something which the promisor is not already bound to do – A promise to do

what one is already bound to do, either by general law or under an existing contract, is not a
good consideration for a new promise, since it adds nothing to the pre-existing legal or
contractual obligation. Likewise, a promise to perform a public duty by a public servant is not a
consideration.

Performance of an existing legal duty is no consideration

Ramachandra Chintaman vs. Kalu Raju (1877) there was a promise to pay to the Vakil an
additional sum if the suit was successful. Held, the promise was void for want of consideration.
The Vakil was under a pre-existing contractual obligation to render the best of his services
under the original contract.

8) It must not be illegal, immoral or opposed to public policy – Sec 23 The consideration
given for an agreement must not be unlawful. Where it is unlawful, the Courts do not allow an
action on the agreement. This point is explained in detail in the Chapter on “Legal of Object”.

A Contract without consideration is void, Exceptions.

Ans: In general, law enforces only those promises which are made for consideration. It is only
when there is consideration in an agreement that the parties intend to create legal relationship.
The law does not looks favorably at a contract of promises when the parties obtain “something
for nothing”. Even under the Roman law, such an agreement without consideration was called”

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Nudum Pactum” or a naked agreement and was unenforceable. Thus every agreement must be
supported by consideration so as to enforceable even though it may not be adequate.

The general rule is nudum pactum non oritor actio can agreement make without consideration is
void. Sec. 25, deals with the exception this rules. In some cases, the agreement is enforceable
though they are without consideration.

1) Love and Affection - Sec. 25 (1) where an agreement is express in writing and registered
under the law for the time enforce an account of natural love and exception between parties
standing in a near relation to each other. It is enforceable even if there is no consideration in
simple words a written and registered agreement based on nature, love and affection between
their relatives inferable given if it is without consideration.
Essentials for Section 25(1)
The parties to the agreement stand in near relation to each other
Agreement is made on account of natural love and affection
Agreement should be in writing
Written document should be duly registered.
Venkatasamy vs. Rangasami A registered agreement, whereby an elder brother, on account
of natural love and affection, promised to a the debts of his younger brother, was held to be
valid and binding on the younger brother cause the elder brother in the event of his not carrying
out the agreement.
Rajlukhy Devi Vs. Bhootnath Air 1900 A Hindu husband (defendant) promised to pay his wife
(plaintiff) a fixed sum of money every month for her separate residence and maintenance. The
agreement was contained in a registered document which mentioned quarrels and
disagreements between the two. Held the Cal HC refused to regard the agreement as one
covered under the exceptions to Section 25(1). The agreement was held void for want of
consideration because the essential requirement of natural love and affection was missing.

2) Compensation for Voluntary Service Sec. 25 (2) A promised to compensate a person who
has already voluntary done something for promisor in enforceable ever though it is without
consideration.
Essentials for Section 25(2)
The Act must have been done voluntarily for the promisor. The term used – voluntarily – in
Section 25(2) signifies the Act was done – otherwise than at the desire of the promisor,

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The Act must be something which was the legal obligation of the promisor,
The promisor subsequently makes a promise to compensate promisee for his past services or
such a subsequent promise to compensate, by the promisor.
A finds B‟s purse and returns it to him. B promises to give A Rs 100. This is a valid contract
under Section 25(2).

3) Completed Gifts - The rule no consideration no contract does not apply to completed gift.
Nothing in this Sec. 25 shall affect the validity as between the donor and donee of any gift
actually made.
A gift does not require consideration in order to be valid “As between the donor and the done
any gift actually made will be valid and binding even though without consideration. In order to
attract this exception there need not be natural love and affection or nearness of relationship
between the donor and done. The gift must, however, be complete.

4) Promise to pay time barred debt: Sec 25 (3) where there is an agreement, made in writing
and signed by the debtor or by his authorized agent, to pay wholly or in part a debt barred by
the law of limitation, the agreement is valid even though it is not supported by any
con-sideration. A time barred debt cannot be recovered and therefore a promise to repay such a
debt is without consideration, hence the importance of the present exception.
The logic behind this exception is that by lapse of time the debt is not destroyed but only the
remedy is” lost. The remedy is recharged by a new promise under the exception.
A owes B Rs 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay
B Rs 500 on account of the debt. This is a valid contract.

5) Charitable Subscription - Where the promisee on the strength of the promise next
commitment to pay a certain sum. There is valid contract though it is without consideration. The
Commitment must be written.
In Kedar Nath vs. Ghorie Mohammad, the defendant had agreed to subscribe Rs 100 towards
the construction of a Town Hall at Howrah. The plaintiff (secretary of the Town Hall) on the faith
of the promise entrusted the work to a contractor and undertook liability to pay him. The
defendant was held liable.
But where the promisee had done nothing on the faith on the promise, a promised subscription
is not legally recoverable.

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Abdul Aziz vs. Masum Ali (1914) the secretary of a Mosque Committee filed a suit to enforce a
promise which the promisor had made to subscribe Rs. 500/- to the re-building of a mosque.
Court held, “the promise was not enforceable because there was no consideration in the sense
of benefit”, as “the person who made the promise gained nothing in return for the promise
made”, and the secretary of the Committee to whom the promise was made, suffered no
detriment as nothing had been done to carry out the repairs. Hence the suit was dismissed.

Stranger to contract / Doctrine of Privity

Intro. It is the general rule of law that only parties to contract may sue and be sued. This rule is
known as doctrine at privity of contract means relationship subsisting between the parties who
have entered into a contractual obligation.

There are two consequences of Doctrine of Privity of Contract

1) A person who is not party of contract cannot sue upon it.
2) A contact cannot offer right or imposed obligation arising under it on any person other than
parties to it.
Dunlop Pneumatic Tyre Co. vs. Selfridge & Co 1915 Dunlop made tyres. It did not want them
sold cheaply but to maintain a standard price. It agreed with its dealers (in this case Dew & Co)
not to sell them below its recommended retail price. It also bargained for dealers to get the
same undertaking from their retailers (in this case Selfridge). If retailers did sell below the list
price, they would have to pay £5 a tyre in liquidated damages to Dunlop.
Dunlop thus was a third party to a contract between Selfridge and Dew. When Selfridge sold the
tyres at below the agreed price, Dunlop sued to enforce the contract by injunction and claimed
damages.
Selfridge argued it could not enforce the burden of a contract between itself and Dew, which
Selfridge had not agreed to.
At trial, the judge of first instance, found in favor of Dunlop. In appeal the damages and
injunction were reversed, saying that Selfridge was not a principal or an agent and thus was not
bound. The issue put to the House of Lords as to whether Dunlop could get damages from
Selfridge without a contractual relationship. The House of Lords, in a unanimous decision held
that it could not.
Judgment based on three fundamental principles in law:
First, the doctrine of privity requires that only a party to a contract can sue.

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Second, the doctrine of consideration requires a person with whom a contract under seal is
made is only able to enforce it.
Third, the doctrine of agency requires that the principal not named in the contract can only be
sued if the promisor was contracted as an agent.
In application to the facts, judges could not find any consideration between Dunlop and
Selfridge, nor could he find any indication of an agency relationship between Dew and Selfridge.
Consequently, Dunlop's action must fail.

Stranger can enforce the contract under following circumstances. Exception to the rule
of privity -
1) A trust or charge – Trust is a well-established exception to the rule of privity. This means
that if A makes a promise to B for the benefit of C, C can enforce this promise if B has
constituted himself trustee of A‟s promise for C. Lloyd‟s v. Harper (1880)
A person (called beneficiary) in whose favor is created can enforce even though he is not party
to contract.
Rana Uma Nath Baksh Singh v. Jang Bahadur 1938 in this case: U was appointed by his
father as his heir and was put in possession of his entire estate. In consideration thereof U
agreed with his father to pay a certain sum on money and to give a village to J, the illegitimate
son of his father, on his attaining majority.
It was held that in the circumstances mentioned above a trust was created in favor of J for the
specified amount and the village, Hence he was entitled to maintain the suit.

2) Marriage Settlement, Partition or other Family Agreement When an agreement is made in

connect with marriage partition or other family agreement and the provision is made for the
benefit of third person he may sue though he is not a party to agreement.
Rose Fernandez v. Joseph Gonsalves 1924 a girl‟s father entered into an agreement for her
marriage with the defendant, it was held that the girl after attaining majority could sue the
defendant for damages for breach of the promise of marriage and the defendant could not take
the plea that she was not a party to the agreement.
Daropti vs. Jaspal Rai (1905) the defendant‟s wife left him because of his cruelty. He then
executed an agreement with her father, promising him to treat her properly, and if he failed to do
so, to pay her monthly maintenance and to provide her with a dwelling. Subsequently she was
again ill-treated by the defendant and also driven out. She was held entitled to enforce the
promise made by the defendant to her father.

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3) Assignment of Contract / transfer of Contract The assignee of rights and benefits under a
contract not involving skills can enforce the contract. If contract is not related with personal
qualifications or skills, the benefit of a contract may be assigned (that is transferred) to a third
party. The assignment is effected through a contract between the promisee under the main
contract (that is, the assignor) and the third party (that is, the assignee).
Krishanlal Sadhu vs. Primila Bala Dasi (1928) where there is an assignment of a contract, the
assignee can enforce the contract for various benefits that would accrue to him on account of
the assignment.

4) Acknowledgement / Estoppels Where the promisor by his conduct, acknowledges or

otherwise constitutes himself as an agent of a third party, a binding obligation is thereby
incurred by him towards the third party.
Davaraja v. Ram Krishnaiah 1952 is a relevant case under this head: A sold his house to B
under a registered sale deed and left a part of the sale price in his hands desiring him to pay
this amount to C, his creditor. Subsequently B made part-payments to c informing him that they
were out of the sale price left with him and that the balance would be remitted immediately. B,
however, failed to remit the balance and C sued him for the same.
The suit was held to be maintainable. “Though originally there was no privity of contract
between B and C, B having subsequently acknowledged his liability, C was entitled to sue him
for recovery of the amount.”
Example. - A receives some money from T to be paid over to P. A admits that of this receipt to
P. P can recover the amount from “A” who shall be regarded as the agent of P.

5) Contracts entered in to through an agent the principal can enforce the contracts entered in
to by his agent provided the agent acts within the scope of his authority and in the name of the
principal.
one can normally say that the principal is the real party to the contract concluded by his agent,
agency can also be viewed as an exception to the privity doctrine as in that the principal, on the
basis of a contract with a third party, that contract being concluded by his agent, is able to sue
(and be sued) on it.

6) Covenant running with the land The law allows certain covenants (whether positive or
restrictive) to run with land so as to benefit (or burden) people other than the original contracting

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parties. In cases of transfer of immovable property, the purchaser of land with notice that the
owner of the land is bound by certain conditions or covenants created by an agreement
affecting the land shall be bound by them although he was not a party to the original agreement
which contained the conditions or covenants.

4. Capacity to contract

Capacity of parties is an essential for a valid enforceable contract. In the simplest of terms, the
parties to a contract must be competent to enter into a contract for it to be binding on them.
Thus, the incapacity of a party can prevent a contract from being enforced.
The party who entered into contract must have a capacity to do so. Capacity here means
competence of party to enter into valid contract.
Sec. 10: An agreement become contract if it is entered between parties who are competent to
contract.
Person is competent to contract
Sec. 11: Every person is competent to contract who
a) is of the age of majority according to the law to which he is subject

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 b) Is of sound mind.
c) Is not disqualified from contracting by any law to which he is subject.

Thus Sec. 11 indirectly declares the following persons to be incompetent to contract.

A) Mental deficiency
1) Minor
Who is minor? According to Sect. 3 (a) of Indian Majority Act
Minor is a person who has not completed 18 yrs. of age in the following 2 cases he attain
majority after 21 yrs. of age
1) Where a guardian of a minor person has been appointed under the guardians and WARDS
Act, 1890.
2) Where the superintendence of a minor's property is assumed by the court of words.

Minor's Contract governed according to three principles:

1) The law protect minor person and preserved their rights, excuse their latches and assist them
in their pledging.

2) The judges are their councilors, the jurists are their servant and the law is their guardian.

3) The law should not cause unnecessary hardship to the person who deals with minor.

Legal rules relating to minors agreement

1. An agreement by a minor is void - ab - initio An agreement entered into by a minor is void

against the minor and the question of its enforceability does not arise. The Privy Council in…
Moharbibi vs. Dharmadas Ghosh 1903 In this case a minor executed a mortgage deed in
favor of a person (money lender) for the sum of Rs. 20,000/- Minor received Rs. 8,000/- out of it
as a first installment. Afterward minor filed a suit against the money lender for setting aside the
mortgage deed entered with the money lender. The money lender claim Rs. 8,000/- from the
minor.
Decision: It was held by Privy Council that minor's contract is all together void and therefore the
money lender cannot recover the amount from minor.

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2) He can be Promisee or beneficiary Incapacity of a minor to enter into a contract but there is
nothing which debars him from becoming a beneficiary.
A minor cannot become partner in a partnership firm. However, he may with the consent of all
the partners, be admitted to the benefits of partnership (Sec. 30 of the Indian Partnership Act,
1932).
Sharafat Ali vs. Noor Mohd1924 Incompetency of a minor to enter into contract means
incompetency to bind himself by a contract. There is nothing which debars him from becoming a
beneficiary, e.g., a payee, an endorsee or a promisee in a contract.
Such contracts can be enforced at his option, but not at the option of the other party. Thus, the
law does not regard him as incompetent for accepting a benefit.

3) His agreement cannot be ratified by him an attending the age of majority. An

agreement by a minor cannot be ratified by him on attaining the age of majority. They term
„ratification‟ may be defined as the act of confirming or approving. This means no ratification‟ of
an agreement made by a minor (during the period of minority), it cannot be confirmed by him on
attaining majority.

This is so because minor‟s agreement is voidable initio (i.e., void from the very beginning) and,
therefore, cannot be made valid by ratification. However, if the minor wants to carry out the
agreement, a fresh agreement should be made on attaining majority, it may be noted that a new
agreement will also require fresh consideration.

Nazir Ahmed v. Jiwandas 1938 the consideration which was given under the earlier
agreement (during minority) cannot be taken as consideration for the new agreement (during
majority).
e.g.: M a minor borrows Rs. 5,000/- from L and execute a promissory note in favor of L. After
attending majority he execute another promissory note in settlement of the first note. The
second promissory note is void.

4) If he receives any benefit under agreement he cannot be asked to return a loan by

mortgaging his properly. He is not liable to refund the loan. Not only this can‟t even his
mortgaged property be made liable to pay the debt.

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5) There can be no specific performance of the agreement entered into by him as they are
void - ab –initio A contract entered into an behalf of his parent, guardian or the manager of his
estate can be specifically enforced by or against the minor provided that contract is the scope of
authority of parent, guardian, manager and for the benefit of the minor.

6) He can always plead minority / No estoppels against [Link] term „estoppel‟ may be
defined as prevention of a claim or assertion by law. In other words, when someone makes
another person to believe that a particular thing or fact is true, then later on he cannot be
allowed to deny the truth of that thing.

It will be interesting to know that there is no such estoppel against the minor. In other words,
when a minor fraudulently enters into a contract, representing that he is a major, but in reality he
is not, then later on he can plead his minority as a defense and cannot be stopped (i.e.
prevented) from doing so.
e.g.: 'S' a minor by fraudulently representing himself to be of full age, induced 'L' to lend him
pound 400. He refused to reply it and 'L' sues him for the money. Court held that the contract
was void and 'S' has right to plead minority.

7) He cannot enter into the contract of partnership but he may be admitted to the benefit
of an already existing partnership with the consent of the other partners. The partnership
of partners results from their agreement. A minor, being incompetent to enter into a contract,
cannot be a partner in the firm. However, he may be admitted only to the benefits of the firm
with the consent of all other partners [Sec 30(1) of the Indian Partnership Act, 1932].

8) He cannot be adjudged insolvent. This is because he is incapable of contracting debts. A

minor cannot be declared as an insolvent. All agreements with a minor are absolutely void.
Moreover, the minor is not personally liable for any debt incurred during the period of his
minority.

9) Contract by guardian are valid: Though an agreement with minor is void, valid contract can
be entered into with the guardian on behalf of the minor. The guardian must be competent to
make the contract and the contract should be for the benefit of the minor. For instance a
guardian can make an enforceable marriage contract on behalf of the minor. Similarly father of

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bride can enter the contract with the father of bridegroom for payment of certain allowance to
the bride.
In the case of Mir Sarwarjan vs. Fakhruddin Mohd. Chaudhary 1912, a contract to purchase
a property was done on behalf of minor. It was held that the minor could not sue for getting the
possession of property.
However, since in today's times minors are coming a lot in public life, it is not always possible to
consider an agreement with a minor to be always void. Therefore, in the case of Srikakulam
Sbhramanyam vs. Kurra Sabha Rao 1949, Privy Council held that a sale of inherited property
of a minor to pay off inherited debt effected by the guardian was binding on the minor.
However, a court appointed guardian can bind a minor is respect of certain sale of property
ordered by the court.

10) He is liable for necessaries supplied or necessary services rendered to him. A person
who supplied necessaries of life to a minor or his family, is entitled to be refunded from the
properties of a minor, not on the basis of any contract but on the basis of an obligation
resembling a contract (Quasi Contract). Necessaries of life not only include food and clothing
but also education and instruction. They also include „goods‟ and „services‟.
A minor is liable to pay out of his property for necessaries supplied to him Sec. 68.

Quasi Contract: quasi contract means a contract presumed by the court. It is only the property
of the minor which is liable for meeting the liability arising out of such contract. He is not
personally liable. The law has provided this exception intentionally because if it were not so it
would be impossible for minor even to live.
The term necessary is not define in the Indian Contract Act, The English Sale of Goods Act,
1893 defines it in Sec. 2 Goods suitable to the condition in life of such infant or other person and
to his actual requirements at the time of sale and delivery.
Such goods need not necessarily belongs to a class of useful goods but they must be -
1) Suitable to the position and financial status of the minor
2) Necessaries both at the time of sale and at the time of delivery

a) Necessaries Goods Necessary goods are not restricted to articles which may be are
required to maintained a mere acceptance such as cloths and bread but includes articles which
are reasonably necessary to the minor having regard to his life.

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Peter Vs. Fleming 1840 the supply of a watch to a minor whose study was considered as the
necessity because to have a watch for graduate person is his necessity.
Nash vs. Inman- Inman an infant (minor) under graduate in Cambridge brought 11 fancy coats
from Nash. He was at the time adequately provided with clothing. It was held that coats were
not necessary and the price could not recover.

b) Services Rendered Certain Services rendered to a minor have been held to be necessaries
these includes education, training for a trade, medical advice, legal advice etc.

What are necessary articles is to be determining from the status and the social position or the
minor. The price which the trader will get is reasonable price, not the price agreed by the minor.
It has been held that reasonable expenses incurred for the purpose or minors marriage,
marriage of his sister. Cost of defending a minor in civil or criminal proceeding, funeral
ceremonies, shraddha ceremonies of the ancestors of minor are necessaries. Therefore
minor's property is liable for it.

2) Person unsound mind the next important requirement of capacity to contract is “sound
mind”. A person will be considered to be of sound mind if he at the time of entering into a
contract is capable of understanding it and forming a rational judgment as to its effect upon his
interest. A person who is of unsound mind but occasionally of sound mind can enter into a
contact when he is in sound mind though for temporary periods. For example a person who is in
lunatic asylum during intervals of sound mind can enter into contracts. Similarly, a person who is
generally of sound mind, but occasionally of unsound mind cannot enter into a contract when he
is of unsound mind.
From the above it is clear that the period of lucidity would be critical as much as the periods of
lunacy. But the burden of proof of „unsound mind‟ is on the person who challenges the validity of
the contract.
A lunatic whose estate is managed by a committee or manager is not capable of entering into a
contract even during the periods of lucidity in view of special provisions of Lunacy Act.
The basic test for lunacy or lucidity is to see whether the person is able to understand the
implications of a contract which he enters into on his interest. Idiots, lunatics and drunken
persons are examples of persons of unsound mind.

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Sec. 12 A person who is usually of unsound mind but occasionally of sound mind may make a
contract when he is of sound mind.

e.g.: A patient in a lunatic asylum who is at intervals of sound mind may contract during those
intervals.
e.g. : A same man who is delicious form fever or who is so drunk that he cannot understand the
terms of a contract or form a rational judgment as to its effect on his interest cannot contract
while such delicious or drunkenness affected.

Whether a party to a contract is or sound mind or not is the question or fact and if is to be
decided by the court.
There is a presumption in favor or sanity if a person relies an unsoundness of mind. He must
prove it sufficiently to satisfy the court.

Person or unsound mind

1) Lunatic a lunatic person who is mentally deranges due to some mental strength or other
personal experience he suffer from intermittent, intervals of sanity and insanity. He can enter
into contract during the period when he is of sound mind.
2) Idiots an idiot is a person who has completely lost his mental. He cannot exhibit
understanding of even ordinary matters. Idiocy is permanent whereas lunacy denotes periodical
insanity with lucid insanity. An agreement with an idiot like that of minor and is void.
3) Drunken / Intoxicated Person A drunker or intoxicated person suffers from temporary
incapacity to contract i.e. at the time when he is so drunk or intoxicated that he is incapable of
forming rational judgment. The position or drunker or intoxicated person is similar to that of a
lunatic. Agreement enter into by a person of unsound mind are void but the person of unsound
mind liable for necessaries supplied to them but even in such case no personal liability attaches
to them. It is only their estate which is liable (S. 68)

Case laws related to contract of unsounded mind person

Inder Singh vs. Parmeshwardari Singh (1957) An idiot execute a sale deed of Rs. 7,000/- of a
property having original market value of Rs. 25,000/- His mother proves his idiocy and the sale
deed held to be void.
Machinman vs. Usman Bari, (1970) Agreement of person of unsound mind is like that of a
minor and thus absolutely void.

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Shertan vs. Kalicharan Person who usually of unsound mind and occasionally of sound mind
may make a contract when he is sound mind.

Contract by disqualified persons: Apart from minors and persons of unsound mind, these are
the others who are not capable of entering into contract either wholly or partially. Contract by
such persons are void.
Foreign Sovereign - Sovereign states, Ambassadors and Diplomatic Consuls enjoy certain
privileges with the result that they cannot be proceeded against in Indian Courts. However, they
can, at their will enter into contracts which may be enforceable in India.
Foreign sovereign and ambassador has peculiar privilege they can entered into contract and
can entered into contract those contract in our court with the prior permission of central govt. S.
86 Civil Procedure court suit against and by a foreign sovereign can be instituted but not without
prior permission of central govt.
Alien Enemy During war an Indian Citizen cannot entered into contract with alien enemy.
Contract made before the war are either suspended or dissolved. A Line Enemy are those
whose nation is at a war with a republic of India. This disability to an alien enemy arises on
account of public policy.
S. 83 of C.P.C. if a line enemy residing in country (India) but with the permission of central govt.
he can enforced the contract but those who are residing without permission of central govt. shall
not sue in any such court.
Convicts A convict when undergoing in imprisonment is incapable of entering into a contract
this incapability to contracts or to sue on a contract comes to an end when the period of
sentence expires or when he is pardoned. The convict however does not suffer from the rigors
of law of limitation. Limitation is held in abeyance (paused) during the period of his sentence.

Professional Status in England barristers when acting in their professional capacity or deemed
to be of a purely honorary character and they are not permitted to sue for fees.
But in India under Bar Council Act 1927 provided that an advocate with liberty both to Act and
pledge and has got the right to contract to sue and be sued.
Nilachand Shastri vs. Dilawar Khan An Advocate in India can enter into contracts with his
clients for recovery of fees or payment of fees in certain manner unlike his counterpart in U.K
where barristers are prohibited to enter into contracts for recovery of fees from their clients In
this case of High Court Bench upheld the right of Barrister to sue his client for fees.

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Artificial Status
Statutory corporations or Municipal bodies cannot enter into contracts on matters which are
beyond their statutory powers or ultra-verse the memorandum or articles through which they are
created.
A Corporation is an artificial person created by a law having a legal existence a part from its
member. It may come into existence by registration under the Companies Act, 1956. Its
contractual capacity is regulated by the terms of memorandum of association and the provisions
of the companies act.
If it exceeds its powers whether expressly conferred on it or derived by reasonable implication
from its objects clause in memorandum. The contract is ultra-verses and is void. Further it
cannot enter into contract of a strictly personal nature as it is an artificial and not a natural
person.

5. Free Consent
Meaning and Importance of Free Consent / "consensus-ad-idem".
People who enter into contract must give their free consent. It is the most important and
essential element of valid contract. In the absence of free consent or without the free consent
valid contract is completely impossible. It is essential to create a valid contract that the parties

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have consensus or meeting of the mind. They must agree up on same thing in the same sense
at the same time.
Mutual understanding between the parties results agreement on the same thing in the same
sense. Such agreements represent the real consent from the inner part of the parties which
gives positive impression to performance of the liabilities created from the contract. It is easily
performed and enforced. Free consent provides for a contract:
-Meeting of the mind of parties,
-Enforceability,
-Legal remedy for aggrieved party.
Famous Jurist Salmond states that if there is any error in consensus or meeting of the mind of
the parties then there is no contract.

In Indian Contract Act, 1872 Section 13 defines 'Consent' as two or more persons said to
consent when they agree up on the something in the same sense. In conclusion, we can say
consent given by a person voluntarily out of his own desire and conscience is called the free
consent.
Thus consent involves identity of minds of "consensus-ad-idem". (Agreeing upon the same thing
in the same sense) If, for whatever reason, there is no consensus ad-idem among the
contracting parties, there is no real consent and hence no valid contract.

Similarly Section 14 of the Indian Contract Act, 1872 defines free consent: Consent is said
to be free when it is not caused by;
1. Coercion 2. Undue influence 3. Fraud 4. Misrepresentation 5. Mistake
These five elements are called vitiating (to spoil or reduce the effect) factors of free consent.
If the contract is made under coercion, undue influence, fraud and misrepresentation then the
contract will be voidable at the option of the aggrieved party. But when consent is caused by
'bilateral mistake' as to a matter of fact essential to the agreement, the agreement is void. If both
parties are mistaken, as the matter of fact, the agreement would be void.

Effect of flaw in consent / absence of free consent and its effect on contract
Section 19 of the ICA deals with the effect of flaw in consent caused by coercion, fraud, and
misrepresentation while Section 19A deals with flaw in consent due to undue influence.

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According to Section 19 when consent to an agreement is caused by coercion, fraud and
misrepresentation – the agreement is a contract voidable at the option of the party whose
consent was caused. Until then the contract is valid. A party to contract whose consent was
taken by coercion, misrepresentation, and fraud may also, if he thinks fit, insists that the
contract shall be performed.
In case of fraud, apart from avoiding the contract, the person whose consent has been so
caused may also bring an action for damages because fraud is considered a kind of tort. When
a person at whose option the contract is voidable rescinds it, he is bound to restore the benefit if
any received by him under such a contract.

Coercion
Coercion is a term which denotes that a person is compelled to do or not to do something as
against his willingness or interest. As the view point of contract law; it is an act of using unlawful
force for obtaining consent of person who does not voluntarily agree to enter into a contract.
Therefore when a party of contract is compelled to enter such contract with use of force by
another party under a threat is known as coercion. Under the English law it is known as duress.

Coercion: - Sec.15 - Coercion is the committing or threatening to commit any act forbidden by
the Indian penal code or the unlawful detaining or threatening to detain any property to the
prejudices of any person whatever with the intention of any person whatever with the intention
of causing any person to enter into an agreement.

S.15 coercion is said to be there when the consent of person has caused either by.....
(1) The Committing or threatening to commit any act forbidden by the IPC. e.g. A
threatens to shot B if does not lend him Rs.500. B lends amount the threat amount to coercion.

Ranganykamma Vs Alwar shethy, 1927 In this case a young girl of 13 years was forced to
adopt a boy. Her husband‟s dead body was prevented for cremation until she consented. It was
held that her consent was not free but was induced by coercion consequently the adoption was
set-aside.

Whether Coercion could be cursed by the threat to commit suicide?

Chikam Amirayu Vs Chikam Sheshmma 1918 The question before madras High Court was
that whether coercions could be caused by threat to commit suicide? Husband induced his wife

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& son to execute release-deed in favor of as brother in respect of certain properties claim as
their own by the wife & son.
It was held by chief Justice Willis that a threat to commit suicides amounted to coercions within
the meaning of S.15 of Indian contract Act & therefore the release deed was voidable. It was
further observed to be the threat to commit suicide would be considered to be an act forbidden
by IPC.

(2) Unlawful detaining or threatening to define any property

Mothiah Vs Mutha Karrapa 1927 In this case an agent refused to hand over the account book
of a business to the new agent unless the principal released him from all liabilities the principal
had to give release -deed as he demanded. It was held that the release-deed was given under
coercion & avoidable at the option of principal.

Duress: - (Coercion under English Law) In English Law the near or equivalent of the term
coercion is duress involved a actual violence over the person of another with a view to obtaining
this consent to the agreement.
Coercion and Duress distinguished
(a) Coercion is the term applied under the Indian law of Contracts while Duress is the term
applied under the English law of Contracts.
(b) Coercion has a wide scope than Duress, Coercion includes threat to property also while
Duress includes actual act of violence over the person and not of property.
(c) Coercion can be applied by even a stranger, while Duress must be applied by a party to the
Contract upon the other party or to his wife or patent or child.

Effect of Coercion: - An agreement induced by coercion is voidable and not void. That means
it can be enforced by the party coerced, but not by the party using coercion.
It is immaterial whether the Indian Penal Code, 1860 is or is not in force at the place where the
coercion is employed.

Undue influence
When a party enters in to a contract under any kind of influence, mental pressure or persuasion,
which prevents him from exercising a free and independent judgment, it is known as undue
influence. It is an abuse of one's position and to achieve unfair benefit. Such contract is voidable

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at the option of the influenced party to make contract. Undue influence is an influence which
compels another person to do something which he would not have done if he had been a free
mind. Thus undue influence is the domination of a weak mind by a strong mind to the extent
of exploitation in the context of an agreement.

Sec.16 (1):- A contract is said be induced by under influence where the relation subsisting
between the parties are such that one of the party is position to dominate the will of other &
uses that position to obtain an unfair advantage over the other
Sec.16 (2):- Provides that under influence may be presumed to exist in following case-

(1) Where are party holds a real or apparent authority over the other or
(2) Where he stands in a fiduciary relationship to the other.

e.g.- Father son, solicitor & client, Doctor- patient, Trustee beneficiary, spiritual guru & decipal
etc.

Presumption of Law & Burden Of Proof - 2 things have to be proved in order to raise a
presumption of undue influence –

1. That the relationship between the contracting parties are such that one was in a position to
dominate over the will of the other, and

2. That the position was used to obtain an unfair advantage from the other person.
If these two elements of proof exist, then a presumption of undue influence arises and the
burden is cast upon the dominating party to show that he has not taken advantage of his
superior position.

Rebutting the presumptions –

1] Full discloser of a fact was made by influencing party.
2] The price was adequate
3] The weaker party was in receipt of independent advice before making the promise.
Mannu singh Vs Umadatta Panday (1890) A spiritual guru induced his devotee (decipal) to gift
him a whole of his property in return of salvation of a disciple court held that the consent of
disciple was given under undue influence.

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Rani Annaparni Vs Swaminath (1910) A poor Hindu widow was persuaded by a moneylender
to agree to pay 100% rate of interest on money land by him to her. She needed the money to
establish her right to maintenance court held that it was a case of undue in flounce & the court
reduced the rate of interest to 24%.

Relationship which may raise presumption of undue influence:-

1] Parent - Children 2] Trustee -beneficiary 3] Spiritual-Adviser & Decipal 4] Doctor -Patient
5] Advocate -Client 6] Phiance –Phiancee

There is no presumption of undue influence in following relations.

1] Debtors & Creditors 2] Landlord & tenant 3] Husband & wife

Shaikh Ismail VS Amir bibi

The wife should not be Pardanshin otherwise the presumption of undue influence will arise.
(Pardanshin Woman -Means a woman who is to folly secluded for ordaining social intercourse.)

Effect of Undue influence:- When the consent to an agreement is obtained by undue influence
the agreement is avoidable at the option of the party whose consent was so obtained.
Section 19-A declares that when consent to an agreement is caused by undue influence, the
agreement is a contract voidable at the option of the party whose consent was so caused
Because of undue influence one party to the contract may take an undue advantage under the
contract, or the party entitled to avoid the contract may have already received some benefit
under the contract. The court in cases has been empowered to set aside the contract either
absolutely or upon such terms and conditions as the Court may deem just.

Second para to Section 19-A incorporates the following provision in this regard: “Any such
contract may be set aside either absolutely, or, if the party who was entitled to avoid it has
received any benefit there under, upon such terms and conditions as to the Court may seem
just”

For example, a , a money-lender, advances Rs. 100 to B, an agriculturalist, and, by undue

influence, induces B to execute a bond for Rs. 200 with interest at 6 per cent per month. The
court may set the bond aside, ordering B to repay Rs.100 with interest as may seem just.

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Allcard V/S. Skinner (1887)
The plaintiff must seek relief within a reasonable time after the removal of undue
influence under which the contract was made.
Religions superior and inferior (guru and disciple) etc. here undue influence is presumed to
have been exercised. The plaintiff must seek relief within a reasonable time after the removal of
influence under which the contract was made. Gifts liable to be set aside by the court, on the
ground of undue influence have always been treated as voidable and not void.
It was held by the Court of Appeal that although the plaintiff's gifts were voidable because of
undue influence brought to bear upon the plaintiff through the training she had received, she
was disentitled to recover because of her conduct and the delay.

Difference between Coercion and Undue Influence: Having discussed in detail the concepts
of coercion and undue influence, let us understand the difference between the two:-
(i) Nature of action: Coercion involves physical force and sometimes only threat. Undue
influence involves only moral and mental pressure.
(ii) Involvement of criminal action: Coercion involves committing or threatening to commit any
act prohibited or forbidden by law, or detention or threatening to detain a person or property. In
undue influence there is no such illegal act involved.
(iii) Relationship between parties: In coercion there need not be any relationship between
parties; whereas in undue influence, there must be some kind of relationship between parties,
which enables to exercise undue influence over the other.
(iv) Exercise by whom: Coercion need not proceed from the promisor. It also need not be
directed against the promisee. Undue influence is always exercised by one on the other, both of
whom are parties to a contract.
(v) Enforceability: Where there is coercion, the contract is voidable. Where there is undue
influence the contract is voidable or court may set aside or enforce it in a modified form.
(vi) Position of benefits received: In case of coercion, where the contract is rescinded by the
aggrieved party any benefit received has to be restored back. In the case of undue influence,
the court has discretion to pass orders for return of any such benefit or not to give any such
directions.

Fraud
It is a willful misrepresentation with intent to deceive another person to believe that a thing is
true which is untrue or false. It means fraud is misrepresentation with bad intention. It is made

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knowingly by a party to deceive another. Fraud is a one of the factors which always hampers
the free consent of contractual party.
Sec. 17 of the Act defines fraud as – “Fraud” means and includes any of the following acts
committed by a party to a contract, or with his connivance, or by his agents, with intent to
deceive another party thereto his agent, or to induce him to enter into the contract.

Sec. 17 (1) – the suggestion as to a fact of that which is not by one who does not believe it to be
true
Sec. 17 (2) – the active concealment of a fact by one having the knowledge or belief of the.
Sec. 17 (3) – a promise made without any intention of performing it. It means a promise made
falsely with the intention of inducing the other party to make a reciprocal promise and thereby
enter into a contract.
Sec. 17 (4) – any other Act fitted or designed to deceive.
Sec. 17 (5) – any such act or omission as the law specially declares to be fraudulent

The following can be taken as illustration of fraud:

1. There must be a false representation or assertion – Sec. 17 (1) A Prospectus of a
company did not refer to the existence of a document disclosing liabilities; this gave the
impression that the company was prosperous. If the document had been the impression would
have been quite different.
Court held that non-discloser amounted to fraud & anyone who purchases the shares on the
faith of this prospectus could avoid the contract. Peek vs. Gurney (1873)

2. There must be active concealment of fact – Sec. 17 (3) B discovered an iron mine in the
Estate of „A‟ He conceals the mine and the information about the mine. „A‟ in ignorance agrees
to sell the estate to „B‟ at a price that is grossly undervalued. The contract would be voidable of
the option of „A‟ on the ground of fraud.

3. A promise made without the intention of performing it – Sec. 17(3) buying goods with the
intention of not paying the price is an act of fraud.

4. Any other Act fitted or planned to deceive – Sec. 17(4) this provision is general in nature
and is intended to include other means of trick and unfair means intended to deceive anyone

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other than acts suggested in sub clause 1 & 2 of sec. 17. Under this Section, any such acts will
amount to fraud.

5. Any such acts of omission as the law specially declares to be fraudulent – Sec. 17(5) It
will be interesting to know that not only Contract Act, but also other Acts have specifically
declared certain acts and omission as fraud. A seller of a property should disclose any material
defect in the property. Concealing the information would be an act of fraud. Any other act
committed to deceive is fraud.
Silence As to fraud: - The general rule is that a person before entering into contract need not
disclosed to the other party the material fact which he supposed to know but he must restrain
from making active concealment this means mere silence is not fraud.
Shri Kishan vs. Kurukshetra University 1976 S, a candidate for the LLB Part I Examination
who was short of attendance did not mention that fact himself in the form. Neither the head of
the law department nor the university authorities made proper scrutiny to discover the truth.
Held the Supreme Court held that there was no fraud by the candidate as he merely kept silent
as to his attendance which the authorities could have discovered had proper scrutiny been
made. The university had no power to cancel the candidature of the candidate on that ground.
Keats vs. Lord Cadogon, 1851 before letting his house a landlord failed to tell the tenant that it
was in a ruinous conditions. The court held that landlord was not liable in deceit as the tenant
should have inspected the house.
V. Srinivasa Pillai Vs. Lic Of India 1976 It was held in this case by the Supreme Court that
contract of insurance being one of uberrimae fedei (contracts of utmost good faith), it is normal
to expect in such a contract utmost good faith on the part of the insured. The insured is
expected to answer certain questions by the insurer and it is his responsibility to give true and
faithful answers. If the insured has knowledge of certain facts which others cannot ordinarily
have, then he should not indulge himself in the active concealment of a fact.

Consequences of fraud - According to Section 19 where a consent to an agreement is caused

by fraud, the agreement to a contract is voidable at the option of the party whose consent was
so caused by fraud. Until such time it is avoided, the contract is valid.

The party defrauded has the following specific remedies –

To rescind the contract

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To affirm it
Rescind and claim for damages
Enforce principle of restitution
Sue for specific performance
If he chooses to rescind the contract he must do so within reasonable time. When the contract is
rescinded it becomes void and unenforceable.
However, if the party chooses, he may affirm it, then the question of rescinding the contract
does not arise and the principle of estoppel will be revoked against him.

Misrepresentation
A representation means a statement of fact made by one party to the other, either before or at
the time of contract, relating to some matter essential to the formation of the contract with an
intention to induce the other party to enter in to a contract. A representation when wrongly
made, either innocently or intentionally, is termed as a misrepresentation.
Misrepresentation is one of the factors which affects the free consent of contractual party.
Misrepresentation is a false statement made by a person innocently without any intention of
deceiving (misleading) the other party, willful or deliberate with an intent, to deceive other party,
is called fraud.
According to Sir W. Anson; the term misrepresentation is a false statement which the person
making it honestly believes to be true or which at any rate he does not know to be false.

Section 18 (1) states that misrepresentation means and includes – the positive assertion in a
manner not warranted/justified by the information of the person making it, of that which is not
true although he believes it to be true.
Illustration A while selling his horse to B tells him that the horse is thoroughly sound. A
believes that the horse is sound although he does not have sufficient ground to believe so. The
misrepresentation made by A falls under Section 18 (1).
Derry vs. Peek (1889) A company‟s prospectus contained representation that it had statuary
powers to run its tramways by steam provided the consent of govt. authority was untrained. The
directors issued a prospectors stating there in that the company had the right to use the steam
power They honestly believed that the permission for the use of steam power would be granted
The permission was refused The company was then wound up. Court held that the director
were guilty of misrepresentation & not of fraud.

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Section 18 (2) states that misrepresentation means and includes breach of duty. Without an
intention to receive any advantage or gain to the person committing it by misleading another to
his prejudice.
In English law, such cases are called “Constructive Fraud”.
Section 18 (3) states that if one party acting innocently causes another party to make a mistake
as to the substance of the thing which is the subject of the agreement ( that is, the subject
matter of agreement ) this is said to be misrepresentation.
Bagul Vs [Link] (1968) A told his wife within hearing of their daughter that the bridegroom
proposed for her was a young man the bridegroom however was over 60 yrs. The daughter
gave her consent to marry him believing the statement by her father court held that consent was
affected by misrepresentation.

Consequences of Misrepresentation: Sec. 19The aggrieved Party in case of

misrepresentation the can
Avoid or resign the contract
Accept the contract but insist that be shall be placed in the position which he would have been it
the representation made had been true.

Difference between fraud and misrepresentation. Now let us analyze the difference between
fraud and misrepresentation.

(i) Extent of truth differs / knowledge of truth: One of the important difference between fraud
and misrepresentation is that in case of fraud the person making the representation knows it
fully well that his statement is untrue & false.
In case of misrepresentation, the person making the statement believes it to be true which might
later turn out to be untrue. In spite of this difference, the end result is that the other party is
misled.

(ii) Right of the person concerned who suffers: Fraud not only enables the party to avoid the
contract but is also entitled to bring action.
Misrepresentation merely provides a ground for avoiding the contract and not for bringing an
action in court.
(iii) Action against the person making the statement: In order to sustain an action for deceit,
there must be proof of fraud. As earlier discussed fraud can be proved only by showing that a

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false statement was made knowing it to be false or without believing it to be true or recklessly
without any care for truth. One is for action against deceit and the other is action for recession of
the contract.
In the case of misrepresentation the person may be free from blame because of his innocence
& still the contract cannot stand.

(iv) Defenses available to persons: In case of misrepresentation, the fact that plaintiff had
means of discovering the truth by exercising ordinary diligence can be a good defense against
the repudiation of the contract, whereas a defense cannot be set up in case of fraud other than
fraudulent silence.

The tenuous difference between fraud and misrepresentation was beautifully brought out in the
famous case of
Derry vs. Peek. In the said case the plaintiff brought an action of deceit / fraud against the
promoters of a tramway company.
According to him, the promoters in the prospectus had not mentioned that they had not obtained
the permission of the board of trade which was necessary for using mechanical power [to run a
train] and here this was deceit.
The plea of the defendant was that it never occurred to them to say anything about the consent
of the Board of trade because they had a right under the Act of parliament for using steam; they
had presumed, they would also get the consent of Board of trade.
The Court verified the position and concluded that there was no deceit and the plea for action
for deceit was dismissed.

Mistake sec. 20, 21, 22,

Mistake is 'misconception'. The party of a contract intending to do anything but do something
else is a mistake. Mistake is another factor, which obstructs free consent. In order to make a
valid contract the parties to contract must agree upon the same thing in the same sense where
the contract is entered into consent can be said to be free. Mistake is an erroneous belief
relating to the subject matter of the contract.
According to Black's Law Dictionary, Mistake means an error, misconceptions or
misunderstanding and erroneous belief.

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The fifth significant element that vitiates consent is „Mistake‟. Where parties to an agreement are
under a mistake as to a matter of fact which is essential to the agreement, then the agreement
is void. As we all know a void agreement cannot be enforced at all.
Couturier vs. Hasite1856 „A‟ agrees to sell certain cargo which is supposed to be on its way in
a ship from London to Bombay. But in fact, just before the bargain was struck, the ship carrying
the cargo was cast away because of storm and rain and the goods were lost. Neither of the
parties was aware of it. The agreement is void.

Types of mistake:
(a) Mistake of law: 'Ignorance of Law is no Excuse'. It is well set rule. No one can ignore the
law. Everyone must know the law of the country. All the citizens are presumed to be known the
prevailing laws. A party cannot be allowed to get any relief on the ground that it had done a
particular act in ignorance of law. A mistake of law does not give the right to the parties to avoid
the contract.
1. MOL of country.- 'Ignorantia juriest non-excusats' it means ignorance, of law has no excuse.
It is well settled rule of law. A party cannot be allowed to get any relief on the ground that it had
done a particular act if ignorance of law. MOL is therefore no excuse & the contract is void ab-
initio.

2. MOL of foreign country. - One is supposed to know the law of the land i.e., his own country
but one is not expected to know the law of the whole world. Thus if an Indian commits a mistake
of English Law while in India, he is not punishable. Mistake of foreign law is excusable. It is
treated as a mistake of fact. Parties can escape the contract and can rescind t on the ground of
mistake of foreign law.
(b) Mistake of fact: Sec. 21 Mistake of fact is related to the subject matter of the contract. It is
also a cause to turn the contract void. If factual mistake is of serious nature like formation or
essential factor that is responsible to void the contract. Negligible mistake occurs that is
excusable. Fundamental error is relating to the subject matter and it is taken as serious mistake.
Mistake of fact may be bilateral mistake or unilateral mistake.
1. Bilateral mistake: Sec.20 where both the parties to an agreement are under a mistake as to
a matter of fact, essential to the agreement, the agreement is void.
2. Unilateral mistake: Sec. 22 if mistake is committed by one of the parties of the contract is
called the unilateral mistake. Generally, a contract by unilaterally mistake is not void. A

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unilaterally mistake does not affect the validity of the contract. If the unilateral mistake caused
by fraud or misrepresentation there is possibility of avoidance of the contract.
Smith vs. Hughes, 1871 Mr. Hughes was a racehorse trainer. Mr. Smith brought him a sample
of oats, and Hughes ordered forty to fifty quarters of oats at 34 shillings a quarter. Sixteen
quarters were sent to start with. But when they arrived, Hughes said they were not the oats he
thought they were.
He had apparently wanted old oats (which are the only ones racehorses can eat), and he was
getting new, green oats. In fact, Smith's sample was of green oats. Hughes refused to pay and
Smith sued for breach of contract, for the amount delivered and for damages for the amount for
oats that were still to be delivered.

The jury at the County Court initially held for Mr. Hughes that there was a mistake on his part,
but were directed by the judge that if Mr. Hughes was under a mistake about the oats (thinking
they were old when they were green oats) and Mr. Smith had known it, they should find in Mr.
Hughes' favor.
Mr. Smith appealed. The Court of the Queen's Bench found that the jury had been misdirected
and ordered a retrial. Mr. Smith was held to be under no duty to inform Mr. Hughes of his
possible mistake about the kind of oats, repeating the old idea of caveat emptor (buyer beware).
A unilateral mistake is therefore in principle no ground for rescission of a contract.

Exception - a contract by unilateral mistake of fact is void under following circumstances

- In case of unilateral mistake if one party to the contract is mistaken about some fundamental
fact concerning the contract, and the other party is aware of this then the contract may also be
avoided. The general rule is that a bilateral mistake alone would render the contract void but
unilateral mistake does not invalidate the contract except under some certain exceptions.

1) Mistake of subject matter; - Where both the parties to agreements are working under a
mistake relating to subject matter the agreement is void mistake as to the subject matter covers
the following cases.

a) Mistake as to the existence of subject matter – If both the parties‟ belief that the subject
matter of the contract to be in existence the contract is void.
Couturier vs. Hastie, 1856 A agreed to sale the cargo of corn. the contract to be in transit from
Salonika to the United Kingdom unknown to the parties the corn had become fermented & had

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already being sold by the master of the ship at Tunis. Court held at the agreement was void and
the buyer was not liable for the price.

b) Mistake as to the identity of the subject matter –Cases of unilateral mistake are mainly
concerned with mistake of one party as to the identity of person contracted with, where such
identity is essential to the contract.
Raffles vs. Wichelhouse, 1864 Wichelhouse agree to buy Raffles a cargo of cotton “to arrive
ex-peerless from Bombay. There are two ship of that name from Bombay. One seining in
October and the other in December Wichelhouse meant the former ship but raffles meant the
later .Court held that there was a mutual or bilateral mistake and there was no contract.

c) Mistake as to the quality of subject matter- If the subject matter is something essentially
different from what the parties thought it to be the agreement is void
Nicholson and Venn vs. Smith 1947Table napkins were sold at an auction of first Charles. In
fact the table napkins were Georgian. Court held that the agreement was void as there was a
mistake as to the quality of subject matter.

d) Mistake as to the quantity of subject matter- If both the parties are working under the
mistake as to the quantity of subject matter the agreement is void.
Cox vs. Prentice 1815 A silver bar was sold under a mistake as to its weight there was
difference in value between the weights of the bar as it was supposed to be the agreement is
void.

e) Mistake as to the title of subject matter: - If the seller is selling a thing which he is not
entitled to sale & both the parties are acting under a mistake to agreement is void.
Cooper vs. Phibbs 1867 a nephew leased a fishery from his uncle. His uncle died. When the
lease came up for renewal the nephew renewed the lease from his aunt. It later transpired that
the uncle had given the nephew a life tenancy in his will. The lease was held to be voidable for
mistake as the nephew was already had a beneficial ownership right in the fishery.

2) Mistake as to the possibility of performances: - The impossibility may be:-

Physical impossibility: - Griffith vs. Braymer. 1903 A contract for the hire of a room for
witnessing the coronation the procession of Edward VII was held to be void because unknown
to the parties the procession had already being cancelled.

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6. Legality of object & consideration

Q. In what cases the object and consideration of an agreement are said to be unlawful
under the Indian contract act?

Ans: Speaking generally all persons enjoy freedom for entering into contracts of their choice.
But this contractual freedom or their right to enter into agreements is not absolute. There is a
limitation on such contractual freedom as they are bound by certain general provisions of law.
The above observation can be illustrated with the following example: suppose „A‟ agrees to pay
` 100/- to B on „B‟ stealing „C‟s purse, then no Court can compel „A‟ to pay „B‟ even if he
manages to steal „C‟s purse because it would amount to encouraging these things.
It is difficult to distinguish between „object‟ and „consideration‟ especially when consideration
consists of a promise to do or, not to do something. Sometimes both „object‟ and „consideration‟
are seen for evaluation. Although „object‟ and „consideration‟ are sometimes intertwined we
have to, where ever it is possible, separate them and identify whether they are lawful.
Section 10 lay down that all agreements are contract if made for lawful considerations and with
a lawful object. Therefore, in order to make the agreement a valid contract, the object and
consideration of an agreement must be lawful.

Section 23 What considerations and objects are lawful and what not.- The consideration or
object of an agreement is lawful, unless-
-it is forbidden by law; or
-is of such nature that, if permitted, it would defeat the provisions of any law; or
-is fraudulent; or
-involves or implies injury to the person or property of another or;
-the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful.
Every agreement where the object or consideration is unlawful is void.
Thus section 23 has set out the limits to contractual freedom.

Following are examples of agreement which are void because the object is unlawful.

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1) If it is forbidden by law: If the consideration or the object for a promise is such as is
forbidden by law the agreement is void. An act or an undertaking which is for bidden by law may
be,
a) When it is punishable by the criminal law of the country,
Sita Ram vs. Kunj Lal 1962 Agreement to sell above the price fixed by the law is illegal and
void (Essential Commodities Act. 1955).

b) When it is prohibited by special legislation or regulation made by competent authority under

powers derived from the legislature.
Mohan Chand vs. Mahindra Prasad 1955 agreement to pay consideration to a tenant to
induce him to vacate premises governed by the Rent Restriction Act is illegal and cannot be
enforced because such an act is forbidden by the said Act.

2) if it is of such a nature that, if permitted, it would defeat the provisions of any other
law: This clause refers to cases where the object or consideration of an agreement is of such a
nature that though not directly forbidden by law, it would indirectly lend to a violation of law,
whether enacted or otherwise such an agreement is also void.
Jaffar Meher Ali vs. Budge Budge Jute Mills Co 1906 Thus, where a person, while in
insolvent circumstances, transferred his property to one of his creditors with the object of
defrauding his other creditors, it was held that the agreement was void and the transfer was
inoperative. The court observed that although the consideration of the contract was lawful but
the object was unlawful because the purpose of the parties was to defeat the provisions of the
Insolvency Law.

3) If it is fraudulent: An agreement, whose object or consideration is to defraud others, is

unlawful and hence void. For e.g. A, being agent for a wealthy landlord, agrees for money,
without the knowledge of his principal (wealthy landlord), to obtain for B a lease of land
belonging to his principal. The agreement between A and B is void as it implies a fraud by
concealment by A on his principal.

4) If it involves or employee‟s injury to the person or property of another: If the object and
consideration of an agreement is injury to the person or property or property of another, it is void
as\and unlawful agreement. For e.g. An agreement to commit assault and to beat a man or to
put certain property to fire or to publish libel has been held unlawful and void.

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Clay vs. Yates 1856. an agreement involving the publication of a libel (defamatory article
against someone) has been held unlawful and void.

5) If the court regards it as immoral: An agreement, whose object or consideration is

immoral, is illegal and therefore void.
Wilson vs. Carnley 1908 agreement when first wife alive for future marriage, after the death of
First wife is against good morals and hence would be void.
Choga Lal vs. Piyari 1908 A man who knowingly lets out his house for prostitution cannot
recover the rent, it being an act for furtherance of sexual immorality. The landlord may,
however, recover if he did not know the purpose.
Interference with marital relations- Money advanced to a married woman to enable her to
obtain a divorce and to marry the plaintiff could not be recovered back as the object of the
agreement was held immoral Bai Vijli vs. Nansa Nagar 1885

6) If the court regards it as opposed to „public policy‟ - an agreement is unlawful if the court
regards it as opposed to „public policy‟. Public policy is that principle of law which holds that no
citizen can lawfully do that which is injurious to the public or is against the interest of the society
or the state. The following agreements have been held to be against public policy;

a) Agreements interfering with the course of justice. An agreement the object of which is to
interfere with the course of justice, e.g., an agreement not to disclose misconduct to the other
interested party or an agreement to influence a judge to induce him to decide the case in a
party‟s favor, is obviously opposed to public policy and is void. But an agreement to refer
present or future disputes to arbitration is a valid agreement.

b) Agreement for stifling criminal prosecution. It is well settled law that if a person has
committed a crime, he must be punished. Hence any agreement which seeks to prevent the
prosecution of a guilty party is opposed to public policy and is void, for “no one can be allowed
to make a trade of a felony (offence).”
In Sudhindra Kumar vs. Ganesh Chandra, 1939 Mukherjee, J., has observed: “No court of
law can face or give effect to an agreement which attempts to take the administration of law out
of the hands of the judges and put it in the hands of private individuals.” Where, therefore, A
promises B to drop a prosecution which he has instituted against B for robbery, and B promises
to restore the value of the thing taken, the agreement is void, as its object is unlawful.

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Ramachandra vs. Bhauwari Bai 1973 However, under the Indian Criminal Procedure Code
there are certain compoundable offences (e.g. Assault) which can be compromised and
agreements for the compromise of such offences are valid.
c) Trafficking in public offices: Agreements for sale or transfer of public offices or for
appointments to public offices in consideration of money are illegal, being opposed to public
policy. Such agreements, if enforced, would lead to inefficiency and corruption in public life.
Saminatha vs. Muthusami 1907 a promise to pay money to a public servant to induce him to
retire and make way for the appointment of the promisor is void.

d) Agreement unduly restraining personal liberty. Agreements which unduly restrict

personal freedom have been held to be void and illegal as being against public policy.
Harwood vs. Miller‟s Timber and Trading Co.1917 A, borrowed money from B, a
moneylender, and agreed that he would not, without the written consent of B, leave his job,
borrow money, dispose of his property or change his residence. It was held that the agreement
was illegal as it unduly restricted the liberty of A.

d) Agreements interfering with parental duties

A father, and in his absence the mother, is the legal guardian of his/her minor child. The
authority of a guardian is to be exercised in the best interest of the child, in accordance with
good public morals. If, therefore, the right of guardianship is bartered or traded away by any
agreement which is inconsistent with the duties arising out of such custody, such an agreement
shall be void on the ground of public policy.
Aatma Ram vs. Banku 1930 for monetary consideration, A agrees to place his daughter at the
will of B to be married where B likes or as per B‟s will. The agreement is illegal and void as it
would interfere with A‟s parental duty to select a husband in the best interests of the girl.

e) Marriage brokerage agreements; for e.g. dowry. These are agreements for the payment of
money in consideration of procuring for another in marriage a husband or a wife. Such
agreements are illegal and void as being contrary to public policy.
Pitamber vs. Jagjiwan 1884 when a „Profit‟ was promised Rs 200 in consideration of obtaining
a wife for the defendant, the agreement was held invalid and the money could not be recovered.

g) Trading with alien enemy - It is now fully established that trading with an alien enemy (i.e.,
a citizen of the other country at war with the State) is against public policy in so far as it tends to

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aid the economy of the enemy country. Such agreements are therefore illegal, unless made with
the special permission of Government. It is to be noted that an agreement to promote hostile
action in a friendly State is also illegal and void as being opposed to public policy.

Agreements Declared Void

Q. Discuss in brief the agreements expressly declared void under the i c a 1872
Ans:
The last essential of a valid contract as declared by Section 10 is that it must not be one which
is 'expressly declared' to be void by the Act. A void agreement is one which does not give rise to
any legal consequences. It has no legal existence. Sec.2 (g) of the act states, “An agreement
not enforceable by law is said to be void”
Thus, there arises a question, as to what are 'expressly declared' void agreements? The
following agreements have been 'expressly declared', to be void by the Indian Contract Act:

Agreements by incompetent parties, i.e. minors, lunatics, insolvents, etc. (sec.11)

Agreements made under a bilateral mistake of fact as to a matter of fact as to a matter of fact
essential to the agreement. (sec.20)
Agreements the consideration or object of which is unlawful. (sec.23)
Agreements made without consideration. (sec.25)
Agreements of which the consideration or object is unlawful (sec.24)
We have already seen above mentioned agreements are void ab initio under the Contract
Act. In addition to the above, there are also other agreements which are expressly
declared as void.
Agreements in restraint of marriage (Sec. 26).
Agreements in restraint of trade (Sec. 27).
Agreements in restraint of legal proceedings (Sec. 28).
Agreements the meaning of which is uncertain (Sec. 29).
Agreements by way of wager (Sec. 30).
Agreements contingent on impossible events (Sec. 36).
Agreements to do impossible acts (Sec. 56).

Agreements in restraint of marriage. (sec.26)- Every individual enjoys the freedom to marry
and the law regards marriage and married status as the right of every person. An agreement
restraining or interfering with his freedom of choice in marriage is illegal. The restraint may be

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general or partial but the agreement is void. Therefore an agreement agreeing not to marry at all
or a certain person, or a certain class of persons or for a fixed period, is void.
An agreement restraining the marriage of a minor is valid.
Agreements in restraint of trade. (sec.27)- Every agreement in restraint of trade is to that
extent void. The constitution of India guarantees the freedom of trade and commerce to every
citizen. Everyone has been given the liberty to engage himself in every lawful profession, trade,
or business of his choice, in India, all restraints whether partial or complete, qualified, in point of
time or place are void.
Exceptions: - an agreement in restraint of trade is valid in the following cases:-

a. Sale of Goodwill: - goodwill refers to the „value of the name and fame‟ of the business. The
seller of the goodwill of a business can be restrained from carrying on a similar business, within
specified local limits, so long as the buyer, or any person deriving title to the goodwill from him
on a like business, therein, provided the restraint is reasonable in point of time and space.

b. Partners‟ Agreements:- Indian partnership act, 1932 also provides certain exceptions to
agreements in restraint of trade. In the following cases an agreement in restraint of trade will be
valid.

1. A partner may agree not to carry on any other business than that of the firm belongs as he is
a partner.
2. An outgoing partner may agree with his other partners not to carry on a similar business so
that of the firm within specified period or specified local limits.
3. Partners may agree that none of them, on ceasing to be a partner, shall carry on similar
business so that of the firm within a specified period or specified local limits.
4. Any partner may upon sell of goodwill of a firm, agree with the buyer of goodwill not to carry
on a similar business so that of the firm within a specified period or specified local limits.

c. Service Contracts: - agreements of service restraining an employee, during the term of

employment, not to compete with his employer are valid. For instance, doctors are usually
barred from private practice during term of their employment in hospitals, university and college
lecturers are also barred from private coaching for profit during their tenure of service. But a
restraint on an employee, after the termination of service is void. The restraint imposed must be
reasonable.

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d. Trade Combinations: - an agreement, the primary object of which is to regulate business
and not to restrain it, is valid. Voluntary agreement among the members of the trade
associations or chambers of commerce, etc. to regulate their areas of operation or to fix prices
of goods and commodities is not void under [Link], an agreement in the nature of a
business combination between traders or manufacturers e.g. not to sell their goods below a
certain price, to pool profits, does not amount to a restraint of trade and is perfectly valid.

e. Exclusive Agency: - the principal may restrain his agent from dealing in goods of any other
rival / competitor.

Agreements in restraint of legal proceedings:-sec.28 an agreement which tends to prevent

the course of justice is void on account of its being against public policy. Jurisdiction of the
courts of law cannot be restricted by any agreement. Thus, an agreement which prohibits a
person from taking judicial proceedings, in respect of any right arising from a contract is void.
Sec. 28 provides for the following exceptions to the agreements in restraint of legal
proceedings.
a) Arbitration of future disputes, b) arbitration of present disputes, c) agreements of selecting a
court.

Agreements the meaning of which is uncertain;- (sec.29) All agreements, the meaning of
which is not certain or capable of being made certain are void. In such a case, there is no
agreement in law. Such agreement cannot be enforced if its terms are uncertain, ambiguous or
vague, for example, A agrees to sell to B” a hundred quintals of oil” there is nothing to show
what kind of oil was intended. The agreement would be void for uncertainly. An agreement to
agree in future is also void for uncertainty

Wagering Agreement :- (sec.30) this section deals with the wagering agreements. According
to this section, “agreements by way of wager are void, and no suit shall be brought for
recovering anything alleged to be won on any wager or entrusted to any person to abide by the
result of any game or other uncertain events on which any wager is made. Thus the section only
provides that agreement by way of wager is void, but does not define the word „wager‟.
Ordinarily „wager‟ means an agreement between two parties to the effect that if a given
uncertain event is determined in one way, one of them shall pay a certain sum of money to the

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other and if it is determined otherwise, the later shall pay to the former. The primary meaning of
wagering is staking something of value upon

Agreement Contingent on Impossible Events: - (sec.36) “Contingent agreements to do or

not to do anything, if an impossible event happens, are void, whether the impossibility of the
event is known or not to the parties to the agreement at the time when it is made”. For example,
X agrees to pay Y Rs.100 if two straight lines should cross to each other. This agreement is
void. Similarly, Agrees to pay B Rs.1, 000 as a loan if B marries A‟s daughter C.C was dead at
the time of the agreement. The agreement is void.

Agreements to do Impossible Acts :- (sec.56) “An agreement to do an act impossible in itself

void.” For example, A agrees with B to discover treasure by magic; the agreement is void.
Similarly, A agrees with B to put life into B‟s dead wife in consideration of Rs.50, 000. The
agreement is void.

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007. Performance of contract

What do you understand by the performance of contract? Who can demand performance and
by whom contract must be performed?
Ans: Performance of contract means fulfilling of their respective legal obligation created under
the contract by both the promissory and the promisee. Performance by all the parties of the
respective obligations is the normal and natural mode of discharging or terminating a contract.
When a contract is duly performed by both the parties, the contract comes to a happy ending
and nothing more remains.
A contract being an agreement enforceable by law, creates a legal obligation, which exists until
discharged. Performance of the promise or promises remaining to be performed is the principal
and most usual mode of discharge. This chapter will explains, who must perform his obligation;
what should be the mode of performance; and what shall be the consequences of
nonperformance.

Basic principle of performance: In a contract where there are two parties, each one has to
perform his part and demands the other to perform. This obligation is the primary principle. The
parties would be treated as having been released only under the provisions of any law or by the
conduct of the other party. Until such time, the performance is not excused.
Not only the promisor has a primary duty to perform, even the representative in the event of
death of a promisor, is bound by the promise to perform, unless a contrary intention appears
from the contract [Sec. 37]

I. Who Can Demand Performance - It is only the promisee who can demand performance of
the promise under a contract. The general rule is that,” A person cannot acquire rights under a
contract to which he is not a party.” Thus, a third party cannot demand performance of the
contract even if it was made for his benefit. In the case of the death of the promisee, his legal
representatives are entitled to enforce the performance of the contract against the promisor.

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T.G. Venkatraman vs. State of Madras 1969 It is only the promisee who can demand
performance of the promise under a contract, for, the general rule is that "a person cannot
acquire rights under a contract to which he is not a party"
For e.g. A promises „B‟ to pay „C‟ a sum of Rs.1 000. the person who can demand performance
is „B‟ and not „C‟ if „A‟ does not pay the amount to „C.‟ ,‟C ‟cannot take any action against „A‟ , on
the death of B, ‟B‟s legal representatives are entitled to enforce the promise against‟ A‟.
II. By Whom Contract Must Be Performed. (Sec. 40 to 42)

1) By the Promisor Himself Sec. 40 - In the case of contract involving personal skill, taste or
credit, the promisor must himself perform the contract. As per section 40,” if it appears from the
nature of the case that it was the intention of the parties to any contract that any promise
contained in it should be performed by the promisor himself, such promise must be performed
by the promisor.”
E.g. A promises to paint a picture for B for a certain price. A is bound to perform the promise
himself. He cannot employ some other painter to paint the picture on his behalf. If A dies before
painting the picture, the contract cannot be enforced either by A‟s representative or by B.
2) By the Promisor or His Agent Sec. 40 - In the case of a contract of impersonal nature, for
e.g. a contract of sale of goods a contract to lend a sum of money, the promisor himself or agent
may perform the contract. For e.g. „A‟ promises to pay „B‟ a sum of money. „A‟ may perform this
promise, either by personally paying the money to „B‟ or by causing it to be paid to „B‟ by
another as his agent.

3) By the Legal Representatives Sec. 40 - In the case of the death of the promisor before
performance, the liability of performance falls on his legal representatives unless a contrary
intention appears from the contract. Thus, in the case of the contract involving personal skill the
heirs or legal representatives of a deceased promisor are not bound to perform the contract.
Such contracts come to an end on the death of the promisor. In the case of the contract not
involving personal considerations, the legal representatives are bound to perform the contract.
But, their liability is limited to the estate of the deceased which has come to their hand.
For e.g. :- „A‟ promises to deliver goods to „B‟ on a certain day on payment of Rs.1,000 „A‟ dies
before that day. Now, „A‟s representatives are bound to deliver the goods to „B‟ and „B‟ is bound
to pay Rs.1, 000 to „A‟s representatives.

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4) Performance by A Third Person sec.41 - sec. 41 lays down that if a promisee accepts
performance of the promise from a third person, he cannot afterward enforce it against the
promisor. Thus, where a promisee accepted lesser amount from a third party in full satisfaction
of his claim, he cannot enforce the promise there after against the promisor also.

5) Joint promisor‟s sec.42: Where two or more persons jointly promise, the promise must be
performed jointly unless a contrary intention appears from the contract.
Where one of the joint promisors dies, the legal representative of the deceased along with the
other joint promisor(s) is bound to perform the contract.
Where all the joint promisors die, the legal representatives of all of them are bound to perform
the promise.

III. Rules regarding time and place for performance

Q. State the rules regarding time and place for performance. What are the effects of failure to
perform a contract with in a stipulated time? / The rules regarding valid tender of performance.

Sections 46 to 50 of the Act deal with this issue of “Time and place” for performance of a
promise. Following are the rules of performance where the promisee has not applied for
performance.
1) Where no time is specified for performance of a promise, it must be performed within a
reasonable time. What is reasonable time would depend on the facts and circumstances of each
case [section 46].
2) Where a promise is to be performed on a specified date but no time is mentioned, then
it can be performed any time on that day but during business hours only.
A promisee may refuse to accept delivery (of goods), if it is delivered after business hours. For
example if the promisor wishes to deliver goods at a time which is beyond business hours, the
promisee can refuse.
3) As regards the place of performance, where no place is fixed for the performance of a
promise, it is the duty of the promisor to ask the promisee to fix a reasonable place.
Where no place prescribed by the promisee generally the promise must be performed or
goods must be delivered at the usual place of business.
4) Where the promisor has not undertaken to perform the promisee without an
application by the promisee and the promise is to be performed on a certain day, it is the duty
of the promisee to apply for performance at a proper place and within usual hours of business.

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Effect of failure to perform a contract within a stipulated time. Section 55 of the Act
regulates the position of performance of contract where time is of essence.
a)“Where time is the essence of the contract,” and there is a failure to perform within the
fixed time the contract becomes voidable at the option of the promisee. He may rescind the
contract and sue for the breach.
b) Where, “time is not of the essence of the contract,” failure to perform within the specified
time does not make the contract voidable. It means that in such a case the promisee cannot
rescind the contract and he will have to accept the delayed performance. But, he would be
entitled to claim compensation from the promisor for any loss caused to him by the delay.
c) In the case of contract voidable on account of the promisor‟s failure to performance
his promise within an agreed time or within a reasonable time, if the promisee , instead of
rescinding the contract, accepts the delayed payments he cannot afterwards claim
compensation for any loss caused by the delay. However, if at the time of accepting the delayed
performance promisee gives notice to the promisor of his intention to claim compensation then
he can claim compensation.

4) Mode or Manner of Performance: “The performance of any promise may be made in any
manner, which the promisee prescribes or sanctions.” The promisor must perform the promise
in strict accordance with the terms of the contract or instruction from the promisee.
For e.g. :- „A‟ desires „B‟ who owes him Rs. 100 , to send him a note for Rs. 100 by post. The
debt is discharged as soon as „B‟ puts into the letter containing the note duly addressed to „A‟.

5) Circumstances under which contract need not be performed.

1) If the parties to a contract agree to novation, rescission, or alteration, the original contract
need not be performed. In such cases the original contract disappears and substituted by a new
contract.
The main difference between the Novation & Alteration:
Novation It involves changes in the terms of contract. It also sometimes means change in the
parties to contract. It in fact operates as a substitution of the old contract.
Alteration In alteration there are only changes in the means term of contract by mutual consent.
The parties to contract remain the same. There is no substitution of old terms; only some terms
and conditions change. There are remission of performance in alteration.

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2) If parties to a contract agree to dispense with or remit performance of promise either
wholly or in part, the original contract stands discharged.

3) Where a person at whose option a contract is voidable rescind it, the other party there to
need not perform his promise.

4) If any promisee neglects or refuses to afforded the promisor reasonable facilities for
the performance of his promise, the promisor is excused for the non-performance of the
contract.
For e.g. „A‟ contracts with „B‟ to repair „B‟s house. „B‟ neglects or refuses to point out to a place
in which his house requiring repairs. „A‟ is excused for the non-performance of the contract, if it
is caused by such neglect or refusal.

Tender of performance
A contract is said to be discharged by performance when both the parties perform all the
primary obligations both express and implied which are set out under the contract. The
obligation is considered performed only if the performance complies with the standard of
performance required. A failure to do so constitutes a breach.
Offer of performance / „tender of performance‟: this aspect is looked into under S.38 of the
Indian Contract Act. If the promisor „offers‟ to perform his obligation under the contract to the
promise, this offer is then termed „tender of performance‟. This has to be accepted by the
promisee, if the promisee doesn‟t accept the offer, then the promisor will not be responsible for
any non-performance.
It entitles him to sue the promisee for breach of contract. It can be said that a tender of
performance is equivalent to performance. For example, where the obligation of a contracting
party was for conversion of arhar (pigeon pea, tur dal), whole pulse into dal and the work was
completed and accepted by the other party, the obligation of the contractor came to an end.
Essentials of a valid tender of performance. Under Section 38, a tender must have the
following essentials to be valid:-

1. The tender of performance must be unconditional S. 38(1) - A tender is said to be

conditional when it is not in accordance with the terms of the contract. The tender must be made
at a proper time and place, and under such circumstances that the person to whom it is made

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may have a reasonable opportunity of ascertaining that the person by whom it is made is able
and willing there and then to do the whole of what he is bound by his promise to do.
A owes Rs. 50,000/- to B and has fallen due. A offers to pay Rs. 50,000/- in five installments &
tender the first installment. This tender of performance is conditional. For being unconditional A
has to pay Rs. 50.000/- directly in one time or occasion.

2. It must be at the proper time and place. S. 38(2)- The tender must be made within the time
and at the place specified as in the contract. If so made, the promisor is under no further
responsibility, if the tender is not accepted.
This principle was first established in the case of Startup v. Macdonald in which, the defendant
bought of the plaintiff ten tons of linseed oil to be delivered within the last 14 days of the month
of March. The plaintiff tendered on the last of the 14 days at 9 in the night. The defendant
refused to accept owing to the lateness of the hour. He was held liable for the breach as the jury
found out that, though the hour was unreasonable, yet there was time for the defendant to have
taken in and weighed the goods before midnight. He should, therefore have accepted the tender
and “then no doubt, the contract would have been literally performed”.

3. In case of the tender of goods the promise must be given a reasonable opportunity to
inspect the goods - The tender must be made at a proper time and place, and under such
circumstances that the person to whom it is made may have a reasonable opportunity of
ascertaining that the person by whom it is made is able and willing there and then to do the
whole of what he is bound by his promise to do.

4. It must be for the whole obligation if the contract requires in full. X entered in to contract
with Y for the sale of 100 bags of wheat and the delivery was to be done on 6 th Oct. X tendered
only 50 bags on the date of performance such tender is not valid tender.

5. It must be by a person who is competent and is willing to perform the promise. The
person making tender of performance must possess contracting capacity & must be willing to
perform the promise.

6. It must be in proper form.

The tender must be made in such a manner that the other party has an opportunity to determine
whether the person making the tender is able and willing to his obligations under the contract.

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7. It must be made to a proper person i.e. to the promisee or his authorized agent.
Sec. 40 and Sec. 41 of the Indian Contract Act deal with this aspect. If there was a personal
performance was intended then, the contract has to be performed by the promisor himself. He
cannot delegate the performance to any other person. This is general in cases where in the
personal skill of the promisor is required. The nature of promise is itself an indication whether
the promisor has to perform it personally or not. In the matter above mentioned, if the promisor
dies, then the contract cannot be enforced against his legal representatives nor can they
enforce the promise.
Substituted performance- this is also known as „vicarious performance‟. The promisor in the
absence of waiver cannot substitute for the agreed performance anything different, even though
the substituted performance might appear to be better than, or at least equivalent to, the agreed
performance.

8. It may be made to one of the several joint promisee. In the case of Alcon Constructions
v. Board of Trustees. It was held that a tender made to any one of the promisee has the same
legal consequence as a tender to all of them.

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8. Contingent contracts & wagering agreement

Q. What are contingent contracts? Explain the rules regarding contingent contracts.

Basing on the presence or absence of Conditions, Contracts can be classified into two groups
namely; Absolute Contracts and Contingent Contracts. In case where there is no condition, it is
called Absolute Contract. As there is no condition, absolute contract is to be performed under all
circumstances.
In case where there is condition, then such contract is called Contingent Contract. Therefore
Contingent Contract means Conditional Contract. When imposed and condition is fulfilled, the
Contingent Contract becomes valid and then parties have to perform their obligations. If
imposed and Condition is not fulfilled, the Contingent Contract become Void and then it need
not be performed. So Contingent Contract is to be performed under some circumstances only.

Definition of contingent contracts In terms of Section 31 of the Act contingent contract is a

contract to do or not to do something, if some event collateral to such contract does or does not
happen.
Contracts of indemnity and contracts of insurance fall under this category.
For example if „A‟ contracts to pay „B‟ ` 100000/- if B‟s house is destroyed by fire then it is a
contingent contract.
Rules Regarding the Performance of the Contingent Contracts / Essentials of a
contingent contract.

1. Depending upon Happening of an Uncertain Event: sec.32- Sometimes Contingent

Contract depends upon happening of uncertain event. Then if such uncertain event takes place,
the Contingent Contract becomes valid and if that uncertain event does not take place, the
Contingent Contract is Void.
Example: According to Contract formed between A and B, A has to sell goods to B, if ship
comes there safely, their Contract is valid and if the ship gets drowned, their Contract is void.

2. Depending upon non-happening of an uncertain event: sec.33- At times the Contingent

Contract may depend upon non-happening of uncertain event. Then if that event does not
happen, the Contract is Valid and if that event takes place, the contract is void.

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Example: There is a contract between A and B according to which A has to sell goods to B, if
the ship does not come back. Here, if the ship come back, the Contract is void and if the ship
gets drowned away, then it is valid.

3. Depending upon happening of an uncertain event in a fixed period: sec.34- At times

Contingent Contract may depend upon happening of uncertain event in a fixed period. If such
event happens within fixed period, the contract is Valid. If such event does not take place with in
fixed period, the contract is void.
Example: As per the contract formed between A and B, A has to sell goods to B, if the ship
comes back within 10 days. If it comes on 8th day (or) 9th day, the contract is valid and if it
comes back on 12th day (or) 13th day, the contract is void.

4. Depending upon non-happening of an uncertain event in a fixed period: sec.35- At

times the Contingent Contract may depend upon non-happening of uncertain event in a fixed
period then if such event place within that fixed period, the contract is void and if that event does
not takes place within agreed period, then it is valid.
Example: A has to sell goods to B if the ship does not come back within 10 days. If it comes on
8th day (or) 9th day, the contract is void and if it comes back on 12th day (or) 13th Day, the
contract is valid.

5. Depending upon an Impossible Event: sec.36 Sometimes the Contingent Contract may
depend upon impossible event. Such a type of Contingent Contract is ab initio void.
Example: there is a contract between A and B where A will pay Rs.100000/- to B if B marry C.
Assume that C was dead 5 years ago, now element of impossibility can be seen and their
contract is ab initio void.

Difference between a contingent contract and the wagering agreement.

Although wager is a contingent agreement, yet there are certain points of difference between
the two because all wagers are contingent contracts but all contingent contracts are not wagers.

1) Validity- a wagering agreement is absolutely void. But a c.c. is a valid contract.

2) Nature- a wagering agreement is essentially of a contingent nature whereas contingent

contracts may not be a wagering nature.

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3) Performance – in a wagering agreement, neither party intends to perform the contract, but
only to deal in differences. This is not so in case of contingent contracts.

4) Future Event – in a wagering agreement the future event is the sole determining factor of the
contract while in a contingent contract, the future event is merely collateral or incidental to the
contracts.

5) Interest in the subject-matter: In wagering agreement there is no independent interest

apart from the money to be won or lost, but in contingent contract there is an independent
interest.
6) Mutual Promise: A wagering agreement consists of mutual promises each of which is
conditional on the happening or non-happening of a certain event. C.C. may not consist of
mutual promise.

Wagering agreement:

Literally the word „wager‟ means „a bet‟ something stated to be lost or won on the result of a
doubtful issue, and, therefore, wagering agreements are nothing but ordinary betting
agreements.

Section 30 of the Indian Contract Act talks about wagering agreements, which reads as
“agreements by way of wager are void”.
The section does not define „wager.‟ Section 30 states that,
“Agreements by way of wager are void; and no suit shall be brought for recovering anything
alleged to be won on any wager, or entrusted to any person to abide the result of any game or
other uncertain event on which any wager is made.”

Hawkins, J. (Carlill v. Carbolic smoke Ball Co.) Said: “It is essential to a wagering contract
that each party may under it either win or lose, whether he will win or lose being dependent on
the issue of the event and therefore remaining uncertain until, that issue is known. If either of
the parties may win but cannot lose, or may lose but cannot win, it is not a wagering contract”.
In this case the defendants promised to pay 100 pounds to anyone who caught influenza after
using the smoke ball manufactured by them.

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It was held not to be a wager because the user could not lose anything if he failed to catch
influenza.
The important points to be noted here is that there should be equal chances of gain or loss to
the parties and it should be regarding an uncertain event.
The most striking feature of wager is that each party has the chance of winning or losing.

Speculative transactions: While as clearly seen, wagering contracts are void, speculative
transactions are valid. It is often difficult to distinguish between the two. There are two simple
elements of a speculative transaction. They are (a) mutual intention of parties to acquire or
deliver goods or commodities and (b) undertaking of risk arising from movement of prices. In
wagering contract, only the element of risk is seen. Speculative transactions are not always
wagering. It depends upon the intention of the parties.
Now let us take an example:
„A‟ enters into an agreement with „B‟ to buy 100 bales of jute at ` 150/- per bale for forward or
future delivery after six months. This is a future transaction of purchase @ ` 150/- per bale.
What if the price at the time of delivery goes up to ` 200/- „A‟ has the following two options:
(i) To take delivery of 100 bales at the contracted rate of ` 150/- and sell it to some other buyer
and make a profit of ` 50/ -per bale or - Speculative transactions
(ii) To simply collect the difference of ` 50/- per bale from „B‟ – wagering contract

Similarly what if the price at the time of delivery goes down to ` 125/- per bale. „A‟ has the
following two options:
(i) To take delivery of 100 bales at the contracted rate of ` 150/- [and perhaps sell it to some
buyer and incur a loss of ` 25 per bale] or - Speculative transactions
(ii) To pay the difference of ` 25/- per bale to „B‟ & close the contract. – wagering contract

In the above example if the original intention of the parties was only to settle the difference in
price, than it would be a wagering contract which would be void. Thus by now it would be clear
that wagering assumes only incurring of risk. It is void because it is opposed to public policy.

Elements of Wagering Agreements

1) Uncertain Events: - the performance of agreement must depend upon uncertain events.

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2) Equal chance for gain or Loss: - another element of wagering agreement is that both the
parties must have equal chance of winning or losing. If one party is to gain in all circumstances,
then it will not be a wagering agreement. The gain of one party should‟ be the loss of other party
i.e. there should be mutuality.

3) Neither party to have control over the Uncertain Event: - “if one of the parties has the event in
his own hands, the transaction lacks an essential ingredient of a wager.”

4) No Other Interest :- “the parties must contemplate the determination of the uncertain event as
the sole condition of their contract the object of contract is to make a gain purely as the result of
the decision of an uncertain event.‟

5) The promise must have been made with intent to gamble: - the essence of gambling and
wagering is that one party is to win and the other is to lose upon a future event which at the time
of the contract is of an uncertain nature, that is if the event turns out one way he will lose, but if
it turns out the other way he will win.

Types of contracts resemblance to wagering agreement

a. Insurance Contract: - contracts of insurance have a little resemblance to wagering
agreement, but they are actually not of wagering nature, though sometime insurance may turn
out to be wagering. In England and in India also an insurance policy is a wagering agreement, if
there is no insurable interest.

b. Lottery: - lotteries are purely game of chance in which the gain or loss wholly depends upon
the drawing and casting of lots and the effect of which is to get a spirit of speculation and
gaming. Lotteries are prohibited unless authorized by the government. Thus a lottery authorized
by the state is not illegal but under sec.30 of Indian contract act, it is still void, as the state
government cannot over-rule the act of central legislature or provincial legislature.

c. Speculative Transaction (Satta):- speculative transactions are not always wagering. It

depends upo0n the intention of the parties. If the intention is only to gain deference between
contract price and market price it is speculative and therefore wager. If the intention of the
parties is really to deliver goods contracted for, the transaction is genuine transaction.

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Effect of Wagering Agreement- Wagering agreements are void and not illegal. In Gujarat and
Maharashtra because of the Bombay act of 1885, the wagering agreements are illegal,
otherwise in rest of the country they are treated as void.
9. Discharge of Contract

Introduction: Discharge of Contract means termination of the contractual relationship between

the parties. The contract is said to be discharged when seizes to be operate such that when the
rights and obligation created by it comes to an end. In some cases other rights and obligations
may arise as a result of discharge of contract but they are all together independent of the
original contract.
A Contract may discharge
1) By Performance - Performance means the doing of that which is required by a contract.
This is the normal and natural mode of discharging the contract. Discharge of contract by
performance take place when the parties to contract fulfill their obligations within the time and in
the manner prescribed. In such situation the parties are discharge and the contract cases to an
end.
e.g.: A agrees to provide 10 bags of cement to B for Rs. 1,000/- to A and A provides 10 bags of
cement to B. The contract is discharged by performance of the parties.

2) By Agreement - By agreement of all parties a contract may be cancelled or its terms altered
or a new agreement substituted for if whenever any of these things happen, the old contract is
discharged or terminated.
S. 62 : If the parties to a contract agree to substitute a new contract for it, or to rescind or to
alter it the original contract need not performed.

a) Novation - Novation occurs when a new contract is substituted for an existing contract either
between the same parties or between different parties one of the essential principle for novation
is that there must be mutual consent of all the parties of original contract.
e.g.: A is indebted to B and B to C by mutual agreement B‟s debt to C and A‟s debt to B is
canceled and C accepts A as his debtor this is novation.

b) Alteration : - Alteration of a contract may take place when one or more of the terms of
contract is or are altered by mutual consent of the parties to the contract is such a case the old
contract is discharged.

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E.g. Terms of contract between A and B are delivery of 5 bags of wheat by mutual consent they
altered the term of wheat and instead of it they agreed for rice, by alteration the original contact
of wheat comes to an end.

c) Recession - Recession means cancellation of all or some of the terms of the contract, the
recession of the contract must be done by mutual consent. Rescission requires some action of
the other party. Either a judicial decision or simply a consent of the other party to ending the
contractual relationship.
e.g. : P promises to deliver certain goods to Q on a certain day before the date of performance
P and Q mutually agree that the contract will not be performed the parties have rescinded the
contract.

e) Waiver - Waiver takes place when the parties to a contract agree that they shall no longer be
bound by the contract. This amounts to a mutual abandonment rights by the parties to contract.
This is an unmaking of the contract, where the parties are restored to the original condition as if
they had never entered into a contract.

c) Remission - Remission may be defined as the acceptance of less than what was contracted
for. According to Sec. 63 of the contract act every promise may be remit whole or impart the
performance of the promise made to him or may extend the time for such performance or may
accept instead of it any satisfaction which he thinks it.
e.g.: A pays B Rs. 5,000/- in satisfaction of whole debt A accept Rs. 2,000/- less at which of Rs.
5,000/- were payable the whole debt is discharged.

f) Merger - Merger takes place when an inferior right occurring to a party under a contract
merger into a superior right occurring to the same party under the same contract.
e.g.: P holds a property under a lease. He later buys the same property his right as a lessee
merges into his right as an owner.

3) By Impossibility of Performances - If an agreement contains of an undertaking to perform

an impossible it is void ab initio. This rule is based on the following maxims.
a) Lex Non Cogit ad impossible - The law does not recognize what is impossible.
b) Impossiblium nulla obligato est - What is impossible does not create an obligation.

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Taylor vs. Caldwell, 1863 C let a music hall to T for a series of concerts on certain days. The
hall was accidentally burned down before the date of the first concert; court held that the
contract was void.
Howell vs. Coupland, 1876 A contracted to sell a specified quantity of the potatoes to be
grown at his farm. The crop largely failed due to natural calamity. Court held that the agreement
to sale becomes void because of impossibility.
According to S.56 impossibility of performance may fall into either or the following categories.

A) Impossibility existing at the time of agreement - The first paragraph of S. 56 lays down
that “an agreement to do an act impossible in itself is void”. This is known as pre contractual
impossibility, it may be:
a) Known to the party - This is known as absolute impossibility. In case of absolute
impossibility the agreement is void ab initio.
e.g.: A agrees with B to discover treasure by magic or undertake to put life into the dead wife of
B by magic. The agreement is void.
b) Unknown to the Parties - Where at the time of making the contract both the parties are
ignorant of the impossibility as in the case of destruction of subject matter to the ignorance of
both the parties the contract is void on the ground of mutual mistake.

B) Impossibility arising subsequent to the formation of contract –

Impossibility which arises subsequent to the formation if contract which could be performed at
the time when the contract was entered into is called post contractual or supervening
impossibility/ Doctrine of frustration

Supervening impossibility / Impossibility of Performance an Excused - A contract is

discharged by supervening impossibility in the following cases:

a) Destruction of subject matter of Contract

When the subject matter of contract subsequent to its formation is destroyed without any fault of
the parties to the contract the contract is discharged.
Taylor vs. Caldwell, 1863 C let a music hall to T for a series of concerts on certain days. The
hall was accidentally burned down before the date of the first concert; court held that the
contract was void.

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b) Nonexistence or non-occurrence of particular state of things - Some time a contract is
entered into between two parties on the basis of continued existence or occurrence of particular
state of things. If there is any change in the state of things which formed the basis of the
contract or if the states thing which have to be happened does not happened the contract to
discharge.
Krell vs. Henry, 1903 H hired a flat from K for June 26 and 27, 1902 for witnessing coronation
procession of king. The coronation procession was cancelled due to the illness of the king court
held that H was excused from paying the rent for the flat on the ground that existence of the
procession was the basis of the contract and its cancellation discharged the contract.
This kind of failure of object of contract is often called Frustration of the Contract.

c) Death or Incapacity of Personal Services- Where the performance of a contract depends

on personal skill or qualification of a party the contract is discharge on the incapacity or death of
that party. The men‟s (promisors) life is an implied condition of the contract.
Robinson v. Davison 1871 an artist undertook to perform at a concert for a certain price.
Before she could do so, she was taken seriously, ill. Held, she was discharged due to illness.

d) Change of Law - When subsequent to the formation of a contract the change of law takes
place or the govt. take some decision under ordinance or Special Act. The performance of
contract becomes impossible. The contract is discharged.
Baily vs. Crespany, 1869 C promise B to create or construct building on a certain land. After
some time that land was acquired under statutory powers by a railway company which built a
railway station on it. Court held that C was excused from the performance of the contract and
the contract is said to be discharged.
Shipton Anderson & Co. Re A sold to B a specific parcel of wheat. Before the delivery was
given the wheat was requisitioned by the govt. under statutory power. Court held that contract
was discharged.

e) Outbreak of War - A contract entered into with an alien enemy during war is unlawful and
therefore impossible for performance. Contracts enter into before the outbreak of war are
suspended during the war and may be revived recharged after the war is over.

Impossibility of Performance: Not an Excuse - In the following cases a contract is not

discharged on the ground of super ringing impossibility.

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a) Difficulty of Performance - A contract is not discharged by the mere fact that it has become
more difficult of performance due to some uncontemplated events or delays.
Tsakiroglou & Co Ltd v Noblee Thorl 1962 A agreed to sale to B 800 Tons of Sudan
Groundnuts. The usual and normal rout of the date of contract was via Suez Canal. Shipment
was to be in Nov. or Dec. 1956 but on Nov. 2, 1956 the canal was closed to traffic and it was not
reopened until the following April. A refused to shift the goods via Cape of Good Hope on the
plea that the contract had been frustrated by reason of closing of the Suez root. Court held that
the contract was not discharged as A could have transported the goods via Cape of Good Hope.

b) Commercial Impossibility - A contract is not discharge merely because expectations of

higher profits is not realized, or be necessary Raw Material is available at a higher price
because of the outbreak of war or there is a sudden depreciation of currency.

Karl Ettlinger vs. Chagandas & Co., 1915 A promise to send certain goods from Bombay to
Antwerp (city in Belgium) in September. Before the goods were sent war broke out and there
was a high increase in shipping rates. Court held that the contract is not discharged on the
ground of commercial impossibility.

c) Impossibility due to failure of third person - Where a contract could not be perform
because of the fault by a third person on whose work the promisor relies. It is not discharged.
Harinandrai Fulchand vs. Paragdas, 1923 A wholesaler entered into a contract with B for the
sale of a certain type of cloth to be produced by C a manufacturer that cloth. Court held that A
was liable to B for damages.

d) Strike Lockout and Civil Disturbances - Events such as these do not discharge the
contract unless the parties have specifically agreed in this regard at the time of formation of the
contract.
Budget V. Binnington, (1891) the unloading of a ship was delayed beyond the date agreed
with the ship-owner owing to a strike of dock workers. Held, the ship owners were entitled to
damages, the impossibility of performance being no excuse.

5) Discharge by Laps of Time - The Limitation Act, 1963 lays down that the contract should be
performed within a specified period called period of limitation. If it is not performed and no

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action is taken by the promisee within the period of limitation he is deprived of his remedy at
law. In other words we may say that the contract is terminated or discharged by laps of time.

e.g.: There is a contract of loan between A and B. Its limitation period is 3 years. After
completion of 3rd year discharge of contract takes place and debtor creditor relationship comes
an end. Thus it becomes time bared debt which cannot be recovered by means of legal
proceedings.

6) Discharge by Operation of Law - A contract may be discharged independently of the

wishes of the parties such that by operation of law. This includes:-

a) Discharge by Death - In contracts involving personal skills or ability the contract is

terminated or discharged on death of the promisor. In other contracts the rights and liabilities of
diseased person passed on to the legal representative of the diseased person.

b) Discharge by Merger - When a superior right and an inferior right meet in one and the same
person the contract which creates inferior rights vanish into the contract which creates superior
right. This is known as merger.
e.g.: A man holding property under a lease buy the same property his rights as a lessee vanish
and they merged into the rights of ownership.

c) Discharge by Insolvency - When a person adjudged insolvent he is discharged from all

liabilities incurred prior to his adjudication. When one of the parties to the contract becomes
insolvent, he loses capacity to contract and those contracts which were made by that person will
get discharge.

7) Discharge by breach of contract - Breach of Contract means a breaking of the obligation

which a contract imposes. It occur when a party to contract without lawful excuse does not fulfill
is contractual obligation it centers a right of action for damages on the injured party. Breach of
Contract may be.
a) Actual Breach of contract occurs when during the performance of contract or the time when
performance were due one party fails or refuses to perform his obligation under the contract.
b) Anticipatory Breach of contract occurs when a party to the contract declares his intention of
not performing the contract before the performance is due.

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10. Remedies for breach of Contract

In every contract one party imposes certain duties upon other party. In simple words a contract
gives co-relative rights and obligations. A right will have no meaning if it has no remedy to
enforce.
Breach of Contract means a breaking of the obligation which a contract imposes. It occurs
when a party to contract without lawful excuse does not fulfill is contractual obligation it centers
a right of action for damages on the injured party.
Breach of Contract may be.
a) Actual Breach of Contract - Actual breach of contract occurs where one of the parties
breaches the contract by refusing to perform the promise on due date, it is known as actual
breach of contract. In such a case the other party to contract obtains a right of action against the
one who breached the contract.
e.g.: D agrees to delivery to B 5 tons of sugar on 1st June. He fails to do so on 1st June there is
actual breach of contract by D.
Cart vs. Ambergate Rly Co., 1866 In this case C agreed to supply a railway company with
3900 tons of railway chairs. After 1787 Tons he had refused to perform, he has committed the
actual breach of contract.

b) Anticipatory Breach - Anticipatory breach of contract occurs when a party to the contract
declares his intention of not performing the contract before the performance is due. e.g.: X
agrees to may Y before the agreed date of marriage X married with Z.

Leading case on this point is Hochester vs. De La Tour(1853) In this case defendant had
engaged the services of plaintiff as his attendant for a tour of the continent from June 1 st on a
fee of £10 per month for three months. However defendant changed his mind before June 1st
and informed the plaintiff that his services are not required. This is thus a case of anticipatory
breach of contract. It was held in this case that plaintiff could put an end to the contract even
before the due date viz 1st June and he need not wait for the date meant for performance of the
promise.

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Frost v. Knight 1872 the defendant promised to marry the plaintiff on the defendant‟s father‟s
death. While defendant‟s father was, still alive, he renounced the contract. The plaintiff did not
wait was, still alive, he renounced the contract. The plaintiff did not wait till the defendant‟s
father‟s death and immediately sued him and she was successful in her action.

Ubi Jus ibi Remedium : where there is right there is remedy- In the breach of contract a
remedy is given by law for the enforcement or a right against the defaulter party.
e.g.: A agrees to provide a car to B in such situation A has committed a breach of contract and
B has got right to sue for damages against A.

The rules relating to compensation were enunciated in detail in Hadley vs. Baxendale (1854) In
this case, the mill of the plaintiff had to be stopped because of a broken crank shaft. The plaintiff
sent the crank shaft as a pattern for manufacturing a new one. Till the arrival of the new crank
shaft, the mill could not be restarted. Hence mill incurred losses. However this position was not
properly conveyed to the defendant, the carrier. There were some delay on the part of the
defendant in delivering the crank shaft to the manufacturer which in turn delayed the reopening
of the mill. As a result of this, there were losses to the mill. The plaintiff claimed compensation
for loss in profit of the mill. However this was not accepted by court on the ground the plaintiff
did not explain to defendant that delay in delivering the crank shaft would delay continuation of
the mill and this would result in losses to the plaintiff.
Madras High Court in Madras Railway Company vs. Govind Ram 1898 Mad. upheld the
same principle as above. In that case a tailor had given his sewing machine to railways to be
delivered at a station as a consignment (delivery). He did not mention that any delay in
delivering the sewing machine would result in damages for the business of the tailor as he had
planned to do good business at the place proposed where a festival was to be held. The sewing
machine was delivered after the festival was over. Held Railways were not responsible for the
damages as the Railway authorities were not informed of the specific purpose of delivery of the
sewing machine namely business during a festival.

Measurement of Damages In cases where there is a breach of contract, the promisor who
breaches is liable to pay compensation for damages suffered by the promisee. The
compensation can be classified as:
(i) Those for damages that usually arise in the event of breach of contract and

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(ii) Those for damages which parties know and anticipated (estimated) at the time of entering
into the contract called special damages. This kind of special damages can be claimed only on
previous notice.
However no compensation is payable for any remote or any indirect loss. While assessing the
damage the inconvenience caused to the aggrieved party on account of non-performance
should be calculated carefully, as the party entitled for compensation, he has a duty to take
steps to minimize the loss.

Various remedies for breach of contract. They are as follows:

The law on this issue is dealt with in two statues viz., The Specific Relief Act, 1963 and The
Indian Contract Act, 1872.

Suit for damages the word „damages‟ means monetary compensation for the loss suffered.
Whenever a breach of contract takes place, the remedy of „damages‟ is the one that comes to
mind immediately as the consequence of breach. The aggrieved party may seek compensation
from the party who breaches the contract.
When the aggrieved party claims damages as a consequence of breach, the court takes into
account the provisions of law in this regard and the circumstances attached to the contract. The
amount of damages would depend upon the type of loss caused to the aggrieved party by the
breach. The court would first identify the losses caused and then assess their monetary value.

Section 73 of the Indian Contract Act, 1872 lays down the basic guidelines for identifying the
losses. Section 73 reads as follows:
“Compensation for loss or damage caused by breach of contract: When a contract has been
broken, the party who suffers by such breach is entitled to receive, form the party who has
broken the contract, compensation for any loss of damage caused to him thereby, which
naturally arose in the usual course of things from such breach or which, the parties knew when
they made the contract to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by
reason of the breach.”
Keeping in view the provisions of section 73 & the court judgments, the aggrieved party would
be entitled to one of the following types of damages, depending upon the circumstances of the
case:

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1) Damages Arising Naturally: Ordinary Damages - When a contract has been broken the
injured party can recover from the party such a damages as naturally and directly arise. In the
usual course of things from the breach. This is that the damages must be the immediate
consequence of the breach of contract. These damages are also known as ordinary damages.
e.g.: A contract to sake and deliver 50 quintals of wheat to D at Rs. 475/- per quintal, the price
to be paid at the time of delivery. The price of wheat raises to Rs. 500/- per quintal and a
refuses to sale the wheat. D can claim damages at the Rate of Rs. 25/- per quintal.

2) Liquidated damages and penalty - Where the contract itself addresses the issue of
consequences of a breach and stipulated a penalty, section 74 of the Indian Contract Act will
come into play. When such a contract has been broken, if a sum is named in the contract as the
amount to be paid in case of such breach, the party complaining of breach is entitled, to receive
from the party who has broken the contract a reasonable compensation not exceeding the
amount so named.

The Hon‟ble Supreme court in Fateh Chand V Balkishan Das 1963 had held that the
jurisdiction of the court to award compensation under section 73 in case of breach of contract is
unqualified except as to the maximum stipulated, and compensation has to be reasonable. This
section has to be read in conjunction with section 74, section 74 emphasizes that in case of
breach of contract, the party complaining of the breach is entitled to receive reasonable
compensation whether or not the actual loss is proved.

3) Damages in contemplation of the Parties Special Damages - Damages other than those
arising from the breach of a contract may be recover if such damages may reasonably be
supposed to have been in the contemplation of both parties as the probable result of the breach
of the contract. Such damages known as special damages which cannot be claim as a matter
of right. These can be claim only if the special circumstance which would result in a special loss
in case of breach contract are brought to the notice of the other party.
Simpson vs. London P.N.W. Rail Co., 1876 S Sent same specimens of his goods for
exhibition at an agricultural show. After the show he transferred same of his sample to an agent
of a railway co. for carriage to another showground at New Castle. On the consignment note be
wrote “must be at New Castle Monday certain” owing to a default on the part of the railway co.
the samples arrived late for the show. Court held that S. Could claim damages for the loss of
profit at the show.

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3) Vindictive or Exemplary Damages - Damages for the breach of a contract are given by way
of compensation for loss suffered, and not by way of punishment for wrong inflicted. Hence,
„vindictive‟ or „exemplary‟ damages have no place in the law of contract because they are
punitive (involving punishment) by nature. But in case of (a) breach of a promise to marry, and
(b) dishonor of a cheque by a banker wrongfully when he possesses sufficient funds to the
credit of the customer, the Court may award exemplary damages.

4) Nominal Damages - Where the injured party has not in fact suffered any loss by reason of
the breach of a contract, the damages recoverable by him are nominal. i.e., very small amount
for example, a rupee. These damages merely acknowledge that the plaintiff has proved his
case and won.
Brace vs. Calder, (1895) a firm consisting of four partners employed B for a period of two
years. After six months two partners retired, the business being carried on by the other two. B
declined to be employed under the continuing partners. Held, he was only entitled to nominal
damages as he had suffered no loss.

5) Damages for Loss of Reputation - Damages for loss of reputation in case of breach of a
contract are generally not recoverable. An exception to this rule exists in the case of a banker
who wrongfully refuses to honor a customer‟s cheque. If the customer happens to be a
tradesman, he can recover damages in respect of any loss to his trade reputation by the breach.
And the rule of law is: the smaller the amount of the cheque dishonored, the larger the amount
of damages awarded. But if the customer is not a tradesman, he can recover only nominal
damages.

6) Damages for Inconvenience and Discomfort - Damages can be recovered for physical
inconvenience and discomfort. The general rule in this connection is that the measure of
damages is not affected by the motive or the manner of the breach.
Hobbs vs. London & S.W. Rail & co. (1875) H, with his wife and children, took a ticket for a
midnight train, to be transported to a particular place where he lived. They were, however,
transported to a wrong place and they had to walk several miles home on a drizzling wet night.
Held, H could recover the sum of £ 8 compensate him for the inconvenience, but nothing for the
medical expenses of his wife who caught cold as this consequence was too remote.

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7) Cost of Decree - If a sum is named in a contract as the amount to be paid in case of its
breach, or if the contract contains any other stipulation by way of a penalty for failure to perform
the obligations, the aggrieved party is entitled to from the party who has broken the contract,
reasonable compensation not exceeding the amount so named.
Examples (a) A contract with B to pay B Rs. 1,000/-if he fails to pay B Rs. 500/- on a given day.
B is entitled to recover from A such compensation not exceeding Rs. 1,000/- as the Court
considers reasonable.

8) Payment of Interest the largest number of cases decided under section 74 relate to
stipulations in a contract providing for payment of interest.

9) Recession of Contract - When the contract is broken by one party the other party may use
the contract is rescind and refused further performance. In such case he is exempted from or
free from his all obligation under the contract.
e.g.: A promises to B to supply to bags of rise on a certain day B agreed to pay the price after
the receipt of rice. A does not supply the rice. B is discharged from the liability to pay the price
and the contract is said to be rescinded A and B.

10) Quantum Meruit - The phrase quantum meruit means as much it merited or as much as
earn. A person can under certain circumstances claim payment for work done or goods supplied
without any contracts & in cases where the original contract has terminated by breach of
contract by other party or has become void for some reason.
In simple words where there is a breach of contract the injured party is entitled to claim
reasonable compensation for what he has done under the contract
Palanche vs. Colburn R.N., 1831 In this case p agreed to write a book to be published by
installments in a magazine owned by C. after a few installment where published the magazine
where abandoned, P is entitled to get damages for a breach of contracts & payment of quantum
meruit for the part already published,

11) Specific Performance of the Contract - In certain cases of breach of contract, damages is
not an adequate remedy, in such cases the court may direct the defaulter party to carry out his
promise according to the terms of the contract. In other words it is an order by court upon the
party, guilty breach of contract directing him to perform what he promise to do.

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Generally speaking specific performance is directed only in case where monitory compensation
is not an adequate remedy.

12) Injunction - Injunction means an order prohibiting a party from doing something, or
directing to do something. Generally injunction is granted to enforce negative stipulation (terms
and condition) in cases where damages are not adequate relief, injunction is particularly
appropriate in cases of anticipatory breach of contract. There are two types of injunction
1) Temporary injunction. 2) Permanent injunction.
Warner Brothers vs. Nelson, 1937 in this case N a firm actress agreed to act exclusively for
Warner Brother during the year. She contracted to act for X. It was held by court that she could
be restrained by an injunction from acting for X.

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11. Quasi Contract

Even in the absence of a contract, certain social relationships give rise to certain specific
obligations to be performed by certain persons. These are known as quasi contracts as they
create same obligations as in the case of regular contract. Quasi contracts are based on
principles of equity, justice and good conscience.
Salient features of quasi contracts are:
(a) It does not arise from any agreement of the parties concerned, but it imposed by the law;
and
(b) It is a right which is available not against all the world, but against a particular person or
persons only, so that in this respect it resembles a contractual right.

When one party obtains a benefit at the expenses of another and the circumstances are such
that he must equitably to pay for it the law will compel payment even though there is no
contract between the parties. The parties will be put in the same position as they would have
occupied if there was a contract between them. Such cases are quasi contract because the
relationship between the parties in such cases are created by or presumed by the law.

In other words same relations bet the parties are just like a contract. And from such relations if a
person receives benefit he has to return of compensate the same to other party without any
contract. There is no contract infect but it is created by or constituted by law is called quasi
contract.
Quasi contract is an English term and in Indian law it is known as law of Restitution. Quasi
contract are based on the principle of equity and good conscience.
Miller v/s Schloss 1916 in this case the judges have observed that “in truth quasi contract is
not contract at all. It is an obligation which the law creates in the absence of any agreement,
when the act of party have placed in the possession of money under such circumstances that in
equity and good conscience he ought not to retain it, and which belongs to another.”

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There are five circumstances which are identified by the Act as quasi contracts. These
five circumstances do not result in regular contracts.S.68 to S.72 of Indian Contract Act
describes the cases which are to be deemed quasi contract under the Indian law.

1. Supply of necessaries for incapable person {S.68} According to this section if a person
incapable of entering into a contract support or supplied by another person with necessaries
suited to his conditions of life. The person who has furnished or supplies is entitled to recover
this expenses from the property of such incapable person.
E.g. if „A‟ supplies necessaries of life to „B‟ a lunatic or to his wife or child whom „B‟ is liable to
protect and maintain, then „A‟ can claim the price from the property of „B‟. For such claim to be
valid „A‟ should prove the supplies were to the actual requirements of „B‟ and his dependents.
No claim for supplies of luxury articles can be made. If „B‟ has no property „A‟ obviously cannot
make his claim.

2. Payment by an interested person {S.69} A person who is interested in the payment of

money which another is bound by law to pay and who therefore pays it is entitled to recover it
from the person who is bound by law to pay it.
E.g. B holds a land on a lease granted by A a Zamindar. The revenue payable by A to the Govt.
being in arrears, his land is advertised for sale by the Govt. B prevent the sale by paying
revenue to the Govt. A is bound to repay the amount of revenue to B.
The essential requirements of S-69
The payment made should be bonafide for the protection of once interest.
The payment should not be a voluntary one.
The payment must be such as the other party was bound by law to pay.

3. Obligation of person enjoying benefits of non-gratuitous act: In term of section 70 of the

Act “where a person lawfully does anything for another person, or delivers anything to him not
intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is
bound to pay compensation to the former in respect of, or to restore, the thing so done or
delivered.
Shyam Lal vs. State of U.P. (1968) „K‟ a government servant was compulsorily retired by the
government. He filed a writ petition and obtained an injunction against the order. He was
recalled and was paid salary but was given no work and in the meantime government went on

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appeal. The appeal was decided in favor of the government and „K‟ was directed to return the
salary paid to him during the period of recall.
Municipal Corporation Rajgarh v/s M.P.S.R.T.C. 1991 A Municipal Corporation constructed
and maintained a bus-stand was allowed to recover charges from M.P.S.R.T.C. who used the
stand though there was no agreement to that effect.

4. Responsibility of Finder of Goods {S.71} A person who finds goods belonging to another
and takes them into his custody is bound to take as much care of the goods as a man of
ordinary prudence under similar circumstances take of his own goods of same bulk quantity and
value. He must also take all necessary measure to trace its owner. If he does not took efforts to
find out its owner he will be guilty of wrongful conversion of the property. Till the owner is found
out the property in goods will waste in the finder he can retain the good as his own against the
whole world except true owner.
Kelner v/s Baxter K picks up a diamond on the floor of the B‟s shop. He hand it over to B to
keep it till the true owner is found out. No one is appearing to claim diamond for a quite some
weeks in spite of wide advertisement in the newspaper. K claims diamond from B. B refuses to
return diamond. Court held that B is bound to return the diamond to K who is entitled to retain
the diamond against whole world except true owner.
The finder can sale the goods in the following cases:-
When the thing found is in danger of perishing
When the owner cannot with reasonable diligence be found out
When the owner is found out but he refuses to pay the lawful charges of the finder in respect of
the thing found amounts to 2/3 of the value of thing found.

5. Mistake or Coercion {S. 72} A person to whom the money has been paid or anything
delivered by mistake or under coercion must repay or return it. S.72 does not draw any
distinction between mistake of fact and mistake of law but S. 72 is wide to cover not only
mistake of fact but also mistake of law.
Sales tax officer vs. Kanhaiyalal 1959 A payment of municipal tax made under mistaken belief
or because of misunderstanding of the terms of lease can be recovered from municipal
authorities.
Trikamdas vs. Bombay Municipal Corporation.1954 Where „T‟ was traveling without ticket in
a tram car and on checking he was asked to pay ` 5/- as penalty to compound transaction. T

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filed a suit against the corporation for recovery on the ground that it was extorted from him. The
suit was decreed in his favor.

In all the above cases the contractual liability arose without any agreement between the
parties.

You've can‟t see the forest before you can see the trees.

Nbopk qflibmf

Important note
The purpose of these notes is not to spoon-feed or to stop students from studying. Law is

an intellectually challenging subject but unfortunately the waste syllabus & exam pattern only

promotes forceful and memorization learning.

Therefore, these notes should be used only to minimize the time required to face for the

exam and the remaining time should be devoted to reading quality law books and developing

the conceptual foundations of Law.

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1. Balfour vs. Balfour (1919)

Intention to Create a Legal Relationship

When the two parties enter into agreement they must have an intention to create a legal relationship
between them.

Facts: Mr. Balfour was a civil engineer, and worked for the Government as the Director of Irrigation in
Ceylon (now Sri Lanka). Mrs Balfour was living with him. In 1915, they both came back to England. The
plaintiff remained in England for medical treatment as her doctor advised her to stay in England, because
a jungle climate would be detrimental to her health and the defendant promised her £30 a month until she
came back to Ceylon. The defendant later asked to remain separated and Mrs. Balfour sued for
restitution of her conjugal rights and for alimony equal to the amount her husband had agreed to send.

Mrs. Balfour obtained a decree and five months later was granted an order for maintenance. The lower
court entered judgment in favor of the plaintiff and held that the defendant‟s promise to send money was
enforceable. The court held that Mrs. Balfour‟s consent was sufficient consideration to render the contract
enforceable and the defendant appealed.

Issues: Must both parties intend that an agreement be legally binding in order to be an enforceable
contract?

Under what circumstances will a court failure to enforce an agreement between spouses?

Holding and Rule: Yes. Both parties must intend that an agreement be legally binding in order to be an
enforceable contract.

The court will not enforce agreements between spouses that involve daily life.

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Agreements between husband and wife over matters that affect their daily lives are not subject to
contractual interpretation, even when consideration is present. Spouses normally intend that the terms of
their agreements can be varied as situations develop. The court held that it was presumed that the
parties made the agreement as husband and wife and did not intend that it could be sued upon. The
court held that as a matter of public policy it could not resolve disputes between spouses.

Judgment / Disposition - Judgment for plaintiff Mrs. Balfour reversed.

2. Upton Rural District Council vs. Powell 1942

Liability under an implied contract/ contract created by consequence or conduct of the parties

The Powell‟s farm was in the Upton district, but in the Pershore county, and not the Upton. A fire broke
out on the farm, and the Powell telephoned to the police inspector at Upton and asked for the fire brigade
to be sent.

The Upton fire brigade was informed, and it went in the form at once. Powell was entitled to the services
of the Pershore fire brigade without charge, but the Upton brigade was entitled to payment for its services
as provided services without jurisdiction.

At the time when the brigade was summoned, all the parties concerned were under the impression that
the farm was in the Upton fire district. For the Upton fire brigade it was contended that a contract had
been created by implication, under which it was entitled to be remunerated for its services.

Held: the appellant must be treated as having asked for the Upton fire brigade to be sent to his farm, and
the fact that at the time the parties thought that the fire was in, its area did not prevent there being a
contractual relationship.

The appellant was, therefore, liable under an implied contract to pay for the brigade‟s services.

He was liable to pay for the service rendered as the services were rendered by Upton Fire Brigade on an
implied promise to pay.

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Communication of offer: [sec.4]

Offers are of two kinds - General offer and specific offer. Here we are dealing with a case of general
offer.

3. Lalman Shukla V/S. Gauri Dutt (1913) it is a popular case related to the Acceptance of a Contract.

Principle: As per section 4 of I.C.A. "the communication of proposal is complete when it comes to the
knowledge of the person to whom it is made" it means an offer cannot be accepted unless it is known to
the person to whom it is made.

Facts of the case: Lalman Shukla is an employee with Pt. Gauri Dutt.

When the nephew of Petitioner Gauri Dutt was missing, Lalman Shukla was sent for the search. It was
announced later that who so ever finds the missing nephew will be rewarded with Rs. 501. Unaware of
the announcement of the reward, Lalman Shukla located the missing nephew and brought back.

Lalman Shukla knew about the offer after tracing the missing child. On demand by Lalman Shukla Gauri
Dutt refused to give him the reward. Hence he sued Gauri Dutt for the reward.

It was held that, 'A' needs not pay the reward. The reason given by the court was that in order to
constitute a contract there must be an acceptance of the offer which cannot be accepted unless it is
known. An action without the knowledge of the proposal is no acceptance.

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Acceptance: sec. 2(b)

4. Powel V/S. Lee (1908)

Communication of acceptance should be from a person who has the right to accept

As per sec.2 (b) of I.C.A. "when the person to whom the proposal is made signifies his positive assent
there to the proposal is said to be accepted. A proposal when accepted, becomes a promise and the
offeree is termed as an acceptor"

Principle: Only the offeree can accept an offer to be legally effective. That is to say communication of
acceptance should be from a person who has the right to accept. Information received from unauthorized
person is null. (i.e. invalid)

Facts of the case: The plaintiff Powell had applied for headmastership of certain school. The managing
committee resolved to appoint him. However the decision was not informed to him. But of one of the
members, on his own, communicated the same to him. The managing committee cancelled its resolution
and decided to appoint someone else. The plaintiff Powell sued for breach of contract.

The court rejected Powell‟s contention and observed that "notice of acceptance from the party to a
contract is essential, information by an unauthorized person is as insufficient as over hearing from behind
the door."

The county court judge held that there was no contract as there had been no authorized
communication of intention to contract on the part of the body, that is, the managers, alleged to be a
party to the contract. This decision was upheld by the King's Bench Division.

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Acceptance: sec.4

5. Dunlop v/s. Higgins (1848)

Once the acceptance is posted by the offeree, putting correct address of the offeror over the
envelope and affixing adequate stamps, the contractual obligation/responsibility is imposed on
the offeror then onwards.

Principle: For contract to come into existence. A proposal / offer given by the proposer/offeror must have
been accepted by the proposee /offeree. The question arises when despite the fact, that the offeree
posts his acceptance but the proposer receives it after the time / period stipulated by him is over or in
some cases he does not receive at all.

As per sec. 4 of I.C.A. 1872, once the acceptance is posted by the offeree, putting correct address of the
offeror over the envelope and affixing adequate stamps, the contractual obligation/responsibility is
imposed on the offeror then onwards.

Facts of the case: Dunlop & Company offered by post to sell 2,000 tons of pig-Iron at some price. The
offer was sent on January 28, 1845. It reached Higgins on January 30, 1845. Higgins posted the letter of
acceptance on the same day. But, the defendant received it on February 1, 1845 with some delay. The
defendant refused to supply the goods, because the prices have increased.

Acceptance letter posted by original plaintiff Higgins within the stipulated time, was delayed by one day
as the slippery state of roads due to frost prevented the mail bag from reaching the station before the
departure of the train; still the defendants Dunlop & Company were held to be bound.

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If defendant's claim "no contract because of delayed acceptance" granted, then "no contract could ever
be completed by post"

Pig-Iron - Semi-finished metal produced from iron ore in blast furnace, containing 92 percent iron, high mounts of carbon (typically up to 3.5
percent)

6. Carlill vs. Carbolic Smoke Ball Co. Court Of Appeal (1891-94)

General offer (for ex. an advertisement in a newspaper), whoever acts upon the instructions of
the offeror is said to have given valid acceptance.

Principle: For a valid contract, offer and its acceptance are essential; offers are of two types - (a) general
and (b) specific. In case of a specific offer, acceptance must be given by the offeree as required by the
offeror. While in case of general offer (for ex. an advertisement in a newspaper), whoever acts upon the
instructions of the offeror is said to have given valid acceptance.

It is an English contract law decision by the Court of Appeal, which held an advertisement
containing certain terms to get a reward constituted a binding unilateral offer that could be
accepted by anyone who performed its terms.

Facts of the case: The Carbolic Smoke Ball Co. made a product called the "smoke ball". The
Company published advertisements in the Pall Mall Gazette and other newspapers on
November 13, 1891, claiming that it would pay £100 to anyone who got sick with influenza after
using its product according to the instructions provided with it.

“ £100[1] reward will be paid by the Carbolic Smoke Ball Company to any person who contracts
the increasing epidemic influenza colds, or any disease caused by taking cold, after having
used the ball three times daily for two weeks, according to the printed directions supplied with
each ball.

£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.

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During the last epidemic of influenza many thousand carbolic smoke balls were sold as
preventives against this disease, and in no ascertained case was the disease contacted by
those using the carbolic smoke ball.

One carbolic smoke ball will last a family several months, making it the cheapest remedy in the
world at the price, 10s.

Post free. The ball can be refilled at a cost of 5s. Address: “Carbolic Smoke Ball Company”, 27,
Princes Street, Hanover Square, London.”

Mrs. Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used it three
times daily for nearly two months until she contacted the flu on 17 January 1892. She claimed
£100 from the Carbolic Smoke Ball Company. They ignored two letters from her husband, a
solicitor. On a third request for her reward, they replied with an anonymous letter that if it is used
properly the company had complete confidence in the smoke ball's efficacy, but "to protect
themselves against all fraudulent claims" they would need her to come to their office to use the
ball each day and be checked by the secretary. Mrs. Carlill brought a claim to court.

The barristers representing her argued that the advertisement and her reliance on it was a
contract between her and the company, and so they ought to pay. The company argued it was
not a serious contract.

It was held that the plaintiff was entitled to recover the promised reward. The defendant's plea
was that there was no contract between them and the plaintiff as there was no acceptance from
plaintiff. According to the court generally any contract enforceable by law must have been
accepted by the offeree acceptance may be express or implied. However, in case of aforesaid
contract, if the offeree acts upon the wish/direction of the offeror, it is assumed that the offeree
has given his acceptance to the offer made by the offeror.

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Mrs. Louisa Carlill, however, lived until she was 96. She died on March 10, 1942, due to mainly of old age. But there
was one other cause noted: influenza.

7. Harvey vs. Facey (1893)

The difference between an offer and supply of information.

It is a contract law case decided by the United Kingdom Judicial Committee of the Privy Council.
Its important case law that it defined the difference between an offer and supply of information.

The case involved negotiations over a property in Jamaica. The defendant, Mr. LM Facey, had
been carrying on negotiations with the Mayor and Council of Kingston to sell a piece of property
to Kingston City. Harvey, who wanted the property to be sold to him rather than to the City, sent
Facey a telegram.

There are three telegrams were exchanged between Harvey and Facey.

a) “Will you sell us your Bumper Hall Pen? Telegraph lowest cash price answer paid.” (Harvey
to Facey)

b) “Lowest price for Bumper Hall Pen £ 900.” (Facey to Harvey)

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c) “We agree to buy Bumper Hall Pen for the sum of £ 900 asked by you please send us your
title deed in order that we may get early possession.".” (Harvey to Facey)

Facey, however refused to sell at that price, at which Harvey sued. Facey successfully
defended his action at trial, but Harvey appealed to the Court of Appeal, which reversed the trial
court decision. The appellants obtained leave from the Supreme Court of Judicature of Jamaica
to appeal to the Queen in Council (i.e. the Privy Council). The Privy Council reversed the
Supreme Court's opinion, restoring the trial court's decision and stating the reason for its action.

Held, there was no concluded contract between Harvey and Facey

The first telegram asked two questions:

i) The willingness of Facey to sell, and

ii) The lowest price.

Facey replied only to the second question and gave his lowest price, i.e. he supplied mere
information and no offer had been made by him to sell. There could be a contract only if he had
accepted Harvey‟s last telegram.

8. Pharmaceutical Society of Great Britain vs. Boots Cash Chemist Ltd. (1953)

It is a famous English contract law decision on the nature of an offer.

The Court held that the display of a product in a store with a price attached is not
sufficient to be considered an offer, but rather is an invitation to treat.

Facts : Boots Cash Chemists had just introduced a new method for its customers to buy certain
medicines. The company would let shoppers pick drugs off the shelves in the chemist and then
pay for them at the cashbox. Before then, all medicines were stored behind a counter and an
assistant had to get what was requested.

The Pharmaceutical Society of Great Britain objected and argued that under the Pharmacy and
Poisons Act 1933, that was an unlawful practice. Under s 18(1), a pharmacist needed to
supervise at the point where "the sale is effected" when the product was one listed on the 1933
Act's schedule of poisons.

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The Society argued that displays of goods were an "offer" and when a shopper selected and put
the drugs into their shopping basket that was an "acceptance". Therefore because no
pharmacist had supervised the transaction at this point, Boots was in breach of the Act. Boots
argued that the sale was effected only at the cashbox.

Held Both the Queen's Bench Division of the High Court and the Court of Appeal sided with
Boots. They held that the display of goods was not an offer. Rather, by placing the goods into
the basket, it was the customer that made the offer to buy the goods. This offer could be either
accepted or rejected by the pharmacist at the cash desk. The moment of the completion of
contract was at the cash desk, in the presence of the supervising pharmacist. Therefore, there
was no violation of the Act.

9. Ramsgate Victoria v Montefiore (1866)

For how long does an offer remain open to acceptance?

Offers lapse after a 'reasonable time'. Reasonable time depends on the offer and subject
matter of the contract.

Fact: The defendant Montefiore had offered shares to a certain price to the claimant. The
claimant Ramsgate Victoria did not make use of the offer immediately, and the offeror had never
withdrawn the offer. Six months after the acceptance had been made, and after the share price
had changed significantly, the claimant sought to take on the offer.

The defendant refused to go through with the transaction and claimed that the offer had expired.

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The court held: Given the subject matter, six months were too long a period for an offer to
remain undamaged. The court found that the question of a reasonable length of time after which
an offer would naturally expire was highly subject-dependent.

Even such an instable subject matter as shares, six months were more than a reasonable time
span. The case asserts that, under English law, an offer presented will automatically expire after
a reasonable time span.

The offer was no longer open as due to the nature of the subject matter of the contract the offer
lapsed after a reasonable period of time. Therefore there was no contract and the claimant's
action for specific performance was unsuccessful.

Montefiore was entitled to refuse as the offer had lost by the delay of acceptance since the
period of 6 months was not a reasonable one.

10. Adams v Lindsell (1818)

It is an English contract case regarded as the first case towards the establishment of the
"postal rule" for acceptance of an offer. Ordinarily, any form of acceptance must be
communicated expressly to an offeror; however, it was found that where a letter of acceptance
is posted, an offer is accepted "in course of post".

Facts: The case involved two parties in the sale of wool. On 2 September, the defendants
(Lindsell) wrote to the plaintiffs offering to sell them certain fleeces (a soft warm fabric with a texture
similar to sheep's wool) of wool and requiring an answer in the course of post. The defendants
(Lindsell) misdirected the letter so that the plaintiffs did not receive it until 5 September. The
plaintiffs posted their acceptance on the same day but it was not received until 9 September but
they expected to receive it on the 7th and, in the meanwhile, (Lindsell) had offered and sold

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their wool to another person. Plaintiffs brought suit for the losses they sustained by not receiving
the fleeces.

The defendants (Lindsell) argued that there could not be a binding contract until the answer was
actually received, and until then they were free to sell the wool to another buyer.

Held. The Court of King‟s Bench upheld the rule of the trial court that, when forming contracts
by mail, acceptance is valid from the time of mailing a letter containing language of same.

Because Defendants, in their offer, notified the Plaintiffs of their terms, that they would await
acceptance in the course of post, they were bound by the terms of their offer until it was
accepted or until the terms of the offer had expired. Plaintiffs accepted within the course of post,
by mailing same, and therefore manifested a valid asset.

11. Brogden vs. Metropolitan Railway Co. (1877)

It is an English contract law case, which established that a contract can be accepted by the
conduct of the parties.

A contract inferred by behavior can be binding. A mere mental assent to the agreement's
terms would not have been enough, but having acted on the terms made it so.

Facts: Mr. Brogden, the chief of a partnership of three, had supplied the Metropolitan Railway
Company with coals for a number of years. Brogden then suggested that a formal contract
should be entered into between them for longer term coal supply. Each side's agents met
together and negotiated. Metropolitan's agents drew up some terms of agreement and sent
them to Brogden.

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Brogden wrote in some parts which had been left blank and inserted an arbitrator who would
decide upon differences which might arise.

He wrote "approved" at the end and sent back the agreement documents. Metropolitan's agent
filed the documents and did nothing more. For a while, both acted according to the agreement
document's terms. But then some more serious disagreements arose, and Brogden argued that
there had been no formal contract actually established.

The House of Lords held that a contract had arisen by conduct and Brogden had been in clear
breach, so he must be liable.

The word "approved" on the document with Brogden's name was binding on all the partners,
since Brogden was the chief partner, even though the standard signature of “B. & Sons” was not
used. A mere mental assent to the agreement's terms would not have been enough, but having
acted on the terms made it so.

The written contract was valid despite no communication of the acceptance. The acceptance
took place by performing the contract without any objection as to the terms.

12. Felthouse vs. Bindley (1862)

Principles - One cannot impose an obligation on another to reject one's offer.

Acceptance cannot be assumed if there is no notification of acceptance, or implied acceptance

through action present.

You cannot impose obligations on an unwilling party.

It is the leading English contract law case on the rule that one cannot impose an obligation on
another to reject one's offer. This is sometimes misleadingly expressed as a rule that "silence
cannot amount to acceptance".

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Facts: Uncle Paul Felthouse was a builder who lived in London. He wanted to buy the horse
Sizing Europe of his nephew, John Felthouse. After a letter from the nephew about a previous
discussion in buying the horse, the uncle replied saying,

"If I hear no more about him, I consider the horse mine at £30 and 15s."

The nephew did not reply. He was busy at auctions on his farm in Tamworth. He told the man
running the auctions, William Bindley, not to sell the horse. But by accident, Bindley did. Uncle
Felthouse then sued Bindley in the tort of conversion - using someone else's property
inconsistently with their rights.

But for the Uncle to show the horse was his property, he had to show there was a valid contract.
Bindley argued there was not, since the nephew had never communicated his acceptance of the
uncle's offer.

Held - The court ruled that Felthouse did not have ownership of the horse as there was no
acceptance of the contract. Acceptance must be communicated clearly and cannot be imposed
due to silence of one of the parties. The uncle had no right to impose a sale through silence
whereby the contract would only fail by repudiation. Though the nephew expressed interest in
completing the sale there was no communication of that intention.

13. Mohori Bibi V/S. Dharmodas Ghosh (1903)

Minor‟s agreement is void (not enforceable by law) ab initio (right from the beginning)
[sec.11]

A contract with or by a minor is void and a minor, therefore, cannot, bind himself by a contract.
A minor is not competent to contract

Facts of the case: In 1903 the Privy Council in the leading case of Mohori Bibi v. Dharmodas
Ghosh (190, 30 Ca. 539).Held: That in India minors contracts are absolutely void and not merely
voidable. The facts of the case were:

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Dharmodas Ghosh a minor, entered into a contract for borrowing a sum of Rs. 20,000 out of
which the lender paid the minor a sum of Rs. 8,000. The minor executed mortgage of property
in favor of the lender. Subsequently, the minor sued for setting aside the mortgage.

The Privy Council had to ascertain the validity of the mortgage. Under Section 7 of the Transfer
of Property Act, every person competent to contract is competent to mortgage.

The Privy Council decided that Sections 10 and 11 of the Indian Contract Act make the minors
contract void. The mortgagee prayed for refund of Rs. 8,000 by the minor. The Privy Council
held that as a minor‟s contract is void, any money advanced to a minor cannot be recovered.

The Privy Council held that…

Minor‟s contract was ab initio void and no question of refunding any money could arise in such
circumstances.

the main reason for holding a minor's agreement void is that where an agreement by a minor
involves a promise on his part or his promise is a necessary part of the agreement it is void
because a minor is incapable of giving a promise, imposing a legal obligation upon himself.

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

A minor is always allowed to plead minority

14. Ranganayakamma vs. Alwar Setti (1889)

An offence under Section 297 of the I.P.C. if committed as means to obtain consent comes
under coercion Sec. 17 of Indian Contract Act

Facts: A Madrasi gentleman died leaving a young widow. The relatives of the deceased
threatened the widow to adopt a boy otherwise they would not allow her to remove the dead
body of her husband for cremation. The widow adopted the boy and subsequently applied for
cancellation of the adoption. If was held that her consent was not free but induced by coercion,

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as any person who obstructed a dead body from being removed for cremation, would be guilty
of an offence under Section 297 of the I.P.C. The adoption was set aside

General knowledge Section 297 in The Indian Penal Code - Trespassing on burial places, etc. Whoever, with
the intention of wounding the feelings of any person, or of insulting the religion of any person, or with the knowledge
that the feelings of any person are likely to be wounded, or that the religion of any person is likely to be insulted
thereby, commits any trespass in any place of worship or on any place of sepulcher (a small room or monument, cut in
rock or built of stone, in which a dead person is laid or buried.), or any place set apart from the performance of funeral
rites or as a depository for the remains of the dead, or offers any indignity to any human corpse, or causes
disturbance to any persons assembled for the performance of funeral ceremonies, shall be punished with
imprisonment of either description for a term which may extend to one year, or with fine, or with both.

15. Chikkam Ammiraju vs. Chikkam Seshamma (1917)

Threat of suicide comes under coercion Sec. 17 of Indian Contract Act

Chikkam Seshammas husband Chikkam Swami and Chikkam Ammiraju were brothers.
Chikkam Ammiraju executed a mortgage deed in favour of his brother and obtained a certain
amount of money, later he failed to pay the amount to his brother. Due to love and affection
Chikkam Seshammas husband (Chikkam Swami) wanted to execute release deed of the
mortgage in favour of his brother. Seshamma and her son did not accept this. Chikkam
Seshammas husband (Chikkam Swami) threatened to commit suicide if they did not listen to
him. Due to such threat they executed the release deed of mortgage in favour of the brother
(Chikkam Ammiraju). Later they claimed the said properties of their own.

The Privy Council held that threat of suicide though not punishable. It is an act prohibited by the
IPC and therefore consent obtained by threat of suicide comes under coercion and rendered the
release deed void

Following are the features of coercion:

1) It is physical in nature. 2) A threat to do an act prohibited by the IPC. 3) It is violent in nature.

4) It is a voidable agreement at the option of the arty who‟s consent was so obtained. (Sec. 19)

5), if the aggrieved party chooses to invalidate the voidable contract, he must return any benefit
received by him under the contract to the other party from whom received. (Section 64)

General knowledge Threat to commit suicide. Neither suicide nor threat to commit suicide is punishable under the
Indian Penal Code: Only an attempt to commit suicide is punishable under it. “The term any act forbidden by the
Indian Penal Code‟ is wider than the term „punishable by the Indian Penal Code.‟ For-example, a lunatic or a minor.
May not be punished. This does not show that their criminal acts are not forbidden by the Penal Code.”

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16. Allcard V/S. Skinner (1887)

The plaintiff must seek relief within a reasonable time after the removal of undue influence
under which the contract was made.

Undue influence: (sec.16)

Religions superior and inferior (guru and disciple) etc. here undue influence is presumed to
have been exercised. The plaintiff must seek relief within a reasonable time after the removal of
influence under which the contract was made. Gifts liable to be set aside by the court, on the
ground of undue influence have always been treated as voidable and not void.

Facts of the case: The plaintiff, a woman of about 27 year‟s age, was introduced by her
spiritual adviser to the defendant who was the Lady Superior of „The Sisters of the Poor‟. Three
years later the plaintiff in 1871 joined the sisterhood and was required to surrender all her
property as she took the vow (oath) of poverty chastity and obedience. She remained a sister for
some eight years during which period she transferred property worth about £7000 to the
defendant, who had used most of the proceeds from the property for the purposes of the
sisterhood. Some years after in 1879 she left the sisterhood, in 1884 the plaintiff claimed the
return of the remaining money on the ground that the property had been procured from her by
undue influence.

Held: Although there was undue influence which was not rebutted (disproven), the plaintiff‟s
claim failed because it was not brought promptly after she resigned from the sisterhood.

Hence, the plaintiff's claim was dismissed.

Thus, it is evident that the plaintiff must seek relief within a reasonable time after the removal of
the influence under which the contract was made.

The gifts (donations) liable to be set aside by the court, on the ground of undue influence have
always been treated as voidable and not void.

It was held by the Court of Appeal that although the plaintiff's gifts were voidable because of
undue influence brought to bear upon the plaintiff through the training she had received, she
was disentitled to recover because of her conduct and the delay.

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17. Derry V/S. Peek (1889)

It is a case in English law containing issue regarding misrepresentation & fraud in contract
law.

Facts of the case: The Plymouth, Devonport and District Tramways Company‟s prospectus
stated that the company had permission to use steam trams, rather than horse powered ones.
In fact, it did not because the right to use steam power was subject to the Board of Trade's
consent. The company applied, honestly believing that they would get it because permission
was a mere formality. In fact, after the prospectus was issued, they did not get permission.
Shareholders, represented by Sir Henry Peek, who had purchased their stakes / shares in the
company on the faith of the statement, sued when the company's business ended up in
liquidation.

Issue: Whether any action for fraud can succeed against the defendants?

Held: “Fraud is proved when it is shown that a false representation has been made
knowingly, or without belief in its truth, or recklessly without caring whether it is true or
false.” „Fraud without damage‟ and „damage without fraud‟ doesn‟t give rise to an action for
deceit / Fraud which lies only when both fraud and damage converge, i.e. when plaintiff relying
upon the fraudulent statement acts upon it to his loss.

The alleged statement was untrue in the sense that it was stated as an absolute right which was
in fact conditional on the approval of BoT. The directors honestly believed that it was the mere
question of formality to obtain BoT approval and the Co. having complied with the procedures
and requirements, the approval was due.

Hence, they had honest belief in the truth of the disputed statement and it never dwelled in their
minds that BoT will refuse such consent. In light of these observations, the honest belief was
reasonable and defendants could not be held liable for deceit.

Privity of contract

A stranger to consideration can sue because Section says that consideration can be furnished
by the promise or any other person. However, a stranger to a contract cannot sue because
there is no relationship between him and the parities to a contract – privity of contract.

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Under Indian law, the consideration can be supplied by the „promisee or any other person‟ as
given in Section 2(d)

18. Dutton V/S. Poole (1677)

Consideration can be supplied by the „promisee or any other person‟ as given in Section
2(d)

X was prepared to cut down timber on his estate to provide a marriage portion to his daughter,
Y. His son, Z, promised to give a certain sum to his sister on her marriage if X did not cut down
the timber. When Z failed to pay the amount, Y sued him for the amount. The suit was held
maintainable on grounds of the close relationship between X and Y as father and child; the
relationship made Y a party to the consideration though if she was a stranger to the contract.

Held - A stranger Y to contract can sue because Section says that consideration can be
furnished by the promisee or any other person.

19. Tweddle vs. Atkinson (1861)

Consideration must move from the promisee and the promisee only.

Nearly after 200 years that is in 1861, Queen‟s Bench refused to follow the principle laid down in
Dutton v/s. Poole.

Under English law, there privity of consideration is well recognized – consideration must move
from the promisee and the promisee only.

The doctrine was introduced in 1861 through Tweddle vs. Atkinson. The father and father-in-law
of a groom agreed in writing to pay the groom a certain sum of money. However, the contracting
parties died without having made their share of the specified payment. The groom sued the
executors of his father-in-law for the payment of the amount due. The principle of near
relationship of the contracting parties (as in Dutton vs. Poole case) was held not applicable.

Held - The groom was not allowed to sue because he was a stranger to the contract though the
contract sought to benefit him.

English law recognizes the rule of „privity of contract‟. Thus, a contract cannot be enforced by a
person who is not a party to it even if the contract is made for his benefit. A stranger to the
contract cannot claim any rights under it.

20. Dunlop Pneumatic Tyre Co. vs. Selfridge & Co 1915

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The doctrine of privity, the doctrine of consideration, the doctrine of agency

Dunlop made tyres. It did not want them sold cheaply but to maintain a standard price. It agreed
with its dealers (in this case Dew & Co) not to sell them below its recommended retail price. It
also bargained for dealers to get the same undertaking from their retailers (in this case
Selfridge). If retailers did sell below the list price, they would have to pay £5 a tyre in liquidated
damages to Dunlop.

Dunlop thus was a third party to a contract between Selfridge and Dew. When Selfridge sold the
tyres at below the agreed price, Dunlop sued to enforce the contract by injunction and claimed
damages.

Selfridge argued it could not enforce the burden of a contract between itself and Dew, which
Selfridge had not agreed to.

At trial, the judge of first instance, found in favor of Dunlop. In appeal the damages and
injunction were reversed, saying that Selfridge was not a principal or an agent and thus was not
bound. The issue put to the House of Lords as to whether Dunlop could get damages from
Selfridge without a contractual relationship. The House of Lords, in a unanimous decision held
that it could not.

Judgment based on three fundamental principles in law:

First, the doctrine of privity requires that only a party to a contract can sue.

Second, the doctrine of consideration requires a person with whom a contract under seal is
made is only able to enforce it.

Third, the doctrine of agency requires that the principal not named in the contract can only be
sued if the promisor was contracted as an agent.

In application to the facts, judges could not find any consideration between Dunlop and
Selfridge, nor could he find any indication of an agency relationship between Dew and Selfridge.
Consequently, Dunlop's action must fail.

Consideration

Consideration may move from the promisee or any other person: In English Law
consideration must move from the promisee. Under the Indian Contract Act, consideration may

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proceed from the promisee or any person. Thus, consideration furnished by a third party will
also be valid if it has been done at the desire of the promisor. But it does not follow that the third
party can sue on the agreement.

21. Chinaya V. Ramayya (1881) Consideration may move from promisee to promisor or any
other person, Doctrine of stranger to a consideration

According to the Indian law, ICA Section 2(d), consideration may be given from the promisee to
the promisor or any other person on his behalf. In India there is a possibility that consideration
for the promisor by the promisor may move not only from the promisee but also from a third
party who is not a party to the contract – stranger.

Thus, Section 2(d) clearly states that promisee or any other person my provide consideration.

Facts : A, an old lady, granted / gifted an estate to her daughter the defendant, with the direction
/ condition that the daughter should pay an annual payment of Rs 653 to A‟s brother, the
plaintiff.

On the same day the defendant, daughter (promisor) made a promise vis a vis (in relation to;
with regard to) an agreement with her uncle that she would pay the annual payment as directed
by her mother, the old lady.

Later the defendant refused to pay on the ground that her uncle (promisee, plaintiff) has not
given any consideration. She contended that her uncle was stranger to this consideration and
hence he cannot claim the money as a matter of right.

Held: The Madras HC held that in this agreement between the defendant and plaintiff the
consideration has been furnished on behalf of the plaintiff (uncle) by his own sister (defendant‟s
mother). Although the plaintiff was stranger to the consideration but since he was a party to the
contract he could enforce the promise of the promisor, since under Indian law, consideration
may be given by the promisee or anyone on his behalf – vide Section 2 (d) of ICA.

Thus, consideration furnished by the old lady constitutes sufficient consideration for the plaintiff
to sue the defendant on her promise.

Held, the brother / uncle was entitled to a decree for payment of the annual sum of money.

22. Durga Prasad V/S. Baldeo (1880)

Consideration must move at the desire of the promisor.

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the plaintiff Durga Prasad on the request of the collector of the town, built at his own expense a
shopping complex in a market the shops were occupied by the defendants Baldeo and others
who in consideration of the plaintiff Durga Prasad spent money over the construction, promised
to pay him commission on articles sold by them, subsequently, defendants refused to pay any
commission and hence Durga Prasad sued them. The plaintiff's action to recover the
commission was rejected.

Oldfield j. held " the only ground for making of the promise is the expense incurred by the
plaintiff Durga Prasad in establishing the market; but it is clear that anything done in that
manner was not at the desire of the defendants so as to constitute consideration."

The agreement was void being without consideration as it had not moved at the desire of
Baldeo.

23. Kedarnath Bhaattacharya vs. Gauri Mohammed. (1887)

Where the promisee on the strength of the promise next commitment to pay a certain
sum. There is valid contract though it is without consideration. The Commitment must be
written.

Facts - The town planners of Howrah, believed desirable to erect a town hall at Howrah,
provided sufficient subscription were collected. With the object in view the commissioner of
Howrah municipality started to raise necessary fund by public subscription. The defendant one
of the subscribers of this fund for Rs 100 signed his name in the subscription book at that
amount.

On the faith of the promised subscription the plaintiff (commissioner of the Howrah municipality)
entered into a contract with a contractor for the purpose of the building the town hall.

Later the defendant subscriber talk about to pay the amount upon the promise to pay /
subscribe. Refused to pay & he contended that there would be no personal benefit / significance
by the construction of the hall.

Held: He was held liable. It was observed that in this case that the persons were asked to
knowingly subscribe the purpose to which the money was to be applied / use. They also knew,
that on the faith of their subscription an obligation was to be incurred to pay the contractor for
the work.

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Anticipatory breach of contract

24. Hochster vs. De La Tour (1853)

It is a landmark English contract law case on anticipatory breach of contract. It held that if a
contract is repudiated before the date of performance, damages may be claimed immediately.

Principle - Where one party communicates their intention not to perform the contract, the
innocent party need not wait until the breach has occurred before bringing their claim. They may
sue immediately or they can choose to continue with the contract and wait for the breach to
occur.

Facts

In April, De La Tour agreed to employ Hochster as his courier for three months from 1 June
1852, to go on a trip around the European continent.

On 11 May, De La Tour wrote to say that Hochster was no longer needed.

On 22 May, Hochster sued.

De La Tour argued that Hochster was still under an obligation to stay ready and willing to
perform till the day when performance was due, and therefore could commence no action
before.

Defendant argues that if Plaintiff is not willing to accept Defendant‟s cancellation of the contract,
then Plaintiff should have waited, being ready and willing to perform the contract until the time
that the contract was to be performed.

The court does not agree. Defendant has made it clear that he will not perform the contact.
Would we ask that Plaintiff still make plans to accompany Defendant and turn down other
employment opportunities that would interfere with performance? It is much more rational for a
person, injured by the repudiation of a contract to be able to sue for damages immediately upon
repudiation.

Decision. The court laid down a rule about suing for damages on a breach of contract where
the performance was to be at a future date. Instead of making the injured party prepare to
perform when that party knows it is useless to do so, the court‟s ruling allows injured parties to
mitigate their damages and still sue for the damages they sustained because of the breach.

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Breach of contract

25. Hadley vs. Baxendale (1854)

It is a leading English contract law case. It sets the basic rule to determine damages from a
breach of contract: a breaching party is liable for all losses that the contracting parties
should have foreseen / predicted.

Facts - A crankshaft of a steam engine at the mill had broken and Hadley arranged to have a
new one made by W. Joyce & Co. in Greenwich. Before the new crankshaft could be made, W.
Joyce & Co. required that the broken crankshaft be sent to them in order to ensure that the new
crankshaft would fit together properly with the other parts of the steam engine. Hadley
contracted with defendants Baxendale to deliver the crankshaft to engineers for repair by a
certain date at a cost of £2 sterling and 4 shillings (current value of about £240.00).

Baxendale failed to deliver on the date in question, causing Hadley to lose business. Hadley
sued for the profits he lost due to Baxendale's late delivery, and the jury awarded Hadley
damages of £25 (present value about £2500).

Baxendale appealed, contending that he did not know that Hadley would suffer any particular
damage by reason of the late delivery.

The question raised by the appeal in this case was whether a defendant in a breach of contract
case could be held liable for damages that the defendant was not aware would be incurred from
a breach of the contract.

Held - The Court of Exchequer denied to allow Hadley to recover lost profits in this case,
holding that Baxendale could only be held liable for losses that were generally imaginable, or if
Hadley had mentioned his special circumstances in advance.

The mere fact that a party is sending something to be repaired does not indicate that the party
would lose profits if it is not delivered on time.

The court suggested various other circumstances under which Hadley could have entered into
this contract that would not have presented such terrible circumstances, and noted that where

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special circumstances exist, provisions can be made in the contract voluntarily entered into by
the parties to impose extra damages for a breach.

Special damages are linked to knowledge at the time of contract.

The doctrine of frustration

26. Krell vs. Henry (1903)

It is an English case which focused the doctrine of frustration of purpose in contract law. It is
one of a group of cases known as the "coronation cases" which arose from events
surrounding the coronation of King Edward VII and Queen Alexandra in 1902.

Facts - The defendant, CS Henry, agreed by contract on June 20, 1902, to rent a flat located at
56A Pall Mall from the plaintiff, Paul Krell, for the purpose of watching the coronation procession
of Edward VII scheduled for June 26 and 27. The housekeeper of the premises informed Henry
that he would have an excellent view of the procession from the room.

Desiring to secure the rental of Krell's flat for the purpose of observing the coronation
procession, Henry wrote the following letter to Krell's solicitor:

I am in receipt of yours of the 18th instant, inclosing form of agreement for the suite of chambers
on the third floor at 56A, Pall Mall, which I have agreed to take for the two days, the 26th and
27th instant, for the sum of 75£. For reasons given you I cannot enter into the agreement, but as
arranged over the telephone I enclose herewith cheque for £25 as deposit, and will thank you to
confirm to me that I shall have the entire use of these rooms during the days (not the nights) of
the 26th and 27th instant. You may rely that every care will be taken of the premises and their
contents. On the 24th inst. I will pay the balance, viz. (namely), £50, to complete the £75 agreed
upon.

For the purpose of accepting Henry's offer to rent the flat, on the same day the defendant
received the following reply from the plaintiff's solicitor:

I am in receipt of your letter of today's date inclosing cheque for £25. deposit on your agreeing
to take Mr. Krell's chambers on the third floor at 56A, Pall Mall for the two days, the 26th and
27th June, and I confirm the agreement that you are to have the entire use of these rooms
during the days (but not the nights), the balance, 50£., to be paid to me on Tuesday next the
24th instant.

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The parties agreed on a price of £75, but nowhere in their written correspondence did either of
them clearly mention the coronation ceremony. Henry paid a deposit of £25 to Krell for the use
of the flat, but when the procession did not take place on the days originally set (on the grounds
of the King‟s illness), Henry refused to pay the remaining £50.

Krell brought suit against Henry to recover the remaining balance of £50, and Henry
countersued to recover his deposit in the amount of £25.

The legal question in this case as whether there was an implied condition to the contract; i.e.,
whether or not, at the time the contract was made, the two parties knew that the reason behind
the contract was for Henry to watch the coronation procession.

Held - that such a condition (in this case, the timely occurrence of the coronation proceeding)
need not be explicitly mentioned in the contract itself, but rather may be inferred from the
external circumstances surrounding the contract.

Williams J. analogized (make a comparison of) the situation to one in which a man hired a taxi
to take him to a race. If the race did not occur on the particular day the passenger would not be
discharged from paying the driver; but different the situation in this case, the taxi did not have
any special qualification, as the room here did (its view of the street).

Furthermore, the cancellation of the coronation could not reasonably have been anticipated by
the parties at the time the contract was made.

The contract was frustrated as cancellation of the procession deprived it of its commercial
purpose. The claimant's (Krell) action for breach of contract was thus failed.

27. Taylor vs. Caldwell (1863)

It is a landmark English contract law case, with an opinion delivered by Justice Blackburn which
established the doctrine of common law impossibility.

Parties shall be excused in case, when the performance becomes impossible from the
perishing of thing without default of the contractor.

Facts - Caldwell & Bishop owned Surrey Gardens & Music Hall, and agreed to rent it out to
Taylor & Lewis for £100 a day. Taylor had planned to use the music hall for four concerts and
day and evening parties on Monday 17 June, Monday 15 July, Monday 5 August, and Monday
19 August 1861.

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They were going to provide a variety of excessive entertainments including a singing
performance by Sims Reeves, a thirty-five to forty-piece military and quadrille band, al fresco
entertainments, fireworks and full illuminations, a ballet or divertissement, a wizard and Grecian
statues, tight rope performances, rifle galleries, air gun shooting, Chinese and Parisian games,
boats on the lake, and aquatic sports.

According to the contract the parties had signed, the defendants were to provide most of the
British performers. Taylor & Lewis agreed to pay one hundred pounds sterling in the evening of
the day of each concert by a crossed cheque, and also to find and provide, at their own cost, all
the necessary artistes for the concerts, including Mr. Sims Reeves.

Then, on 11 June 1861, a week before the first concert was to be given, the music hall burned
to the ground. The plaintiffs sued the music hall owners for breach of contract for failing to rent
out the music hall to them.

There was no clause within the contract itself which allocated the risk to the underlying facilities,
except for the phrase "God‟s will permitting" at the end of the contract.

Judgment

Judge Blackburn began his opinion by stating that the agreement between the parties was a
contract, despite their use of the term “lease”. Under the common law of property in England at
the time, under a lease the lessee would obtain legal possession of the premises during the
lease period, while the contract at question in this case specified that legal possession would
remain with the defendants.

Blackburn J further reasoned that the continued existence of the Music Hall in Surrey Gardens
was an implied condition essential for the fulfillment of the contract. The destruction of the music
hall was the fault of neither party, and rendered the performance of the contract by either party
impossible.

Blackburn J cited the civil code of France and the Roman law for the proposition that when the
existence of a particular thing is essential to a contract, and the thing is destroyed by no fault of
the party selling it, the parties are freed from obligation to deliver the thing.

General knowledge

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Royal Surrey Gardens were pleasure gardens in Newington, Surrey London in the Victorian period. The gardens
occupied about 15 acres (6.1 ha) including a lake of about 3 acres (1.2 ha).

Specific relief Act, 1963

Intro - Specific Relief Act was enacted in 1877. The Act was originally drafted upon the lines of
the Draft, New York Civil Code, 1862, and its main provisions embodied the doctrines evolved
by the English Equity Courts. The Specific Relief Act, 1963 is the outcome of the acceptance by
the Central Government on the recommendations made by the Law Commission of India. A bill
to repeal the Act of 1877 was introduced in Lok Sabha and was passed by the both the houses
of Parliament and on 13th December, 1963 the President assented to the same.

Specific relief means - The Specific Relief Act provides for specific reliefs. Specific relief
means relief of certain type, i.e. an exact or particular, a named, fixed or determined relief. The
term is generally understood and providing relief of a specific kind rather than a general relief or
damages or compensation.

The Specific Relief Act, 1963 extends to the whole of India, except the State of Jammu and
Kashmir. The Specific Relief Act deals only with certain kinds of equitable reliefs and these are
now:

i) Recovery of possession of property

ii) Specific Performance of contracts

iii) Rectification of Instruments

iv) Rescission of Contracts

v) Cancellation of instruments

vi) Declaratory decrees

vii) Injunctions

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1. Recovery of possession of property

Recovery of Possession is dealt with in Sections 5 to 8 of the Specific Relief Act. Here property
may be immovable property or movable property, act provides for the recovery of the property.
Section 6 deals with the immovable property and Section 7 and Section 8 deals with the
movable property.

Recovery of immovable property

Section 6 of the act deals with the suit by person dispossessed of immovable property.-

(1) If any person is dispossessed without his consent of immovable property otherwise
than in due course of law, he or any person claiming through him may, by suit, recover
possession thereof, notwithstanding any other title that may be set up in such suit.

(2) No suit under this section shall be brought- (a) after the expiry of six months from the
date of dispossession; or (b) against the Government.

(3) No appeal shall lie from any order or decree passed in any suit instituted under this
section, nor shall any review of any such order or decree be allowed.

(4) Nothing in this section shall bar any person from suing to establish his title to such property
and to recover possession thereof.

Object of Sec 6

Bai Dani v. A.G. Barot; AIR 1974 The main object of Section 6 is to discourage forcible
dispossession on the principle that disputed rights are to be decided by due process of law and
no one should be allowed to take law into his own hands, however good his title may be. The
operation of Section is not excluded in cases between landlords and tenants where there is no
question of title involved.

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Wali Mohd. V. Ajodhya Kunda Section 6 provide summary and speedy remedy through the
medium of Civil Court for the restoration of possession to a party dispossessed by another,
within 6 months of its dispossession.

Requisites of Sec. 6

Judicial possession of the plaintiff at the time of dispossession: The plaintiff must
establish his judicial possession at the time of dispossession. Judicial possession is not
equivalent to lawful possession. If a person has the possession of property as a fact and once
he becomes settled as such, it is enough for the purpose of relief under Section 6, irrespective
of his being without any right to the same or mere trespasser.

Dispossession of the plaintiff without his consent otherwise than in due course of law: -
For the application of this section the dispossession must be without the consent of plaintiff or
against the process of and operation of law invoked by the ordinary method of Civil Court.
Dispossession has not been made by the Government, but by any other person.

The suit must be instituted within 6 months from the date of dispossession: - The Section
6 prescribes its own period of limitation for suits to be filed there under.

Dispossession must be of „immovable property‟: - The expression „immovable property‟

means only such properties of which physical possession can be given under the Act and it
does not cover incorporeal rights, since the incorporeal rights are not rights of which possession
can be taken and delivered to the claimant.

Under this Section, an order or decree is final in the sense that it is not open to review or
appeal, although it is subject to revision by High Court.

Recovery of specific movable property

Section 8. -- Liability of person in possession, not as owner, to deliver to persons entitled to

immediate possession.

Any person having the possession or control of a particular article of movable property, of which
he is not the owner, may be compelled specifically to deliver it to the person entitled to its
immediate possession, in any of the following cases:-

(a) When the thing claimed is held by the defendant as the agent or trustee of the plaintiff;

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(b) When compensation in money would not afford the plaintiff adequate relief for the loss of the
thing claimed;

(c) When it would be extremely difficult to ascertain the actual damage caused by its loss;

(d) When the possession of the thing claimed has been wrongfully transferred from the plaintiff.

Sec. 8 of the Specific Relief Act which is similar to the equitable relief of English law in an action
of detenue entitles a person to recover the specific movable property itself from the defendant
who is not the owner thereof in cases where the property has a peculiar value or association
and cannot be adequately compensated in terms of money.

Requisites of Section 8: - In order that Section 8 may come into operation the following
ingredient must exist:

1) The defendant has possession or control of the particular article claimed;

2) Such article is movable property;

3) The defendant is not the owner of the article;

4) The plaintiff is entitled to immediate possession; and

Provisions of Section 8 are applicable in the following situations only:

i. When such property is held as agent or trustee of the property.

ii. When compensation is not an adequate relief for the loss to the plaintiff.

iii. When ascertainment of actual damage is not possible.

iv. When possession of the property is wrongfully transferred from the plaintiff.

In case of situations under I and II burden of proof is on the plaintiff and under III and IV burden
is on the defendant.

Kizhakkumpurath V. Thanikkuzhiyil 1998 There was oral and documentary evidence that the
plaintiff was the owner of certain scheduled items and the defendants had trespassed into those
items. The plaintiff was held entitled to recover those items from the defendants, and also
mesne profits or compensation as well.

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2. Specific performance of contracts

Q. Explain various contracts which can be specifically enforced?

The contract is an agreement upon consideration to do or not to do particular thing, if the person
on whom this contractual obligation rests, fails to discharge it, other party has right to either to
insist on the literal and actual performance of the contract or to obtain compensation for the
non-performance of it. The former is called the „Specific Performance.‟

According to Pomeroy defines it as “consisting in the contracting party‟s exact fulfillment of

obligation which he has assumed- in his doing or omitting the very act which he has undertaken
to do or omit.”

Contracts which may be specifically enforced

The remedy of Specific performance being an equitable remedy is at the discretion of the Court.
But in the exercise of this discretion, the Court is governed by certain principles. The
circumstances in which specific performance may be granted are enumerated in Section 10 of
the very Act.

Section 10. -- Cases in which specific performance of contract enforceable

Except as otherwise provided in this Chapter, the specific performance of any contract may, in
the discretion of the court, be enforced-

(a) When there exists no standard for ascertaining the actual damage caused by the non-
performance of the act agreed to be done; or

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(b) When the act agreed to be done is such that compensation in money for its non-
performance would not afford adequate relief.

Explanation.-Unless and until the contrary is proved, the court shall presume-

(i) That the breach of a contract to transfer immovable property cannot be adequately relieved
by compensation in money; and

(ii) That the breach of a contract to transfer movable property can be so relieved except in the
following cases:-

(a) Where the property is not an ordinary article of commerce, or is of special value or interest to
the plaintiff, or consists of goods which are not easily obtainable in the market;

(b) Where the property is held by the defendant as the agent or trustee of the plaintiff.

Analysis of sec.10

No Standard for ascertaining damages - Section 10 providers for specific performance of

contract in those cases where there is no standard for ascertaining damages or where the
money cannot form adequate relief for the non-performance. Further enforcement of the specific
performance is at discretion of the court and no one claim it as a matter of right.

Banwari Lal Agarwala v. Ram Swarup Agarwala 1998 It was held that the plaintiff tenant was
entitled to a decree of specific performance contract under Section 10 of Specific Relief Act.
Where from some special or practical features or incidents of the contract either in its subject-
matter, or in its terms or in the relations of the parties, it is impossible to arrive at a legal
measure of damages at all, or at least with any sufficient degree of certainty so that not real
compensation can be obtained by means of action at law, the contract will be enforced
specifically.

Pecuniary compensation not adequate relief - The specific performance will also be granted
when compensation in money is not adequate relief in facts and circumstances of case.
Damages may be considered to be an inadequate remedy if it is difficult to count them.

Ram Karan V. Govind Lal 1999 there was an agreement for the sale of agricultural land. The
buyer had paid full sale consideration to the seller, but the seller even then avoided executing

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the sale deed as per the agreement. The buyer brought an action for the specific performance
of the contract. It was held that the case is covered under Section 10(b) of the act.

Explanation to Section 10 carries presumption in favor of plaintiff and declares that it should
be presumed that compensation does not afford adequate relief in following cases:

In all cases where the contract is for the transfer of immovable property.

In case of movable property where:

a) The property is not an ordinary article but an article of special value or of special
interest to plaintiff.

b) The article is not easily obtainable in the market.

c) The property is held by the defendant as an agent or trustee of the plaintiff.

However these presumptions can be disproved / disproved by the defendant by proving the
contrary.

Nivarti Govind Ingale vs. R B Patil 1997 - A woman took a loan from a relative and executed a
deed of sale in favor of the relative's minor son with an agreement of re- transfer at the
repayment of loan. This contract was held to be specifically enforceable. The relative had sold
the property off to a buyer. This decree was allowed to be enforced against such buyer also.

Section 11. Cases in which specific performance of contracts connected with trusts
enforceable. - Section 11 says that specific performance can be enforced when the act agreed
to be done is wholly or partly is in the performance of a trust. An exception is that the contract
must not be in excess of the power of a trustee.

Section 12. Specific performance of part of contract - Section 12 says that if, in the
discretion of the court, only a small part of a contract cannot be specifically performed and if
such part can be alternatively compensated, the rest of the part can be specifically enforced.

Section 23. Liquidation of damages not a bar to specific performance -According to

Section 23, even if a contract includes a penalty or fixed amount of damages in case of default,
its specific performance can be ordered depending on the intention of the penalty. If the
intention of the compensation for damages is to secure the performance of the contract and not
to give an alternative way of fulfilling the contract, it can be specifically enforced.

Conclusion -

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General defenses against suit instituted under this Act (Sec. 9)

Q. What grounds may be taken by a defendant in a suit for specific performance of the
contract?

Provision of Sec.9 provides defenses for suit instituted under this Act. There is no enumeration
of such defenses in Specific Relief Act. It is simply incorporated all defenses in such cases in
any law relating to contracts. The defendant has following general defenses against the suit
instituted under this Act.

1. Material alteration in agreement - A., the owner of three houses, lets one house situated at
lane 3 to B. B. make alterations in agreement without consent of A and change the situation of
house in an agreement lane 2 in the place of lane 3. B. cannot sue A. for specific performance
of agreement as unauthorized material alteration in agreement restrain him from suing.

2. Forgery or fraud - A. contracts to sell, and B. contracts to buy, certain land. To protect the
land from floods, it is necessary for its owner to maintain an expensive embankment. B. does
not know of this circumstance, and A. conceals it from him. Specific performance of the contract
should be refused to A.

3. Ultra-vires contract - A. in the capacity of agent for B., enters into an agreement with C. to
buy C.‟s house. A. is in reality acting as agent for B. but B. allotted him express limited express
authority about the price of house not to sell bellow certain price but A. make an agreement

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bellow that specified certain price. A. cannot enforce specific performance of this contract on
account of ultra vires agreement.

4. Limitation - The Limitation Act, 1963 lays down that the contract should be performed within
a specified period called period of limitation. If it is not performed and no action is taken by the
promise within the period of limitation he is deprived of his remedy at law. In other words we
may say that the contract is terminated or discharged by laps of time.

5. Suit filed by plaintiff before maturity - If in contract there is time stipulated for its
performance the party cannot file suit for its performance before that stipulated time elapsed.
Suit filed by plaintiff before maturity of time of performance is good defense for defendant.

6. Doctrine of frustration- Due to doctrine of frustration contract comes to an end no specific

performance can be claim on the basic of frustrated contract.

7. Unlawful agreement - An agreement would be void for its unlawfulness. An agreement if

comes under category enumerated under sec, 23-30 of Indian Contract Act cannot be
specifically enforced.

8. Agreement without free consent - A. contracts to sell, and B. contracts to buy, certain land.
To protect the land from floods, it is necessary for its owner to maintain an expensive
embankment. B. does not know of this circumstance, and A. conceals it from him. Specific
performance of the contract should be refused to A.

9. Absence of privity - It is the general rule of law that only parties to contract may sue and be
sued. A person who is not party of contract cannot sue upon it for specific performance of the
contract.

10. Absence of consideration In general, law enforces only those promises which are made
for consideration. Thus every agreement must be supported by consideration so as to
enforceable even though it may not be adequate. A person cannot sue upon it for specific
performance of the contract if it lacks consideration.

In spite of above defenses the defendants in the suit of specific performance have
special defenses under Specific Relief Act 1963. These are enumerated u/sec. 14, 16, 17&
20 of Specific Relief Act 1963.

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Q. Explain various contracts which cannot be specifically enforced?

The effect of the provisions in Section 14 can be stated in terms of certain propositions, namely,
that in the case of following contracts the relief of Specific performance cannot be allowed:

1. Where Compensation is Adequate - Courts will not order specific performance of a contract
where the aggrieved party can be adequately compensated in terms of money.

When a loan has already been advanced on the security against it, this cannot be specifically
enforced without default of mortgager & the mortgagee cannot keep or sale property without
prior notice and confirmation of financial disability to repay the loan amount.

2. Contracts involving personal skill / minute and numerous details - It is not possible for
the court to supervise the performance of a contract which runs into minute and numerous
details or is dependent upon the personal qualifications of the promisor. Contracts of
employment, contracts of personal service, contracts involving performance of artistic skill, like
contract to sing, to paint, to act, contract of authorship are ordinary examples of things requiring
personal skill and therefore beyond the capacity of the judicial process to enforce their actual
performance. The only choice in such cases is to be content with damages.

Purshottam v. Purshottam it was held that a contract to marry would fall under the category of
such contracts for which a court cannot enforce the specific performance.

3. Contracts of Determinable Nature - Determinable Contracts derive their existence from the
termination clause envisaged therein. There are essentially three types of termination clauses,

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viz. (i) termination for cause (upon a contingent event), (ii) termination for convenience and (iii)
termination upon expiry of the term. (Determinable - Capable of being brought to an end under given conditions.)

In simple words if any contract entitles either party to terminate a contract for convenience
subject to notice period then as per the provisions of the Act and precedents, such a contract
may qualify as "determinable"; hence, not capable of being specifically enforced. Meaning
thereby, in such cases specific performance may not be 'the' remedy, but a claim for
compensation could be resorted to.

Jawahar Sao v. Shatrughan Sonar 1961 it has been held that where a contract of sale is
determinable at the option of the seller within a specified period on repayment of the
consideration, the other party cannot get decree of specific performance of the agreement.

4. Contracts requiring Constant Supervision - Clause (d) of Section 14(1) says that the
contract cannot be specifically enforced where it involves the performance of continuous duty
which the court cannot supervise. Contracts requiring the performance of a continuous duty
extending over period longer than three years from the date of the contract cannot be
specifically enforced.

Central Bank Yeotmal v. Vyankatish 1949 the respondent-defendant was required to execute
a Kabuliyat every year for 25 years and it was held there was continuous duty in the sense that
it had to be performed annually for 25 years and, therefore, the contract must be held to be
specifically unenforceable. (Kabuliyat - Instruments of settlement)

5. Contract for Arbitration- Sec. 14(2) A contract to refer a present or future dispute to an
arbitration cannot be specifically enforced.

This section has no application where a person having made a contract to refer a arbitration has
refused to perform it and institutes a suit in respect of subject matter in disobedience of the
contract, it is not open to enforce specific performance of the agreement.

6. Borrower is not willing to repay at once – Sec. 14(3) a contract of mortgage cannot be
specifically enforced unless in which the borrower is not willing to repay at once. Once he
denied to repay the lone the mortgagee can file suit for specific performance of mortgage deed.

6. Conduct of plaintiff is such as disentitled him to relief under this Act.-Sec. 16

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A. contracts to sell B. a house and garden in which there are ornamental trees, a material
element in the value of the property as a residence. A. without B.‟s consent, fells the trees. A.
cannot enforce specific performance of the contract.

7. Party does not have the title or ownership of the property- Sec. 17. A contract involving
transfer of property when the party does not have the title or ownership of the property.

A. in the character of agent for B., enters into an agreement with C. to buy C.‟s house. A. is in
reality acting not as agent for B. A. cannot enforce specific performance of this contract.

8. The contract though not voidable but confer an unfair advantages to the plaintiff over
defendant. – Sec.20. A. contracts to sell, and B. contracts to buy, certain land. To protect the
land from floods, it is necessary for its owner to maintain an expensive embankment. B. does
not know of this circumstance, and A. did not tell it to B. Specific performance of the contract
should be refused to A.

Q. Who may obtain specific performance?

It is a general rule that a contract cannot be got enforced except by a party to the contract. This
general rule is embodied in clause (a) of Section 15. But there are certain exceptions to this
general rule. These exceptions are contained in clause (b) to (h) of the section and contain list
of persons who although not a party to the contract, are entitled to obtain specific performance
of contract. These are:

Section 15. Who may obtain specific performance.-

(a) Any party to contract

(b) The representative in interest.

A. contracts to convey certain land to B. by a particular day. A. dies intestate before that day
without having conveyed the land. B. may compel A.‟s heir or other representative in interest to
perform the contract specifically.

Shyam Singh, v. Daryao Singh 2004 under the provisions of S. 15(b) specific performance of
the contract may be obtained by 'any party thereto' or their representative in interest.'

(c) Where the contract is a settlement on marriage, or a compromise of doubtful rights between
members of the same family, any person beneficially entitled thereunder;

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(d) Where the contract has been entered into by a tenant for life in due exercise of a power, the
remainder-man.

A remainder man is a person who inherits or is entitled to inherit property upon the termination
of the estate of the former owner. It means during the tenancy the landlord sale the property the
tenant can enforce the contract of tenancy even against the new landlord.

(e) A reversioner in possession, where the agreement is a covenant entered into with his
predecessor in title and the reversioner is entitled to the benefit of such covenant;

A reversioner means a person who is entitled to an estate in return can file suit for specific
performance if he possess property.

(f) A reversioner in remainder, where the agreement is such a covenant, and the reversioner
is entitled to the benefit thereof and will sustain material injury by reason of its breach. In simple
words if the lease granted for particular period and the tenant died before tenancy period comes
to end the heirs of tenant can enforce the tenancy contract specifically.

(g) When a company has entered into a contract and subsequently becomes amalgamated with
another company, the new company which arises out of the amalgamation;

(h) When the promoters of a company have, before its incorporation, entered into a contract for
the purposes of the company, and such contract is warranted by the terms of the incorporation,
the company.

The promoters of a mine company contract that the company, when formed, shall purchase
certain mineral property. They take proper precautions to assert the value of such property, and
in fact agree to pay a proper price. They also stipulate that the vendors shall give them a bonus
out of the purchase-money. This contract can be specifically enforced by company after
incorporation.

Personal bars to relief (short note)

To succeed in a suit for specific performance the Plaintiff must show that he is ready and willing
to perform the contract and that he has sufficient means to honor his obligations under the
contract.

Sec. 16- Specific performance of a contract cannot be enforced in favor of a person-

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(a) Who would not be entitled to recover compensation for its breach; or

A. in the capacity of agent for B., enters into an agreement with C. to buy C.‟s house. A. is in
reality acting not as agent for B. A. cannot enforce specific performance of this contract.

(b) who has become incapable of performing, or violates any essential term of, the
contract that on his part remains to be performed, or acts in fraud of the contract, or wilfully
acts at variance with, or in subversion of, the relation intended to be established by the contract;
or

A. contracts to sell B. a house and to become tenant thereof for a term of 14 years from the date
of the sale at a specified yearly rent. A. becomes insolvent. Neither he nor the official receiver of
his estate can enforce specific performance of the contract.

A. contracts to sell B. a house and garden in which there are ornamental trees, a material
element in the value of the property as a residence. A. without B.‟s consent, fells the trees. A.
cannot enforce specific performance of the contract.

(c) Who, fails to prove that he has performed or has always been ready and willing to
perform the essential terms of the contract which are to be performed by him.

A, in the character of agent for B, enters into agreement with C to buy C‟s house. A is in reality
acting not as agent for B, but of his own account. A cannot enforce specific performance of
contract.

Discretion and the powers of court. (Sec. 20 to 23) (Short note)

The jurisdiction to decree specific performance is discretionary, and the court is not bound to
grant such relief merely because it is lawful to do so. The following are cases in which the court
may properly exercise a discretion.

Sec. 21 Power to award compensation in certain cases the plaintiff in a suit for specific
performance of contract, under Section 21 may also ask for compensation in case of the breach
of the contract,

a. either in addition to or in substitution for such performance

b. Court can award compensation without granting specific relief if contract broken by the
defendant, and that the plaintiff is entitled to compensation for that breach

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c. Court can award compensation along with granting specific relief if contract broken by the
defendant, if it is necessary in the interest of justice.

d. In determining the amount of any compensation the court shall be guided by the principles
specified in section 73 of the Indian Contract Act, 1872

e No compensation shall be awarded under this section unless the plaintiff has claimed such
compensation in his plaint: Provided that where the plaintiff has not claimed any such
compensation in the plaint, the court shall, at any stage of the proceeding, allow him to amend
the plaint on such terms as may be just, for including a claim for such compensation.

Sec. 22. Power to grant relief for possession, partition, refund of earnest money, etc.-

Under this section when court granting specific performance, it has power to ask for possession,
or partition of immovable property.

When court refuse the specific performance, it has power to ask for refund of any earnest
money or deposit paid.

For application of this section the plaintiff must claim above reliefs in his plaint.

Sec. 23. Liquidation of damages not a bar to specific performance - Under this section if
court refuse the specific performance the court have power to decide liquidated damages as it
think fit in the interest of justice irrespective of liquidated damages mentioned in the contract so
broken.

When enforcing specific performance under this section, the court shall not also decree
payment of the sum so named in the contract.

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3. Rectification of instruments

By law, many contacts are required to be in writing. Because of convenience, many more
transactions are put into writing. A written transaction is called an instrument. An instrument is a
result of negotiations. Sometimes, an instrument may fail to express the intention or will of the
involved parties. Rectification of such an instrument may become necessary.

Doctrine of Rectification - Rectification means correction of an error in an instrument in order

to give effect to the real intention of the parties. Where a contract has been executed into writing
due to fraud or mutual mistake, fails to express the real intention of the parties, the court will
rectify the writing instrument in accordance with their true intent.

Here the fundamental assumption is that there exists in between the parties a complete and
perfectly unobjectionable contract but the writing designed to embody it, either from fraud or
mutual mistake is incorrect or imperfect and the relief required is to rectify the writing so as to
bring it into conformity with true intent.

In such a case to enforce the instrument as its stand must be to injure at least one party to it; to
rescind it all together must be to injure both, but rectify it and then enforce it is to injure neither
but to carry out the intention of both.

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Sec. 26 – When instrument may be rectified:

Fraud or a mutual mistake of the parties in an instrument either party, or his

representative in interest, may institute a suit to have the instrument rectified - When,
through fraud or a mutual mistake of the parties, a contract or other instrument in writing does
not truly express their intention, either party, or his representative in interest, may institute a suit
to have the instrument rectified: and if the court find it clearly proved that there has been fraud
or mistake in framing the instrument, and ascertain the real intention of the parties in executing
the same, the court may in its discretion rectify the instrument so as to express that intention, so
far as this can be done without prejudice to rights acquired by third persons in good faith and for
value.

Court must be satisfied about the party‟s intention to make an equitable agreement - For
the purpose of rectifying a contract in writing, the court must be satisfied that all the parties
thereto intended to make an equitable and thorough agreement.

Enforcement after rectification by court if plaintiff prayed for -A contract in writing may be
first rectified and then, if the plaintiff has so prayed in his plaint and the court thinks fit,
specifically enforced.

For example - A., intending to sell to B. his house and one of three godowns neighboring to it,
executes a transfer through contract prepared by B., in which, through B.‟s fraud, all three
godowns are included. Of the two godowns which were fraudulently included, B. gives one to
C., and lets the other to D. for a rent, neither C. nor D. having any knowledge of the fraud. The
suit for rectification can be filed by A. to exclude the names of C. & D.

A. contracts in writing to pay his advocate, B., a fixed sum in lieu of costs. The contract contains
mistakes as to the name of the client, which, if construed strictly, would exclude B. from rights to
get fixed sum under it. B. is entitled to file suit for rectification or correction of name of his client.

Effect of rectification - An instrument rectified by court represents the true intention of the
parties. It removes all previous defects, ambiguities and uncertainties.

Dagdu vs. Bhana 2006 it was observed: “If mistakes be established and proved, then the court
can give relief of rectification, but what is rectified is not the agreement, but the mistaken
expression of it.”

Conclusion -

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4. Rescission of Contract Sec. 27 to 30

This provision is based on the administration of protective and preventive justice. If there is
reasonable apprehension of serious injury because of any agreement, security or deed or any
other instrument which may resulted in an injustice the court may grant the relief of recession of
contract.

Rescission - Rescission means the abolition of a contract, effective from its beginning, thereby
restoring the parties to the positions they would have occupied if no contract had ever been
formed.

Rescission may be by an agreement & by an order of the court - Mutual rescission, or

rescission by agreement, is a discharge of both parties from the obligations of a contract by a
new agreement made after the execution of the original contract but prior to its performance.

Sec. 27 – When rescission may be adjudged and when it may refused.

When rescission may be adjudged

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1. Any person interested in contract may sue to have it rescinded and such recession may be
adjusted by the court in following cases.

(a) Where the contract is voidable and terminable by the plaintiff.

(b) Where contract is unlawful for causes not apparent on its face and the defendant is more
blame then plaintiff.

When rescission may be refused

2. Notwithstanding anything contained in subsection 1 of Sec. 27 the court may refuse to

rescind the contract.

(a) Where the plaintiff has expressly or impliedly ratified the contract.

(b) Where due to the change of circumstances which has taken place since the making of
contract the parties cannot be subsequently restore the position in which they stood when the
contract was made.

(c) Where during the subsistence of the contract third party have acquired rights in good faith
without notice and for value.

(d) Where only a part of the contract is sought to be rescinded and such part is not
severable from the rest of the contract.

Time for rescission - A right to rescind must be exercised promptly or within a reasonable time
after the discovery of the facts that authorize the right. A reasonable time is defined by the
circumstances of the particular case. The rule that rescission must be prompt does not operate
where an excuse or justification for a delay is shown.

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5. Cancellation of Instrument Sec. 31 to 33

Under section 31 of the Act, a person can sue for the cancellation of the document when he had
an apprehension of serious injury from it.

Meaning and object – These provisions of cancellation of instrument comprising in Sec. 31 to

33 are based upon the administration of protective and preventive justice. If there is reasonable
apprehension about violation of legal rights of either party to contract that instrument can be
cancelled before its effect take place. The relief of cancellation is granted before the violation of
plaintiff legal right under concerned instrument.

Sec. 31 – When cancellation may be order – A cancellation of instrument may be order by

court when….

1. A written instrument becomes void or voidable - There is reasonable apprehension if the

instrument is left unresolved may cause serious injury to either party.

Such party entitled to file suit for declaration to that effect (Cancellation).

Order for cancellation and delivery of instrument to the aggrieved party may be passed by court.

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2. If the instrument is registered the court shall also send a copy of its decree to officer in whose
office the instrument has been registered, such officer shall note the fact of its cancellation on
the copy of the instrument.

Sec. 32 – Instrument may be partial cancelled: If on the evidence plaintiff proves successfully
the requirements of clause 1 of Sec. 31 the instrument may be cancelled partially by court.

Sec. 33 – Compensation: At the time of passing of decree for cancellation of instrument court
can award compensation but if the contract is made without consideration then no award of
compensation in that case.

A., the owner of a ship, by fraudulently representing it to be seaworthy, induces [Link] insurance
agent, to insure it. After making insurance policy B. come to know about fraudulent
representation by A. about ship B. may obtain the cancellation of the policy.

General knowledge - Rescission made on account of voidable and terminable contract by the plaintiff where contract is unlawful for
causes not apparent on its face.

Basic object behind cancellation is stops any future obligations on account of reasonable apprehension about violation of legal
rights.

It means reason behind recession is immediate i.e. threat of loss is existed at the time of recession. While reason behind
cancellation is future threat of loss. By nbopk qflibmf.

6. Declaratory decrees

Declaratory reliefs are available through the decrees of the court. Sections 34 and 35 provided
this relief under which a person can approach the court for declaring his right or status over
some property. The object of this relief is to prevent future litigation. This remedy can be
requested when there were doubts regarding right over property. It can be sought against any
person who denied or tried to deny the right of the plaintiff.

Sec. 34 Discretion of court as to declaration of status or right.- Any person entitled to any
legal character, or to any right as to any property, may institute a suit against any person
denying, or interested to deny, his title to such character or right, & the court may in its
discretion make therein a declaration that he is so entitled, & the plaintiff need not in such suit
ask for any further relief: Provided that no court shall make any such declaration where the
plaintiff, being able to seek further relief than a mere declaration of title, omits to do so.

For ex. A. is in possession of certain property. B., alleging that he is the owner of the property,
requires [Link] deliver it to him. A. may obtain a declaration of his right to hold the property.

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Essential to be set up for relief under sec.34

1. That the plaintiff is entitled to a legal character at the time of the suit, or to any right as to any
property.

2. That defendant has denied these or he is interested in denying that character or right of the
plaintiff, and

3. The plaintiff is not in a position to ask for relief consequential upon the declaration.

Man Kunwar Asram v. Badlu Mukandi AIR 1957 if these conditions are satisfied the plaintiff
need not ask for any further relief than a mere declaration but the court shall not make any such
declaration if he, being able to seek further relief than a mere declaration of title, omits to do so.

Section 35. Effect of declaration.-A declaration made under this Chapter is binding only on
the parties to the suit & persons claiming through them respectively

Prabhakar Adsude v. State of M.P., 2004 According to this section the declaratory decree is
not binding on everybody in the world. It cannot bind strangers and as such a declaration will
not operate as a judgment in rem and will be binding only between parties to the suit and their
representatives. Hence, a declaratory decree is binding between the parties inter se and its
effect does not bind persons who are not connected with the suit in question.

007. Preventive reliefs / Injunction

Generally the court give order when the dispute is brought before it. It resolve the dispute and
determine the rights of party. In certain occasion the dispute arises and there will no time to
decide the rights of the parties. If delay occurs injury may be caused to the plaintiff. To prevent
such injury the court is empowered to issue an ordered called as injunction / Preventive reliefs
restraining the defendant to stop their acts.

General definition- An injunction is a judicial process whereby a party is required to do, or to

refrain from doing, any particular act. It is a remedy in the form of an order of the Court
addressed to particular person that either prohibits him from doing „or continuing to do a
particular act (prohibitory injunction); or orders him to carry out a certain act (mandatory
injunction).

Object - The primary purpose of granting interim relief is the preservation of property in dispute
till legal rights and conflicting claims of the parties before the court are adjudicated.

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The fundamental object of granting temporary injunction is to maintain and preserve status quo
at the time of institution of the proceedings and to prevent any change in it until the final
determination of the suit. It is in the nature of protective relief granted in favor of a party to
prevent future possible injury.

Preventive reliefs are granted by the courts by way of issuing injunctions. Injunctions under
Chapter VII prevents a person to do or not to do something. Granting of such reliefs are within
the discretion of the court. By virtue of Section 36 of the Act, there are temporary or interlocutory
injunctions and perpetual injunctions. Perpetual injunctions can be granted only after hearing
both sides and considering the merits of the case. Under Section 39, court can grant mandatory
injunctions to compel a person to do an act. It is issued to prevent the breach of an obligation. A
plaintiff can claim damages in the suit for both mandatory and perpetual injunctions.

Following types of Injunctions are granted by the Court.

Temporary and Permanent Injunctions (Sections 36 & 37)

Perpetual Injunctions (Section 38)

Mandatory Injunctions (section 39)

Damages in lieu of or in addition to Injection (Section 40)

Injunction to perform a negative covenant (section 42)

We shall now discuss all injunctions respectively;

Temporary and Permanent Injunctions (Sections 36 & 37)

Section 36. Preventive relief how granted.-Preventive relief is granted at the discretion of the
court by injunction, temporary or perpetual.

Section 37. Temporary and perpetual injunctions. - (meaning)

(1) Temporary injunctions are such as are to continue till a specified time, or until the further
order of the court, and they may be granted at any stage of a suit, and are regulated by the
Code of Civil Procedure, 1908.

(2) A perpetual injunction can only be granted by the decree made at the hearing and upon
the merits of the suit; the defendant is thereby perpetually ordered from the declaration of a
right, or from the commission of an act, which would be contrary (opposing) to the rights of the
plaintiff.

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Perpetual Injunction when granted Sec. 38

Perpetual Injunction may be granted to the plaintiff to prevent the breach of an obligation
existing in his favor.

When any such obligation arises from contract,

When the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of,
property,

Where

a. Defendant is trustee of the property for the plaintiff; or

b. There exists no standard for ascertaining the actual damage caused or

c. The invasion is such that compensation in money would not afford adequate relief; or

The injunction is necessary to prevent a multiplicity of judicial proceedings.

For ex.

A. rent‟s certain land to B., and B. contracts not to dig sand or stones there out. A. may sue for
an injunction to restrain B. from digging in violation of his contract.

The directors of a public company are about to pay a dividend out of capital or borrowed money.
Any of the shareholders may sue for an injunction to restrain them.

A. is B.‟s medical adviser. He demands money of B. which B. declines to pay. A. then threatens
to make known the effect of B.‟s communications to him as a patient. This is contrary to A.‟s
duty, and B. may sue for an injunction to restrain him from so doing.

A. infringes B.‟s patent. If the court is satisfied that the patent is valid and has been infringed, B.
may obtain an injunction to restrain the infringement.

Mandatory injunctions – Sec. 39

When, to prevent the breach of an obligation, it is necessary to compel the performance of

certain acts which the court is capable of enforcing, the court may in its discretion grant an
injunction to prevent the breach complained of, and also to compel performance of the requisite
acts.

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For ex. A., by new buildings, obstructs lights to the access and use of which B. has acquired a
right by prescription (वहिवाट). B. may get an injunction, not only to restrain A from further

construction but also to pull down so much of construction as obstructs B.‟s lights.

Damages in lieu of, or in addition to, injunction Sec. 40

(1) The plaintiff in a suit for perpetual injunction under section 38, or mandatory injunction under
section 39, may claim damages either in addition to, or in substitution for, such injunction and
the court may, if it thinks fit, award such damages.

(2) No relief for damages shall be granted under this section unless the plaintiff has claimed
such relief in his plaint: Provided that where no such damages have been claimed in the plaint,
the court shall, at any stage of the proceedings, allow the plaintiff to amend the plaint on such
terms as may be just for including such claim.

(3) The dismissal of a suit to prevent the breach of an obligation existing in favor of the plaintiff
shall bar his right to sue for damages for such breach.

Injunction when refused Sec. 41

An injunction cannot be granted-

(a) To restrain any person from prosecuting a judicial proceeding unless such restraint is
necessary to prevent a multiplicity of proceedings;

(It means the person can seek injunction to restrain any person from prosecuting a judicial
proceeding when such a restrain is necessary to prevent a multiplicity of the proceeding.)

(b) To restrain any person from instituting or prosecuting any proceeding in a court not
subordinate to that from which the injunction is sought;

(It means the person can seek injunction to restrain any person from prosecuting any
proceeding in a Court subordinate (lower) to that from which the injunction is sought.)

(c) To restrain any person from applying to any legislative body;

(d) To restrain any person from instituting or prosecuting any proceeding in a criminal matter;

(e) To prevent the breach of a contract the performance of which would not be specifically
enforced;

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(f) To prevent, on the ground of nuisance, an act of which it is not reasonably clear that it will be
a nuisance;

(g) To prevent a continuing breach in which the plaintiff has agreed ;( means defendant perform
his act from reasonably long time without plaintiffs objection)

(h) When equally effective relief can certainly be obtained by any other usual mode of
proceeding (means when other reasonable remedy is available)

(i) When the conduct of the plaintiff has been such as to disentitle him to the assistance of the
court; (means plaintiff himself is wrong doer)

(j) When the plaintiff has no personal interest in the matter. (Absence of privity)

Injunction to perform negative agreement Sec. 42- this section provides exception to clause
(e) of section 41, where a contract comprises an affirmative agreement to do a certain act,
coupled with a negative agreement, express or implied, not to do a certain act, the circumstance
that the court is unable to compel specific performance of the affirmative agreement shall not
prevent it from granting an injunction to perform the negative agreement.

A. contracts with B. to sing for 12 months at B.‟s theatre and not to sing in public elsewhere. B.
cannot obtain specific performance of the contract to sing, but he is entitled to an injunction
restraining A. from singing at any other place of public entertainment.

B. contracts with A. that he will serve him faithfully for 12 months as a clerk. A. is not entitled to
a decree for specific performance of this contract. But he is entitled to an injunction restraining
B. from serving a rival house as clerk.

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