The Indian Contract Act, 1872

Prof. CA.
Soujanya G K The Contract Act, 1872

2nd Sem, IBS Bangalore LEOB
The Indian Contract Act, 1872
Important Definitions
Section 2(a) 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;
Section 2(b) When a person to whom the proposal is made, signifies his assent thereto, the proposal is
said to be accepted. A proposal, when a accepted, becomes a promise;
Section 2(c) The person making the proposal is called the "promisor", and the person accepting the
proposal is called "promisee",
Section 2(d) When, at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise;
Section 2(e) Every promise and every set of promises, forming the consideration for each other, is an
agreement;
Section 2(f) Promises which form the consideration or part of the consideration for each other are called
reciprocal promises;
Section 2(g) An agreement not enforceable by law is said to be void;
Section 2(h) An agreement enforceable by law is a contract;
Section 2(i) An agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other or others, is a voidable contract;
Section 2(j) A contract which ceases to be enforceable by law becomes void when it ceases to be
enforceable.
“Jus in rem” means a right against or in respect of a thing; - it is available against the world at large.
Ex: Mr. X is the owner of a land. He has a right to have quite possession and enjoyment of that land
against every member of the public. Similarly, every member of the public is under an obligation not to
disturb Mr. X’s possession or enjoyment. This right of Mr. X is “jus in rem”
Jus in personam means a right against or in respect of a specific person; - available only against
particular person.
Mr. A owns a certain sum of money to Mr. B. Mr. B has a right to recover this amount from Mr. A. this
right can be exercised only by Mr. B and none else against Mr. A. this right of Mr. B is “jus in
personam”
“Conesnsus-ad-idem” means “the meeting of mind” i.e., the parties to the agreement must have agreed
about the subject matter of the agreement in the same sense and at the same time. Unless there is
Conesnsus-ad-idem there cannot be any contract.
The term contract has been defined by many management authors, but as per Indian contract act 1872
the term has been defined under Section 2(h) as “An agreement enforceable by law is a contract”. As
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Prof. CA. Soujanya G K The Contract Act, 1872
per the definition given in the Indian contract Act 1872 a contract must essentially consist of the
following elements:
1) An Agreement;
2) Enforceability by Law
An Agreement: The term Agreement has been defined under Section 2(e) of the Indian contract Act as
“Every promise and every set of promises, forming the consideration for each other, is an agreement.”
Enforceability by Law: an Agreement, to become a contract must give raise to a legal obligation. The
term obligation is defined as a legal tie, which imposes upon a definite person or persons the necessity
of doing or abstaining from doing a defiant act or acts. It may be social or legal matters. An agreement,
which gives raise, to a social contract is not a contract. In order to give raise to a contract the agreement
must be a legal agreement.
Therefore Contract = Agreement + Enforceability by Law.

Agreement = Offer + Acceptance + Enforceability by Law
Classification of contracts
Based on the validity:
An agreement becomes a contract when all the essential elements of a contract are present. In such case
such agreement becomes a contract. If any of the essential elements are missing than such contact is
voidable, void, illegal or unenforceable.
Voidable contract: the term voidable contract has been defined under Section 2(i) as “An agreement
which is enforceable by law at the option of one or more of the parties thereto, but not at the option of
the other or others, is a voidable contract”. This happens in the case where the consent of the party has
not been obtained in accordance with law or has been obtained by force or coercion or undue influence,
misrepresentation, mistake. In such case the party whose consent is not free has the right to recent or
accept the contract.
Void Agreement: the term void agreement has been defined under Section 2(g) as “An agreement not
enforceable by law is said to be void.” A void agreement does not create any legal right or obligation.
Such agreement is void-ab-initio from the beginning itself. E.g., agreement with minor or an agreement
with out consideration is void-ab-initio.
Void contract: the term void contract has been defined under Section 2(j) as “A contract which ceases
to be enforceable by law becomes void when it ceases to be enforceable.” In this case when the contract
was entered into, may be valid and binding on the parties as per law, but subsequently it has become
void. E.g., in the case of import contract, the agreement is enforceable, but if subsequently war brakes
out then the agreement becomes void contract.
Illegal agreements: an illegal agreement is one, which transgresses (against) some basic rule of Public
Policy or criminal in nature or is immoral. All illegal agreement is void, but all void agreements are not
illegal. An illegal agreement is not only void between the immediate parties but has its further effect
that even the collateral transactions to it become tinted with illegality. A collateral transaction is one,
which is subsidiary, incidental or auxiliary to the principal contract.
Ex: Mr. B borrows Rs.5,000 from Mr. A and enters into a contract with an alien to import prohibited
goods. Mr. A knows of the purposes of agreement. The transaction between Mr. B and Mr. A is
collateral to the main agreement. It is illegal since the main agreement is illegal.
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Unenforceable contract: an unenforceable contract is one which cannot be enforced in a court of law
because of some technical defect such as absence of consideration or absence of contract in writing. The
parties to the contract may fulfill their obligations but in the event of breach of contract the other party
cannot enforce it.
Based on formation:
Express contracts: if the terms of the contract are expressly agreed upon (whether by words spoken or
written) at the time of formation of contract, such a contract is said to be an expressed contract
Implied contracts: in this case the contract comes into existence by the acts or conducts of the parties
or of course of dealing between them.
E.g., - Getting into a Public bus.
- Taking a cup of tea in a restaurant
CL: a fire broke out in S’s firm. He called upon the upton fire brigade to put out the fire which the latter
did. Mr. S firm did not come under the free service zone although he believes to be so. Held, he was
liable to pay for the service rendered, since the services was rendered on the implied promise to pay
(Upton Rural District Council vs. Powell)
Quasi contract: strictly speaking quasi contracts are not contracts. A contract is one, which is entering
into with the consent of the parties to the contract. A quasi contract is one, which is created by law. It is
based on the principle that “a person shall not be allowed to enrich himself unjustly at the expense of
another.”
ESSENTIAL ELEMENTS OF A CONTRACT
According to Section 10: All agreements are contracts 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 expressly
declared to be void.
Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by
which any contract is required to be made in writing or in the presence of witnesses, or any law relating
to the registration of documents.
1) Offer and Acceptance

2) Intention to create a legal relationship
3) Lawful Consideration
4) Capacity of the Parties
5) Free Consent
6) Lawful Object
7) Agreement not declared as void
8) Possibility of Performance
9) Legal formalities
Intention to create a legal relationship

When two parties enter into any agreement, their intention must be to create a legal relationship
between them. If there is no such intention on the part of the parties, there is no contract between them.
Agreements of a social or domestic nature do not contemplate legal relationship. As such they are not
contracts.
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Case law: a husband promised to pay his wife a household allowance of $30 every month. Later the
parties separated and the husband failed to pay the amount. The wife sued for the allowance. Held,
agreements such as these were outside the realm of contract altogether. (Balfour v/s Balfour)
Offer and Acceptance
There must be two parties to an agreement, i.e., one party making the offer and the other party
accepting it. The terms of the offer must be definite and the acceptance of the offer must be absolute
and unconditional. The acceptance must also be according to the mode prescribed and must be
communicated to the offeror.
A person is said to have made a proposal, when he signifies to another his willingness to do or to
abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence,
he is said to make a proposal {Section 2(a)}
A person making the offer is called “Offeror, Proposer or Promiser” and the person to whom the offer is
made is called as the “Offeree or Proposee and when the offer is accepted by the offeree then he is
called Acceptor or Promisee.
Kinds of offer:
Expressed offer: when the offer is made by express words, spoken or written. E.g., when A says: will
you buy my car for Rs.15000/-? Or advertises the same in the News Paper, This is an express offer.
Implied offer: an offer may be implied by the conducts of the parties or the circumstance of the case.
E.g., - Getting into a Public bus.
- Taking a cup of tea in a restaurant
- Weighing machine at the Railway Station.
Specific offer: when the offer is made to a specific person then such offer is called specific offer. The
acceptance to such offer can be given by the person to whom the offer is made and not by any one else.
General offer: when the offer is made to the world at large. E.g., Advertisements
A company advertises in several Newspapers that a reward of $100 would be given to any person who
contracted with the influenza after using the smoke balls of the company in accordance with the printed
instructions. One Mrs. Carlill used the smoke ball as per the instructions given by the company but
contracted influenza. Held, she could recover the amount as by using the smoke balls she accepted the
offer. (Carlill v/s Carbolic Smoke Ball Co.,)
Legal rules to offer
The offer must be given with an intention to create legal relationship: a proposal will not become a
promise even after it has been accepted unless it was made with an intention to created legal
relationship. A social invitation even if it is accepted, does not create a legal relationship because it is
not intended so.
The terms of the offer must be definite: the terms of the offer must be definite and certain and must
not unambiguous or vague. The offer must contain certain terms on which the proposer is willing to act,
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even though the proposer is free to lay down any terms and conditions in his offer, but they should be
certain and legal. Otherwise the acceptance cannot create any legal relationship.
Case law: A offered to take a house on lease for three years at $ 285 per annum if the house was “put
into through repair and drawing room handsomely decorated according to the present style.” Held, the
offer was too vague to result in a contract relationship. (Taylor v/s Portington)
There is a clear difference between offer, invitation to offer or an announcement:

An announcement: a declaration by a person that he intends to do something gives no right of action to
another. Such a declaration only means that an offer will be made or invited in the future and not that an
offer is made now. E.g., Auction sale, will, etc.
CL: An auctioneer advertised in a newspaper that a sale of office furniture would be held. A broker
comes from a distinct place to attend that auction, but all the furniture was withdrawn from the auction.
The broker thereupon sued the auctioneer for his loss of time and expenses. Held, a declaration of
intention to do a thing did not create a binding contract with those who acted upon it, so that the broker
could not recover. (Harris vs. Nickerson)
An invitation to make offer: display of good by the shopkeeper with a price marked on it does not
make an offer, but merely gives an invitation to the public to make an offer to buy the goods at the price
marked on it. E.g., quotations, catalogues, advertisements, prospectus issued by the company, etc.
Case law: good are sold in shop under the self-service system. The Customers select the goods in the
shop and take them to the cashier for payment of the price. The contract, in this case, is made, not when
the customer selects the goods, but when the cahier accepts the offer to buyer and accepts the price.
(Pharmaceutical Society of Great Britain v/s Boot Cash Chemist)
Offer must be communicated: an offer to be complete must be communicated to the person to whom
the offer is made. Mere by acting to the terms of the offer without knowledge, the offer cannot be
treated as accepted. An acceptance of offer in ignorance of offer is no acceptance and does can not
confer any right on the acceptor.
Case law: S sent his servant, L to trace his missing nephew. He than announced that anybody who
traced his nephew would be entitled to a certain reward. L traced the boy in ignorance of this
announcement. Subsequently when he come to know of the reward, he claimed it. Held, he was not
entitled to reward. (Lalman v/s Gauri Dutt)
A statement of price is not an offer: a mere statement of price is not construed as an offer to sell.
Case law: three telegrams were exchanged between Harvey and facey.
1. “Will you sell your bumper hall pen? Telegraph lowest cash price – answer paid”
2. “Lowest price for bumper hall pen $900” (Facey to Harvey)
3. “We agree to buy bumper hall pen for the sum of $900 asked by you” (Harvey to Facey)
Held, there was no concluded contract between Harvey and facey. (Harvey v/s Facey)
Offer must not contain a term the non-compliance of which may be assumed to amount to
acceptance: the person making the offer cannot say that if acceptance is not communicated by a certain
time, the offer would be considered as accepted
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Legal rules as to acceptance
Acceptance is defined under Section 2(b) as “When a 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”.
Acceptance may be implied or expressed. In express acceptance, while that given by conduct is termed
as implied acceptance.
A lady invited her niece to stay with her in the same house and promised to settle on her immovable
property. The niece stayed with her residence till the time of her death. Niece was held to be entitled to
property because she has accepted the offer of the aunt by conduct i.e., by going to her house and
staying with her as desired. (V. Rao v/s A. Rao)
Acceptance must be Unconditional: an acceptance in order to be binding must be absolute and

unconditional. The acceptance must be to all term of offer, whether material or immaterial to the
contract. If the parties are not consensus-ad-idem to all the terms and conditions of the contract, there is
no contract.
Case law: A made an offer to B to purchase a house with possession from 25th July, the offer was
followed by an acceptance suggesting possession from 1st August. Held there was no concluded contract
(Routledge v/s grant)
It must be communicated to the offeror: to conclude a contract between the parties, the acceptance
must be communicated in some perceptible (noticeable) form. A mere resolve or mental determination
on the part of the offeree to accept the offer is not sufficient and does not result in contract.
Case law: a draft agreement relating to supply of coal was sent to the manager of a railway company for
his acceptance. The manager wrote the ward “Approve” and put the draft in the drawer of his table
intending it to send it to the company’s solicitor for a formal contract to be drawn up. By some
oversight the document remained in the drawer. Held, there is no contract. (Brogden v/s Metropolitan
Rail Co.,)
Acceptance must be given in the mode prescribed by the offeror: if the acceptance is not according
to mode prescribed, or some usual or reasonable, there is no contract. Where the offeror has not
prescribed any mode, than, it must by a reasonable mode, which depends upon the facts of the case. If
the acceptance is not according to the mode prescribed by the offeror, than the may insist the offeree to
communicate the acceptance as per the mode prescribed.
A makes an offer to B and says: “if you accept the offer, reply by wire. B sends the reply by post. It will
be a valid acceptance unless A informs B that the acceptance is not according to the mode prescribed.
It must be given in a reasonable time: if any time limit is specified, the acceptance must be given with
in that time. If no time limit is specified by the offeror, than it must be given with in a reasonable time
and it depends on the facts of the case
CL: on 08th June, Mr. M offered to take shares in R Company. He received a letter of acceptance on
November 23. He refuses to take the shares. Held, Mr. M, was entitled to refuse as his offer has lapsed
as the reasonable period during which it could be accepted had elapsed (Ramsgate Victoria Hotel Co.,
vs. Monteflore)
It cannot precede an offer: if the acceptances precede an offer, it is not a valid acceptance and does
not result in any contract.
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It must be given by the party or parties, to whom the offer is made: when an offer is made to a
particular person, it can be accepted by him alone. If it is accepted by another person, there is no valid
acceptance
CL: Boulton brought a hose-pipe business from Brocklehurst. Jones to whom Brocklehurst owed a debt,
place an order with Brocklehurst for the supply of certain goods. Boulton supplied the goods even
though the order was not addressed to him. Jones refused to pay Boulton for the goods because he, by
entering into contract with Brocklehurst, intended to set off his debt against Brocklehurst. Held, the
offer was made to Brocklehurst and it was not in the power of Boulton to step in and accept and
therefore there was no consent (Boulton vs. Jones)
It must be given before the offer lapses or withdrawn.
It cannot be implied for the silence: the acceptance of an offer cannot be implied from the silence of
the offeree, unless the offeree has, by his previous conduct inducted that his silence means the
acceptance.
Once the offer is rejected it can not be accepted by the offeree, unless the offeror renews the offer.
COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS
When the contracting parties are face to face and negotiate in person, a contract comes in existence the
movement the offeree gives his absolute and unqualified acceptance to the proposal made by the
offeror. When the parties are at the distance and the offer and the acceptance and their revocation are
made through post, i.e., by letter or telegram. The rules are as follows
Mode of communication:
The communication of proposals, the acceptance of proposals, and the revocation of proposals
respectively, are deemed to be made by any (a) act or (b) omission of the party proposing, accepting or
revoking. Such act or omission must however have the effect of communicating such offer, acceptance
or revocation. Thus installation of a weighing machine at a public place is an offer, putting a coin in the
slot of the machine is the acceptance of the offer, and switching off the machine amounts to revocation
of the offer.
Communication when complete

The communication of a proposal is complete- when it comes to the knowledge of the person to
whom it is made.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 10 th July. It
reaches B on 12th July. The communication of the offer is complete when B receives the letter, i.e., on
12th July.
The communication of an acceptance is complete -as against the proposer, when it is put in a course of
transmission to him so at to be out of the power of the acceptor; as against the acceptor, when it comes
to the knowledge of the proposer.
E.g., in the above case, when B accepts A’s Proposal, by a letter sent by post on 13th instant. The letter
reaches on 15th instant. The communication of acceptance is complete, as against A, when the letter is
posted, i.e., on 13th, as against B, when the letter is received by A, i.e., on 15th. (Case of NT Rama Rao)
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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 his knowledge.
E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 15th May. It
reaches B on 20th May. A revokes his offer by a telegram on 19 th May. The telegram reaches B on 21st
May. The revocation is complete as against A when the telegram is dispatched, i.e., on 19 th May. It is
complete as against B when he receives it, i.e., on 21st May.
Time for Revocation of Proposals and Acceptance

o A proposal may be revoked at any time before the communication of its acceptance is complete
as against the proposer, but not afterwards.
o An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but no afterwards.
Ex: Mr. A proposes by a letter sent by post to sell his house to Mr. B. the letter is posted on the 01 st of
the month. Mr. B accepts the proposal by a letter sent by post on the 04 th. The letter reaches Mr. A on
the 06th.
Mr. A may revoke his offer at any time before Mr. B posts his letter of acceptance, i.e., 04 th but not
afterwards
Mr. B may revoke his acceptance at any time before the letter of acceptance reaches Mr. A, i.e., 06th,
but not afterwards
Loss of letter of acceptance in postal transit:
Acceptance is complete as against the offeror as soon as the letter of acceptance is posted. The contract
is complete even if the letter of acceptance goes astray or is lost through an accident in the post. But in
order to bind the offeror, it is important that the letter of acceptance is correctly addressed, adequately
stamped and posted, otherwise the acceptance is not complete as per section 04 of the Act.
Revocation how made
A proposal is revoked –
(1) by the communication of notice of revocation by the proposer to the other party;
(2) 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;
(3) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) by the death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge
of the acceptor before acceptance.
* CONSIDERATION *
Consideration: the term consideration has been defined under Section 2(d) 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 to abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise;
Consideration is one of the essential elements of the contract, subject to some exemptions. An
agreement made with out consideration is void. Consideration is a technical term used in the sense of
Quid-Pro-Que (i.e., some thing in return). When a party to an agreement promises to do some thing, he
must get some thing in return. This some thing in return is defined as consideration.
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E.g., A agrees to sell his car to B for Rs.15000/-, for A’s promise the consideration is Rs.15000/- and
for B’s promise the consideration is the car.
Case Law: the Secretary of the Mosque Committee filled a suit to enforce a promise, which the
promisor had made to subscribe Rs.500 to the re-building of a mosque. Held, “the promise was not
enforceable because there was no consideration in the sense of benefit”, as “the person who made the
promise gained nothing in return for the promise made”, and the secretary of the committee to whom
the promise was made, suffered no determent as nothing had been done to carry out the repairs. Hence
the suit was dismissed. (Abdul Aziz v/s Masum Ali)
The facts of this case were similar to those of the previous case, but the Secretary in this case incurred a
liability on the strength of the promise. Held, the amount could be recovered, as the promise resulted in
a sufficient detriment to the secretary. The promise could, however, be enforced only to the extent of
the liability incurred by the secretary. (Kedar Nath v/s Gouri Mohamed)
The reason why the law enforces only those promises which are made for consideration is that
gratuitous or voluntary promises are often made rashly and without due deliberation. The law looks
with disfavor (disapproval) upon an exchange of promises which would result in one of the parties
obtaining “something for nothing”.
Legal Rules of Consideration
It must move at the desire of the promisor: an act constituting consideration must have been done at
the desire or request of the promisor if it is done at the desire of the third party or without the desire of
the promisor it will not be a good consideration.
E.g., A saves B goods from fire without being asked to do so. A cannot demand consideration for his
services.
Case law: during the strike by the workers in the coal mine, the police authorities thought it is enough to
provide a mobile force for the protection of the mine, the colliery manager wanted a stationary guard. It
was ultimately agreed to provide a stationary guard at the payment of Rs.2200/-. Subsequently the
company refused to pay pleading absence of consideration. Held, the contract was supported to
consideration and the company was liable to pay. The Police authorities provided a stationary guard at
the expressed desire of the manager of the company for the protection of the mine. (Glasbrook Bros.
V/s Glamorgon Country Council)
It may move from the Promisee or any other Person: consideration may move from the Promisee or
any other Person, i.e., even a stranger. This means that as long as there is a consideration for a promise
it is immaterial who has furnished it. But a stranger to the consideration will be able to sue only if he is
a party to the contract.
Case law: an old lady, by a deed of gist, made over certain property to her daughter D, under the
direction that she should pay her aunt, S (Sister of old lady), a certain some of money annually. The
same day D entered into an agreement with her aunt S to pay her the agreed amount. Later, D refused to
pay the amount on the plea that no consideration has moved from S to D. Held, S was entitled to
maintain suit as consideration had moved from the old lady, sister of S, to the daughter, D. (Chinnaya
v/s Ramayya)
It may be Past, Present or Future: the word used in Section 2(d) are”… has done or abstained from
doing (Past), or does or abstains from doing (Present), or promises to do or to abstain from doing
(Future), something,”
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Past consideration: when the consideration by the party for the present promise was given in the past,
i.e., before the date of promise, it is said to be past consideration.
Present consideration: when consideration is given simultaneously with promise, i.e., at the time of
the promise, it is said to be present consideration. E.g., cash sale.
Future consideration: when consideration for one party to the other is to pass subsequently to the
making of the contract, it is future consideration.
It need not be adequate: consideration as said “some thing in return” and something this some thing in
return need not be equal in value to “Something given”. The law requires that the contract must be
supported by consideration and not the adequate consideration. The adequacy of the consideration is to
be determined by the parties to the contract at the time of entering into it, but the court has no right to
determine the adequacy of the consideration.
It must be real: although consideration need not be adequate, it must be real and of some value in the
eye of law. There is no real consideration in the following cases:
o Physical impossibility: A promises to put life into B’s dead wife on the consideration of
Rs.999. A’s promise is physically impossible to perform.
o Legal impossibility: A owes Rs.500 to B. he promises to pay Rs.50 to, C the servant of B, who
in return promise to discharge A from the liability. This is legally impossible, because C cannot
discharge A from the debt due to B.
o Uncertain consideration: A engages B for doing a certain work and promises to pay a
“Reasonable some”. There is no recognized method of ascertaining the “Reasonable Some”.
The promise is unenforceable due to uncertainty.
It must be lawful: the consideration given for an agreement must not be unlawful. A consideration to
the contract must not be against Public Policy, Immoral and illegal
It must be something which the promisor is not already bound to do: a promise to do what one is
already bound to do, either by general law or under an existing contract, is not a good consideration for
the new promise, since it adds nothing to the pre-existing legal or contractual obligation.
CL: There was a promise to pay to the vakil an additional sum if the suit was successful. Held, the
promise was void for the want of consideration. The vakil was under a pre-existing contractual
obligation to render the best of his services under the original contract. (Ramachandra Chintaman vs.
Kalu Raju)
A CONTRACT WITHOUT CONSIDERATION IS VOID - EXEMPTION
Agreement without consideration, void, unless it is in writing and registered or is a promise to

compensate for something done or is a promise to pay a debt barred by limitation law
An agreement made without consideration is void, unless –

Love and Affection: where an agreement is expressed in writing and registered under the law for the
time being in force for the registration of the documents and is made on account of natural law and
affection between parties standing to the near relation to each other, it is enforceable even is there is no
consideration (Ram Dass vs. Krishan Dev)
CL: A Hindu husband, after referring to quarrels and disagreement between him and his wife executed a
registered document in favour of his wife agreeing to pay her maintenance. But no consideration moved
from the wife. Held, the agreement was void for want of consideration (Rajlukhy vs. Bhoothnath)
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Promise to pay a time-bared debt: A promise to pay a time-bared debt by the debtor is enforceable
provided it is made in writing and signed by the person to be charged therewith or by his agent
generally or specially authorised in that behalf, to pay wholly or in part debt. The debt must be such “of
which the creditor might have enforced payment but for the law for the limitation of suits”
Completed gift: that nothing in this section shall affect the validity, as between the donor and donee, of
any gift actually made.
Explanation 2 to Section 25 provides that an agreement to which the consent of the promisor is freely
given is not void merely because the consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the Court in determining the question whether the consent
of the promisor was freely given.
Agency: Section 185 of the contract Act provides that no consideration is necessary for creation of
agency.
Charitable Subscription
Capacity to Contract
Section 11 of the Indian Contract Act states the Persons who are competent to contract.
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 sound mind and is not disqualified from contracting by any law to which he is
subject. Section 11 declares the following persons to be incompetent to contract.
 Minors
 Persons of unsound mind
 Persons disqualified by any law for the time being in force.
Minors: according to Section 3 of the Indian Majorities Act, 1875, a minor is a person who has not
completed eighteen years of age. In the following two cases, he attains majority after twenty one years
of age:
1) Where a guardian of a minor’s person or property has been appointed under the guardian and
wards Act, 1890, or
2) Where the superintendence of a minor’s property is assumed to be court of wards.
The rules governing minor’s agreements are based on two fundamental rules:
a) The first rule is that the law protects minors’ against their own inexperience and against the
possible improper designs of those more experienced. (the Judges are their Counsellors, the jury
is their servant and law is their guardian).
b) The second rule is that, in pursuing the above object, the law should not cause unnecessary
hardship to person who deals with minors.
Legal rules of Minors:
An agreement with minor is void- ab-inito: case law: in this case, a minor mortgaged his house in
favour of a money lender to secure a loan of Rs.20, 000/- out of which the mortgagee paid the minor a
sum of Rs.8000/-. Subsequently the minor sued for setting a side the mortgage, stating that he was
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underage when he executed the mortgage. Held, the mortgage was void and, therefore, it was cancelled.
Further the money lender requested for the repayment of the amount advanced to the minor as part of
the consideration for the mortgage was also not accepted (Mohiri Bibi vs. Dharamodas Ghose)
He can be a Promisee or a Beneficiary: incapacity of minor to enter into a contract means incapacity
to bind him-self by a contract. There is nothing that debars him from being a beneficiary. Such contract
may be enforced at the option of the minor and not the other party.
Case law: M, Aged 17, agreed to purchase a second hand scooter for Rs.5000/- from N. he paid
Rs.200/- as advance and agreed to pay the balance the next day and collect the scooter. When he came
with the balance money next day, N told him that he has change his mind and offered to return the
advance. N cannot avoid the contract, though M may, if he likes. (Sharafat Ali v/s Noor Mohd)
Minor cannot ratify his contract, on attaining majority: “Consideration which passed under earlier
contract cannot be implied into the contract which the minor enter on attaining the majority. Thus
consideration given during the minority is no consideration. If it is necessary a fresh contract may be
entered into by the minor on attaining the majority provided it is supported by a fresh consideration
Case law: M, A minor, borrowed Rs.5000/- from L and executed a Promissory note in favour of L. after
attaining the majority, he executed another Promissory note in settlement of the first note. The second
Promissory note is void for the want of consideration. (Indran Rama Swamy v/s Anthiappa Chettiar)
However, services rendered at the desire of the minor expressed during the minority and continued at
the same request after his majority form a good consideration for a subsequent express promise by him
in favour of a person who rendered the services (Sindha vs. Abraham)
He can always plead minority: even if he has, by misrepresenting his age, induced the other party to
contract with him, he cannot be sued either in contract or in tort for fraud because if the injured party
were allowed to sue for fraud, it would be giving him an indirect means of enforcing the void
agreement.
The court may, where the minor has obtained some loan or property by fraudulently and the agreement
is set a side, direct him, on equitable considerations, to restore the money or property to the other party.
Where as the law gives protection to the minor, it can not allow the minor to cheat the other person
If he has received any benefit under a void agreement, he cannot be asked to compensate or pay
for it: section 65 which provides for restitution in case of agreements discovered to be void does not
apply to the minor
Ex: Mr. M, a minor, obtains a loan by mortgaging his property. He is not liable to refund the loan not
only that, even his mortgaged property cannot be made liable to pay the debt.
There can be no specific performance of the contract with minor, since agreement with minor is
void-ab-inito: a contract entered into on his behalf by his Parents / guardian can be enforced by or
against the minor provided the contract is (a) with in the scope of the authority of the Parent / guardian,
and (b) for the benefit of the minor.
He cannot enter into a contract of Partnership: a minor can be admitted as a beneficiary of Profits of
a Partnership firm already in existence, with the consent of all the existing Partners. But he cannot be
admitted as a Partner
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He can be an agent: an agent is merely connecting link between Principal and third Party. The
movement the Principal and third party comes into contract with each other, the agent drops out with
any personal liability, hence a minor can act as agent.
His Parents / guardian are / is not liable for the contracts of the minor: the exemption to this rule is
that where the minor act as an agent of his Parent / guardian, the Parent / guardian shall be liable for his
acts.
He cannot be adjudged as an insolvent.
He cannot be a shareholder in a Company.
He can be member in a Trade union: A Person who attained the age of 14 years can be admitted as a
member.
Minor’s liability for necessaries: a minor is liable to pay out of his property for “necessaries” supplied
to him or to anyone whom he is legally bound to support (Section 68). The claim arises not out of
contract but out of what are called Quasi-Contracts. Again it is only the property of the minor, which is
liable for meeting the liability arising out of such contracts. He is not personally liable.
Case law: G, a minor, entered into a contract with R, a noted billiards player, to pay him certain sum of
money to learn the game and play matches with him during his world tour. R spent time and money in
making arrangements for billiards matches. Held, G was liable to pay as the agreement was one for
necessaries as it was in effect “for teaching, instructions and employment and was reasonable and for
the benefit of the infant.” (Robarts v/s Gray)
Persons of unsound mind
One of the essential conditions of competency of Parties to a contract is that they should be of sound
mind. Section 12 states what is a sound mind for the purposes of entering into a contract.
“A person is said to be of sound mind for the propose of making a contract, if, at the time when he
makes it, he is capable of understanding it and of forming a rational judgement as to its effect upon his
interest.
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 unsound mind.”
Soundness of mind of a Person depend upon two facts:

a) His capacity to understand the contents of the contract, and
b) His ability to form a rational judgement as to its effect upon his interest
The unsound Persons are not entitled to enter into a contract. The following are regarded as unsound
mind:
a) Lunatics
b) Idiot
c) Intoxicated Persons
A part from above a few other Persons are also Prohibited to enter into a contract.
a) Alien Enemy.
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b) Insolvent.
c) Foreign Sovereigns, their diplomatic staff and accredited representatives of the foreign states.
d) Corporations (beyond MOA and AOA).
e) Convicts.
Free consent
According to Section 10 one of the essential elements to form a contract is that the consent of the
Parties to the contract must be free.
The term "Consent" is defined under Section 12 as: Two or more person are said to consent when they
agree upon the same thing in the same sense.
Consent is said to be free when it is not caused by –

(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of section 20,21, and 22.
Consent is said to be so caused when it would not have been given but for the existence of such
coercion, undue influence, fraud, misrepresentation, or mistake.
Section 15: "Coercion"
When a person is compelled to enter into a contract by the use of the force by the other party or under a
threat, coercion is said to be employed. As defined under Section 15: "Coercion" is the committing, or
threating 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.
The threat amounting to coercion need not be necessarily proceed from a Party to the contract.
The entire definition is divided into two parts

(a) Committing, or threating to commit, any act forbidden by the Indian Penal Code
Case law: A young girl of 13 years was forced to adopt a boy to her husband who had just died by the
relatives of the husband who prevented the removal of his body for cremation until she consented. Held,
the consent was not free but was induced by coercion. (Ranganayakamma V/s Alwar Shetty)
(b) The unlawful detaining, or threatening to detain,
Case law: an agent refused to hand over the account books of a business to the new agent unless the
Principal releases from all liabilities. The Principal had to give a release deed as demanded. Held, the
release deed was given under coercion and was voidable at the option of the Principal. (Muthia v/s
Muthu Karuppa)
The Government gives a threat of attachment against the property of P for the recovery of the fine due
from T, the son of P, P paid the fine. Held the contract was induced by coercion. (Bansraj v/s
Secretary of the State)
Threat to commit Suicide – does it amount to Coercion?
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A Person held out a threat of committing suicide to his wife and son if they did not execute a release in
favour of his brother in respect of certain property. The wife and son executed a release deed in favour
of his brother under the threat. Held, the threat to commit suicide amounts to coercion (Chikham
Amiraju v/s Seshamma)
Section 16: "Undue influence"
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 position to exercise undue influence over the other.
(1) A contract is said to be induced by "under influence" where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.
(2) In particular and without prejudice to the generally of the foregoing principle, a person is deemed to
be in a position to dominate the will of another –
(a) where he hold a real or apparent authority over the other, or where he stands in a fiduciary relation
to the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness, or mental or bodily distress.
(3) Where a person who is in a position to dominate the will of another, enters into a contract with him,
and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the
burden of proving that such contract was not induced by undue influence shall be upon the person in a
position to dominate the will of the other.
Nothing in the sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872
Essentials:
a) There must be two persons.
b) The relationship should satisfy between them.
c) One should dominate the other.
d) There must be unfair advantage.
e) It is a moral character.
Some of the examples where undue influence between exist between the following relations:
Superior and subordinate
Principal and agent
Doctor and Patent
Promoter and Company
Solicitor and Client
Father and Son
Teacher and Student
Spiritual guru and devotee
Case Laws: A Spiritual guru induced his devotee to gift to him the whole of his property in turn of a
promise of salvation of the devotee. Held, the consent of the devotee was given under the undue
influence. (Mannu Singh v/s Umadat Panday)
Under the following relationship there is no assumption of undue influence.

Husband and Wife
Landlord and tenant
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Debtor and Creditor

Exempt ional Case: A Poor Hindu widow was persuaded by a moneylender to agree to pay 100 Percent
rate of interest on the money lent by him to her. She needs the money to establish her right to
maintenance. Held, it was case of undue influence and court reduces the rate of interest to 24% (Ranee
Annapurni v/s Swaminath)
When consent to an agreement is obtained by undue influence, the agreement is contract voidable at the
option of the party whose consent was so obtained. Any such contract may be set a side either
absolutely or if the party who is entitled to avoid it has received any benefit there under, upon such
terms and conditions as tot eh court may seem just and equitable
Section 17: "fraud

Fraud exists when it is shown that, a false representation has been made (a) knowingly; (b) without
belief in its truth or (c) recklessly, not caring whether it is true or false, and the maker intended the other
party to act upon it, or there is a concealment of material fact or that there is a partial statement of a fact
in such a manner that the withholding of what is not stated makes that which is stated false. The object
of the party making misrepresentation is to deceive or induce the other party to enter into a contract
"Fraud" means and includes any of the following acts committed by a party to a contract, or with his
connivance, or by his agents, with intent to deceive another party thereto his agent, or to induce him to
enter into the contract
(1) The suggestion as a fact, of that which is not true, by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.
Essentials:
a) There must be a representation
b) There must be two persons
c) There must be an active concealment of the fact
The person making the representation does not believe it to be true
d) There must be an intention of the proposer or the promiser to deceive the other person
e) The other person must have relied upon the representation and must have been deceived and
suffered loss
f) The representation must have been made before the concealment of the contract
g) The representation must relate to a material fact which exists now or existed in the past
A contract induced by fraud is voidable at the option of the party defrauded. Until it is avoided it is
valid. The party defrauded has the following remedies:
o The contract can be rescinded within reasonable time limit
o He can insist on the performance of the contract on the condition that he shall be put in the
position in which he would have been if the representation made had been true
o He can sue for damages
Section 18: "Misrepresentation"
"Misrepresentation" means and includes –

(1) The positive assertion, in a manner not warranted by the information of the person making it, of that
which is not true, though he believes it to be true;
(2) Any breach of duty which, without an intent to deceive, gains an advantage to the person
committing it, or anyone claiming under him; by misleading another to his prejudice, or to the
prejudice of any one claiming under him;
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(3) Causing, however innocently, a party to an agreement, to make a mistake as to the substance of the
thing which is subject of the agreement.
Misrepresentation is a false statement which 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 facts without any intent to
deceive the other party.
Essentials:
a) It must be representation of material fact
b) It must be made before the conclusion of the contract
c) It must be wrong but the person making it believes it to be true
d) It must have been made without any intention of deceiving the other Person
e) It need not be made directly made to the Plaintiff
Case law: A told his wife with in the hearing of their daughter that the bridegroom proposed for her was
a young man. The bridegroom, however was over sixty years. The daughter gave her consent to marry
him believing the statement by her father. Held, the consent was vitiated by misrepresentation and
fraud. (Babul v/s R. A. Singh)
CL: A company’s prospectus contains a representation that it has statutory powers to run its tramways
by steam provide that the consent of the government was obtained. The directors issued prospects
stating therein that the company had the right to use steam power. They honestly believe that the
permission for the use of steam power would be granted. The permission was refused. The company
was that wound up. Held, the directors were guilty of misrepresentation (Derry vs. Peek)
Section: 20, 21 and 22: Mistake

Mistake may be defined as an erroneous belief about something. It may be a mistake of law or mistake
of fact.
Mistake of law may be; of country or of foreign county.

a) Mistake of law of the country is no excuse, is a well-settled rule of law. A Party to the contract
cannot be allowed to ask for relief on the ground that the act was done in ignorance of law.
b) Mistake of law of a foreign country: such mistake is treated as mistake of fact, and such
agreement is treated as void. (Section 21).
“Section 21: Effect of mistake as to law”

A contract is not voidable because it was caused by a mistake as to any law in force in India; but
mistake as to a law not in force in India has the same effect as a mistake of fact.
Mistake of fact may be:-

a) A bilateral mistake, or
b) Unilateral mistake
Bilateral mistake:
Section 20: Agreement void where both parties are under mistake as to matter of fact
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.
The mistake may be mutual: where both the parties misunderstood each other
Ex: A agreed to purchase B’s car which was lying in B’s garage. Unknown to the either parties, the car
and the garage were completely destroyed by fire. The agreement is void
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The mistake may relate to the matter of the fact essential to the agreement:
A man and a woman entered into a separation agreement under which the man agreed to pay a weekly
allowance to the women, mistakenly believing themselves lawfully married. Held, the agreement was
void as there was mutual mistake on the point of the fact which was material to the existence of the
agreement (Galloway vs. Galloway)
But an erroneous opinion as to the value of a thing which forms the subject matter of an agreement is
not to be deemed a mistake as to a matter of fact
Ex: A buys an old painting for Rs.5,000 thinking that it is an excellent piece of art. Actually the
painting is a new one and is worth only Rs.500. now, A cannot avoid the contract on the ground of
mistake
Mistake as to subject matter: where both the parties to an agreement are working under a mistake
relating to the subject matter, the agreement is void. Mistake as to subject matter covers the following
cases:
Mistake as to:
o Existence of subject matter: if both the parties believe the subject matter of the contract to be in
existence, which in fact at the time of the contract is non-existent, the contract is void
o Identity of subject matter: it usually arises when one party intends to deal in one thing and the
other intends to deal in another
o Quality of subject matter: if the subject matter is something essentially different from what the
parties thought it to be, the agreement is void
o Quantity of subject matter: if both the parties are working under a mistake as to the quantity of
the subject matter, the agreement is void
o Title of the subject matter: if the seller is selling a thing which he is not entitled to sell and both
the parties are under a mistake, the agreement is void
o Price of the subject matter: if there is a mutual mistake as to price of the subject matter, the
agreement is void
Unilateral mistake:
Section 22: Contract caused by mistake of one party as to matter of fact
A contract is not voidable merely because it was caused by one of the parties to it being under a mistake
as to a 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 party’s fraud or misrepresentation
Legality of the objects:
Section 23 of the Act states that “What consideration and objects are lawful, and what not”
The consideration or object of an agreement is lawful, unless -It is forbidden by law; or is of such
nature that, if permitted it would defeat the provisions of any law or is fraudulent; of involves or
implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to
public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every
agreement of which the object or consideration is unlawful is void.
The consideration or object is unlawful-
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It is forbidden by law: if the object or consideration of an agreement is forbidden by law, than such
agreement is unlawful and as such void. An act is forbidden by law when it is punishable under the
criminal law or is prohibited by special legislation or regulations made by the competent authority.
If it is of such a nature that, if permitted, it would defeat the provisions of any law: if the object or the
consideration of an agreement is such that, though not directly forbidden by law, it would defeat the
provision of any law, the agreement is void.
CL: A was licensed under an Excise Act to run a liquor shop. The Act forbade the sale, transfer or sub-
lease of the licence or the creation of a partnership to run the shop. A took B into partnership. Held, the
agreement was void (Nandlal vs. Thomas)
It is fraudulent: an agreement if any made for any fraudulent purpose is void. Thus, an agreement in
fraud of creditors with a view to defeat their right is void.
If it involves or implies injury to any person or property of another: injury means wrong, harm or
damage. Person means ones body, property includes both movable and immovable.
Mr. B borrowed Rs.100 from Mr. L and executed a bond promising to work for Mr. L without pay for a
period of 02 years. In case of default, Mr. B has to pay interest (at a very high rate) and the principle
sum at once. Held, the contract was void as it involved injury to the person of Mr. B (Ram Saroop vs.
Bansi Mandar)
If the court regards it immoral: an agreement, the consideration or object of which is immoral, e.g.,
agreement between husband and wife for future separation, is unlawful (Sumitra Devi v/s Sulekha
Kundu)
Where the consideration is an act of sexual immorality: e.g., illicit cohabitation or prostitution. For
example, where A agrees to let her daughter on hire to B for concubinage, the agreement is unlawful,
being immoral. Such agreements whether past or future is against law and unlawful (S.Yellappa v/s
Y.Sabu)
Where the object of the agreement is furtherance of sexual immorality, e.g., lending money to a
prostitute to help her in her trade
A firm of coach builders hired out a carriage to a prostitute, knowingly that it was to be used by the
prostitute to attract man. Held, coach builders could not recover the hire as the agreement was unlawful
(Pearce vs. Brooks)
Where the court regards it as opposed to Public Policy
Agreement of trade with enemy: an agreement made with alien enemy in the time of was is illegal on
the ground of public policy. This is base upon one of the following two reasons: either that the further
performance involves commercial intercourse with the enemy, or that the continued existence of
agreement would confer upon the enemy immediate or future benefit.
Agreement to commit crime: where the consideration in an agreement is to commit a crime, the
agreement cannot be enforced in the court of law, and such agreement is against public policy. The
court will not enforce such an agreement. Likewise an agreement to indemnify a person against
consequences of his criminal act is opposed to public policy and hence unenforceable
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Mr. A promises to indemnify Mr. B in consideration of his beating Mr. C. the agreement is opposed to
public policy
Agreement which interfere with the 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:
Interference with the course of justice: an agreement which obstructs the ordinary process of justice
is unlawful. Thus an agreement for using improper influence of any kind with the judges or officers of
the justice is unlawful.
Stifling prosecution: it is in public interest that if a person has committed a crime, he must be
prosecuted and punished. Hence an agreement not to prosecute an offender is an agreement for stifling
prosecution is unlawful. That is in the case of non compoundable offence, such agreement is unlawful.
Maintenance and Champerty: “Maintenance” is an agreement to give assistance, financial or other

wise, to another to enable him to bring or defend legal proceedings when the person giving assistance
has got no legal interest of his own in the subject matter. “Chaperty” is an agreement whereby one party
is to assist another to bring an action for recovering money or property, and is to share in the proceeds
of the action. Under English law both the agreement are void. Under Indian law, however does not
make them absolutely void.
Agreements in restrain of legal proceedings, void (Section 28)

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or
in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the
time within which he may thus enforce his rights, is void to the extent.
Exception 1: Saving of contract to refer to arbitration dispute that may arise. This section shall not
render illegal contract, by which two or more persons agree that any dispute which may arise between
them in respect of any subject or class of subject shall be referred to arbitration, and that only and
amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.
Exception 2: Saving of contract to refer question that have already arisen - Nor shall this section render
illegal any contract in writing, by which two or more persons agree to refer to arbitration any question
between them which has already arisen, or affect any provision of any law in force for the time being as
to reference to arbitration.
trafficking in public offices and titles: agreement of the sale or transfer of public offices and titles or
for the procurement of a public recognition like Param Veer Chakra for monetary consideration are
unlawful, being opposed to public policy. Such agreements, if enforced would lead to inefficiency and
corruption in public life.
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 policy.
CL: An agreement by a newspaper proprietor not to comment on the conduct of a particular person is
unlawful being opposed to Public Policy (Neville vs. Dominion of Canada News Co., Limited)
Agreement in restraint of parental rights: a father or in his absence his mother is the legal guardian
of a minor child. This right cannot be bartered away of an agreement. A father cannot enter into
agreement which is inconsistent with his duties arising out of such custody. If he enters into any such
agreement such agreement is void on the ground of public policy.
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Agreement restriction personal liberty: agreements that unduly restrict the personal freedom of the
parties to it are void as being against public policy.
Agreement in restraint of marriage: every agreement in restraint of the marriage of any person, other
than a minor, is void.
Marriage brokerage or brokerage agreement: an agreement by which a person, for a monetary

consideration, promises in return to procure the marriage of another is void, being oppose to public
policy. Similarly, an agreement to pay money to the parent of a minor child in consideration of his/ her
consenting to give the minor in marriage is void, being opposed to public policy.
Agreement interfering with marital rights: any agreement which interferes with the performance of
martial duties is void, being oppose to public policy.
CL: An agreement to lend money to a women in consideration of her getting a divorce and marrying the
lender, is against public policy (Tikyat vs. Manohar)
Agreement to defraud creditor or revenue authorities: an agreement the object of which is to

defraud the creditors or revenue authorities is not enforceable, being oppose to public policy. A contract
by which an employee gets an expense allowance grossly in excess of the expenses actually incurred by
him is illegal and a fraud on revenue authorities.
Agreement in restraint of trade: an agreement which interfere with the liberty of a person to engage
him-self in any lawful trade, profession or vocation is called an agreement in restrain of trade is void,
Subject to some exemptions. (Ex: sale of goodwill, outgoing partner in a partnership firm)
Void Agreements
An Agreement, though satisfies all essential elements of contract, but if declared as void as per the law
of the country, then such agreements are void agreements. The term void is defined under Section 2(g)
as “An agreement not enforceable by law is said to be void.”
The following Agreements have been expressly declared as void by the contract act:
Section 11: Who are competent to contract

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 sound mind and is not disqualified from contracting by any law to which he is
subject.
Section 20: Agreement void where both parties are under mistake as to matter of fact
Explanation: An erroneous opinion as to the value of the things which forms the subject-matter of the
agreement, is not be deemed a mistake as to a matter of fact.
Section 23: the agreement the consideration or the object is unlawful

The consideration or object of an agreement is lawful, unless -It is forbidden by law; or is of such
nature that, if permitted it would defeat the provisions of any law or is fraudulent; of involves or
implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to
public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful.
Every agreement of which the object or consideration is unlawful is void.
Section 24: Agreements void, if consideration are objects unlawful in part
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If any part of a single consideration for one or more objects, or any one or any part of any one of
several consideration of a single object, is unlawful, the agreement is void.
Section 25: Agreement without consideration, void, unless it is in writing and registered or is a
promise to compensate for something done or is a promise to pay a debt barred by limitation law
an agreement made without consideration is void.
Section 26: Agreement in restraint of marriage, void

Every agreement in restraint of the marriage of any person, other than a minor, is void.
Section 27: Agreement in restraint of trade, void

Every agreement by which anyone is restrained from exercising a lawful profession, trade or business
of any kind, is to that extent void.
Section 28: Agreements in restrain of legal proceedings, void

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or
in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the
time within which he may thus enforce his rights, is void to the extent.
Section 29: Agreements void for uncertainty

Agreements, the meaning of which is not certain, or capable of being made certain, are void.
Section 30: Agreements by way of wager, void
Section 36: Agreements contingent on impossible event void

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether
the impossibility of the event is known or not to the parties to agreement at the time when it is made.
Section 56: 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.
Compensation for loss through non-performance of act known to be impossible or unlawful: Where one
person has promised to be something which he knew or, with reasonable diligence, might have known,
and which the promisee did not know to be impossible or unlawful, such promisor must make
compensation to such promise for any loss which such promisee sustains through the non-performance
of the promise.
Section 57: Reciprocal promise to do things legal, and also other things illegal
Where persons reciprocally promise, firstly to do certain things which are legal, and, secondly under
specified circumstances, to do certain other things which are illegal, the first set of promise is a
contract, but the second is a void agreement.
Wager Agreements or Wager: Section 30
A Wager is an agreement between two parties by which one promises to pay money or money worth on
the happening of some uncertain event, in consideration of the other party’s promise to pay if the event
does not happen.
o Agreements by way of wager, void
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o Agreements by way of wager are void; and no suit shall be brought for recovering anything
alleged to be won on any wager, or entrusted to any person to abide the result of any game or
other uncertain event on which may wager is made.
Exception on favour of certain prizes for horse-racing: This section shall not be deemed to render
unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into
for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or
upwards, to be rewarded to the winner or winners of any horse-race.
Section 294A of the Indian Penal Code not affected: Nothing in this section shall be deemed to legalize
any transaction connected with horseracing, to, which the provisions of section 294A of the Indian
Penal Code (45 of 1860) apply.
Essentials of a Wager Agreement:

a) Promise to pay money or money’s worth
b) Uncertain event
c) Each party must stand to win or lose.
d) No control over the event, by both the parties to the agreement
e) No other interest in the event
f) There must be reciprocal promises
g) Other are not interested in the contract
Exemptions:
The following transactions will not be regarded as Wager Agreements:
a) A Crossword competition
b) Games of skill
c) Share market transaction
d) Contract of insurance
A contract may be –
a) An absolute contract, or
b) A contingent contract
An absolute contract is one in which the promisor binds himself to the performance in any event
without any condition.
Section 31 of the Indian Contract Act defines "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.
E.g., goods sent on approval, the contract is contingent contract depending upon the act of the buyer to
accept or reject the buyer.
Essentials:
a) There are two persons
b) There must by uncertain future event
c) The performance depends upon the happening or non-happening of an uncertain future event
d) The event must be collateral, i.e., incidental to the event
e) There are no reciprocal promises
f) Others may be interested in the contract
g) It is a valid contract
Section 32: Enforcement of Contracts contingent on an event happening
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Contingent contracts to do or not to do anything in an uncertain future event happens, cannot be

enforced by law unless and until that event has happened. If the event becomes impossible, such
contracts become void.
Section 33: Enforcement of contract contingent on an event not happening

Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be
enforced when the happening of that event becomes impossible, and not before.
Section 34: When event on which contract is contingent to be deemed impossible, if it is the future
conduct of a living person
If the future event on which a contract is contingent is the way in which 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 the should so act within any definite time, or otherwise than under
further contingencies.
Section 35: When contracts become void, which are contingent on happening of specified event within
fixed time Contingent contracts to do or not to do anything, if a specified uncertain event happens
within a fixed time, become void, if, at the expiration of the time fixed, such event has not happened, or
if, before the time fixed, such event becomes impossible.
When contracts may be enforced, which are contingent on specified event not happening within fixed
time: Contingent contract tutu or not to do anything, if a specified uncertain event does not happen
within a fixed time, may be enforced by law when the time fixed has expired and such event has not
happened, or before the time fixed has expired, if it become certain that such event will not happen.
Section 36: Agreements contingent on impossible event void

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether
the impossibility of the event is known or not to the parties to agreement at the time when it is made.
PERFORMANCE OF CONTRACT
Performance of Contract takes place when the parties to the contract fulfill their obligations arising
under the contract with in the time and in the manner prescribed. Para 1 of Section 37 lays down that
The parties to a contract must either perform, or offer to perform, their respective promises, unless such
performance in dispensed with or excused under the provision of this Act, or of any other law.
Offer to Perform
Sometimes it so happens that 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”.
Section 38: Effect of refusal to accept offer of performance

Where a promisor has made an offer of performance to the promisee, and the offer has not been
accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under
the contract.
Every such offer must fulfill the following conditions –

(1) it must be unconditional: it becomes conditional when it is not in accordance with terms of the
contract
(2) it must be made at a proper time and place, and under such circumstances that the person to whom it
is made may have a reasonable opportunity of ascertaining that the person by whom it is been made
is able and willing there and then to do the whole of what he is bound by his promise to do;
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(3) if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable
opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise
to deliver. An offer to one of several joint promisees has the same legal consequences as an offer to
all of them.
(4) It must be of the whole quantity contracted for or of the whole obligation. A tender of an instrument
when the contract stipulates payment in full is not a valid tender.
(5) It must by the person who is in position, and willing, to perform the contract.
(6) It must be made to the proper person.
(7) It may be made to one of the several joint promisees. In such a case it has the same effect as a tender
to all of them.
(8) In case of tender, it must give a reasonable opportunity to the promisee for inspection of the goods.
Section 39: Effect of refusal of party to perform promise wholly

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, in such case he cannot repudiate it.
A, a singer, enters into a contract with B, the manger of the theatre, to sing at his theatre two nights in
every week during the next two months and B agrees to pay him Rs.300 for each night’s performance.
On the 06th night A willfully absents him-self from the theatre. B is at liberty to put an end to the
contract
When a promisee puts an end to the contract under Section 39, being rightly entitled to do so, it shall be
deemed as if he has rescinded a voidable contract and he shall, by virtue of Section 64, be bound to
restore to the other party all the benefits that he may receive under the contract.
Contracts, which need not be performed

a) When the performance become impossible.
b) When the parties agrees to substitute a new contract for it or to rescind the contract.
c) When the promisee dispenses with or remits, wholly or in part, the performance of the promise
made to him or extends the time for such performance or accepts any satisfaction for it.
d) When the person at whose option it is voidable, resends it.
e) When the promisee neglects or refuses to afford the promisor reasonable facilities to perform
the promise.
f) When it is illegal.
By whom must contracts be performed?
Promisor himself: if there is something in the contract to show that it was the intention of the parties
that the promise should be performed by the promisor himself, such promise must be performed by the
promisor. This means that the contract which involve the exercise of personal skill, volition or diligence
of the promisor or which are founded on personal confidence between parties (for instance a contract to
marry) must be performed by the promisor him self.
Agent: where personal consideration is not the foundation than such contract may be performed by the
promisor or his representative may employ a competent person to perform it.
Legal Representatives: A contract which involves the use of the personal skills or is founded on the
personal considerations comes to an end on the death of the promisor. The rule of the law is: action
personalis moritur cum persona,a personal action dies with person. As regards any other contract, the
legal representatives of the deceased promisor are bounded to perform it unless a contrary intention
appears from the contract. But their liability is limited to the extent of the value of the property they
inherited from the deceased.
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Section 41: Effect of accepting performance from this person

When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce
it against the promisor.
Section 42: Devolution of joint liabilities and right

When two or more person have made a joint promise, then, unless a contrary intention appears by the
contract, all such persons, during their joint lives, and, after the death of any of them, his representative
jointly with the survivor or survivors, and, after the death of the last survivor the representatives of all
jointly, must fulfill the promise.
It should be seen that that Section 42 deals with voluntary discharge of obligations. If the parties do not
discharge their obligation of their own volition, Section 43 comes into play.
Section 43: Any one of joint promisors may be compelled to perform
Any one of the joint promisors may be compelled to perform the promise: When two or more persons
make a joint promise, the promisee may, in the absence of express agreements to the contrary, compel
any one or more of such joint promisors to perform the whole promise. This means that the liability of
the joint promisors is joint and several.
Each promisor may compel contribution: Each of two or more joint promisors may compel every other
joint promisor to contribute equally with himself to the performance of the promise, unless a contrary
intention appears from the contract.
Sharing of loss by default in contribution: If any one of two or more joint promisors makes default, in
such contribution, the remaining joint promisors must bear the loss arising from such default in equal
shares.
Explanation: Nothing in this section shall prevent a surety from recovering, from his principal,
payments made by the surety on behalf of the principal, or entitle the principal to recover anything from
the surety on account of payments made by the principal.
Section 44: Effect of release of one joint promisor

Where two or more persons have made a joint promise, a release of one of such joint promisors by the
promisee does not discharge the other joint promisor, neither does it free the joint promisor so released
from responsibility to the other joint promisor or joint promisors.
Section 45: Devolution of joint rights

When a person has made a promise to two or more persons jointly, then unless contrary intention
appears from the contract, the right to claim performance rests, as between him and them, with them
during their joint lives, and, after the death of any one of them, with the representative of such deceased
person jointly with the survivor or survivors, and, after the death of the last survivor, with the
representatives of all jointly.
Who can demand performance?
It is only the promisee that who can demand performance of the promise under a contract. It makes no
difference whether the promise is for the benefit of the promisee or for the benefit of the other person.
In certain cases, a third party can also enforce a promise under a contract even through he is not a party
to the contract.
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Death of the promisee: in case of the death of the promisee, his legal representative can demand
performance.
Time and place of Performance?
Section 46: Time for performance of promise, where no application is to be made and no time is
specified
Where, by the contract, a promisor is to perform his promise without application by the promisee, and
no time for performance is specified, the engagement must be performed within a reasonable time.
Explanation:
a) The question "what is a reasonable time" is, in each particular case, a question of fact.
b) It depends on the special circumstance of the case, the usage of the trade or the intention of the
parties at the time of entering into contract.
Section 47: Time and place for performance of promise, where time is specified and no application to
be made
When a promise is to be performed on a certain day, and the promisor has undertaken to perform it
without the application by the promisee, the promisor may perform it at any time during the usual hours
of business on such day and at the place at which the promise ought to be performed.
Section 48: Application for performance on certain day to be at proper time and place
When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it
without application by the promisee, it is the duty of the promisee to apply for the performance at a
proper place within the usual hours of business.
Explanation: The question "what is proper time and place" is, in each particular case, a question of fact.
Section 49: Place for the performance of promise, where no application to be made and no place fixed
for performance
When a promise is to be performed without application by the promisee, and no place is fixed for the
performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place
for the performance of the promise, and to perform it at such a place.
Section 50: Performance in manner or at time prescribed or sanctioned by promise

The performance of any promise may be made in any manner, or at any time, which the promisee
prescribes, or sanctions.
Reciprocal Promises
Promises which form the consideration or part of the consideration for each other are called “Reciprocal
Promises” [Section 2(f)].
Mutual and dependent: 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 promise
are mutual and independent.
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 promises are conditional and dependent.
Rules regarding performance of reciprocal promises
Section 51: Promisor not bound to perform, unless reciprocal promisee ready and willing to perform
When a contract consists of reciprocal promises to be simultaneously performed, no promisor need
perform his promise unless the promisee is ready and willing to perform his reciprocal promise.
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Section 52: Order of performance of reciprocal promises

Where the order in which reciprocal promises are to be performed is expressly fixed by the contract,
they shall be performed in that order, and where the orders is not expressly fixed by the contract, they
shall be performed in that order which the nature of transaction requires.
Section 53: Liability of party preventing event on which contract is to take effect
When a contract contains reciprocal promises and one party to the contract prevents the other from
performing his promise, the contract becomes voidable at the option of the party so prevented; and he is
entitled to compensation from the other party for any loss which he may sustain in consequence of the
non-performance of the contract.
Section 54: Effect of default as to the promise which should be performed, in contract consisting or
reciprocal promises
When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its
performance cannot be claimed till the other has been performed, and the promisor of the promise last
mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise,
and must make compensation to the other party to the contract for any loss which such other party may
sustain by the non-performance of the contract.
Section 57: Reciprocal promise to do things legal, and also other things illegal
Where persons reciprocally promise, firstly to do certain things which are legal, and, secondly under
specified circumstances, to do certain other things which are illegal, the first set of promise is a
contract, but the second is a void agreement.
Section 55: Effect of failure to perform a fixed time, in contract in which time is essential
When a party to a contract promises to do a certain thing at or before a specified time, or certain thins at
or before a specified time and fails to do such thing at or before a specified time, and fails to do such
thing at or before a specified time, the contract or so much of it as has not been performed, becomes
voidable at the option of the promisee, if the intention of the parties was that time should be of essence
of the contract.
Effect of such failure when time is not essential: If it was not the intention of the parties that time
should be of the essence of the contract, the contract does not become voidable by the failure to do such
thing at or before the specified time; but the promisee is entitled to compensation from the promisor for
any loss occasioned to him by such failure.
Effect of acceptance of performance at time other than agreed upon: If, in case of a contract voidable on
account of the promisor's failure to perform his promise at the time agreed, the promisee accepts
performance of such promise at any time other than agree, the promisee cannot claim compensation of
any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of
acceptance, he give notice to the promisor of his intention to do so.
Section 59: Application of payment where debt to be discharged is indicated

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 if accepted, must be applied accordingly.
Section 60: Application of payment where debt to be discharged is not indicated

Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt
the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due
and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the
time being as to the limitations of suits.
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Section 61: Application of payment where neither party appropriates

Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in
order of time, whether they are or are not barred by the law in force for the time being as to the
limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each
proportionally.
Discharge of contract
Discharge of contract means termination of contractual relationship between the parties. A contract is
discharged when it ceases to operate i.e., when the rights and obligations created by the parties comes to
an end. The contract may be discharge by any of the following ways:
a) By Performance
b) By agreement or consent
c) By impossibility
d) By lapse of time
e) By operation of law
f) By breach of contract
Discharge by Performance
Performance means the doing of that which is required by the contract. Discharge by performance takes
place when the parties to the contract fulfill their obligation arising under the contract with in the time
and in the manner prescribed. In such a case, the parties are discharged and the contract comes to an
end. But if only one party performs the contract he is only discharged, such party gets the right of action
against the other party who is guilty of breach.
Performance of contract is the most usual mode of discharge. It may be:

Actual performance: when both the parties perform their promises, the contract is discharged.
Performance should be complete, precise and according to the terms of the contract.
Attempted performance or tender: tender is not actual performance but is only an offer to perform the
obligation under the contract. Where the promisor offer to perform his obligation, but the promisee
refuses to accept the performance, tender is equal to actual performance, except in the case of tender of
money. The effect of a valid tender is that the contract is deemed to have been performed by the
tenderer. The tenderer is discharged from the responsibility for non-performance of the contract with
out in any way prejudicing his rights which accrue to him against the promisee.
Discharge by agreement or consent:
As it is an agreement of the parties which bind them, so by their further agreement or consent the
contract may be terminated. The rule of law is in this regard is as follows: eodem modo quo quid
constituitur, eodem modo destruitur, i.e., a thing may be destroyed in the same manner in which it is
constituted. This means the contractual obligations may be discharged by agreement which may be
expressed or implied.
Section 62: Effect of novation, rescission, and alteration of contract

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original
contract need not be performed.
Novation: Novation takes place when (i) when new contract is substituted for an existing one between
the same parties, or (ii) a contract between two parties is rescinded in consideration of a new contract
being entered into on the same terms and conditions between one of the parties and a third party. (to
take another person as his debtor, in the place of original debtor). It is essential for the principle of
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novation to apply that there must be the mutual or tripartile consent of all the parties concerned.
Novation shall take place before expiry of the time of the performance of contract.
Rescission: rescission of a contract takes place when all or some of the terms of the contract are
cancelled. It may occur:
i. By mutual consent of the parties, or
ii. Where one party fails to perform his obligation
In such case the other party may rescind the contact with out prejudice to his right to claim
compensation for the breach of contract.
Rescission may be total or partial: Rescission of the contract may be total or partial. The rescission is
said to be total when the entire contract is terminated. Partial rescission is the variation of the terms of
the contract by deleting or adding or substitution of some of the terms and conditions of the contract.
Section 66: Mode of communicating or revoking rescission of voidable contract

The rescission of a voidable contract may be communicated or revoked in the same manner, and subject
to some rules, as apply to the communication or revocation of the proposal.
Section 64: Consequence of rescission of voidable contract

When a person at whose option a contract is voidable rescinds it, the other party thereto needs to
perform any promise therein contained in which he is the promisor. The party rescinding a voidable
contract shall, if he have received any benefit thereunder from another party to such contract restore
such benefit, so far as may be, to the person from whom it was received.
Alteration: alteration of contract may take place when one or more of the terms of the contract is / are
altered by mutual consent of the parties of the contract. In such case the old contract is discharged.
Remission (Section 63): Promise may dispense with or remit performance of promise
Remission means accepting less consideration in fulfillment of the contract. Every promise may
dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend
the time for such performance, or may accept instead of it any satisfaction, which he thinks fit.
Waiver: waiver takes place when the parties to a contract agree that they shall no longer be bound by
the contract. This amount to a mutual abandonment of rights by the parties to the contract.
Consideration is not necessary for waiver.
Merger: merger takes place when an inferior right accruing to a party under a contract merges into a
superior right accruing to the same parties under the same or some other contract.
Discharge by impossibility of performance
If an agreement contains an undertaking to perform impossibility, it is void-ab-inito. This is base on the

following two maxims:
i. Lexgon cogit ad impossibilia, i.e., the law does not recognize what is impossible; and
ii. Impossibilium nulla obligato est, i.e., what is impossible does not create an obligation.
Section 56 of the Act deals with the “Agreement to do impossible act.”
Impossibility existing at the time of entering into contract: An agreement to do an act impossible in
itself is void. This is known as pre-contractual or initial impossibility. The facts of the impossibility
may be –
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Known to Parties: When the impossibility is known to the parties, than such impossibility is known as
absolute impossibility. In the case of absolute impossibility the contract is void-ab-inito.
Unknown to Parties: where at the time of entering into contract, both the parties are ignorant of
impossibility; the contract is void on the contract of mutual mistake. If, however only the promisor is
aware of the impossibility of the performance at the time of entering into contract, he shall have to
compensate the promisee for any loss, which such promisee sustains through the non-performance of
the contract.
Impossibility arising subsequent to the formation of contract: impossibility which arises subsequent to
the formation of contract is called post-Contractual or supervening impossibility. 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, the parties are discharge form further performance of their obligations under the
contract.
Discharge by supervening impossibility
Destruction of subject matter of contract: when the subject matter of a contract, subsequent to
formation, is destroyed with out any fault of the parties to the contract, the contract is discharged.
C let a music hall to T for a series of concerts for certain days. The hall was accidentally burnt down
before the date of the first concert. Held, the contract was void (Taylor vs. Caldwell)
Non-existence or non-occurrence of a particular state of things: some times a contract is entered into
between two parties on the basis of continued existence or occurrence of a particular thing. If there is
any change in the state of things which formed the basis of the contract, or if the state of thing which
ought to have occurred does not occur, the contract is discharged.
H hired a flat from K for June 26 and 27 for witnessing a coronation procession of King Edward VII. K
knew of H’s purpose though the contract contained no reference to this. The coronation possession was
cancelled due to the illness of the King. Held, H was excused from paying the rent for the flat on the
ground that existence of the possession was the basis of the contract. Its cancellation discharged the
contract (Krell vs. Henry)
Death or incapacity for personal service: where the performance of a contract depends on the personal
skill or qualification of a party, the contract is discharged on the illness or incapacity or death of the
party.
An artist undertook to perform at a concert for a certain price. Before she could do so, she was taken
seriously ill. Held, she was discharged due to illness (Robinson vs. Daveson)
Change in law or stepping in of a person with statutory authority: when, subsequent to the formation of
a contract, change of law takes place, or the government some power under a ordinance or special act,
so that the performance of the contract becomes impossible, the contract is discharged.
A agreed to transport certain goods from place A to place C. subsequently, to the formation of the
contract, the trucks of A were requisitioned by the government under a statutory power. Held, the
contract was discharged (Noor Bus vs. Kalyan)
Out break of war: the contract entered with an alien enemy during the war is unlawful and therefore
impossible of performance. Contracts entered into before the outbreak of war are suspended during the
war and may be revived after the war is over.
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Impossibility of Performance – not an excuse
Ordinarily when a person undertakes to do something, he must do it unless its performance becomes
absolutely impossible. In the following cases, a contract is not discharged on the ground of supervening
impossibility:
Difficulty of Performance: a contract is not discharged by the mere fact that it has become more
difficult of performance due to some uncompleted events or delays.
A sold a certain quantity of Finland timber to B to be supplied between July and September. Before any
timber was supplied, war broke out in the month of August and transport was disorganized so that A
could not bring any timber for Finland. Held, the difficulty in getting the timber from Finland did not
discharge A from performance (Blackburn Bobbin Co., vs. Allen & Sons)
Commercial impossibility: a contract is not discharged merely because expectation of higher profits is
not realized, or the necessary raw material is available at a higher price or because of the out broke of
the was or there is a sudden depreciation of the currency
Impossibility due to failure of the third person: when a contract could not be performed because of the
default by a third person on whose work the promisor relied, it is not discharged
A, a wholesaler, entered into a contract with B for the sale of a certain type of cloth to be produced by
C, a manufacturer of that cloth. C did not manufacture that cloth. Held, A was liable to B for damages
(Haranandrai Fulchand vs. Pragdas)
Strikes, lockouts and civil disturbances: events such as these do not discharge a contract unless the
parties have specifically agreed in this regard at the time of formation of the contract.
The unloading of a ship was delayed beyond reasonable time, owing to the strike of the dock workers.
Held, the ship owners were entitled to damages, the impossibility of the performance being no excuse
(Budget vs. Binnington)
Failure of one of the objects: when a contract is entered into for several objects, the failure of one of
them does not discharge contract.
HB agreed to let out a boat to H (a) for viewing a naval review on the occasion of the coronation of
Edward VII, and (b) to sail round the fleet. Owing to the King’s illness the naval review was abandoned
but the fleet was assembled. The boat, therefore, could be used to sail around the fleet. Held, the
contract was not discharged (Herne Bay Steamboat Co., vs. Hutton)
Discharge by lapse of time
The Limitation Act, 1963 lays down that a contract should be performed with in a specified period,
called period of limitation. If it is not performed and if no action is taken by the promisee with in the
period of limitation, he is deprived of remedy of law. In other words, the contract is terminated.
Discharge by operation of law: a contract may be discharged independently of the wishes of the
parties, i.e., by operation of law. This includes discharge by –
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By death: any contract involving personal skill or ability, the contract is terminated on the death of the
promosor. In other cases, the rights and liabilities passes to the legal representatives of the deceased
person.
By insolvency: when a person is adjudged insolvent, he is discharged from all liabilities incurred prior
to his adjudication.
By unauthorized 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.
An alteration which is not material or which is made to carry out the common intention of the parties
does not affect the validity of the contract.
By rights and liabilities becoming vested in the same person: where the right and liability under a
contract vest in the same person. For example when a bill gets into the hands of the acceptor, the other
parties are discharged. This is to avoid circuity of action.
Discharge by breach of contract
Breach of contract means a breaking of the obligation, which a contract imposes. It occurs when a party
to the contract without lawful excuse does not fulfill his contractual obligation or by his own act makes
it impossible that he should perform his obligation under it.
Breach of contract may be –

a) Actual breach of contract, or
b) Anticipatory or constructive breach of contract
Actual breach of contract:

It may take place –
At the time the performance is due: actual breach of contract takes place when at the time when the
performance is due, one party fails or refuses to perform his obligation under the contract.
If time is not essence of the contract and the defaulting party expresses his willingness to perform the
obligation after the appointed time, the other party may accept the performance subject to the payment
of compensation for failure to perform the obligation at the appointed time. A prior notice is to be given
to the party in default by the party not in default if compensation is claimed.
During the performance of the contract: actual breach of contract may take place during the
performance of contract, when one party fails or refuses to perform his obligation under the contract.
This refuse to perform may be by –
Express repudiation: where there has been some performance of the contract and one party by his word
or act refuses to perform his obligation in some essential respect, the other party can treat the contract as
no longer binding on him sue for breach of contract.
Implied repudiation: if a party during the performance of contract makes by his own act the complete
performance of contract impossible, the effect is as he has breached the contract, and the other party is
discharged from the further performance of contract.
Anticipatory breach of contract
It occurs when a party to an executory contract declares his intention of not performing the contract
before the performance is due.
33
a) By expressly renouncing his obligation under the contract

b) By doing some act so that the performance of his promise becomes impossible
Section 39: Effect of refusal of party to perform promise wholly

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.
As per the provision of Section 39 the promisee may –

a) Treat the contract as discharged
b) Take legal action for breach of contract
Quasi contract
Under certain circumstances, a person may receive a benefit too which the law regards another person
as better entitled, or for which the law considers he should pay to the other person, even though there is
no contract between the parties. Such relationships are termed quasi contract, because, although there is
no contract or agreement between the parties, there are put in the same position as if there were a
contract between them.
Quasi contracts rests on the ground of equity that a person shall not be allowed to enrich himself
unjustly at the expense of another. The principle of unjust enrichment requires:
First, the defendant has been enriched by the receipt of a “benefit”

Secondly, that this enrichment is at the expense of the plaintiff
Thirdly, that the retention of the enrichment is unjust
Strictly speaking a quasi contract is not a contract at all, since the contract is entered into by the
willingness of the parties to it, but in this case the contract into existence by operation of law.
Section 68 to 72 of the act deals with the kinds of quasi contracts:
Section 68: Claim for necessaries supplied to person incapable of contracting, or on his account
If a person, incapable of entering into a contract, or anyone 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.
Section 69: Reimbursement of person paying money due by another, in payment of which he is
interested
A person who is interested in the payment of money which another is bound by law to pay, and who
therefore pays it, is entitled to be reimbursed by the other.
Essential requirements of Section 69 are as follows:

a) The payment should be bonafide for the protection of ones interest
b) The payment should be a voluntary one
c) The payment must be such as the other party was bound by law to pay
P left his carriage on D’s premises. D’s landlord seized the carriage as distress of rent. P paid the rent to
obtain the release of carriage. Held, P could recover the amount from D (Exall vs. Partrige)
Section 70: Obligation of person enjoying benefit of non-gratuitous act
34
Where a person lawfully does anything for another person, or delivers anything to him, not intending to
do so gratuitously, and such another person enjoys the benefit thereof, the letter is bound to make
compensation to the former in respect of, or to restore, the thing so done or delivered.
Essential requirements of Section 70 are as follows:

a) The thing must have been done lawfully
b) The person doing the act should not have intended to do it gratuitously
c) The person to whom the act is done must have enjoyed the benefit
A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own. He is bound to pay
for them to A.
Section 71: Responsibility of finder of goods

A person who finds goods belonging to another, and takes them into his custody, is subject to the same
responsibility as a bailee. The finder of the goods is bound to take as much care of the goods as a man
of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk,
quantity and value. If he does not, he is liable for wrongful conversion of the property. Until the owner
of the property is not found, the finder of the goods can retain the goods the goods as his own against
the whole world.
The finder of the goods can sell the goods in the following conditions:
a) When the thing found is in danger of perishing
b) When the owner of the goods, with reasonable diligence, cannot be found out
c) When the owner is found out, but refuses to pay the lawful charges of the finder
d) When the lawful charges of the finder, in respect of the thing found, amount to two-third of the
value of the thing found
Section 72: Liability of person to whom money is paid, or thing delivered, by mistake or under
coercion
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 by mistake or coercion. Section 72 does not draw any
difference between a mistake of fact and a mistake of law.
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The Indian Contract Act, 1872 - Full

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Prof. CA.

Soujanya G K The Contract Act, 1872

Section 2(g) An agreement not enforceable by law is said to be void;

Section 2(h) An agreement enforceable by law is a contract;

Therefore Contract = Agreement + Enforceability by Law.

ESSENTIAL ELEMENTS OF A CONTRACT

1) Offer and Acceptance

Intention to create a legal relationship

Offer and Acceptance

Legal rules to offer

There is a clear difference between offer, invitation to offer or an announcement:

Legal rules as to acceptance

Acceptance must be Unconditional: an acceptance in order to be binding must be absolute and

It must be given before the offer lapses or withdrawn.

COMMUNICATION, ACCEPTANCE AND REVOCATION OF PROPOSALS

Communication when complete

Time for Revocation of Proposals and Acceptance

Loss of letter of acceptance in postal transit:

Revocation how made

Legal Rules of Consideration

A CONTRACT WITHOUT CONSIDERATION IS VOID - EXEMPTION

Agreement without consideration, void, unless it is in writing and registered or is a promise to

An agreement made without consideration is void, unless –

Legal rules of Minors:

He cannot be adjudged as an insolvent.

He cannot be a shareholder in a Company.

Persons of unsound mind

Soundness of mind of a Person depend upon two facts:

Consent is said to be free when it is not caused by –

Section 15: "Coercion"

The entire definition is divided into two parts

(b) The unlawful detaining, or threatening to detain,

Threat to commit Suicide – does it amount to Coercion?

Section 16: "Undue influence"

Under the following relationship there is no assumption of undue influence.

Debtor and Creditor

Section 17: "fraud

Section 18: "Misrepresentation"

"Misrepresentation" means and includes –

Section: 20, 21 and 22: Mistake

Mistake of law may be; of country or of foreign county.

“Section 21: Effect of mistake as to law”

Mistake of fact may be:-

Legality of the objects:

The consideration or object is unlawful-

Where the court regards it as opposed to Public Policy

Maintenance and Champerty: “Maintenance” is an agreement to give assistance, financial or other

Agreements in restrain of legal proceedings, void (Section 28)

Marriage brokerage or brokerage agreement: an agreement by which a person, for a monetary

Agreement to defraud creditor or revenue authorities: an agreement the object of which is to

Section 11: Who are competent to contract

Section 23: the agreement the consideration or the object is unlawful

Section 24: Agreements void, if consideration are objects unlawful in part

Section 26: Agreement in restraint of marriage, void

Section 27: Agreement in restraint of trade, void

Section 28: Agreements in restrain of legal proceedings, void

Section 29: Agreements void for uncertainty

Section 30: Agreements by way of wager, void

Section 36: Agreements contingent on impossible event void

Section 56: Agreement to do impossible act

Wager Agreements or Wager: Section 30