Definition of Proposal or Offer

1. Definition (Section 2(a) of the Indian Contract Act):

• A proposal is defined as, "when one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining
the assent of that other to such act or abstinence, he is said to make a
proposal."
2. Essentials of a Proposal/Offer:
• Expression of Willingness: Must be an expression of the willingness to do or
to abstain from doing something.
• Example: "I am willing to sell my motorcycle to you for ₹14,000."
• Directed to Another Person: The expression must be to another person;
there can be no proposal by a person to himself.
• Example: N cannot propose to sell a motorcycle to himself.
• Intent to Obtain Assent: The expression must be made with a view to
obtaining the assent of the other person to such act or abstinence.
• Example: "Will you buy my motorcycle for ₹14,000?" seeks N's
agreement to the sale.
3. What Does Not Constitute a Proposal:
• Casual Inquiry: A question that does not show clear intent.
• Example: "Do you intend to sell your motorcycle?" This is a casual
inquiry, not a proposal, as it does not show a clear intention to sell.
• Mere Statement of Intention: An expression of what one might do in the
future.
• Example: "I may sell my motorcycle if I can get ₹14,000 for it." This is
a statement of intention, not a proposal, as it lacks a definitive
intention to seek agreement.
4. Terminology:
• Promisor/Offeror: The person making the proposal.
Example: M, when he says, "I am willing to sell my motorcycle to you for
₹14,000."
• Offeree: The person to whom the proposal is made.
Example: N, who receives the proposal from M.
• Promisee/Acceptor: The person accepting the proposal.
Legal Rules Regarding a Valid Offer
A valid offer must conform to the following rules:
1. Express and Implied Offers:
• Express Offer: An offer made explicitly through words, either spoken or written, is
known as an express offer. It involves a direct communication of the offeror's
intention to another party.
• Illustration (a): M says to N that he is willing to sell his motorcycle to him for
₹20,000. This verbal statement of willingness to sell the motorcycle for a
specified price constitutes an express offer.
• Illustration (b): X writes to Y that he offers to sell his house to him for
₹80,000. This written communication of the offer to sell the house at a
specified price is also an express offer.
• Implied Offer: An offer inferred from the conduct of a person or the circumstances
of the case is called an implied offer. It arises when the intention to make an offer is
implied from the actions or situations.
• Illustration (c): The Delhi Transport Corporation runs omnibuses on different
routes to carry passengers at the scheduled fares. The operation of these
buses for the purpose of carrying passengers implies an offer by the D.T.C. to
transport people for the fare.
• Illustration (d): A shoe shiner starts shining someone's shoes without being
asked to do so, under circumstances where any reasonable person could
infer that he expects to be paid for his services. This conduct constitutes an
implied offer.
2. Legal Consequences and Relations:
• An offer must be made with the intention to create legal consequences and be
capable of creating legal relations. If an offer does not intend to create legal
obligations, it is not considered a valid offer in the eyes of the law.
• Example: An offer to a friend to dine at the offeror's place, or an offer to
one's wife to show her a movie, does not constitute a valid offer because it
does not intend to create legal consequences. Even if such an offer is
accepted and there is consideration, it cannot give rise to a binding
agreement. This is because, in social or domestic arrangements, the
presumption is that the parties do not intend for legal consequences to
follow the breach of the agreement.
• In contrast, in business agreements, it is presumed that the parties do intend
for legal consequences to follow. For instance, if a businessperson makes an
 offer related to a business transaction, it is generally taken for granted that
legal obligations are intended.
3. Certainty of Terms:
• The terms of the offer must be definite and certain. If the terms are vague or loose,
the offer does not amount to a lawful offer.
• Example (a): X purchased a horse from Y and promised to buy another if the
first one proves lucky. When X refused to buy the second horse, Y could not
enforce the agreement because it was considered too vague and uncertain.
This scenario is reflected in the case of Taylor vs Portington.
• Example (b): A offers to B lavish entertainment if B does a particular work for
him. This offer is not a lawful offer because the terms are vague and
uncertain. Maugham L.J. has rightly observed, "Unless all the material terms
of the contract are agreed, there is no binding obligation." Therefore, an
agreement to agree in the future is not considered a contract, as the terms of
the agreement are uncertain and yet to be settled.
4. Invitation to Offer vs. Offer:
• An invitation to offer is distinct from an offer. An invitation to receive offer, also
known as an 'invitation to treat,' is a communication that does not constitute an
offer but rather invites the other party to make an offer.
• Explanation: The sender of the invitation does not make an offer but merely
circulates information indicating a willingness to negotiate. For instance,
quotations, catalogues, or display of goods with prices marked are invitations
to offer, not actual offers.
• Example: If a shop displays goods with prices marked, it does not mean the
shop is making an offer; it is inviting customers to make offers. Therefore, if a
customer asks for goods or makes an offer, the shopkeeper has the discretion
to accept or reject the offer.
5. Specific vs. General Offers:
• An offer may be specific or general. A specific offer is made to a definite person or
persons and can only be accepted by the party or parties to whom it is addressed.
• Example: If M offers to sell his bicycle to N for ₹200, it is a specific offer, and
only N can accept it.
• A general offer, on the other hand, is made to the world at large or the public in
general and may be accepted by anyone who fulfills the requisite conditions.
• Example (Carlill vs Carbolic Smoke Ball Co.): The Carbolic Smoke Ball Co.
issued an advertisement offering to pay £100 to anyone who contracts
influenza after using their Smoke Balls as directed. Mrs. Carlill, relying on the
 advertisement, used the Smoke Balls but still contracted influenza. She sued
the company for the promised reward, and the company was held liable.
• Explanation: Offers of reward made through advertisements, addressed to
the public, for certain services or the return of lost articles are examples of
general offers. They can be accepted by an individual's performance of the
conditions outlined, leading to a contractual obligation to pay the reward.
6. Communication of Offer:
• An offer must be communicated to the offeree to be effective. Until the offer is
made known to the offeree, there can be no acceptance and thus no contract.
Conducting any action without knowledge of the offer cannot be treated as
acceptance, as there was no mutual agreement.
• Illustration (a): A catches a criminal without knowing that a reward has been
offered for the criminal's arrest. A cannot claim the reward because he was
not aware of the offer and therefore did not accept it.
• Case (Lalman Shukla vs Gauri Datt): In this case, the defendant announced a
reward for information about his missing nephew after the plaintiff, his
servant, had already found the boy. The servant was unaware of the reward
when he provided the information, and therefore, his claim for the reward
was dismissed because he did not accept the offer without knowledge of it.
7. Terms of Offer:
• An offer should not include a term that, if not complied with, would be considered
acceptance. The offeror cannot impose a deadline for acceptance without
communication. If the offeree does not reply within the specified time, no contract is
formed because the offeree cannot be obligated to reply.
8. Terms and Conditions of Offer:
• An offeror may attach any terms and conditions to the offer and even prescribe the
mode of acceptance. The offeree must accept all the terms of the offer for a contract
to be formed. If the offeror specifies a mode of acceptance and the offeree deviates
from it, the offeror may reject the acceptance if communicated within a reasonable
time. Otherwise, the deviation may be deemed as acceptance.
9. Cross-offers:
• Two identical offers made by parties to each other, without knowledge of each
other's offer, do not constitute a contract. These simultaneous and identical offers
are termed as 'cross-offers' and do not result in a completed agreement.
• Illustration: A offers to sell 100 tons of iron to B at ₹2 lakh per ton, while B
simultaneously offers to buy 100 tons of iron from A at the same price. Since
both offers were made in ignorance of each other, and there is no
acceptance of each other's offer, no contract is formed between A and B.
Lapse and Revocation of Offer
1. Lapse of Offer:
• An offer becomes invalid if acceptance is not communicated within the stipulated or
reasonable time.
• Illustration: In Ramsgate Victoria Hotel Co. vs Montefiore, an application for
allotment of shares was made on 8 June. The applicant was informed on 23
November that shares were allotted to him. He refused to accept them. It
was held that his offer had lapsed due to the delay of the company in
notifying their acceptance, and he was not bound to accept the shares.
2. Mode of Acceptance:
• An offer lapses if not accepted in the prescribed mode, or if no mode is prescribed,
in a usual and reasonable manner.
• According to Section 7, if the offeree does not accept as prescribed, it is for
the offeror to insist on the mode of acceptance.
3. Rejection of Offer:
• Offer lapses upon rejection by the offeree, either expressly or impliedly through
counter offers or conditional acceptance.
• Illustration (a): A offered to sell his house to B for ₹90,000. B offered
₹80,000, which A refused. Later, B offered ₹90,000, but A declined, leading to
the dismissal of a suit for specific performance, as no contract existed due to
the counteroffer (Hyde vs Wrench).
• Illustration (b): A offered to sell his motorcar to B for ₹85,000. B accepted on
the condition of being appointed as General Manager, which amounted to
rejection of A's offer.
4. Death or Insanity:
• Offer lapses if the offeror or offeree dies or becomes insane before acceptance.
• If the offeror dies or becomes insane before acceptance, the offer lapses if the fact is
known to the acceptor before acceptance.
• Acceptance in ignorance of the offeror's death or insanity is valid and forms a
contract.
• If the offeree dies or becomes insane before accepting the offer, it terminates the
offer, and their heirs cannot accept on their behalf.
• Example (Reynolds vs Atherton): An offer lapses if the offeror or offeree dies or
becomes insane before acceptance. In the case of Reynolds vs Atherton, it was
established that if the offeror dies or becomes insane before acceptance, the offer
 lapses if this fact is known to the acceptor before acceptance. Acceptance in
ignorance of the offeror's death or insanity is still considered valid and forms a
contract. Conversely, if the offeree dies or becomes insane before accepting the
offer, it terminates the offer, and their heirs cannot accept on their behalf.
5. Revocation:
• An offer is revoked when retracted by the offeror before acceptance.
• Revocation can occur at any time before acceptance by communicating notice of
revocation to the other party.
• Example: In an auction sale, if the highest bidder withdraws the bid before the
hammer falls, no contract is formed as the offer has been revoked before
acceptance.
6. Non-Fulfillment of Condition:
• An offer is revoked if the offeree fails to fulfill a condition precedent to acceptance.
• Example: If A offers to sell his scooter to B for ₹4,000 if B joins the Lions Club within
a week, the offer is revoked if B fails to join the Lions Club.
7. Illegality or Destruction:
• Offer lapses if it becomes illegal after being made and before acceptance.
• Similarly, if the subject matter of the offer is destroyed or substantially impaired
before acceptance, the offer comes to an end.
• Example: An offer is made to sell bags of wheat for ₹6,500, but a law prohibiting
private sale of wheat is enacted before acceptance. Similarly, if the subject matter,
such as the wheat itself, is destroyed before acceptance, the offer terminates.
Definition of Acceptance
A contract, as already observed, emerges from the acceptance of an offer. Section 2(b)
states that "A proposal when accepted becomes a promise" and defines 'acceptance' as
"when the person to whom the proposal is made signifies his assent thereto, the proposal is
said to be accepted." Thus, 'acceptance' is the manifestation by the offeree of his assent to
the terms of the offer.
Eg. 'A' offers to sell his car to 'B' for Rs 90,000. 'B' accepts this and agrees to buy A's car for
Rs 90,000. In this case, a binding contract comes into existence between 'A' and 'B'.

• A Proposal when accepted becomes a promise.

• Acceptance converts the offer into a promise and then it is too late to revoke it.
• Relationship between offer and acceptance: According to Sir William Anson
"Acceptance is to offer what a lighted match is to a train of gun powder". This means
as soon as the train of gun powder is lighted it would explode.

Legal Rules Regarding a Valid Acceptance

1. Acceptance by the Person to Whom the Offer is Made:
• An offer can only be accepted by the person or persons to whom it is made.
• Cannot be accepted by another person without the offeror's consent.
• Specific: An offer to a particular person can only be accepted by that person.
• General: An offer to a class of persons can be accepted by any member of
that class. An offer to the world at large can be accepted by anyone who
knows of the offer.
Illustration:
• In Boulton vs Jones, A sold his business to B without informing customers. C, a
customer, sent an order to A. B executed the order, but C refused to pay B.
Held, no contract existed between B and C as C did not make an offer to B
and thus was not liable to pay B.
2. Absolute and Unqualified Acceptance [Sec. 7 (1)]:
• Acceptance must be absolute and unqualified to be legally effective.
• Any deviation from the terms of the offer invalidates the acceptance, making
it a counter offer. Thus, it is upon the offeror to accept or reject the counter
offer.
Illustration:
 • L offered to sell his scooter to M for ₹14,000. M accepted but paid ₹13,500
immediately, promising the remaining ₹500 by evening. Held, there was no
contract as the acceptance was not absolute and unqualified.
3. Usual and Reasonable Manner of Acceptance [Sec. 7 (2)]:

• Acceptance must be expressed in some usual and reasonable manner unless

the proposor prescribes a specific manner.
• If no mode is prescribed, acceptance should be communicated according to
some usual and reasonable mode (e.g., word of mouth, post, conduct).
• Implied acceptance may be given by performing a required act or accepting
some benefit or service.
• If the offeree deviates from the prescribed mode, the proposer may insist on
the prescribed manner within a reasonable time, otherwise, the acceptance
is considered valid.
Illustration:
• If the offeror prescribes 'acceptance by telegram' and the offeree sends
acceptance through a messenger, there is no acceptance if the offeror
informs the offeree that the acceptance is not according to the prescribed
 mode. If the offeror fails to do so, it is presumed he has accepted the
deviated acceptance.
4. Mental Acceptance Ineffectual:
• Mental acceptance or quiet assent not evidenced by words or conduct does
not amount to valid acceptance.
• Acceptance must be communicated to the offeror to be effective.
Illustration:
• A person received an offer by letter, wrote a letter of acceptance, put it in his
drawer, and forgot about it. Held, this uncommunicated acceptance did not
complete the contract (Brogden vs Metropolitan Rly. Co.).
5. Acceptance Must Be Communicated by the Acceptor:
• Acceptance must be communicated by, or with the authority of, the acceptor
to the offeror.
Illustration:
• In Powell vs Lee, P was selected for the post of headmaster by a resolution of
the managing committee, but only informed by a committee member acting
in an individual capacity. The resolution was later canceled. Hence, no
binding contract as there was no authorized communication from the
committee.
6. Acceptance Within a Reasonable Time and Before Offer Lapses/Revokes:
• Acceptance must be given within the specified time limit, if any, or within a
reasonable time if no time is stipulated.
• Acceptance must be given before the offer lapses or is revoked.
Illustration:
• In Ramsgate Victoria Hotel Co. vs Montefiore, M applied for shares in June,
but the allotment was made in November. M refused to accept the shares,
and it was held that M could refuse as the offer was not accepted within a
reasonable time.

Time During Which an Offer or Acceptance Can Be Revoked

1. Section 5: Revocation of Offer and Acceptance:

• An offer can be revoked at any time before the communication of its
acceptance is complete as against the proposer. (‘Jab offeree acceptance ka
letter post krdega’ and this is the acceptance against offerer.)
 • An acceptance can be revoked at any time before the communication of
acceptance is complete as against the acceptor (“jab acceptance ka letter
offeror receive krlega use pehle acceptance can be revoked by the offeree”
and this is the acceptance against the acceptor).
• Example: A may revoke his offer before B posts his letter of acceptance. B
may revoke his acceptance before it reaches A.
Illustrations:
• (a) A offers to sell his car to B for ₹75,000 on 1st August. B receives the letter
on 3rd August. Offer is communicated on 3rd August only.
• (b) B posts the letter of acceptance on 4th August, which reaches A on 6th
August.
• 4th August is the date of acceptance against the offeror
• 6th August is the date of acceptance against the offeree.
• (c) A writes a letter of revocation of his offer on 3rd August, which reaches B
on 5th August.
2. Rules Applied:
• (i) Communication of offer is complete on 3rd August when B receives the
letter.
• (ii) Communication of acceptance is complete as against A when B posts the
letter on 4th August and as against B when the letter reaches A on 6th
August.
• (iii) Revocation of offer can be done as against A on 3rd August when the
letter is posted and as against B on 5th August when B receives it.
• (iv) Since B posts his acceptance on 4th August and receives revocation on
5th August, B's acceptance is valid, forming a binding contract. A cannot
revoke his offer after 4th August.
3. Effect of Delay or Loss of Letter of Acceptance in Postal Transit:
• The offeror is bound by the acceptance the moment the letter is posted, even
if delayed or lost.
• The acceptor is not bound until the letter reaches the offeror.
• The contract remains voidable by the acceptor until the letter reaches the
offeror. The acceptor can enforce or revoke the acceptance if the letter is
delayed or lost in transit.
Contracts Over the Telephone

1. Instantaneous Communication:
• In telephone contracts, both parties hear each other, enabling instantaneous
communication of offer, acceptance, rejection, and counteroffer.
• The rule for oral contracts in the physical presence of parties applies: a
contract is complete only when the acceptance is received by the offeror.
• If acceptance is not communicated due to a sudden disconnection, there is
no contract (Entores Ltd. vs Miles Far East Corporation).
• The offeree must ensure that their acceptance is received and understood by
the offeror for a binding contract.
Example:
• In Entores Ltd. vs Miles Far East Corporation, it was established that if
acceptance over the telephone is not heard by the offeror due to
disconnection, no contract is formed. The offeree must ensure the
acceptance is received and understood.
2. No Question of Revocation:
• In telephone negotiations, the offer and acceptance occur simultaneously,
leaving no room for revocation.
• Once an offer is accepted, it instantly becomes a contract and cannot be
revoked.
• Sir Anson's analogy: "Acceptance is to an offer what a lighted match is to a
train of gunpowder. It produces something which cannot be recalled or
undone."
Definition of Consideration
MEANING: The term ‘consideration’ may be defined as the price of the promise. This term is
used in the sense of quid pro quo (i.e., something in return). It means that when a party to
an agreement promises to do something, he must get something in return. This ‘something’
which a party gets in return is the consideration.
Section 2(d) of the Indian Contract Act defines consideration as follows: "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."
An analysis of the above definition will show that it consists of the following four
components: (a) The act or abstinence or promise which forms the consideration for the
promise, must be done at the desire of the promisor;
(b) It must be done by the promisee or any other person;
(c) It may have been already executed or is in the process of being done or may be still
executory;
(d) It must be something to which the law attaches a value.
Illustrations:
1. A agrees to sell his house to B for ₹10,000. Here B's promise to pay the sum of
₹10,000 is the consideration for A's promise to sell the house, and A's promise to sell
the house is the consideration for B's promise to pay the sum of ₹10,000.
2. A promises to maintain B's child and B promises to pay A ₹1,000 yearly for the
purpose. Here the promise of each party is the consideration for the promise of the
other party.
3. A promises to pay B ₹1,000 at the end of six months, if C, who owes that sum to B,
fails to pay it. B promises to grant time to C accordingly. Here the promise of each
party is the consideration for the promise of the other party.
4. A promises his debtor B not to file a suit against him for one year on B's agreeing to
pay him ₹100 more. The abstinence of A is the consideration for B's promise to pay.
5. A promises to type the manuscript of B's book, and in return B promises to teach A's
son for a month. The promise to each party is the consideration for the promise of
the other party.
Essentials of Valid Consideration:
1. Consideration Must Move at the Desire of the Promisor:
• In order to constitute legal consideration, the act or abstinence forming the
consideration for the promise must be done at the desire or request of the
promisor. Thus acts done or services rendered voluntarily, or at the desire of
 a third party, will not amount to valid consideration so as to support a
contract.
Illustrations:
(a) A sees B's house on fire and helps in extinguishing it. He cannot demand payment for his
services because B never asked him to come for help.
(b) D had built, at his own expense, a market at the request of the Collector of the District.
The shopkeepers in the market promised to pay D a commission on the articles sold by them
in the market. When D sued the shopkeepers for the commission, it was held that the
promise to pay commission did not amount to a contract for want of consideration, because
D (the promisee) had constructed the market not at the desire of the shopkeepers (the
promisors) but at the desire of the Collector to please him (Durga Prasad vs Baldeo).
2. Consideration May Move from the Promisee or Any Other Person:
• The second essential of valid consideration, as contained in the definition of
consideration in Section 2(d), is that consideration need not move from the
promisee alone but may proceed from a third person. Thus, as long as there
is a consideration for a promise, it is immaterial who has furnished it. It may
move from the promisee or from any other person. This means that even a
stranger to the consideration can sue on a contract, provided he is a party to
the contract. This is sometimes called as 'Doctrine of Constructive
Consideration'. The leading case of Chinayya vs Ramayya provides a good
illustration on the point.
Illustration:
• In the above case, A, an old lady, by a deed of gift, made over certain property to her
daughter R, with a direction that the daughter should pay an annuity to A's brother
C. Accordingly, on the same day, R, the daughter, executed a writing in favour of her
maternal uncle C agreeing to pay the annuity. Afterwards, she declined to fulfil her
promise saying that no consideration had moved from her maternal uncle i.e., the
promisee. It was held that the words "the promisee or any other person" in Section
2(d) clearly show that a stranger to consideration may maintain a suit. Hence, the
maternal uncle, though a stranger to the consideration (as the consideration
indirectly moved from his sister), was entitled to maintain the suit.
In the above case, it will be observed, that although C, the maternal uncle, was a stranger to
consideration, he was not a stranger to the contract as there was a separate contract
between him and R, the daughter. The maternal uncle could not have sued on the basis of
the "gift deed" executed by A in favour of R because he was not a party to it.
A Stranger to a Contract Cannot Sue:
• Under the Indian Contract Act 1872, the consideration for an agreement may
proceed from a third party but the third party cannot sue on contract. Only a person
who is party to a contract can sue on it. As per the doctrine of Privity of contract only
the parties directly involved in a contract can enforce the terms of the contract. As
per the doctrine of Privity of contract only the parties directly involved in a contract
can enforce the terms of the contract. In other words, a contract cannot be enforced
by a person who is not a party to the contract even if the contract is for his benefit.
• A person may be a stranger to the consideration but he should not be a stranger to
the contract because 'privity of contract' is essential for enforcing any of the rights
arising out of the contract. It being a fundamental principle of the law of contracts
that 'a stranger to a contract cannot sue, only a person who is a party to a contract
can sue on it.' Thus, where A mortgages his property to B in consideration of B's
promise to A to pay A's debt to C, C cannot file a suit against B to enforce his
promise, C being no party to the contract between A and B (Iswaram Pillai vs
Sonnivaveru).
• Eg. Dunlop Tyre Co. v. Selfridge Ltd 'D' supplied tyres to a wholesaler 'X', on
thercondition that any retailer to whom 'X' resupplied the tyre should promise 'X',
not to sell to the public below D's list price. 'X' supplied the tyres to 'S', a sub-dealer,
'S' sold two tyres at less than the list price, and thereupon, the Dunlop Co., sued 'S'
for breach of the contract. Hence, Dunlop Co., could not claim the benefit of the
contract as against 'S', a sub-dealer, there was no privity of contract between the
two
• Eg. In Tweddle v. Atkinson, Upon A's marriage his father and father-in-law entered
into a contract to contribute a certain sum of money to be given to A after his
marriage. A's father paid his contribution but his father-in-law failed to pay. Held, A
could not sue his father-in-law since A was a stranger to the contract.
Exceptions: The above rule that 'a stranger to a contract cannot sue' is subject to the
following exceptions where a stranger to a contract can enforce a contract:
i. Beneficiaries in the case of trust: If a contract is made between the trustee of a trust and
another party, then the beneficiary of the trust can sue by enforcing his right under the
trust, even if he is a stranger to the contract.
Example: 'A' creates a trust for the benefit of 'B', and appoints X, y and Z as trustees. 'B' can
sue for benefits available to him under the trust though he is not a party to the contract.
ii. Provision for marriage or maintenance - A provision may be made for the benefit of a
person, he may file the suit though he is not a party to the agreement.
Eg 1 : Mr. X's wife deserted him for ill-treating her. Mr. X promised his wife's father Mr. Puri
that he will treat her properly or else pay her monthly allowance. But she was again ill
treated by her husband. Held, she has all right to sue Mr. X against the contract made
between Mr. X and Mr. Puri even though she was stranger to contract.
Eg 2. Ritika was living in a Hindu Undivided Family (HUF). The family had made a provision
for her marriage. Eventually, the family went through a partition and Ritika filed a suit to
claim her marriage expenses. The Court held the case because Ritika was the beneficiary of
the provision despite being a stranger to the contract.
iii. Partition or other family arrangements : In such cases, a female member of family, for
whose benefit the provision is made can enforce the agreement even if she is not a party to
contract.
Eg. Shuppu Ammal V Subramaniam On a partition of Joint Properties, two brothers agreed
to invest, in equal shares, a certain sum of money for the maintenance of their mother. But
subsequently refused to do so. Mother sued them in court of law. The court held the case
because the mother was the beneficiary of the provision despite being a stranger to the
contract.
iv. Assignment of a Contract - When the benefit under a contract has been assigned, the
assignee can enforce the contract.
Eg. 'S' sell goods to 'B' and is entitled to receive the price. 'S' may by giving notice to 'B'
assign his right to receive the price in favour of third party i.e. 'X'. Then the assignee i.e. X,
can sue 'B' for the price of goods.
v. Contracts entered into through an agent - The principal can enforce the contracts
entered by his agent where the agent has acted within the scope of his authority and in the
name of the principal.
vi. Acknowledgement of payment or estoppel - Where, by the terms of a contract, a party
is required to make a payment to a third person, and that party acknowledges the payment
to the third person, then the third person can recover the amount from such a party.
Eg : Case law - N. Devaraje Urs vs M. Ramakrishniah If L gives to M 20,000 to be given to N,
and M informs N that he is holding the money for him, but afterwards M refuses to pay the
money. N will be entitled to recover the same from the M.
Eg. 'A' sold his house to 'B' for Rs 10 lakhs under a registered sale deed and left part of sale
price in the hands of 'B' and desiring to pay this amount to 'C'. 'B' made part payment to 'C'
and agreed to pay balance later on. In this case, 'C' was allowed to recover the balance from
'B'.
3. Consideration: Past, Present, or Future
The words, "has done or abstained from doing; or does or abstains from doing; or promises
to do or to abstain from doing," used in the definition of consideration clearly indicate that
the consideration may consist of either something done or not done in the past, or done or
not done in the present, or promised to be done or not done in the future. Consideration
may consist of a past, present, or a future act or abstinence.
Consideration May Consist of an Act or Abstinence: Consideration may consist of either a
positive act or an abstinence, i.e., a negative act. Thus, an agreement between B and A,
under which B, on failing to pay the debt amount on the due date to A, promises to raise the
rate of interest from 9 percent to 12 percent in consideration of A promising not to file a
suit against him for another year, is a valid contract; A's abstinence being the consideration
for B's promise.
Past Consideration: When something is done or suffered before the date of the agreement,
at the desire of the promisor, it is called 'past consideration.' It must be noted that past
consideration is good consideration only if it is given by the promisee 'at the desire of the
promisor.'
Illustrations:
• A teaches the son of B at B's request in the month of January, and in February B
promises to pay A a sum of ₹200 for his services. The services of A will be past
consideration.
• A lawyer gave up his practice and served as a manager of a landlord at the latter's
request in lieu of which the landlord subsequently promised a pension. It was held
that there was good past consideration (Shiv Saran vs Kesho Prasad).
Present Consideration: Consideration which moves simultaneously with the promise is
called 'present consideration' or 'executed consideration'. For example, A sells and delivers
a book to B, upon B's promise to pay for it at a future date. The consideration moving from
A is present or executed consideration since A has done his act of delivering the book
simultaneously with the promise of B. It should, however, be noted that it is said to be
'present consideration' when at the time of the agreement it is executed on one side and
executory on the other. If both parties have done their part under the contract, e.g., where
A sells a book to B and B pays its price immediately, it is a case of executed contract (where
nothing remains to be done) and not of executed or present consideration.
Future Consideration: When the consideration on both sides is to move at a future date, it
is called "future consideration" or "executory consideration." It consists of an exchange of
promises, with each promise serving as consideration for the other. For example, X promises
to sell and deliver 10 bags of wheat to Y for ₹6,500 after a week, upon Y's promise to pay
the agreed price at the time of delivery. Here, the promise of X is supported by the promise
of Y, and the consideration is executory on both sides. It is to be observed that in an
'executed consideration', the liability is outstanding against only one side, whereas in an
'executory consideration', it is outstanding on both sides.
4. Consideration Must Be 'Something to which law attaches Value': The fourth and last
essential of valid consideration is that it must be 'something' to which the law attaches a
value. The consideration need not be adequate to the promise for the validity of an
agreement. The law only insists on the presence of consideration and not on the adequacy
of it, leaving people free to make their own bargains. For instance, if A agrees to sell his
motorcar worth ₹20,000 for ₹1,000 only and his consent is free, the agreement is a valid
contract despite the inadequacy of the consideration. However, if the consideration is
grossly or shockingly inadequate and if one of the parties to the contract alleges that their
consent was obtained by fraud, coercion, or undue influence, the court will treat the
inadequacy of consideration as evidence in support of such an allegation and will declare
the contract void.
Inadequacy of consideration is no bar to a valid contract unless it serves as evidence of
unfair consent. Thus, the doctrine of consideration, though sometimes seen as a mere
technicality, holds significant importance.
5. Consideration Must Be Real and not illusiory: Although consideration need not be
adequate, it must have some value in the eyes of the law, meaning it must be real and
competent. Consideration is not real and thus not valid if it is:
i. Physically Impossible: A promise to do something physically impossible, such as bringing a
dead person back to life or running at 100 kilometers per hour, does not constitute valid
consideration.
ii. Legally Impossible: A promise to do something illegal, such as a promise for illegal
cohabitation, does not amount to good consideration.
iii. Uncertain Consideration: A promise to do something too vague and uncertain, like a
promise to pay "such remuneration as shall be deemed right," is no consideration in the
eyes of the law.
iv. Illusory Consideration: An illusory or deceptive consideration does not amount to valid
consideration. Consideration is illusory if it consists of a promise to perform a public duty or
to perform a contract already made with the promisor.
Illustrations:
• Collins vs Godefroy: C (the plaintiff) received a subpoena (a kind of summons) to
appear at a trial as a witness on behalf of G (the defendant). G promised him a sum
of money for his trouble. On default by G, C filed the suit for the recovery of the
promised sum. It was held that C, being under a public duty to attend and give
evidence, had no consideration for the promise, and hence the promise was
unenforceable.

Exceptions to the Rule, "No Consideration, No Contract"

While consideration is generally necessary for a valid contract, there are exceptions where
agreements without consideration can still be binding.
1. Agreement Made on Account of Natural Love and Affection [Sec. 25 (1)]: An agreement
made without consideration is enforceable if it meets the following criteria:
• It is made on account of natural love and affection.
• It is between parties standing in a near relation to each other.
 • It is expressed in writing.
• It is registered under the law for the time being in force for the registration of
documents.
Illustrations:
• A promises, without consideration, to give B ₹1,000. This is a void agreement.
• A, out of natural love and affection, promises to give his son B ₹1,000. A puts this
promise into writing and registers it. This becomes a valid contract.
• An elder brother, out of natural love and affection, promises to pay the debts of his
younger brother in a registered agreement. This was held to be valid and binding,
allowing the younger brother to sue the elder brother if the agreement is not
honored.
It's important to note that the mere existence of a near relation between the parties doesn't
necessarily imply natural love and affection. For example, an agreement made between a
husband and wife out of discord and executed for separate residence and maintenance was
deemed void for lack of natural love and affection.
2. Agreement to Compensate for Past Voluntary Service [Sec. 25 (2)]: A promise made
without consideration is also valid if it is a promise to compensate, wholly or in part, a
person who has already voluntarily done something for the promisor or done something
which the promisor was legally compellable to do.
Illustrations:
• A finds B's purse and returns it, after which B promises to give A ₹50. This constitutes
a valid contract.
• A supports B's infant son, and B promises to pay A's expenses in doing so. This forms
a valid contract since B was legally bound to support his infant son.
• A rescues B from drowning in the river, and in appreciation, B promises to pay
₹1,000 to A. This establishes a contract between A and B.

3. Agreement to Pay a Time-Barred Debt [Sec. 25 (3)]: An agreement made in writing and
signed by the debtor or their authorized agent to pay wholly or in part a debt barred by the
law of limitation is valid, even without consideration. Since a time-barred debt cannot be
recovered, a promise to repay such a debt lacks consideration, making this exception
crucial.
Illustration (Appended to Sec. 25): 4 owes B ₹1,000, but the debt is barred by the Limitation
Act. A signs a written promise to pay B ₹500 on account of the debt. This constitutes a valid
contract.
4. Completed Gift: A gift, which is not an agreement, doesn't require consideration to be
valid. Any gift actually made between the donor and the donee will be valid and binding,
regardless of consideration. The gift must be complete to attract this exception.
Illustrations:
• A promises, for no consideration, to give to B ₹1,000. This is a void agreement.
• A for natural love and affection, promises to give his son B, ₹1,000. A puts his
promise to B into writing and registers it. This is a contract.
• A registered agreement, whereby an elder brother, on account of natural love and
affection, promised to pay the debts of his younger brother, was held to be valid and
binding, and the younger brother could sue the elder brother in the event of his not
carrying out the agreement. (Venkatasamy vs Rangasami)
5. Contract of Agency: According to Section 185 of the Contract Act, no consideration is
necessary to create an agency.
6. Remission by the Promisee of Performance of the Promise (Sec. 63): For compromising a
due debt or agreeing to accept less than what is due, no consideration is necessary.
Similarly, an agreement to extend the time for performance of a contract need not be
supported by consideration.
7. Contribution to Charity: A promise to contribute to charity, though gratuitous, would be
enforceable if, on the faith of the promised subscription, the promisee takes definite steps
in furtherance of the object and undertakes a liability. However, if the promisee had done
nothing on the faith of the promise, a promised subscription is not legally recoverable.
It may thus be noted that consideration need not always be something in return. It may
even take the form of some risk, loss, or responsibility suffered or undertaken by one party
(Currie vs Misa).
Capacity of Parties
Competency to Contract:
An essential aspect of a valid contract is that the parties involved must be competent to
contract, as outlined in Section 10 of the Indian Contract Act. Section 11 further specifies
the criteria for competency, stating that "Every person is competent to contract who is of
the age of majority according to the law to which he is subject, and who is of sound mind,
and is not disqualified from contracting by any law to which he is subject."
Under this provision, a person is deemed incompetent to contract under the following
circumstances:
1. Minority: According to Section 3 of the Majority Act 1875, a person domiciled
in India who is under 18 years of age is considered a minor. Consequently,
every individual who has reached the age of 18 years is considered a major.
Note: Two Exceptions - a person becomes a major on completing the age of 21
years :
(a) Where a guardian of a minor's person or property has been appointed under
the Guardians and Wards Act, 1890,
(b) Where the superintendence of minor's property is assumed by a courts of
wards.
Minor's Agreements: The legal framework surrounding agreements made by minors can be
summarized as follows:
• An agreement made by a minor is deemed absolutely void and inoperative against
them. The law acts as the guardian of minors, recognizing their lack of mature
mental faculties to discern what is in their best interests. Therefore, any obligations
imposed on a minor under a contract cannot be enforced against them.
• However, beneficial agreements that provide some benefit to the minor without
imposing any obligations upon them are considered valid contracts. A minor can be a
beneficiary under a contract, such as a payee or promisee, and can enforce such
agreements to receive the benefits.
In the case of Mohori Bibi vs Dharmo Das Ghosh, a minor executed a mortgage but was
unable to be held liable for the obligations under the contract. Conversely, in cases where a
minor stands to benefit from a contract without assuming any obligations, such agreements
are enforceable.
Additionally, the Hindu Minority and Guardianship Act, 1956, empowers natural guardians
to enter into contracts on behalf of minors, provided the contracts are for the minor's
benefit.
Effects of Minors agreement:
1. Void ab initio : An agreement with a minor is void ab initio i.e. absolutely void and
cannot be enforced in a court of law.
Eg. Case Law : Mohori Bibi vs. Dharmo Das Ghose (1903)
. Dharmodas Ghose, a minor, had mortgaged his property
in favour of the moneylender, Brahmo Dutt for securing
a loan amounting to Rs 20,000.
. Mr. Brahmo Dutt had authorized Kedar Nath to enter
into the transaction through a power of attorney.
. Mr. Kedar Nath was informed of the fact that
Dharmodas Ghose was a minor through a letter sent by
his mother.
. The Dharmodas Ghose's mother brought a suit on the
ground that the mortgage executed by her son is void
because her son is a minor.
. The defendant alleged that the minor had
misrepresented his age and sought remedy through the
application of estoppel as well as a repayment of the
loan taken out by the minor upon cancellation of the
mortgage.
. These arguments were dismissed, and the court ruled
that the minor couldn't be asked to repay the loan
taken by him.
. The court went on to state that the law of estoppel contained in the section 115 of
Indian Evidence Act cannot be applied to a minor where the defendant knew about
Dharmodas being a minor.
2. No estoppel against minor: This means that 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 defence and cannot be estopped (i.e. prevented) from doing
so.
Eg. 'A', a minor, borrowed Rs 500 from 'B', by fraudulently representing himself to be
a major. 'A' refused to repay the money to 'B' as per agreement. 'B' sued 'A' for the
recovery of money. Here, 'A' can take the defence that he was minor at the time of
entering into contract and hence the contract is void ab initio. In this case, 'A' will get
the benefit of his minority. He can't be prevented from taking the defence of his
minority. However, if he has not spent the money, he may be asked to repay it but
the minor shall not be liable for any amount which he has already spent even though
he received the same by fraud.
3. Restitution of property or money : Restitution means restoring' (i.e. giving back) of
something to its proper owner. Sometimes, the minor receives some property or
money by falsely representing his age. In such cases, the minor can be asked to
restore such property or money
4. Minor as a Partner: A minor being incompetent to contract cannot be a partner in a
partnership firm. However, Section 30 of the Indian Partnership Act, he may be
admitted only to the benefits of the firm with the consent of all other partners.

5. Minor agent:
• A minor can be an agent (Sec. 184). He shall bind the principal by his acts
done in the course of such an agency, but he cannot be held personally liable
for negligence or breach of duty. Thus, in appointing a minor as an agent, the
principal runs a great risk.
6. Minor and insolvency:
• A minor cannot be adjudicated an insolvent because he is incapable of
contracting debts. Even for necessaries supplied to him, he is not personally
liable; only his property is liable (Sec. 68).
7. Contract by minor and adult jointly:
• Where a minor and an adult jointly enter into an agreement with another person,
the minor has no liability, but the contract as a whole can be enforced against the
adult (Jamna Bai vs Vasanta Rao). In Sain Das vs Ram Chand, where there was a joint
purchase by two vendees, one of whom was a minor, it was held that the vendor
could enforce the contract against the major vendee.
8. Surety for a minor:
• Where in a contract of guarantee, an adult stands surety for a minor, the adult is
liable under the contract, although the minor is not (as there is a direct contract
between the surety and the third party) (Kashiba vs Shripat). In fact, in such a case,
there cannot be a contract of guarantee in the true sense. The Bombay High Court
considered the question in Manju Mahadeo Shivappa Manju and held that "... if a
minor could not default, the liability of the guarantor being secondary, does not arise
at all".
9. Position of minor's parents:
• The parents of a minor are not liable for agreements made by the minor, whether
the agreement is for the purchase of necessaries or not. The parents can be held
liable only when the child is contracting as an agent for the parents.
10. Minor shareholder:
• A minor, being incompetent to contract, cannot be a shareholder of the company. A
company can also refuse to register transfer or transmission of shares in favor of a
minor unless the shares are fully paid. It follows from this that a minor, acting
through his lawful guardian, may become a shareholder of the company in case of
transfer or transmission of fully paid shares to him.
11. Minor's liability in tort:
 • A 'tort' is a civil wrong (not having incurred legal obligations through a contract) and
minors can be held liable for torts they commit. However, a minor is liable for his
tort unless the tort is in reality a breach of contract. For instance, where a minor
hired a horse for riding and injured it by over-riding, he was not held liable (Jennings
vs Rundall).

PERSONS OF UNSOUND MIND

As per Section 11 of the Contract Act, for a valid contract, it's necessary that each party
must have a 'sound mind.'
Definition of 'Sound Mind' (Section 12): "A person is said to be of sound mind for the
purpose of making a contract, if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effects upon his interests."
According to this section:
1. A person who is usually of unsound mind but occasionally of sound mind may make
a contract during those intervals of soundness.
2. Conversely, a person who is usually of sound mind but occasionally of unsound mind
may not make a contract when he is of unsound mind. For example, a sane man
delirious from fever or excessively intoxicated cannot contract during such periods.
Effects of agreements made by persons of unsound mind: An agreement made by a person
of unsound mind is treated similarly to that of a minor's. Thus, it's absolutely void and
inoperative against him, but he can derive benefits from it. However, the property of a
person of unsound mind is always liable for necessaries supplied to him or to anyone whom
he is legally bound to support under Section 68 of the Act.

PERSONS DISQUALIFIED FROM CONTRACTING

According to Section 11 of the Contract Act, individuals can be disqualified from contracting
by any law to which they are subject. Here are some examples:
(a) Alien Enemies: During peace time, aliens (foreign citizens) living in India can contract
with Indian citizens, subject to any government-imposed restrictions. However, upon the
declaration of war between the alien's country and India, they become alien enemies and
are unable to enter into contracts. Contracts made before the declaration of war are
suspended during wartime but can be revived afterward if not time-barred.
(b) Foreign Sovereigns and Ambassadors: While contracts with foreign sovereigns and
ambassadors are enforceable by them, they typically cannot be sued without prior sanction
from the Central Government. This special privilege often renders them incompetent to
contract.
(c) Convicts: During imprisonment, convicts are unable to enter into contracts or sue on
contracts made before conviction. However, upon the completion of their sentence, they
regain these rights, and the period of imprisonment does not count towards the statute of
limitations.
(d) Married Women: Married women can enter into contracts regarding their separate
properties (Stridhan) if they are of sound mind and of legal age. However, they cannot
contract regarding their husbands' properties. Nonetheless, they can act as agents for their
husbands and bind their husbands' properties for necessaries if not provided by them.
(e) Insolvents: Before an order of discharge, adjudged insolvents have limited contractual
capacity. They can incur debts, purchase property, or be employed, but they cannot sell
their vested property, and certain disqualifications apply. After discharge, they regain full
contractual capacity.
(f) Joint-stock Companies and Corporations: These entities, being artificial persons created
by law, can only enter into contracts within the powers conferred upon them by their
Memorandum of Association or specific Acts. Additionally, they cannot engage in contracts
of a strictly personal nature.

Free Consent in Contract Law

1. Definition of Consent:
• Section 13 of the Contract Act defines consent as the agreement upon the
same thing in the same sense by two or more parties.
2. Definition of Free Consent:
• Section 14 stipulates that consent is considered free when it is not influenced
by coercion, undue influence, misrepresentation, fraud, or mistake.
• Free consent implies that the agreement would not have been given but for
the absence of coercion, undue influence, misrepresentation, fraud, or
mistake.
3. Voidability and Void Contracts:
• Contracts influenced by coercion, undue influence, misrepresentation, or
fraud are voidable at the option of the affected party (Sections 19 and 19A).
• Contracts impacted by bilateral mistake regarding a fundamental fact are
void (Section 20).
Causes of Impaired Consent:
1. Coercion:
• Defined in Section 15 as the use of force or threats to compel someone into a
contract.
2. Undue Influence:
• Defined in Section 16 as the exertion of undue persuasion or dominance to
exploit a relationship and induce a contract.
3. Misrepresentation:
• Defined in Section 18 as the communication of false information to deceive
someone into a contract.
4. Fraud:
• Defined in Section 17 as deliberate deception or concealment of facts to
deceive another party.
5. Mistake:
• Subject to Sections 20, 21, and 22, mistake occurs when parties are mistaken
about a material fact essential to the agreement.

Coercion in Contract Law

Definition (Section 15 of the Contract Act):
• Coercion involves committing or threatening to commit any act forbidden by the
Indian Penal Code, or unlawfully detaining or threatening to detain property, with
the intention of causing a person to enter into an agreement.
Illustrations:
1. Threatened Adoption:
• Relatives of a deceased man threatened his widow to adopt a boy, otherwise
they would obstruct the cremation of the deceased. The widow adopted the
boy under duress. The court held her consent was coerced, as obstructing
cremation is an offense under IPC Section 297.
2. Threat of Violence:
• L threatens to shoot M if he doesn't let out his house. M agrees, and his
consent is coerced.
3. Release under Duress:
 • An agent demands release from liabilities under threat of withholding
business account books. The Principal, coerced into granting the release,
renders it voidable.
Effect of Coercion on Contracts
Legal Ramifications:
• Contracts induced by coercion are voidable at the option of the party whose consent
was coerced (Sec. 19).
• The aggrieved party has the choice to affirm the transaction and hold the other party
bound by it or repudiate the transaction through rescission.
• If the aggrieved party opts for rescission, they must restore any benefits received
under the contract to the other party (Sec. 64).
• The burden of proof lies with the party seeking to set aside the contract on the
grounds of coercion.
Examples of Coercive Acts:
• Acts such as threats to shoot, murder, intimidate, cause harm, commit rape,
defamation, provide false evidence, instigate crimes, theft, or attempt suicide are
examples of acts forbidden by the Indian Penal Code.

Undue Influence
Definition (Sec. 16(1))
Section 16(1) of the Indian Contract Act defines undue influence as follows: "A contract is
said to be induced by undue influence where (i) the relations subsisting between the parties
are such that one of the parties is in a position to dominate the will of the other, and (ii) he
uses the position to obtain an unfair advantage over the other."
This definition highlights two essential elements:
1. Dominance of Will: One party is in a position to dominate the will of the other.
2. Unfair Advantage: The dominant party uses this position to obtain an unfair
advantage.
Conditions Clarified (Sec. 16(2))
Section 16(2) provides further clarification on when a person is deemed to be in a position
to dominate the will of another:
1. Authority Relationship (Sec. 16(2)(a)):
• Real or Apparent Authority: This includes relationships where one party has
actual or perceived authority over the other.
 • Examples:
• Master and servant
• Police officer and accused
• Example: A police officer uses their authority to force an accused person to
sign a document. The police officer is deemed to be in a position to dominate
the will of the accused.
2. Fiduciary Relationship (Sec. 16(2)(b)):
• Fiduciary Relation: This is a relationship of mutual trust and confidence.
• Examples:
• Father and son
• Guardian and ward
• Solicitor and client
• Doctor and patient
• Guru (spiritual adviser) and disciple
• Trustee and beneficiary
• Example: A doctor advises a patient to sell property at a lower price, and the
patient agrees due to trust in the doctor. The doctor is in a position to
dominate the patient's will.
3. Affected Mental Capacity (Sec. 16(2)(c)):
• Temporary or Permanent Mental Incapacity: One party's mental capacity is
affected due to age, illness, or mental/bodily distress.
• Examples:
• Old illiterate persons
• People under severe stress or in a vulnerable state
• Example: An elderly, illiterate person is convinced to sign a contract under
duress from a relative. The relative is in a position to dominate the will of the
elderly person.
Presumption of Undue Influence
In certain relationships, undue influence is presumed to exist based on the status of the
parties involved. These relationships inherently involve a power dynamic that can easily lead
to undue influence:
1. Automatic Presumption:
 • Master and servant
• Father and son
• Doctor and patient
• Solicitor and client
• Guru and disciple
• Trustee and beneficiary
• Pardanashin Woman: A woman who observes complete seclusion from men
outside her family due to cultural or religious customs.
2. No Automatic Presumption:
• Husband and wife: Generally, undue influence is not presumed unless there
are specific circumstances, such as when the couple is engaged to marry.
• Mother and daughter
• Grandson and grandfather
• Landlord and tenant
• Creditor and debtor
In relationships where undue influence is not automatically presumed, the party alleging
undue influence must provide evidence to prove that it existed.
Legal Effect of Undue Influence
When a contract is found to be induced by undue influence, it is voidable at the option of
the party whose consent was so caused (Sec. 19). This means the aggrieved party can
choose to either:
1. Affirm the Contract: The aggrieved party accepts the contract and holds the other
party to its terms.
2. Rescind the Contract: The aggrieved party repudiates the contract, exercising the
right of rescission.
Upon rescinding the contract, the aggrieved party must return any benefits received under
the contract (Sec. 64). The burden of proof lies on the party claiming undue influence to
demonstrate that such influence existed and impacted their consent to the contract.

Burden of Proof and Rebutting the Presumption

In cases where there is a presumption of undue influence, the burden of proving that the
person in a position to dominate the will of another did not use their position to obtain an
unfair advantage lies upon that person. This is stipulated under Section 16(3) of the Indian
Contract Act.
To rebut or oppose the presumption of undue influence, the person dominating must
demonstrate:
1. Full Disclosure: That full disclosure of all material facts was made.
2. Adequate Price: That the price agreed upon was fair and adequate.
3. Independent Advice: That the party who was allegedly influenced received
competent and independent advice, and that their consent was truly free.
Illustration: An old illiterate woman made a gift of almost all her property to her nephew,
who was managing her estate. On a petition by the old lady to set aside the gift deed on the
grounds of undue influence, the onus lies on the nephew to prove that the transaction was
bona fide, well understood, and free from undue influence, because undue influence is
presumed in such a case.
Effect of Undue Influence
Section 19A specifies that a contract induced by undue influence is voidable at the option of
the influenced party. The influenced party can either:
1. Affirm the Contract: Accept the contract and hold the other party to its terms.
2. Rescind the Contract: Void the contract. If the influenced party received any benefit,
the court may set terms for restitution.
Illustrations:
• A’s son forged B’s name to a promissory note. B, under threat of prosecuting A’s
son, obtained a bond from A for the forged amount. If B sues on this bond, the
court may set it aside.
• A moneylender advanced ₹100 to B, an agriculturist, and by undue influence,
induced B to execute a bond for ₹200 with interest at 6% per month. The court may
set the bond aside, ordering B to repay the ₹100 with reasonable interest.

Distinction Between Coercion and Undue Influence

1. Nature of Influence:
• Coercion: Involves committing or threatening to commit an act forbidden by
the Indian Penal Code or unlawfully detaining or threatening to detain
property.
• Undue Influence: Involves one party using their position to dominate the will
of another and obtaining an unfair advantage.
2. Type of Force:
 • Coercion: Primarily physical or involving violent force.
• Undue Influence: Primarily moral or involving mental pressure.
3. Presumption:
• Coercion: No legal presumption; the aggrieved party must prove coercion.
• Undue Influence: Presumed in certain relationships (e.g., fiduciary relations,
authority figures); the dominant party must disprove it.
4. Rescission and Restitution:
• Coercion: Upon rescission, any benefit received must be restored (Sec. 64).
• Undue Influence: The court has discretion regarding the restitution of
benefits (Sec. 19A).
5. Criminal Liability:
• Coercion: May lead to criminal liability under the Indian Penal Code.
• Undue Influence: No criminal liability.

Misrepresentation
Definition and Overview
Representation: A statement or fact made by one party to another, 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 into the contract. It can be expressed through
words, written or spoken, or implied through acts or conduct (e.g., through half-truths).
Misrepresentation: When a representation is wrongly made, either innocently or
intentionally. Misrepresentation can be:
• Innocent: Without intent to deceive.
• Intentional or deliberate: With intent to deceive, which is termed as 'Fraud.'
Legal Definition (Section 18 of the Contract Act): Misrepresentation includes:
• Positive assertion: In a manner not warranted by the information of the person
making it, of that which is not true, though he believes it to be true.
• Breach of duty: Which, without intent to deceive, gains an advantage by misleading
another to their prejudice.
• Causing mistake: However innocently, causing a party to an agreement to make a
mistake as to the substance of the thing which is the subject of the agreement.
Types of Misrepresentation
 1. Positive Assertion of Unwarranted Statements (Section 18(a))
• Definition: If a person makes an explicit statement of fact not warranted by
his information, under an honest belief as to its truth, though it is not true, it
is misrepresentation.
• Illustration:
• Example: A says to B, "My land produces 10 quintals of wheat per
acre." A believes the statement to be true without sufficient grounds.
Later, it is found that the land produces only 7 quintals per acre. This
is misrepresentation.
• Note: Mere expression of opinion or general commendation (e.g.,
stating that land is fertile) does not amount to a positive assertion.
2. Breach of Duty Leading to Advantage (Section 18(b))
• Definition: When a statement, true at the time of making it, becomes false
before it is acted upon, and the change is not disclosed by the person who
made the statement, it constitutes misrepresentation.
• Illustration:
• Example: A, before signing a contract with B for the sale of a business,
correctly states that the monthly sales are ₹50,000. During five
months of negotiations, the sales fall to ₹5,000 a month. A
unintentionally does not disclose this change. This is
misrepresentation (With vs O'Flanagan).
3. Causing Mistake About Subject-Matter Innocently (Section 18(c))
• Definition: If one party, though innocently, induces the other to commit a
mistake about the quality or nature of the subject-matter of the agreement,
it constitutes misrepresentation.
Key Points
• Misrepresentation may be either innocent or intentional.
• The essence of misrepresentation lies in the absence of intent to deceive for it to be
categorized as innocent.
• Even unintentional misstatements that lead the other party to a mistake about the
substance of the agreement can be grounds for misrepresentation.
Legal Cases and Illustrations
• Illustration (Positive Assertion):
 • A's belief that his land produces 10 quintals of wheat per acre, though based
on insufficient grounds, was a misrepresentation when the actual yield was
only 7 quintals.
• Illustration (Breach of Duty):
• A's statement about the business's monthly sales becoming false due to
changing circumstances and not informing B was held as misrepresentation in
With vs O'Flanagan.
Example of Misrepresentation
• Illustration: In a contract for the sale of 500 bags of wheat, the seller falsely
represents that no sulphur was used in cultivation, whereas sulphur was used in 5
out of 200 acres of land. The buyer, relying on this representation, purchases the
wheat. This constitutes misrepresentation.
Essentials of Misrepresentation
1. Innocent Representation: Made with an honest belief in its truth and without intent
to deceive.
2. Material Facts: The representation must relate to facts material to the contract, not
mere opinion or hearsay.
3. Untruthfulness: The representation must be, or must have become, untrue.
4. Inducement: The representation must have induced the other party to enter into the
contract.
Effects of Misrepresentation
• The aggrieved party has two options:
1. Rescind the Contract: Treat the contract as voidable.
2. Affirm the Contract: Insist on being put in the position they would have been
if the representation made had been true.
Legal Case Illustration
• Example: A, innocently tells B that his TV set is made in Japan, whereas it is actually
of Indian make. B buys the TV set based on this representation. A is guilty of
misrepresentation. B can either avoid the contract or insist on its execution. If B
chooses to keep the Indian make set, they can claim the difference in price between
the Indian and Japanese make sets.
 Definition of Fraud
Fraud encompasses acts performed by an individual with the intention to deceive
another party. According to Section 17, fraud means and includes any of the
following acts committed by a party to a contract, or with his connivance, or by his
agent, with intent to deceive or to induce another party thereto or his agent, to
enter into the contract:
Key Points
1. False Representation
• Definition: Representation of a fact as true by someone who does not believe
it to be true. An intentional false statement is fraud. The absence of honest
belief in the truth of the statement made is essential to constitute fraud. If a
representor honestly believes his statement to be true, he cannot be liable in
deceit no matter how ill-advised, stupid, or even negligent he may have been.
To be considered fraudulent, the false statement must be made intentionally.
• Illustration: A seller falsely claims a painting is an original Picasso while
knowing it is a forgery.
2. Active Concealment of Fact
• Definition: Concealment of a material fact by someone who knows or
believes it to be true. Active concealment is treated as if the existence of the
fact was expressly denied or the reverse of it expressly asserted.
• Illustration (a): A horse dealer sells a mare with a cracked hoof to B, affirming
the mare’s sound condition. B can avoid the contract due to A’s fraud.
• Illustration (b): A sells a horse at auction to B without disclosing the horse's
blindness. This is not fraud because A is under no duty to disclose under the
principle of "caveat emptor" (let the buyer beware).
3. Promise Made Without Intention of Performing It
• Definition: Making a promise with no intention of performing it is considered
fraud.
• Illustration (a): X buys goods on credit with no intention to pay due to
insolvency, constituting fraud.
• Case: Shireen Mal vs John J. Taylor - A man marries a woman without
intending to consider it a real marriage. The wife's consent was obtained by
fraud, making the marriage a pretense.
4. Any Deceptive Act
• Definition: Any act designed to deceive, including trickery and cunning
methods. The law recognizes the vast creativity in devising new schemes of
 fraud, and this sub-section aims to cover all deceptive acts that are not
specifically listed.
• Illustration: Using misleading information to cheat someone.
5. Omissions Declared Fraudulent by Law
• Definition: Failure to disclose facts when required by law. Certain Acts make
it obligatory to disclose relevant facts. For example, under Section 55 of the
Transfer of Property Act, the seller of immovable property must disclose all
material defects in the property or in the seller's title.
• Example: If a property is mortgaged or has a cracked roof, the seller must
inform the buyer. An omission to make such a disclosure amounts to fraud.
Can Silence be Fraudulent?
• Explanation to Section 17: Declares when silence is considered fraudulent or
constructive fraud. "Mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless:"
1. Duty to Disclose
• Silence is fraudulent if there is a duty to speak. In contracts requiring utmost
good faith (uberrimae fidei), such as fiduciary relationships and insurance
contracts, full disclosure is required.
• Fiduciary Relationship: Parties in a fiduciary relationship must disclose all
material facts. Examples include principal and agent, solicitor and client,
guardian and ward, and trustee and beneficiary.
• Case: Regier vs Campbell-Stuart - A broker sells his own shares to a
client without disclosing this. The client can avoid the sale.
• Insurance Contracts: Full disclosure of all material facts is necessary. Non-
disclosure allows the insurer to void the contract.
• Case: Ratan Lal vs Metropolitan Co. - Non-disclosure of a material fact
like a disease renders the contract void.
• Marriage Engagements: Both parties must disclose all material facts.
• Case: Haji Ahmed vs Abdul Gani - Non-disclosure justifies breaking off
the engagement.
• Family Settlements: Full disclosure is required.
• Share Allotment Contracts: Promoters must disclose all relevant information
accurately to potential investors.
2. Equivalent to Speech
• Silence is equivalent to speech if it implies consent.
 • Illustration (c) to Section 17: B assumes a horse is sound if A does not deny it.
If the horse is unsound, A's silence is fraudulent.
Effect of Fraud
• Rescind the Contract: The party can avoid the performance of the contract (Sec. 19).
• Restitution: The party can insist on the contract being performed as if the
representation made had been true (Sec. 19).
• Sue for Damages: Compensation can be claimed for losses due to fraud.
• Case: Doyle vs Olby (Ironmongers) Ltd. - A man fraudulently induced to buy a
house was allowed to recover moving expenses as damages.
Distinction Between Fraud and Misrepresentation
1. Intention
• Fraud implies an intention to deceive; it is deliberate or wilful.
• Misrepresentation is innocent without any intention to deceive.
2. Rights
• Fraud entitles the party to claim damages and rescind the contract.
• Misrepresentation gives only the right to avoid the contract; no suit for
damages.
3. Discovery of Truth
• Fraud: The contract is voidable even if the defrauded party could have
discovered the truth with ordinary diligence (except fraud by silence).
• Misrepresentation: The aggrieved party cannot avoid the contract if they had
the means to discover the truth with ordinary diligence.
Loss of Right of Rescission
1. Affirmation
• The right is lost if the aggrieved party affirms the contract after becoming
aware of the fraud. Accepting dividends on shares purchased based on a
misleading prospectus is an example of implied affirmation.
2. Restitution Not Possible
• The right to rescind cannot be exercised if the party cannot restore the
benefits obtained under the contract.
3. Lapse of Time
• The right may be lost if there is a significant delay in exercising it after
discovering the fraud.
4. Rights of Third Parties
• If third parties acquire rights in the subject matter before the contract is
rescinded, those rights are valid.
• Case: Phillips vs Brooks Ltd. - Goods obtained by fraud and sold to a bona fide
third party cannot be reclaimed by the original seller.
 Mistake
Definition
A mistake in contract law refers to an erroneous belief regarding something in the
agreement. Mistakes can be categorized into two primary types:
1. Mistake of law
2. Mistake of fact
Mistake of Law
Types of Mistake of Law
1. Mistake of Law of the Country (Domestic Law)
• Everyone is presumed to know the law of their own country. Hence, the
maxim "ignorance of law is no excuse" applies. Mistake of law does not
provide grounds to void a contract. Section 21 of the Indian Contract Act
states, "A contract is not voidable because it was caused by a mistake as to
any law in force in India."
• Illustration (to Sec. 21): A and B make a contract based on the incorrect
belief that a certain debt is barred by the Indian Law of Limitation. The
contract remains valid despite this error.
• Exception: If one party makes a mistake of law due to the inducement
(innocent or otherwise) of the other party, the contract can be avoided.
2. Mistake of Foreign Law
• Mistake of foreign law is treated similarly to a mistake of fact. The agreement
is void in cases of bilateral mistakes.
• Example: If two parties enter into a contract based on an incorrect
understanding of a foreign law, the contract may be void if both parties are
mistaken.
Mistake of Fact
Mistakes of fact can be either:
1. Bilateral mistake
2. Unilateral mistake
Bilateral Mistake
• Definition: A bilateral mistake occurs when both parties to an agreement
misunderstand each other and are at cross purposes. There is no real agreement as
each party interprets the contract differently. In such cases, there is no consensus ad
idem (meeting of minds), and hence, no valid contract exists.
• Section 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." The agreement is
void ab initio if:
1. Both parties must be under a mistake (mutual mistake).
2. The mistake must relate to a fact, not to a judgment or opinion.
3. The fact must be essential to the agreement.
• Illustrations:
1. M, owning two houses A and B, offers to sell house A. N, unaware that M has
two houses, thinks of house B and agrees to buy it. Here, there is no real
consent, and the agreement is void.
2. H buys a motorcar, believing it is worth ₹80,000 and pays ₹80,000 for it,
when its actual worth is ₹40,000. The contract remains valid as this is an
erroneous opinion about value, not a mistake of fact.
• Case:
1. In the case of Raffles v. Wichelhaus, both parties entered into a contract for
the sale of cotton. Each party referred to different ships named Peerless. As
there was no agreement on the specific ship, the contract was held void due
to the bilateral mistake about the subject matter.
Unilateral Mistake
• Definition: A unilateral mistake occurs when only one of the contracting parties is
mistaken about a matter of fact.
• Section 22: "A contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact." Hence, a contract remains
valid unless the unilateral mistake is caused by misrepresentation or fraud.
• Rule: Generally, a unilateral mistake does not void a contract, and the party making
the mistake must bear the consequences.
• Illustrations:
• A government sells fishing rights by auction. The plaintiff, thinking the right is
for three years, bids highest, only to find out later it is for one year. The
contract is valid despite the plaintiff's unilateral mistake (A.A. Singh v. Union
of India).
• X buys rice from Y, assuming it is old rice. The rice is new, but X cannot avoid
the contract due to his unilateral mistake under the rule of caveat emptor
(buyer beware).
• Contract Voidable:
 • If a unilateral mistake is induced by fraud or misrepresentation by the other
party, the contract is voidable.
• Illustration: A sells a horse with a hole in its hoof to B. A fills the hole to make
the defect undetectable. B buys the horse thinking it is sound. B can void the
contract upon discovering the defect due to A's fraud.
• Contract Void ab initio: In certain cases, a unilateral mistake can make a contract
void from the beginning:
• Mistake as to Identity of Person: When the identity of the person is a crucial
element of the contract.
• Case: Boulton v. Jones - Boulton took over Brocklehurst’s business.
Jones sent an order to Brocklehurst, but Boulton fulfilled it without
informing Jones. Jones, believing he was dealing with Brocklehurst,
refused to pay Boulton. The court held that Jones was not liable as he
intended to contract with Brocklehurst, not Boulton.
• Mistake as to Nature and Character of a Document: If a party signs a
document under a fundamental misapprehension as to its nature.
• Illustration: An illiterate woman, believing she was signing a power of
attorney, actually signed a deed of gift to her nephew. As the
document was not explained to her, the contract was void (Bala Devi
v. Santi Mazumdar).
Summary
• Mistakes can affect the validity of contracts, but not all mistakes provide grounds for
voiding an agreement. Mistakes of law generally do not void contracts, while
bilateral mistakes of fact can render an agreement void. Unilateral mistakes, unless
induced by fraud or misrepresentation, typically do not affect the contract’s validity.
Certain unilateral mistakes concerning identity or the nature of a document can
nullify the contract entirely.
Test Questions:
1. When is consent said to be given under coercion? How coercion differs from undue
influence?
2. "It is an essential condition for challenging a contract on the basis of undue influence
that one of the parties should be in a position to dominate the will of the other."
Examine this statement and explain the effect of undue influence on the validity of a
contract.
3. Define the term 'misrepresentation.' What is its effect on the validity of a contract?
Distinguish it from fraud.
4. Define fraud and point out its effects on the validity of a contract. Give suitable
examples to illustrate your answer.
5. Distinguish clearly between (a) coercion and undue influence, and (b)
misrepresentation and fraud.
6. "A contract caused by unilateral mistake may be valid, voidable or void." Explain.
Practical Problems:
1. A sells a horse to B knowing fully well that the horse is vicious. A does not disclose
the nature of the horse to B. Is the sale valid?
2. A, who is trying to sell an unsound horse, forges a veterinary surgeon's certificate,
stating that the horse is sound and pins it on the stable door. B comes to examine
the horse but the certificate goes unnoticed by him. He buys the horse and finds
later on the horse to be unsound. He wants to avoid the agreement under the plea
that he has been defrauded. Will he succeed?
3. X offers to sell Y a painting which X knows is a copy of a well-known masterpiece. Y,
thinking that the painting is an original one and that X must be unaware of this,
immediately accepts X's offer. Does this result in a contract?
4. M, an old man of poor sight endorsed a bill of exchange for ₹23,000 thinking that it
was a guarantee. Is M liable to pay the amount?

Answers to Test Questions:

1. Consent Under Coercion and Difference from Undue Influence:
• Consent is said to be given under coercion when it's obtained through threats
of harm or illegal acts. For example, if A threatens to harm B unless B signs a
contract, B's consent is under coercion.
• Coercion differs from undue influence in that coercion involves threats or
illegal acts, while undue influence involves taking advantage of a position of
power. For instance, if a caregiver influences an elderly person to sign a
contract by exploiting their trust, it's undue influence, not coercion.
2. Effect of Undue Influence on Contract Validity:
• Undue influence makes a contract voidable if one party dominates the will of
the other. It occurs when one party exploits their influence to pressure the
other.
• For a contract to be challenged due to undue influence, one party must
dominate the other's will. This domination can arise from a fiduciary
relationship or any other situation where one party has significant power
over the other.
 • The contract remains valid until challenged by the influenced party. If proven,
the contract can be voided to protect the vulnerable party from exploitation.
3. Definition of Misrepresentation and Its Effect on Contract Validity:
• Misrepresentation is false information given by one party to induce the other
into a contract. Unlike fraud, it can be innocent or negligent. For example, if A
sells a car to B claiming it has low mileage when it doesn't, it's
misrepresentation.
• Misrepresentation affects the validity of a contract by vitiating the consent of
the misled party. It can lead to the contract being voidable at the option of
the misled party, who may choose to rescind the contract or sue for
damages.
4. Definition of Fraud and Its Effects on Contract Validity:
• Fraud involves intentional deception to induce someone into a contract. It
renders the contract voidable at the option of the defrauded party and
entitles them to sue for damages.
• For example, if A knowingly sells a defective product to B while claiming it's in
perfect condition, it's fraud. B can choose to void the contract and seek
compensation for any losses incurred.
5. Distinguishing Between Coercion and Undue Influence, and Misrepresentation and
Fraud:
• Coercion involves threats or illegal acts, while undue influence exploits a
position of power. For example, threatening someone to sign a contract is
coercion, while influencing them due to a trusted relationship is undue
influence.
• Misrepresentation involves providing false information innocently or
negligently, while fraud entails intentional deception. If A innocently misleads
B about a product, it's misrepresentation, but if A deliberately deceives B, it's
fraud.
Answers to Practical Problems:
1. The sale is valid because A is not obligated to disclose the fault to B. According to the
principle of "let the buyer beware," B should inspect the horse before purchase.
2. B will not succeed in avoiding the agreement because he bought the horse after his
examination, not relying solely on the forged certificate. Fraud requires the deceived
party to rely on the misrepresentation, which didn't happen in this case.
3. Yes, there is a contract between X and Y. Despite Y's mistaken belief about the
painting's authenticity, the rule of Caveat Emptor (let the buyer beware) applies,
making the contract valid despite Y's unilateral mistake.
4. M is not liable to pay the amount because he endorsed the bill of exchange under a
unilateral mistake as to the nature of the document. Since M's mind did not
accompany the signature, the agreement is void ab-initio according to the law.
Discharge of Contract
Discharge of a contract occurs when the rights and obligations arising out of a
contract are extinguished, meaning the contract is terminated. A contract may be
discharged in several ways:
1. By performance - actual or attempted
2. By mutual consent or agreement
3. By subsequent or supervening impossibility or illegality
4. By lapse of time
5. By operation of law
6. By breach of contract
1. Discharge by Performance
Performance of a contract is the primary and most common mode of discharge. It
can be either actual or attempted.
Actual Performance
When each party to a contract fulfills their obligations within the specified time and
manner, it amounts to actual performance, discharging the contract. If only one
party performs their promise, they are discharged and may take action against the
other party for breach.
Attempted Performance or Tender
When the promisor offers to perform their obligation but cannot because the
promisee does not accept, it is called "attempted performance" or "tender." A valid
tender of performance is considered equivalent to actual performance.
Essentials of a valid tender:
1. Unconditional: A tender must be unconditional. For example, offering to pay a debt
only if shares are allotted is not a valid tender.
2. Proper Time and Place: The tender must be made at the correct time and place. For
example, offering rent at a party is not valid.
3. Whole Obligation: The tender must cover the entire obligation. Offering only part,
such as one installment, is invalid (Behari Lal vs Ram Gulam).
4. Reasonable Opportunity: In the case of goods, the promisee must have a reasonable
opportunity to inspect them.
5. Capability and Willingness: The tender must be made by someone capable and
willing to perform.
6. Proper Person: It must be made to the promisee or their authorized agent.
7. Joint Promisees: Offering to one of several joint promisees is valid for the offer, but
payment must be made to all.
8. Exact Amount: In money tenders, the exact amount must be offered in legal tender.
Offering a larger or smaller amount is invalid, though a cheque may be accepted if
agreed upon.
Effect of refusal to accept a valid tender: Refusal to accept a valid tender discharges
the contract, and the promisor can sue the promisee for breach. However, tender of
money does not discharge the contract, and the money must still be paid without
interest from the date of refusal (Jagat Tarini vs Naba Gopal).
2. Discharge by Mutual Consent or Agreement
A contract can be discharged by mutual agreement, as provided in Sections 62 and
63 of the Indian Contract Act.
Novation
Novation occurs when a new contract is substituted for an existing one, either
between the same or different parties, discharging the old contract.
Illustrations:
1. A owes B, who owes C. By mutual agreement, B's debt to C and A's debt to B are
cancelled, with C accepting A as debtor.
2. A owes B ₹10,000 and gives B a mortgage for ₹25,000 in place of the debt. This new
contract extinguishes the old one (Section 62).
Novation requires mutual consent and the new contract must be valid. If the new
contract is unenforceable, the original contract revives (Mahabir Prasad vs
Satyanarain).
Alteration
Alteration involves a change in one or more material terms of the contract by mutual
consent, discharging the original contract and substituting the altered one. Material
alterations affect the legal effect of the contract, such as changes in payment
amounts or interest rates. An unauthorized material alteration by one party voids
the contract entirely.
Rescission
Rescission is the mutual agreement to cancel the contract before performance,
releasing the parties from their obligations. It can be implied through non-
performance over a long period without complaint.
 Illustration: A promises to deliver goods to B on a certain date. Before that date,
they agree the contract will not be performed, discharging it by rescission.
Remission
Remission is the acceptance of a lesser sum or lesser fulfillment of a promise.
According to Section 63, the promisee may remit performance wholly or partially
without consideration.
Illustrations:
1. If the promisee accepts ₹2,000 in full satisfaction of a ₹5,000 claim, the promise is
enforceable, and the remaining debt cannot be claimed later.
2. A owes B ₹5,000 and pays ₹2,000, which B accepts in satisfaction of the entire debt,
discharging it (Section 63).
Waiver
Waiver involves the deliberate abandonment of a right under the contract, releasing
the other party from their obligation. While not necessarily requiring an agreement,
it often involves mutual consent when discussed under discharge by mutual
agreement.
Example: A agrees to tailor a shirt for B if B sings at A's birthday party. If A waives the
requirement for B to sing, B is released from this obligation, discharging that part of
the contract.
Discharge of Contract (Continued)
2. Discharge by Mutual Consent or Agreement (Continued)
Example of Waiver:
• B sang the song, but later forbids A to tailor the shirt, and A agrees. The contract is
terminated by waiver.
3. Discharge by Subsequent or Supervening Impossibility or Illegality
Impossibility at the Time of Contract
If a contract involves performing something obviously impossible, such as
discovering treasure by magic, there is no valid contract to discharge. The agreement
is inherently void under Section 56, Para 1: "An agreement to do an act impossible in
itself is void."
• If the impossibility is not obvious, and the promisor knows or could reasonably
discover the impossibility, they must compensate the promisee for any loss despite
the agreement being void ab initio (from the beginning) (Section 56).
Illustration:
• A contracts to marry B while already married to C, and the law forbids polygamy. A
must compensate B for the loss caused by the non-performance of his promise
[Illustration (c) to Section 56].
Subsequent Impossibility
When an act becomes impossible after the contract is made, due to events beyond
the promisor's control, the contract becomes void. This is covered under Section 56,
Para 2: "A contract to do an act which, after the contract is made, becomes
impossible, or by reason of some event which the promisor could not prevent,
unlawful, becomes void when the act becomes impossible or unlawful."
Conditions for Section 56 to Apply:
1. The act should have become impossible.
2. The impossibility should result from an event the promisor could not prevent.
3. The impossibility should not be self-induced by the promisor or due to their
negligence.
Practical Impossibility:
• Impossibility should be interpreted practically, not just literally or physically. It
includes situations where performance becomes impracticable, hazardous, or
useless, fundamentally altering the basis of the contract.
Doctrine of Frustration:
• This doctrine states that if the performance of a contract becomes impossible due to
unforeseen events, the contract is discharged automatically. This is not dependent
on the parties' choice but on the nature of the event's impact on the contract's
performance.
Cases of Supervening Impossibility:
1. Destruction of Subject Matter:
• If the subject matter of a contract is destroyed without the promisor's or
promisee's fault, the contract is discharged.
• Example: A music hall rented for concerts burns down before the first
concert. The contract is void, and the lessee cannot claim damages (Taylor vs
Caldwell).
• Similarly, if factory premises on which machinery is to be installed are
destroyed by fire, or a ship under a charter party is seized by a foreign
government, the contract is discharged (Tatem Ltd. vs Gamboa).
2. Failure of Ultimate Purpose:
 • When the ultimate purpose of a contract fails, the contract is discharged,
even if literal performance is possible.
• Example: A rents a room from B to view the King's coronation procession.
The procession is postponed due to the King's illness. A is not required to pay
rent as the contract's ultimate purpose has failed (Krell vs Henry).
3. Death or Personal Incapacity:
• Contracts dependent on personal skills or the existence of a specific person
are discharged if that person dies or becomes incapable.
• Example: A contracts to marry B, but A goes mad before the marriage date.
The contract becomes void [Illustration (b) to Section 56].
• Example: A contracts to act at a theatre for six months in consideration of a
sum paid in advance by B. On several occasions, A is too ill to act. The
contract to act on those occasions becomes void [Illustration (e) to Section
56].
• Example: An artist undertakes to paint a picture for a certain price, but
before he could do so, he meets with an accident and loses his right arm.
Held, the artist was discharged due to disablement.
4. Change of Law:
• If a subsequent change in law renders the contract illegal, it is deemed
discharged.
• Example: A contracts to sell wheat to B, but the government later prohibits
private wheat trade. The contract is discharged due to the legal change.
• Example: There was a contract for the sale of the trees of a forest.
Subsequently, by an Act of Legislature, the forest was acquired by the State
Government. The contract was discharged because it had become impossible
of performance.
5. Outbreak of War:
• Contracts with an enemy during wartime are illegal and void. Pre-war
contracts are suspended during the war and may be discharged based on
post-war conditions.
4. Discharge by Lapse of Time
A contract is discharged if it is not performed within a specified period, known as the
limitation period. This period is defined by the Limitation Act. Once the limitation
period expires, legal remedies become unavailable, effectively discharging the
contract.
5. Discharge by Operation of Law
 A contract can be discharged by operation of law in the following ways:
1. Death: If a party to a contract dies, and the contract involves personal services or
skills, it is discharged.
2. Insolvency: If a party is declared insolvent, their contracts are discharged by law.
3. Merger: If an inferior right under a contract merges with a superior right, the
contract is discharged.
4. Unauthorized Alteration: Any material alteration to a written contract without
mutual consent discharges the contract.
6. Discharge by Breach of Contract
A breach occurs when one party fails to perform their contractual obligations. This
can be:
1. Actual Breach: Failure to perform the contract on the due date or during
performance.
2. Anticipatory Breach: When a party declares their intention not to perform before
the due date. The non-breaching party can treat the contract as discharged and seek
damages immediately.
By understanding these various modes of discharge, parties can better manage their
contracts and anticipate potential issues that might lead to the termination of their
agreements.
Remedies for Breach of Contract
When there is a breach of contract, the injured party is entitled to one or more of
the following remedies against the guilty party:
1. Rescission of the Contract
2. Suit for Damages
3. Suit upon Quantum Meruit
4. Suit for Specific Performance of the Contract
5. Suit for an Injunction
The last two remedies are regulated by the Specific Relief Act, 1963.
Rescission of the Contract
When one party breaches a contract, the other party may rescind the contract,
which means they can terminate it and are no longer bound to perform their part of
the obligations. If the aggrieved party intends to sue the guilty party for damages,
they must file a suit for rescission of the contract. Upon granting rescission, the court
 releases the aggrieved party from all obligations under the contract and may award
compensation for any damages sustained due to the breach (Section 75).
Illustration: A contracts to supply 100 kg of tea leaves to B for ₹5,000 on April 15. If
A does not deliver the tea leaves on the appointed day, B need not pay the price. B
can treat the contract as rescinded and may also file a suit for rescission and claim
damages.
Thus, applying to the court for rescission is necessary for claiming damages or any
other remedy. Typically, a suit for rescission is accompanied by a suit for damages in
the same plaint.
Suit for Damages
Damages are monetary compensation awarded to the injured party for the loss or
injury suffered due to the breach of contract. The primary principle behind awarding
damages is compensation, not punishment. The court aims to place the injured party
in the position they would have been in if the contract had been performed.
Compensation must be proportional to the injury or loss sustained, arising naturally
from the breach. If no actual loss is proved, no damages will be awarded.
Assessment of Damages: The extent to which a plaintiff is entitled to claim damages
for breach of contract is laid down by Section 73. The injured party is entitled to:
1. Ordinary Damages: These are damages that naturally arise in the usual course of
things from the breach. No compensation is given for remote or indirect loss.
Illustration: A agrees to sell B 5 bags of rice at ₹500 per bag, with delivery after two
months. On the delivery date, the price of rice rises to ₹550 per bag. A refuses to
deliver the rice. B can claim ₹250 as ordinary damages, being the difference between
the contract price (₹500) and the market price (₹550) for the 5 bags.
2. Special Damages: These arise from special or unusual circumstances affecting the
plaintiff. They are not a natural consequence of the breach and cannot be claimed as
a matter of right. Special damages can be claimed only if the special circumstances
were known to the other party at the time of the contract.
Illustrations:
• A contracts with B to supply 1,000 tons of iron at ₹100 per ton, to be
delivered at a specific time. A contracts with C for the purchase of 1,000 tons
of iron at ₹80 per ton, informing C that it is for fulfilling the contract with B. If
C fails to deliver the iron and A cannot procure it elsewhere, causing B to
rescind the contract, C must compensate A for the profit A would have made
from the contract with B (₹20,000). If C was not informed about B's contract,
A could only claim the difference between the contract price and the market
price.
 • A, a builder, contracts to finish a house by January 1 so that B can lease it to
C. A is informed of B's contract with C. If A builds the house so poorly that it
collapses and needs rebuilding before January 1, causing B to lose rent and
compensate C, A must compensate B for the rebuilding cost, lost rent, and
the compensation paid to C.
3. Exemplary or Vindictive Damages: These damages aim to punish the guilty party
rather than compensate the injured party. While generally not applicable in contract
law, there are exceptions:
• Breach of a Contract to Marry: Damages depend on the extent of injury to
feelings.
• Dishonour of a Cheque: If a banker dishonours a cheque despite sufficient
funds, damages are assessed based on the cheque's amount and the status of
the party.
These principles and cases illustrate how courts handle the various remedies
available for breach of contract, ensuring fair compensation and adherence to
contractual obligations
REMEDIES FOR BREACH OF CONTRACT
Whenever there is a breach of a contract, the injured party becomes entitled to one
or more of the following remedies against the guilty party:
1. Rescission of the contract.
2. Suit for damages.
3. Suit upon quantum meruit.
4. Suit for specific performance of the contract.
5. Suit for an injunction.
The last two remedies are regulated by the Specific Relief Act, 1963.
Rescission of the Contract
When one party breaches a contract, the other party may rescind the contract,
relieving themselves from performing their part of the obligations and potentially
filing a suit for rescission and damages. The court, upon granting rescission, frees the
aggrieved party from all contractual obligations and entitles them to compensation
for any damage sustained due to the breach (Sec 75).
Illustration: A contracts to supply 100 kg of tea leaves for ₹5,000 to B on 15 April. If
A fails to supply the tea leaves on the appointed day, B need not pay the price. B
may treat the contract as rescinded and may file a suit for rescission and claim
damages.
Suit for Damages
 Damages are monetary compensation awarded to the injured party for the loss or
injury suffered due to the breach. The principle underlying damages is
compensation, not punishment. The aim is to put the injured party in the position
they would have been in had the contract been performed.
1. Ordinary Damages: Damages which naturally arise in the usual course of things from
the breach.
Illustration: A agrees to sell B 5 bags of rice at ₹500 per bag, delivery after two
months. On the delivery date, the price rises to ₹550 per bag, and A refuses to
deliver. B can claim ₹250 as ordinary damages, the difference between the contract
price and the market price on the delivery date.
2. Special Damages: Damages arising from special circumstances affecting the plaintiff,
claimable only if these circumstances were known to both parties at the contract's
formation.
Illustration (a): A contracts to supply 1,000 tons of iron to B for ₹100 per ton, telling
C (supplier) about this. C fails to deliver, and A cannot supply B. A can claim lost
profit from C.
Illustration (b): A builder, A, knowing B has a contract to lease a house to C, builds it
poorly, causing it to collapse. B loses rent from C and incurs rebuilding costs. A must
compensate B for rebuilding costs, lost rent, and breach compensation.
3. Exemplary or Vindictive Damages: Awarded to punish the guilty party, typically in
breach of marriage contracts or wrongful dishonor of a cheque by a banker.
Nominal Damages
Nominal damages are symbolic, awarded when no actual loss is proven. They
establish the right to a decree for breach of contract, typically a small sum like a
rupee.
Example: In a sale of goods contract, if the contract price and market price are
almost the same at breach, nominal damages are awarded.
Duty to Mitigate Damage Suffered
The injured party must mitigate damage by reasonable means. They cannot recover
damages attributable to their own neglect to mitigate. The defendant must prove
the plaintiff failed in their duty to mitigate.
Illustration (a): A wrongfully dismissed servant must seek other employment to
mitigate damages. If he refuses reasonable offers, he can only claim nominal
damages.
Illustration (b): A rented a shop from B but didn't use other available shops after B
couldn't deliver possession. A can only claim the advance rent, as he didn't mitigate
the loss.
 Liquidated Damages and Penalty
"Liquidated damages" are a fair pre-estimate of probable loss, while "penalty" is an
excessive amount to deter breach. Section 74 of the Indian Contract Act treats both
the same, allowing only reasonable compensation for actual loss, not exceeding the
named sum.
Illustration (a): A agrees to pay B ₹1,000 if he fails to pay ₹500 on time. A defaults. B
can recover reasonable compensation, not exceeding ₹1,000.
Illustration (b): A agrees to build a house by 31st March and pay ₹25,000 per month
for delay. A is two months late. B claims ₹23,500 for increased costs. A must pay
₹10,000, covering actual loss.
Cost of Suit
The injured party can claim the cost of getting a decree for damages from the
defaulter party.
Summary of the Rules Regarding the Measure of Damages
1. Damages compensate for loss, not punish the guilty party.
2. The injured party should be placed in the same position as if the contract had been
performed.
3. Only actual loss naturally arising from the breach is recoverable.
4. Special damages require both parties' knowledge at contract formation.
5. Difficulty in assessing damages does not prevent recovery.
6. Nominal damages are awarded when no real loss occurs.
7. Courts allow reasonable compensation within contract limits for pre-determined
damages.
8. Exemplary damages are rare, awarded mainly for breach of marriage contracts or
wrongful cheque dishonor.
9. The injured party must minimize damage.
10. Costs of getting a decree for damages are recoverable.
Suit Upon Quantum Meruit (Sections 65 and 70)
Quantum meruit means "as much as is earned." It applies when a contract is partly
performed and then breached or voided, allowing the aggrieved party to claim
reasonable compensation for work done or goods supplied.
1. Work Done in Pursuance of a Contract Discharged by Default:
Illustration (a): P writes part of a volume for C's magazine, which is then abandoned.
P can claim for the work done and damages for breach.
 Illustration (b): B builds part of a house for A, who then stops work. B can claim
reasonable compensation for work done and breach damages.
2. Work Done in Pursuance of a Void or Voidable Contract:
Illustration (a): C is appointed managing director under a void contract but still
provides services. C can claim reasonable remuneration.
Illustration (b): A contracts to repair B's house, which is destroyed midway. A can
claim for work done.
3. Non-gratuitous Act Benefits:
Illustration (a): A mistakenly leaves goods at B's house. B uses them and must pay A.
Illustration (b): A ploughs B's field with a tractor. B must pay A as the work was not
intended to be gratuitous.
4. Partly Performed Divisible Contracts:
Illustration: A carrier who partially delivers a consignment can claim pro-rata freight.
Illustration: S starts building for H, who completes it using S's materials. S can claim
for materials but not for work done, as H had no option but to accept it.
Suit for Specific Performance
Specific performance means carrying out the contract as agreed. It's granted where
monetary compensation is inadequate, typically for contracts involving land,
buildings, unique goods, or rare articles. Courts do not grant specific performance
for:
1. Contracts where monetary compensation is adequate.
2. Contracts requiring court supervision for execution.
3. Contracts involving personal services.
Suit for an Injunction
An injunction restrains a party from doing a particular act, securing specific
performance of the negative terms of a contract.
Illustration: A agrees to sing only at B's theatre for three months. A later contracts
with C. The court may restrain A from singing elsewhere, awarding damages to B.
By understanding these remedies, one can effectively address breaches and seek
appropriate legal recourse.
2. What principles are applied in order to assess the amount of damages
recoverable for a breach of contract?
To assess the amount of damages recoverable for a breach of contract, the following
principles are applied:
1. Compensation for Loss: Damages are awarded to compensate for the loss suffered
by the aggrieved party, not to punish the guilty party.
2. Position as if Performed: The injured party should be placed in the same position, as
far as money can do, as if the contract had been performed.
3. Actual Loss: Only the actual loss suffered, arising naturally and directly from the
breach, is recoverable.
4. Special Damages: Special damages that are not the natural consequence of the
breach can only be recovered if they were in the knowledge of both parties at the
time of entering the contract.
5. Difficulty in Assessment: The difficulty in assessing damages does not prevent
recovery.
6. Nominal Damages: If no real loss arises from the breach, nominal damages are
awarded.
7. Pre-determined Damages: If a sum is fixed in advance, the court allows only
reasonable compensation within that limit.
8. Exemplary Damages: These are not awarded except in cases like breach of marriage
contracts or wrongful dishonor of a cheque.
9. Duty to Mitigate: The injured party must minimize the damage suffered.
3. "If a contract is broken, the law will endeavour, so far as money can do it, to
place the injured party in the same position as if the contract had been
performed." Discuss the statement indicating the rules which guide the court in
the assessment of damages.
This statement emphasizes the principle of compensation in breach of contract
cases. The rules guiding the court in the assessment of damages include:
1. Compensatory Nature: Damages are intended to compensate the injured party for
losses incurred due to the breach, not to penalize the breaching party.
2. Equivalent Position: The goal is to restore the injured party to the financial position
they would have been in if the contract had been performed.
3. Actual and Natural Loss: Compensation is limited to losses that arise naturally and
directly from the breach.
4. Foreseeability: Special damages that were foreseeable and within the knowledge of
both parties at the time of the contract can be claimed.
5. Reasonable Estimate: If the exact amount of loss is difficult to determine, a
reasonable estimate is used.
6. Nominal Damages: When no substantial loss is suffered, nominal damages (a small
sum) are awarded to acknowledge the breach.
7. Fixed Damages: Pre-agreed sums in the contract (liquidated damages) are
considered the maximum limit, with courts awarding reasonable compensation
within that limit.
8. Mitigation: The injured party has a duty to take reasonable steps to mitigate their
losses.
9. Legal Costs: The aggrieved party is entitled to recover the legal costs incurred in
obtaining the decree for damages.
4. Explain the terms "penalty" and "liquidated damages". If the parties to a
contract have agreed on the amount of damages payable in the event of its breach,
can the court enhance or reduce that amount?
• Liquidated Damages: A pre-agreed sum, which represents a fair and genuine pre-
estimate of the probable loss that will result from a breach.
• Penalty: A sum specified in the contract that is extravagant and unconscionable
compared to the greatest loss that could conceivably occur from the breach,
intended to deter the breach.
Under Indian law (Section 74 of the Indian Contract Act), the distinction between
liquidated damages and penalty is not strictly adhered to. The court is not bound by
the sum named in the contract. Instead, it allows reasonable compensation to cover
the actual loss, not exceeding the pre-agreed amount. Thus, the court can neither
enhance nor reduce the amount beyond the limit stated in the contract; it only
ensures that the compensation is reasonable and just.
5. What is meant by suing in quantum meruit? Under what circumstances can a
claim on a quantum meruit arise? When can an aggrieved party file a suit for
"specific performance" and for an "injunction"? Explain and illustrate.
• Quantum Meruit: Literally means "as much as is earned" or "in proportion to the
work done." It refers to the payment due for the value of the work done when a
contract is partially performed.
Circumstances for Quantum Meruit Claims:
1. Partial Performance: If one party has partially performed and the contract is
subsequently breached or becomes void.
2. Contract Voided: When a contract is found to be void but divisible.
3. Non-gratuitous Work: When services or goods are supplied without an express
contract, but not intended to be gratuitous, and the other party benefits.
Illustrations:
• Partial Performance and Breach: P agrees to write a book for C's magazine for $100
upon completion. P completes part, but C cancels the project. P can claim reasonable
payment for the part completed (Planche vs Colburn).
• Void Contract: C is appointed as a director under an invalid contract but works for
the company. C can claim reasonable remuneration for his services (Craven-Ellis vs
Canons Ltd).
• Non-gratuitous Act: A ploughs B's field, which B benefits from. A can claim payment
for his services.
Specific Performance:
• Definition: The actual carrying out of the terms of the contract.
• Circumstances:
• When monetary compensation is inadequate.
• For unique goods, rare articles, or land.
• Contracts where supervision of execution is possible.
Illustration:
• A agrees to sell a rare painting to B. If A refuses, B can sue for specific performance
because monetary compensation is inadequate to replace the unique painting.
Injunction:
• Definition: A court order restraining a person from doing a particular act.
• Circumstances:
• To enforce negative terms of a contract.
• When damages are inadequate.
• Often in cases of anticipatory breach.
Illustration:
• A singer agrees to perform exclusively for B’s theater but contracts to sing
elsewhere. B can get an injunction to prevent the singer from performing elsewhere,
alongside damages for breach.
PRACTICAL PROBLEMS
1. B can only claim ordinary damages, which are the interest for the delay in
payment. Special or heavy damages cannot be claimed unless A had notice of the
specific circumstances causing such loss at the time of contract formation.
2. B is entitled to ₹2,000, which is the reasonable compensation for the delay. The
court limits compensation to the pre-agreed sum, ensuring it does not exceed what
is stipulated in the contract.
 3. B will succeed in claiming damages. Since B made reasonable efforts to mitigate
his loss and couldn't find alternate employment, he can claim the full salary for the
remaining year, amounting to ₹36,000.
4. The legal representatives of the mate cannot recover any payment. The doctrine
of quantum meruit does not apply since the contract was indivisible, and a lump sum
was to be paid only upon the completion of the entire voyage.

UNIT 2 CONTRACT OF SALE OF GOODS

The law relating to the sale of goods is contained in the Sale of Goods Act, 1930, which came
into force on 1st July 1930. The Act contains sixty-six Sections and extends to the whole of
India except the State of Jammu and Kashmir. A few minor amendments in the Act were
made by the Sale of Goods (Amendment) Act, 1963.
The general provisions of the Indian Contract Act continue to be applicable to the contract
of sale of goods insofar as they are not inconsistent with the express provisions of the Sale
of Goods Act (Sec. 3). For example, the provisions of the Contract Act relating to the
capacity of the parties, free consent, agreements in restraint of trade, wagering
agreements, and measure of damages continue to be applicable to a contract of sale of
goods. However, the definition of consideration stands modified to the extent that in a
contract of sale of goods, consideration must be by way of 'price,' i.e., only money
consideration [Secs. 2(10) and 4].
Definition and Essentials of a Contract of Sale
Section 4(1) of the Sale of Goods Act defines a contract of sale of goods as "a contract
whereby the seller transfers or agrees to transfer the property in goods to the buyer for a
price."
This definition reveals the following essential characteristics of a contract of sale of goods:
1. Two Parties: There must be two distinct parties to a contract of sale, viz., a buyer
and a seller, as a person cannot buy his own goods. However, there may be a
contract of sale between one part-owner and another part-owner [Sec. 4(1)]. For
example, a partner may buy goods from the firm in which he is a partner and vice-
versa.
2. Transfer of Property: 'Property' here means 'ownership'. Transfer of property in the
goods is another essential of a contract of sale of goods. A mere transfer of
possession of the goods cannot be termed as a sale. To constitute a contract of sale,
the seller must either transfer or agree to transfer the property in the goods to the
buyer.
3. Goods: The subject matter of a contract of sale must be goods. 'Goods' mean every
kind of movable property other than actionable claims and money [Sec. 2(7)].
 4. Price: The consideration for a contract of sale must be money, termed as 'price' [Sec.
2(10)]. If goods are exchanged for goods, it is barter and not a sale. However, if
goods are sold partly for goods and partly for money, the contract is one of sale.
Illustration
• Transfer of Property: If A owns a car and agrees to sell it to B for a certain price, the
ownership of the car is transferred from A to B. However, if A merely gives B the
possession of the car without transferring the ownership, it does not constitute a
sale.
Cases
1. Case of Partnership: A partner in a firm can buy the firm's goods because, for the
purpose of this transaction, the firm and the partner are distinct entities.
2. Conditional Sale: A enters into a contract with B to sell 10 bags of rice, to be
delivered after one month. The ownership is transferred only upon delivery and
payment, making it a conditional sale.
Nature of Contract of Sale
A contract of sale of goods results, like any other contract, by an offer by one party and its
acceptance by the other. Thus, it is a consensual transaction. The parties to the contract
enjoy unfettered discretion to agree to any terms they like relating to delivery and payment
of price, etc. The Sale of Goods Act does not seek to fetter this discretion. It simply lays
down certain positive rules of general application for those cases where the parties have
failed to contemplate expressly for contingencies which may interrupt the smooth
performance of a contract of sale, such as the destruction of the thing sold before it is
delivered or the insolvency of the buyer, etc. The Act leaves the parties free to modify the
provisions of the law by express stipulations.
Agreement to Sell and Sale
Section 4(3) differentiates between an agreement to sell and a sale:
• Sale: Where under a contract of sale the property in the goods is transferred from
the seller to the buyer, the contract is called a sale [Sec. 4(3)].
• Agreement to Sell: Where the transfer of property in the goods is to take place at a
future time or subject to some condition thereafter to be fulfilled, the contract is
called an agreement to sell [Sec. 4(3)].
Example
• Sale: A sells his car to B for ₹50,000. Here, the car is delivered, and the price is paid,
resulting in an immediate transfer of ownership.
• Agreement to Sell: A agrees to sell his car to B for ₹50,000, but the car is to be
delivered and the price paid after one month. Until the delivery and payment, it
remains an agreement to sell.
Transfer of Ownership
The essence of a contract of sale of goods is the transfer of ownership of the goods from the
seller to the buyer. This transfer can be:
• Absolute: When the ownership is transferred immediately.
• Conditional: When the transfer of ownership is subject to certain conditions to be
fulfilled.
Illustration
• Conditional Transfer: A agrees to sell his watch to B for ₹2,000, provided B arranges
the payment within a week. Here, the ownership will transfer only when B makes the
payment within the specified time.
Cases
1. Immediate Sale: A contracts to sell his house to B for ₹10 lakhs. The ownership is
transferred immediately upon execution of the contract and payment.
2. Future Sale: A agrees to sell 50 tons of wheat to B, to be delivered after the harvest.
This constitutes an agreement to sell, with the transfer of ownership contingent
upon the future event of the harvest.
Conclusion
The Sale of Goods Act, 1930, thus provides a comprehensive framework for the sale of
goods, ensuring clarity and fairness in transactions. It balances the freedom of contract with
certain mandatory rules to protect the interests of both buyers and sellers.
Goods
The subject matter of the contract of sale must be 'goods.' According to Section 2(7),
"goods" means every kind of movable property except actionable claims and money. This
includes stock, shares, growing crops, grass, and items attached to land that are agreed to
be removed before sale.
Examples of goods include goodwill, trademarks, copyrights, patents, water, gas, electricity,
and court decrees. Shares and stocks are also considered goods.
• Actionable Claims: These are claims that can be enforced through legal action, such
as a debt noted in a creditor's account book. Such claims are not considered goods.
• Money: Current money is not considered goods since it is the medium of exchange.
However, old and rare coins can be treated as goods and sold.
The sale of immovable property is governed by the Transfer of Property Act, 1882.
Price
The consideration for a contract of sale must be money, called the 'price.' If goods are
exchanged for other goods, it is called barter and governed by the Transfer of Property Act.
If goods are sold partly for goods and partly for money, it is a sale (Aldridge vs Johnson).
Sale and Agreement to Sell
The term 'contract of sale' includes both a 'sale' and an 'agreement to sell.'
• Sale: When the property in goods transfers immediately from the seller to the buyer
at the time of the contract, it is called a 'sale.' This is an executed contract, like
buying something outright from a store.
• Agreement to Sell: When the transfer of property in goods is set for a future time or
contingent upon certain conditions, it is called an 'agreement to sell.' This is an
executory contract, like agreeing to buy something later.
Illustrations
• Example 1: On January 1, A agrees to sell his scooter to B on January 15 for ₹23,000.
This is an agreement to sell because the transfer will occur in the future.
• Example 2: A agrees to buy B's car for ₹50,000 if B stands surety with C. This
becomes a sale when B fulfills the condition.
An 'agreement to sell' becomes a 'sale' when the specified time elapses or conditions are
met (Sec. 4(4)).
No Formalities to be Observed (Sec. 5)
The Sale of Goods Act does not require any specific form for a valid contract of sale. A
contract can be made by offer and acceptance, either orally, in writing, or implied by
conduct. Payment and delivery are not necessary at the time of the contract.
Sale vs. Agreement to Sell
1. Transfer of Property: In a sale, ownership transfers immediately to the buyer. In an
agreement to sell, ownership transfers later.
2. Risk of Loss: In a sale, the buyer bears the risk once the property is transferred, even
if they don't have possession. In an agreement to sell, the seller bears the risk until
ownership transfers.
3. Consequences of Breach: In a sale, if the buyer doesn’t pay, the seller can sue for the
price. In an agreement to sell, the seller can only sue for damages.
4. Right of Resale: In a sale, the seller cannot resell the goods. In an agreement to sell,
the seller can resell because they still own the goods.
5. Insolvency of Buyer: In a sale, if the buyer becomes insolvent, the seller must deliver
the goods to the buyer's Official Receiver. In an agreement to sell, the seller can
refuse to deliver the goods until paid.
 6. Insolvency of Seller: In a sale, if the seller becomes insolvent, the buyer can recover
the goods. In an agreement to sell, the buyer can only claim a dividend as a creditor,
not the goods.
Practical Problems
1. Defective Cloth: Tailors who couldn't use worsted coating due to a hidden defect can
claim damages because there is an implied condition that goods must be free from
hidden defects (Sec. 17).
2. Exploding Bottle: B can claim damages from S if a soda-water bottle explodes
because it is not of merchantable quality.
3. Supermarket Accident: M cannot claim damages for a bottle exploding in his hand
while shopping because there was no sale; the condition of merchantability does not
apply.
These rules ensure that both buyers and sellers know their rights and responsibilities in
various situations involving the sale of goods.
1. Implied Conditions and Warranties in a Contract of Sale of Goods
Implied Conditions:
1. Condition as to Title: The seller has the right to sell the goods, and in a sale, the
buyer will enjoy quiet possession of the goods (Sec. 14(a)).
2. Sale by Description: If goods are sold by description, they must correspond to the
description (Sec. 15).
3. Condition as to Quality or Fitness: If the buyer makes known to the seller the
particular purpose for which the goods are required and relies on the seller’s skill or
judgment, the goods must be fit for that purpose (Sec. 16(1)).
4. Condition as to Merchantability: When goods are bought by description from a
seller dealing in goods of that description, they must be of merchantable quality
(Sec. 16(2)).
5. Sale by Sample: If a sale is by sample, the bulk must correspond with the sample in
quality, and the goods should be free from any defect making them unmerchantable
(Sec. 17).
Implied Warranties:
1. Warranty of Quiet Possession: The buyer will enjoy quiet possession of the goods
(Sec. 14(b)).
2. Warranty of Freedom from Encumbrances: The goods will be free from any charge
or encumbrance in favor of a third party not declared or known to the buyer before
the contract is made (Sec. 14(c)).
2. (a) Differences Between 'Conditions' and 'Warranties'
 • Nature: A condition is a fundamental term that goes to the root of the contract. A
warranty is a subsidiary term.
• Breach Consequences: Breach of a condition allows the aggrieved party to terminate
the contract and claim damages. Breach of a warranty only entitles the aggrieved
party to claim damages.
• Example: In a sale of a car, if the car is described as new (condition) but turns out to
be used, the buyer can reject the car. If the car has a minor defect (warranty), the
buyer can only claim repair costs.
2. (b) Rights of P and the True Owner of the Car
P bought a car from Q, who had no title. P used the car for several months. The true owner
has the right to reclaim the car. P, having bought the car in good faith, can claim damages
from Q for breach of condition as to title since Q had no right to sell the car.
3. Doctrine of Caveat Emptor and its Exceptions
Doctrine of Caveat Emptor:
• Means "let the buyer beware."
• The buyer is responsible for checking the quality and suitability of goods before
purchase.
Exceptions:
1. Fitness for Purpose: When the buyer makes known the specific purpose for which
goods are required and relies on the seller’s skill or judgment (Sec. 16(1)).
2. Sale by Description: When goods are sold by description and do not correspond with
the description (Sec. 15).
3. Merchantable Quality: When goods are bought by description from a seller dealing
in those goods, they must be of merchantable quality (Sec. 16(2)).
4. Trade Usage: When the usage of trade implies a condition or warranty (Sec. 16(3)).
5. Sale by Sample: When goods bought by sample do not match the sample or are
unmerchantable (Sec. 17).
4. "In a contract for the sale of goods, there is no implied condition or warranty as to the
quality of the goods or their fitness for any particular purpose." Comment
This statement is generally true, reflecting the doctrine of caveat emptor. However,
exceptions apply where there is an implied condition or warranty in cases such as:
• The buyer relies on the seller’s expertise for the purpose of the goods.
• Goods are sold by description and do not match the description.
• Goods are sold by sample and do not match the sample.
 • Trade usage implies a certain quality or fitness.
Practical Problems
1. Worsted Coating Defect:
• Answer: The tailors are entitled to damages. Even though they examined the cloth,
there was a latent defect. Under Sec. 17, there is an implied condition that goods
should be free from latent defects.
2. Exploding Soda-Water Bottle:
• Answer: B can claim damages from S. The bottle was not of merchantable quality,
violating the condition as to merchantability.
3. Exploding Orange Squash Bottle:
• Answer: M cannot claim damages because no sale occurred. A warranty or condition
as to merchantability arises only upon sale. As M was merely examining the bottle,
no implied condition existed.

Transfer of Property
Definition and Concept
In a contract of sale, the term "transfer of property in goods" refers to the transfer of
ownership from the seller to the buyer. It is distinct from the mere possession of goods,
which indicates custody rather than ownership. A seller might retain possession of the
goods as an unpaid seller or as a bailee for the buyer even after the transfer of property.
Conversely, the property in goods might remain with the seller while the goods are in the
possession of the buyer or a third party (e.g., an agent or carrier).
Importance of Knowing the Exact Time of Passing of Property
The exact moment when property in goods passes from the seller to the buyer is crucial due
to several reasons:
1. Risk Prima Facie Passes with Property:
• As per Section 26, unless otherwise agreed, the risk of loss or damage to
goods lies with the owner at the time of loss.
• Illustration: A buys goods from B. Property passes to A, but goods remain in
B's warehouse. A fire destroys the goods before delivery. A must bear the
loss and still pay B if not already paid.
2. Action Against Third Parties:
• Only the owner can take legal action against third parties for damage or loss
of goods after the contract of sale.
 3. Suit for Price:
• Generally, the seller can sue for the price only if the property in goods has
passed to the buyer.
4. Insolvency of Seller or Buyer:
• In the event of insolvency, whether the official receiver or assignee can claim
the goods depends on whether the property had passed to the insolvent
party.
• Example: If the seller becomes insolvent after the property has passed to the
buyer who paid the price, the official receiver has no claim over the goods.
Rules Regarding Transfer of Property
1. Transfer of Property in Specific or Ascertained Goods
When the contract involves specific or ascertained goods, the property passes to the buyer
at the time intended by the parties (Sec. 19(1) (2)). This intention can be inferred from the
contract terms, conduct of the parties, and circumstances. If the intention is unclear,
Sections 20, 21, 22, and 24 provide rules:
1. Goods in a Deliverable State (Sec. 20):
• Property passes when the contract is made if the contract is unconditional
and goods are in a deliverable state.
• Illustrations:
• A buys a bicycle on credit, asks the shopkeeper to send it. The bicycle
becomes A's property immediately.
• P buys a table, to take delivery the next day. A fire destroys the table
the same evening. P bears the loss as the property had passed to him.
2. Goods to be Put into a Deliverable State (Sec. 21):
• Property does not pass until the seller has done everything required to put
the goods into a deliverable state and the buyer has been notified.
• Illustration: A sells turpentine oil to B. A must fill casks for delivery. Oil in
filled casks belongs to B once filled, but oil in unfilled casks remains A's
property until filled.
3. Goods to be Weighed, Measured, or Tested (Sec. 22):
• Property does not pass until such acts (weighing, measuring, testing) are
done and the buyer is notified.
• Illustration: A sells goat skins, each bale to be counted for price. Skins are
destroyed by fire before counting. Property had not passed to B as counting
was incomplete.
 4. Goods Delivered on Approval (Sec. 24):
• Property passes when the buyer signifies approval or retains goods beyond
the agreed time or a reasonable time without rejection.
• Illustrations:
• A horse delivered to B on "sale or return". The horse dies in B's
custody before return. A bears the loss as the property was still with
him (Elphick vs Barnes).
• A horse on trial for 8 days. B retains it beyond 8 days without
rejection. B becomes the owner on the expiry of 8 days.
2. Transfer of Property in Unascertained and Future Goods
Sections 18 and 23 state that property in unascertained or future goods does not pass until
the goods are ascertained or unconditionally appropriated to the contract, and the buyer
assents to the appropriation.
• Ascertainment: The process of identifying and earmarking goods for the contract,
often a unilateral act of the seller.
• Appropriation: Requires mutual consent of seller and buyer, done with the intention
to finalize the contract.
• Conditions for Valid Appropriation:
1. Goods must match the contract description.
2. Intentional appropriation to the specific contract.
3. Mutual consent of seller and buyer.
4. Appropriation must be unconditional.
Rule of Transfer of Title on Sale
The general rule is that the seller cannot transfer a better title than he has (Sec. 27),
following the maxim "nemo dat quod non habet" (no one can give what he has not got). This
rule protects the true owner's interest, meaning a buyer cannot acquire good title from a
seller who is not the true owner.
Exceptions to the Rule
1. Unauthorised Sale by a Mercantile Agent (Sec. 27):
• A mercantile agent with goods in his possession can convey good title even
without owner's authority if:
• Goods are in possession with owner’s consent.
• Sale is in the ordinary course of business.
 • Buyer acts in good faith without notice of the agent’s lack of
authority.
• Illustration: F entrusts his car to an agent for sale. Agent sells below price,
misappropriates funds. Buyer S obtains good title and conveys it to K. F
cannot recover the car from K (Folkes vs King).
2. Transfer of Title by Estoppel (Sec. 27):
• Owner’s conduct may estop him from denying the seller’s authority if it
misleads the buyer.
• Illustration: M allows K to display ownership of a wagon. C buys in good faith.
M cannot deny K’s authority to sell (O'Connor vs Clark).
3. Sale by a Joint Owner (Sec. 28):
• A joint owner in possession can transfer good title if the buyer is unaware of
any lack of authority.
• Illustration: A, B, and C own a cow. A, entrusted with the cow, sells it to D. D
gets good title.
4. Sale by Person in Possession Under Voidable Contract (Sec. 29):
• A buyer acquires good title if goods are sold before the contract is rescinded,
provided the buyer acts in good faith without notice of the seller’s defect of
title.
By understanding these principles and exceptions, one can better navigate the complexities
of property transfer in the sale of goods.
TEST QUESTIONS
1. Explain the exact time when the property in goods passes from a seller to a buyer.
Explain with examples the rules regarding the transfer of ownership of goods from seller
to buyer.
The exact time when the property in goods passes from a seller to a buyer depends on the
intention of the parties involved in the contract. This intention can be discerned from the
terms of the contract, the conduct of the parties, and the circumstances of the case.
Rules Regarding Transfer of Ownership:
1. Specific or Ascertained Goods: When goods are specific and ascertained, the
property passes to the buyer when the parties intend it to pass. The intention is
judged based on the contract terms, party conduct, and case circumstances.
Example: If A buys a bicycle from B for $300 on a month’s credit and asks B to send it to his
house, the bicycle immediately becomes A's property.
 2. Deliverable State (Sec. 20): If there is an unconditional contract for the sale of
specific goods in a deliverable state, the property passes to the buyer as soon as the
contract is made, irrespective of payment or delivery time.
Example: A buys a table for $100 and arranges to take delivery the next day. If the table is
destroyed in a fire before delivery, A must still pay for it, as the property has passed to him.
3. Goods to be Put into Deliverable State (Sec. 21): If the seller must do something to
the goods to put them into a deliverable state, the property doesn't pass until this is
done and the buyer is notified.
Example: If A agrees to sell B turpentine oil, but it must be put into casks, the property in
the oil passes to B once the oil is in the casks and B is notified.
4. Goods Requiring Weighing, Measuring, Testing (Sec. 22): If the seller must weigh,
measure, test, or perform another act to ascertain the price, the property doesn't
pass until this act is done and the buyer is notified.
Example: A sells skins in bales, and each bale must be counted to ascertain the price. If the
bales are destroyed by fire before counting, the property hasn't passed to the buyer.
5. Approval or Return Basis (Sec. 24): When goods are delivered on approval or on sale
or return terms, the property passes to the buyer when he approves the goods or
retains them beyond the agreed time without rejection.
Example: A delivers a horse to B on sale or return within eight days. If B retains the horse
beyond this period, the property passes to B.
2. Why is it important to know the exact time of passing of property in goods?
Knowing the exact time of passing of property in goods is crucial because:
1. Risk of Loss: Risk usually passes with property. The owner bears the risk of loss or
damage to the goods.
Illustration: If A buys goods from B and the goods are destroyed in B's warehouse before
delivery, A bears the loss if the property has passed to him.
2. Action Against Third Parties: Only the person in whom the property vests can take
action against third parties for damage to the goods.
3. Suit for Price: The seller can sue for the price only if the property in goods has
passed to the buyer.
4. Insolvency: In case of insolvency, determining whether the property has passed
affects who can claim the goods.
Illustration: If a seller becomes insolvent but the property has passed to the buyer who has
paid, the Official Receiver cannot claim the goods.
3. Explain the rules of ascertaining the intention of the parties as to the time when the
property in the specific or ascertained goods is to pass to the buyer.
The intention of the parties regarding the time when the property in specific or ascertained
goods is to pass to the buyer is ascertained by examining:
1. Terms of the Contract: The explicit terms and conditions laid out in the contract.
2. Conduct of the Parties: Actions and behavior of both parties before, during, and
after the contract formation.
3. Circumstances of the Case: The situational context in which the contract is made.
Illustration: If a contract states that property passes upon payment, and payment is
delayed, the property doesn't pass until payment is made.
4. Explain "Nemo Dat Quod Non Habet" (No one can give what he has not got). Comment,
giving exceptions to this rule.
The principle "Nemo Dat Quod Non Habet" means that a seller cannot transfer a better title
to the goods than he himself possesses. This protects the interests of the true owner.
However, there are exceptions:
1. Mercantile Agent (Sec. 27): A mercantile agent can convey a good title to the buyer
even without authority if the agent is in possession of the goods or title documents
with the owner's consent, sells in the ordinary course of business, and the buyer acts
in good faith without notice of the agent's lack of authority.
Illustration: An agent sells a car below the reserve price and misappropriates the proceeds.
The buyer gets a good title if he bought in good faith.
2. Estoppel (Sec. 27): If the true owner’s conduct induces the buyer to believe that the
seller has authority to sell, the owner is estopped from denying the seller's authority.
Illustration: If M allows K to sell his wagon and C buys it in good faith, M cannot deny K's
authority to sell.
3. Sale by Joint Owner (Sec. 28): A joint owner in sole possession of the goods can
transfer good title to a buyer in good faith.
Illustration: A sells a jointly owned cow in his sole possession to D. D gets a good title.
4. Voidable Contracts (Sec. 29): If the seller obtained goods under a voidable contract
and sells them before the contract is rescinded, the buyer gets good title if he acts in
good faith without notice of the seller's defect.
Illustration: A sells goods obtained by fraud to B before rescission. B gets a good title if
unaware of the fraud.
PRACTICAL PROBLEMS
1. A sells a horse to B to be delivered next week. B is to pay the price on delivery. A
asks his servant to keep the horse separate, but the horse dies the next day. Who
shall bear the loss?
Since this is a contract for the sale of specific goods in a deliverable state, the property
passes to B at the time of the contract. Therefore, B should bear the loss, despite the horse
dying before delivery.
2. A sells the whole content of a certain heap of wheat, which according to A contains
10 quintals. B gets the wheat weighed for his satisfaction. While being weighed,
there is a fire and the wheat is destroyed. Can A recover the price of wheat from
B?
Yes, A can recover the price. This is a sale of specific goods in a deliverable state, and the
property passes to B at the time of the contract. B’s action of weighing the wheat for his
satisfaction does not affect the passing of property.
3. A delivers diamonds to B on a sale or return basis. On the same day, B gives those
diamonds to C on sale, and they are lost. Who shall bear the loss?
B must bear the loss. By transferring the diamonds to C, B adopted the transaction, and the
property in the diamonds passed to him.
Rights of Unpaid Seller
Unpaid Seller Defined
An 'unpaid seller' is defined under Section 45 of the Sale of Goods Act as follows:
1. Conditions of Unpaid Seller:
• When the whole price has not been paid or tendered.
• When a bill of exchange or other negotiable instrument has been received as
conditional payment, and the same has been dishonoured.
2. Inclusion of Related Parties:
• The term 'seller' includes any person in the position of a seller, such as an
agent of the seller to whom the bill of lading has been endorsed, or a
consignor or agent responsible for the price.
3. Key Characteristics:
• The seller must sell goods on cash terms and must be unpaid.
• Even partial non-payment qualifies the seller as unpaid.
• The seller must not refuse payment if tendered.
Rights of an Unpaid Seller
The rights of an unpaid seller are twofold:
1. Rights against the goods.
2. Rights against the buyer personally.
I. Rights of Unpaid Seller Against the Goods
1. Right of Lien (Sec. 47)
• Definition: The right to retain possession of goods and refuse to deliver them
to the buyer until the price is paid.
• Conditions:
• Goods sold without any credit stipulation.
• Term of credit has expired.
• Buyer becomes insolvent.
• Nature of Lien: Possessory lien, exercised as long as the seller has possession.
• Exceptions: Lien is not for other charges like maintenance, only for the price.
• Retention and Part Delivery: Can retain all goods even with part payment;
part delivery doesn't waive lien unless agreed.
• Loss of Lien: When goods are delivered to a carrier without reserving the
right of disposal, when the buyer/agent obtains possession, or when lien is
waived.
Case Example:
• Griffiths vs. Penny: Seller retains goods against an insolvent buyer despite
credit terms.
2. Right of Stoppage in Transit (Sec. 50)
• Definition: Right to stop goods in transit and regain possession if the buyer
becomes insolvent.
• Conditions:
• Buyer is insolvent.
• Property in goods has passed to the buyer.
• Goods are in transit (with a carrier, not with the buyer or seller).
• Duration of Transit: From delivery to the carrier until the buyer takes
delivery.
• End of Transit:
• Buyer/agent takes delivery.
• Carrier acknowledges holding goods for the buyer.
• Carrier agrees to carry goods to a new destination.
• Exercise of Right: By taking possession or notifying the carrier.
Illustration:
• Seller can stop delivery if notified that the buyer cannot pay, even if the
goods are en route.
3. Right of Resale (Sec. 54)
• Definition: Right to resell goods if the buyer defaults.
• Conditions:
• Goods are perishable.
• Expressly reserved right in the contract.
• Notice of resale given to the buyer, who fails to pay within a
reasonable time.
• Consequences:
• Seller can recover loss from the defaulting buyer.
• Seller can keep surplus from resale unless no notice of resale was
given.
Example:
• Seller resells perishable goods after buyer defaults, claims loss from resale if
not covered by buyer's payment.
II. Rights of Unpaid Seller Against the Buyer Personally
1. Suit for Price (Sec. 55)
• Seller can sue for price if property in goods has passed or if the price is
payable on a certain day, even if goods are undelivered.
2. Suit for Damages for Non-Acceptance (Sec. 56)
• Seller can sue for damages if the buyer wrongfully neglects or refuses to
accept and pay for the goods.
3. Suit for Special Damages and Interest (Sec. 61)
• Seller can claim special damages for foreseeable loss from breach.
• Seller can claim interest on unpaid price from the due date.
Case Example:
• Telu Ram Jain vs. Aggarwal & Sons: Seller claims special damages for a breach
impacting expected profits.
Auction Sale
Rules Relating to Auction Sale (Sec. 64)
 1. Separate Lots: Each lot is a separate contract.
2. Completion of Sale: Sale is complete when announced by the fall of the hammer or
customary manner.
3. Seller's Right to Bid: Seller can bid if right is expressly reserved.
4. Reserve Price: Sale may be subject to a reserved price; no sale if bid is below
reserve.
5. Withdrawal of Bid: Bidders can retract bids before the fall of the hammer.
6. Knock Out Agreements: Agreements among buyers not to bid against each other are
not illegal.
7. Payment Terms: Auctioneer cannot sell on credit or accept bills of exchange unless
specified.
Illustration:
• Auctioneer sells an item to the highest bidder after announcing the completion by
saying "going, going, gone".
Key Case Examples
1. Griffiths vs. Penny: Retaining goods against insolvent buyer.
2. Telu Ram Jain vs. Aggarwal & Sons: Claim for special damages.
3. Eduljee John Bros.: No lien on goods returned for repair post-sale.
These notes encapsulate the rights of an unpaid seller, emphasizing their legal remedies and
protections under the Sale of Goods Act. They include detailed explanations and examples
to provide a clear understanding of the law.

TEST QUESTIONS
1. Define unpaid seller. What are his rights under the Sale of Goods Act?
An unpaid seller is defined under the Sale of Goods Act as a seller who has not been paid in
full for the goods sold, either because the price has not been paid or a bill of exchange or
other negotiable instrument has been dishonored.
The rights of an unpaid seller under the Sale of Goods Act include:
• Right of lien on the goods for the price while he is in possession of them.
• Right of stoppage in transit if the buyer becomes insolvent.
• Right of resale under certain conditions.
 • Right to withhold delivery of goods.
2. What is meant by an unpaid seller? Explain the nature of the right of lien and the right
of stoppage of goods in transit of an unpaid seller.
An unpaid seller is a seller who has not received the full price for the goods sold or whose
negotiable instrument, like a cheque, has been dishonored.
• Right of Lien: This right allows the unpaid seller to retain possession of the goods
until payment is made. This right is possessory, meaning it is linked to the seller
having physical possession of the goods.
• Right of Stoppage in Transit: This right allows the unpaid seller to regain possession
of the goods while they are in transit if the buyer becomes insolvent. It becomes
effective once the seller has parted with possession but before the buyer takes
possession.
3. What is meant by the unpaid seller's right of stoppage of goods in transit? Show how it
differs from the unpaid seller's lien.
The right of stoppage in transit allows an unpaid seller to reclaim the goods from the carrier
or bailee while they are en route to the buyer if the buyer becomes insolvent. This right is
invoked after the seller has parted with possession but before the buyer has received the
goods.
Differences from the right of lien:
• Possession: The right of lien applies when the seller is still in possession of the
goods. Stoppage in transit applies after the seller has shipped the goods but before
the buyer takes delivery.
• Trigger Condition: Lien is applicable as long as the seller retains possession of the
goods. Stoppage in transit is specifically triggered by the insolvency of the buyer.
4. Distinguish between an unpaid seller's lien and stoppage of goods in transit. When can
the unpaid seller resell the goods?
• Unpaid Seller's Lien: Applies when the seller has possession of the goods and can
retain them until payment is made.
• Stoppage in Transit: Applies when goods are in transit and allows the seller to stop
the delivery of goods to an insolvent buyer.
An unpaid seller can resell the goods:
• If the goods are perishable.
• If the seller gives notice to the buyer of the intention to resell and the buyer does
not pay within a reasonable time.
• If the seller expressly reserves the right to resell in the contract.
 • If the buyer has been in default for an unreasonable time.
5. State the rules regarding sale by auction.
The rules regarding sale by auction include:
• The sale is complete when the auctioneer announces its completion by the fall of the
hammer or any other customary manner.
• Until the fall of the hammer, any bidder may retract their bid.
• The auctioneer must conduct the sale without reserve unless it is explicitly stated
otherwise.
• If the seller makes use of pretended bidding to inflate the price, the sale is voidable
at the option of the buyer.
PRACTICAL PROBLEMS
1. A sells goods to B. B pays to A through a cheque. Before B could obtain the delivery of
goods, his cheque has been dishonored by the bank. A, therefore, refuses to give delivery
of the goods until paid. Is A's action justified?
Yes, A's action is justified because the right of lien allows the unpaid seller to retain
possession of the goods until payment is made. The dishonor of the cheque means that
payment has not been completed, justifying A's refusal to deliver the goods.
2. P sells to R a quantity of wheat lying in P's warehouse. It is agreed that three months'
credit shall be given to R. R allows the wheat to remain in P's warehouse. Before the
expiry of the three months R becomes insolvent and the Official Assignee demands
delivery of the wheat from P without offering to pay the price. Is P entitled to retain the
goods until paid?
Yes, P is entitled to retain the goods. Under Section 47 of the Sale of Goods Act, P's right of
lien exists even though the goods were sold on credit and the period of credit has not
expired, provided that the buyer is insolvent and the goods are still in the possession of the
seller.
These responses should provide a thorough understanding of the legal concepts related to
unpaid sellers and their rights under the Sale of Goods Act, along with practical applications
of these rights in various scenarios.

Unit 6-
Notes on the Patents Act, 1970

Introduction
With the growth in industrialization and development in India, numerous inventions were
made across various fields such as product, process, and manufacturing. Inventors required
a legal framework to register and recognize their inventions as their intellectual property to
prevent unauthorized use. This framework is provided by the Patents Act, 1970, which
governs the law of patents in India. The Act came into force on 21 September 1970 and has
been amended in 1999, 2002, and 2005.

Objectives of the Patents Act, 1970

1. Encouragement of Inventions: To protect inventors from infringement, thereby
encouraging innovation.
2. Benefit to Society: To ensure inventions benefit society by securing their use on a
commercial scale while ensuring inventors receive reasonable income (royalty).

What is a Patent?
Definition: A "Patent" is a monopoly right granted by the Government to an inventor for an
invention. It conveys and secures the exclusive right to make, use, and sell the invention for
a specified period of time. According to Section 2(1)(m) of the Patents Act, 1970, a "Patent"
means a patent for an invention granted under this Act.
Key Points:
• Exclusive Rights: The patent holder (patentee) has exclusive rights to use the
invention in any manner for a limited period.
• Licensing: The owner can grant licenses to others for exploiting the patent.
• Patentee: Includes assignees whose names are entered into the Register of Patents
(e.g., Luxmi Dutta vs Nankaus, AIR 1964 All 27).

Types of Patents
1. Product Patent: Right to make, use, sell, or distribute the product in India.
2. Process Patent: Right to use and exercise the process in India.

What is an Invention?
Definition (Sec. 2(1)(j)): An "Invention" means a new product or process involving an
inventive step and capable of industrial application.
Inventive Step (Sec. 2(1)(ja)): A feature of an invention that involves technical advancement
or economic significance, making it not obvious to a person skilled in the art.

Patentable Inventions
Subject to Section 3, patents are available for any new invention, whether product or
process, in all fields of technology, provided they are new, involve an inventive step, and are
capable of industrial application.

Non-Patentable Inventions (Sec. 3)

1. Frivolous Inventions: Claims anything contrary to well-established natural laws.
2. Contrary to Public Order/Morality: Inventions that cause serious prejudice to
human, animal, or plant life, health, or the environment.
3. Discoveries: Mere discovery of scientific principles or abstract theories.
4. Known Substances: Discovery of a new form of a known substance without
enhanced efficacy.
5. Mixtures: Substances obtained by mere admixture without any synergistic effect.
6. Arrangements/Re-arrangements: Mere arrangement or duplication of known
devices.
7. Agriculture/Horticulture: Methods of agriculture or horticulture.
8. Medical Methods: Processes for medical or therapeutic treatment.
9. Biological Processes: Plants and animals in whole or parts, except microorganisms.
10. Mathematical/Business Methods: Algorithms or business methods.
11. Aesthetic Creations: Literary, dramatic, musical, artistic works, etc.
12. Mental Acts/Games: Schemes, rules, or methods for mental acts or games.
13. Information Presentation: Presentations of information.
14. Integrated Circuits: Topography of integrated circuits.
15. Traditional Knowledge: Inventions based on traditional knowledge.
Additionally, no patents are granted for inventions related to atomic energy (Sec. 4).

Procedure for Obtaining a Patent

Who Can Apply (Sec. 6):
• Any person claiming to be the true and first inventor.
• Assignees of the inventor.
• Legal representatives of deceased inventors.
Applications can be made alone or jointly with others.
Form of Patent Application (Sec. 7):
• One invention per application.
• Submitted in the prescribed form at the Patent Office.
• International applications under the Patent Cooperation Treaty are recognized if a
corresponding application is filed in India.
Provisional and Complete Specifications (Sec. 9):
• Specification: Description of the invention.
• Provisional Specification: Must be followed by a complete specification within 12
months.
• Complete Specification (Sec. 10): Must fully describe the invention, disclose the best
method known to the applicant, end with a claim or claims, and be accompanied by
an abstract.
Amendment of Application and Specification:
• Amendments can be requested to the Controller of Patents.

This structured format captures the essence of the Patents Act, 1970, providing
comprehensive information, definitions, and legal references while maintaining a medium
length suitable for exam preparation.
Detailed Notes on the Patents Act, 1970

Amendment of Patent Applications and Specifications

• Nature of Amendments: An application for amendment must state the nature and
full particulars of the proposed amendments and the reasons necessitating them. If
the application for amendment is made post-grant, the nature of the proposed
amendment may be published (Sec. 57).
• Limitations on Amendments: No amendment is allowed unless it brings an actual
fact into account. Amendments that make the specifications substantially different
 from the pre-amended specifications or claims that do not fall within the scope of
the pre-amended claims are not allowed (Sec. 59).

Publication and Examination of Applications

• Publication of Applications (Sec. 11A):
• Applications are not open to the public for a prescribed period.
• The applicant can request early publication.
• Mandatory publication occurs after the prescribed period unless:
1. Secrecy direction for defense purposes (Sec. 35).
2. The application is abandoned (Sec. 9).
3. The application is withdrawn three months before the prescribed
period ends.
• Post-publication, biological materials mentioned in the application must be
made publicly available. Specifications and drawings are also available to the
public upon payment of prescribed fees.
• Examination of Applications (Secs. 11B and 12):
• Examination can be requested by the applicant or any interested person
within the prescribed period.
• The Controller refers the application and complete specification to an
examiner for a report on:
1. Compliance with the Act and Rules.
2. Grounds of objection.
3. Prior publication or claims by others.
4. Other prescribed matters.
• If the examiner’s report is adverse, the Controller issues a notice of
objections and provides an opportunity for the applicant to be heard (Sec.
14).
• The Controller may refuse the application or require amendments if it does
not comply with the Act and Rules. If amendments are not satisfactory, the
application can be finally refused (Sec. 15).

Opposition to Grant of Patents (Sec. 25)

• Opposition Before Grant:
 • Any person can oppose the grant of a patent after publication but before
grant on grounds such as:
1. Prior public knowledge or use in India.
2. Wrongful obtaining of the invention.
3. Obviousness and lack of inventive step.
4. Non-patentable subject matter.
5. Incomplete or incorrect disclosure of biological material source.
6. Insufficient and unclear description of the invention or method.
• The Controller hears the opponent before disposing of the petition.
• Opposition After Grant:
• Opposition can be filed within one year of the patent grant publication.
• The Controller notifies the patentee and refers the opposition to an
Opposition Board for recommendations.
• The Controller gives a hearing to both parties before making a final decision,
which could maintain, amend, or revoke the patent.

Provisions for Secrecy of Certain Inventions

• Secrecy Directions (Sec. 35):
• The Controller may restrict publication if the invention is relevant for defense
purposes.
• The Central Government decides if publication prejudices national defense.
• Directions are reviewed every six months and can be revoked if no longer
prejudicial.
• Proceeding with Patent Grant (Sec. 37):
• While secrecy directions are in force, no patent can be granted.
• If used by the Central Government, the applicant may be compensated.
• On revocation of secrecy directions, time extensions for fulfilling patent
requirements may be granted.
• Penalties for Secrecy Violations (Sec. 118):
• Contravention of secrecy provisions or applying for foreign patents without
prior permission results in penalties, including imprisonment up to two years
or fines.
Grant of Patents
• Process of Grant (Sec. 43):
• Patents found in order are granted as soon as possible, with no grant before
six months post-publication.
• The grant is under the seal of the Patent Office and recorded in the Register
of Patents.
• Publication of the grant fact makes application documents publicly
inspectable.
• Substitution on Death (Sec. 44):
• If the applicant dies before grant, the Controller substitutes the name of the
rightful person.
• Penalties for False Entries (Sec. 119):
• Imprisonment up to two years or fines for false entries in the Register.

Rights and Responsibilities of Patentees

• Rights of Patentee (Sec. 48):
• Exclusive rights to prevent unauthorized making, using, offering for sale,
selling, or importing the patented product or process.
• Rights of Co-owners (Sec. 50):
• Equal rights unless otherwise decided. Co-owners can equally benefit from
the patent. The Controller can direct the sale or lease of the patent or grant
licenses if co-owners cannot agree.

Special Provisions
• Term of Patents (Sec. 53):
• The term is twenty years from the application filing date.
• Patents of Addition (Secs. 54-55):
• Granted for improvements or modifications of an existing invention. The
term runs concurrently with the main patent and terminates with it.
• Restoration of Lapsed Patents (Secs. 60-62):
 • Patents lapsed due to non-payment of renewal fees can be restored within
18 months if the failure was unintentional. Restoration applications are
published, and oppositions are heard before restoration.

This comprehensive overview covers the specified sections of the Patents Act, 1970,
detailing the procedures, rights, and obligations associated with patent amendments,
publication, examination, opposition, secrecy, grant, and restoration, maintaining the text's
original integrity.
Surrender and Revocation of Patents
Surrender of Patents (Sec. 63):
• A patentee can offer to surrender a patent by notifying the Controller in the
prescribed manner.
• The Controller publishes the offer and notifies persons with an interest in the patent.
• Interested persons can oppose the surrender.
• The Controller hears both parties (the patentee and the opponent) before making a
decision.
• If the Controller approves, the patent is revoked.
Revocation of Patents (Sec. 64):
• Patents can be revoked on the petition of any interested person or the Central
Government by the Appellate Board or on a counterclaim in an infringement suit by
the High Court.
• Grounds for revocation include:
• The patent was granted to someone not entitled under the Act.
• The patent was wrongfully obtained in violation of the petitioner's rights.
• The patent was based on false suggestions or misrepresentations.
• The claimed invention is not new or is obvious.
• The High Court can revoke a patent if the patentee fails to comply with a request
from the Central Government to use the patented invention for government
purposes on reasonable terms (Sec. 99).
Revocation in Public Interest (Sec. 66):
• The Central Government can revoke a patent if it considers the patent or its exercise
harmful to the State or public interest after giving the patentee an opportunity to be
heard.
Revocation Related to Atomic Energy (Sec. 65):
 • The Central Government can direct the Controller to revoke a patent related to
atomic energy after notifying the patentee and other interested persons, or allow
the patentee to amend the specification to comply with the Act.
Register of Patents (Sec. 67)
• The Patent Office maintains a Register of Patents containing:
• Names and addresses of patent grantees.
• Notifications of assignments, transmissions, amendments, revocations, and
licenses under patents.
• Other prescribed particulars affecting patent validity and ownership.
• The Controller manages the Register, which can be kept in electronic form.
• Certified copies or extracts from the Register are admissible in legal proceedings.
Rectification and Inspection of the Register
Rectification (Sec. 71):
• The Appellate Board can order the rectification of the Register upon application by
an aggrieved person.
• The Controller must implement the Board's rectification orders.
Inspection (Sec. 72):
• The Register is open to public inspection at convenient times, and certified copies of
entries can be obtained for a fee.
Assignment of Patents (Sec. 68)
• Assignments, mortgages, or licenses of patents must be in writing and duly executed.
• These must be registered with the Controller to be valid.
Patent Office and Controller's Powers
Establishment (Secs. 73-76):
• The Patent Office, headed by the Controller General of Patents, Designs, and Trade
Marks, is headquartered in Kolkata, with branch offices in Mumbai, Delhi, and
Chennai.
Controller's Powers (Sec. 77):
• The Controller has civil court powers in matters like summoning witnesses, requiring
document discovery, receiving evidence, issuing commissions, awarding costs,
reviewing decisions, and setting aside ex parte orders.
Correction of Errors (Sec. 78):
 • The Controller can correct clerical errors in patents, specifications, or the Register.
Evidence (Sec. 79):
• The Controller can take evidence via affidavit and allow cross-examination of parties.
Working of Patents (Sec. 83)
• Patents should be worked to the fullest extent possible without undue delay,
contributing to technological innovation and public welfare.
• Patents should not impede public health or nutrition and should not be abused to
restrict trade or technology transfer.
Compulsory Licenses (Sec. 84)
• After three years from the grant of a patent, any person can apply for a compulsory
license on grounds like unmet public needs, unreasonable prices, or lack of local
working.
• The Controller grants licenses if satisfied with the grounds, prioritizing Indian market
demands but allowing export if necessary.
Revocation for Non-Working (Sec. 85)
• If a patented invention is not worked in India or does not meet public needs after a
compulsory license is granted, the Controller can revoke the patent on application by
an interested person or the Central Government.
Termination of Compulsory Licenses (Sec. 94)
• A compulsory license can be terminated if the circumstances that justified its grant
no longer exist, upon application by the patentee or any person deriving title from
the patentee.
Use of Inventions for Government Purposes (Sec. 99-101)
• The Government can use patented inventions for governmental purposes after
notifying the patentee and on mutually agreed terms or court-determined terms.
• Patentee's licenses or agreements restricting government use are void.
Acquisition of Patents by Government (Sec. 102-103)
• The Government can acquire patents for public purposes by notifying the patentee
and compensating them on mutually agreed or court-determined terms.
• The High Court handles disputes related to governmental use or acquisition of
patents.
Infringement Suits (Sec. 104A-106)
• In infringement suits, the defendant must prove their process is different if the
patentee shows product similarity.
 • Any person can seek a declaration of non-infringement if the patentee neglects to
acknowledge their process.
• Courts can provide relief against groundless threats of infringement proceedings.
Appeals (Secs. 116-117A)
• Appeals are made to the Appellate Board within three months of the Controller's or
Central Government's decision.
• Appeals must be in the prescribed form, accompanied by the decision copy and
prescribed fees.
Penalties (Secs. 120-122)
• False claims of patent rights or wrongful use of "Patent Office" words are punishable
with fines or imprisonment.
• Failure to provide information to the Government or Controller, or providing false
information, is punishable with fines or imprisonment.
Patent Agents (Secs. 125-129)
• The Controller maintains a register of patent agents, listing qualified individuals who
meet age, citizenship, and educational or experience criteria.
• Registered agents can practice before the Controller and handle patent-related
transactions.
• Unregistered practice as a patent agent is punishable with fines.
These notes summarize the provisions of the Patents Act, 1970, focusing on the surrender
and revocation of patents, the management of the Register of Patents, assignment
procedures, the powers and establishment of the Patent Office, working requirements,
compulsory licenses, government use, infringement proceedings, appeals, penalties, and the
role of patent agents.
Trade Marks Act, 1999: Comprehensive Notes
Introduction
The Trade Marks Act, 1999, effective from September 15, 2003, replaced the Trade and
Merchandise Marks Act, 1958. The Act aims to amend and consolidate the laws relating to
trade marks for goods and services and to prevent the use of fraudulent marks. It was
further amended by the Trade Marks (Amendment) Act, 2010, enhancing its effectiveness
and purpose.
Registration of Trade Marks
• Optional Nature: Registration under the Act is not compulsory but provides better
legal protection.
What is a Trade Mark?
A trade mark is any sign that distinguishes the goods of one trader from those of another.
This can include words, logos, pictures, or combinations thereof. A trade mark must be:
• Distinctive: Capable of identifying goods or services.
• Non-Deceptive: Should not mislead consumers.
• Lawful and Moral: Must not contravene laws or morality.
• Non-Similar: Should not be identical or similar to existing trade marks for similar
goods.
Purpose of a Trade Mark
• Marketing Tool: Helps customers recognize products of a particular manufacturer or
trader.
Essentials of a Good Trade Mark
1. Selection Criteria:
• Any word, letter, or combination can be chosen.
• Should be easy to speak, spell, and remember.
• Invented or coined words are ideal.
• Avoid laudatory or descriptive words.
• Avoid deceptively similar marks.
Definition of Trade Mark [Sec. 2(1)(zb)]
A trade mark means a mark capable of being represented graphically and distinguishing the
goods or services of one person from those of others. It includes:
• Shape of goods
• Packaging
• Combination of colors
The definition extends to marks indicating a connection in the course of trade between the
goods or services and the proprietor, including certification and collective marks.
Definitions
• Goods [Sec. 2(1)(j)]: Anything subject to trade or manufacture.
• Service [Sec. 2(1)(z)]: Services available to potential users, including business
services like banking, communication, education, and more.
Conditions for Registration of Trade Marks
Classification of Goods and Services (Sec. 7)
The Registrar classifies goods and services as per international standards, with a published
alphabetical index for reference.
Absolute Grounds for Refusal of Registration (Sec. 9)
Trade marks shall not be registered if:
1. Non-Distinctive: Lacks distinctiveness.
2. Descriptive: Merely describes kind, quality, quantity, etc.
3. Customary: Common in the trade.
4. Deceptive: Likely to deceive or cause confusion.
5. Offensive: Hurts religious sentiments.
6. Scandalous/Obscene: Contains inappropriate matter.
7. Prohibited: Forbidden under Emblems and Names Act, 1950.
8. Functional Shapes: Shapes dictated by the goods' nature or technical result.
However, if a mark acquires distinctiveness or becomes well-known, it may still be
registered.
Limitation as to Colour (Sec. 10)
A trade mark can be limited to certain colors, affecting its distinctiveness. If registered
without color limitation, it covers all colors.
Relative Grounds for Refusal of Registration (Sec. 11)
Trade marks are refused if:
1. Confusing Similarity: Identical/similar to an earlier trade mark.
2. Well-Known Marks: If use would unfairly advantage or harm an earlier well-known
mark.
Doctrine of Passing Off
Prevents one from misrepresenting their goods/business as that of another. Key elements:
1. Use of Trade Mark: By the plaintiff.
2. Reputation: The mark is well-known.
3. Association: Public associates the mark with the plaintiff’s goods.
4. Deceptive Use: Defendant’s use causes confusion.
Prohibition on Chemical Elements and Compounds (Sec. 13)
Names of single chemical elements or compounds cannot be registered. WHO-declared
names are also prohibited.
Use of Names and Representations (Sec. 14)
Registration suggesting a false connection with any person (living or deceased within 20
years) requires written consent from the person or their legal representatives.
Registration of Parts and Series of Trade Marks (Sec. 15)
• Parts of Trade Marks: Can be registered separately if they meet independent
registration criteria.
• Series of Trade Marks: Multiple similar marks differing in minor details can be
registered in one application.
Associated Trade Marks (Sec. 16)
Trade marks likely to cause confusion if used by different proprietors can be registered as
associated marks.
Registrar of Trade Marks (Secs. 3 and 5)
The Central Government appoints the Controller General of Patents, Designs, and Trade
Marks as the Registrar. The Trade Marks Registry's head office and branch offices are
established as per government specifications.
Register of Trade Marks (Sec. 6)
A central register is maintained, which can be in electronic form. It contains all registered
trade marks and relevant details.
Procedure for Registration of Trade Marks (Secs. 18 and 19)
• Application: Filed by the proprietor or proposed user.
• Examination: Registrar may accept, refuse, or conditionally accept.
• Advertisement: Accepted applications are advertised.
• Opposition: Any person can oppose registration within four months of
advertisement.
Advertisement of Application (Sec. 20)
Accepted applications are advertised. Corrections or amendments require re-advertisement.
Opposition to Registration (Sec. 21)
Any person can oppose registration, leading to a counter-statement and possible hearing
before the Registrar decides on registration.
These notes provide a detailed yet concise summary of the Trade Marks Act, 1999, focusing
on key points and maintaining the textbook language and examples.

Registration of Trade Mark (Sec. 23)

 • Process: Upon acceptance of an application and resolution of any opposition under
Section 21, the Registrar shall register the trade mark within 18 months of the
application, unless otherwise directed by the Central Government.
• Date of Registration: The date of filing is deemed the date of registration.
• Certificate: A Certificate of Registration is issued in a prescribed form sealed with the
Trade Marks Registry seal.
• Default and Abandonment: If registration is not completed within 12 months due to
the applicant's default, the application may be treated as abandoned after a
reasonable opportunity to rectify the situation.
Duration and Renewal of Registration (Sec. 25)
• Initial Period: Registration is valid for ten years.
• Renewal: It can be renewed for subsequent ten-year periods upon payment of the
prescribed renewal fees.
• Late Renewal: If renewal fees are not paid on time, the Registrar may remove the
trade mark from the register. However, if the proprietor applies within six months of
expiry with the requisite fees and surcharge, the trade mark will be renewed for ten
years.
Removal and Restoration of Registration (Sec. 25)
• Removal: The Registrar may remove the trade mark if renewal fees are not paid.
• Restoration: The trade mark can be restored within one year from the last
registration's expiration upon application and payment of prescribed fees.
Effect of Registration of Trade Mark
Action for Infringement of Unregistered Trade Mark (Sec. 27)
• No Legal Action: No action or damages can be recovered for infringement of an
unregistered mark.
• Passing Off: Remedies for passing off goods or services as those of another remain
available.
Right Conferred by Registration (Sec. 28)
• Exclusive Right: Registration grants the proprietor exclusive rights to use the trade
mark for registered goods/services.
• Relief: The proprietor is entitled to relief in case of infringement.
Infringement of Registered Trade Marks (Sec. 29)
A registered trade mark is infringed in the following cases:
 1. Identical/Deceptively Similar Use: Use of a mark identical or deceptively similar to
the registered trade mark for the same goods/services likely to cause confusion.
2. Similar Goods/Services: Use of a similar mark for similar goods/services likely to
cause confusion or association with the registered trade mark.
3. Dissimilar Goods/Services: Use of an identical or similar mark for dissimilar
goods/services that takes unfair advantage of or is detrimental to the trade mark's
distinctive character or repute.
4. Trade Name: Use of the trade mark as a trade name or part of a business name.
5. Labelling/Packaging: Applying the trade mark to materials intended for labelling or
packaging without authorization.
6. Advertising: Use in advertising that takes unfair advantage or is detrimental to the
trade mark's distinctive character or repute.
7. Spoken Use: Infringement can also occur through spoken use of the trade mark's
words.
Acts Not Constituting Infringement of Registered Trade Marks (Sec. 30)
A registered trade mark is not infringed in the following cases:
1. Honest Practices: Use in accordance with honest business practices not detrimental
to the trade mark's character or repute.
2. Descriptive Use: Use indicating kind, quality, quantity, intended purpose, value,
origin, or time of production of goods/services.
3. Conditions and Limitations: Use within the limits of registered conditions and
limitations.
4. Consent: Use with the trade mark proprietor's consent.
5. Adaptation: Use for goods adapted to form part of other goods or services.
6. Multiple Registered Marks: Use of one of several identical or similar registered trade
marks.
7. Lawful Acquisition: Sale of goods lawfully acquired under the trade mark.
Registration to be Prima Facie Evidence of Validity (Sec. 31)
• Legal Proceedings: Original registration and subsequent assignments or
transmissions are prima facie evidence of validity.
• Distinctive Character: Applies even if the trade mark was not distinctive at
application but became so by use before registration.
Effect of Acquiescence (Sec. 33)
 • Proprietor Acquiescence: If the proprietor of an earlier trade mark allows a
subsequent trade mark to be used for five years, they cannot oppose its use,
provided it was registered in good faith.
Saving of Vested Rights (Sec. 34)
• Prior User: A person who has used a trade mark for goods before another similar
trade mark's registration can continue to use it without interference.
Assignment of Trade Marks (Secs. 37 to 41)
• Assignment: Trade marks can be assigned with or without the business's goodwill,
requiring written documentation.
• Registration of Assignee: The assignee must apply to the Registrar for registration of
their title, which will be entered in the Register.
• Restrictions: Assignments creating multiple exclusive rights or exclusive rights in
different parts of India may not be permitted.
Proposed Use of Trade Mark by Company to be Formed (Sec. 46)
• Registration: Trade marks can be registered with the intention to assign them to a
company to be formed or a registered user.
• Expiration: If the company is not formed within a prescribed period, the registration
ceases to have effect.
Removal of Trade Mark from the Register (Sec. 47)
• Grounds for Removal:
• No bona fide intention to use the trade mark at registration.
• No bona fide use of the trade mark for five years or more.
• Special Circumstances: Non-use due to special circumstances like legal restrictions
or war can be a defense.
Registered Users and their Registration (Secs. 48-50)
• Permitted Use: Third parties can use a registered trade mark under a registered user
scheme.
• Application: Joint application by proprietor and proposed registered user,
accompanied by an agreement and affidavit.
• Cancellation: Registration can be canceled if the registered user violates the
agreement or misrepresents facts.
Collective Trade Marks (Secs. 61-63)
• Definition: A collective trade mark is owned by an association and used by its
members.
 • Application: Must include Regulations governing its use.
• Removal: The Registrar can remove the mark if it misleads the public or if
regulations are not observed.
Certification Trade Marks
• Definition: Certifies origin, composition, quality, etc., of goods or services, not
owned by those dealing in certified goods/services.
• Application: Accompanied by Regulations governing its use.
• Registrar's Decision: The Registrar can accept, modify, or reject the application after
ensuring the applicant's competence.
• Modification/Removal: On application by an aggrieved person, the Registrar can
expunge or vary entries or Regulations if the proprietor is incompetent or
regulations are violated.
Test Questions
1. What is a Trade Mark? What are the essentials of a good trade mark? Discuss the
absolute grounds for refusal of registration of a trade mark under the provisions of the
Trade Marks Act, 1999.
Definition:
• A trade mark is a symbol, word, or words legally registered or established by use as
representing a company or product.
Essentials of a Good Trade Mark:
• Distinctiveness: It should be easily distinguishable from other marks.
• Non-descriptive: Should not describe the quality, nature, or kind of goods/services.
• Non-deceptive: Should not deceive the public regarding the nature, quality, or
geographical origin.
• Lawful: Should not be prohibited under any law.
• Non-offensive: Should not contain scandalous or obscene matter.
Absolute Grounds for Refusal:
• Marks that are devoid of any distinctive character.
• Marks that exclusively indicate the kind, quality, quantity, intended purpose, value,
geographical origin, or the time of production.
• Marks that have become customary in the current language or established practices
of the trade.
• Marks that are of such a nature as to deceive the public or cause confusion.
 • Marks that contain scandalous or obscene matter.
• Marks that are prohibited under the Emblems and Names (Prevention of Improper
Use) Act, 1950.
• Marks that are likely to hurt religious susceptibilities of any class or section of
citizens of India.
• Marks that are identical to or resemble a well-known trade mark.
2. Explain the relative grounds for refusal of registration of a trade mark under the
provisions of the Trade Marks Act, 1999.
Relative Grounds for Refusal:
• The mark is identical with or similar to an earlier trade mark and is to be registered
for goods or services identical with or similar to those for which the earlier trade
mark is registered.
• The mark is identical with or similar to an earlier trade mark and is to be registered
for goods or services not similar to those for which the earlier trade mark is
registered, but the earlier trade mark has a reputation in India and the use of the
later mark would take unfair advantage of, or be detrimental to, the distinctive
character or repute of the earlier trade mark.
• The mark would cause confusion on the part of the public, including the likelihood of
association with the earlier trade mark.
3. Discuss the provisions of law for registration of parts of a trade mark or registration of
trade marks as a series under the Trade Marks Act, 1999. Explain the effect of such
registration.
Registration of Parts of a Trade Mark:
• A part of a trade mark can be registered as a separate trade mark if it is distinctive by
itself and fulfills the criteria of a trade mark.
Registration of Trade Marks as a Series:
• Trade marks that resemble each other in their material particulars and differ only in
respect of the matters that do not substantially affect the identity of the trade
marks, such as the indication of price, quality, or names, can be registered as a
series.
Effect of Such Registration:
• Provides broader protection by covering slight variations of the trade mark.
• Simplifies the management of trade marks, allowing for a single renewal and easier
enforcement against infringements.
4. What is the procedure for (a) registration of trade marks, and (b) opposition to
registration of Trade Marks? Discuss.
Registration Procedure:
• Filing Application: Application filed with the Trade Marks Registry.
• Examination: Registrar examines the application for compliance with the Act.
• Advertisement: If accepted, the trade mark is advertised in the Trade Marks Journal.
• Opposition: Third parties can oppose the registration within four months from the
date of advertisement.
• Registration: If no opposition is received or if the opposition is resolved in favor of
the applicant, the trade mark is registered, and a certificate of registration is issued.
Opposition Procedure:
• Notice of Opposition: Any person can file a notice of opposition within four months
from the date of advertisement.
• Counter-Statement: Applicant files a counter-statement within two months of
receiving the notice of opposition.
• Evidence: Both parties submit evidence supporting their claims.
• Hearing: Registrar hears both parties and makes a decision.
• Decision: Registrar either upholds the opposition and refuses the registration or
rejects the opposition and proceeds with the registration.
5. Discuss the provisions of law regarding (a) registration of trade mark, (b) duration and
renewal of registration, (c) removal and restoration of registration, and (d) rights
conferred by registration.
(a) Registration:
• Process: Filing, examination, advertisement, opposition, and registration.
• Certificate: Issued in prescribed form sealed with the Trade Marks Registry seal.
(b) Duration and Renewal:
• Duration: Initial period of ten years.
• Renewal: Can be renewed for subsequent ten-year periods by paying the prescribed
renewal fees.
(c) Removal and Restoration:
• Removal: For non-payment of renewal fees.
• Restoration: Can be restored within one year from expiration upon application and
payment of prescribed fees.
(d) Rights Conferred:
• Exclusive right to use the trade mark for the registered goods/services.
• Right to seek relief in case of infringement.
• Right to assign, license, or transfer the trade mark.
6. Discuss the provisions of the Trade Marks Act, 1999 regarding infringement of
registered trade marks. Enumerate the acts which do not constitute infringement of
registered trade mark under the provisions of the Trade Marks Act, 1999.
Infringement:
• Use of an identical or similar mark for identical or similar goods/services likely to
cause confusion.
• Use of an identical or similar mark for dissimilar goods/services that takes unfair
advantage or is detrimental to the distinctive character or repute of the registered
trade mark.
• Use of the trade mark as a trade name or part of a business name.
• Application of the trade mark to materials intended for labelling or packaging
without authorization.
• Use in advertising that takes unfair advantage or is detrimental to the trade mark's
distinctive character or repute.
Acts Not Constituting Infringement:
• Honest use in business practices.
• Use indicating the kind, quality, quantity, intended purpose, value, origin, or time of
production of goods/services.
• Use within the limits of registered conditions and limitations.
• Use with the trade mark proprietor's consent.
• Use for goods adapted to form part of other goods or services.
• Use of one of several identical or similar registered trade marks.
• Sale of lawfully acquired goods under the trade mark.
7. What do you mean by (a) Collective Trade Marks and (b) Certification Trade Marks
under the provisions of The Trade Marks Act, 1999? Discuss.
(a) Collective Trade Marks:
• Definition: A trade mark distinguishing the goods or services of the members of an
association from those of others.
 • Ownership: Owned by an association of persons, not including a partnership under
the Indian Partnership Act, 1932.
• Use: Reserved for members of the association.
• Registration: Application accompanied by Regulations governing its use.
• Removal: Registrar can remove the mark if it misleads the public or if regulations are
not observed.
(b) Certification Trade Marks:
• Definition: A mark certifying the origin, composition, quality, etc., of goods or
services, not owned by those dealing in certified goods/services.
• Proprietor: Must be competent to certify the relevant goods/services.
• Application: Accompanied by Regulations governing its use.
• Registration: Registrar can accept, modify, or reject the application after ensuring
competence.
• Modification/Removal: Registrar can expunge or vary entries or Regulations if the
proprietor is incompetent or regulations are violated.
Notes on:
Doctrine of 'Passing Off':
• Protects the goodwill of a business from misrepresentation.
• Prevents others from passing off their goods/services as those of another.
• Requires proof of goodwill, misrepresentation, and damage.
Associated Trade Marks:
• Trade marks that are registered and used together.
• Prevents separate use that could lead to confusion.
Assignment of Trade Marks:
• Transfer of ownership of a trade mark.
• Requires written documentation.
• Assignee must apply for registration of their title with the Registrar.
Registered Users of Trade Marks:
• Third parties allowed to use a registered trade mark under a registered user scheme.
• Requires a joint application by the proprietor and the proposed registered user.
 • Registrar can cancel registration if the registered user violates the agreement or
misrepresents facts.
Notes on Designs Act, 2000
Introduction
• Background: Design, in the industrial and commercial context, refers to expressing a
mental conception in a physical form. The Indian Patents and Designs Act, 1911
initially protected designs, but with advancements, the Designs Act, 2000 was
enacted.
• Aim: The Designs Act, 2000 aims to provide effective protection to registered
designs, granting valuable rights to their owners against infringers.
Definitions
• Design: It refers to the features of shape, configuration, pattern, ornament, or
composition of lines or colors applied to any article by an industrial process,
appealing solely to the eye.
• Example: A unique pattern on a textile fabric or a distinct shape of a bottle.
• Article: Any manufactured item or substance, including parts capable of being sold
separately.
• Illustration: A cap of an oil bottle, detachable and capable of individual sale.
• Originality: Designs must originate from the author and embody newness or
originality in their application.
• Case: Uppiliappan v. Raja Goundan (AIR 1952) - Even old designs can be
considered original if applied in a new context.
Registration Process
• Controller and Officers: The Controller General of Patents, Designs, and Trade Marks
oversees design registrations, appointing examiners and officers.
• Case: Gopal Glass Works Ltd. v. Asst. Controller of Patents (AIR 1986) -
Controller's decision final on registration.
• Application: Proprietors apply for registration, subject to examination by the
Controller, who may refuse registration if deemed fit.
• Example: Filing an application for a unique chair design.
• Prohibition: Certain designs, like those lacking originality or containing scandalous
matter, are prohibited from registration.
Copyright and Duration
 • Copyright: Registered proprietors enjoy copyright for ten years, extendable for five
more upon application and payment of prescribed fees.
• Case: Rasiklal Manikchand Dhariwal v. Ajaybhai R Shah (AIR 1997) - Upheld
importance of copyright protection.
• Restoration: Designs that lapse due to non-payment of fees can be restored within
one year, subject to conditions.
• Illustration: Restoring copyright for a lapsed chair design after payment of
fees and submission of reasons for lapse.
Obligations and Rights
• Marking and Inspection: Proprietors must mark articles with the registered design.
Any person can inspect registered designs upon payment of fees.
• Case: Dabur India Ltd. v. K.R. Industries (AIR 2008) - Emphasized the
importance of marking for protection.
• Cancellation and Rectification: Interested parties can petition for cancellation or
rectification of design registrations on various grounds.
• Example: Petitioning for cancellation due to prior registration or lack of
originality.
Infringement and Penalties
• Piracy: Unauthorized use, application, or importation of a registered design
constitutes piracy, subjecting the infringer to penalties.
• Case: M/s. Anand Industries v. M/s. Delux Udyog (AIR 2004) - Court upheld
penalties for design piracy.
• Restrictive Conditions: Contracts cannot restrict purchasers from acquiring similar
articles or using them for non-registered purposes.
• Example: Prohibition on using a chair design for non-chair purposes.
General Provisions
• Fees and Inspection: Payment of prescribed fees is necessary for all design-related
proceedings. Registers are open for public inspection.
• Security and Disclosure: The Controller must maintain confidentiality on designs
affecting national security, with powers to cancel registrations.
• Example: Non-disclosure of designs used in military applications.
Reciprocal Arrangement and Copyright Protection
• Priority: Applicants from certain countries enjoy priority in registration if applied
within six months.
 • Illustration: An applicant from the UK registering a design in India within the
prescribed timeframe.
• Copyright Protection: Designs used for international exhibitions or imported articles
must adhere to copyright laws.
• Case: M/s. X v. Union of India (AIR 2012) - Upheld reciprocal arrangement for
copyright protection.
These notes provide a comprehensive overview of the Designs Act, 2000, covering
definitions, registration processes, copyright protection, obligations, infringements, and
general provisions.
TEST QUESTIONS ANSWERS
1. Defined the term "design"
Definition: The term "design" as per the Designs Act, 2000, refers to the features of shape,
configuration, pattern, ornament, or composition of lines or colors applied to any article by
any industrial process. These features must be appealing solely to the eye and can be
applied manually, mechanically, or chemically.
Explanation: A design is essentially the visual appearance of an article that makes it unique
and aesthetically appealing. It encompasses elements like shape, pattern, and
ornamentation, distinguishing one article from another.
2. Discuss the provisions relating to the registration of Designs under the Designs Act,
2000
Provisions:
• Any person claiming to be the proprietor of a new or original design may
apply for registration to the Controller of Designs.
• The application must be made in the prescribed format and accompanied by
the requisite fees.
• The Controller may examine the design for its eligibility and may refuse
registration if deemed fit.
• Upon registration, the design is protected for an initial period of ten years,
extendable for five more years upon application and payment of prescribed
fees.
Explanation: The registration process under the Designs Act, 2000, allows individuals to
protect their unique designs from infringement. It involves applying to the Controller, who
examines the design's eligibility and grants registration if it meets the criteria. Registration
provides exclusive rights to the proprietor for a specified duration.
3. Discuss the provisions relating to the restoration of lapsed designs under the
Designs Act, 2000
Provisions:
• If a design lapses due to non-payment of fees, the proprietor or their legal
representative can apply for restoration within one year from the lapse date.
• The application must be made in the prescribed manner and accompanied by
the requisite fees.
• The Controller may restore the registration after considering the
circumstances of non-payment and any additional evidence provided.
Explanation: The Act allows for the restoration of lapsed designs under certain conditions,
providing an opportunity for proprietors to regain protection for their designs if they failed
to renew them due to valid reasons.
4. Write notes on:
• Copyright on registration: Upon registration, the proprietor of a design
obtains copyright for a period of ten years, extendable for an additional five
years upon application and payment of prescribed fees. This copyright grants
exclusive rights to reproduce, distribute, and display the design.
• Piracy of Registered Designs: Any unauthorized use, application, or
importation of a registered design constitutes piracy, subjecting the infringer
to penalties as per the Act.
• Cancellation of Registration of a design: Any interested party may petition
for the cancellation of a design registration on various grounds, including
prior registration, lack of originality, or non-registerability under the Act.
• Rectification of Registration of Designs: Any aggrieved person may apply for
the rectification of the register of designs in case of non-insertion, omission,
or wrongful entry, subject to the Controller's decision and appeal to the High
Court.