THE INDIAN CONTRACT ACT- 1872

We enter into contracts many times a day that ‘contract’ has

become an indispensable part of our life.

When we purchase milk or newspaper in the morning or go to

movie in the evening, board a bus,

we are entering into a CONTRACT.

Indian Contract Act really codifies the way we enter into a

contract, execute a contract, implement provisions of a
contract and effects of breach of a contract.

Basically, a person is free to contract on any terms he chooses.

Contract Act consists of limiting factors subject to which contract

may be entered into, executed and breach enforced.

It only provides a framework of rules and regulations which

govern formation and performance of contract.
Rights and Duties of parties and terms of agreement are decided
by the contracting parties themselves.

The court of law acts to enforce agreement, in case of non-

performance.

Section 1 of the Contract Act provides that any usage or custom

or trade or any incident of contract is not affected as long as
it is not inconsistent with provisions of the Act.

In other words, provision of Contract Act will prevail over any

usage or custom or trade.

The Act extends to the whole of India except the State of Jammu
and Kashmir; and came into effect on 01-09-1872.

THE INDIAN CONTRACT ACT- 1872

This Act was moulded by the English Courts, on the basis of the
principle of contract, established by the of common law

and equity.

Common Law is an evolved law…..

the body of law developed gradually as a result of custom and

judicial decisions, as distinct from the law laid down by
 legislative assemblies.

Common law forms the basis of all law that is applied in

England….

Equity

Equity, a Latin word, from Aequitas meaning ‘fair justice’ /

according to natural law or natural justice.

• Equity is ‘justice’ applied in conformity with the law,

and is influenced by the principles of ethics, fair play and
natural justice…….

Equity is a modification of common law, the system of

jurisprudence that supplements common and statutory law,
when those bodies of law are inadequate in the attainment of
justice….

Meaning of Contract

Derived from the Latin ‘contractum’ meaning ‘drawn together’

It denotes drawing together of two or more minds to form a

common intention giving rise to an Agreement

Definition u/s 2
Contract:

AN AGREEMENT ENFORCEABLE

BY LAW

Agreement

Every PROMISE /

every set of promises, forming the CONSIDERATION for each

other.

Promise

When one person to whom the PROPOSAL is made, signifies

his assent thereto, the proposal is said to be accepted.

(promisor and promisee)

Proposal

When one person signifies to another, his willingness to do or to

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

Contract

Agreement enforceable by law is a contract.

Agreement may be social or legal.

Hence all contract are agreements, but all agreements are not
contract.

C – CONTRACT

B - Blocks of steps like proposal, acceptance,

consideration, competency etc.

A - AGREEMENT

A+B=C

Agreement

Block of steps like proposal, acceptance, consideration,

competency etc.

CONTRACT

Contract - definition u/s 10

All agreements are contracts…..

if they are made by the free consent of the parties,

competent to contract,

for a lawful consideration and with a lawful object and are

not hereby expressly declared to be void..

Contract

All agreements are contracts if they are made by the free consent
of the parties, competent to contract for a lawful
 consideration and with a lawful object and are not hereby
expressly declared to be void..

Writing essential?

As a rule, there is nothing in Sec.2 or 10, to show that writing is

necessary ...

It may be

wholly written or

wholly oral or

partly written and partly oral or

may be inferred from the conduct of the parties ( implied)

Writing essential…?

There are various other statues requiring certain classes of

contracts in writing.

A Negotiable Instrument has always to be in writing

Transfer of Property Act requires writing in the case of sales,

mortgages, leases and gifts.

Trust Act, the Companies Act etc.

must be in writing.

Essential Elements

1- Free consent of parties – u/s 13

‘consensus ad idem’ = meeting of minds creating an identity of

opinion ..
2- Competency of the Parties: u/s 11/12

Age of majority and soundness of mind.

price for the promise.

3- Lawful Consideration

u/s 23/ 24

Consideration must be lawful.

Any agreement made without consideration is void.

Essential elements

4- Lawful Object u/s 23/24

Object of the agreement would be unlawful if its forbidden by law

or.. if permitted it would defeat the provision of any law.

Agreement, where the object or consideration is unlawful, is

void.

Essential elements

5 – Not declared to be void by law u/s 24/30.

Certain classes of contracts are expressly declared void by law …

Agreements in Restraint of Marriage, Agreements in Restraint of

Trade.

Contract

A Contract consists

of two elements
Agreement

Obligation

It is a legal tie which imposes upon determinate persons, the

necessity of doing or abstaining from doing a definite act.

Obligation

An obligation is the legal duty to do or abstain from doing what

one has promised to do or abstain from doing.

It is defined as VINCULAM JURIS or bond of legal necessity, for

which the conditions are:

1- At least two persons

2- Obligation must be in respect for doing or abstain from doing

definite things.

3- Related to legal matters and NOT to social affairs.

Balfour vs. Balfour…

Here Lord Atkin opined…”they are not contracts, because the

parties do not intend that they should be attended by legal
consequences..”

A contractual obligation arises from a bargain between the parties

to the agreement who are called the promisor and the
promisee.
A contract is an exchange of promises by 2 or more persons,
resulting in an obligation to do something, which obligation is
recognised and enforced by law.

Rights and Obligations

When the parties have made a binding contract, they have rights
and obligation between themselves.

Agreements in which the idea of bargain is absent and there is no

intention to create legal relations are not contract –

Example: A Social Invitation

The three consequences

1- To constitute a contract the parties must intend to create legal

relationship.

2- Law of contract is the law of those agreements which create

obligations, and those obligations which have their source in
agreement.

3- Agreement is the genus of which contract is the species and,

therefore, all contracts are agreements, but all agreements
are not contracts.

Classification of Contract
Contracts are classified under 3 headings:

1- Validity

2- Formation

3- Performance.

1- Validity

Valid contract 2(h)

Voidable contract 2(i)

Void contract 2(j)

Unenforceable agreement

Unlawful agreement

Illegal agreement

What is a valid Contract?

All Contracts are Agreements

But all Agreements

are not

Contracts.

Section 10

“All agreements are contract if they are made by the free

consent of the parties competent to contract, for a lawful
consideration and with a lawful object, and are not herby
declared to be void”.
Fiat justitia ruat caelum

a Latin legal phrase,

meaning

"Let justice be done though the heavens fall."

= PROMISE

= AGREEMENT

= CONTRACT

To constitute a contract,
the ingredients are:

1-Proposal or Offer

2-Promise

3-Agreement

4- Consensus ad idem
(identity of mind)
 • X desires to sell his house at Calicut.

• X also has a house at Kannur

• Y thought that X wanted to sell the house at Kannur.

• But X intended to sell his house at Calicut.

• Here both X and Y do not possess identity of mind;

they meant different houses to be sold and bought by the
other.

Sec.13
deals with ‘Consent’

Two or more persons are said to consent when they agree upon
the same thing in the same sense.

Definition in terms of ‘consensus’ - Consensus ad idem

• An agreement occurs when two minds meet upon a

common purpose. i.e.. They mean the same thing in the
same sense at the same time.

Meeting of the minds is called

‘consensus ad idem’ = consent to the matter.

Freedom of contract and purity of contract means a meeting

of minds or identity of will of the parties in full and final
 agreement is considered the

essence of contract.

5-Mutual Communications

6-Free Consent, the consent must be given voluntarily, out of

volition, without coercion, undue influence, fraud etc.

7-Competecny

8-Consideration

9-Object

The ‘end’ justifies the ‘means’ is the adage.

Not only the Object must be lawful, but the means must also be
lawful.

Object

That is precisely the reason as to why Section 10 stresses the

need

“ for a lawful consideration and lawful object”.

Object

Though all the ingredients may be there, yet, when the Object is
illegal or unlawful, the contract become ineffective which is
 known as

NUGATORY CONTRACT.

10-Enforceability

Law should not prohibit or declare a contract to be void.

All the elements for a valid contract are there, yet the law may
prohibit a contract from being enforced in the general interest
of the country as such.

Enforceability

Law would prohibit any contract if it is opposed to

public policy.

Enforceability
Agreements among parties for smuggling may satisfy all the
ingredients as regards consent, competency and
consideration but since the object is prohibited, the entire
contract becomes NULL AND VOID.

Contracts are classified under 3 headings:

1- Validity

2- Formation

3- Performance.

Validity
II-Void Contracts

A contract without any legal effect is a void contract – Here the

contract ceases to be enforceable by law; becomes void when
it ceases to be enforceable

It is a nullity in the eye of the law…

Can not be enforced and it confers no right on either party.

When a contract becomes void

An agreement not enforceable by law is void ab initio – s 2 (g)

A contract which ceases to be enforceable by law becomes void

when it ceases to be enforceable – s 2 (j)
 • …a contract becomes void when, by reason of some
event which the promisor could not prevent, the performance
of a contract becomes impossible – e.g.. War / by destruction
of the subject matter after the formation of the contract.

An agreement is said to be VOID when it is not supported by:

Consideration

Competent parties, or

When the object is not lawful

Agreement not supported by consideration becomes an empty

promise

“ NUDAM PACTUM”.

Mere promise is not an agreement and it can be enforced.

That is why it is said, “promises made in storm are forgotten

during calm”.

When the parties are incompetent, such as minor or insane

persons, there can never be an agreement at all.

Voidable contracts

Two positive elements – consensus ad idem and legal intention to

contract - will not be there..
Here, one contract may be rescinded or affirmed at the option of
the one of the parties.

Until is rescinded it is valid and binding..

An agreement that is enforceable by law at the option of one or

more of the parties thereto, but not at the option of the
others, is a

Voidable Contract.

Voidable contracts

Sec.19 – when the consent to an agreement is caused by

coercion, fraud or misrepresentation, the agreement is
voidable at the option of the party whose consent was so
caused.

Distinction between a void and a voidable contract is

very important.

A third party, who purchased goods which had been the subject
of a void contract, will acquire no title to that goods

Difference between
void agreement & void contract

Void Agreement-S.2(g)

An agreement not enforceable by law, is Void; it has

no legal bearing and is not enforceable by law. Parties
to a voided agreement have no legal requirement to
act as far as carrying out the terms of the agreement.
Void Agreements

Consideration or the object is not lawful (Sec. 23 and 24)

Agreement without consideration (Sec. 25) Agreement in

restraint of marriage (Sec. 26) Agreement in restraint of
trade (Sec. 27) Agreement in restraint of legal
proceedings(Sec.28)

Agreement which is ambiguous and uncertain (Sec. 29)

Agreement by way of wager ( Sec. 30) Agreement to do an

impossible act ( Sec. 56)

Void Contract

A contract can be void due to the impossibility of its performance.

For e.g. if a contract is formed between two parties but during

the performance of the contract the object of the contract
becomes impossible to achieve, due to action by someone or
something other than the contracting parties, then the
contract cannot be enforced in the court of law and is thus
void.

Void Contract-S 2(j)

A void contract which ceases to be enforceable by law becomes

void when it ceases to enforceable.

E.g.. Cutting of Banyan tree after Govt. banned cutting it.

Part IV
Unenforceable Contracts

Though good in substance, can not be enforced because of some

technical defect like want of a written form or stamp. It is a
creature of procedural rather than that of substantive law.
Substantive law = law relating to legal principles, relating to the
essential principles that a court applies in its work. And not to
the rules of procedure and practice..

Part V
Illegal contracts

Contract contrary to criminal law; illegal contracts like

agreements to commit a crime, to defraud the revenue,
contract with an alien enemy, unlawful laws.

Contracts are classified under 3 headings:

1- Validity

2- Formation

3- Performance.

2-Formation
Express Contracts

Sec. 9 deals with it.

Express contracts are those in which the fact of the agreement

can be proved by words, written or spoken, which express
the intention of the parties.

Implied / Tacit / Interference Contracts

Implied contracts/ tacit / inferred contracts, agreements would be

inferred from conduct of the parties and the general
circumstance of each case. E.g. hiring of a taxi, boarding a
bus, cinema ticket.

Implied contract
A delivers a bag of rice by mistake at B’s house, instead of C.
Here B is to return or pay to A. In this transaction there is no
contract, no offer or acceptance, but an implied contract..

Also called ‘quasi contract’ –

According to Halsbury”s Laws of England, an implied contract is

known as

CONSTRUCTIVE CONTRACT.

Under Indian Law, it is known as ‘certain relations resembling

those of a contract’.

Quasi Contracts

Quasi = having some resemblance / almost but not quite:

resembling somebody or something in some ways, but not
exactly the same

E.g.: a quasi support group, a quasi definition, a quasi success,

quasi lien …

Quasi contract

For a valid contract, there must be offer and acceptance, capacity

to contract, consideration and free consent..

But sometimes law implies a promise imposing obligations on one

party and conferring right in favour of the other, even when
there is no offer, no acceptance, no consensus ad idem,

no agreement or promise
Such cases are not contract in strict sense, but the court
recognizes them relations resembling those of contract and
enforces them as if they were contract, hence the term quasi-
contract.

Quasi contracts

In truth it is not a contract at all

It is an obligation which the law creates, in the absence of a any

agreement. A quasi contract rests on the equitable principle
that a person should not allowed to enrich himself unjustly at
the expense of another.

Quasi contracts

Quasi contract belongs to a different category – it is ‘sui generis’,

i.e.. the only one of its kind. It rests on the equitable principle
that person shall not be allowed to enrich himself unjustly at
the expenses of another.

A quasi contractual liability arises on payment of money under a

mistake of fact, the liability is not depending on agreement or
promise.

Unjust Enrichment

Unjust enrichment, if proved, always triggers an obligation to

make restitution. It never triggers an obligation to pay
compensation because such an obligation might leave the
defendant, who is normally entirely innocent, out of pocket.

Quasi contract

Types:
Necessaries supplied to person incapable of contracting:

e.g. contract with minor or person of unsound mind are void.

But section 68 provides that the amount is recoverable from the

property, if any, of the incapable person and not from him
personally.

Quasi contract

Suits for money received: u/s 69

The right to file a suit for recovery of money may arise:

Where the plaintiff paid money to the defendant under mistake,

coercion, extortion etc.

Money obtained by defendant from third parties.

E.g. an Agent has obtained a secret commission from a third

party, the principal can recovery the amount from the Agent.

Quantum meruit

= as much as earned or reasonable remuneration; it is used

where a person claims reasonable remuneration for the
services rendered by him, when there was no express
promise to pay the definite remuneration.

QUANTUM MERUIT

Quasi contracts are made possible by the doctrine of QUANTUM

MERUIT, which allows courts to imply a contract where none
exists. Quantum meruit includes implied-in-fact contracts as
well as quasi contracts.
Courts also use the term quantum meruit to describe the process
of determining how much money the charging party may
recover in an implied contract.

Quasi Contract

Obligation of a finder of last goods: u/s 71

The finder must take as much care of the goods as a man of

ordinary prudent man would take of his own goods , his
position is that of a bailee.

And the finder is entitled to get reward that may have been
offered by the owner and also any expenses he may have
incurred in protecting the goods.

Restitution

The underlying principle is that a person who has been unjustly

enriched at the expense of another is required to make
restitution to that other.

Key elements of quasi contracts

1-Plaintiff rendered valuable goods / services to Defendant with a

reasonable expectation of being compensated;

2-Defendant knowingly accepted the benefits of the goods /

services; and

3-Defendant would be benefited by the services / receiving the

goods.
Contracts are classified under 3 headings:

1- Validity

2- Formation

3- Performance.

3- Performance.

From the point of view of Performance, contract may be classified

as:

• Executed

• Executory

• Unilateral

• Bilateral Contract.

Executed Contract

Once the obligations of the parties under an agreement had

become discharged, there is no contact.

Example

A railway porter can claim charges only when he has kept the
 luggage inside the train compartment.

Executed Contract

• Here both parties perform their obligations, contract is

said to be executed. A agrees to paint a picture for B for
Rs.100/- B paints and A gives Rs.100/- This is an Executed
contract.

An executed contract is one in which nothing remains to be

done by either party, and the transactions are completed.

Executory Contract

• Here the contract is remain to be performed.

• A has not yet painted the picture.

• B has not yet paid the agreed money.

Executory Contract

• An Executory contract is a contract to do some future

act.

• Where an agreement is made to build a house in six

months, or to do an act on or before some future day, or to
lend money upon a certain interest payable at a future time.
Executory Contract

Performance of the act is a

condition

precedent to

the payment of the money.

Unilateral Contract

Normally, rights and obligations are reflected as terms and

conditions in an enforceable agreement.

It is a cardinal rule under law that the right that are given a
under a contract to a party must have corresponding and
equal obligations to be discharged against the other.

If a contract is formed in such a way giving rights alone to one of

the parties, with no corresponding obligations towards the
other, then it is said to unilateral.

Example

In a rental agreement, if the landlord is given only the rights to

receive the rent, to give notice to vacate the house, with no
corresponding obligation to repair and provide amenities,
then such contract is said to be a unilateral one.

Unilateral Contract

This is a one-sided contract where only one party has to fulfill his
 obligation at the time of formation of the contract.

A contract wholly performed by one of the parties is called as

Unilateral contract.

Unilateral contract is one in which only one party has to perform

his obligation

• A Unilateral Contract does not mean a contract made

by one party,

but a contract in which only one party is bound.

Bilateral Contract

In a bilateral contract, the terms and conditions representing the

rights and duties against each other are said to be reciprocal
or well-balanced.

A bilateral contract is one in which there are promises on both

sides.

One promise is given for another, so that there is something

to be done or forborne on both sides, and both sides are
under legal obligation, the one to the other.

Bilateral Contract

• A Bilateral Contract is one where the obligation on the

part of both the parties to the contracts are outstanding at
the time of formation of the contract.
====================

Gentleman’s Agreement

• An Offer must be one intended to give rise to legal

consequences.

• …’the intent of a man can not be tried for the Devil

himself knows not the intend, of a man’..

• ‘The Doctrine of Intention’

• Presence or absence of INTENTION to create legal

relations is generally a matter of court inference.

Agrement in Restraint of Marriage

• A gift or bequest to a person may have a condition;

either general or partial that is attached in restraint of
marriage. A condition in general restraint of marriage is void,
as being contrary to public policy.

A condition in partial restraint of marriage is valid and may be

either to restrain marriage with a particular class of persons,
e.g. domestic servant.

Is this a valid agreement?

Two widows ( of the same deceased husband ) agree that if any

one of them remarries, she must forfeit her right of share in
 the deceased husband’s property.

This kind of agreement is not in restraint of marriage, as nothing

in the agreement reflects any restraint imposed upon either of
the two widows from remarriage.

Agreement in Restraint of Trade

If the LAW has restrained a Trader’s mode of doing things, that

law must be obeyed.

But no power short of the general law ought to restrain his free
discretion.

However, contracts which are only in partial restraint of trade are

good.

A contract not to carry on the business of an fishmonger or

ironmonger

Essential elements

Intention to create legal obligation:

• Mere informal promises are not be enforced.

• E.g. invitation for a dinner

Agreements creating obligations

Juridical concept of contract consists of two elements:

Agreement and Obligation.

It denotes the relationship between two persons..

Obligation is defined as the’ vinculam juris’ = bond of legal

necessity which binds together two or more individuals.

Definition in terms of ‘consensus’ - Consensus ad idem

An agreement occurs when two minds meet upon a common

purpose. i.e.. They mean the same thing in the same sense at
the same time.

The meeting of the minds is called ‘consensus ad idem’ = consent

to the matter.

Freedom of contract and sanctity of contract means a meeting of

minds or identity of will of the parties in full and final
agreement is considered the essence of contract.

Obligation

An obligation is the legal duty to do or abstain from doing what

one has promised to do or abstain from doing.

A contractual obligation arises from a bargain between the parties

to the agreement who are called the promisor and the
promisee.

A contract is an exchange of promises by two or more persons,

resulting in an obligation to do something, which obligation is
 recognised and enforced by law.

Rights and Obligations

• When parties have made a binding contract, they have

rights and obligation between themselves.

• Agreements in which the idea of bargain is absent and

there is no intention to create legal relations are not contract
–

• e.g. social invitation

• Balfour vs. Balfour: Husband working in Ceylon . . . . . .

3-consequences

• 1- to constitute a contract the parties must intend to

create legal relationship

• 2- the law of contract is the law of those agreements

which create obligations, and those obligations which have
their source in agreement.

• 3- agreement is the genus of which contract is the

species and, therefore, all contracts are agreements, but all
agreements are not contracts.

Carlill v. Carbolic Smoke Ball Company

Carlill v. Carbolic Smoke Ball Company

In Carlill v. Carbolic Smoke Ball Company a medical firm

 advertised that its drug would cure people's flu, and if it did
not, the buyers would get £100. Fearing bankruptcy, Carbolic
argued the advert was not to be taken as a serious, legally
binding offer.

It was an invitation to treat, mere puff, a gimmick.

• But the court of appeal held that to a reasonable man,

the company made a serious offer. People had given good
consideration for it by going to the "distinct inconvenience" of
using a faulty product.

• Lord Justice Lindley, "here is a distinct promise

expressed in language which is perfectly unmistakable".

When a contract becomes void

• An agreement not enforceable by law is void ab initio –

s 2 (g)

• A contract which ceases to be enforceable by law

becomes void when it ceases to be enforceable – s 2 (j)

• …a contract becomes void when, by reason of some

event which the promisor could not prevent, the performance
of a contract becomes impossible – e.g.. War / by destruction
of the subject matter after the formation of the contract.
Void- ab initio - contracts

ab initio = from the beginning

If a contract is made without the true consent of the parties or for

immoral consideration, it is void ab initio.

Sec.2 (G)- an agreement not enforceable by law is said to be void

Void- ex post facto - contracts

ex post facto = subsequently

An agreement is void - ex post facto, when subsequent events

made the earlier agreement, not enforceable

E.g. war

======================

Case Studies

X agrees to dine with Y in a particular hotel on a particular day at

a particular time.

Y has arranged for X’s dinner; but X failed to turn up as

promised.

Y filed a suit against X.

Can Y succeed?

Analysis:

No, Y can not succeed.

In order to constitute a contract the parties must intend to create

legal relationship which is absent in the present instance.
Social obligations can not be enforced in a a court of law. Ref:
Balfour vs. Balfour.
 • A agreed to present a golden watch to B, on the his
birth day.

• But A did not present it as promised.

• Disappointed, A wanted to enforce A’s promise.

• Can B succeed?

Hints:

No; A's act is only an empty promise .

• It is not supported by consideration

• Hence, it is not even an agreement, much less a

contract.

Question

• Indian Majority Act, Section 3 says, a person below the

age of 18 years is considered as minor, and any contract
entered into with a minor is void abinitio as minor has no
capacity to contract as per

Section 10 of

the Indian Contract Act-1872….

X aged 17 years, borrowed money from a money lender
representing himself to be

21 years old.

Identify the legal consequences:

Answer:

If a minor by misrepresenting his age induces the other party to

contract with him;

he can always plead minority.

Hence X can not be sued for fraud.

A and B agreed to smuggle gold from a foreign country; they

agreed to share it with C who spent money for the foreign
trip. But A appropriated the entire gold himself. B and C filed
a suit, claming their share. Will they succeed?

Hints:

Though all the ingredients may be there in a Contract, if the

Object is illegal or unlawful, the contract become ineffective
which is known as a nugatory contract; this is the elements of
this case.

Hence the answer is negative; they cannot succeed as the

agreement is said to be illegal. Smuggling is an offence or
crime. Agreement itself is void’ and it is tainted with
illegality.
 • A porter in Calicut Railway Station agrees to keep the
luggage of a passenger inside a particular train for a sum of
Rs. 50/- the porter accordingly fulfilled his duty; the
passenger refused to give him the coolie.

• Can the porter succeed?

Hints:

Yes, the porter can succeed.

This is an example of an executed contract which is enforceable.

A promissory note was executed by X in favour of Y which was

insufficiently stamped.

But Y filed a suit against X. Can he succeed?

Hints:

This is case of ‘unenforceable contract’ where everything were

good in substance, can not be enforced because of some
technical defect like want of a written form or stamp.

It is a creature of procedural rather than that of substantive law.

Hence the answer is negative; and Y can not succeed in the suit
against X because the contract is said be unenforceable for
want of sufficient stamp on the promissory note.
=======================

Offer and Acceptance

• A contract is defined as a promise or agreement

enforceable by law.

• The important elements are-

``an agreement and the legal obligation created thereby.

• A contract is a two-sided bargain which can be

concluded by the actions of both parties.

An Agreements contain 2 parts

1- Recital Clause / Introductory portion narrates the

circumstances necessitating for entering to an agreement.

Here it is also made known as to who has made the Offer and

who has Accepted the offer

Offer

It can be accepted or rejected.

If an Offer is accepted,

an Agreement is formed and binds all.

That is why an Offer has nee described with the image of gun
powder.
It is only waiting for a spark of light –

the acceptance to explode it.

2 – Operative Clause contains the terms and conditions that are

to be complied with, by the parties.

Offer u/s S.2 (a)

‘when one person signifies his willingness to another in respect of

doing or abstaining from doing anything with a view to
obtaining the assent of the other, he is said to be making an
proposal’.

Offer is nothing but conveyance of an idea by one person to

another for obtaining the consent of the latter in respect of
doing an act.

Rules regarding OFFER

1- an Offer must be one intended to give rise to legal

consequences.

E.g.. A gentleman’s agreement is not enforceable through a court

of law.

2-An Offer must be intended to created legal relations.

In the absence, it will become mere social obligations;

e.g. Balfour vs. Balfour

3-Terms of an Offer must be certain or capable of being made
certain.

Nothing clear in this matrimonial advertisement….sophisticated

city girl, well trained in software, required for a young
scientist with modern outlook..’

• 4- an Offer must be distinguished from an invitation to

offer.

• That which induces a person to make an offer is not an

Offer by itself; it is only an invitation to an offer.

Harvey vs. Facey

• Harvey’s telegrammed:

• Will you sell me the estate Bumperhall; telegraph the

lowest price?

• Facey replied.. Lowest price is 900 pounds.

• Harvery replied: Agreed, convey the title.

• When Facey failed to sell the estate, Harvey went to

the Court.

Court’s observation:

• Harvey asked 2 questions:

 • 1-Will you sell me Bumperhall?

• 2-Telegraph the lowest price.

• Here Facey answered only the 2nd question; therefore,

it is only a quotation and not an Offer

5- A general offer must be disguised from a specific offer.

A general offer is nothing but proposals made to the general

public.

Carlill v. Carbolic Smoke Ball Company (in 1893)

Carlill v. Carbolic Smoke Ball Company

Carbolic Smoke Ball Company, a medical firm advertised that its

drug would cure people's flu and if it did not, the buyers
would get £100. Mrs. Carlill used it, but not never got rid of
influenza and she file a suit.

Though the company argued that the advertisement was not to

be taken as a legally binding offer, the House of Lords hold
the company liable.

They held that to a reasonable man, the company made a serious

offer; people had given good consideration for it by going to
the "distinct inconvenience" of using a faulty product.
6- A general offer must be distinguished from a

‘Standing Offer’ or Tender.

A tender is a standing offer which has to be converted into a

contract by acceptance on fulfillment of formalities.

7- Offer must be communicated.

Communication of an Offer is said to be completed only when it

reaches the knowledge of the person to whom it is made.

Lalman vs Gauri Dutt

• An uncle lost his nephew in a crowd.

• He asked his servant to trance him.

• Subsequently the uncle made an announcement of

reward.

• Servant traced the missing nephew and asked for the

reward; not extended by the master… Court held that the
offer of reward is not meant for the servant and it is the duty
of the servant to obey his master.

• Offer must be certain, definite, specific and legal.

• Offer must be reasonably definite and shall require

nothing to complete it except Acceptance.
 • A agrees to sell to B ‘ 100 tons of oil’.. Here there is
nothing whatever to show what kind of oil was intended. This
agreement is void for uncertainty.

Offer

• Offer may be expressed

• Offer may be implied too.

• Boarding a bus or hiring a taxi, one undertakes to pay

the fare, and the other will get him to the destination..

Implied Offer and Acceptance

X puts Rs. 5 to get a cup of tea

from a vending machine.

Offer is implied in the presence of the vending machine.

Acceptance is also implied in the act of X’s insertion of the coin.

Offer

• LIC vs. D’souza

• Payment of premium is not construed as Acceptance by

LIC

• Offer must be certain

 • Acceptance must be certain

General Offer

• An offer may be specific when it is addressed to a

definite individual.

• It is ‘general’ when it is made to an unascertained

individual. Such an offer can be accepted by an unascertained
individual.

• When a reward is offered for bringing back a lost dog,

this particular offer is not addressed to anybody in particular,
though it is deemed to have been accepted by one individual
who brings it back and claims the reward.

Invitation to treat

• Every expression of willingness to enter into a contract

may not amount to an offer. It may be only a preliminary
step in the formation of a contract.

• Hence the difference between ‘offer’ and “invitation to

treat’.
Where a shop-keeper displays goods in a shop window that is to
be construed as an invitation to treat..

Railway time-table

Railway time-table usually contain provision exempting the

liability of the railway in case of delay.

But extending the price of the ticket is considered as an ‘offer’

and the issuing of ticket as an ‘acceptance’..

Acceptance
u/s 3,4,5,7 and 8

Acceptance is the expression of assent to the proposal by the

person to whom the proposal is made.

To constitute a valid acceptance the assent must be

communicated to the Offeror.

Acceptance

An Offer without Acceptance will not give room for formation of a

contract. Just as on Offer has to be communicated,
Acceptance also has to be communicated and is a vital
requirement for a valid contract.

It represents the mental concurrence of the offeree which paves

the way for identity of mind or the ‘consensus ad idem’.
Rejection

If the offer is rejected by the offeree, there is no more the

possibility of any acceptance.

Acceptance
Definition u/s 2(b)

When the person to whom the proposal is made signified his

assent thereto, the proposal is said to be Accepted.

A proposal when accepted become a Promise.

Acceptance is nothing but an approval which may be either

expressed or implied to carry out an act according to the
terms and conditions of Offer.

An offer, when accepted becomes a Promise.

First Rule: Acceptance must be communicated

There can not a consensus ad idem without acceptance.

Powell vs. Lee - Plaintiff applied, considered and appointed as

Head Master; came to know about the proceedings of his
own. Before getting the order, he filed a suit which the court
objected.

2- It is left open to the Offeror to waive communication of

acceptance

In every case of acceptance, the acceptor need not convey his

acceptance in so many words by a letter to the Offeror; he
can at his option can give up his right on insisting the
acceptor can convey his acceptance.
It is left open to the Offeror to waive communication of
acceptance

For e.g. in Carbolic Smoke Ball Co. mere conduct of the customer
in buying and using the smoke ball amounted to acceptance;
which is termed a implied contract.

But Silence can not be prescribed

Silence amounting to acceptance is quite different from silence

being prescribed as a medium of communication.

In Felthouse vs. Bindley, uncle wrote to nephew offering to buy

his horse, he made it clear that if he did not receive the reply,
he would presume that the horse had been sold to him.

Nephew had already sold his horse before this letter was
received, he did not reply.

Suit by the uncle was dismissed by the court stating that silence
can not be prescribed as a medium of communication.

3- Acceptance concludes Contract

Just like Offer has to be communicated, an Acceptance must also

be communicated to the Offeror.

Both communication of offer and that of acceptance must be

completed.

Communication of acceptance through Post is said to be

completed when such offer reaches the knowledge of the
person to whom it is made(S.4)
4- Acceptance must be before the Offer lapses

an offer lapses when:

.it is not accepted in the prescribed manner.

..it is not accepted within the prescribed time.

…by death of the parties

….by a counter-offer

…..by revocation which may be expressed or implied.

5- An acceptance must be absolute and unconditional

• A qualified acceptance is no acceptance.

• A enters into an agreement with B, to purchase his

house; subject to the approval of Advocate. This would mean
that acceptance of A is only a conditional acceptance.

REVOCATION
u/s 4 & 5

Offer can be revoked by the Offeror

at any time before the acceptance.

Cases

• P advt. to sell his house for Rs.40000.

• Q wrote to P..” I offer Rs. 35000 for your house”.

 • P refused the offer.

• Again Q wrote to P offering Rs. 40000 for the house.

• P refused to accept that offer.

• Will Q succeed it a case is filed?

No. Q will not succeed because the original offer made by P was
not accepted; instead a counter-offer was made. Therefore,
the original offer has lapsed by counter-offer.

A went on a pilgrimage to North India with his colleagues through

a tour operator. In that ticket, overleaf, among the printed
conditions, one condition stated that if any belongings of the
tourists are damaged during the journey, the authorities who
arranged the tour will not be liable.

On the front page of the journey ticket, the words.. “please turn
over” was missing.

A’s luggage was damaged and he filed a suit against the

organisers for damages.

Will he succeed?

A will succeed.
The words ‘please turn over’ or PTO were missing on the front
page of the journey ticket.

In this case, the offeree’s attention was not drawn to the

condition printed on the ticket.

A delivered her saree worth Rs. 10,000 to a Dry Cleaners. They

gave a Receipt which contained printed conditions.

One of the conditions was that if the clothe got damaged, not due
to the negligence of the dry cleaners, 10 times of the bill
amount will be paid.

Having damaged her saree, A claimed full amount.

• A will succeed.

Laundry Receipt is not a contract;

it is only a receipt of acknowledgment.

===============

CONSIDERATION u/s 10

It is one of the essential ingredients to constitute a valid contract.

It is only CONSIDERATION that makes a promise to turn out an

Agreement.

CONSIDERATION u/s 10

It is known as

QUID PRO QUO,

that is something in return

for something done.

CONSIDERATION u/s 10

It requires lawful consideration, as an essential element for giving

enforceability to an Agreement.

Consideration is the price paid for an Obligation.

It is “some right, interest, profit or benefit accruing to one party

or forbearance, detriment, loss or responsibility given,
suffered by the other”.

Sec 25, states an Agreement made without consideration

is void.

Sec 23 and 24, deal with the circumstances in which the

consideration will be

treated unlawful.

CONSIDERATION

In India, the rule is expressed in the maxim,

“ ex nudo pactum

non oritur actio”

= no action arises from a nude agreement.

The term
“nudum pactum” refers to an agreement without consideration.

Definition – u/s 2 (d)

When, at the desire of the promisor,

the promisee or any other person

has done or abstained from doing,

or does or abstains from doing, or

promises to do or abstain from doing something, such act or

abstinence is called a consideration for the promise.

So, it can be inferred that ..

1-consideration must be at the desire of the promisor

2-it may move from one person to any other person

3-it may be past, present or future…and

4-consideration should be real thought not adequate.

Case

A promises to carry goods of B, free of charge and B allows A to

carry it.

Here, B does not offer any consideration to A.

Is this a valid Contract ?

Here, B has suffered a detriment or disadvantage while allowing A

to carry his goods.
So there is sufficient consideration.

Note that consideration could not be necessarily a gain or

advantage to the promisor but it can even be a loss to the
promisee.

Case

Y applies for a loan of

Rs. 1000 to X.

X insists on a guarantee of S.

S guarantees the loan.

X gives the loan to Y.

Here, who is the promisor and

the promisee?

Here, S will be the promisor and

X the promisee.

Benefit of transaction conferred on Y by X at the guarantee of S,

is sufficient consideration for X.

In other words, X has suffered a detriment which is the

consideration for the guarantee of S to repay the loan which X
has given to Y.

Agreements without consideration

Agreement made without consideration is void..

Gratuitous promises are not enforceable in law.

Rules on
Consideration

1 - Consideration need not always be in the form of benefit, it can

also be in the form of detriment, pain or sufferance.

2- Empty promises unsupported by consideration are not

enforceable by law.

Abdul Aziz vs. Masum Ali.

For the purpose of building a mosque, the person to whom the

promises were made, was not given the donation.

Court held that the donor and the donee did not incur any
sufferance and suit dismissed.

Kedar Nath vs. Gauri Mohamed

3- Liability incurred in pursuance of promise is enforceable.

Here, the plaintiff suffered liability out of his pocket on the

strength of the promise made by the donors; so the donation
is enforceable.

Statutory Exceptions

Agreement made on account of natural love and affection

between parties standing in near relation to each other..... is
expressed in writing and registered ...

4-Consideration must be at the

Desire of the Promisor
Sec. 2 (d) states…

when, at the desire of the Promisor,

the Promisee has done

or abstain from doing something,

such act or abstinence is called

a consideration for the promise.

X attends a temple leaving his shoes outside with Y.

Y, polished the shoe of his own and in addition to the keeping

charges and demands extra money.

X need not pay.

5- consideration must move from the Promisee

X an old lady, by deed of gift, made over certain property to

her daughter D, under the direction that she should pay P,
her sister, a certain amount annually.

And D entered into an agreement with P to pay her the

agreed amount.

Later, D refused to pay the amount on the plea that no

consideration moved

from P to D.

Can P file a suit against D?

This is the case of

Chinnyya vs. Ramayya,

Happended in 1882 where

C is the Aunt and R is the Daughter

Court held that P was entitled to maintain a suit as Consideration

had moved from X to D.

Under Indian Law, even a stranger to consideration can sue

but not a stranger to a contract.

Agreements without Consideration

If it is a promise to compensate, wholly or in part, a person who

has already voluntarily done something for the promisor....

Example

A supports B’s infant son. B promises to pay A’s expenses in this

act.

This is a valid contract

Agreements without Consideration

If it is a promise made in writing and signed, to pay wholly or in

part, a debt which the creditor might have enforced for the
law of limitation..

Example

A owes B Rs. 1000 but the debt is barred by the Limitations Act.
 A signs a written promise to pay B Rs.500 on account of the
debt, this is a valid contract.

Consideration

Consideration must be real or of some value in the eyes of the

law, must not be unreal, illusory or a purely moral obligation.

It must be certain and lawful.

A promises to supervise, on behalf of B, an illegal activity and B

promises a salary of Rs.10000. This agreement is void, as
consideration for B’s promise being is unlawful.

Past Consideration

When the consideration was given in the past by a party for a

present promise.

i.e.. before the date of the promise, it is past consideration.

Example

A renders some service to B at latter’s desire.

After a moth B promises to compensate A for the service. It is

past consideration and can be recovered.

Executed / Executory Consideration

A pays Rs. 5000/- to B requesting him to deliver a specific mobile

phone, to which B agrees.

Here consideration for B is executed by A as he has already paid

 Rs. 5000/-

whereas B’s promise is Executory as he is yet to deliver the

mobile phone.

Future or Executory
Consideration

When consideration from one party to the other is to pass

subsequently to the making of the contract, it is a Future
consideration.

E.g.. D promises to deliver certain goods to P after a week. P

promises to pay the price after a fortnight.

The promise of D is supported by

promises of P; it is Executory Consideration.

Privity of Contract

General rule is that only parties to the contract could enforce

their claims against each other respectively.

Consideration in a contract must move from the promisee and

that too at the desire of the promisor.

A stranger to a consideration must be distinguished from a

stranger to contract.

When consideration moves from a person other than the

promisee, such promisee is known as a stranger to a
consideration.
A stranger to contract is one who is not a party

to the agreement.

Therefore, a person who is not a party to the agreement

can not sue.

A stranger to a contract is necessarily a stranger to a

consideration.

A stranger to consideration need not be a stranger to a contract.

Case lets

A promises to donate Rs. 10,000 by way of sponsoring a music

Programme in a temple function. The Trustees of the temple,
on the faith of A’s promise advanced Rs. 3,000 to a Musician
from out of the temple funds. On the selected day of
performance, A refused to pay the promised sum. The
trustees filed a suit against A for reimbursement.

Can they succeed?

Yes.

Trustees can succeed because liability has been incurred in

purpose of a promise. Hence it is supported by consideration

Case: Kedar Nath vs

Gouri Mohamed.
N &Co. while appointing K & Co. as a wholesale distributor for
their articles, laid a condition that K & Co. should not sell the
products of N & Co. below the listed price. Now K & Co.
entered into a contract with

C & Co., a retailer incorporating the same condition that the

products of N & Co. should not be sold below the listed price.

But C& Co. sold some of the articles of N & Co' less than the
listed price.

N & Co. filed a suit against C & Co.

• Can they succeed?

No.

N & Co. can not succeed.

They are stranger to the contract between K&Co. and C & Co.

Case: Dunlop PneumaticTyre Co. Ltd. vs. Selfridge & Co. Ltd.

P owes Rs. 5000 to V which has become overdue and barred by

limitation. P wrote a letter to V acknowledging the debt and in
humble words undertook to repay the debt. V filed a suit
against P contending the letter to be a promise. Can he
succeed?

No. V can not succeed.

Mere letter of acknowledgement of a time barred debt is not a

promise made in writing.
(Sec 25 (3)

OTHER ESSENTIAL ELEMENTS OF A CONTRACT

Capacity to Contract

COMPETENCY (Sec 11and t2)

Competency and Capacity to enter into an agreement are said to

be primary

qualifications for a valid contract.

According to Sec 11, a person is said to be Competent to

contract, if he has attained the age of majority.

Also he should be of

sound mind.

Another condition is that he should not have been disqualified

under law to enter into a contract.

Example

A legally disqualified person like an INSOLVENT may be a major

and an intelligent person.

But he can not enter into a contract.

Classification of
Incompetency

1- Incompetency on account of STATUS:

Political, Professional, Alien enemy, Convicts etc.

2- Incompetency on account of MENTAL DEFICIENCY: Infancy,
Idiocy, Lunacy, Drunkenness.

Capacity of parties – s 10, 11, 12

S-10 -Parties to a contract must be competent to contract

S-11 - Every person is competent to contract who is of the age of

majority, who is of sound mind and who is not disqualified
from contracting by any law ..

S- 12- Explains the circumstances in which person will be said to

be of should mind for the purpose of entering into a contract

Capacity of parties

The age of majority in India is governed by the Indian Majority

Act of 1875 –

…anybody will attain majority when he has completed 18 years

of age.

Mistake
means Error.

Mistake may be said to arise when the parties have not meant
the same thing,

or one or both, while meaning the same thing, may have

formed untrue conclusions about some of the essential
element in the agreement.
It is grouped into :

1- mistakes in the expression of the contract

2- mistakes as to the motive for entering into the contract

3-mistake as to the nature or contents of it

4- mistake as to the identity of the contracting parties.

Mistake
u/s 20

• Mistake must be of both the parties-common and not

unilateral

• It must be a mistake of fact and not of mistake of law

• It must be about a fact essential to the agreement

Consent

Consent is other important requirement for making a

valid contract.

Consent mean concurrence, approval and willingness to do a

particular act.

An act must be done voluntarily.

So, Consent signifies an Act done by a person knowingly,

feelingly and willingly.

Free Consent u/s 14

Consent is said to be FREE

when it is not caused by:

- coercion, as defined u/s I5

- undue influence, as defined u/s 16

- fraud as defined u/s I7

- misrepresentation as defined u/s 18

- mistake as defined u/s 20,21 and 22

Coercion - u/s 15

Coercion

is the committing or threatening to commit any act forbidden by

the IPC.

This also includes unlawful detaining or threatening to detain any

goods to the prejudice of any person with the intention of
causing any person to enter into an agreement.

Threatening to commit suicide

The only offence that is not punishable under IPC is completed

commission of suicide.

But an attempt to commit suicide is punishable u/s 309 of IPC.

In a case, the husband threatened to commit suicide if his wife

did not execute a release deed in favour of his brother in
respect of the wife’s property; Court held that this voidable at
the option of the wife.

Undue Influence
 • A contract is said to haven been induced by undue
influence, when the relationship, prevailing between parties,
is such that one party is in a position to dominate over the
will of the other.

A person is said to be dominating over the other when he holds

real or apparent authority.

Real authority signifies actual authority prevailing between

master and servant, doctor and patient etc.

Apparent authority signifies assumed authority.

Undue Influence
u/s 16

It is an equitable doctrine.

Where a confidential relationship exits between the parties,

undue influence between the parties will be presumed to have
been exercised by the party in who confidence it was reposed

by the other.

Example

Parent and child

Guardian and ward

Advocate and client

Doctor and patient

Spiritual adviser and disciple

Allcard vs. Skinner-1889

Miss.Allcard who joined a Sisterhood in 1862 gifted her property

of 7000 pounds to them. In 1879, she came out of it.

In 1885 she filed a suit complaining undue influence on the

part of the Sisterhood.

Court held that there is presumption of undue influence but

subsequent conduct and delay in filing suit amounted to tacit
approval

by Allcard.

Hence, contract based on undue

influence is voidable.

Test

It is the use of a relationship of Trust and Confidence to exploit

the other party to derive some contractual advantage. This
kind of relationship is also called as ‘fiduciary’ relationship.
The domination of one person’s will over the other person is
quintessential to the element of undue influence.

Wagering contracts -u/s 30

A wager means a bet.

The subject matter may be anything – either gain or loss, wholly

dependent on an uncertain event.
A wagering agreement is an agreement, the performance of
which depends upon pure chance.

To constitute a wager, ‘the parties must contemplate the

performance of a contract to depend upon the occurrence of
an uncertain event as the sole condition of their contract.

U/s 30, agreement by way of wager is said to be void. Lottery

should be strictly considered as wager including horse racing.
But since lottery and horse racing are authorised by the
government, they are exempted from being terms as wager.

Sathyanarayana vs.
State of Hyderabad

• Where a certain amount of wisdom or intelligence is

required, it should not be considered as wager.

In India, agreement by way of wager are void –

no suit shall be brought for recovering anything alleged to be won

on any wager

Exception

• In favour of certain prizes for horse racing

 • “ an agreement made towards a prize of amount of
Rs.500 or upwards, to be awarded to the winners of any
horse race shall be not rendered unlawful “

Provision under Income Tax Act

Under S.2 (24) Clause (IX) of Income Tax Act, ..”any winnings
from lotteries, crossword puzzle, races, including horse race,
card games and other games of any sort or from any
gambling or betting or any form or nature whatsoever’…are
subject to tax.

• Here gambling and betting or participation in lotteries

could probably be a business in rare cases for a professional
gambler and not for a person who participates in a game of
cricket forecast as a matter of hobby.

POKER Game, a kind of card game is permitted in the States of

Nagaland, Bengal and Karnataka, on the premise that it is
NOT gambling but only a

skill-game..

It was banned in the

State of Kerala under

Kerala Gaming Act-1960;

 but as per the Notification of Sept. 1976, certain card games
like 28, 56, Rummy etc.

were allowed,

if it is without gambling.

Contingent Contracts –ss 31 to 36

A contingent contract is a conditional contract.

It is a contract to do something, if some event, collateral to

such contract, does or does not happen.

Example

A contract to pay B

Rs. 2 lakh, if B’s house is burnt – this contract of fire insurance

which is a

CONTINGENT CONTRACT.

Agreement contrary to
Public Policy

Courts are of the opinion that the term’ public policy’ can not be
defined in isolation. Public policy is compared to an unruly
horse which is dangerous and difficult to ride. Judges are to
explain and expound it.

Novation

A circumstance in which an assignment of a burden or liability of

 a contract is recognized is called Novation

A owes money to B under a contract

It is agreed between A, B and C that B shall be thenceforth

accept C as his debtor, instead of A.

Breach of Contract

When a party does not fulfill his undertaking at a stipulated time,

he is liable for breach.

Sec. 55 of the Act refers to cases where TIME is of the essence

of contracts

Anticipatory Breach –s-39

ANTICIPATORY BREACH

of contract may take place before the time actually fixed for the
performance.

It may arise due to:

1- by an impossibility of performance created by a party: an

agreement to sell a car, made impossible by sale of the same
car to another person before the agreement date.

2 - by repudiation, disapprove, deny, of contract by one party

An agreement to let out a house, made impossible by sale of that
house.

Doctrine of Frustration

Frustration is the premature termination of an agreement

between parties lawfully entered into and in the course of
operation at the time of its premature termination, owing to
the occurrences of an event…

..so fundamental as to be regarded by the law as striking at the

root of the agreement, and as entirely beyond what was
contemplated by the parties when they entered into the
agreement.

The Doctrine of Frustration

It describes a situation where before the conclusion of a contract,

unforeseeable events occur, rendering the performance of
that contract impossible.

Under the doctrine,

Courts have the power to discharge any contract that falls within
its scope as "frustrated".

• Courts nowadays seem to be reluctant when it comes

to discharging contracts as frustrated. The current policy on
such matters is to prevent parties from using the doctrine as
a defence protecting them from a bad bargain.
Doctrine of Frustration

frustration = a feeling of disappointment

Non-occurrence of a particular event – the ‘coronation case’ –

• The plaintiff Krell had agreed to let a flat to the

defendant Hentry for June 26 and 27, 1902, to view the
coronation procession of King Edward VIII.

The rent had not become payable when the procession was
abandoned.

The Court held that he could not recover the rent.

Doctrine of Frustration

If a contract is made, and for whatever reason it later becomes

impossible to for one party to perform their obligations, then
it is case of frustration.

• It should be noted that frustration is about subsequent

impossibility; if a contract was impossible to perform right
from the outset, then the issue is one of mistake and not
frustration.

A force majeure clause

• We should first establish whether a particular situation

 in question has been expressly provided for in the contract.
Such a provision is called a force majeure clause.

Example

A contract for the sale of some goods being imported by sea

might say, “in the event of the cargo being lost at sea, this is
what happens…”. A force majeure clause is only valid if the
provision is full and complete – that is, it has to be specific
about what risk is being provided for.

Supervening illegality

• Since the contract was made, a new law has made it

illegal to carry it out.

• In Avery v Bowden (1856), where a ship was supposed

to pick up some cargo at Odessa. With the outbreak of the
Crimean War, the government made it illegal to load cargo at
an enemy port, so the ship could not perform its contract
without breaking the law; the contract was frustrated.

Doctrine of Frustration

• Further performance rendered impossible.

the key reasons:

Destruction of the subject matter:

Example
 1- X agrees to sell his house, but then the house burns
down.

Non-availability of a party, due to death, illness, or other

exceptional circumstances.

2- Hiring a singer to play, but the singer is taken ill and can
not perform.

Corresponding Indian law – Impossibility of Performance u/s 56

• Agreement to do impossible act –

e.g.. A agrees with B to discover treasure by magic

• Contract to do act afterwards becoming impossible or

unlawful.

e.g. A contracts to take goods for B to a foreign port. Later

war declared between two nations- the contract becomes void

Doctrine of Frustration and section 56

An agreement to do an act impossible in itself is void.

• Supervening impossibility refers to the interruption of

an unexpected event beyond the contemplation of the
parties; such event must be so fundamental as to be
regarded as striking at the root of contract.
Subsequent impossibility is referred to as Doctrine of
Frustration.

Doctrine of Frustration and section 56

 • The impossibility does not discharge a person from the
contract. He who agrees to do an act should do it unless
impossibility arises…

• Section 56 of the Indian Contract Act, 1872 stipulates:

"Agreement to do impossible act: An agreement to do an act
impossible in itself is void.

• Contract to do act afterwards becoming impossible or

unlawful: A contract to do an act which, after the contract is
made, becomes impossible, or, by reason of some event
which the promisor could not prevent, unlawful, becomes void
when the act becomes impossible or unlawful.

Doctrine of Frustration and section 56

Frustration is a developing concept; like negligence, its

categories are as wide as the categories of human conduct.
Its effect is immediate, automatic.

It beheads a contract without the option of either party which

becomes dissolved. If the parties later purport to act under it
they are really making a new contract.

Happening Of Unprecedented Events Causes Frustration

• To attract the plea of frustration, it must be shown that

the situation has changed so drastically that neither party was
helpless resulting in execution of the contract impossibility.
DISCHARGE OF CONTRACT

• Contracts may be discharged or terminated by any of

the following modes:

• Performance of the contract

• Mutual consent or agreement

• Lapse of time

• Operation of law

Impossibility of Performance and

• Breach

(discharge=carry out or to complete a duty, responsibility or

promise successfully)

DISCHARGE OF CONTRACT

Performance of the contract—Sec. 37 provides that the parties to

a contract must either perform or offer to perform their
respective promises, unless such performance is dispensed
with or excused.
 • In the case of death of the promisor before
performance, the representative of the promisor are bound to
perform the promise unless a contrary intention appears from
the contract.

DISCHARGE OF CONTRACT

• Tender of Performance :S- 38

• It is sometimes sufficient if the promisor performs his

side of the contract.

• Then, if the performance is rejected, the promisor is

discharged from further liability.

DISCHARGE OF CONTRACT

• Tender of Performance :S- 38

• To be valid, a tender must fulfill the following

conditions:

• It must be unconditional

• It must be made at a proper time and place.

DISCHARGE OF CONTRACT

• Discharge by mutual consent or agreement – u/s 62

and 63:
 • An agreement may be discharged by the agreement of
all parties to the contract or waiver or release by the party
entitled to performance.

• It takes various forms – e.g.. Novation, where a new

contract is substituted for an existing contract.

DISCHARGE OF CONTRACT

• Discharge by lapse of Time: The Limitation Act affords

a good defence to suits for breach of contract.

DISCHARGE OF CONTRACT

• Discharge by Operation of Law: Discharge under this

head may take place as follows:

-by unauthorized alteration of items in a written document:

where a party to a written contract makes any material
alteration, the other person can avoid it.

- by insolvency: the Insolvency Act provides for discharge of

contract under particular circumstances

Discharge by Impossibility or Frustration – S 56

• Where at the outset it is clearly impossible to perform a

 contract, such contract lacks an essential element, that is,
intention of the parties, and is void.

• E.g.. A contract to walk across water –

• Such an impossibility is patent and known to the

parties

Discharge by supervening impossibility

• (supervene = follow unexpectedly)

• A contract will be discharged by subsequent or

supervening impossibility in the following ways:

• Where the subject matter of the contract is destroyed

with out the fault of the parties, the contract is discharged

• When a contract is entered into on the basis of the

continued existence of certain state of affairs, the contract is
discharged if the state of things changes.

Discharge by supervening impossibility

 • Where a personal qualifications of a party is the basis
of the contract, the contract is discharged by death or
physical disability of that party.

Discharge by supervening illegality

• Contract that is contrary to law at the time of formation

is void. But if, after the making of the contract, owning to
alteration of the law, the performance of the contract
becomes impossible, the contract is discharged.

Example

A enters into a contract with B for cutting banyan tree. Later by

statutory provision, cutting banyan tree is prohibited.

Cases where there is non Supervening impossibility

• Difficulty of performance: the mere fact that

performance is more difficult or expensive than the parties
anticipated, does not discharge the duty to perform.

• Commercial impossibilities do not discharge the

contract. A contract does not become impossible of
performance because expectation of higher profits is not
realized.

Cases where there is non Supervening impossibility

• Strikes, lockouts and civil disturbances, riots do not

terminate contract unless there is such a clause in the
contract for non-performance.
Supervening impossibility of illegality is known as

“frustration”

under the English Law.

Discharge by Breach

Where the promisor neither performs his contract nor does he

tender performance, or where the performance is defective,
there is a breach of contract.

Actual:

• the actual breach may takes place either at the time

the performance is due or when actually performing the
contract.

Discharge by Breach

• - Anticipatory: The anticipatory breach, i.e.. A breach

before the time for the performance has arrived. This may
also take place in 2 ways:

• 1- by the promisor doing an act which makes the

performance of his promise impossible

• 2- by the promisor in some other way showing his

intention not to perform it.

Remedies
for breach of contract

The injured party may :

Rescind-cancel-repudiate-the contract

Sue for damages

Sue for specific performance

Sue for an injunction to restrain the breach of negative term

Sue on quantum meruit

Rescission

When a party has broken a contract, the other party may treat
the contract as rescinded and he is free from all his
obligations.

U/ s. 65, when a party treats the contract as rescinded, he

himself liable to restore any benefits he has received under
the contract to the party from who such benefit were
received.

Damages u/s 73

Person injured by a breach of contract can claim damages from

the other party for compensating the loss suffered.

The loss or damages depends on specific circumstances of each

event.

General Damages

can be awarded as
the damages arose in the usual course of things naturally.

Damages u / s 74

Damages can be defined as the amount adjudged to be paid as

compensation; not as punishment, for the loss sustained by
the latter in consequence of the breach of a contractual
obligation.

Measurement of Damages:

Estimation of damages arising from a breach of contract, the

means which existed of remedying the inconvenience caused
by the non-performance of the contract must be taken into
account.

Liquidated Damages

Where the contracting parties agree in advance the amount

payable in the event of breach the sum payable is called

‘Liquidated Damages’.

Liquidated Damages

Where the contracting parties fix at the time of contract the

amount of damages that would be payable in case of breach.
In English law, the question may arise whether the term
amount to ‘liquidated damages’ or a ‘penalty’.

Where the amount fixed is a genuine pre-estimate of the loss in

case of breach, it is liquidated damages and will be allowed.
If the amount fixed is without any regard to probable loss, but is
intended to frighten the party and to prevent him from
committing breach, it is a penalty.

In India, there is no such differentiation and Courts allows for

‘reasonable compensation’.

Types of Unliquidated Damages

Ordinary or General:

These are restricted to pecuniary compensation to put the injured

party in the position he have been,

had the contract been performed.

It is the estimated amount of loss

actually incurred.

Unliquidated Damages:

In a contract for sale of goods, the damages payable would be

different between the contract price and the price at which
goods are available on the date of breach..

Unliquidated Damages:

2- Special Damages are those resulting from breach of contract

under some peculiar circumstances.
If at the time of entering into the contract, the party has given
notice of special circumstances which makes special loss, the
likely result of the breach in the ordinary course of things.

Then upon the breaking, the contract and the special loss
following the breach, he will be required to make good the
special loss.

Unliquidated Damages:

A delivered goods to the Railway, informed specifically that if the

goods did not reach the destination for an exhibition-purpose,
on the stipulated time, he would suffer special loss. The
goods reached late. And A can claim special damages.

Unliquidated Damages

3- Exemplary Damages are awarded with a view to punishing the

defendant, and are not as a rule, granted in case of contract.

Unliquidated Damages

Exemplary Damages are awarded with a view to punishing the

defendant, and are not as a rule, granted in case of contract.

Wrongful dishonor of a customer's cheque by the banker.

Unliquidated Damages

4-Nominal Damages consist of a small token award,

E.g.. A single rupee, where there has been an infringement of a

contractual right, but no actual loss has been suffered
Exemplary Damages

X, a man, betrothed Y, a lady.

Later X breached his promise to marry Y.

Here Exemplary damages are awarded in case of breach of

promise to marry.

Specific Relief

• 1- Specific Performance:

• The injured party may obtain a decree for specific

performance of the contract..

• For e.g. in the case of immovable property, the court

may interfere to recover it for the injured party.

• 2 – Mandatory Injunction: The court will direct the

party to do some act as per the agreed contract.

-----------E N D

Savings Clause or
Severability clause

• A clause is a distinct section of a document, especially

a legal document.

• A clause in a contract that allows for the terms of the

contract to be independent of one another, so that if a term in
the contract is deemed unenforceable by a court, the contract
as a whole will not be deemed unenforceable. If there were
 no severability clause in a contract, a whole contract could be
deemed unenforceable because of one unenforceable term.

question

• Is it true that all void contracts are void ab initio?

•
• Explain the term offer and distinguish it from an
invitation to offer..

•
• What is quasi contract? Give examples.

•
questions

• What is ‘discharge of contract? Different modes of

discharge..

• Write about the manners of performance and discharge

• Differentiate between void and voidable contracts.

 •

Liabilities arise from a contract where

one of the two parties is a minor.

As per Indian Majority Act, a minor is a person who has not

completed 18 years. In case a guardian is there or where he
is under the guardianship of the court of wards, the person
continues to be a minor till he completes 21.

As per I C A, no person is competent to enter into a contract who

is not of the age of majority.

Our courts held that where a minor has incurred any liability, he
is not liable.

Minor..........

But if he has carried out his part of the contract, then he can
proceed against the other party. As per T P Act, a minor can
be a transferee not a transferor.

A contract with a minor is void ab initio, it can not be ratified on

his attaining majority.

If a minor fraudulently overstates his age and takes delivery

of a car after executing a promissory note in favour of the
trader for its price, he can not be compelled to pay the
amount. But the court on equitable grounds may order him to
return the car.
Minor...

An agreement by a minor being void, the court will never direct

specific performance of the contract.

Since he is never personally liable, a minor can not be

adjudicated an insolvent.

A minor can be an Agent, but can not be a Principal, nor can be a

partner, but can be admitted to the benefits of a partnership.

‘a mere silence as to facts is not fraud” - - discuss

Fraud ( S- 17 ) means an intent to deceive, active concealment,

promise made with out intention to perform etc. This
element is lacking if it is innocent

Misrepresentation u/s 18

In case of misrepresentation and fraudulent silence one can take

good plea that the other had the means of discovering the
truth with ordinary diligence. But this argument is not
available if there is fraud.

a mere silence as to facts is not fraud” - - discuss

Duty to speak: in the case of contracts ‘uberrimae fidei’

( absolute good faith ) law imposes the duty of making a true

and full disclosure of all material facts like contract of
insurance

Contracts for the sale of immovable property u/s 55(1) of T P Act

 –

The seller to disclose to buyer any material defects in the

property

Bought item worth Rs. 500 for

Rs. 1000.

Is it void on the ground of mistake as to the price of the subject

matter?

Mistake of Fact – s- 20 to 22

Mistake as to subject-matter:

1-regarding existence of the subject-matter –

2-regarding the identity of the subject-matter

Mistake of Fact – s- 20 to 22

3-regarding title to the subject-matter

4-regarding quality of the subject-matter

5-regarding the quantity of the subject-matter

Regarding the price of the subject-matter:

• Rs.500 – the excess amount paid under mistake of fact,

can be recoverable.

1 mark questions

• What is quasi contract?

• What is meant by assignment of contract?

• What is unenforceable contract?

• Does a threat to commit suicide amount to coercion?

2 mark questions – short notes

• Free consent

• Voidable contract

• Define ‘offer’.
5 mark questions

• Explain the law relating to Acceptance of an Offer.

• What remedies are available to an aggrieved on the

breach of a contract? Explain.

• Consideration is inevitable for a valid contract. Do you

agree?

5 mark questions

• What are the types of Consideration?

• What is a Wagering agreement

5 mark questions

• Under what circumstances is a party entitled to specific

performance.

• What are the rules of law relating to time and place of

performance of a contract?
6 mark questions

• Explain the term ‘consideration’ and state the exception

to the rule – ‘no consideration, no contract’.

• What essential conditions are necessary to convert a

proposal into a promise?

7 mark questions

• State the rules of Valid Offer

10 mark questions

• A sold some land to B. at the time of sale both the

parties believed in good faith that the area of the land sold
was 200 acres. It, however turned out that the area was 150
acres only. How is the contract of sale affected? Give
reasons..

10 mark questions

• A promised to sell and deliver on the 5th Dec. 2005, a

lorry to B. The parties had stipulated that time should be the
essence of the contract.

A delivered the lorry only on the 5th of Feb. 2006.

• - explain what are the rights of B against A

 • - suppose B desires to accept the belated delivery and
also to claim compensation for loss occasioned by non-
performance of the promise at the time agreed.

10 mark questions

• A agreed to pay B, Rs.2 lacs if he kills C who was A’s

enemy.

• B kills C and claims the amount offered.

• A refuses to pay.

• Can B sue A for breach of contract?

• What are the legal consequences involved?

10 mark questions

• A borrows Rs. 5000 from B to purchase certain

smuggled goods from C.

• Can B recover the amount from A, if he..

• Knows of A’s purpose for which he borrows money

• If he does not know of A’s purpose.

 U/s 10 of ICA, all agreements are contracts if they
are made by the free consent of the parties, competent
to contract, for a lawful consideration and with a lawful
object and are not hereby expressly declared to be void..

Contract

• All agreements are contracts if they are made by the

free consent of the parties, competent to contract for a lawful
consideration and with a lawful object and are not hereby
expressly declared to be void..

• Here B can not recover the amount from A, if he knew

of A’s purpose for which he borrowed money which was an
illegal activity of smuggling goods.

But If he does not know of A’s purpose, he can definitely

recover the money, as the agreement was a valid one.

Compulsory Question

• Goods are delivered by A to B on

‘sale or return’ condition.

• They are further delivered by B to C, and C to D on

similar terms.

• The goods are stolen while in the custody of D.

• - Is B liable to A for the loss?

 • - If not, who shall suffer the loss?

THE DOCTRINE OF
PRIVITY OF CONTRACT

• The doctrine of privity means that a contract cannot, as

a general rule, confer rights or impose obligations arising
under it on any person except the parties to it.

Privity =

• legally recognized relationship; a legally recognized

relationship between two parties, e.g. between members of a
family, between an employer and employees, or between
others who have entered into a contract together..

• The common law reasoned that:

• 1. Only a promisee may enforce the promise meaning

that if the third party is not a promisee he is not privy to the
contract.

• The doctrine of privity of contract is applicable in India

also, so that, in general..

a stranger to contract can not sue, though stranger to

consideration, can sue under the Indian law.
EXCEPTIONS

• If the doctrine of privity was inflexibly applied, it would

cause considerable injustice and inconvenience.

• Many exceptions to it have therefore, been developed.

COLLATERAL CONTRACTS

• A contract between two parties may be accompanied by

a collateral contract between one of them and a third person
relating to the same subject-matter.

Compulsory Question

• A and B agree that A shall pay B, Rs.1000 for which B

shall afterwards deliver to A either Rice or Smuggled goods.

• Comment on the validity of the Agreement.

SS.24, 57, 58 of ICA

• When a contract consists of both valid terms and also

illegal or void terms, question may arise whether the whole
contract may be set aside.

• The general rule is that where we can not sever the

illegal from the legal part of a covenant, the contract is
altogether void.
 • But where, we can sever them, whether the illegality be
created statute or other, we can reject the bad part and
retain the good.

• If any part of the consideration is illegal, the whole

promise can not be enforced.

This question

• As per Section 58 of ICA, which provides for a rule

where one branch of an alternative promise is illegal.

• Where one branch of which legal and the other illegal,

the legal branch alone can be enforced.