Module 1

Prof.Madhura Tilak

Prof.Madhura Tilak 2

Section 2(h)
“An agreement enforceable by law is a
contract”.
Thus,
Contract = Agreement + Enforceability at
Law

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 Section 2(e)

Promise/(s) Promise/(s)
= Agreement
(in exchange for)

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Section 2(b)
Promise = Proposal/Offer + Acceptance

Proposal?
Section 2(a)
Expression of willingness
With a view to seek the assent of the other
Thus, mere expression of willingness doesn’t
constitute offer/proposal.

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Section 2(b)
Giving of assent to the proposal.
Enforceability by Law
Agreements which are not
enforceable
Illegal/unlawful agreements, e.g.,
to smuggle/to kill
Social Agreements (Balfour vs.
Balfour)
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e.g.
Agreement with or by a minor
Agreement in restraint of trade
Marriage brokerage contract
Wagering/Betting Agreements

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From the point of view of
Enforceability
 Void
 Voidable
 Valid

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 Void Agreement
i.e., void-ab-initio i.e. unenforceable from
the very beginning
Becomes void (Void Contract)
 Voidable
i.e., void + able
i.e., capable of being declared void
(unenforceable) at the option of one of the
parties to the contract but not at the option
of the other.

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Section 10
To be a valid contract, it must satisfy the
following:
1. Offer and Acceptance
2. Consensus-ad-idem (Meeting of minds)
i.e., persons must agree to the same thing
in the same sense and at the same time.
3. Intention to create legal relationship as
against social relationship or
illegal/unlawful relationship.

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4. Free and Genuine Consent, i.e., free from
 coercion
 undue influence
 fraud
 misrepresentation
 mistake

5. Parties competent to contract
6. Lawful consideration and object, i.e.,
something in return and that must be lawful.

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(‘Object’ and ‘Consideration’ usually
overlap. However, there may be difference
at times e.g., object may be to kill
competition and for that purpose in view, a
senior manager of the competitor may be
paid a certain amount to give unrealistically
high quotation.)
Here: Object is to kill competition.
Consideration is :
(i) payment of money
(ii) giving high quotations
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7. Agreement not declared void.
8. Certainty of Meaning: e.g. sale
and purchase of 100 tonnes of oil.
But which oil? Thus, agreement
being uncertain – not valid.
But, if the seller deals only in one
kind of oil and one variety, then it
shall be valid since it is capable of
being made certain.
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9. Possibility of performance:
Impossibility whether known to the
parties or not, renders a contract
invalid.
10. Necessary legal formalities: e.g.
sale-deed of immovable property.

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Void Agreement Illegal Agreement
1. Unenforceable 1. Unenforceable
2. Not Punishable 2. Punishable (fine or
3. Collateral imprisonment or
transactions both)
unaffected. 3. Collateral
transactions are
also void.
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 Specific Offer:
made to a specified person or a group
of persons.
can be accepted only by the person
to whom made.
Thus, if offer is addressed to ‘A’,
‘B’ cannot accept it.
 Case Law: Boulton vs. Jones
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 General Offer:
which is not a specific offer.
made to the world at large.
can be accepted by anyone by
complying with the terms of the
offer.
 Case Law: Carlill vs. Carbolic Smoke
Ball Co.

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 Illustrations of Invitation to Offer:
Prospectus issued by a college.
Prospectus issued by a company.
Invitation of bids in an auction.
Price-catalogues, price lists,
quotations
Display of goods with a price-tag in a
shop window.

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Examples: Dry cleaner’s receipt, courier’s
receipt, shipment receipt, insurance policy,
etc.
 Binding if communicated or attention drawn
to the fact that there are certain special
terms and conditions.
 Not binding if attention is not drawn and the
other party not aware of.

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 Cross Offers
Identical offers cross each other and none of
the parties is aware of the same. Doesn’t
result in a contract unless one of them is
accepted.
 Counter Offer
Instead of accepting an offer, the offeree
makes a counter offer, i.e., accepts the
same subject to certain conditions or
qualification.

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 Communication of Offer
is complete when the offeree has
the knowledge of the same.
 Communication of Acceptance
It has two aspects, viz.,
 As against the proposer

 As against the acceptor

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 Communication is complete as soon as a duly
addressed letter of acceptance is put into
the course of transmission.
 Whether the same reaches the proposer or
not.
As against the acceptor
 Communication is complete only when the
proposer has received the letter and learnt
the contents thereof.

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 Communication of revocation (of
offer or acceptance) is complete:
As against the person who makes it
when it is put into the course of
transmission.
As against the person to whom it is
made, when it comes to his
knowledge.

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 Comparing ‘offer’ to a ‘train of
gunpowder’ and ‘acceptance’ to a
‘lighted match stick’ – How far
correct?
 William Anson’s observation though
valid in the English context doesn’t
hold good in India since in India
acceptance is revocable.

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Capacity to Contract means competence of parties
to enter into a valid contract.
An agreement is valid contract if it is entered into
between the parties who are competent to
contract.
The following parties are incompetent to contract:
1. 1.Minors.
2.Persons of Unsound mind.
3.Persons disqualified by any law to which they
are subject.

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1.1 Who is minor?
A minor is a person who has not completed
eighteen years of age.
In the following two cases, he attains majority
after twenty one years of age.
1. Where a guardian of minor person or property
has been appointed under the Guardians and
Wards Act, 1890
OR
2. Where the superintendence of a minor’s
property is assumed by a court of wards.
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1.2 Fundamental rules governing Minor’s
agreements:
1. To protect minors again their own
inexperience as against the possible designs
of those experienced.
2. To avoid unnecessary hardship to persons
who deal with minors.

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1.3: Legal position of Minors Agreements:
1. An agreement with or by minor is void and
inoperative i.e. void ab initio.
2. He can be promisee or beneficiary.
3. His agreement cannot be ratified by him on
attaining the age of majority.
4. He cannot be asked to compensate or pay
for any benefit received by him under void
agreement.

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5. He can always plead minority.
- Even if by misrepresenting his age, he
induced other party to contract with him. He
cannot be sued either in Contract or in tort
for a fraud.
- If minor is still in possession of property
obtained by his fraud, he will be made to
restore it to its former owner. But he cannot
be made to repay money which he has spent
even if such money is received under a
contract induced by his fraud.

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6. There can be no specific performance of the
agreements entered in to by him as they are
void ab initio.
A contract entered into on his behalf by his
parent/guardian or the manager of the
estate can be specifically enforced by or
against the minor provided the contract is:
- Within the scope of authority of the
parent/guardian/manager and
- For the benefit of the minor.

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7. He cannot enter in to a contract of
partnership. But he may be admitted for the
benefit of an already existing partnership
with the consent of other partners.
8. He cannot be adjudged as insolvent.
9. He is liable for necessaries supplied or
necessary services rendered to him or any
one who is legally bound to support him.

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Even in such cases it is only the property of the
minor which is liable for meeting the liability
arising out of such contracts. He is not
personally liable.
The term Necessaries is not defined in the
Indian Contract Act. The English law defines
u/s 2 of the Sale of Goods Act as goods
suitable to the condition of life of such
infant or other person, and to his actual
requirement at the time of Sale and
Delivery.
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Necessaries include:
1.Necessary of Goods.
2. Services Rendered which include education,
training for a trade, medical advice.
A loan taken by a minor to obtain necessaries
also binds him and is recoverable by the
lender as if he himself had supplied the
necessaries. But minor is not personally
liable. It is only his estate which is liable
for such loans.

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10. He can be an agent.
11. His parents/guardian are/is not liable for
the contract entered in to by him.
12. A minor is liable for a tort (a civil wrong) if
it is not arising out of a contract.

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2.1 Who can be considered as Persons of Sound
mind?
A person is said to be of sound mind for the
purpose of making a contract if, at the time
when he makes it, he is capable of
understanding it and of forming a rational
judgment as to its effects upon his interests.

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2.2 Who can be considered as Persons of
Unsound mind?
There are two categories:
1. A person who is always in the state of
unsound mind e.g. Idiot cannot enter in to
valid contract.
2. A person who is usually of unsound mind
but occasionally of sound mind, may make
a contract when he is of sound mind.

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A person who is usually of sound mind, but
occasionally of unsound mind may not make
a contract when he is of unsound mind.
Lunatics, Drunken or intoxicated persons are
covered under these rules.
2.3 Whether a party to a contract is of sound
mind or not is a question of fact to be
decided by the court. There is a presumption
in favor of sanity.

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2.4 Agreements entered in to by persons of
unsound mind are void.
2.5 The persons of unsound mind are liable for
necessities supplied to them or to any one to
whom they are legally bound to support. But
even in such cases, no personal liability
attaches to them. It is only their estate
which is liable.

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1. Alien enemies: Contracts with alien enemy
may be studied under the two heads:
- Contracts during the war: During continuation
of the war, alien enemy can neither contract
with an Indian subject nor can he sue in an
Indian court. He can do so only after he
receives a license from the central
government.

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Contracts made before the war: may either be
suspended or dissolved. They will be
dissolved if they are against the public policy
or if their performance would benefit the
enemy.
2. Foreign sovereigns, their diplomatic staff
and accredited representatives of foreign
states.
They have some special privileges and
generally cannot be sued unless they of their
own submit to the jurisdiction of our law
courts.
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An Indian citizen has to obtain a prior sanction
of the central government in order to sue
them in our law courts.
3. Corporations: A Corporation is an artificial
person created by law, having a legal
existence apart from its members.
It may come in to existence by a special Act of
legislature or by registration under the
companies’ Act, 1956.

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Corporations cannot enter in to contracts of a
strictly personal nature as it is an artificial
and not a natural person.
4. Insolvents: When a debtor is adjudged
insolvent, his property vests in the official
receiver or official assignee.
As such insolvent is deprived of his power to
deal in that property.

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It is only the official receiver or official assignee
who can enter in to contracts relating to his
property and sue and be sued on his behalf.
5. Convicts: A convict undergoing imprisonment is
incapable of entering in to a contract unless
permitted lawfully.
This incapacity to contract or to sue on contract
comes to an end when the period of sentence
expires or when he is pardoned.
Law of limitation is held in abeyance during the
period of his sentence.
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1. What is Consent?
It means an act of assenting to an offer. Two or
more persons are said to consent when they
agree upon the same thing in the same sense.
2. What is Free Consent?
Consent is said to be free when it is not caused by:
1.Coercion.
2. Undue influence.
3. Fraud.
4. Misrepresentation.
5. Mistake.

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3.3 Effect of Coercion: When the consent to an
agreement is caused by coercion, fraud or
misrepresentation, the agreement is a
contract voidable at the option of the party
whose consent was so obtained.
3.4 Threat to commit suicide amounts to
coercion.

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3. Coercion:
3.1 Meaning: When a person is compelled to enter
in to a contract by use of force by other party or
under a threat, coercion is said to be employed.
3.2 Definition: Coercion is the committing, or
threatening to commit, any act forbidden by the
Indian Penal Code, 1860 or the unlawful
detaining, or threatening to detain, any
property, to the prejudice of any person
whatsoever with the intention of causing any
person to enter in to an agreement.

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4. Undue influence:
4.1: Meaning: A contract is said to be induced by
undue influence where the relations subsisting
between the parties are such that one party is in
a position to exercise undue influence over the
other.
4.2: Definition: A contract is said to be induced by
undue influence where the relations subsisting
between the parties are such that one of the
parties is in position to dominate the will of the
other and uses that position to obtain unfair
advantage over the other.
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A person is deemed to be in a position to
dominate the will of the another:
1. Where he holds a real or apparent authority
over the other.
2. Where he stands in fiduciary relation
( relation of trust and confidence) to the
other.
3. Where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected by reason of age,
illness or mental or bodily distress.
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4.3: Effect of undue influence: When consent
to an agreement is obtained by undue
influence, the agreement is a contract
voidable at the option of the party whose
consent was so obtained.
4.4: Relationship which raise presumption of
undue influence: The following relationships
usually raise a presumption of undue
influence viz.

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1. Parent and Child.
2. Guardian and Ward.
3. Trustee and Beneficiary.
4. Religious advisor and disciple.
5. Doctor and Patient.
6. Solicitor and Client.
7. Fiancé and Fiancée.

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4.5: There is however no presumption of undue
influence in the relationship of
1. Landlord and Tenant.
2. Creditor and Debtor.
3. Husband and Wife.
4.6: Burden of Proof: Burden of Proof that
contract is entered in to by recourse to
undue influence lies on a plaintiff ( Person
aggrieved).

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4.7: For proving undue influence, the plaintiff
has to prove that:
1.The other party was in a position to
dominate his will.
2. The other party actually used influence to
obtain plaintiff’s consent to contract.
3. The transaction is unreasonable.

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4.8: The presumption of undue influence can
be rebutted by showing that:
1.Full disclosure of facts was made.
2.The price was adequate.
3. That the party was in receipt of
independent advice.
4.9: A contract with a pardanashin woman is
presumed to have been induced by undue
influence.

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5. Misrepresentation and Fraud:
5.1: What is representation?
A statement of fact which one party makes in the
course negotiations with a view to inducing other
party to enter in to a contract is known as
representation.
It must relate to some fact which is material to the
contract.
It must be expressed by words spoken or written or
implied from the acts and conduct of the parties.

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5.2: What is misrepresentation?
A representation, which wrongly made,
innocently, is misrepresentation.
5.3: What is Fraud?
A representation, which wrongly made,
intentionally, is fraud.
5.4: Requirements of misrepresentation: The
followings are the requirements of
misrepresentation.

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1. It must be a representation of a material
fact.
2. It must be made before the conclusion of
the contract with a view to inducing the
other party to enter in to the contract.
3. It must be made with the intention that it
should be acted upon by the person to
whom it is addressed.
4. It must have been acted upon and must
have induced the contract.
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5. It must be wrong but the person who made
it believed it to be true.
6. It must be made without intention to
deceive the party.
7. It need not be made directly to the
plaintiff.

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5.5: Consequences of misrepresentation:
The aggrieved party, in the case of
misrepresentation by the other party can:
1.avoid or rescind the contract.
2. accept the contract but insist that he shall
be placed in the same position which he
would have been if the representation
made had been true.

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5.6: Fraud: Fraud exists when it is known that:
1.a false representation has been made
- Knowingly or
- Without belief in its truth or
-recklessly,
not caring whether it is true or false, and the
maker induced the other party to act upon
it.

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2. There is concealment of a material fact or
there is a partial statement of fact in such a
manner withholding of what is not stated
makes that which is stated false.
The intention of the party making fraudulent
representation must be to deceive the other
party to the contract or to induce him to
enter in to contract.

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5.7 Essential Elements of Fraud:
1.There must be a representation or assertion
and it must be false.
2. The representation must relate to a
material fact which exists now or existed in
the past.
3. The representation must have been made
before the conclusion of the contract with
the intention of inducing the other party to
act upon it.
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4. The representation of a statement must have
been made with a knowledge of its falsity or
without belief in its truth or recklessly not caring
whether it is true or false.
5. The other party must have been induced to act
upon representation or assertion.
6. The other party must have relied upon the
representation and must have been deceived.
7. The other party, acting on the representation or
assertion must have subsequently suffered some
loss.
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5.8: Consequences of fraud: A contract
induced by the fraud is voidable at the
option of the party defrauded. The party
defrauded has following remedies:
1. He can rescind the contract. He must act
within reasonable time. If in the interval
period, an innocent third party has acquired
interest in the property for value, he cannot
rescind the contract.

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2. He can insist on performance of the
contract on the condition that he shall be
put in the position in which he would have
been if the representation made had been
true.
3. He can sue for demages.

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5.9: Loss of right of recession of contract in case of
either misrepresentation or fraud:
The aggrieved party loses right to rescind or avoid
the contract in the following cases:
1. If he, after becoming aware of the
misrepresentation or fraud, takes a benefit
under a contract or in some other way affirms
it.
2. If restoration to the original position of the
parties is not possible, e.g. the subject matter
of the contract has been consumed or
destroyed.
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3. If a third party has acquired rights in the
subject matter of the contract in good faith
and for value.
5.10: Exceptions to the rule that contracts
caused by misrepresentation or fraud are
voidable at the option of aggrieved party:
In the following cases contracts caused by
misrepresentation or fraud are not voidable
at the option of the aggrieved party.

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1. When the consent of the party to a contract was
caused by misrepresentation or fraud and that
other party could discover the truth by
ordinary diligence.
2. Where a party enters in to a contract in
ignorance of misrepresentation or fraud.
3. Where a party to a contract, whose consent was
caused by misrepresentation or fraud, cannot
be put in the position in which he would have
been if the representation made had been
true.
4. Where before the contract is avoided, the
interest of third party intervene.
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5.11: Effects of Silence as to facts:
The general rule is that a person before
entering in to a contract need not disclose
other party material facts which he knows,
but he must refrain from making active
concealment.
This means mere silence is not fraud.
There are certain exceptions to the above
rule:

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1. Where the circumstances of the case are
such that, regard being had to them, it is
the duty of the person keeping silence to
speak.
2. If the seller fails to inform buyer as to
latent defect.
3. If the trustee does not make disclosure of
facts to the beneficiary.

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5.13 Distinction between fraud and
misrepresentation:
The distinction can be discussed under
following heads:
1. Intention.
2. Belief.
3. Recession and damages.
4. Discovery of truth.

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1.1: Meaning : Mistake may be defined as
erroneous belief about something.
1.2: Types of Mistakes:
- A mistake of law.
-A mistake of fact.
-Mistake of law is categorized as follows:-
1. Mistake of law of the country:
Rule: Ignorance of law is no excuse.
2. Mistake of law of the foreign country:
Treated as mistake of fact and the agreement in
such case is void.

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- Mistake of fact is categorized as follows:
1. A Bilateral Mistake
2. A Unilateral Mistake
1.3: Bilateral Mistakes: Where both parties to
an agreement are not under an agreement as
to matter of fact essential to the agreement,
there is a bilateral mistake. In such a case,
the agreement is void.


The followings are conditions of bilateral
mistakes:
1. The mistake must be mutual.
2. The mistake must relate to a matter of fact
essential to the agreement.
1.4: The various cases of Bilateral Mistakes:
1. Mistake as to the subject-matter: covers
following cases.


(i) Mistake as to the existence of the subject
matter.
(ii) Mistake as to the identity of the subject
matter.
(iii) Mistake as to the quality of the subject
matter.
(iv) Mistake as to the quantity of the subject
matter.
(v) Mistake as to the title of the subject
matter.
(vi) Mistake as to the price of the subject
matter.

2. Mistake as to the possibility of performing
the contract:
Impossibility may be:
(i). Physical impossibility.
(ii). Legal impossibility.


1.4: Unilateral Mistakes: When in a contract,
only one of the parties is mistaken regarding
the subject matter or in expressing or
understanding the terms of the legal effect
of the agreement, the mistake is a unilateral
mistake.
An unilateral mistake is not allowed as defense
in avoiding contract unless the mistake is
brought about by other party’s fraud or
misrepresentation.


There are exceptions to this rule. In the
following cases, even though there is a
unilateral mistake, the agreement is void.
1. Mistake as to the identity of the person
contracted with.
This holds good only when the identity of the
contracting party is important.
2. Mistake as to the nature of contract.


1.1: When performance of a contract takes
place?
Performance of a contract takes place when
parties to the contract fulfill their
obligations arising under the contract within
the time and in the manner prescribed.
The parties to a contract must either perform
or offer to perform their respective
promises.


1.2: What is an offer to perform?:
Attempted performance or tender is an offer of
performance by the promisor in accordance with
the terms of the contract.
If the promisee does not accept performance, the
promisor is not responsible for non-performance,
nor does he thereby lose his rights under the
contract.
Thus, a tender is equivalent to actual
performance.

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1.3: Requisites of a Valid tender:
1. It must be unconditional.
2. It must be the whole quantity contracted for or
of the whole obligation.
3. It must be by a person who is in a position, and
is willing to perform the promise.
4. It must be made at proper time and place and
in the manner specified, and where these are
not specified, it must be made in a reasonable
manner.


5. It must be made to proper person, that is, the
promisee or his duly authorized agent. It must
also be in proper form.
6. It may be made to one of the several joint
promisees. In such a case, it has the same effect
as a tender to all of them.
7. In case of tender of goods, it must give
reasonable opportunity to the promisee for
inspection of the goods.
8. In case of tender of money, the debtor must
make a valid tender in the legal tender money.


1.4: Reciprocal promises:
Promises which form the consideration or the
part of consideration for each other are
called reciprocal promises.
Reciprocal promises are classified as follows:
1. Mutual and independent.
2. Conditional and dependent.
3. Mutual and concurrent.


1.5: Rules regarding performance of reciprocal
promises:
1. When reciprocal promises have to be
simultaneously performed, the promisor is not
bound to perform, unless the promisee is ready
and willing to perform his promise.
2. The reciprocal promises must be performed in
the order fixed by the contract.
3. When a contract contains reciprocal promises
and if one party to the contract prevents the
other party to the contract from performing his
promise, then the contract becomes voidable
at the option of the party so prevented.


Further he is entitled to compensation from
the other party for any loss he may sustain in
consequence of the non-performance of the
contract.
4.Where the nature of reciprocal promises is
such that one cannot be performed unless
the other party performs his promise in the
first place, then if the later fails to perform
he cannot claim performance from the other,
but must make compensation to the first
party for his loss.


1.6: By whom must contract be performed?:
1. By promisor himself.
2. By agent.
3. By legal representatives – in case of death
of the promisor.
4. By joint promisors- When two or more
persons have made joint promise, then
unless contrary intention appears from the
contract, all such persons must jointly
fulfill the promise.


If any one of them dies, his legal
representative must, jointly with surviving
promisors, fulfill the promise. If all the
promisors die, the legal representatives of all
of them must fulfill the promise jointly.
1.7: Who can demand performance?
It is only the promisee, and in case of his
death, his legal representatives, who can
demand performance.


When a person has made a promise to several
persons, then, unless a contrary intention
appears from the contract, the right to claim
performance rests with all of them. When
one of the promisee dies, it rests with his
legal representatives jointly with the
surviving promisees. When all the promisees
die, it rests with legal representatives
jointly.


 1.8: Time and place of performance:
 Time and place of performance of a contract
are matters to be determined by the
agreement between the parties themselves.
 Where no time for performance is specified,
the promisor must perform the promise
within a reasonable time.
 If no time and place is fixed for the
performance of the promise, the promisor
must fix the day and time for performance.


1.When time is of the essence:
 Eg.In a contract for purchase of tyres for the
car manufacturer to be supplies within two
months, time was held to be the essence of
contract .
2.When time is not of the essence:
 Eg.In a contract of sale of immovable
property time is not of the essence unless it
is shown that the intention of parties was
that time should be the essence of contract.


1.9: Time as the essence of contract:
Time for the performance of a contract may be
fixed in the contract itself. In that case the
contract must be performed within that time
when the time is the essence of the contract.
The general rule is that in commercial contracts
time is of the essence of contract.
In other contracts stipulations as to time are, in
the absence of express or implied evidence to
the contrary, presumed not to be the essence of
the contract.


Time may be made the essence of a contract
by a subsequent notice.
Any subsequent notice making time as the
essence of the contract ought to fix a
reasonably long time requiring other party
to perform his contract.
1.10:91


 When a debtor owes several distinct debts to
a creditor and makes a payment insufficient
to satisfy the whole indebtedness,a uestion
arises: To which debt should the patment be
appropriated? Sec 59 to 61 lays down
following 3 rules in this regards:
 1.Where the debtor intimates:(sec 59)
 If debtor expressly intimate the time of
actual payment that the payment should be
applied towards discharge of particular debt,
the creditor must do so.


 2.Where the debtor does not intimate and
circumstances are not indicative(sec 60),the
creditor may apply it at his discretion to any
lawful debt actually due and payable to him
from the debtor.

 3.Where the debtor does not intimate and
creditor fails to appropriate,(sec 61)the
payment shall be applied in discharge of
debts in chronological order,ie in order of
time.(Rule of clayton’s law)


Appropriation of payments:(to conclude)
The debtor has, at the time of payment, right of
choice of appropriating the payment.
In default of the debtor, the creditor has right to
appropriate.
In default of either, the law will allow
appropriation of debts in order of time.
Rule in Clayton’s Case:
Where the parties have a current account between
them, appropriation impliedly takes place in the
order in which the receipts and payments take
place and are entered in the account. The first
item on the debit side of the account is
discharged or reduced by the first item on the

Whether a part payment should be treated
towards principle or interest?
On this question, the general principle, subject
to any contract to the contrary, is that
payment should first be applied to interest
and after the interest is fully paid off, to the
principal.
95


1.11: Assignment of Contracts:
To “Assign” means to” transfer”.
Assignment of a contract means transfer of
contractual rights and liabilities under the
contract to a third party with or without
the concurrence of the other party to the
contract.
It may take place by:
1. Act of the parties: This is subject to the
following rules:
96


1. Contracts involving personal skill or ability or
personal qualifications cannot be assigned.
2. A promisor cannot assign his liabilities or
obligations under a contract.
3. The rights and benefits under a contract may be
assigned if the obligation under the contract is
not of a personal nature.
4. An actionable claim can always be assigned but
the assignment to be complete and effectual
must be effected by instrument in writing.
Notice of such assignment must also be given
to the debtor. 97


2. Operation of law:
This takes place in the case of death or insolvency
of a party to the contract.
(a)Death
(b)Insolvency
Upon death of a party to a contract, his rights and
liabilities under a contract except in the case of
contracts requiring personal skill or services
devolve upon his heirs and legal representatives.
In the case of insolvency of a person, his rights and
liabilities incurred previous to adjudication pass
to the Official Receiver or Assignee, as the case
may be. Prof.Madhura Tilak 98

1.12: Effect of refusal of a party to perform
promise wholly:
1. When party to a contract refuses to
perform, or disables himself from
performing his promise entirely, the
promisee may put an end to the contract.
But if the promisee has signified by words
or conduct, his tacit assent in the
continuation of the contract, he cannot
repudiate it. 99


2. When promisee puts an end to a contract,
being rightly entitled to do so, it shall be
deemed as if he has rescinded a voidable
contract and shall be bound to restore to the
other party all benefits that he may have
received under the contract.

100


1.13: Contracts which need not be performed:
A contract need not be performed:
1.When its performance becomes impossible.
2. When the parties to it agree to substitute a
new contract for it or to rescind or alter it.
3. When the promisee dispenses with or
remits, wholly or in part, the performance
of the promise made to him or extends the
time for such performance or accepts any
satisfaction for it.


4. When the person at whose option it is
voidable rescinds it.
5. When the promisee neglects or refuses to
afford promisor reasonable facilities for the
performance of his promise.
6. When it is illegal.


1.1: Meaning: Discharge of contract means
termination of the contractual relationship
between the parties.
A contract is said to be discharged when it
ceases to operate, i.e. when rights and
obligations created by it comes to an end.


1.2: A contract may be discharged-
1. By performance.
2. By agreement or consent.
3. By impossibility.
4. By lapse of time.
5. By operation of law.
6. By Breach of contract.

104


1. Performance:
- Actual performance.
- Attempted performance,
Implied consent may by any of these forms.


2. By agreement or consent:
- By express consent.
- By implied consent:
- A.Novation
- B.Rescission
- C.Alteration
- D.Remission
- E.Waiver
- F.Merger


 1. Discharge by Performance:
 Performance means doing of that which is
required by contract.
 Discharge by performance takes place when
parties to contract fulfill their obligations
arising under the contract within time and
manner prescribed. In such case parties are
discharged and contract comes to an end.


 It may be:
 1.Actual performance:When both parties
perform their promises the contract is
discharged.Performance should be
complete,precise and according to the terms
of agreement.


 2.Attempted performance and Tender:
 Tender is not actual performance but is an
only an offer to perform the obligation under
the contract.Where the promisor offers to
perform his obligation but promisee refuses
to accept the performance, tender is
equivalent to actual performance.


(a). Novation: Novation takes place when:
- A new contract is substituted for an existing
one between the same parties. or
- A contract between two parties is rescinded
in consideration of a new contract being
entered in to on the same terms between
one of the parties and a third party.
Novation should take place before expiry of
time of the performance of the original
contract. 110


(b). Recession: Recession of a contract takes
place when all or some of the terms of the
contract are cancelled. It may occur by-
(i). By mutual consent of the parties or
(ii). When one party fails in the performance
of his obligation. In such a case other party
may rescind the contract without prejudice
to his right to claim compensation for the
breach of contract.
111


Mode of communicating or revoking recession:
Same rules as apply to the communication of
revocation of a proposal.
Any benefit accruing to a party where contract
is rescinded at his option should be refunded
by such party.


(c). Alteration: Alteration of a contract may
take place when one or more of the terms of
the contract is/are altered by the mutual
consent of parties to the contract. In such a
case, old contract is changed.
(d). Remission: Remission means acceptance
of a lesser fulfillment of promise made e.g.
acceptance of a lesser sum than what is
contracted for in discharge of the whole of
the debt.
113


(e). Waiver: Waiver takes place when parties
to a contract agree that they shall not be
bound by the contract. This amounts mutual
abandonment of the rights by the parties to
the contract. Consideration is not necessary
for waiver.
(f). Merger: Merger takes place when an
inferior right accruing to a party under a
contract merges into superior right accruing
to the party under the same or some other
contract.


3. Discharge by impossibility of performance:
If an agreement contains an undertaking to
perform an impossibility, it is void ab initio.
This rule is based on following legal principles:
1.The law does not recognize what is
impossible.
2. What is impossible does not create an
obligation.
Impossibility of performance may fall into
either of the following categories.


1. Impossibility existing at the time of
agreement:
This is known as pre-contractual or initial
impossibility.
This can be further classified in to:
i. Known to parties.
This is also known as absolute impossibility. In
the case of absolute impossibility, the
agreement is void ab initio.


ii. Unknown to parties.
If at the time of making the contract, both the
parties are ignorant of the impossibility, the
contract is void on the ground of mutual
mistake. If, however, the promisor alone
knows of the impossibility of performance at
the time of making contract, he shall have to
compensate the promisee for any loss which
such promisee sustains through non-
performance of the promise. 117


2. Impossibility arising subsequent to the formation
of the contract: Impossibility which arises
subsequent to the formation of the contract is
called post-contractual or supervening
impossibility. In such a case, the contract
becomes void when the act becomes impossible
or unlawful.
This impossibility is caused by the circumstances
beyond the control of the parties, the parties are
discharged from further performance of the
obligation under the contract.
A Contract is discharged by supervening
impossibility in the following cases:
118


1. Destruction of a subject-matter of
contract.
2. Non-existence or non-occurrence of a
particular state of thing.
3. Death or incapacity for personal service.
4. Change of law or stepping in of a person
with statutory authority.
5. Outbreak of war.


3.1: Impossibility of performance- not an excuse:
‘Impossibility of performance is, as a rule, not an
excuse for non-performance’.
Ordinarily when a person undertakes to do
something, he must do it unless performance
becomes absolutely impossible due to any of the
circumstances already discussed.
In the following cases, a contract is not discharged
on the ground of supervening impossibility.


1. Difficulty of performance.
2. Commercial impossibility.
3. Impossibility due to failure of a third
person.
4. Strikes, lock-outs and civil disturbances.
5. Failure of one of the objects.


3.2: Effects of supervening impossibility:
1. When the performance of a contract becomes
impossible or unlawful subsequent to the
formation, the contract becomes void.
2. Where one person has promised to do
something which he knew or, with reasonable
diligence, might have known, and the promisee
did not know to be impossible or unlawful, the
promisor must make compensation to the
promisee for any loss which the promisee
sustains through the non-performance of the
promise.


3.Where agreement is discovered to be void,
or when a contract becomes void, any person
who has received any advantage under such
agreement or contract is bound to restore it,
or to make compensation to the person from
whom he received it.
In England the doctrine of frustration is the
parallel concept of supervening
impossibility.


4. Discharge by lapse of time: The Limitation
Act, 1963 lays down that a contract should
be performed within a specified period,
called period of limitation. If it is not
performed, and if no action is taken by the
promisee within the period of limitation, he
is deprived of his remedy at law. In other
words, we may say that the contract is
terminated.


5. Discharge by operation of law: A contract may
be discharged independently of the wishes of the
parties i.e. operation of law. This includes
discharge:
(a). By death.
(b). By merger.
(c). By insolvency.
(d). By unauthorized alteration of the terms of a
written agreement.
(e). By rights and liabilities becoming vested in the
same person.


6. Discharge by breach of Contract:
Breach of contract means breaking of the
obligation which a contract imposes. It
occurs when a party to a contract without
lawful excuse does not fulfill his contractual
obligation or by his own act makes it
impossible that he should perform his
obligation under it. It confers right of action
or demages on the injured party.


Breach of contract may be-
1. Actual breach of contract.
2. Anticipatory or constructive breach of
contract.
6.1 Actual Breach of contract:
It may take place:
1. At the time when performance is due.
2. During the performance of the contract.


This refusal to perform may be by-
(a). Express repudiation (by word or act).
(b). Implied repudiation ( impossibility created
by the act of a party to the contract).
6.2: Anticipatory breach of contract: It occurs
when a party to an executory contract
declares his intention of not performing
contract before the performance is due. He
may do so:


1. By expressly renouncing his obligation
under the contract.
2. By doing some act so that the performance
of his promise becomes impossible.
6.3: Rights of the promisee (the party not in
breach or the aggrieved party) in the case
of anticipatory breach are as follows:
1. He can treat contract as discharged so that
he is absolved of the performance of his
part of the promise.


2. He can immediately take a legal action for
breach of contract or wait till such time the
act was to be done.
6.4: Anticipatory breach does not necessarily
discharge the contract unless the promisee
(the aggrieved party) so chooses.
If the promisee refuses to accept the
repudiation of the contract by the promisor
and treats the contract as alive, the
consequences are as follows:


1. The promisor may perform his promise
when the time for its performance comes
and the promisee will be bound to accept
the performance.
2. If, while the contract is alive, an event
( say, a supervening impossibility) happens
which discharges the contract legally, the
promisor may take advantage of such
discharge. In such a case, the promisee
loses his right to sue for demages.


6.5: Measure of demages in anticipatory breach of
contract:
If the contract is ended by the promisee at once,
he can sue the promisor for demages. The
amount of demages will be measured by the
difference between price prevailing on the date
of breach and the contract price.
If the contract is kept alive till the date of
performance of the contract, the measure of
demages will be difference between the price
prevailing on the date of the performance and
the contract price.


A remedy is the means given by law for the
enforcement of a right.
A contract gives rise to correlative rights and
obligations.
A right accruing to a party under a contract
would be of no value if there was no remedy
to enforce that right in a Law Court in the
event of its infringement or breach of
contract.


When a contract is broken, the injured party
(i.e. party who is not in breach) has one or
more of the following remedies:
1. Recession: When there is breach of
contract by a party, the injured party may
sue to treat the contract as rescinded. He
is also absolved of all his obligations under
the contract.
The Court may grant recession in certain
situations. The Court may also refuse to
rescind the contract in certain situations.


2. Demages: Demages are monetary
compensation awarded to the injured party
by court for the loss or injury suffered by
him.
The foundation of modern law of demages,
both in India and England, is to be found in
the judgment in the case of Hadley v
Baxendale.
Section 73 of the Indian Contract Act which
deals with ‘Compensation for loss or damage
caused by breach of contract is based on the
judgment in the case of Hadley v Baxendale.


Demages u/s 73 may be of four types:
1. Ordinary demages: These are demages
which actually arise in the usual course of
things from the breach of a contract.
In a contract for sale of goods, the measure of
demages on the breach of contract is the
difference between the contract price and
the market price of such goods on the date
of the breach.


Under Section 73, Compensation is not to be
given for any remote or indirect loss or
damage.
Further Section 73 does not give any cause of
action unless and until damage is actually
suffered.
If any promisee neglects or refuses to afford
the promisor reasonable facilities for the
performance of his promise, the promisor is
excused by such neglect or refusal as to any
non-performance caused thereby.


2. Special damages: Damages which may
reasonably be supposed to have been in
contemplation of both the parties at the
time when they made the contract as the
probable result of the breach of it, are
known as special damages and may be
recovered.
These can be claimed only if the special
circumstances which would result in special
loss in the case of breach of a contract, are
brought to the notice of the other party.


3. Vindictive or exemplary damages: These
damages are allowed in case of the breach of
a contract to marry or dishonour of a cheque
by a banker wrongfully.
4. Nominal damages: where the party has not
suffered any loss by reason of the breach of a
contract, the court may award a very
nominal sum as damages.
Damage u/s 74 may be of following type:


5. Liquidated damages and penalty:
Liquidated damages represent a sum, fixed or
ascertained by the parties in the contract,
which is fair and genuine pre-estimate of the
probable loss that might ensue as a result of
the breach. A penalty is a sum named in the
contract at the time of formation, which is
disproportionate to damage likely to accrue
as a result of the breach. The Courts in India
allow only reasonable compensation.


3. Quantum meruit: A right to sue on a
quantum meruit (as much as earned) arises
where a contract, partly performed by one
party, has become discharged by the breach
of the contract by the other party. This right
is funded on an implied promise by the other
party arising from the acceptance of a
benefit by that party.


4. Specific performance: In certain cases the court
may direct the party in breach a contract to
actually carry out the promise, exactly according
to the terms of the contract. This is called
specific performance of the contract.
5. Injunction: Where a party is in breach of a
negative term of a contract ( where he is doing
something which he promised not to do), the
Court may, by issuing an order, restrain him from
doing what he promised not to do. Such an order
of the Court is known as injuction.


1. Meaning: Consideration means something
in return. It is the price for which the
promise of the other is bought. It must
result in a benefit to the promisor and/or a
detriment to the promisee or both.
2. Definition: When at the desire of the
promisor, the promisee or any other person
has done or abstained from doing, or does
or abstains from doing something, such an
act or abstinence or promise is called a
consideration for the promise.


3.Legal rules as to consideration:
1.It is essential to support every contract.
2.It must move at the desire of the promisor.
3.It may move from promisee or any other person.
4.It may be past, present or future.
5.It need not be adequate.
6.It must be real and not illusory.
7.It must not be something which the promisor is
already legally or contractually bound to do.
8. It must not be illegal, immoral or opposed to
public policy.


4. Stranger to a Contract:
The general rule is that a stranger to a contract cannot sue.
Exceptions to this rule are as follows:
But he may sue where –
1. A trust or charge is created in some specific immovable
property in favor of him.
2. A provision is made in a marriage settlement, partition
or family arrangement for his benefit.
3. There is an acknowledgement of a liability by the
promisor or promisor constitutes himself as agent.
4. He is assignee of rights and benefits under a contract
not involving personal skill.


5. He enters into a contract through an agent.
6. There are covenants running with the land.
5. An agreement without consideration is
void:
The followings are the exceptions to this rule
i.e. no consideration is required in case of
1. A written and registered document based
on natural love and affection between
parties standing in a near relation to each
other.


2. A promise to compensate, wholly or in part,
a person who has already voluntarily done
something for the promisor.
3. A promise by a debtor to pay a time barred
debt if it is made in writing and is signed by
the debtor or by his agent.
4. An agency.
5. A completed gift.


1. An agreement is a contract if it is made for
a lawful consideration and with a lawful
object.
Every agreement of which object or
consideration is unlawful is void.
2. When consideration or object is unlawful:
The consideration or object of an agreement is
unlawful:
1. If it is forbidden by law.
2. If it is of such a nature that, if permitted,
it would defeat the provisions of any law.


3. If it is fraudulent.
4. If it involves or implies injury to the person
or property of another.
5. If the court regards it as immoral.
6. When the court regards it as opposed to
public policy.


1.A Contract may be:
(i). An absolute contract or
(ii). A Contingent contract.
An absolute contract is one in which the
promisor binds himself to performance in any
event without any conditions.
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.


2. Characteristics of contingent contract:
1. Its performance depends upon the
happening or non-happening in future of
some event.
2. The event must be uncertain.
3. The uncertain future event must be
collateral to the contract.


3. Rules regarding contingent contracts:
1. If a contingent contract is to be performed, if
an uncertain future event happens, it cannot
be enforced until the event has happened.
If it is to be performed if a particular event
does not happen, its performance can be
enforced if the event becomes impossible.
2. If a contingent contract depends for its
performance on doing of an act by the
promisor, the contract becomes void where the
promisor makes the performance impossible.


3. If a contingent contract contemplates doing
of a thing if a specified event happens within
a fixed time, it becomes void if the event
does not happen within that time.
4. If a contingent contract contemplates to do
anything if an impossible event happens, it is
void.
There is a difference between a wagering
agreement and a contingent contract.


1. Meaning: In certain cases the law imposes
an obligation and allows an action to be
bought on it as if it arose out of an
agreement, though none was present in
fact.
Such cases, strictly speaking are not
contracts, but the law recognizes them as
‘certain relations resembling those created
by contracts’. In English law, such relations
are called ‘Quasi-Contracts’.


2. Principle on the basis of which law considers
certain relations resembling those created
by contracts as Quasi-contracts :
Quasi contracts rest on the ground of equity
that a person shall not be allowed to enrich
himself unjustly at the expense of the
other.
3. Kinds of Quasi-Contracts:
1. Supply of necessaries.
2. Payment by an interested person.


3. Obligation to pay for non-gratuitous acts.
4. Responsibility of Finder of the goods.
5. Liability of person to whom money is paid or
thing delivered by mistake or coercion.
4. Quantum meruit: means as much as earned.
This requires person to claim compensation
from another person in respect of work done
by him till such time contract was
discharged.


The claim for quantum meruit arises only when
the original contract is discharged. If the
original contract exists, the party not in
default cannot have quantum meruit
remedy, he has to take resort to remedy in
damages.
It is a claim on the quasi-contractual obligation
which the law implies in the circumstances.


5. Compensation for failure to discharge
obligation created by quasi-contracts:
When an obligation created by a quasi-contract
is not discharged, the injured party is
entitled to receive the compensation from
the party in default, as if the person had
contracted to discharge it and had broken his
contract.


Q:1.Explain the following:
(Marks)
1. Void and Voidable Agreement. (5)
2. Agreement without consideration (5)
3. Quasi Contract (5)
Q:2
(a). Explain the term consideration. A stranger
to consideration can sue upon the contract.
Explain the statement in brief. (5)


(b). When we can say that consent is not free?

(5)
(c). Explain the term ‘Offer’ and “invitation to
offer” & Distinguish them. (5)
Q.3. Explain the types of contract and
essentials of Valid contracts. (10)
Q.4. Distinguish the following:
(a). Liquidated Damages and Penalty (5)


Q.5.
(a). Explain the term consideration. ‘A
stranger to consideration can sue upon the
contract’. Explain the statement in brief.
(5)
Q.6. Explain the following:
(a). A contract of marine insurance is a
contingent contract.
(5)
Q.7. What is meant by frustration of contract?
Enumerate the situations where a contract
can get frustrated?
(5)

Q.8. Answer the following, giving reasons for
your answer.
1. A lends his car to B to be driven by B only. B
allows his daughter C, who is an expert car
driver to drive it. C drives the car carefully
but its axle suddenly breaks and the car is
damaged. Is B liable to A for the damage?
(5)


Q.9. Explain the following;
(a). Void Agreement.
(4)
Q.10. Define agreement and discuss the types
of agreements.
(10)
Q.11. Explain the rules regarding offer under
the Indian Contracts Act, 1872.
(10)
Q.12.
(a). Who can enter in to a contract?
Discuss. Prof.Madhura Tilak 164

(b). What do you know about free consent and
when the consent is not free? Explain. (10)
Q.13.
(a). X sold his business including goodwill to Y
for Rs.5,00,000/- by an agreement. The
agreement provided that X should not engage
himself in the similar business in the whole
of India for next 10 years. X started the same
business in the same city after one month.
State the legal position.
(10)


Q.14. X of Delhi agreed to sell 100 bales of
cotton @ Rs.1,000 per bale and to deliver
within a fortnight at buyer’s godown at
Lahore. X failed to supply these goods, State
the legal position in the following cases:
(a). If unknown to both the parties, the goods
were destroyed by fire at the time of
agreement.
(b). If X knew that goods were destroyed by
fire at the time of agreement.


(c). If goods were destroyed by fire after the
formation of agreement.
(d). If war was declared between India and
Pakistan.
(e). If goods were to be manufactured by Z who
did not manufacture those goods.
(f). If goods could not be delivered because of
strike of transport operators.
(20)
Q.15. Write short note on:
(a). Consideration.
(4)

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