CHAPTER 6

INDIAN CONTRACT ACT,1872

6.1 FORMATION OF VALID CONTRACT
The law relating to the contracts is contained in the Indian Contract Act; 1872.It is that branch
of law, which lays down the essentials of valid contracts, different modes of discharging the
contract and remedies available to the aggrieved party in case of breach of contract. It is the
most important branch of business law. It is very important to people in any trade, business
and industry as bulk of their business transactions are based on the contracts.
A contract is an agreement between two or more parties, which the law will enforce. Section 2
(h) of the Indian Contract Act, 1872 defines contact as An agreement enforceable by
law. Secondly, Section 10 lays down that all agreements are contract if they are made
by the free consent of parties competent to contract, for a lawful consideration and with
a lawful object and are not hereby declared to be void.
The word agreement which creates legal relations between the parties is a contract between
the parties. Mere social or moral relations between the parties do not create a contract
between the parties. Thus for e.g. A and B agreed to go to restaurant. Here A proposed to
meet at 5 oclock and B accepted it. This proposal + acceptance = agreement. If A or B failed
to perform his part of the obligation, the other party could not, with the help of law, force him to
perform it.
Similarly A and B entered into a contract whereby A proposed to sell his property for Rs.
5,00,000/- to B. B accepted the proposal. Here also, there is a proposal and acceptance. But
this agreement is coupled with an intention of the parties to respectively bind each other to the
agreement. Hence one of the parties fail to perform his part of the agreement, the other party
can, with the help of law, force him to perform his part of the obligation under the agreement. It
is the intention of the party, which binds them to their agreement.
Where the obligation created between the parties is of social nature, there being no intention
at that time of agreement to legally bind each other, it would only remain as an agreement. But
if there was an intention between the parties to legally bind each other on the agreement, the
agreement could be enforceable by law. Such an agreement that is enforceable by law could
be said to be contract.
Thus, an agreement which is created between the parties with an intention to legally bind each
other, could be said to be a contract while an agreement which an agreement which has social

binding only shall be an agreement only between the parties and not a contract. The intention
to create a legal relation may not be expressly stated by the parties. Such intention may be
implied depending upon the facts of the case. The conclusion is that all agreements are not
contract but all contracts are agreements which means agreement enforceable by law
are contracts.
Hence for an agreement to become a contract, following, are the essentials:
1. Two parties: There must be two parties for a valid contract i.e. promisor or proposer
and promisee or proposee.
2. Offer and acceptance: The offer by one party to another must be lawful. The offer must be
absolute and not conditional. Acceptance by the other party to the agreement must be lawful. It
must be absolute and not conditional.
3. Consensus-ad-idem or identity of minds:
The parties to the contract must have agreed about the subject matter of the contract at
the same time and in the same sense. E.g. A has two properties, one at Pune and other at
Mumbai. A has offered to sell one property to B. B accepts thinking to purchase the Mumbai
property, while A, when he offers, has in his mind to dispose of house at pune.
There is no Consensus-ad-idem.
4. Agreement must be enforceable by law: The parties entering into the agreement must do
so with an intention to legally bind each other to the agreement. Intention may be expressed or
implied depending upon the facts of the case. Where such intention is absent in the
agreement, the agreement will not be enforceable by law. Hence an agreement will not be a
contract but only an agreement.
5. Consideration: It means something in return. Every contract must be supported by
consideration. Consideration may be in

Cash

Kind

Forbearance

A promise to do or not to do something

Consideration may also be in the

Past

Present

Future

Consideration may also be

Real

Something more than mere consideration

Lawful consideration

6. Capacity: The parties to the contact must be competent to contract. Section 11 defines
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. This means any person who is

A major

Sound mind

Not disqualified under any law

7. Free consent: The consent of the parties must be free from any law. Section 14 states that
consent is said to be free when it is not caused by:

Coercion section 15

Undue influence- Section 16

Fraud- Section 17

Misrepresentation- Section 18

Mistake- Section 20,21,and 22

8. The object of the consent must be lawful: The agreement must be lawful object or for
lawful purpose.
The object of the agreement is lawful, unless

It is forbidden by law; or

It would defeat the provisions of any law; or

It is fraudulent; or

It involves or implies injury to the person or property of another; or

The court regards it as immoral or opposed to public policy.

9. Agreement must not be declared to be void: The Indian contract Act, 1872 lays down the
following agreements expressly as void

Agreement where both parties are under mistake as to matter of fact-Section 20.

Agreement in restraint of marriage- Section 26.

Agreement in restraint of trade Section 27.

Agreement in restraint of judicial proceedings- Section 28.

Agreement where the terms are not certain Section 29.

Agreement of wager- Section 30.

Agreement to do an impossible thing- Section 56.

10. Legal formalities: A valid contract may be oral or written. But certain agreements are
required by the act or law to be in writing. Legal formalities like registration; attestation etc may
be required by law. If the legal formalities are not complied it could not be enforceable by law.
Therefore could not be termed as valid contract. An agreement that does not contain the above
essentials shall not be enforceable by law. It will be only as an agreement and not a valid
contract.
6.2

CLASSIFICATION OF CONTRACTS

VALIDITY

FORMATION

PERFORMANCE

1. CLASSIFICATION ACCORDING TO VALIDITY

A contract is based on an agreement. An agreement becomes a contract when all the essential
elements referred to above are present. In such a case the contract is a valid contract. If one
or more of these elements are missing, the contract is voidable, void, illegal, or unenforceable.
a. VOIDABLE CONTRACT
Section 2(i) defines An agreement which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of other or others, is a voidable
contract. Example: A promises to sell his farm to B for Rs. 10 lakhs. His consent is obtained by
force. The contract is voidable at the option of the A. He may avoid the contract.
b. VOID COTRACT
A contract that is not enforceable by law is void contract. Example: A contract entered into by
a minor is void.
c. ILLEGAL AGREEMENT
An illegal agreement is one which is criminal in nature or which is immoral. Such an
agreement is a void. Illegal agreements are void but all void agreements or contracts are not
necessarily illegal.

d. UNENFORCEABLE CONTRACT
An unenforceable contract is one that cannot be enforced in a court of law because of some
technical defect. Example: In the case of recovery of loan time barred debt is unenforceable.
2. CLASSIFICATION ACCORDING TO FORMATION
a. EXPRESS CONTRACT
If the terms of a contract are expressly agreed upon whether by words spoken or written at
the time of the formation of the contract, the contract is said to be an express contract.
Example: Guarantee card issued by a seller to the purchaser is an express contract.
b. IMPLIED CONTRACT
An implied contract is one that is inferred from the acts or conduct of the parties or course of
dealings between them. It is not the result of any express promise or promises by the parties
but of their particular act.
Example: A boards the bus from V.T and gets down at Dadar. It is an implied contract that he
has to purchase the ticket.
3. CLASSIFICATION ACCORDING TO PERFORMANCE
a. EXECUTED CONTRACT
An executed contract is one which both the parties have performed their respective
obligations. Example: A agrees to deliver a book to B for Rs. 200/-. When A delivers the book
and B pays the price for the book, the contract is said to be executed.
b. EXECUTORY CONTRACT
An executory contract is one in which both the parties have yet to perform their obligations.
Example: If A agrees to deliver the goods at a future date and B agrees to pay the price in
future, it is termed as executory contract.
c. UNILATERAL CONTRACT
A unilateral contract is one which only one party has to fulfill his obligation at the time of the
formation of the contract, the other party having fulfilled his obligation at the time of the
contract or before the contract comes into existence.
d. BILARERAL CONTRACT
A bilateral contract is one in which the obligations on the part of both the parties to the contract
are outstanding at the time of the formation of the contract. It is similar to executory contract.
6.3 OFFER
The first essential of a contract is proposal or offer. An offer or acceptance or an acceptance
may be express or implied. An implied offer and acceptance is valid in the eyes of law. Express

offer means communicated in words either oral or written. Section 9 of Indian Contract, 1872,
states, In so far as the proposal or acceptance of any promise is made in words, the
promise is said to be express. In so far as such proposal or acceptance is made
otherwise than in words, the promise is said to be implied.
Section 2(a) of Indian Contract Act, defines an offer or proposal as, When one person
signifies his willingness to do or to abstain from doing anything with a view to obtaining
the assent of that other to such act or abstinence, he is said to make a proposal. The
person making the proposal is called the proposer or offeror and the person to whom the
proposal is made is called offeree.
a. LEGAL RULES RELATING TO OFFER
1. It must contain definite terms. If the terms are ambiguous it shall not be binding on the
parties.
2. It must intend to give rise to legal consequences.
Balfour Vs Balfour: Husband promise to pay Rs. 1000/- per month to his wife, staying away
from him. Held promise was never intended to enforce in law.
3. It must be distinguished from quotation or an invitation to offer.
Where the offer is made with such finality that the offer is only waiting for the acceptance of
the other party it is an offer. Where the offeror only proposes certain terms on which he is
willing to discuss but has not expressed his final decision or willingness to obtain the
acceptance of the other person he does not make an offer. He has only invited the other party
to make an offer.
In Harvey Vs Facie 1893 AC 552 Facie owned a Bumper Hall Pen (a large piece of land for
horse and cattle breeding). Harvey telegraphed to Facie will you sell us BHP. Telegraph lowest
price. Facie also replied by telegram, lowest price for BHP 900. Harvey again telegraphed
we agree to purchase BHP for 900 Facie did not reply and refuse to sell the land at that
price. The court held that Harvey asked two questions in his first telegram. The first question
was whether Facie was willing to sell. The second question was an enquiry about the lowest
price. Facie had only suggested only the lowest price. Infact what Facie had done was he had
invited an offer from Harvey. Hence Facie was not bound to sell at that price.
4. An offer may be made to an individual or to the world at large. An offer is called a specific
offer when it is made to an individual. Carlill Vs Carbolic Smoke Ball Co. 1893 IQ B 256. The
company has offered by advertisement, a reward 100 to anybody contracting influenza after
using their smoke ball according to their direction. Mrs. Carlill used it as directed but still had

an attack of influenza. Hence, she sued for the award of 100. It was held that she was
entitled to the award since an offer made at large, can ripen itself into a contract with anybody
who performs the terms of the offer.
5. An offer is different from a tender.
The word tender means offer. The person inviting tender is not the offerer. The person making
the tender is an offeror. The person inviting the tender may accept it or not. E.g. A offers to sell
the goods to B at a particular price for a particular period from certain trade. If B accepts it, it is
called a tender. It becomes an acceptance only when B places an order for a part of the goods.
6. An offer must be communicated to the offeree.
In Lalman Vs Gauridutt, (1913) II A.L.J. 489 L was in employment of G. Gs nephew was
lost. G offered reward to anyone who might find the missing boy, L did not know of the offer
when he found out the boy. Held, L was not entitled for the reward as the offer, it was not
communicated to L. He was ignorant about the offer. Section 4 lays down that the
communication of an offer is complete only when it reaches the offeree. So an offer binds the
offeror only when the offeree has the knowledge of the offer.
7. An offer must be kept open until

It has been accepted

It has been rejected

It has been revoked

It has lapsed

8. An offer may be accepted until

It has been revoked

It has lapsed

6.4 ACCEPTANCE
Section 2(b) of the Indian Contract Act defines acceptance as, When the person to
whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A
proposal when accepted becomes a promise. An offer when accepted becomes a contract.
Section 2 (c) of the Indian Contract Act states, The person making the proposal is called
the promisor or proposer and the person accepting the proposal is called the
promisee or proposee.

a. ESSENTIALS OF VALID ACCEPTANCE

1. Acceptance must be communicated in usual and reasonable manner. It may be made by
express words, spoken or written or by conduct of parties, i.e. by doing an act that amounts to
acceptance according to the terms of the offer or by the offeree accepting the benefit offered
by the offeror. Any method can be prescribed for the communication of acceptance. But silence
can never be prescribed as method of communication. Hence mere mental assent without
expressing it and communicating it by means of words or an act is not sufficient.
2. Communication of acceptance may be waived by the offeror. This rule is established in the
case of Carlill Vs Carbolic Smoke Ball Co. 1893 IQB 256, the company advertised that
having used their medicine person shall not suffer from influenza. If the person suffered from
the attack of influenza after consuming their medicine they would be paid a reward of 100.
Carlill used their medicine and even then suffered from influenza. Held she was entitled to
recover 100, as the acceptance was complete the moment Carlill performed the condition of
using the medicine. No separate intimation of acceptance to the company was necessary.
3. Acceptance should be made before the offer lapses or is rejected.
4. Acceptance must be absolute and unconditional and should correspond with the terms of
the offeror. Otherwise it amount to terms of offer that may be accepted or rejected by the
offeror. In the case of Hyde Vs Wrench 1840 3 BEAN V 334 Hyde offered to sell his farm for
1000. Wrench offered instead 950, Hyde refused this offer. After that Wrench offered to
purchase the farm for 1000 and Hyde refused. Held, by giving counter offer of 950, Wrench
in effect rejected or refused the original offer of 1000. Second time Wrench offered 1000,
which Hyde refused. It was held that offer once refused or rejected couldnt be revived by
subsequent acceptance of the same. Refusal of offer may be express or implied. Where the
offeree by express words, spoken or written, refuses to accept the offer it is called express
refusal. Implied refusal may be by counter offer and conditional acceptance.
5.Various modes of acceptance:

Written

Spoken

Post

Telegram

Conduct

Prescribed manner

6.Mental acceptance is not sufficient in law. Silence cannot be taken to mean acceptance of a
proposal. There must be communication by words or conduct by an offeree.
7.Acceptance must be made by a certain person. An offer may be made to world at large. But
a contract may rise only if an individual accepts it.
8. An act done in ignorance of the proposal is not acceptance, as held in the case of Lalman
Vs Gauridutt.
Communication of an offer, Acceptance and Revocation Sections 4,5 &6
Section 4 of the Indian Contract Act, 1872 defines The communication of a proposal is
complete when it comes to the knowledge of the person to whom it is made.

As against the proposer when it is put in a course of transmission to him so as to be

out of the power of the acceptor.

As against the acceptor when it comes to the knowledge of the proposer.

The communication of a revocation is complete

As against the person who makes it, when it is put into a course of transmission to the person
to whom it is made, so as to be out of the power of the person who makes it;As against the
person to whom it is made, when it comes to the knowledge.E.g. A offers to sell a plot of land
to B for Rs.1, 00,000/-. The communication of proposal is complete when B receives the letter.
B accepts the letter send by A by courier. The communication of the acceptance is complete
as against A, when the letter is posted as against B when A receives the letter. A revokes his
proposal by telegram. The revocation is complete as against A, when the telegram is
despatched and as against A, when it reaches him.
Revocation of proposal and Acceptance:
Section 5 of Indian Contract Act, 1872, defines A proposal may be revoked at any time
before the communication of its acceptance is complete as against the acceptor, but not
afterwards.
An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.
E.g. A offers to sell B his plot of land situate at pune for Rs. 5,00,000/- by post. B accepts the
proposal by a letter sent by post.
A may revoke his proposal at any time before or at the time when B posts his letter of
acceptance but not, afterwards.

B may revoke his acceptance at any time before or at the time when the letter communicating
it reaches A, but not afterwards.
Section 6 of Indian Contract Act, states, and a proposal is revoked:

By the communication of notice of revocation by the proposer to the other party.

By the lapse of the time prescribed in such proposal for its acceptance or, if no time is
so prescribed by the lapse of a reasonable time without communication of the
acceptance.

By non-fulfillment of the condition precedent to acceptance.

By the death or insanity or insolvency of the proposer if the fact is known to the
knowledge of the acceptor before acceptance.

6.5 CONSIDERATION
Consideration means something in return. Consideration is the price offered by one party
for which the promise of the other is bought and the promise thus given for value is
enforceable. Blackstone defines consideration as the recompense given by the party
contracting to the other. According to the Indian Law, consideration is some act done or
promised to be done at the desire of the promisor. Section 2(d) of the Indian Contract Act
defines consideration as 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 abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise. Consideration is an essential feature of a contract.
A promise for promise is consideration. The Kolkatta High Court has said that consideration is
the price of a promise, or Quid Pro quo or Nudum pactum or No consideration no
contract or Ex nudo pacto non oritur action which means that consideration is the price
for promise. Consideration must have some value and should not be illusory or imaginary.
Without consideration a contract is void i.e. it is not enforceable in the eyes of law.
A. LEGAL REQUIREMENTS OF CONSIDERATION:
1. Consideration must proceed at the desire of the promisor:
Hence act done voluntarily or at the request of third parties do not constitute a valid
consideration. DurgaPrasad Vs Baldev: A built a market at the request of the collector of the
place. B promised to pay A, commission on the articles sold in the market. It was held that Bs

promise to pay commission did nit constitute a valid consideration because A did not build the
market at the request of B.
2. Consideration may be given by the promisee or any other person:
Consideration may move from promisee or any other person. Any person refers to third party.
Hence a stranger to a contract cannot sue but a beneficiary to the contract can sue. In
Chinnaya Vs Rammaya (1882), 4 Mad. 137, Mrs. A an old lady, by a deed of gift, gifted away
certain property to B her daughter, with a direction that she must pay an annuity of Rs. 653/to her maternal uncle Mr.C. B promised to pay to the said sum of Rs. 653/- to Mr.C. However
B did not fulfill her promise and Mr.C sued B. B pleaded to the court that she entered into a
contract with Mrs.A and not with Mr.C. was a stranger to a contract and cannot maintain suit.
The court held that in the definition of consideration in sec 2(d) promisee or any other
person indicates that a stranger to contract can sue provided he or she is a beneficiary to the
consideration. Hence Mr. C could file a suit against B.
3. Consideration may be past, present, and future:

Consideration has done or abstained from doing can also be termed as executed
consideration i.e. an act or forbearance made or suffered for the promise given,

Consideration may be executory i.e. a promise to act or abstain from doing in future,

Consideration may be past, i.e. an act or forbearance already taken place before the
contract was entered into.

4. Consideration need not be adequate:

Consideration may not be adequate. But it must be real and lawful. E.g. A agrees to sell
a horse worth Rs.1200 for Rs.50/-. He has given his consent freely. The agreement is a
contract though consideration is inadequate.
5. Consideration must be real not illusory:
An illusory consideration has no value in the eyes of law. An agreement to do something,
which the promisor is already under a duty to do, either under the general law, or under an
existing contract, is no consideration at all.
6. Forbearance to sue is a good consideration:
Abstaining from an act in the future is good consideration within the meaning of section 2(d).
Where a wife agrees not to sue her divorced husband for maintenance allowance, when the
ex-husband promises to pay her monthly allowance, is a valid contract. Her forbearance to sue
is a good consideration in the eyes of the law.

6.6 EXCEPTIONS TO THE RULE,NO CONSIDERATION, NO CONTRACT

An agreement made without consideration is void. But the following are exceptions:
1. An agreement made on account of natural love and affection. Section 25 (1).
An agreement made without consideration is void unless it is expressed in writing and
registered under the law for the time being in force for the registration of documents and is
made on account of natural love and affection between the parties standing to in a near
relation to each other. Section 25 (1). An agreement may be enforceable even though there is
no consideration provided

The agreement is in writing;

The agreement is registered;

The agreement is made on account of natural love and affection between the parties
standing in near relation to each other.

The love and affection must be due to near relation between the parties e.g. father
and son, husband and wife, etc.

CASE STUDY: RAJLUCKHY DABEE V/S BHOOTHNATH (1900) 4 C. W.N. 488.

In this case the husband, Bhoothnath, was not on good terms with his wife, Dabee.He entered
into a contract with her in whom he promised to give her a separate residence and
maintenance. There was no consideration from the wife.The contract was made in writing and
registered. The husband however did not give a separate residence and maintenance. The
wife filed a suit. But it was held that contract was not enforceable by law, as there was no
consideration from wife. The contract did not fall within the exception of Section 25 (1), though
they were husband and wife there was no natural love and affection between the two.
2. Agreement for compensation for voluntary service-Section 25 (2)
An agreement made without Consideration is void unless it is a promise to compensate,
wholly or in a part, a person who has already voluntarily done something for the promisor, or
something for the promisor was legally compellable to do. A promise to pay for a past voluntary
service is binding on the promisor. The service must have been done voluntarily and probably
without the knowledge of the promisor. The promisor must have been in existence when the
voluntary service was rendered. E.g. A has lost his purse. B finds the purse and returns it to A
promise to pay a reward of Rs.500/-. The promise is binding on A.
3. Promise to pay a time barred debt- Section 25 (3).
An agreement made without consideration is void unless it is a promise made in writing and
signed by the person to be charged therewith or by his agent generally or specially authorized

in that behalf, to pay wholly or in part a debt of which the creditor might have enforced
payment but for the law for the limitation of suits.The promise to pay a time barred debt must
be made in writing and signed by the promisor or his agent authorized in that behalf. The
promise must be an express promise.
4. No consideration is necessary to create an agency Section 185.
Generally, an agent is remunerated by way of commission for service rendered. Hence no
consideration is immediately necessary at the time of appointment.
5. Gift.
An agreement by which a gift is made needs no consideration.
6.7 VOID AND VOIDABLE AGREEMENT
a. Voidable Agreement-Section 2(i)
An agreement, which is enforceable by law at the option of one or more, parties thereto, but
not at the option of the other or others, is a voidable contract. An agreement which can be
avoided or set-aside as not enforceable at the option of one or more parties to it at his their
option but the other party or parties cannot avoid it is said to be voidable contract i.e. one of
the parties is able to call such agreement as void and hence voidable. If the parties decide to
treat the contract as valid contract, then such party can enforce the voidable contract against
the other party who does not have the option to treat the agreement as void.
Agreement in which, free consent between the parties is absent, are voidable contracts. Thus
agreement brought about by

Coercion-Section 15

Undue Influence-Section 16

Fraud Section 17

Misrepresentation Section 18

b. Void Agreement Section 2(g)

An agreement not enforceable by law is said to be void. A void agreement is ineffective and
inoperative and has no legal effect at all. It does not create any legal obligations.
A . The consideration or object of an agreement is Unlawful:
A contract must have a lawful object. The word object means purpose or design. In some
cases, consideration for an agreement may be lawful but the purpose for which the agreement

is entered into may be unlawful. In such cases the agreement must be lawful. Otherwise the
agreement is void. Void object are as follows:
1. If law forbids the object
If an act or any part of a series of acts agreed upon between parties infringes any legislative
Act made by a lawful authority, the act of the party would amount to be an act forbidden by law.
Example: A promises to obtain for B an employment in the public service and B promises to
pay Rs. 50,000/- to A. The agreement is void, as the consideration is unlawful.
2. If the object were permitted, it would defeat the provisions of any law:
Example: A agreed to enter a companys service in consideration of a weekly wage of Rs.
150/- and an allowance of Rs. 100/- per week. Both the parties knew that this arrangement
was made to evade tax. Held the agreement was unlawful.
3. If the object is fraudulent:
An agreement that is made for a fraudulent purpose is void. Thus an agreement in fraud of
creditors with a view to defeating their rights is void.
4. If the court regards the object as immoral:
Example: A agrees to let her daughter, B for concubine to C (state of living together as man
and wife without being married). The agreement is unlawful, being immoral.
5.Court regards it as opposed to public policy:
If the consideration or object of the agreement is immoral or opposed to public policy, the
agreement is void. The object may be opposed to public policy. The terms of public policy is
very vague and covers a wide range of topics. The doctrine of public policy is not to be
extended beyond the following heads:

Trading with enemy

Interference with course of justice

Agreement tending to create interest against duty

Sale of public office

Agreement tending to create monopolies

Agreement not to bid

Agreement of waiver of illegality.

B. UNLAWFUL AND ILLEGAL AGREEMENTS

An unlawful agreement is one, which like a void agreement, is not enforceable by law. An
illegal agreement is not only void as between the immediate parties but has further effect that
the collateral transactions to it also become tainted with illegality.
Example: A lends Rs. 50,000/- to B to help him to purchase some prohibited goods from C, an
alien enemy. If B enters into an agreement with C, the agreement will be illegal and the
agreement between B and A shall also become illegal, because it is collateral to the main
transaction. A cannot, therefore, recover the amount.
C. AGREEMENT OPPOSED TO PUBLIC POLICY
An agreement is said to be opposed to public policy when it is harmful to the public welfare.
Some of the agreements that are opposed to public policy and unlawful are as follows:

Agreements of trading with enemy: An agreement made with an alien enemy in time
of war is illegal on the ground of public policy.

An agreement to commit a crime: Where the consideration in an agreement is to

commit a crime, the agreement is opposed to public policy. The court will not enforce
such an agreement.

Agreements which interfere with administration of justice: An agreement the object

of which is to interfere with the administration of justice is unlawful, being opposed to
public policy. It may take any of the following forms:
1. Interference with the course of justice: An agreement, which obstructs the
ordinary process of justice, is unlawful.
2. Stifling prosecution: It is in public interest that if a person has committed a
crime, he must be prosecuted and punished.

Agreements in restraint of legal proceedings: Section 28 which deals with these

agreements:

Agreements restricting enforcement of rights: An agreement that wholly or

partially prohibits any party from enforcing his right under or in respect of any
contract is void to that extent.

Agreements curtailing period of limitation: Agreements that curtail the period

of limitation prescribed by the law of limitation are void because their object is to
defeat the provision of law.

Trafficking in public offices and titles: Agreements for the sale or transfer of
public offices and titles Agreements for the sale or transfer of public offices and
titles or for the procurement of a public recognition like Padma Vibushan or
ParamaVeer Chakra for monetary consideration are unlawful, being opposed to
public policy. Example: R paid a sum of RS. 2,50,000/- to A who agreed to
obtain a seat for Rs Son in a Medical college. On As failure to get the seat, R
filed a suit for the refund of Rs.2, 00,000/-. Held, the agreement was against
public policy.

Agreements tending to create interest opposed to duty: If a person enters

into an agreement whereby he is bound to do something which is against his
public or professional duty, the agreement is void on the ground of public
property.

Agreements in restraint of paternal rights: A father, and in his absence the

mother, is the legal guardian of his or her minor child. This right of guardianship
cannot be bartered away by any agreement.

Agreements restricting personal liberty: Agreements that unduly restrict the

personal freedom of the parties to it are void as being against public policy.

Agreements in restraint of marriage: Every agreement in restraint of the

marriage of any person, other than a minor, is void (sec 26). This is because the
law regards marriage and married status as the right of every individual.

Marriage brokerage agreement: An agreement by which a person for a

monetary consideration promises in return to procure the marriage of another is
void, being opposed to pu8blic policy.

Agreement interfering with marital duties: Any agreement that interferes with
the performance of marital duties is void, being opposed to public policy. Such
agreements have been held to include the following:

1. A promise by a married person to marry, during the lifetime or after the death of spouse.
2. An agreement in contemplation of divorce, e.g. an agreement to lend money to married
woman in consideration of her getting divorce and marrying the lender.
3. An agreement that the husband and wife will always stay at the wifes parents house
and that the wife will never leave her parental house.

Agreement to defraud creditors or revenue authorities: An agreement the

object of which is to defraud the creditors or the revenue authorities is not
enforceable, being opposed to public policy.

Agreement in restraint of trade: An agreement that interferes with the liberty of

a person to engage him in any lawful trade, profession or vocation is called an
agreement in restraint of trade.

c. VOID AGREEMENTS Section. 2(g).

A void agreement is one, which is not enforceable by law [sec.2 (g)]. Such an agreement
does not give rise to any legal consequences and is void ab initio.
The following agreements have been expressly declared to be void by the Contract Act:
1. Agreements by incompetent parties Sec.11
2.Agreements made under a mutual mistake of fact Sec. 20
3.Agreements the consideration or object of which is unlawful Sec.23
4.Agreements the consideration or object of which is unlawful in part Sec.24
5.Agreements made without consideration Sec.25
6.Agreements in restraint of marriage Sec.26
7.Agreements in restraint of trade Sec.27
8.Agreements in restraint of legal proceedings Sec.28
9.Agreements the meaning of which is uncertain Sec.29
10.Agreements by way of wager Sec.30
11.Agreements Contingent on impossible events Sec.36
12.An agreement to do impossible acts Sec.56
13.Agreements of reciprocal promises to do things legal and also other things illegal. The
second set of reciprocal promises is void agreements Sec. 57
The aforesaid mentioned agreements are explained in under relevant topics.
d. WAGERING AGREEMENTS OR WAGER
A wager is an agreement between two parties by which one promises to pay money or
moneys worth on the happening of some uncertain event in consideration of the other partys
promise to pay if the event does not happen. Thus if A and B enter into an agreement that A
shall pay B Rs.500/- if it rains on Sunday at 3.00 pm, and that B shall pay A the same amount
if it does not rain, it is a wagering agreement.

Essentials of Wagering Agreement

Promise to pay money or moneys worth: The wagering agreement must contain a
promise to pay money or moneys worth.

Uncertain event: The promise must be conditional on an event happening or not

happening.

Each party stand to win or loose: Upon the determination of the contemplated event,
each party should stand to win or loose.

No control over the event: Neither party should have control over the happening of
the event one-way or the other.

No other interest in the event: Neither party should have any interest in the
happening or non-happening of the event other than the sum or stake he will win or
loose.

6.8 CAPACITY TO CONTRACT

An agreement to be enforceable by law, the parties to the agreement must be
competent to contract. SECTION 11 Every person is competent to enter into a
contract who is of the age of majority according to 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.
INCOMPETENT PERSON- Section 11

Minor

Person of unsound mind

Foreign Sovereigns

Alien Enemy

Convict

Person disqualified by law

Bankrupt

Artificial Person

A. Minor Section 3 of the Indian Majority Act, 1875 states that a person becomes a major
on the completion of 18 years of his or her age. Any person who has not completed 18 years of
age is, therefore, a minor. However, a minor shall not become a major, under the act, unless
he has completed 21 years of age where-

The court has appointed a guardian to the person or property of the minor before he
attained the age of 18 years; or

A court of wards has assumed superintendence over the minors property.

According to law minors agreement is void-ab-initio or void agreement. This rule has been
substantiated in the case Mohoriri Bibee VS. Dharmodas Ghose (1903) 30 Cal 539 PC, in
this case a minor executed a mortgage for RS. 20,000/- out of which he received Rs. 8000/from the mortgagee. Subsequently the minor sued for setting aside the mortgage. The
mortgagee claimed refund of Rs. 8000/- paid by him. The Privy Council held that a minors
agreement is void-ab-initio. Council refused to order the return of money advanced to the
minor because it was held that the mortgagee knew that the mortgagor was a minor, in which
case justice required that the mortgagee should suffer for it. Even if the minor mirepresent his
age at the time of entering the contract, the contract is void.
MINOR IN INDIAN LAW
A minor is a person who is not a major. He attains majority on completion of 21 years in
England and 18 years in India. Even In India, he attains majority on completion of 21
years when his property is managed by a court of wards or a guardian.
1. In Indian law, a contract by a minor is void. It cannot be even ratified by him after
attaining majority.
2. A contract entered into by fraudulently misrepresenting his age is void.
3. Minors can have no privileges to cheat men, though law protects them, so that people
may not exploit their tender age. So, if a minor receives goods on credit while payment
cannot be enforced, goods can be recovered, if restitution is possible.
4. Property of a minor is liable for the necessaries supplied to him, provided the goods are
suitable to the condition of his life and status. Even here he is not personally liable; but
his estate is only liable.
5. While sale or mortgage by a minor is void, a sale or mortgage in favour of a minor is
enforceable by him.
6. A contract by a guardian on behalf of the minor is enforceable by or against the minor,
provided the guardian is competent to contract and the contract is beneficial to the
minor. But he cannot purchase immovable property without obtaining the consent of
court.

7. Under Section 30 of the Indian partnership Act, a minor may be admitted to the benefit
of partnership with the consent of all the partners.
B. PERSON OF UNSOUND 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 forming a rational
judgment as to its effect upon his interests. A person who is usually of unsound mind, but
occasionally of sound mind may make a contract when he is of sound mind A person, who is
usually of sound mind, but occasionally of unsound mind, may not make a contract when he is
of sound mind. A contract by a person of unsound mind is void. He is incompetent to contract.
A drunkard who cannot:

Understand the terms of the contract,

Form a rational judgment as to its effect on his interests, is competent to contract.

In Inder Singh Vs Parmeshwardhri Singh A.I.R. (1957) Pat 491, a property worth Rs.25,
000/- was agreed to be sold by a person for 7000/- only. His mother proved that he was an
idiot (insane by birth), incapable of understanding the transaction. It was held he was
incapable of forming a judgment of his own, as to whether the act he was about to do was in
his own interest or not. He was incapable of exercising his own judgment. A drunken person is
in the same category of a person of unsound mind. In a state of drunkenness, he cannot
understand the terms of a contract whilst such drunkenness lasts.A person, who is usually of
unsound mind, but occasionally of sound mind, is competent to contract during the period that
he is of sound mind. Such period during which an insane person is of sound mind is known as
Lucid intervals.
DISQUALIFIED PERSON INCAPACITY ARISING OUT OF STATUS
1. Foreign Sovereigns and Ambassadors
They may enter into contracts. But they cannot be sued except with the permission of the
Central Government.
2.Alien Enemy
The enemys status is to be determined by the place of residence of the individual but not by
his nationality. If a contract is already entered into before the declaration of war, its
performance will be suspended during the period of war and in case the war continues for a

long period, the contract becomes void on the ground of impossibility of performance of the
contract.
3. Convict
A person is not competent to contract during the period of his imprisonment or sentence.
4. Artificial Person: Corporation
It is a person in the eye of law. It is a legal entity. It can purchase properties, enter into
contracts, sue and be sued on such contracts. Its contractual capacity is limited. For example,
it cannot enter into contract to marry or which is ultra vires its powers.
5. Bankrupt
He cannot enter into contract and bind his property, as his property shall be vested in the
official receiver when he is adjudged an insolvent.
6.9 FREE CONSENT
Consent: Section 13 defines Two or more person are said to consent when they agree upon
the same thing at the same sense.
Free Consent: Section 14 Consent is said to be free when it is not caused by

Coercion (Section 15)

Undue influence (Section 16)

Fraud (Section 17)

Misrepresentation (Section 18)

Mistake (Section 20, 21,and 22)

When there is no consent, there is no contract. Example: A is forced to sign a

promissory note at the point of pistol. A knows what he is signing but his consent is not free.
The contract in this case is voidable at option of A.
FLAW IN CONSENT

Coercion

Undue influence

Fraud
Willful or Intentional
Mistake of law

misrepresentation

Mistake

Innocent or Unintentional
Mistake of fact

A. COERCION: Section 15
When a person is compelled to enter into a contract by the use of force by the other party or
under a threat,coercion is said to be employed.

Coercion is the committing or

threatening to commit, any act forbidden by the Indian Penal Code, 1860 or the unlawful
detaining or threatening to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into an agreement.
Illustration: A, on board an English ship on the High seas Causes B to enter into an
agreement by an act amounting to criminal intimidation under the Indian Penal Code. A
afterwards sues B for breach of contract at Mumbai. A has employed coercion although
Section 506 of the Indian Penal Code was not in force at the time when or at the place
where, the act was done.The Indian Penal Code must forbid the act i.e. it is punishable under
the code. E.g.murder, assault or kidnapping, etc. Such act must be actually committed or
threatened to be committed in future.
B.UNLAWFUL DETAINING
Actual detaining

Threatening to detain in future

Illustration: A has lawful possession of the house belonging to B under a leave and
licence agreement. Under the agreement, A must deliver the possession of the house
after six months. Meanwhile A, threatens B that he shall not vacate the house (unlawful
detaining of the property) even after the expiry of the leave and licence agreement. Merely
committing or threatening to commit an act forbidden by the Indian Penal Code or Unlawfully
detaining the property does not amount to coercion. The person does with the intention to
cause any other person to enter into an agreement.
D.UNDUE INFLUENCE- Section 16
Sometimes a party is compelled to enter into an agreement against his will as a result of unfair
persuasion by the other party. This happens when a special kind of relationship exists between
the parties such that one party is in a dominant position to exercise undue influence over the
other.A contract is said to be induced by undue influence where the relation subsisting
between the parties are such that one of the parties is in a position to dominate the will of the
other and uses that position to obtain unfair advantage over the other. E.g.Teacher and
student, Doctor and patient, Advocate and client.
The essential of undue influence are as fallows:

One of the parties to a contract is in a position to dominate the will of the other;

He uses his position to obtain unfair advantage over the other.

There is a real or apparent authority over the other.

They stand in a fiduciary (means trust, loyal, faithful, confidence, etc.) relation to the
other.

Mental capacity temporarily or permanently affected.

Burden of proof lies on the person raising the dispute.

The presumption of undue influence applies whenever the relationship between the
parties is such that one of them is, by reason of confidence reposed on him by the
other, able to take unfair advantage over the other.

CONSEQUENCES OF UNDUEINFLUENCE-SECTION (19-A)

When consent to an agreement is obtained by undue influence, the agreement is a contract
voidable at the option of the party whose consent was so obtained. Any such contract may be
set aside either absolutely or if the party who is entitled to avoid it has received any benefit
thereunder, upon such terms and conditions as to the court may seem just and equitable.
DIFFERENCE BETWEEN COERCION AND UNDUEINFLUENCE
NO.

Coercion

Undue Influence

.
1.

The consent is given under the threat

of an offence.

The consent is given by a person who is so

situated in relation to another that the other
person is in a position to dominate his will.

2.

NO.

Coercion is mainly of a physical

Undue influence is of moral character. It

character. It involves mostly use of

involves use of moral force or mental

Coercion
physical or violent force.

3.

Undue Influence
pressure.

There must be an intention of causing Here the influencing party uses its position to

any person to enter into a contract.

obtain an unfair advantage over the other

party.
4.

It involves a criminal act.

No criminal act is involved.

FRAUD- 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 another party
thereto or his agent or to induce him to enter into contract:
> The suggestion as a fact, of that which is not true by one who does not believe it to be
true;
> The active concealment of a fact by one having knowledge or belief of the fact;
> Promise made without any intention of performing it;
> Any other act fitted to deceive;
> Any such act or omission as the law specially declares to be fraudulent.
Essentials of fraud: Fraud exist when it is shown that a false representation has been made:

Knowingly or

Without belief in its truth, or

Recklessly not caring whether it is true or false, or

With the intension to make other party to act upon it.

Mere silence as to facts likely to affect willingness of a person to enter into a contract is not
fraud, unless circumstances of the case are such that regard being had to them, it is the duty
of the person keeping silence to speak, or unless his silence is in itself, equivalent to speech.
E.g. A sells, by auction, to B, a horse that A knows to be unsound. A says nothing to B about
the horses unsoundness. That is not fraud. Similarly, B says to A if you do not deny it, I shall
assume that the horse is sound. A says nothing. Here As silence is equivalent to speech.
Here the relationship between the parties would make it As duty to tell B if the horse is
unsound mind or not. Where consent to an agreement is caused by fraud, the contract is
voidable at the option of the party whose consent is obtained by fraud- Section 19.
D.MISREPRESENTATION 18.

Misrepresentation is a false statement that the person making it honestly believes to be true or
which he does not know to be false. It also includes non-disclosure of a material fact without
any intent to deceive the other party.
Misrepresentation means and includes

The positive assertion, in a manner not warranted by information of the person

making it, of that which is not true, though he believes it to be true;

Any breach of duty which without intent to deceive, gains an advantage to the
person committing it, or any one claiming under him, by misleading another to
his prejudice or to the prejudice of any one claiming under him;

Causing, however, innocently a party to an agreement to make a mistake as to the

substance of thing that is the subject of the agreement.

Therefore where a person makes a statement not warranted by this information (i.e. without
reasonable ground). Under an honest belief that it is true, though it is false, it will be construed
as misrepresentation. For alleging misrepresentation four things must be fulfilled:

A representation must be made innocently, with a belief in its truth, without the
intention to deceive the other party.

That representation must relate to facts material to the contract and not mere opinion
or hearsay.

The representation must be untrue statement.

The representation must have induced the other to give his consent and enter into the
Contract.

A misrepresentation of law does not vitiate free consent it is related to a foreign law. This is
because ignorance juris non excusat. Contract entered into because of misrepresentation is
voidable at the option of the party whose consent was so caused.
DISTINCTION BETWEEN FRAUD AND MISREPRESENTATION
NO.

1.

FRAUD

A person making the suggestion does

not believe it to be true.

2.

Intention to deceive is present.

MISREPRESENTATION

The person making suggestion believes it

to be true.
There is no intention to deceive.

3.

4.

A false statement deliberately made

The false statement is innocently made

to deceive is fraud.

without any intention to deceive.

Contract is voidable and the person

Voidable and entitled to compensation

can be held liable for damages.

for damage, if any, due to non fulfillment

of the contract.
E. MISTAKE 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.
Erroneous belief concerning something relating to that contract:

Mistake of fact which is material to the contract vitiates free consent;

Mistake of law cannot be a ground for setting aside a contract. But mistake as to law
that is not in force in India amounts to mistake of fact.

Where both the parties are under a mistake as to fact essential to the agreement, it is a
bilateral mistake and in such a case there is no contract.

Where only one party to a contract is under a mistake it is unilateral mistake. Unilateral
mistake makes a contract voidable only under certain exceptional circumstances.

Unilateral mistake the contract is valid and enforceable. A unilateral mistake is not
usually allowed as a defence in avoiding the contract.

F.MISTAKE OF LAW
Mistake of law of the country

Mistake of law of a foreign country

Mistake of law of the country: Ignorantia juris non excusat, i.e. ignorance of law is no excuse,
is a well settled rule of law. A party cannot be allowed to get any relief on the ground that it had
done a particular act in ignorance of law. A mistake of law is, therefore, no excuse, and the
contract cannot be avoided. E.g. A and B enter into a contract on the erroneous belief that a
particular debt is barred by the Indian Law of Limitation.
Mistake of law of a foreign country: Such a mistake is treated, as mistake of fact and the
agreement in such a case is void. (Sec.21).

G. MISTAKE OF FACT

Bilateral Mistake

Unilateral Mistake

(i) Bilateral Mistake

Where both the parties to an agreement are under a mistake as to a matter of fact essential to
the agreement, there is a bilateral mistake. In such a case, the agreement is void (sec 20).
The following two conditions have to be fulfilled for the application of sec. 20:
The mistake must be mutual i.e. both the parties must misunderstand each other and should be at crosspurposes. E.g. A agreed to purchase Bs horse which is in Bs farmhouse. Unknown to either party, the
horse died due to some disease a day before the contract was entered into. The agreement is void.The
mistake must relate to matter of fact essential to the agreement. As to what facts are essential in an
agreement will depend upon the nature of the promise in each case.
(ii) Unilateral Mistake
When in a contract only one of the parties is mistaken regarding the subject matter or in
expressing or understanding the terms or the legal effect of the agreement, the mistake is a
unilateral mistake. According to sec. 22, a contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to matter of fact. A unilateral
mistake is not allowed as a defence in avoiding a contract unless the mistake is brought about
by the other partys fraud or misrepresentation. E.g. A draws a cheque for Rs.44, 000/- instead
of Rs.40, 000/-. He cannot plead mistake as defence.
(iii) Mistake of law of the country and foreign country:
A mistake of law is no excuse as the latin maxim says ignorentia juris non excusat i.e. an
agreement cannot be avoided because it was entered into due to ignorance of the law.
This is based on the argument that a citizen must know atleast so much law as concerns him
and if he is ignorant or does not understand he should take professional advice and
understand the law. A person is expected or presumed to know the law of his own country and
if he does not know it must suffer the consequences.
This section further clarifies where the mistake is as to law not in force in India. The rule is
foreign law can be treated as mistake of fact and not law. Where there is mistake as to matter
of fact i.e. where there is ignorance of a fact it can be excused under section 20. The latin

maxim, in support, states that, ignorentia facti excusat. I.e. ignorance of fact can be
excused. Ignorance of a foreign law is treated as ignorance of fact and thus excused. This is
because although a person is bound to know the law of a foreign country. Thus e.g. A and B
enter into a contract, in India, grounded on the erroneous belief that a particular debt is barred
by the English law of limitation. The contract is void, because the mistake is as to law not in
force in India and therefore, has the same effect as a mistake of fact.
6.10 PERFORMANCE OF CONTRACT
Performance of a contract takes place when the parties to the contract fulfill their obligations
arising under the contract within the time and in the manner prescribed.
1. OFFER TO PERFORM
At times the promisor offers to perform his obligation under the contract at the proper time
and place but the promisee does not accept the performance. This is known as attempted
performance or tender.
2. REQUISITES OF A VALID TENDER SECTION 38

It must be unconditional. It becomes conditional when it is not in accordance with the

terms of the contract.

It must be of the whole quantity contracted for or of the whole obligation. A tender of an
instalment when the contract stipulates payment in full is not a valid tender.

It must be by a person who is in a position, and is willing, to perform the promise.

It must be made at the proper time and place. A tender of goods after the business
hours or of goods or money before the due date is not a valid tender.

It must be made to proper person, i.e. the promise or his duly authorized agent. It must
also be in proper form.

It may be made to one of the several joint promises. In such a case it has the same
effect as a tender to all of them.

In case of tender of goods, it must give a reasonable opportunity to the promisee for
inspection of goods.

In case of tender or money, the debtor must make a valid tender in the legal tender money.

3. Effect of refusal of party to perform promise wholly- Section 39

When a party to a contract has refused to perform, or disabled himself from performing his
promise in its entirety, the promisee may put an end to the contract, unless he has signified, by

words or conduct his acquiescence in its continuance. Illustration: A, a singer, enters into a
contract with B, the manager of a theatre, to sing at his theatre two nights in every week
during the next three months and B engages to pay Rs.500/- for each nights performance.
On the seventh night A willfully absents herself from the theatre. B is at a liberty to put an end
to the contract.
4. Person by whom promise is to be performed- Sec.40

By a promisor only- where the contract involves personal skill, taste or credit, the
promisor himself must perform the contract. E.g. An artist, musician, etc.

By promisor or his agent- In case of sale of goods, lending money etc. the promisor or
his agent or duly appointed employee can perform.

By legal representative- In case of death of the promisor, his legal representative

becomes liable to perform subject to contrary intention in the contract.

By the third person- Where promisee has accepted performance by any third person,
he cannot later on demand performance from the promisor himself.

By any of the joint promisors- In case of joint promisee, any one or more of them can
validly perform whole of the promise, unless each has a separate contractual obligation
allotted by the promisor.

5. Effect of accepting performance from third person- Section 41.

When a promisee accepts performance of the promise from a third person, he cannot
afterwards enforce it against the promisor.
6.11 DEVOLUTION OF JOINT LIABILITIES AND RIGHTS
1. Devolution of Joint Liabilities (Section 42 to 44)
Devolution means passing over from one person to another.When two or more persons have
made a joint promise, they are known as joint promisors. Unless a contrary intention appears
from the contract, all joint promisors must jointly fulfill the promise. If any of them dies, his legal
representatives must, jointly with the surviving promisors, fulfill the promise. If all of them die,
the legal representative must, jointly with the surviving promisors, fulfill the promise. If all of
them die, the legal representatives of all of them must fulfill the promise jointly (Sec.42). This
section deals with voluntary discharge of obligations. If the parties do not discharge their
obligations, sec.43 lays down three rules as regards performance of joint promises: i) Any one of the joint promisors may be compelled to perform (Sec.43 Para 1).

When two or more persons make a joint promise and there is no express agreement to the
contrary, the promisee may compel any one or more of the joint promisors to perform the
whole of the promise. This means the liability of joint promisors is joint and several. E.g. A, B
and C jointly to pay D RS.5000/-. D may compel all or any or either A or B or C to pay him
Rs.5000/-.
ii) A joint promisor compelled to perform may claim contribution (Section 43 Para) When a joint
promisor has been compelled to perform the whole of the promise, he may compel the other
joint promisors to contribute equally with himself to the performance of the promise, unless the
contrary intention appears from the contract. E.g. A, B and C is under a joint promise to pay D
Rs.1200/-. A is compelled to pay the whole amount to D. He may recover Rs.400/- each from B
and C.
iii) Sharing of loss arising from default (Section 43 Para 3). If any one of the joint promisors
makes default in the contribution, the remaining joint promisors must bear the loss arising from
such default in equal shares. The same principle applies in the case of recovery of a loan by a
creditor from the heirs who by operation of law become joint promisors after the death of the
single promisor. E.g. A, B and C is under a joint promise to pay D Rs. 5000/-. C is unable to
pay anything and A is compelled to pay the whole sum. A is entitled to receive Rs.2500/- from
B.
2) Release of a Joint Promisor (Sec 44)
A release by the promisee of any of the joint promisors does not discharge the other joint
promisors from liability. The released joint promisor also continues to be liable to the other joint
promisors.
3. Devolution of Joint Rights (Section 45)
When a person has made a promise to several persons these persons are known as joint
promisees. Unless a contrary intention appears from the contract, the right to claim
performance rest with all the joint promisees. When one of the joint promisees dies, the right to
claim performance rests with his legal representatives jointly with the surviving joint promisees.
When all the joint promisees die, the right to claim performance rests with their legal
representatives jointly. E.g. B and C jointly lend Rs.10000/- to A, who in turn promises B and C
jointly to repay them that sum with interest on a day specified. B dies. The right to claim
performance rests with Bs representatives jointly with C during Cs life. After the death of C,
the right to claim performance rest with the representatives of B and C jointly.
The partners of a firm, the members of joint Hindu family, co- sharers, or mortgagees

are all joint promisees when a person, say a debtor, makes a promise in their favour. Unless a
contrary intention appears from the contract, a suit to enforce such promise must be instituted
by all the joint promises.
4. RECIPROCAL PROMISES
Promises that form the consideration or part of the consideration for each other are called
reciprocal promises [Section 2(f)]. A promise to do or not to do something in consideration
of Bs promise to do or not to do something, the promises is reciprocal.
6.12

Classification of promises

Mutual and Independent

Conditional and Dependent

Mutual and Consent

a. Mutual and Independent:

Where each party must perform his promise independently and irrespective of the fact whether
the other party has performed, or is willing to perform, his promise or not, the promises are
mutual and independent. E.g. In a contract of sale, B agrees to pay the price of goods on 10th
instant. S promises to supply the goods on 20th instant. The promises are mutual and
independent.
b.Conditional and Dependent:
Where the performance of the promise by one party depends on the prior performance of the
promise by the other party, the promise is conditional and dependent. E.g. A promises to
remove certain garbage lying beside Bs farm provided B render some help in removing the
garbage. The promise in this case is conditional and dependent. A need not perform his
promise if B fails to render him a helping hand.
c. Mutual and Consent:
Where the promises of both the parties are to be performed simultaneously, they are said to be
mutual and concurrent. The example of such promise may be sale of goods for cash.
Rules Regarding Performance of Reciprocal Promises

Simultaneous performance of reciprocal promises.

Order of performance of reciprocal promises.

Effect of one party preventing another from performing promise.

Effect of default as to promise to be performed first.

Reciprocal promise to do things legal and also other things illegal.

6.13TIME AS THE ESSENCE OF THE CONTRACT

The expression time is of the essence of the contract means that a breach of the
condition as to the time for performance will entitle the innocent party to consider the breach as
a repudiation of the contract.
Time as the essence of contract- Section 55
When time is of the essence

When time is not of the essence

A. When time is of the essence:

In a contract, in which time is of the essence of the contract, if there is a failure on the part of
the promisor to perform his obligation within the fixed time, the contract becomes voidable at
the option of the promisee. If in such a case, the promisee accepts performance of the promise
after the fixed time, he cannot claim compensation for any loss occasioned by the nonperformance of the promise at the agreed time. But if at the time of accepting the delayed
performance he gives notice to the promisor of his intention to claim compensation, he can do
so. In commercial or mercantile contracts that provide for performance within a specified time,
time is ordinarily the essence of contract. This is so because businessmen want certainty. In a
contract for the sale or purchase of goods the price of which fluctuate rapidly in the market, the
time of delivery and payment are considered to be the essence of the contract.
When time is not of the essence:
In a contract in which time is not of the essence of the contract, failure on the part of the
promisor to perform his obligation within the fixed time does not make the contract voidable,
but the promisee is entitled to compensation for any loss sustained by him due to such failure.
Intention to make time as the essence of the contract, if expressed in writing, must be in a language,
which is not vague. Facts are stated are mentioned in the contract that does not necessitate the time
factor. If the contract includes clauses providing for extention of time in certain contingencies or for
payment of fine or penalty for every day or week the work undertaken remains unfinished on the expiry
of time provided in the contract, such clauses are construed as rendering ineffective the express
provision relating to the time being the essence of the contract.
6.14 APPROPRIATION OF PAYMENT

A debtor may owe several debts to a creditor. Such debtor may make payment to the
creditor and instruct him to apply or appropriate the payment to a particular debt and the
creditor must apply it accordingly as mentioned under Section 59 to 61.
Following are the principles laid down under the appropriation of payment: 1) Application of payment where debt to be discharged is indicated- Section 59.
Where a debtor, owing several distinct debts to one person, makes a payment to him, either
with express intimation or under circumstances implying that the payment is to be applied to
the discharge of some particular debt, the payment, must be applied accordingly. Section 59
gives the right of appropriation to the debtor. A debtor at his option may decide whatever
payments he makes to the creditor to be applied against the debts that he chooses. Where he
owes several distinct debts to the same creditor and makes payment, he has the right to
request the creditor to apply the payment to the discharge of a particular debt. In such a case,
the creditor has no choice; if he accepts the payment, he must apply it according to the
directions of the debtor.
Illustrations: A owes B, among other debts Rs.1000/- upon a promissory note which falls
due on the 1st June. He owes no other debt of that amount. On 1 st June A pays to B
Rs.1000/- The payment is to be applied to the discharge of the promissory note.
2) Application of payment where debt to be discharged is not indicated- Section 60
If the debtor does not make any appropriation at the time when he makes the payment, the
creditor may apply the payment at his discretion to any debt that is due. He may even use it in
payment of a time barred debt or he may apply it to a debt that carries a lesser rate of interest
3) Application of payment where neither party appropriates- Section- 61
Where the debtor and the creditor have not expressed their intention or desire to appropriate the
payment to any particular debt or in particular order, the law gets the right to appropriate and the
payment shall be applied in discharge of the debts in order of time i.e. the oldest debt shall be discharged
first. A time-barred debt may also be discharged. Where there are two debts equally old, the payment
shall be applied in discharge of each equally.
6.15 Rule in Claytons Case
This rule is applicable where the parties have a current account, i.e. a running account
between them. In such a case appropriation impliedly takes place in the order in which the
receipts and payments take place and are carried into the account. It is the first item on the
debit side of the account that is discharged or reduced by the first item on the credit side; the

appropriation is made by the very act of setting the two items against each other. In simple
words, it means that, unless there is a contrary intention, the items on the credit of an account
must be appropriated against the items on the debit in order of date.
Hence the following rules are applicable:

The debtor has, at the time of payment, the right of appropriating the payment;

In default of debtor, the creditor has the option of election;

In default of either, the law will allow appropriation of debts in order of time.

6.16 TERMINATION AND DISCHARGE OF CONTRACT

Discharge of contract means termination of the contractual relationship between the parties. A
contract is said to be discharged when it ceases to operate, i.e. when the rights and obligations
created by it comes to an end.
A contract may be discharged by the following ways: By Performance
By Agreement or Consent
By Impossibility
By lapse of Time
By Operation of Law
By Breach of Contract
1. Discharge by Performance:
Performance means the doing of that which is required by a contract. Discharge by
performance takes place when the parties to the contract fulfill their obligations arising under
the contract within the time and in the manner prescribed.
Performance of a contract is the most usual mode of its discharge. It may be
> Actual performance: When both the parties perform their promises, the contract is
is discharged. Performance should be complete, precise and according to the terms of
the agreement.
> Attempted performance or Tender: Tender is not actual performance, but is only an
offer to perform the obligation under the contract.
2. Discharge by Agreement or Consent:
Section 62 lays down that if the parties to the contract agree to substitute a new contract for
it, or to rescind or to alter it, the original contract is discharged and need not be performed.The

various cases of discharge of contract by mutual agreement are dealt under Sections 62 and
63, which are stated as under: (a) Novation (Sec. 62): Where the parties to a contract agree to substitute the existing
contract with a new contract, it is called novation. Novation may be either substitution of one
debtor for another or of an existing debt by creation of new one. Novation therefore may be
classified as:

Involving change of parties: Where there is a change of parties the consent of all the
parties to such change is necessary. E.g. Admission of a new partner into an existing
business and he accepts the liabilities of the old business prior to his admission. In such
a case the old firm is discharged of its liabilities and the new firm accepts the liability.

Involving substitution of a new contract in place of old: Where the parties to a

contract agree to substitute a new contract in place of old contract, the old contract is
discharged and need not be performed.

(b) Rescission (Sec. 62): When the original contract is discharged in order that a new
contract be brought in its place it would be rescission of the contract by mutual consent of the
parties to the contract. Example: A promises to supply certain goods to B three months after
date. During this period the demand for the goods reduces from the market. A and B may
rescind the contract.
(c) Alteration (Sec 62): Where the terms of the contract are changed but there is no change in
the parties it is alteration of the agreement.Example: A enters into a contract with B for the
supply of 100 bags of cement at his shop within 10 days. A and B may alter the terms of
contract by mutual consent.
(d) Remission (Sec.63):
Remission means acceptance of a lesser fulfillment of the promise made, i.e. acceptance of a
lesser sum than was contracted for, in discharge of whole of the debt. Example: A owes B
10000 rupees and B accepts in satisfaction of the whole debt, 5000 rupees at the time and
place at which 10000 rupees were payable. The whole debt is discharged.
(e) Waiver: Waiver takes place when the parties to a contract agree that they shall no longer
be bound by the contract. This amounts to a mutual abandonment of rights by the parties to
the contract.
(f) Merger: Merger takes place when an inferior right accruing to a party under a contract
mergers into a superior right accruing to the same party under the same or some other

contract. Example: P holds a property under a lease. He later buys the property. His rights as
a lessee merger into his rights as an owner.
3. Discharge by impossibility of performance
If an agreement contains an undertaking to perform impossibility, it is void-ab- initio. This rule is
based on the following maxims:
a) Impossibility existing at the time of agreement: Sec.56 lays down that an agreement to
do an impossible act itself is void. This is known as pre-contractual or initial impossibility.
b) Impossibility arising subsequent to the formation of contract: Impossibility that arises
subsequent to the formation of a contract (which could be performed at the time when the
contract was entered into) is called post-contractual or supervening impossibility.
4. Discharge by supervening impossibility
A contract is discharged by supervising impossibility in the following cases:

Destruction of subject matter of contract: When the subject- matter of a contract,

subsequent to its formation, is destroyed without any fault of the parties to the
contract, the contract is discharged. Example: Taylor Vs Caldwell (1863) 3 B & S
826, C let a music hall to T between certain dates for the purpose of holding a
concert there. But before the first day a concert was to be given; the hall was
destroyed by fire without the fault of either party. T claimed damages for their loss; it
was held that as the performances of the contract depended upon the continued
existence of the hall, it is an implied condition that the parties shall be excused in
case, before breach, performance becomes impossible from the perishing of the
things without any fault of either party.

Non-existence or Non-occurrence of a particular state of things: Sometimes, a

contract is entered into between two parties on the basis of continued existence or
occurrence of a particular state of things. If there is any change in the state of things
that ought to have occurred does not occur, the contract is discharged.Example: Krell
Vs Henry (1903) 3KB 740, CA, H agreed to hire from K a flat for Two specific days, on
which days it has been announced that the coronation procession would pass along that
place. A part of the rent was paid in advance. The king however fell ill and the
procession had to be cancelled. H refused to pay the balance. K sued him. It was held
that the real object of the contract, which both the parties to the contract recognized,
was to have the proper view of the coronation procession. The coronation procession
was, therefore, the object or the foundation of the contract. Since this object or contract

had failed or frustrated by the non-happening of the coronation K could not recover the
balance. This is known as doctrine of frustration.

Death or Incapacity for personal service: Where the performance of a contract

depends on the personal skill or qualification of a party, contract is discharged on the
illness or incapacity or death of that party. The mans life is an implied condition of the
contract. Example: An artist undertook to perform at a concert for a certain price.
Before She could perform she fell ill. She was discharged due to her illness.

Change of law: When subsequent to the formation of a contract, change of law takes
place, and the performance of the contract becomes impossible, the contract is
discharged. Example: A enters into a contract with B on 1st January 2000, for the
supply of Certain chemicals on 1st June 2000, on 1st April 2000, an act was passed by
parliament, the import of such chemical is banned. The contract is discharged.

Out break of war: A contract entered into with an alien enemy during war is unlawful.
Therefore impossible for performance. Contract entered before the war are suspended
and revived after the settlement of the war.

4. Discharge by lapse of time

The Limitation Act, 1963 lays down that a contract should be performed within a specific
period, called period of limitation. If it is not performed, and if no action is taken by the
promisee within the period of limitation, he is deprived of his remedy at law. E.g. price of the
goods sold without any stipulation as to credit should be paid within three years of the delivery
of the goods. If the price is not paid and a creditor does not file a suit against the buyer for the
recovery of price within three years, debt becomes time barred and hence irrecoverable.
5. Discharge by Operation of Law
A contract may be discharged by operation of law. This includes dischargea) By Death: In contracts involving personal skill or ability, the contract is terminated on death
of the promisor. In other contracts, the rights and liabilities of a deceased person pass on to
the legal representatives of the deceased person.
b) By Merger: When an inferior right accruing to a party merges into a superior right accruing
to the same party under the same or some other contract, the inferior right accruing to the
party is said to be discharged.
C) By Insolvency: When a person is adjudged insolvent, he is discharged from all liabilities
incurred prior to his adjudication.

d) By Unauthorised Alteration of the terms of a Written Agreement: Where a party to a

contract makes any material alteration in the contract without the consent of the other party,
the other party can avoid the contract. A material alteration is one that changes, in a significant
manner, the legal identity or character of the contract or the rights and liabilities of the parties
to the contract.
e) By rights and Liabilities becoming vested in the same person: Where the rights and
liabilities under a contract vested in the same person, for example when a bill gets into the
hands of the acceptor, the other parties are discharged.
6. Discharge by Breach of contract
Breach of contract means a breaking of the obligation that a contract imposes. It occurs when
a party to the contract without lawful excuse does not fulfill his contractual obligation under it. It
confers the right of action for damages on the injured party. This is also known as doctrine of
anticipatory breach of contract.

An anticipatory breach is said to take place, when the

promisor repudiates the contract even before the date of performance of contract, that he does
not intend to perform his part of the contract. In such a situation, the promisee may put an end
to the contract immediately by treating the repudiation of the contract by the promisor as an
immediate breach. The promisee may in addition sue for damages.
The promisee has the option to treat the communication of the intention of the promisor in the
above case as inoperative and wait till the time when the contract is to be executed and then
hold the other party responsible for all the consequences of non-performance. The
disadvantages in such a situation is that the contract is kept alive for the benefit of the
promisee as well as the promisor. This would enable the promisor to complete the contract, if
so advised, even though he had previously repudiated it. The promisor may take advantage of
any supervening circumstance that would justify him in declining to complete it. E.g. Before the
date of performance of the contract if a war broke out it may render performance of the
contract illegal. The promisor would not be liable then, as the contract has ended by frustration
and not by breach.Thus, if the promisee does not end the contract and keeps the contract alive
by treating the notice intention communicated by the promisor as inoperative, the result will be

The promisor gets a second chance to choose to perform the contract when the time
comes and the promisee is bound to accept;

The contract is kept alive and some event may happen which may discharge the
contract by operation of law and by repudiation; for example, by supervening
impossibility or frustration where the promisor will take advantage of the changed

circumstances.Example: Avery Vs Bowden (1855) 5 E & B 714, A chartered B ship

and agreed to load it with cargo at Odessa within 45 days. On arrival of the ship there,
A told the captain of the ship that he had no cargo to load. The captain, however, stayed
there in the hope that A would fulfill the contract. But before expiry of 45 days, a war
broke out which rendered the performance illegal. It was held that since the captain did
not end the contract, the contract was alive when the war broke and A was entitled to
take advantage of it. The contract was held to be ended by frustration and not by breach
of contract by A.
The doctrine of anticipatory breach of contract was recognized in Hochester Vs De La Tour
(1853) 2.E. & B 678. H was a courier (servant employed to make traveling arrangements). He
was engaged by D to accompany him on tour to commence on June 1, 1852. Nearly a month
before this date D, wrote to H that he has changed his mind, and declined his service. H sued
D for damages for breach. D argued that H should have waited till June 1st before bringing his
action, till then. It was held, however, that the contract had been broken by express
renunciation and H was not bound to wait till the day of performance.
6.17 REMEDIES FOR BREACH OF CONTRACT
When a contract is broken, the injured party has one or more of the following remedies:

Rescission of the contract

Suit for damages

Suit upon quantum meruit

Suit for specific performance of the contract

Suit for injunction.

(1) Rescission of the contract

When one party breaks a contract, the other party may sue to treat the contract as rescinded
and refuse further performance. In such a case, he is absolved of all his obligations under the
contract. When a party treats the contract as rescinded, he makes himself liable to restore any
benefits he has received under the contract to the party from whom such a benefits were
received. But if a person rightfully rescinds a contract he is entitled to compensation for any
damage that he has sustained through non-fulfilment of the contract by the other party.
(2) Suit for Damages
Damages are a monetary compensation allowed to the injured party by the court for the loss or
injury suffered by him by the breach of a contract is to put the injured party in the same

position, so far as money can do it, as if he has not been injured, i.e. in the position in which he
would have been had there been performance and not breach. This is called doctrine of
restitution.
Following are the rules relating to damages:

Damages arising naturally- Ordinary damages

When a contract has been broken, the injured party can recover from the other party such
damages as naturally and directly arose in the usual course of things from the breach of
contract. These damages are known as ordinary damages. E.g. A contracts to sell and deliver
100 K.gs. of rice to B at Rs. 20/- per K.g. the price to be paid at the time of the delivery. The
price of rice rises to Rs. 25/- per K.g. and refuses to sell at the original price. B can claim
damages at the rate of Rs. 5/- per K.g.

Damages in contemplation of the parties- Special damages

Special damages can be claimed only under the special circumstances that would result in a
special loss in case of breach of contract. Such damages known, as special damages cannot
be claimed as a matter of right. E.g. A contracts to build a factory building and erect machinery
for B by 31st December 2004, in order to enable B to commence his business on time But on
31st December, the building collapse and B suffers damages. A must make compensation to B
for the cost of rebuilding the factory and the damages caused to the machinery.

Vindictive or Exemplary Damages

Damages for the breach of contract are given by way of compensation for loss suffered, and
not by way of punishment for wrong inflicted. Hence, vindictive or exemplary damages
have no place in the law of contract because they are punitive by nature. But in case of breach
of promise to marry or when a banker wrongfully dishonour the cheque of a customer when he
possess sufficient funds in his account, the court may award exemplary damages.

Nominal Damages

Where the injured party has not in fact suffered any loss by reason of the breach of a contract,
the damages recoverable by him are nominal. These damages merely acknowledge that the
plaintiff has proved his case and won.

Damages for loss of reputation.

Damages for loss of reputation in case of breach of a contract are generally not recoverable.
An exemption to this rule exists in the case of a banker who wrongfully refuses to honour a
customers cheque. If the customer happens to be a tradesman, he can recover damage in
respect of any loss is smaller the amount of cheque dishonoured, the larger the amount of

damages awarded. But if the customer is not a tradesman, he can recover only nominal
damages.

Damages for inconvenience and discomfort

Damages can be recovered for physical inconvenience and discomfort. The general rule in this
connection is that the measures of damages are not affected by the motive or the manner of
the breach. E.g. B dismissed A from the employment without prior notice. A could recover a
sum representing his of wages for the period notice and the commission which he would
have earned during that period; but he could not recover anything for his injured feelings or for
the loss sustained from the fact that his dismissal made it more difficult for him to obtain
employment.

Mitigation of damages

It is the duty of the injured party to take all reasonable steps to mitigate the loss caused by
the breach. He cannot claim to be compensated by the party in default for loss that he ought
reasonably to have avoided. That is he cannot claim compensation for the loss that is really
due not to the breach, but due to his own neglect to mitigate the loss after the breach.
Difficulty of Assessment
Certain damages that are incapable of assessment cannot be recovered; the fact that they are
difficult to assess with certainty or precision does not prevent the aggrieved party from
recovering the damages. The court must do its best to estimate the loss and a contingency
may be taken into account.

Cost of Decree

The aggrieved party is entitled, in addition to damages, to get the cost of getting the decree for
damages. The cost of suit for damages is in the discretion of the court.

Damages agreed upon in advance in case of breach

If a sum is specified in a contract as the amount to be paid in case of its breach, or if the
contract contains any other stipulation by way of a penalty for failure to perform the obligations,
the aggrieved party, is entitled to receive from the party who has broken the contract, a
reasonable compensation not exceeding the amount so mentioned. E.g. A contracts with B to
pay Rs.10000/- if he fails to pay B Rs. 5000/- on a given day. B is entitled to recover from A,
such compensation not exceeding Rs. 10000/-, as the court considers reasonable.

Liquidated Damages

If the amount fixed by the parties is based on the reasonable estimate of the actual loss that a
party is likely to suffer in case of breach of contract, it is liquidated damages. E.g. A

contracts with B that, if A practices as surgeon within Kolkata, he will pay B Rs. 50000/-. A
practice as surgeon in Kolkata. B is entitled to such compensation, not exceeding Rs.
50000/-as the court considers reasonable.

Penalty

If the amount fixed by the parties is out of proportion to the estimate of the actual loss likely to
be caused in case of breach of the contract, it is a penalty damages. E.g. A borrows Rs.
10000/- from B and gives him a bond for Rs. 500/- payable by five yearly instalments of Rs.
400/-, with a stipulation that, in default of payment of any insalment, the while amount shall
become due.
(3) Suit upon quantum meruit
The phrase quantum meruit literally means as much as earned. A right to sue on a quantum
meruit arises where a contract, partly performed by one party, has become discharged by the
breach of the contract by the other party.
(4) Specific Performance
In certain cases of breach of contract, damages are not an adequate remedy. The court may,
in such cases direct the party in breach to carry out his promise according to the terms of the
contract. Following are the contracts in which the court may exercise its discretion to enforce
the performance:
When the act agreed to be done is such that compensation in money for its non-performance
is not an adequate relief.
When there exist no standard for ascertaining the actual damage caused by the nonperformance of the act agreed to be done.
When it is probable that the compensation in money cannot be got for the non-

performance of the act agreed to be done.

(5) Injunction
Where a party is in breach of a negative term of a contract the court may, by issuing an order,
restrain him from doing what is promised not to do. Such an order of the court is known as
injunction.

6.18 CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT

Quasi- contracts
Quasi- contracts are also called Implied Contracts. Quasi contracts are not, strictly,
contracts. Yet the relations created by quasi- contract resembles relations created by a
contract between parties. These relations created by a quasi contract compel a person
receiving a benefit to compensate the person giving the benefit. The principle this is that just
requires preventing unjust enrichment. Quasi-contractual obligations are laid down under
sections 68-72 of the Indian Contract Act, 1972: (1) Supply of Necessaries-Section 68.
If a person, incapable of entering into a contract, or any one whom he is legally bound to
support, is supplied by another person with necessaries suited to his condition in life, the
person who has furnished such supplies is entitled to be reimbursed from the property of such
incapable person.
Essentials under supply of necessaries:

A person must be a minor

A person of unsound mind

Any person incapable of entering into a contract.

A person who has furnished such necessaries is entitled to be reimbursed from the
property of such incapable person.
Necessaries supplied vary from one individual to other. Necessaries include food,

clothing, shelter, and basic education.

(2) Payment by an interested person- Section 69.
A person who is interested in the payment of money that another is bound by law to pay and
therefore, pays, it, is entitled to be reimbursed by the other. E.g. A holds land in Pune, on a
lease granted by B, a Zamindar. The Government advertises the revenue payable by B to the
Government being in arrears, his land for sale. Under the revenue law, the consequences of
such sale will be annulment of As lease. A to prevent the sale and consequent annulment of
his lease, pays to the Government the sum due from B. B is bound to make good to A the
amount so paid.
Essentials under Section 69:

The person must be interested in the payment of money

The other person is bound by law to pay

The person interested in the payment makes the payment.

(3) Obligation to pay for Non- Gratuitous Acts-Section 70.

When a person lawfully does anything for another or delivers anything to him, not intending to
do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to
make compensation to the former in respect of it, or to restore, the things so done or delivered.
E.g. A, a fruit seller leaves goods at Bs house by mistake. B treats the goods as his own. B
is bound to pay for the goods.
The essentials under section 70:

The thing must have been done lawfully.

The person doing the act should not have intended to do it gratuitously.

The person to whom the act is done must have enjoyed the benefit of the act.
(4) Responsibility of Finder of Goods-Section 71
A person, who finds the goods belonging to another and takes them into his custody, is subject
to the same responsibility as a bailee. He is bound to take, as much care of the goods as a
man of ordinary prudence would, under similar circumstances, would perform his duty. He
must take appropriate measures to find out the true owner. If he does not he will be he shall be
made liable for the goods. Till the owner is found the goods remain with the finder and he can
retain the goods as his own against the whole world except the owner.
The finder can sell the goods in the following cases:

When the things found in danger of perishing;

When the owner cannot, with reasonable diligence, be found out;

When the owner is found out, but he refuses to pay the lawful charges of the finder;

When the lawful charges of the finder, in respect of the thing found, amount to twothird of the value of the thing found. Section 169.

(5) Mistake or Coercion-Section 72

A person to whom money has been paid, or anything delivered, by mistake or under coercion,
must repay or return it to the person who paid it by mistake or under coercion. E.g. A and B
jointly owe Rs. 1000/- to C. A alone pays the amount to C, and B, not knowing this fact, pays
Rs. 1000/- over again to C. C is bound to pay the amount to B.
6.19 QUANTUM MERUIT
Where a party has done some work or rendered some service or delivered some goods
to the other party, in the performance of his contract and the other party has made the further

performance useless, he may recover reasonable compensation for the work done or service
rendered or goods delivered. Quantum meruit means, as much as is merited. Where a
contract has not fixed the consideration, quantum meruit is applicable. In fact, quantum meruit
can be awarded only if the contract does not provide a fixed price or a consideration for the
work actually done. If the contract specified in express terms the mode and the rate of
payment and the contract is alive, quantum meruit is not applicable.
Quantum meruit is applicable, also, where the parties have not entered into a contract and one
party has done some work or supplied goods non-gratuitously; however the other party must
have derived some benefit out of it in which case the party who has done the work or supplied
goods should be compensated for it. The claim of quantum meruit would be valid also in the
following cases:

Where the part of the work is performed and the remaining part is prevented from being
performed by the other party.

Obligations of the person enjoying benefit of non- gratuitous act (section 70). E.g. A, a
tradesman, leaves a computer at Bs house by mistake. B treats the computer as his
own. He is bound to pay for them.

Obligation of person who has received advantage under void agreement or contract that
becomes void.

6.20 CONTINGENT CONTRACT

A contingent contract is a contract to do or not to do something, if some event, collateral to
such contract, does or does not happen Section31. Example: A contracts to pay B Rs.1,
00,000/- if the thief steals Bs vehicle. This is a contingent contract.
Contingent contract means that which is dependent on something else. It is collateral to such
other event that does or does not happen. A contingent contract is said to be a conditional
contract where the condition is of uncertain event. A contingent contract already exists but a
party to the contract need not perform his part of the contract unless the uncertain event
happens or does not happen. A contingent contract is, therefore, not enforceable on the parties
until the specified event does or does not happen. All contract of insurance, except life
insurance are contingent contract.
Essential characteristics of a contingent contract: -

Its performance depends upon the happening or non- happening in future of some
event. It is this dependence on a future event that distinguishes a contingent contract
from other contracts.

The event must be uncertain. If the event is bound to happen, and the contract has got
to be performed in any case it is not a contingent contract.

The event must be collateral or incidental to the contract.

A. RULES REGARDING CONTINGENT CONTRACTS

1. Contingent contracts dependent on the happening of an uncertain future event cannot be
enforced until the event has happened. If the event becomes impossible, such contracts
become void. (Section 32). EXAMPLE: A contracts to pay B a sum of money when B marries
C. C dies before the marriage. The contract becomes void.
2. Where a contingent contract is to be performed if a particular event does not happen, its
performance can be enforced when the happening of the event becomes impossible (Section
33). Example: A agrees to pay a sum of money to B, if a certain ship does not return. The
ship is sunk. The contract can be enforced when the ship is sunk.
3. If a contract is contingent upon how a person will act at an unspecified time, the event shall
be considered to become impossible when such person does anything which renders it
impossible that he should so act within any definite time, or otherwise than under further
contingencies. (Section 34). Example: A agrees to pay B a sum of money if B marries C. C
marries D. The marriage of B to C must now be considered impossible, although it is possible
that D may die and that C may afterwards marry B.
4. Contingent contracts to do or not anything, if a specified uncertain event happens within a
fixed time, become void if the ship returns within the year, and becomes void if the ship is burnt
within the year. Example: A promises to pay B a sum of money if a certain ship returns
within a year. within a year, and becomes void if the ship is burnt within a year. The contract
may be enforced if the ship returns within a year and becomes impossible before the
expiry of that time.
5. Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether
or not the parties know the fact (Section 36). Example: A agrees to pay B Rs.10000/- if two straight
lines should enclose a space. The agreement is void.

SELF STUDY
Q.1. No consideration no contract. Discuss.
Q.2. Explain the term Ex nudo pacto non oritur action.
Q.3. Explain the term Nudum pactum.
Q.4. Discuss fully Agreement without consideration is void. Are there any exception to the
Rule? If yes, what are they?
Q.5. Explain the privity of contract and give an account of the exceptions to the doctrine.
Q.6. Write short notes on: (1). Agreement made on account of natural love and affection
(2). Legal requirement of consideration.
Q.7. Distinguish between void and voidable agreements.
Q.8. Enumerate the agreement expressly declared to be void under the Indian Contract Act.
Q.9. What are agreements by way of wager? What are the legal consequences that flow from
an agreement by way of wager?
Q. 10. When is an agreement said to be void?
Q.11. Write short notes on: (a) Agreements opposed to public policy.
(b) Agreement by way of wager.
Q.12. Discuss fully the law relating to minors agreement.
Q.13. What do you understand by capacity to contract? What is the effect at any agreement
made by person not qualified to contract?
Q.14. Discuss with suitable illustrations the validity of contracts by minors.
Q.15. Explain the provisions regarding incapacity of person arising out of status.
Q.16. Write notes on: (a) Minors agreement.
(b) Unsound mind.
(c) Disqualified Person.
Q.17. Define free consent. Explain the effect of mistake on the validity of an agreement.
Q.18. Discuss consent as an essential element of a valid contract. When is consent said to be
free consent?
Q.19. An agreement requires meeting of minds- Discuss.
Q.20. State the difference between: -

(a) Coercion and Undue influence.

(a)

(b) Fraud and Misrepresentation.

Q.21. Write notes on:
(a) Coercion
(b) Undue influence
(c) Fraud
(d) Misrepresentation
(e) Mistake
Q.22.What is reciprocal promises? What are the rules?
Q.23. What do you understand by performance of contract?
Q.24. What are the rules of law relating to time and place of performance of a contract?
Q.25. When is time deemed to be essence of the contract in the performance of the contract?
What are the consequences?
Q.26. What are the circumstances under which a contract need not be performed?
Q.27. Write a note on: (a) Appropriation of payment
(b) Rule in Claytons case
(c) Requisites of valid tender
Q.28. What are the different modes of discharging the contract?
Q.29. What is anticipatory breach of contract? Discuss in particular the rights of the party
aggrieved by the breach.
Q.30. What is impossibility of performance and doctrine of frustration?
Q.31. Impossibility of performance is not an excuse for non-performance of a contract.
Discuss.
Q.32. Write notes on:
(a) Anticipatory breach of contract.
(b) Novation
(c) Discharge by operation law.
Q.33. What are the remedies available to an aggrieved party on the breach of a contract?
Q.34. Write notes on:
(a) Types of damages.
(b) Specific Performance.
Q.35. Discuss the nature of quasi contract and give examples.

Q.36. What do you understand by certain relations resembling those created by contract?
Q.37. In quasi- contracts, the promise to pay is implied by law and is not based on any
express agreement. Explain giving illustrations.
Q.38. Write notes on:
(a) Quasi-contract.
(b) Quantum meruit.
Q.39. What is contingent contract? When can a party enforce such a contract?
Q.40. Define contingent contract. Enumerate the rules for the enforcement of such a
contract.
Q.41. Write short notes on contingent contract.