The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

What is Contract?
According to Section 2 (h) of the Indian Contact Act, 1872, A contract is an agreement enforceable by
law.
A contract therefore, is an agreement the objective of which is to create a legal obligation i.e., a duty
enforceable by law
From the above definition, we find that a contract essentially consists of two elements:
(1) An agreement and
(2) Legal obligation i.e., a duty enforceable by law
As per section 2 (e)
Every promise and every set of promises, forming the consideration for each other, is an agreement."
Thus it is clear from this definition that a 'promise' is an agreement.
Section 2 (b) states that When the person to whom the proposal is made signifies his assent (acceptance)
thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise."
An agreement, therefore, comes into existence only when one party makes a proposal or offer to the other
party and that other party signifies his assent (i.e., gives his acceptance) to it.
In short, an agreement is the sum total of 'offer' and 'acceptance'.
Example 1: A promises B to sell his horse for Rs. 10,000/-.
The Law of Contract deals with such promises which create legal obligations.
Example 2: A promises B to attend the dinner and fails to attend then B cannot sue A for the price of nonconsumed food.
Promises which do not give rise to legal obligations are not contracts.

Discuss Essentials of a Valid Contract

According to Section 10, All agreements are contracts if they are made by free consent of parties, competent
to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared to be
void.
The essential elements of a valid contract are:

At least two person: There must be two or more persons to make an agreement because one
person cannot enter into an agreement with himself.

Offer and acceptance: The first step towards creating a contract is that one person shall signify
or make proposal or offer to the other, with a view to obtaining the acceptance of that another person to
whom the offer is made. A proposal when accepted becomes a promise.

Intention to create legal relationship: When the two parties enter into an agreement, there must
be an intention by both parties to legally bind the other as a result of such agreement. Thus, agreements
of social or household nature are not contracts.

Lawful object & Consideration: Consideration is the most important element of contract.
Consideration has been defined as the price paid by one party for the promise of the other. Consideration
means something in return (quid pro quo).
A promise is often made in return for a promise, e.g. a buyer realizes the goods for the price. Therefore
price for goods is consideration. The promise for a promise in return is Consideration.
An agreement is a contract only if it is made for a lawful consideration and with a lawful object. The
consideration or object of an agreement is unlawful ifMBA Semester-I / Business Legislation

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

1. it is forbidden by law; or
2. is of such a nature that, if permitted it would defeat the provisions of any law; or
3. is fraudulent; or
4. involves or implies injury to the person or property of another; or
5. is immoral; or is opposed to public policy.
Every agreement of which the object or consideration is unlawful is void. (Section 23)

Capacity of parties (competence): The parties to the agreement must be capable of entering into
a valid contract. According to Section 11, every person is competent to contract if he or she,
1. is of the age of majority;
2. is of sound mind; and
3. is not disqualified from contracting by any law.

Free consent: To constitute a valid contract the parties must give their free consent. 'Consent'
means that the parties must have agreed upon the same thing in the same sense (sec. 13).
Mere consent is not enough. It should not be obtained by
1.
Misrepresentation,
2.
Fraud,
3.
Coercion,
4.
Undue influence or
5.
Mistake.
If the agreement is vitiated by any of the first four factors, the contract would be voidable and cannot be
enforced by the party guilty of nay of the factors. The other party (i.e., the aggrieved party) can either
reject the contract or accept it.
If the agreement is made by mutual mistake which is part of the agreement, it would be void (sec. 20)

Writing and registration: A contract may be oral or in writing. If, however, the law requires for
a particular contract, it should comply with all the legal formalities as to writing, registration and
attestation.

Certainty: Section 29 of the contract Act provides that "Agreements, the meaning of which is not
certain or capable of being made certain, are void." The terms of contract should be clear. A contract can
be avoided by showing that there is uncertainty. In such a case there is nothing which either party can
enforce. Illustration. A, agrees to sell B "a hundred ton of oil" there is nothing whatever to show what
kind of oil was intended. The agreement is void because of uncertainty.

Possibility of performance: Contracts based on impossibility of performance are not valid.

Section 56 lays down that "An agreement to do an act impossible in itself is void". If the act is impossible
in itself, physically or legally, the agreement cannot be enforced at law.
Example: A agrees with B, to discover treasure by magic. The agreement is not enforceable.

Not expressly declared void: The agreement must not have been expressly declared to be void
under the Act.
Example, an agreement in restraint of marriage, an agreement in restraint of trade, and an agreement by
way of wager have been expressly declared void under sections 26, 27 and 30 respectively.

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

Explain the statement All agreements are Contract, but all contracts are
agreements
A contract is a legally binding agreement or relationship that exists between two or more parties to do or
abstain from performing certain acts. An agreement in order to constitute a contract must possess
essentials elements. All the essential elements must exist together. All contracts are agreement because
there must be mutual understanding between two parties for a contract to be formed. All parties should
agree and adhere to the terms and conditions of an offer. Therefore, we can say that all agreements are
not contract but all contracts are agreements. When any of the essential elements is missing, it ceases to
be a contract though it may be a valid agreement. An agreement is a wider term than a contract.

What are the different types of Contracts?

1. Voidable Contract: An agreement which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others, is a voidable contract.
A contract is voidable when one of the parties to the contract has not exercised his free consent. One of
the essential elements of a formation of a contract for example, free consent, is absent. All voidable
contracts are those which are induced by coercion fraud or misrepresentation. The person whose consent
is not freely given may avoid a contract. It therefore continues to be valid till the party whose consent is
caused by coercion, undue influence, fraud or misrepresentation choose to avoid the contract within a
reasonable time. Contract then is not binding on the other party.
2. Void Contract: A contract which ceases to be enforceable by law becomes void, when it ceases to be
enforceable. A void contract is a worthless from its beginning. No rights are formed under a void
Contract. A contract may also be originally valid when entered into but subsequently due to change in the
events or circumstances, it may become void. It should be noted that there cannot be a void contract
because when the contract is void, it is not a contract at all. The right word therefore is void agreement
and not void contract.
3. Unenforceable Contract: A contract which cannot be enforced is a valid contract in law, but is
incapable of proof, and therefore cannot be enforced in the Court of Law
4. Executed Contract: Where both the parties have performed their obligation, it is an executed contract.
Even when one party to the contract has performed his share of the obligation, the contract is executed,
though to the other party is still under an outstanding obligation to perform his part of the promise.
5. Executory Contract: Here neither party to the contract has performed his share of the obligation, for
example, both the parties have yet to perform their promises, the contract is executory. In an executed
contract one party has already performed his part of he agreement while the other party has to perform his
par. In an executory contract both the parties have to perform their mutual promises and the fact that they
have to perform their parts of the contract does not affect the validity of the contract.
6. Express Contract: When the terms of a contract are reduced in writing or are agreed upon by spoken
words at the time of its formation, the contract is express.

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The Indian Contract Act 1872

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7. Implied Contract: The terms of a contract are inferred from the conduct or dealing between the parties.
When the proposal or acceptance of any promise is made otherwise than in words, the promise is said to
be implied. Such an implied promise leads to an implied contract. For example, A boards a bus. It is
implied from his conduct that A has entered onto an implied promise to purchase a ticket.
8. Quasi-Contract: Quasi contract is not a contract. It is an obligation which law created in absence of
any agreement. Sections 68 to 72 of the Indian Contract Act, 1872 deal with certain relations resembling
those created by contract. There are certain relations resembling those created by contract. These are
termed as quasi contracts. Quasi contracts rise out of obligation enjoyed by one person from the
voluntary acts of the other. These are
(a) Supply of necessaries (section 68) Example: A supplies necessities to B who is not capable of
contracting and reimbursing to A. A is entitled to be reimbursed from Bs property
(b) Payment of lawful dues by interested person (section 69)
Example: A victim slips on a banana skin and falls down a flight of stairs. Doctor, a stranger, who
happened to be walking by, administers emergency treatment to unconscious victim. Doctor does not
enter into a contract with the Victim. But, Doctor could now recover fee for his services
(c) Person enjoying benefit of a gratuitous act (section 70)
(d) Finder of goods (section 71)
(e) Goods or anything delivered by mistake or coercion (section 72).
Example: A and B jointly owe Rs. 1,000/- to C. A pays alone the amount to C and B not knowing this
fact pays Rs. 1,000/- over again to C. C is bound to repay the amount
9. Contingent Contract: A contingent is one in which a promise is conditional and the contract shall be
performed only on the happening of some future uncertain event.
Example:A contracts to pay B Rs 10,000, if Bs house is burnt. This is a contingent contract. Here the
liability of A arises, only when a particular event takes place, i.e. burning of Bs house.
10. Contracts of Record: A contract of record is one which is taken to the records of a Court, for
example judgment of a court. Such judgments create a binding effect through the authority of the Court.
11. Specialty Contract: A specialty contract is a contract which is in writing signed, sealed and delivered
by the parties. It is also called a contract under seal. Consideration is not necessary in a specialty contract.
Indian Law does not recognize contracts without consideration. All contracts must have consideration in
order the valid subject to exceptions under section 25 of the Act.
12. Simple Contract: A simple contract s one which is not under seal. All contracts which are not under
seal are simple contracts. All simple contracts require consideration. They may be made by written or
spoken words.
13. Statutory Contract: When all or some of the terms and conditions of contract are statutory then the
entire contract, or that extent as the case may be, would be regarded as statutory contract

Explain To whom an Offer can be made?

To definite person (specific offer): An offer can be made to a particular person. It is called as specific
offer. Example, A says to B, will you buy my car for Rs. 50,000/-? Here A is specifically offering B to
purchase his car. This is an offer to a definite person i.e. B.

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

To definite class of persons: An offer can be made to a group of class of persons. Example, College puts
a up a notice to offer a reward of Rs. 100/- to any student who return the lost book. Here a offer is made
to a definite class of persons i.e. the students of college.
The world at large (General Offer): An offer can be made to public in general. Example, A advertises in
newspaper a reward of Rs. 1000 to anyone who would found and return the lost passport. This is an offer
to the world at large.

What are the Rules of a Valid Offer?

To obtain Acceptance: The offer must be made with a view to obtain acceptance of the person to whom
the offer is made.
Intention to create legal obligation: Offer must be made with the intention to create legal obligation
between the parties. In such intention is not present then it is not an offer in the eyes of law. Example, A
invites B for tea. Even if B accepts the invitation it does not creates any legal obligation.
Definite terms: The terms of the offer must be definite, unambiguous and certain and not vague.
Example, A says to B, I will sell you a horse. A owns 10 different horses, the offer is not definite.
Different from mere declaration of Intention: The offer must be distinguished from mere declaration of
intention or invitation of offer. Example, A advertises in the newspaper that he wants to sell his house. B
and C offer to purchase the house at particular price. Here A has not made an offer but only invites
people to make an offer. B and C have made an offer and it is for A to accept the same or not.
Communication: An offer must be communicated to offeree. Unless an offer is properly communicated
thee can be no acceptance of it. An acceptance of offer, in ignorance of the offer is no acceptance at all
and does not create any legal rights or obligation. Example A sent his servant B in search of his missing
nephew. A then announced a reward for the information concerning the boy. B traced the boy in
ignorance of such announcement. Therefore, B cannot claim reward as he was not aware of the
announcement regarding reward.
No burden of acceptance: offer should not contain the non-compliance of which may be assumed to
amount to acceptance. Example, A writes to B, I will sell you my cycle for Rs. 100/-. If you do not
reply, I shall assume you have accepted the same. Here the offer is not valid. Mere silence cannot
amount to acceptance.
Conditional offer: An offer may be conditional but the conditions must be clearly communicated. A
conditional offer lapses, when the condition is not accepted by the offeree.
Made to a definite person: The offer must be made to a definite person to create legal relationship
Implied or Express offer: - The offer can be express or implied from the circumstances. Example,
stepping into a restaurant and consuming food creates an implied promise to pay.

Write a detailed note on Acceptance of an offer.

The acceptance of an offer is the second and very important step towards forming contract. A contract is
formed when an offer is accepted. The offeree's willingness to be tied by the terms of the offer is known
as acceptance. Section 2 (b) of the Contract Act defines acceptance as when the person to whom the
offer is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted
becomes a promise. Thus acceptance is the assent or consent given to a proposal.

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

Effect of acceptance: Acceptance converts offer into a promise. Acceptance is essential to convert offer
into an agreement.
The rules of valid acceptance
Acceptance must be absolute and unconditional: An acceptance, in order to be binding, must be
absolute and unconditional. It must agree with all the terms of the offer. Every offer must be accepted as
it is. For example; Sunil offers to sell his land to Sridhar for Rs. One lac. Sridhar accepts to purchase it
for Rs. Eighty thousand. This acceptance is not valid. It is a counter-offer.
Acceptance must be communicated: Acceptance must be communicated. Communication need not be in
writing or by word of mouth. It may also be implied from the conduct of the acceptor. Mere desire to
accept a proposal is not acceptance. Uncommunicated or mental acceptance is not a valid acceptance.
The person who has authority to accept should communicate acceptance
Acceptance must be in the mode prescribed: If the offeror prescribes the mode or manner of acceptance,
the acceptance must be made in accordance with the mode prescribed. For example, if the offeror says
acceptance to be sent by an email, the offeree must send an email. If the acceptance is not made in the
mode prescribed, the offeror may within a reasonable time after the acceptance is communicated to him,
insist that the acceptance must be made in the prescribed mode. But if he does not inform the offeree as
to this effect, he is deemed to have accepted the acceptance. If no mode is prescribed by the offeror, the
acceptance must be made according to some usual and reasonable mode.
Acceptance must be given within a reasonable time: If the offeror has prescribed a time within which
offer must be accepted, it must be accepted within the prescribed time. If no time is prescribed for
acceptance, the offer must be accepted within a reasonable time. Otherwise, the proposal will lapse. What
is reasonable time depends upon the nature of the subject matter of the offer.
Acceptance must be given only by the offeree: - An offer made to a particular person can be accepted by
him alone. If any other person accepts it, there is no valid acceptance. An offer made to a class of persons
can be accepted by any member of that class. Any offer made to the world at large may be accepted by
any person who had the knowledge of such an offer.
Acceptance must be after an offer is made: There can be no acceptance without an offer. The acceptor
must be aware of the proposal at the time of acceptance. Thus, acceptance must succeed the offer. In
other words, acceptance should follow the offer and not precede it.
Acceptance must be given before the offer lapses or is withdrawn: Offer must exist at the time of
acceptance. If an offer had already lapsed or been revoked, subsequent acceptance will be of no effect.
An offer once rejected cannot be accepted again unless a fresh offer is made. Under English law
acceptance is irrevocable. But under Indian law acceptance is revocable.
Implied acceptance / acceptance by conduct:
Acceptance by conduct means entering into an agreement by performing certain actions rather than by
signing an agreement or orally agreeing to be bound. Section 8 of the Indian Contract Act states that
Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal
promise which may be offered with a proposal, is an acceptance of the proposal. Example, A trader

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

receives an order from a customer and executes by sending the goods. Here customers order is an offer.
Sending the goods is an acceptance.
Who can accept an Offer?
An offer can be accepted only by the person or persons for whom the offer is intended. An offer made to
a particular person can only be accepted by him because he is the only person intended to accept. An
offer made to a class of persons can be accepted by any member of that class. An offer made to the world
at large can be accepted by any person whatsoever.

Write a detailed note on Consideration

Meaning of Consideration: consideration is one of the most important essentials of a valid contract.
Subject to a certain exceptions, an agreement made without consideration is void. When a party to an
agreement promises to do something. He must get something in return for it. This something in
return for something is known as consideration. In other words, consideration is the price for which the
promise of the other is bought and the promise thus given for value is enforceable. Consideration is the
evidence of mutual obligations which the law can enforce. It is the sign and symbol of every bargain.
According to Section 2(d), Consideration is defined as: " When at the desire of the promisor, the
promisee has done or abstained from doing, or does or abstains from doing, or promises to do or abstain
something, such an act or abstinence or promise is called consideration for the promise."
Example: Amar agrees to sell his house to Sandeep for Rs.20,000. here, Sandeeps promise to pay the
sum of Rs. 20,000 is the consideration for Amars promise to sell the house, and Amars promise to sell
the house is the consideration for Sandeeps promise to pay Rs. 20,000
Legal Rules of valid consideration
Consideration must move at the desire of the promisor -The act or forbearance must be done at the
desire or request of the promisor. If it is done without his request or at the request of a third party it will
not be a valid consideration.
Consideration need not be adequate but must be sufficient - It is not necessary that there must be full
return for the promise. There must be something rather than nothing. The law has left the quantum of
consideration to be decided by the respective parties. Thus, the law will not object to the inadequacy of
consideration.
Past consideration is not consideration - Consideration must not be from the past. For instancethe
guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her
marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the
promise as taking out the loan to raise and educate the girl was past consideration, because it was
completed before the husband promised to repay it.
Consideration may move from the promisee or any other person - consideration can be given or
supplied by the promise or any other person who is not a party to the contract. As long as there is a
consideration it is not important who has given it. Example: if A buys a house from B for Rs. 10,00,000
and C owes Rs. 10,00,000 to A, then A can instruct C to pay the amount directly to C. This is a valid
consideration
Consideration must be real and not false consideration must be real and of some value in the eyes of
law although it need not be adequate. Consideration is not real when it is uncertain, illusory or when it is

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

physically or legally impossible to perform. It is sufficient if the consideration is of slight value as long as
it is not unreal and false. Example: If A promises B that he will bring stars from the sky if B repairs his
television. Here bringing stars from the sky is illusory. This is not a consideration.
Consideration must be lawful - The consideration for an agreement must be lawful. An agreement is
valid if it is based on unlawful consideration. Consideration is unlawful a) if it s forbidden by law, or b) if
of such a nature that if permitted it would defeat the provisions of nay law, or c) is fraudulent, or d)
involves injury to the person or property of another, or e) court regards it as immoral or opposed to public
policy.
Example: I) A promises to maintain Bs child and B promises to A Rs 20000 yearly for the purpose.
Here, the promise of each party is the consideration for the promise of the other party. These are lawful
considerations.
II) A promises to obtain for B, a government job, and B promises to pay Rs. 80000 to A. the agreement is
void as the consideration for it is unlawful.
Consideration may be an act or abstinence or promise - Consideration may be a promise to do
something or not to do something. So it may be either positive or negative. Consideration need not

Explain Contracts by a Minor - Rules relating to Minors contract

Age of majority According to section 3 of the Indian Majority Act the age majority is 18, except when
a guardian of a minors person or property has been appointed by the court, in which it is 21.
Position of Minors agreement: An agreement made with minor is altogether void Contract with or by
a minor is altogether void. The Act provides that a person who is a major is competent to contract. An
agreement by a minor involves a promise on his part and he is incapable of giving a promise imposing a
legal obligation. Therefore, the agreement with the minor is void ab initio
Ratification on attaining majority is not allowed As a minors agreement is void he cannot validate it
by ratification on attaining majority. For instance, a minor borrows money and executes a promissory
note. On attaining majority, he executes a fresh promissory note in substitution of the one executed as a
minor. The second promissory note is void as it is without consideration.
Minor can be a beneficiary Though a minor is not competent to contract. There is nothing, which
prevents him from making the other party bound to the minor. Thus minor though incompetent to
contract may accept a benefit.
Minor can always plead minority - A minors agreement is void. Any money advanced to a minor on a
promissory note or otherwise, cannot be recovered. Even when a minor procures a loan by falsely
representing that he is full age, he can plead his minority in a suit intended to recover the amount from
him (minor the suit against him will be dismissed).
Contract by guardian are enforceable Though a minors agreement is void. His guardian can, under
certain circumstances enter into a valid contract on the minors behalf. Where the guardian makes a
contract for the minor and which is within his (guardian) competence and which is for the benefit of the
minor. Such a contract is valid which minor can enforce. For instance a guardian can make an
enforceable contract of marriage for a minor. It is customary among most of communities in India for
parents to arrange marriages between minor children and the law has to adapt itself to the habits and
customs of the people. Similarly, when the father of the bridegroom contracts with the father of the bride
to pay the bride an allowance the bride can sue her father-in-law to recover arrears of the allowance

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

Describe the Contracts by a person of unsound mind

A person of unsound mind is incapable of entering into a contract. An agreement by a person who is not
of sound mind is void. However, such a person can enter into a valid contract during an interval of
lucidity. As per section 12 Unsoundness of mind is one who is Incapable of understanding the contract
and of forming a rational judgment as to its effect upon his interest.
Idiots, lunatics and drunken persons are examples of those having an unsound mind.
Where a person is usually of sound mind, but occasionally becomes a person of unsound mind cannot
enter into agreement when he turns unsound.
Similarly, a person who is unsound mind can make a contract when he turns sound mind. For example a
patient in a lunatic asylum (Mental Hospital), who is at intervals, of sound mind may contract during
such intervals.
Persons of Old age suffer from mental decay and such persons may also be covered under the persons of
unsound mind.

Contracts by Disqualified Persons

Besides minors and persons of unsound mind, there are also other persons who are disqualified from
contracting, partially or wholly. Contracts by such person and with such persons are void.
An alien enemy during war cannot enter into a contract with an Indian subject. He cannot sue in Indian
Courts without a licence from the Central Government Contracts made before the war may either be
suspended or disallowed if they are against the public policy or if their performance would benefit the
enemy.
A Statutory Corporation cannot enter into a contract which is ultra vires its memorandum. Likewise,
municipal bodies are disqualified from entering into contracts which are not within their statutory
powers.
Sovereign States, Ambassadors and Diplomatic persons enjoy certain special privileges with the result
that they cannot be legally proceeded against in Indian Courts and Indian Citizen has to obtain a prior
sanction of the Central Government to enable himself to sue them in our law courts. However, they can,
at their will enter into contracts which may be enforceable in Indian Courts.
Insolvents - When a debtor is adjudged insolvent, his property vested in the official receiver or the
official assignee. As such the insolvent is deprived of his power to deal in that property It is only the
official receiver or the official assignee who can enter into contract in respect of that property and can sue
and be sued on his behalf.
Convict - A convict while undergoing imprisonment is incapable of entering into contract. This
incapacity to contract comes to an end when the period of sentence expires or when he is pardoned. <

Explain the term Free Consent

Section 13 defines that two or more people are said to consent when they agree upon the same thing in
the same sense. However, many a times, consent may not reflect the true intentions of a party. For
example, one party may give consent because of being financially pressured or criminally threatened.
Thus, such consent should not make the agreement enforceable.

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The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

Section 14 determines what factors can vitiate consent and when consent is considered free of any
complication that affects the enforceability of an agreement. It states that a consent that is not obtained
through coercion, undue influence, fraud, misrepresentation, or mistake
Coercion (Sec 15) is committing or threatening to commit any act forbidden by the Indian Penal Code, or
unlawful detaining or threatening to detain the property, to the prejudice of any other person, with an
intention to cause that other person to enter into an agreement. Thus, an act that is unlawful as per Indian
Penal Code (IPC) will be considered coercion.
Undue Influence (Sec 16): Undue influence occurs when because of the nature of the relationship that
exists between the parties, one party is able to dominate the the other and uses this dominance to obtain
unfair advantage over the other. A person is in a dominant position when he holds a real or apparent
position of authority for example Doctor & Patient, manager & employee, money lender & loanee
Example: Father (A) gives some money to son (B) when B was a minor. Upon majority, A makes B
execute a bond for a much larger amount.
Fraud (Sec 17): When a person intentionally tries to cheat another person, it is called as fraud in a
general sense. Section 17 defines fraud precisely as such - Fraud means and includes any of the activities
done by a party or by his support or by his agent, with intent to deceive another party or his agent, or as
to induce the other party to enter into the contract.
Misrepresentation (Sec 18): When a person makes an unwarranted statement, however innocently,
which the person believes to be true, and which turns out to be false, it is misrepresentation. Further,
causing a party to an agreement to make a mistake regarding the subject matter of the agreement,
however innocently, is also misrepresentation. Examples: A claimed to B that the shop being considered
for under an agreement was worth below Rs. 25 lacs. But in reality it turned out to be a value of more
than 30 lacs. It was held to be misrepresentation and B was entitled to avoid the contract.
Where the seller of a car stated the mileage of the car to be 20 kmpl, which turned out to be wrong, the
buyer of the car was allowed to recover compensation for misrepresentation.
Mistake (Section 20): Mistake is the erroneous belief either of law or fact by one or other parties or both.
Mistakes is of two kinds (i) mistake of facts; and (ii) mistake of Law.
Mistake of fact: Where both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void. 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 Law: Ignorance of law is no excuse. So when the both the parties to the contract commit
mistake with reference to ones own law the contract is valid. When the both the parties to the contract
commit mistake with reference to a foreign law the agreement is void. (Sec 21) Example: A and B make
a contract on the mistaken belief that they cannot sell sugar in India. The contract is not voidable

What are the Agreements which are expressly declared Void?

There are certain agreements, which are expressly declared to be void. They are as follows:
o Agreement by a minor or a person of unsound mind.[Sec 11]
o Agreement of which the consideration or object is unlawful[Sec 23]
o Agreement made under a bilateral mistake of fact material to the agreement[Sec 20]

MBA Semester-I / Business Legislation

Dr. M.J. Siddiqui

The Indian Contract Act 1872

o
o
o
o
o
o
o
o
o

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

Agreement of which the consideration or object is unlawful in part and the illegal part cannot be
separated from the legal part [Sec 24]
Agreement made. without consideration.[Sec 25]
Agreement in restraint of marriage [Sec 26]
Agreement in restraint of trade [Sec 27]
Agreement in restrain of legal proceedings[Sec 28]
Agreements the meaning of which is uncertain [Sec 29]
Agreements by way of wager [Sec 30]
Agreements contingent on impossible events [Sec36]
Agreements to do impossible acts [Sec 56]

What are the different means of discharge of a Contract?

A contract may be discharged in six ways as discussed hereunder.
(a) Discharge by performance: Discharge by performance will take place when there is (i)
Actual performance or (ii) Attempted performance
Actual performance / discharge takes place when parties to the contract fulfill their obligations within
time and in the manner prescribed. Here each party has done what he has to do under the contract. In
attempted performance the promisor offers to perform his part but the promisee refuses to accept his
part.
(b) Discharge by mutual agreement: Discharge also takes place where there is substitution [novation]
rescission, alteration and remission. In this case the terms of the agreement are altered so the old contract
need not be performed.
(c) Discharge by impossibility of performance: A situation of impossibility may have existed at the time
of entering into the contract or it may have transpired subsequently (also known as supervening
impossibility)
Impossibility can arise when
(i) There is an unforeseen change in law.
(ii) Destruction of subject matter.
(iii) Non-existence or non-occurrence of a state of thing to facilitate happening of the agreement.
(iv) Personal incapacity of the promisor.
(v) Declaration of war.
(d) Discharge by lapse of time: Performance of contract has to be done within certain prescribed time. In
other words it should be performed before it is barred by law of limitation. In such a case there was no
remedy for the promisee. For example, where then the debt is barred by law of limitation.
(e) Discharge by operation of law: Where the promisor dies or goes insolvent there is a discharge by
operation of law.
(f) Discharge by breach of contract: Where there is a default by one party from performing his part of
contract on due date then there is breach of contract. Breach of contract can be actual breach or
anticipatory breach. Where a person rejects a contract before the stipulated due date, it is anticipatory
breach. In both the events, the party who has suffered injury is entitled for damages. Further he is
discharged from performing his part of the contract.

MBA Semester-I / Business Legislation

Dr. M.J. Siddiqui

The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

What remedies are available to an aggrieved (suffering loss) party for breach of
contract?
Breach Of Contract- (Sec 39) When a party to a contract refused to perform, or disabled himself
from performing his promise in its entirety, the promisee may put an end to the contract, unless he has
signified by words or by conduct, his acquiescence in its continuance. It occurs when a party refuses to
perform his part of promise. In case of breach of contract, the aggrieved party has following remedy1.
Suit for recession of Contract: The aggrieved party may file a suit for rescission (cancellation )
of the contract and thus may not be compelled by the other party to fulfil his part of the promise
2.
Suit for specific performance- By specific performance, the court directs the party committing
the breach of contract to perform the promise according to the terms of the contract. Specific
performance of the contract can be granted under the specific Relief Act, 1877.
3.
Suit for Injunction- An injunction is an order of court directing a person to do or refrain from
doing some act, which is the subject- matter of the contract and which the party undertakes to do or not to
do. In cases of breach of contract, court can on a suit restrain a party by an order of injunction from
committing the breach. The power of the court to grant injunction is discretionary and may be granted for
a temporary or an indefinite period.

4.
Suit for Damages, for the loss sustained- In case of breach of contract, injured party can claim
damages for loss caused by breach of contract. Damages are given by way of restitution and as a
monetary compensation to the injured party. The aggrieved party can recover the actual loss caused to
him by a breach of contact and not the exemplary or unusual damages. Exemplary or remote damages can
be recovered in case of breach of promise of marriage, where the courts have regard to the feelings of the
aggrieved party. The injured party is placed in the same financial position as he would have been in, if
the contract had been performed. Damages are thus given by way of compensation for the loss suffered
by the plaintiff and not for the purpose of punishing the defendant for the breach.
Types of DamagesThere are certain types of damages which can be explained as followsa)
Compensatory Damages- These damages are calculated to actually compensate or make up the
loss suffered by the party.
b)
Nominal Damages- Damages which arises in usual course of things from the breach are called as
nominal damages. It is in the discretion of the court whether to allow or refuse damages. Damages should
however be actually suffered.
c)
Exemplary Damages- Exemplary damages are those which are granted when the court considers
the feelings, mental pain, suffering etc of the aggrieved party.
In Westosen v/s Olathe state bank [1925-78, Colo 217], where the bank agreed to loan W money for trip
to California, by crediting his account and bank having failed to credit the account of W after W having
reached California, W was awarded damages for humiliation and mental suffering.
d)
Special Damages- These arises on the account of unusual circumstances. Special damages can be
recovered only if stipulated in contract. Parties to contract must know of damages likely to result from
the breach. This is in the form of additional loss. These are recoverable only when they are bought to the
knowledge of defendant.
MBA Semester-I / Business Legislation

Dr. M.J. Siddiqui

The Indian Contract Act 1872

Dr. Ambedkar Institute of Management Studies & Research, Nagpur

e)
5.
Suit upon Quantum Meruit Quantum Meruit means as much as earned or deserved. Or as
much as merited. A person can under certain circumstances claim payment for the work done or goods
supplied without any contract or under a contract which is discharged by the breach of other party. It is
based on implied by other party to pay for what has been done. On several occasions, it so happens that
where no contract has been entered into one party has either done some work or supplied goods; it is but
natural that he should be compensated for what he has done.

MBA Semester-I / Business Legislation

Dr. M.J. Siddiqui