The Indian Contract Act, 1872

Chapter 1 THE INDIAN CONTRACT ACT, 1872
Unit 1 - Nature & Kinds of Contract
Introduction
This act came into force on 1st Sept., 1872. This act is applicable all over India
including state of Jammu to Kashmir.
Act creates obligation between the parties to the contract & not against the
world. Thus it creates “Right in Personam” & not “Right in Rem” ‘Right in
Personam’ means right against a Particular Person. ‘Right in Rem” means right
is available against the Whole World.
Definitions
Promise [Section 2 (b)]
A proposal when accepted becomes a ‘Promise’
Agreement [Section 2 (e)]
Every promise & every set of promises forming the consideration for each
other, is an ‘Agreement’
AGREEMENT = OFFER + ACCEPTANCE
Example :- X offer to sell his car for Rs 1,00,000 to Y. Y accepts his offer. This
offer after acceptance becomes promise and this promise is treated as an
agreement between X and Y.
Contract [Section 2 (h)]
An agreement enforceable by law is a ‘Contract’
CONTRACT = AN AGREEMENT + ENFORCABILITY BY LAW
CA Namrata Rodrigues 1
The Indian Contract Act, 1872
Thus every agreement is not a contract. It is regarded as contract only when it

is enforceable by law.
Types of Agreement
Illegal Agreement: An agreement forbidden by law is an illegal agreement. It

often includes commission of crime. Illegal agreements are void-ab-initio. The
parties to such an agreement are punishable by Indian Penal Code.
Example :- Contract to supply drugs or Contract to kill someone
Void Agreement: An agreement not enforceable by law is said to be ‘void’

[Section 2 (g)]. It has no legal existence. The agreement in such case is void-
ab-initio. Such agreement does not result in contract at all. Thus any
agreement of restrain of trade, restrain of marriage, restrain of legal
proceedings, etc. are void agreements. [Details discuss in Unit of Void
Agreements]
Thus every illegal agreement is void but every void agreement is not illegal.
Types of Contract
Contract on basis of creation
 Express Contract: A contract made by words spoken or written
 Implied Contract: An implied contract is one which is made otherwise than

words spoken or written.
 Tacit contract: A contract inferred by the conduct of a person.
Example :- withdrawal of cash through ATM, sale by fall of hammer at an

auction sale.
Contract on basis of enforceability
 Valid Contract [Section 2 (h)]: A valid contract is that which is enforceable

by law.
 Void Contract [Section 2 (j)]: A void contract is a contract which ceases to

be enforceable by law. A contract when originally entered into may be valid
& binding on the parties. It may subsequently become void.
Example :- A person dies or property is destroyed or government imposes

a ban etc. can make a contract subsequently void.
 Voidable Contract [Section 2(i)]: “An agreement which is enforceable by law

at the option of one or more of the parties thereon, but not at the option of
other or others is a voidable contract.” Where consent of party is not a free
consent i.e. when consent is obtained by means of coercion, undue influence,
fraud or misrepresentation the contract could be voidable at the option of
aggrieved party.
 Unenforceable contract: It is a contract which is actually valid but cannot

be enforced because of some technical defects [such as not in writing,
stamped]. Such contract can be enforced if the technical defect involved is
removed.
Contract on basis of Execution
 Executed Contract: Where both the parties have performed their obligation
the contract is termed as an executed contract. Here the contract has been
completely performed.
 Executory Contract: Where both the parties to the contract have to still
perform their obligation in future, the contract is termed as executory.
 Unilateral contract: Where obligation is pending on the part of one of the

parties. [In Simple words partly executed and partly executory]
 Bilateral Contract: A Bilateral Contract is a contract in which obligation is

pending on the part of both of the parties.
Essential Elements of Contract
1. There must be offer & acceptance: In an agreement there must be an offer by

one party & its acceptance by the other. The offer when accepted becomes
agreement.
2. There must be mutual consent of the parties: The parties to an agreement

must have the mutual consent. i.e. they must agree upon the same thing and in
same sense.
Example :- A owned 2 car, one Maruti 800 & other Mercedes. A offered to sell
one car. While making an offer A had Maruti 800 in mind & B accepted the
offer thinking that it was made for Mercedes. Here in this case no agreement
comes into existence
3. There must be free consent of parties: If the consent of parties is not free, then
no valid contract comes into existence. The consent is not free when it is
obtained by coercion, undue influence, fraud, misrepresentation of facts &
mutual mistake of facts.
Example :- A threatened to shoot B’s son unless he sells his land. B agrees to
sell the land at lower price than market price under the threat. In this case
agreement is not valid as B’s consent is not free being obtained under
pressure.
4. There must be legal obligation: An agreement must be create legal obligation.

If parties do not intend to create legal obligation there is no contract between
them.
Example:- An invitation to a friend for dinner creates a mere social obligation.
5. The agreement must be supported by lawful consideration: The lawful

consideration that which is neither fraudulent, forbidden by law, immoral nor
opposed to public policy. If consideration is not lawful, then there is no valid
contract.
6. The parties may be competent to contract: It means that parties may be

capable of entering into the contract. A minor, person of unsound mind are not
competent to enter into the contract. If parties are not competent to contract,
then there is no valid contract.
7. The agreement must not be declared to be void: If some agreements are

expressly declared as void by the law of the country then such agreements
shall not be enforceable by law.
8. The agreement must be certain: The meaning of an agreement musst be

certain. An agreement whose meaning is not certain is not valid
Example:- A agreed to sell B his scooter for Rs 5,000/- or Rs 7,000/-. There is

nothing to show which price is to be paid to B. The agreement is not valid as it
is not certain.
9. The performance must not be impossible: An agreement to do an impossible

act is not valid.
Example:- A agreed with B to discover treasure of magic. B agreed to pay Rs

10,000/- It is not valid agreement as its performance is impossible
10. Legal formalities: A contract may be oral or writing. If however law requires
for a particular contract, it should comply with all legal formalities as to writing,
registration & attestation then such contract is valid only if all the legal
formalities have been completed.
Example:- An oral agreement for sale of immovable property is not

enforceable because the law requires that such agreement must be in writing
and registered.
Conclusion: All the aforesaid elements must be present in an agreement in

order to create a valid contract. If any one of them is missing or absent the
agreement will not be enforceable by law.
Difference between Agreement and Contract
Basis of Agreement Contract

difference
Meaning Every promise and every Agreement enforceable by law.

set of promises, forming the [Agreement + Legal
consideration for each enforceability]
other.
[Offer + Acceptance]
Scope It’s a wider term incl. both It is used in a narrow sense with
legal & social agreement. the specification that contract is
only legally enforceable
agreement.
Legal It may not create legal Necessarily creates a legal

obligation obligation. An agreement obligation. A contract always
does not always grant rights grants certain rights to every
to the parties party.
Nature All agreement are not All contracts are agreements.

contracts.
Difference between Void Agreement and Illegal Agreement
Basis of Void Agreement Illegal Agreement

difference
Scope A void agreement is not An illegal agreement is always
necessarily illegal. void.
Nature Not forbidden under law. Are forbidden under law.
Punishment Parties are not liable for Parties to illegal agreements are
any punishment under the liable for punishment
law.
Collateral It’s not necessary that Agreements collateral to illegal
Agreement agreements collateral to agreements are always void.

void agreements may also
be void. It may be valid also.
Difference between Void Contract and Voidable Contract
Basis of Void Contract Voidable Contract

difference
Meaning A Contract ceases to be An agreement which is

enforceable by law enforceable by law at the
becomes void when it option of one or more of the
ceases to be enforceable. parties thereto, but not at the
option of the other or others, is
a voidable contract.
Enforceability A void contract cannot be It is enforceable only at the

enforced at all. option of aggrieved party and
not at the option of other
party.
Cause A contract becomes void A contract becomes a voidable

due to change in law or contract if the consent of a
change in circumstances party was not free.
beyond the control of
parties.
Performance A void contract cannot be If the aggrieved party does

of contract performed. not, within reasonable time,
exercise his right to avoid the
contract, any party can sue
the other for claiming the

performance of the contract.
Rights A void contract does not The party whose consent was
grant any legal remedy to not free has the right to
any party. rescind the contract within a
reasonable time. If so
rescinded it becomes a void
contract. If it is not rescinded
it becomes a valid contract.
Unit 2 - Proposal & Acceptance
Proposal
Section 2 (a) of Indian Contract Act, 1872 defines ‘Proposal’ as under
“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.”
An offer or a proposal is the first step towards the formation of a contract.
The person, who make proposal is called ‘promisor’ or ‘offeror’ or

‘proposer’ & person accepting theproposal is called ‘promisee’ or ‘offeree’
Essential Elements of Valid Offer
1. Legal relationship: An offer must be intended to create a legal relationship.
If ‘proposer’ is not intended to create legal relationship it is not an offer.

Invitation to a friend for a dinner is mere social invitation & such an invitation,
even if accepted does not create legal relationship.
Case Law :- A husband agreed to pay to his wife certain amount as

maintenance every month while he was abroad. Husband failed to pay the
promised amount. Wife sued him for the recovery of the amount. Here, in this
case, wife could not recover as it was a social agreement and the parties did
not intend to create any legal relations. [Balfour v. Balfour]
2. Terms of offer must be certain & definite: The terms of offer must be definite,
clear & certain. If the terms of the offer are vague & uncertain no contract will
come to existence.
3. The offer must be communicated: The offer is completed only, when it has
been communicated to the ‘offeree’. Until the offer is communicated it cannot
be accepted. An acceptance of an offer withouthaving knowledge of the same
does not create any legal right or obligation
Case Law:- A’s nephew was missing. A sent his servant to trace his missing
nephew. After he left A announced Rs 501/- reward to anybody who found
missing boy. His servant discovered the missing boy without knowing of
reward. When servant came to know about the reward he bought action
against A to recover the same. It was held that the servant was not entitled to
the reward because he did not know about the offer [Lalman Shukla v. Gauri
Dutt]
4. Offer may be conditional: An offer may be made subject to certain condition.

If the conditions are properly communicated to ‘offeree’ then such conditions
would be binding on him.
Example :- X agreed to by an automatic machine from Y and signed an order

in order form given by Y containing a number of clauses without reading
them. Held clauses were binding on X.
5. An offer may be general or specific: Specific offer is made to definite person

whereas general offer is open to the world at large.
6. Offer must be made with the view of obtaining consent: The person making the
offer is bound by the offer as soon as it is accepted by the ‘offeree’. When offer
is accepted it becomes a contract.
7. Offer must not be trust with the burden of acceptance: The person making an
offer cannot say that “If he fails to hear from the other party within a week
than he shall consider the offer as being accepted.” It should be in form of
request.
Example :- A writes a letter to B “ I will sell you my car for Rs 60,000/-and if

you don’t reply , I shall assume that you have accepted my offer.
Classification of Offer
1. Positive Offer: An offer to do something is positive offer.
2. Negative Offer: An offer not to do something is negative offer.
3. Express Offer: Expressed by words [may be written or spoken]
Example :- When A says to B “will you buy a car for Rs 20,000”
Example:- When A writes a letter to B “I want to sell car for Rs 20,000/-”
4. Implied Offer: Infer from the conduct of person.
Example :-A transport company runs buses on a particular route. There is an

implied offer from the transport company to carry passengers on the route
who pay the specified fare.
5. Specific offer: Specific offer is one which is made to an ascertained person.
6. General offer: General offer is not made to specific person, but to public at
large. In general offer, the contract is not made with the entire world. But it is
made with the person who, having knowledge of the offer comes forward &
acts according to conditions of the offer.
7. Counter offer: A counter offer is a rejection of original offer. It is a new offer.

This new offer over the original offer is called counter offer.
Example :- A offered to sell his house to B for Rs 2,50,000/- B wrote that he

would buy his house for Rs 2,00,000/-. This is counter offer & not
acceptance. And if B accepts the original offer to buy the house at Rs
2,50,000/- A will not be bound to sell the house because B’s counter offer has
put an end to original offer.
8. Cross Offer: Two offers which are similar in all respects made by two parties to
each other, in ignorance of each other’s offer is known as “Cross Offer”. Cross
offer do not amount to acceptance of one’s offer by the other. Hence no
contract is entered into on cross offer.
9. Standing Offer: An offer of a continuous nature is known as ‘standing offer’. A

standing offer is in the nature of a tender. It is same as invitation to offer.
Difference Between Offer and Invitation to Offer
Invitation to offer: In terms of Section 2 (a) of the Act, an offer is the final
expression of willingness by the offeror to be bound by the offer should the
other party chooses to accept it. On the other hand, offers made with the
intention to negotiate or offers to receive offers are known as invitation to
offer. Thus, where a party without expressing his final willingness proposes
certain terms on which he is willing to negotiate he does not make an offer, but
only invites the other party to make an offer on those terms. Hence the only
thing that is required is the willingness of the offeree to abide by the terms of
offer
When a person advertises that he has got a stock of books to sell or houses to
let out, there is no offer to be bound by any contract. In fact such
advertisements are “offer to receive offer” i.e. An Invitation to Offer. It is only
invitation to receive offer from his customer. The person, who replies to an
invitation to the offer, makes the actual offer. The party issuing an invitation for
the offer has a right to accept or not to accept them.
Example :- Tenders, Auction Sale, the display of articles with price in a self
service shop are an invitation to offer, An invitation by a company to the
public to subscribe for its shares, Quotation of prices sent in reply to a query
regarding price.
Definition of Acceptance
Section 2 (b) of Indian Contract Act, 1872 defines ‘Acceptance’ as under
“When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted. A proposal when accepted becomes a
promise.”
Essentials of Valid Acceptance
1. Acceptance must be absolute & unconditional: A valid contract arises only if
the acceptance is absolute & unconditional. Every offer must be accepted as it

is and without any condition.
Example :- A offered to sell his house to B for Rs 2,50,000/- B wrote that he

would buy his house for Rs 2,00,000/-. This is counter offer & not
acceptance. And if B accepts the original offer to buy the house at Rs
2,50,000/- A will not be bound to sell the house because B’s counter offer has
put an end to original offer.
2. Acceptance must be communicated: Acceptance must be communicated.

A mere mental determination to accept is no acceptance in eyes of law
 To whom it should be communicated – To ‘offeror’ himself. Thus if

acceptance is communicated to the person, other than ‘offeror’, it will not
create any legal relationship.
 By whom it should be communicated – By a person who has authority to

accept the offer. A valid contract arises only if acceptance is
communicated by person who has authority to accept. If it is
communicated by any unauthorized person it will not create legal
relationship.
Note: In case of acceptance made by post, the contract is formed as soon

as properly addressed and stamped letter of acceptance is posted even if
such letter of acceptance is lost or delayed in post.
3. Acceptance must be in mode prescribed:
If the ‘offeror’ prescribes the The acceptance must be made in

manner or mode of acceptance accordance with prescribed
If the acceptance is not made in The offer must be accepted in some

the mode prescribed usual and reasonable manner
4. Person accepting the offer must not be ignorant about the existence of the
offer: There can be no acceptance without an offer. The ‘acceptor’ must be
aware of the proposal at the time of acceptance. In other words, acceptance

should always follow the offer and not precede it. [ Lalman Shukla v . Gauri
Dutt]
5. Silence does not amount to acceptance: Sometimes, the acceptor does not
convey his decision to the ‘offeror’ or keeps silent. In such a case his silence
does not amount to acceptance.
6. Acceptance must be made before the offer is revoked or is withdrawn:

A valid contract can arise when the acceptance is given before the offer has
been revoked or withdrawn. An acceptance which is made after withdrawal of
the offer is not valid & does not create any legal relationship.
7. Acceptance of the proposal is acceptance of all terms of the offer: Sometimes

it may so happen that acceptor is totally ignorant of some of the terms &
conditions of offer at the time of acceptance but he is bound by all the terms of
the offer when he accepts the offer.
Example :- A ticket issued by the Railways with the terms and conditions
printed overleaf. Even if the ‘offeree’ does not read the terms and conditions
of travel, he would be bound by such terms and conditions, provided the
terms and conditions are legible.
8. Performance of condition of proposal is an acceptance of the proposal:

Performance of condition of proposal is an acceptance of the proposal.
Acceptance of offer by conduct does not require any formal acceptance.
Case Law :- Carbolic Smoke Ball & Co. manufactured and sold The Carbolic
Smoke Ball. The company placed ads in various newspaper offering a reward of
100 pounds to any person who contracted influenza after using the smoke ball
as directed. After seeing the ad Carlill purchased a ball and used it as directed.
Carlill contracted influenza and made a claim for the reward. Though the
company had raised the objection that acceptance was not communicated, it
was held that the company has waived communication of acceptance.
Acceptance of offer by conduct does not require any formal acceptance. [Carlill
v. Carbolic Smoke Ball Co.]
9. Acceptance must be within reasonable time: The acceptance must be given

within the time prescribed [if any] or within reasonable time [if no time is
prescribed]. What is reasonable time depends upon the facts and
circumstances of the case.
Unit 3 - Communication
Communication [Section 3]
There is no legal effect unless an offer, an acceptance & a revocation of offer

or acceptance is communicated to the other party. The communication of
offer and acceptance, and revocation are deemed to be made by an act or
omission of the party proposing, accepting, or revoking, by which he intends to
communicate it or which has the effect of communicating it.
Completion of Communication [Section 4]
Completion of communication of offer: The communication of offer is

completed when it comes to the knowledge of the person to whom it is made.
When an offer is made by post, the communication is complete when the letter
containing the offer reaches the ‘offeree’ [i.e. when it comes to the knowledge
of the ‘offeree’]
Completion of communication of acceptance: The communication of

acceptance is complete at different times for the ‘offeror’ and ‘acceptor’:
 As against ‘offeror’: When letter of acceptance is posted.
 As against ‘offeree’: When it comes to the knowledge of ‘offeror’
Completion of communication of Revocation: Revocation means ‘taking

back’, ‘recalling’ or ‘withdrawal’. The communication of revocation is complete
at different times for the person who makes it & the person to whom it is made.
 As against the person ‘who makes revocation’: When it is put in the course
of transmission to the person to whom it is made, so as to be out of the
reach of the power of the person who makes it.
 As against the person ‘to whom revocation is made’: When is comes to

his knowledge.
Common Example :-
A offers to sell his house for 15 lakhs to B by letter dated 25th Dec. The letter
reaches B on 27th Dec. B accepts the offer by letter posted on 28th Dec. This
letter of acceptance reaches A on 30th Dec.
 Communication of offer is completed: 27th Dec
 Communication of acceptance is completed ‘For A’: 28th Dec
 Communication of acceptance is completed ‘For B’: 30th Dec
Revocation of Offer & Acceptance [Section 5]
Revocation of offer: An offer may be revoked at any time before the

communication of its acceptance is complete for the ‘offeror’, but not
afterwards. This means that offer can be revoked at any time before the letter
of acceptance is posted by offeree. In above example A can revoke his offer
before 28th Dec.
Revocation of acceptance: An acceptance may be revoked at any time before

communication of the acceptance is complete for the ‘offeree’, but not
afterwards. This means that acceptance can be revoked at any time before
the letter of acceptance reaches the ‘offeror’. In above example B can revoke
his acceptance before 30th Dec.
Modes of Revocation / Lapse of Offer [Section 6]
1. By notice of revocation
Example:- A offered B to sell goods at Rs 5,000 through a post but before B

could accept the offer A received highest bid for the goods from C. So, A
revoked the offer to B by informing B over the telephone and sold goods to C.
2. By lapse of time: The time for acceptance can lapse if the acceptance is not
given within the specified time and where no time is specified, then within a
reasonable time. This is for the reason that proposer should not be made to
wait indefinitely. It was held in Ramsgate Victoria Hotel Co. Vs Montefiore, that
a person who applied for shares in June was not bound by an allotment made
in November.
3. By non-fulfilment of condition precedent: Where the acceptor fails to fulfill a

condition precedent to acceptance the proposal gets revoked. This principle is
laid down in Section 6 of the Act. The offeror for instance may impose certain
conditions such as executing a certain document or depositing certain amount
as earnest money. Failure to satisfy any condition will result in lapse of the
proposal.
Example:- ‘A’ proposes to sell his house to be ‘B’ for Rs 5 lakhs provided ‘B’
leases his land to ‘A’. If ‘B’ refuses to lease the land, the offer of ‘A’ is revoked
automatically.
4. By death or insanity: Death or insanity of the proposer would result in

automatic revocation of the proposal but only if the fact of death or insanity
comes to the knowledge of the acceptor.
5. By counter offer
6. By the non-acceptance of the offer according to the prescribed or usual mode
7. By subsequent illegality.
Unit 4 - Consideration
Definition of Consideration
Consideration is one of the essential requisites to support a contract.

Consideration is known as quid pro quo [i.e. something is return]. It means the
when the party to an agreement promises to do something, he must get
something in return.
Section 2 (d) of Indian Contract Act, 1872 defines ‘Consideration’ as under
“When at the desire of promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing, or promises to do or
abstain from doing something, such act or abstinence or promise is called a
consideration for the promise.”
Essentials Elements of Consideration
1. Consideration must move at he desire of promisor:- An act or abstinence,

which forms consideration for the promise, must be done or promised to be
done according to the desire of the ‘promisor’. An act shall not be good
consideration for the promise unless it is done at the desire of promisor.
Case Law:- In Durga Prasad v. Baldeo, D [defendant] promised to pay to P

[plaintiff] a certain commission on articles which would be sold through their
agency in a market. Market was constructed by P at the desire of the C
[Collector], and not at the desire of the D. D was not bound to pay as it was
without consideration and hence void.
2. Consideration must be lawful:- The consideration to be lawful should not be

fraudulent, forbidden by law, immoral or opposed to public policy. If the
consideration is not lawful, then no valid contract comes into existence.
3. The consideration must be real & not illusory:- The consideration to be valid
must be ‘real’ & ‘valuable’ & must not be ‘illusory’
4. The performance must not be performance of existing duties:- The term

existing duty includes ‘legal obligation’
Legal obligation:- The consideration must be something more than that what
the promisee is already bound to do by law. The performance of legal duty is
not a consideration for the promise.
Hence, a promise to pay money to a witness is void, for it is without

consideration. Hence, such a contract is void for want of consideration.
Similarly, an agreement by a client to pay to his counsel after the has been
engaged, a certain sum over and above the fee, in the event of success of the
case would be void, since it is without consideration.
5. Consideration need not be adequate:- The law simply requires that the
contract should be supported by consideration. As long as consideration exists
and it is of some value the contract is valid.
The inadequacy of consideration will be taken into account by a court of law,

when absence of free consent is pleaded in the formation of the contract
Example:- X promises to sell a house worth Rs 6 lacs for Rs 1 lacs only, the
adequacy of the price in itself shall not render the transaction void, unless the
party pleads that transaction takes place under coercion, undue influence or
fraud.
6. Consideration may be forbearance to sue:- This means consideration may be

promise not to file a legal suit against the person.
7. Consideration may be past, present or future:- In all these cases of

consideration, the contract is valid.
 Past consideration: When present promise is based on consideration

already taken place it is termed as past consideration
 Present consideration: When promisor receives consideration

simultaneously with the promise, it is termed as present consideration.
 Future consideration: When consideration for a promise is rendered is

future, it is termed as future or executory consideration.
8. Consideration may be furnished by promisee or any other person:- An act

which forms a consideration may be done by the promisee or by any other
person i.e. even by a stranger
Case Law:- An old lady, by a deed of gift, made over certain property to her
daughter A, under the direction that she should pay her aunt, B [sister of the
old lady], a certain sum of money annually. The same day A entered into an
agreement with B to pay her the agreed amount. Later, A refused to pay the
amount on the plea that no consideration had moved from B to A. It was held
that B was entitled to maintain suit as consideration had moved from the old
lady, sister of B, to the daughter, A. [Chinnaya v. Ramaya]
Privity of Contract Or Stranger to Contract
It means that a contract cannot be enforced by a person who is not a party to

the contract. It is general rule of law that the person who is not the party to
the contract cannot sue for carrying out the promise made by party to the
contract.
Case Law:- A. wholesaler bought tyres from the Dunlop Peneumatic Tyre &
Co. & sold them to Selfridge & Co., a sub-dealer, who agreed with A not to sell
these tyres below Dunlop’s list price, Selfridge & Co. sold tyres less than the
list price and thereupon the Dunlop Pneumatic Tyre & Co. sued S for the
breach. It was held that the Dunlop Pneumatic Tyre & Co. could not file the
suit as it was stranger to the contract. [Dunlop Pneumatic Tyre & Co. v.
Selfridge & Co.]
Exception to the Rule of Privity of Contract
a. Trust or charge:- When a benefit is given to a person by creating trust or

charge in some property in his favour, such a beneficiary may enforce the
contract even though he is not party to contract.
Example:- X transferred certain properties to be held by Y for the benefit

of Z. Z can enforce the agreement even though he is not party to an
agreement
b. Marriage settlement, partition or other family arrangement:- Sometimes an

agreement is made in the connection with marriage, partition or other
family arrangements and a provision is made for the benefit of some
person. In such case a beneficiary may enforce the contract even though
he is not party to contract.
Example:- Two brothers X and Y agreed to pay an allowance of Rs 20,000

to mother on partition of joint properties. But later they denied to abide by
it. Held their mother although stranger to contract can require their sons
for such allowance in the court of law.
Example:- Mr. X’s wife deserted him for ill-treating her. Mr. X promised his
wife’s father Mr. Puri that he will treat her properly or else pay her
monthly allowance. But she was again ill-treated by her husband. Held,
she has all right to sue Mr. X against the contract made between Mr. X and
Mr. Puri even though she was stranger to contract.
c. Acknowledgement of payment:- Where by terms of contract, a party is

required to make a payment to third person, and that party acknowledges
the payment to third person than third person can recover the amount
from such a party.
Example:- If L gives to M Rs 20,000 to be given to N, and M informs N that

he is holding the money for him, but afterwards M refuses to pay the
money. N will be entitled to recover the same from the M
d. Agreement relating to land:- Person who purchase land with notice that the
owner of land is bound by certain duties affecting land, is bound by those
duties although he was party to an agreement.
Example:- One owner of the land having two land adjacent to each other.
One was agricultural land. He sold the other land containing a condition
that it can never be used for Industrial purpose so as to protect the other
agricultural land from pollution. Such condition is attached with the land so
who so ever is the successor of land has to abide by it. Such are called
restrictive covenants and all successor are bind to it.
person e. Assignment of contract:- Where the benefit under a contract has been
appointed by
court of law to assigned, the assignee can enforce the contract subject. E.g. Official
complete
all transactions assignee.
of insolvent
peron
f. Contracts entered into through an agent: The principal can enforce the
contracts entered by his agent where the agent has acted within the scope
of his authority and in the name of the principal.
Legality of Agreement Without Consideration
General Rule
Section 25 of Indian Contract Act, states that “An agreement made without
consideration is void”
Example:- A promise to donate Rs 500 towards the construction of mosque

was held unenforceable as the promise was lacking consideration
But the gratuitous promise shall be enforceable if the promise on the faith of
such promise suffered any liability, forms a valid consideration.
Exception to the General Rule
a. Natural love & affection [Section 25 (1)]:- The following condition must be
satisfied for the application of exception:-
 The agreement must be in writing and registered
 The agreement must be based on natural love to affection.
 The agreement must be between the parties who are in near relation to
each other.
b. Past Voluntary Services [Section 25 (2)]:- A promise to pay past voluntary

services is binding even though it is without consideration. The following
condition must be satisfied for the application of exception:-
 The services should have been rendered voluntarily
 The services should have been done for the promisor.
c. Promise to pay time-barred debt [Section 25 (3)]:- The following condition

must be satisfied for the application of exception:-
 The debt must be time-barred
 The promise must be definite & express
 The promise must be in writing
 The promise must be signed by the promisor or his authorized agent.
Note:- According to the law of limitation, a debt which remains unpaid or

unclaimed for the period of 3 years becomes a time-barred which is not
recoverable.
d. Gift actually made [Explanation 1 to Section 25]:- The absence of

consideration does not affect the validity of the gifts actually made. Thus,
gift without consideration is valid.
e. Creation of agency [Section. 185]:- The contract of agency made without

consideration is valid.
f. Bailment:- No consideration is required to affect the contract of bailment.

Section 148 of the Indian Contract Act, 1872, defines bailment as the
delivery of goods from one person to another for some purpose. This
delivery is made upon a contract that post accomplishment of the purpose,
the goods will either be returned or disposed of, according to the directions
of the person delivering them. No consideration is required to affect a
contract of bailment
Example:- Mr. A hand over the keys of his godown to Mr. Y as Mr. Y had
deposited his goods in the same. Mr. Y gets possession of godown but not the
ownership. As soon as Mr. Y lifts his goods from godown he is liable to hand
over the keys back to Mr. A.
g. Charity:- If a promisee undertakes the liability on the promise of the person

to contribute to charity, there the contract shall be valid. [Kadarnath v.
Gorie Mohammad]
Agar ek person promises to pay to charity without consideration it is valid
but agar wo back out hota h and chartiy ne uske promise ke againts buys
something
then the person is liable to pay the amount of good bought or promised amt
whichever is
LOWER
Unit 5 - Capacity to Contract
Introduction
The ‘capacity to contract’ means the capability of the parties to enter into the
valid contract. The term ‘capacity to contract is defined in Section 11 of the
Indian Contract Act, as under
“Every person is competent to contract who is of the age of majority according

to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject.
Person not Competent to Contract
 Minor
 Unsound Mind
 Person disqualified by law

Agreements by Minors
The term ‘minor’ is explained in Section 3 of the Indian Majority Act, 1875
“A minor is person who has not completed eighteen years of age”
Effects of Minor’s Agreement
a. Void-ab-initio:- An agreement with a minor is void-ab-inito i.e. absolutely

void & cannot be enforced in court of law.
Case Law:- A minor mortgaged his house in favour of a B to secure a loan

of Rs 20,000 out of which the B paid the minor a sum of Rs 8,000.
Subsequently the minor sued for setting aside the mortgage, stating that
he was underage when he executed the mortgage. It was held that the
mortgage was void and, therefore, it was cancelled. Further the B request
for the repayment of the amount advanced to the minor as part of the
consideration for the mortgage was also not accepted. [Mohoribibi v.
Dharmodas Ghose]
b. No estoppel against minor:- This means that when a minor fraudulently

No Estoppel- can enters into the contract representing that he is a major, but in reality he is
deny the fact
not, then later on he can plead his minority as a defense & cannot be
prevented from doing so.
c. No liability for damages for tort of deceit [i.e. fraud] :- It minor enters into
an agreement by misrepresenting his age; he cannot be sued either in
No damages for
tort of deceit(fraud)contract or in tort for deceit. Because if the injured party is allowed to sue,
TORT- CIVIL it would be an indirect way of enforcing the void agreement

WRONG
d. Restoration of property or money :- Sometimes, the minor receives some
Restoration of property or money by falsely representing his age. In such case, the minor
Property is taking can be asked to restore such property or money so long as the same is
back property
Restoration only in Fraud
traceable in his possession.
e. No ratification :- An agreement with minor cannot be ratified even after

attaining majority. An agreement which was void cannot become valid by
subsequent ratification.
Example:- A person on attaining majority, gave a promissory note in

satisfaction of one executed by him for the money borrowed when he was
minor. Claim under promissory note could not be enforced because there
was no consideration.
f. Beneficial contracts :- If contract is beneficiary to a minor, it can be

enforced by him. Thus a minor is capable of purchasing immovable
property. In case of sale of goods by a minor he is entitled to recover the
price from the buyer. Similarly, a minor may also enforce a promissory
note executed in his favour.
g. The minor as a partner :- He may be admitted as a partner only for the

benefits of the firm with the consent of all other partners.
h. The minor as an agent :- A minor can be appointed as an agent, but he will

not be personally liable for his acts as an agent. as he takes commission
and cannot be sued fro fraud as
an agent
i. The minor as an insolvent :- A minor cannot be declared as an insolvent.

This is because all agreements with minor as absolutely void. No Liability thus not
insolvent
j. Minor as a shareholder:- A minor, being incompetent to contract cannot be
a shareholder of the company. If by mistake he becomes a member, the
company can rescind the transaction and remove his name from register.
rescind= cancel
But, a minor may, acting though his lawful guardian become a shareholder
Transmission is
operation by law by transfer or transmission of fully paid shares to him
k. The liability of minor’s parents or guardians :- The minor’s contracts do not

impose any liability on his parents or guardians even if the contracts are
for ‘necessaries’. They may pay the money just out of moral obligation. But
there is not legal obligation to make such payments.
l. Minor’s property liability for necessaries:- The case of necessaries supplied
VERY to a minor or to any other person whom such minor is legally bound to
IMPORTANT
support is governed by Section 68 of the Indian Contract Act. A claim for
ALSO
EXCEPTION
necessaries supplied to a minor is enforceable by law. But a minor is not
liable for any price that he may promise and never for more than the value
of the necessaries. There is no personal liability of the minor, but only his
property is liable.
To render minor’s estate liable for necessaries two conditions must be

satisfied:-
 The contract must be for reasonable necessary for minor’s support in

his life
 The minor must not have already a sufficient supply of these

necessaries.
They cannot include luxuries or costly or unnecessary articles. Necessaries

extend to all such things as reasonable persons would supply to an infant in
that class of society to which the infant belongs. Expenses on minor’s
education, on funeral ceremonies come within the scope of the word

‘necessaries’.
Example:- Shruti being a minor purchased a laptop for her online classes
of Rs 70,000 on credit from a shop. But her assets could pay only Rs
20,000. The shop keeper could not hold Shruti personally liable and could
recover only amount recoverable through her assets i.e. upto Rs 20,000.
It may be noted that minor is not personally liable for the necessaries
supplied to him, only the estate of minor is liable for necessaries supplied to
him
m. Liability for torts:- A tort is a civil wrong. A minor is liable in tort unless the
related
tort in reality is a breach of contract. Thus, where a minor borrowed a
horse for riding only he was held liable when he lent the horse to one of his
friends who jumped and killed the horse. Similarly, a minor was held liable
for his failure to return certain instruments which he had hired and then
passed on to a friend
Agreements by person of Unsound Mind
Person of unsound mind:- The term ‘sound mind’ is defined in Section 12 of

Indian Contract Act, as under:
“A person is said to be of sound mind for the purpose of making a contract if,
at the time when he makes it, he is capable of understanding it and of forming
a rational judgment as to its effects upon his interest.”
Following person are considered to be of unsound mind:-
 Idiot
 Lunatics
 Drunken or intoxicated person
Agreements by person of unsound mind are absolutely void
Example:- A entered into an agreement to sell his property worth Rs 25,000/-

to B for Rs 7,000/- B bought the action for recovery of the property. It was
proved by A’s mother that he was idiot. The sale was held to be void. [Inder
Singh v. Parmeshwardhari Singh]
A lunatic or drunken is not permanently of unsound mind. He can enter into a

valid and enforceable agreement if he is of sound mind at the time of
agreement.
Agreement by person Disqualified by Law
1. Alien enemy :- The contracts with alien enemy are governed by following
rules:-
 Contracts during war: - Cannot be entered into until the war is over
 Contracts made before the declaration of war:-
o If such contracts are against the public policy- Such contract are
dissolved i.e. declared as void contract.
o If such contracts are not against the public policy- Such contract are
eg- ammunitions merely suspended during the time of the war and revived after the
war is over.
2. Foreign Diplomats :- Such person can enter into valid contracts. They have
right to sue others. But they can be sued only with the prior sanction of the
central government.
3. Convicts :- Convicts cannot enter into a contract while he is undergoing

imprisonment. He is capable of entering into contract when his sentence is
expired or when he is on parole.
4. Insolvents :- When a person is declared as an insolvent, his property vests in

the ‘Receiver’ or ‘Official assignee’. He is deprived of his power to deal with the
property. Therefore, he cannot enter into a contract relating to his property.
He cannot sue and cannot be sued.
5. Corporation & a Company :- However, a company is disqualifies to enter into

any contract which falls outside the object clause of ‘Memorandum of
Association’ & provision of the Companies Act.
Unit 6 - Free Consent

Not forceful Meeting of Minds
Definition of Consent
The term ‘consent’ is defined in Section 13 of the Indian Contract Act, as under
“Two or more persons are said to consent when they agree upon the same
thing in the same sense”
In English law this is called Consensus ad idem

Defaulting party and aggrieved party
Definition of Free Consent
The term ‘free consent’ is defined in Section 14 of the Indian Contract Act, as
under VOIDABLE CONTRACTS
Once voidable
Contract
is affirmed the “Consent is said to be free when it is not caused by –
party cannot
rescind the  coercion, as defined in Section 15, or C- sec15
contract
 undue influence, as defined in Section 16, or U sec16
 fraud, as defined in Section 17, or F sec17
M sec18
 misrepresentation, as defined in Section 18, or
 mistake, subject to the provisions of Sections 20, 21 and 22.

Coercion
Definition of Coercion
The term ‘Coercion’ is defined in Section 15 of the Indian Contract Act, as

under
“Coercion is the committing, or threatening to commit, any act forbidden by

the Indian Penal Code, or the unlawful detaining, or threatening to detain, any
prejudice
= property, to the prejudice of any person whatever, with the intention of
affecting
causing any person to enter into an agreement”
Example:- A threatens B at gun point to sell his land to [A] A while in an

English ship on high seas enter into a contract with B by intimidating B that is
unlawful in India Later on A sues B of breach of contract in Calcutta This is

coercion.
The English law uses the term duress for coercion.
Essential Elements of Coercion
 The acts of coercion must be forbidden by the Indian Penal Code.
 The acts of coercion must be done with the intention of causing the other
party to enter into the contract.
 The unlawful detaining or threatening to detain any property amounts to

coercion.
 The Indian Penal Code may or may not be in force at a place where the
coercion is committed. Wherever coercion is applied and IPC may or may not be
in force....mtlb ineternaional bhi case ho skta h coercion
ka
 The acts of coercion may be initiated by any person.
Coercion can be initiated by stranger to contract
 The coercion may be by way of threat to commit suicide.
A threat to commit suicide amounts to coercion
Effects of Coercion
Section 19 and 72 of the Indian Contract Act states the effects of coercion as
under
“When the consent to an agreement is caused by coercion, the agreement is a

contract voidable at the option of the party whose consent was so caused.”
“A person, to whom the money has been paid or anything delivered under
coercion, must repay or return it.”
Undue Influence Unfair Advantage
Definition of Undue Influence A Dominant position and weaker position
The term ‘Undue Influence’ is defined in Section 16[1] of the Indian Contract
Act, as under
subsisting “A contract is said to be induced by "undue influence” where the relations

= existing
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”
Example:- A, a man enfeebled by disease or age, is induced, by B's influence

over him as his medical attendant, to agree to pay B an unreasonable sum for
his professional services. B employs undue influence.
Essential Elements of Undue Influence
 One party must be in the position to dominate the will of the other.
 The dominate party must use his superior position to obtain an unfair
advantage over the weaker party.
 The dominate party must have obtained an unfair advantage over the
weaker party.
Presumption of domination of will
Circumstances Examples
Where he holds real and apparent Master & servant, parent & child,
authority over the other. Income tax officer & assessee,
Principal & temporary teacher.
With stands in fiduciary relation to the Trustee and beneficiary, spiritual

other. guru and devotee, Solicitor and
TRUST
client, guardian and ward,
doctor and patient
Unconscionable bargains A youth of 18 years of age,
Where one of the parties to a contract is spend thrift and a drunkard,
in a position to dominate the will of the borrowed Rs 90,000 on a bond
other and the contract is apparently bearing compound interest at
unconscionable i.e., unfair, it is 2% per mensem [p.m.]. It was
presumed by law that consent must held by the court that the
have been obtained by undue influence. transaction is unconscionable,

Unconscionable bargains are witnessed the rate of interest charged
mostly in money-lending transactions being so exorbitant
and in gifts.
Effects of Undue Influence
Section 19 A of the Indian Contract Act states the effects of undue influence as
under:
“When the consent to an agreement is caused by undue influence, the

agreement is a contract voidable at the option of the party whose consent was
so caused.
Difference between Coercion & Undue Influence
Basis of Coercion Undue Influence

difference
Involvement It involves committing or No such illegal act is

of criminal threatening to commit and committed or a threat is
action act forbidden by Indian given.
Penal Code or detaining or
threatening to detain
property unlawfully.
Relationship No relationship exist between There is bound to be some

between the parties sort of relation.
parties
Exercised Coercion need not proceed Undue Influence is always

by whom from the parties to the exercised between the
contract. parties to the contract
Nature of Coercion is mainly of Undue Influence is of
Consideration maybe checked only when free consent is not there

option
action physical nature mental pressure.
Position of If the contract is rescinded It is at the discretion of the

benefits by the aggrieved party, any court to order the
received benefit received has been aggrieved party to return
restored back to the other the benefit in whole or part
party. or not to give any such
order
Fraud
Definition of Fraud Intentionally false statement to deceive
The term ‘Fraud’ is defined in Section 17 of the Indian Contract Act, as under:
"Fraud means and includes any of the following acts committed by a party to
a contract, or with his connivance, or by his agent, with intent to deceive
another party thereto of his agent, or to induce him to enter into the contract:
 the suggestion, as a fact, of that which is not true, by one who does not
believe it to be true;
Considered  the active concealment of a fact by one having knowledge or belief of the
Fraud
fact; Jaan Muchke chhupana
 a promise made without any intention of performing it
 any other act fitted to deceive;
 any such act or omission as the law specially declares to be fraudulent.”
Example:- A sold some property to B. A had, earlier to this transaction, sold

this property to C, but did not inform B about it. It was held that A had
committed fraud and the contract was voidable at the option of B.
Thus, the intentional misstatement is the essence of fraud. A person making

a false statement is not guilty of fraud, if he honestly believes that the
statement given by him is true.
Essential Elements of Fraud
 The fraudulent act must be committed with an intention to deceive
 The fraudulent act must be committed with the knowledge of falsity [i.e
Read Once without belief in its truth]
 The fraudulent act must have been committed by the party to the
contract.
 The party acting on the representation must have suffered some loss.
 The fraudulent act must have actually deceived the one party.
Silence as Fraud
As a general rule mere silence is not fraud.
Example:- A sells, by auction, to B, a horse which A knows to be unsound. A

says nothing to B about the horse's unsoundness. This is not fraud in [A]
Exceptions to the General Rule [i.e Silence will amount to fraud]
[uberrimae fidei-utmost good faith] trust
 Where the party stands in the fiduciary relationship

Contract and relation wid family is utmost good
Example:- parent and child faith
 Where silence is equivalent to speech
Example, A says to B “If you do not deny it, I shall assume that the
horse is sound.” A says nothing. His silence amounts to speech.
 Half truths
Following contracts come within this category:
a. Fiduciary Relationship: Here, the person in whom confidence is reposed is

under a duty to act with utmost good faith and make full disclosure of all
material facts concerning the agreement, known to him.
Case Law:- A broker was asked to buy shares for client. He sold his own
shares without disclosing this fact. The client was entitled to avoid the
contract or affirm it with a right to claim secret profit made by broker on
the transaction since the relationship between the broker and the client
was relationship of utmost good faith. [Regier V. Campbell Staurt]
b. Contracts of marriage: Every material fact must be disclosed by the parties

to a contract of marriage [Hazi Ahmed v. Abdul Gassi].
c. Contracts of family settlement: These contracts also require full disclosure

of material facts within the knowledge of the parties.
d. Share Allotment contracts: Persons issuing ‘Prospectus’ at the time of

public issue of shares/debentures by a joint stock company have to disclose
all material facts within their knowledge.
E. Contract of Insurance- is of utmost good faith and requires
Effects of Fraud full disclosure
Section 19 of the Indian Contract Act states the effects of fraud as under:
“When the consent to an agreement is caused by fraud, the agreement is a

contract voidable at the option of the party whose consent was so caused.”
Two circumstances the contract is not voidable on account of Fraud:
 Where the silence amounts to fraud, the contract is not voidable, if other
if u attached a paper showing you have asthama but didn't wrote in insurance form it is not fraud as it could
be discovered easilyparty had means of discovering truth with ordinary diligence.
 Where the fraud does not induce the other party to enter into contract
information which is not material whether false or not is not
Misrepresentation
fraud (Only in Full disclosure principle)
(Unintentional false fact thus no intent to deceive)
Essential elements of Misrepresentation
 Must be of material fact.
 Must be false but the person making it honestly believes it to be true.
 Must induce the other party to enter into the contract.
 Must have addressed by one party to the party mislead.
Effects of Misrepresentation
Section 19 of the Indian Contract Act states the effect of misrepresentation

under:
“When consent to an agreement is caused by misrepresentation, the

agreement is a contract, voidable at the option of the party whose consent
was so caused”
Two circumstances the contract is not voidable on account of

misrepresentation:-
 Where the other party had means of discovering truth with ordinary
diligence.
 Where the misrepresentation does not induce the other party to enter
into contract.
Difference between Fraud and Misrepresentation
Basis of Fraud Misrepresentation

difference
Knowledge The person making the The person making the

of truth suggestion believes that statement believes it to be true,
the statement as untrue although it is not true
Intention To deceive the other party There is no such intention to

by hiding the truth. deceive the other party
Rescission The injured party can The injured party is entitled to

of the repudiate the contract repudiate the contract or sue
contract and claim damages. for restitution but cannot claim
and claim the damages
for
damages
Mistake
The term ‘Mistake’ may be defined as incorrect belief of something.
Example:- A agrees to buy from B a certain horse. It turns out that the horse
was dead at the time of the bargain, though neither party was aware of the
fact. The agreement is void.
Mistake of Fact
 Bilateral Mistake:- It is mistake in which both the parties to an agreement

are at the mistake about the certain facts essential to the agreement. A
bilateral mistake of fact renders the agreement is void.
Effects of Bilateral Mistake
Section 20 of the Indian Contract Act states the effect of bilateral

mistake under:
“Where both the parties to an agreement are under a mistake as to the

matter of fact essential to the agreement, the agreement is void.”
Example:- A agrees to sell to B a specific cargo of goods supposed to be
on its way from England to Bombay. It turns out that, before the day of
the bargain, the ship conveying the cargo had been cast away and the
goods lost. Neither party was aware of the facts. The agreement is void.
 Unilateral Mistake:- It is a mistake in which only one of the parties to an

agreement is at mistake about the fact which is essential to the
agreement. Generally, a unilateral mistake does not render agreement
void i.e. it does not affect the validity of the agreement.
Effects of Unilateral Mistake
Section 22 of the Indian Contract Act states the effect of unilateral

mistake under:
“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.”
Mistake of Law
 Mistake of Indian Law:- The contract is not voidable because everyone is

supposed to know the law of this country. This is based on the well
established rule of law namely, “ingorantia juris non-excusat” means
"ignorance of the law is no excuse.”
Example:- A and B make a contract grounded on the erroneous belief

that a particular debt is barred by the Indian Law of Limitation; the
contract is not voidable.
 Mistake of Foreign Law:- The mistake of foreign law has the same effect
as a mistake of fact. Thus, mistake of foreign law render agreement void.
Unit 7 - Legality of Object & Consideration
Introduction
One of the essentials of a valid contract is that the consideration and the
object should be lawful. Every agreement of which the object or consideration
is unlawful is void.
Definition of Legality of Object and Consideration
Section 23 of Indian Contract Act mentions the circumstances when the

consideration or object of an agreement is not lawful and reads as under:
“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 law,

If A tells C he will marry but he is already married to B so this will go against law
or ( Hindu marriage act) thus a void Agreement
 Is fraudulent, or Intention to Commit Fraud by btoh parties (eg- both parties agree for
robbery)
 Involve 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.”
Read........
Cases of Unlawful Object and Consideration
1. Where it is forbidden by law :- An agreement to do what has

been prohibited by the Indian Penal Code is unlawful and hence forbidden by
law
Example:- A promises B to drop a prosecution which he has instituted

against B for robbery, and B promises to restore the value of the things
taken. The agreement is void, as its object is unlawful.
2. Where it defeats the provisions of law
If the object or consideration of an agreement is of such a nature that, if it is

permitted, it would defeat the provisions of any law, such an agreement is
void.
Example:- X, a Hindu already married and his wife alive, entered into a
marriage agreement with Y an unmarried girl. The agreement is void
because the second marriage is forbidden by Hindu Law and if permitted will
defeat the provision of law.
3. Where it is fraudulent
The object or consideration of an agreement is unlawful where it is fraudulent,

such an agreement is void.
Example:-A, B, C enter into an agreement of the division among them of

gains acquired by them by fraud. The agreement is void, as its object is
unlawful.
4. Where it is injurious to the another person or his property
The object or consideration of an agreement is unlawful where it involves an

injury to the person or his property, such an agreement is void.
Example:- A agrees to pay Rs 15,000/ to B if he kills C. the agreement is void.
5. Where it is regarded as immoral or opposed to public policy
The object or consideration of an agreement is unlawful where it is regarded

as immoral or opposed to public policy, such an agreement is void.
Example:- A agrees to let her daughter to hire to B for concubinage. The

agreement is void, because it is immoral, though the letting may not be
punishable under the Indian Penal Code.
A Sells Car B for business of prostitution and since it is immoral thus the
agreement is void ab initio
Agreements opposed to Public Policy Very IMPORTANT

Doctrine of public policy
Whenever the agreement is harmful to the public welfare or interest, is being

void as against the public policy. The courts are authorized to decide whether
an agreement is opposed to public policy or not.
The following agreements are considered to be against public policy:
a. Trading with the alien enemy:- Any trade with person owing allegiance to a
Government at war with India without the licence of the Government of
India is void, as the object is opposed to public policy.
Example:- India entered in war like situation with China. Mr. A from India
entered into contract with China for import of toys. Such contract is void
as China is alien enemy of India. The contract if made before such war
like situation may be suspended or dissolved. Like India felt apps like tik
tok and PUBG will provide some internal information of the country,
hence such apps were banned and any contract with them were
dissolved.
b. Agreement in interference with the course of justice:- An agreement whose

object is to induce any judicial officer of the State to act partially or
corruptly is void, as it is opposed to public policy; so also is an agreement by
A to reward B, who is an intended witness in a suit against A in
consideration of B’s absenting himself from the trial.
c. Agreements as regards to sale of public offices or public titles:- An

agreement to trafficking in public office is opposed to public policy, as it
interferes with the appointment of a person best qualified for the service of
the public. Public policy requires that there should be no money
consideration for the appointment to an office in which the public is
interested. The following are the examples of agreements that are void:
i. An agreement to pay money to a public servant in order to induce him to

retire from his office so that another person may secure the appointment
is void.
ii. An agreement to procure a public recognition like Padma Vibhushan for

reward is void.
Example:- Harish paid Rs 15,000 to the officer to give his son the job in
the Forest department of India. On failure by officer he couldn’t recover
the amount as such contract amounts to trafficking in public office
which is opposed to public policy
d. Marriage brokerage contract:- An agreement to negotiate marriage for

reward, which is known as a marriage brokerage contract, is void, as it is
opposed to public policy. For instance, an agreement to pay money to a
person hired to procure a wife is opposed to public policy and therefore
void.
Note: Marriage bureau only provides information and doesn’t negotiate

marriage for reward, therefore, it is not covered under this point
e. Champerty and maintenance contract:- Maintenance is an agreement in

which a person promises to maintain suit in which he has no interest.
Example:- A offer B Rs 2000, if he sues C for a case which they could

have settled mutually under provisions of law, just to annoy C. Such
agreement is maintenance agreement.
Champerty is an agreement in which a person agrees to assist another in

litigation in-exchange of a promise to hand over a portion of the proceeds
of the action.
Example:- A agrees to pay expenses to B if he sues C and B agrees to pay

half of the amount received from result of such suit.
f. Interest against obligation:- The following are examples of agreement that

are void as they tend to create an interest against obligation. The object of
such agreements is opposed to public policy.
i. An agreement by an agent to receive without his principal’s consent

compensation from another for the performance of his agency is invalid.
ii. A, who is the manager of a firm, agrees to pass a contract to X if X pays

to A Rs 200,000 privately; the agreement is void.
Illegal Agreements
Meaning of Illegal Agreements
Illegal agreements are those agreements which are:-
 Void-ab-initio
 Punishable by the criminal law of the country.
Effects of Illegal Agreements

 The effects of illegal agreements are as under:
 The main as well as collateral transactions become illegal and hence
cannot be enforced. Collateral is dependable upon main
transaction
 No action can be taken for recovery of money paid or property
transferred under an illegal agreement.
 In case of an agreement containing the promise, some part is legal and

other part is illegal, then
Case Provision
If illegal part cannot be The whole agreement is altogether
separated from legal part. illegal.
If illegal part can be separated The court will enforce the legal part
from legal part. and reject the illegal part.
Unit 8 - Void Agreements
Definition
A void agreement is one which is without any legal effects. The term ‘Void
agreement’ is defined in Section 2(g) of Indian Contract Act, as under:
“An agreement not enforceable by law is said to be void.”
Agreements in Restraint of Marriage
This provision is contained in Section 26 of Indian Contract Act, which states

that:-
“Every agreement to restraint of marriage of any person other than minor is

void”
Restraint may be:
 Partial Restraint: Prevents a person from marrying particular person, or a

particular class or which prevents from marrying for fixed period.
 Complete Restraint: Prevents a person from marrying altogether.
The agreement is void in both the cases.
Agreements in Restraint of Trade
This provision is contained in Section 27 of Indian Contract Act, which states

that :-
“Every agreement by which anyone is restrained from exercising a lawful

profession, trade or business of any kind, is to that extent void”
Exception to General Rule
a. Sale of Goodwill :- An agreement which restraints the seller of the goodwill

from carrying on similar business is valid if all the condition is valid:-
 Such restriction must relate to similar business.
 Such restriction must be within specified local limits and for certain
period of time.
 Such restriction must be reasonable
b. Partner’ s Agreement :-
 Restraint on a continuing partner of a firm from carrying on any

business: - A partner shall not carry on any business other than that
of the firm while he is partner.
 Restraint on outgoing partner from carrying on similar business: - An

outgoing partner may agree with his partner that he will not carry on
any business similar to that of firm within a specified period or within
specified local limits and such restrain shall be reasonable.
 Restraint in anticipation of dissolution of firm:- Partners may upon or

in anticipation of the dissolution of firm may make any agreement
that some the partners will not carry on a business similar to that of
the firm within a specified period or local limits. Such agreement is
valid only if restrictions are reasonable.
 Restraint when goodwill of firm is sold :- On sale of goodwill of a firm,

any partner may make an agreement that he will not carry on
similar business with specified area or for a specified period. Such
agreement is valid only if restrictions are reasonable.
c. Restraint upon employees : - An agreement of service by which a person

binds himself during the terms of the agreement not to take up service
with any one else or not to compete with his employer, directly or
indirectly is valid.
d. Trade combination :- Trade combinations which have been formed to

regulate the business or to fix price is not void.
Example:- Restriction imposed by chamber of commerce is valid.
e. Exclusive dealing agreement’s or sole dealing agreements :- Agreements to

sell the whole produce to a single dealer are valid.
Example:- ‘A’ agreed to sell vegetables grown in his garden only to ‘B’ for
two years The agreement is valid.
Agreements in restraint of legal proceedings
An agreement in restraint of legal proceedings is the agreement which

restraint a person from enforcing his legal rights under or in respect of any
contract. Such an agreement is void to that extent.
Example:- A clause in a contract provided no action should be bought upon it

in case of breach. Such a clause is void because it restricts both the parties
from enforcing their legal rights Partial Restrain is allowed in legal proceedings
Exception:-
 An agreement is not void merely because it provides that any dispute

arising between two or more persons shall be referred to arbitration.
Settlement of dispute with arbitiation is VALID Contract
 When two courts have jurisdiction to try a suit, an agreement between
the parties that the suit should be filed in one of those courts alone and not
in other is not invalid. Filing a suit in only 1 jurisdiction is a VALID Contract
An agreement which limits the time within which an action may be bought so
as to make it shorter than that prescribed by Law of Limitation, is void because
its object is to defeat the provision of law. all debts related dues cannot be cut short from
3yrs(law of limitation)... So contract related to
shortening law of limitation is VOID
Wagering Agreement
The term ‘Wagering agreement’ may be defined as an agreement in which one

person agrees to pay certain amount of money to the other person on the
happening or non-happening specified uncertain event. The wagering
agreement is void.
Example:- ‘A & ‘B’ enter into agreement that if India wins world cup. ‘A’ will
pay Rs 5,000 to ‘B’ & if not than ‘B’ will pay Rs 5,000 to ‘A’. This is wagering
agreement & its void.
Essentials Elements of Wagering Agreement
 Promise to pay money or money’s worth
 It must be dependent upon uncertain event
 There must be mutual chances of gain or loss
 The parties must not have any interest in the event
 The parties must not have control over the event.
Effects of Wagering Agreement [Section 30]
 Agreements by the of wager are void in India
 Agreements by the way of wager have been declared illegal in the states
of Maharashtra and Gujarat.
 No suit can be filed to recover the amount won on any wager.
 The transactions which are collateral to wagering agreements are not

void in India except in the states of Maharashtra and Gujarat.
 The transactions which are collateral to wagering agreements are illegal

in the states of Maharashtra and Gujarat.
Horse Racing is valid

MPL is valid
Registered Lottery is Valid
Casino is Valid(must be registered)
No provision regarding online betting so legal for now
If Government declares Valid then wagering agreement is Valid
Wagering is Game of Chance and there is difference between game of chance

and game of skill(Kaun banega Crorepati)
Unit 9 - Contingent Contract

EXAMPLE OF INSURANCE CONTRACT
Definition
The term ‘Contingent Contract’ is defined in Section 31 of Indian Contract Act,

as under:
‘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”.
Example:- A contracts to pay B Rs 10,000 if B's house is burnt. This is a

contingent contract.
Essential elements of valid contingent contract
1. There must be valid contract :- It must the basic requirement of valid contract
2. The performance of contract must be conditional:- The performance of

contract must depend upon the happening or non-happening of some future
event.
3. The event must be uncertain :- The future event, upon which the performance
of a contract depends, must be uncertain event. If the event is certain, then the
contract is not contingent one.
4. The event must be collateral :- The uncertain event, upon which the
performance of the contract is dependent, must not form part of the
consideration of the contract i.e must be independent or ancillary to the
contract.
Kinds of Contingent Contract
[1] [2] [3] [4] [5]
Contracts Contracts Contracts Contracts Contracts

Contingent Contingent Contingent Contingent Contingent
Upon Upon Non- Upon Upon Non- Upon
Happening Happening Happening happening Impossible
within fixed within fixed event

time time
Can be enforced on
Uncertain Uncertain Uncertain Uncertain Void

event has event does event event does
happened not happen happens not happen or
or it within fixed it becomes
becomes time impossible
impossible
Example:-
‘A’ agrees to pay ‘B’ Rs 5,000/- if ship returns to Mumbai port
Circumstances If ship returns– Contract can be enforced
If ship sinks – Contract is void.
‘A’ agrees to pay ‘B’ Rs 5,000/- if ship does not return to Mumbai port
Circumstances If ship sinks – Contract can be enforced
If ship returns – Contract is void.
‘A’ agrees to pay ‘B’ Rs 5, 000/- if ship returns within a year to Mumbai port.
Circumstances If ship returns within one year – Contract can be

enforced
If ship sinks or does not return within one year - Contract

is void.
‘A’ agrees to pay ‘B’ Rs 5,000/- if ship does not return within a year to
Mumbai port.
Circumstances If ship sinks or does not return within one year -
Contract can be enforced.
If ship returns within one year – Contract be void.
Unit 10 - Quasi Contract

Not a real Contract
Definition
‘Quasi Contract’ is not the contract in strict sense of the term, because there is
no real contract in existence. Moreover, there is no intention of the parties to
enter into the contract. It is an obligation, which the law creates in the absence
of any agreement. Some legal rights and obligations are created between the
concerned parties even in the absence of real contract. Such kind of
contractual relations are known as quasi contracts.
It is based on Maxim “Nemo debet Ex locuplatari justua” i.e. “No man must
grow rich out of another persons cost.”
Kinds of Quasi Contract [Section 68 to 72]
1. Supply of necessaries to person who are in competent to contract [Section

68]:- A person supplies the necessaries to a person who is not competent to
contract [i.e. minor or a person of unsound mind] or to another person to
whom incompetent person is bound to support. In such cases, the person
supplying the necessaries is entitled to recover the cost of necessaries from
the property of such incompetent person even if there is no valid contract
between them.
Example:- A supplies B, a lunatic, with necessaries suitable to his condition in

life. A is entitled to be reimbursed from B's property.
read Example:- A supplies the wife and children of B, a lunatic, with necessaries
suitable to their condition in life. A is entitled to be reimbursed from B's
property.
2. Payment made by interested person [Section 69]:- Sometimes, a person

makes payment on behalf of another person who is legally bound to pay. The
person who makes the payment can recover the amount on fulfillment of the
following conditions.
 The person making the payment must not be bound by law to pay the
amount.
 The person making the payment must have some interest in paying the
amount.
 The other person from whom the money is ought to be recovered must
be legally bound to pay the money.
 Interest should exist at the time of payment.
Example:- B holds land in Bengal, on a lease granted by A, the Zamindar. The

revenue payable by A to the Government being in arrears, his land is
advertised for sale by the Government. B to prevent the sale pays to the
government the sum due on behalf of [A] A is bound to make the payment to
B.
3. Non- Gratuitous Act [Section 70]:- The non-gratuitous act means the acts
which are not done free. A person who does an act or delivers something to
another person with an intention of receiving payments he is entitled to
recover such payment on fulfillment of following conditions:
 The person must lawfully do something for another or deliver something.
 The act is intended to be a non-gratuitous act
 The other person must voluntarily accept the act or goods & has enjoyed
the benefits thereof.
Example:- A, a tradesman, leaves goods at B’s house by mistake. B treats the

goods as his own. He is bound to pay A for them
4. Finder of Goods [Section 71] :- The provision is contained in Section 71 of

Indian Contract Act, which states that : “A person who finds goods belonging
to another and takes them into his custody is subject to same responsibility as
a baliee”
The finder of goods is liable to:-

 Try & find out the true owner & return the goods to him
 Take care of the goods.
 He must not use the goods for his own purpose
The finder can sell the goods only when:
 The owner cannot be found.
 The commodity is perishable.
If the owner refuses to give the lawful charges of the finder in the respect of
goods. This charges amounts to a minimum of two –third of their value.
5. Payment of money or delivery of goods by mistake or under coercion [Section

72] :- This provision is contained in Section 72 of Indian contract Act, which
states that :-
“A person to whom money has been paid, or anything delivered, by mistake or

under coercion, must repay or return it to the person who paid it by mistake or
under coercion”
Example:- A and B jointly owe 100 rupees to C. A alone pays the amount to C,
and B, not knowing this fact, pays 100 rupees over again to C. C is bound to
repay the amount to B.
Unit 11 - Discharge of Contract

END
Introduction
The discharge of contract means that the parties are no more liable under the
contract. In other words, when the rights and obligations created by the
contract come to an end, the contract is said to be discharged. The discharge
of contract may therefore, be defined as termination of contractual
relationship between the parties.
Modes of Discharge of a contract
 By performance
 By Mutual agreement
 By operation of law
 By impossibility of performance
 By lapse of time
 By Breach
Performance
‘Performance’ is one of the various modes of discharge of the contract. The

obligation of the parties regarding the performance is contained in Section 37
of Indian Contract Act, which states that:
“The parties to a contract must either perform, or offer to perform, their

respective promises, unless such performance is dispensed with or excused
under the provisions of this Act, or of any other law.”
Thus, the performance of contract can be discussed under the following two
heads
 Actual Performance :- When party has done what he had under taken to
do & nothing is left the promise is said to be performed. Such party is
discharged from his liability under the contract. This is known as the
actual performance of contract.
 Tender of performance: - An offer to perform obligation is called ‘tender

of performance’. A valid tender of performance is equivalent to the
performance of the promise. If a valid tender of performance is rejected
by the promisee, then the promisor is discharged from further
performance.
Essential of valid Tender of performance
(a) The tender must be unconditional
(b) The tender must be made at proper time and proper place
(c) Reasonable opportunity to other party to see that things offered are
same as agreed.
(d) Tender must be of whole obligation
(e) Tender must be made to promisee or his authorized agent.
Person entitled to perform
 The promisor himself
 The legal representative Who can perform the contract
 The agent
 The third person (Only when promisee

agrees) and once agreed
 Joint Promisors it cannot be denied
Note: If contract involving of personal skills then only promisor himself can
perform. ex- Contract of marriage can only be performed by promisor
Person entitled to demand performance
 The promisee
 The legal representative
 Joint Promisee
Note: If contract involving of personal skills then only promisee himself can
demand the performance.
Performance of Joint Promises
 Joint promisor [Devolution of Joint Liabilities]
Case Who must perform
In case all promisor are alive All promisor jointly
In case of death of any of the Legal Representative of deceased

promisor promisor jointly with surviving
promisor[s]
In case of death of all joint Legal Representative of all of them

promisor jointly
 Joint promise [Devolution of Joint Rights]
Case Who can demand performance
In case all promisee are alive All promise jointly
In case of death of any of the Legal Representative of deceased

promise promisee jointly with surviving
promise[s]
In case of death of all joint Legal Representative of all of themn

promise jointly
Rules regarding the performance of joint promise
 The promisee may compel anyone or such of more joint promisor to

perform the whole of the promise.
 Each of the joint promisor may compel every other joint promisor to
contribute equally.
 If any of the joint promisor makes the default in such contribution, the
remaining joint promisor must bear the loss arising from such default in equal
shares.
 A release of one of such joint promisor by the promise, does not

discharge the other joint promisors, neither does it free the joint promisor
so release from the responsibility to the other joint promisors.
Mutual Agreement / Mutual Consent
1. Novation:- The term ‘Novation’ means substitution of existing contract for a

new contract. Novation can be with same party or with different party
Example:- A owned Rs 5000 to B. It was agreed between A, B, & C that B

would hence forth accept C as a debtor instead of [A] In this case, A is
discharged from his liability to pay debt to B.
2. Rescission: -The term ‘rescission’ means the cancellation of the contract.
3. Alteration :- The term ‘alteration’ means change in one or more terms of

contract. The alteration is valid when it is made with the consent of all the
parties. And the valid alteration discharges the original contract & the parties
become bound by new contract [i.e. the contract with altered terms]. However,
parties to new contract must not change.
4. Remission :- The term ‘remission’ means the acceptance of lesser fulfillment of

terms of the promise. Example:- Acceptance of less sum of money where more
is due.
Example:- A owes B Rs 5,000. A pays to B, and B accepts, in satisfaction of

the whole debt, Rs 2,000 paid at the time and place at which the Rs 5,000
were payable. The whole debt is discharged.
5. Waiver :- The term ‘waiver’ means giving up of the rights by the party who is
entitled to claim performance of contract. On waiver, the other party to the
contract is discharged from performance of his liabilities under the contract.
Example:- A promises to paint a picture for B. B afterwards forbids him to do

so. A is no longer bound to perform the promise.
Operation of Law
1. Death:- Sometimes, the contract involves personal skills or qualifications of the

promisor himself. In such case the contract is discharged on the death of
promisor.
2. Insolvency: - Sometimes, a person is declared insolvent by court of law. In

such cases he is discharged from all liabilities & debts incurred prior to court
order.
3. Material alteration:- In case of a written contract, if one party alters the

Inferior material particulars without the consent of the other party then the contract is
will be
discharge discharged.
d and
5.
superior 4.
Merger of Inferior rights to superior rights. eg- tenant become owner
Same identity:- When the promisor becomes the promisee the other parties
will come
in force. are discharged.
eg
temporary
employee Example:- X draws bill receivable on Y who accepts the same. X endorses the
becomes bill in favour of Z who in turn endorses in favour of Y. Y is both the promisor &
permanent
promise.
Impossibility of Performance (VERY IMPORTANT)
1. Initial impossibility:- It is the impossibility which exists at the time of formation

of a contract. It makes contract void-ab-initio. The initial impossibility may be
known or unknown to the parties at the time of agreement in both the cases
agreement is void.
2. Subsequent Impossibility [Frustration]:- Sometimes, the performance of a

contract is quite possible when it is made, But subsequently, some event
happens which renders the performance impossible such impossibility is called
subsequent impossibility. The effect of such impossibility is that it makes the
contact “Void”.
Specific grounds of subsequent Impossibility [or Frustration]
In following cases the contract is discharged on the ground of subsequent

impossibility
(a) Destruction of subject matter
(b) Death or personal incapacity of promisor
(c) Declaration of war
(d) Change of law or change of government policy
(e) Non-existence or non-occurrence of particular state of things necessary

for Performance. [Krell v. Henry]
Non-applicability of Doctrine of frustration
1. Difficulty in performance :- The parties are not discharged from their

very imp liability as the performance is difficult only & not impossible.
2. Commercial hardship :- Sometimes a party to a contract is faced with

commercial hardships. In such cases the party is not discharged from the
performance of his obligation simply on the ground that it will be non –
profitable for him to perform the contract.
3. Impossibility due to the conduct of third person :- Sometimes the

performance of a contract depends upon a behavior, of a third person. In
such cases, the contract is not discharged if the performance becomes
impossible due to conduct of the third person.
4. Impossibility induced by the party himself :- Sometimes, the performance

of a contract becomes impossible due to the act or omission of the
contracting party. In such cases, the contract is not discharged.
very imp 5. Strikes, lock-outs & civil disturbances :- All such events do not discharge
the contract
6. Failure of one of the several objects :- Sometimes a contract is entered into

for several objects. In such cases, the contract is not discharged if only one
of the objects fails. [H.B. Steamboat Co. v. Hutton]
Lapse of Time
A contract is discharged if it not performed or enforced within a specified

period called period of limitation. The contractual parties cannot exercise their
rights after the expiry of period of limitation.
Breach of Contract
The ‘breach of contract’ means the failure of a party to perform his obligations.
The party who fails to perform his obligation is said to have committed a
breach of contract. The breach of contract is of the following two types:-
 Actual Breach:- The actual breach of contract may be discussed under

the following two heads
o On a due date of performance:- On due date of performance, one

party fails to perform his obligations. In such cases, the other party
is discharged from the performance of his obligation & can hold
the guilty of party liable for breach of contract.
o During its performance:- If any party performed a part of contract

& then refuses or fails to perform the remaining part of the
contract it is called actual breach of contract during its
performance.
 Anticipatory Breach :- The anticipatory breach occurs, prior to the due

date of performance the promisor absolutely refuses or disables himself
from the performance of his obligations. Thus it is premature repudiation
of the contract and in such case aggrieved party may exercise either of
the following two options:-
option 1 o He may treat the contract as discharged & bring an immediate

action for damages.
option 2 o He may treat the contract as operative & wait till the time of
performance arrives.
Amount of Damages
Option exercised Amount of Damages
When the aggrieved party rescinds Amount of Damages = Price

the contract at the date of breach prevailing on the date of breach
- Contract Price.
When the aggrieved party does not Amount of Damages = Price

rescinds the contract date of prevailing on the due date of
breach [i.e. wait till due date] performance – Contract Price.
Remedies for Breach of Contract

A remedy is the course of action available to an aggrieved party [i.e. the party
not at default]
1. Suit for Rescission: - The aggrieved party may file a suit [i.e. legal case]
against the guilty party for the rescission of contract on the rescission of
the contract, the aggrieved party is discharged from all the obligations
under the contract.
2. Suit for Damages :- The aggrieved party may bring on action for damages
against the party who is guilty of breach of contract. The term ‘damages’
may be defined the monetary compensation payable by defaulting party to
the aggrieved party for the loss suffered by him.
Kinds of Damages
Ordinary Special Damages Nominal Exemplary or

Damages Damages Vindictive Damages
Usual Special or Very small Which are claimed

Course of Unusual in amount with intention of
business Circumstances punishing party in
default
Recoverable Recoverable only To be given Not awarded Cases
Damages = when the at discretion where the court may
Market Price defaulting party of court award exemplary
– Contract knows about the damages:-
Price special  Breach of the

circumstances promise to
marry
 Banker lesser the amt more

the damages
wrongfully
dishonors
customer’s
cheque.
Liquidated Damages and Penalty:- When the parties to the contract at the
time of formation of contract, specfiy a sum which will become payable by
the party resposible for breach, such specfied sum is called:-
 Liquidated Damages:- if specfied sum represent a fair and genuine

pre-estimate of the damages likely to result due to breach
 Penalty:- if specfied sum is diproportionate to the damages likely to

result due to breach.
In India, there is no distinction between penalty and liquidated damages.

The courts in India allow only reasonable compensation not exceeding the
sum specfied in the contract.
But under English law, liquidated damages are enforcable and not penalty.
3. Suit for Quantum Merit: - Expression ‘Quantum Merit’ means as much as

earned. A person can recover compensation in proportion is the work done
by him. The aggrieved party may file a suit for the payment of
remuneration in the proportion to the work done.
4. Suit for Specific Performance : - The term specific performance may be

eg- Old antique defined as carrying out of the respective obligation by both the parties.
items
Sometimes, the damages are not an adequate for breach of contract. The
court may at their discretion, order specific performance of contracts in
the following cases:-
(a) Where actual damage arise from the breach is not measurable
(b) Where monetary compensation is not an adequate remedy.
Cases where suit for specific performance is not maintainable:-
(a) Where the damages are considered as adequate remedy.
(b) Where the contract is of personal nature
(c) Where the contract is made by the company beyond its power laid
down in MOA
(d) Where court cannot supervise the performance of the contract.
(e) Where one of the parties is minor
5. Suit for injunction :- Court can restrain a person from doing something
which he promised not to do. The power of court to grant injunction is
discretionary. It is usually, issued in the cases where the compensation in

the terms of money is not adequate relief.
Case Law:- W agreed to sing at L’s theatre & nowhere else. In between the
contract with L he entered into a contract to sing for Z. Held that, although
he could not be compelled to sing at L’s theatre, yet she could be restrained
by injunction from singing for Z. [Lumley v. Wagner].
Questions:-
Mr. Sonumal a wealthy individual provided a loan of Rs 80,000 to Mr. Datumal on

26.02.2019. The borrower Mr. Datumal asked for a further loan of Rs 1,50,000.
Mr. Sonumal agreed but provided the loan in parts at different dates. He provided
Rs 1,00,000 on 28.02.2019 and remaining Rs 50,000 on 03.03.2019.
On 10.03.2019 Mr. Datumal while paying off part Rs 75,000 to Mr. Sonumal
insisted that the lender should adjusted Rs 50,000 towards the loan taken
on·03.03.2019 and balance as against the loan on 26.02.2019.
Mr. Sonumal objected to this arrangement and asked the borrower to adjust in the
order of date of borrowal of funds.
Now you decide:
(i) Whether the contention of Mr. Datumal correct or otherwise as per the
provisions of the Indian Contract Act, 1872?
(ii) What would be the answer in case the borrower does not insist on such order of
adjustment of repayment?
(iii) What would the mode of adjustment/appropriation of such part payment in case
neither Mr. Sonumal nor Mr. Datumal insist any order of adjustment on their part?
Answer:-
Appropriation of Payments: In case where a debtor owes several debts to the

same creditor and makes payment which is not sufficient to discharge all the
debts, the payment shall be appropriated [i.e. adjusted against the debts] as per
the provisions of Section 59 to 61 of the Indian Contract Act, 1872.
(i) As per the provisions of 59 of the Act, 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.
Therefore, the contention of Mr. Datumal is correct and he can specify the
manner of appropriation of repayment of debt.
(ii) As per the provisions of 60 of the Act, 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, where its recovery is or is
not barred by the law in force for the time being as to the limitation of suits.
Hence in case where Mr. Datumal fails to specify the manner of appropriation
of debt on part repayment, Mr. Sonumal the creditor, can appropriate the
payment as per his choice.
(iii) As per the provisions of 61 of the Act, 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
payments shall be applied in discharge of each proportionately.
Hence in case where neither Mr. Datumal nor Mr. Sonumal specifies the
manner of appropriation of debt on part repayment, the appropriation can be
made in proportion of debts.
~~~~~~~~~~~

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Chapter 1 THE INDIAN CONTRACT ACT, 1872

Unit 1 - Nature & Kinds of Contract

Promise [Section 2 (b)]

A proposal when accepted becomes a ‘Promise’

Agreement [Section 2 (e)]

AGREEMENT = OFFER + ACCEPTANCE

Contract [Section 2 (h)]

An agreement enforceable by law is a ‘Contract’

CONTRACT = AN AGREEMENT + ENFORCABILITY BY LAW

Thus every agreement is not a contract. It is regarded as contract only when it

Illegal Agreement: An agreement forbidden by law is an illegal agreement. It

Example :- Contract to supply drugs or Contract to kill someone

Void Agreement: An agreement not enforceable by law is said to be ‘void’

Contract on basis of creation

 Express Contract: A contract made by words spoken or written

 Implied Contract: An implied contract is one which is made otherwise than

 Tacit contract: A contract inferred by the conduct of a person.

Example :- withdrawal of cash through ATM, sale by fall of hammer at an

Contract on basis of enforceability

 Valid Contract [Section 2 (h)]: A valid contract is that which is enforceable

 Void Contract [Section 2 (j)]: A void contract is a contract which ceases to

Example :- A person dies or property is destroyed or government imposes

 Voidable Contract [Section 2(i)]: “An agreement which is enforceable by law

 Unenforceable contract: It is a contract which is actually valid but cannot

Contract on basis of Execution

 Unilateral contract: Where obligation is pending on the part of one of the

 Bilateral Contract: A Bilateral Contract is a contract in which obligation is

Essential Elements of Contract

1. There must be offer & acceptance: In an agreement there must be an offer by

2. There must be mutual consent of the parties: The parties to an agreement

4. There must be legal obligation: An agreement must be create legal obligation.

Example:- An invitation to a friend for dinner creates a mere social obligation.

5. The agreement must be supported by lawful consideration: The lawful

6. The parties may be competent to contract: It means that parties may be

7. The agreement must not be declared to be void: If some agreements are

8. The agreement must be certain: The meaning of an agreement musst be

Example:- A agreed to sell B his scooter for Rs 5,000/- or Rs 7,000/-. There is

9. The performance must not be impossible: An agreement to do an impossible

Example:- A agreed with B to discover treasure of magic. B agreed to pay Rs

Example:- An oral agreement for sale of immovable property is not

Conclusion: All the aforesaid elements must be present in an agreement in

Difference between Agreement and Contract

Basis of Agreement Contract

Meaning Every promise and every Agreement enforceable by law.

Legal It may not create legal Necessarily creates a legal

Nature All agreement are not All contracts are agreements.

Difference between Void Agreement and Illegal Agreement

Basis of Void Agreement Illegal Agreement

Scope A void agreement is not An illegal agreement is always

necessarily illegal. void.

Nature Not forbidden under law. Are forbidden under law.

Collateral It’s not necessary that Agreements collateral to illegal

Agreement agreements collateral to agreements are always void.

Difference between Void Contract and Voidable Contract

Basis of Void Contract Voidable Contract

Meaning A Contract ceases to be An agreement which is

Enforceability A void contract cannot be It is enforceable only at the

Cause A contract becomes void A contract becomes a voidable

Performance A void contract cannot be If the aggrieved party does