CHAPTER 3 INDIAN CONTRACT ACT, 1872

After reading this lesson, you will be conversant with:

3.1 Definition of a contract
3.2 Elements of contract
3.3 Essential elements of a valid contract
3.4 Restitution
3.5 Contingent Contracts
3.6 Persons who are Required to Perform Contracts
3.7 Discharge of Contract
3.8 Remedies for Breach of Contract
3.9 Quasi-contracts

The Indian Contract Act, 1872 provides the general principles and rules governing contracts.
All transactions that relate to the agreements and obligations of the contracting parties, come
under the purview of the Act. Special categories of contracts, are governed by separate Acts.
They are Partnership Act, Sale of Goods Act, Negotiable Instruments Act, Insurance Act, etc.
The Indian Contract Act (referred as Act hereafter), which the law will uphold.

The Indian Contract Act, 1872 is one of the oldest Acts. It is one of the best drafted enactments
which have stood the test of time. The provisions of the Indian Contract Act has laid down
certain settled principles of law, which creates some rights and duties between the parties. They
are very well known and well accepted in the commercial transactions. Initially, the Act
contained provisions in respect of Sale of Goods and Partnership also. Later, certain Sections
(76-123) were repealed and a separate law was passed on Sale of Goods as, “Sale of Goods
Act, 1930” and the “Indian Partnership Act, 1932” was passed by repealing Sections (239-266).

3.1 Definition of Contract

Section 2(h) of the Act, defines a contract as an agreement enforceable by law. A contract is
defined as an agreement enforceable at law, made between two or more persons, by which
rights are acquired by one or more, to act on the part of the other. It creates and defines
obligations between the parties.

All agreements are not necessarily enforceable by law. An agreement to sell a house may be a
contract enforceable by law. However, an agreement to attend a party being of a social nature is
not enforceable.

It is not necessary that a contract need not be only in writing, unless there is specific provision
in law that it should be in writing. Certain contracts must be in writing as otherwise they are not
enforceable in law. Following are the examples of such contracts.

Contract for sale of immovable property must be in writing, stamped and registered.
Certain other contracts though are required to be in writing do not compulsorily be require
registration, for example, Bills of Exchange, Promissory Notes, Cheques, A Trust created under
the Indian Trust Act, A promise to pay a time-barred debt, Contracts made without
consideration with natural love and affection.

3.2 Elements of Contract

It may be noted that a contract essentially contains two elements: agreement and
enforceability by law. For a better understanding, let us elaborate on these two elements.
Section 2(e) of the Act defines agreement as, ‘every promise and every set of promises,
forming consideration for each other’. This essentially means that there should be an offer and
acceptance to form an agreement. It is important that before an agreement is finalized there
should be a consensus ad idem (consent to the matter) between the two parties. Both the
contracting parties should ‘say and mean the same’ without, which there cannot be a contract.

The other element of contract, enforceability by law, emphasizes the importance of intention to
create a legal obligation or duty to perform or abstain from performing certain act(s). These
acts could relate to social or legal matters.

The classic case of Balfour vs. Balfour (1919) elaborates this point. A husband working in
Ceylon, had agreed in writing to pay a housekeeping allowance to his spouse living in England.
On receiving information that she was unfaithful to him, he stopped the allowance. It was held
that the agreement was without any intention of creating a legal obligation. Hence, there was no
contract. It may be summed up that all contracts are agreements, but all agreements are not
contracts.

3.3 ESSENTIAL ELEMENTS OF A VALID CONTRACT

1. Offer and acceptance.
2. Intention to create legal relationship.
3. Capacity to contract.
4. Free consent.
5. Lawful consideration.
6. Legal object.
7. Certainty and possibility of performance.
Each of the essential elements are discussed in detail below.
1. Offer and Acceptance
A contract basically evolves from an offer by one party and acceptance of the same, by the other
party. The acceptance should be definite and without any qualification. There should be a
consensus ad idem between the two parties on the terms and conditions of contract.
Conditions of Making an Offer
The following conditions that govern making an offer are:

1. The offer must be definite and not vague.

 2. An offer should be differentiated from an invitation to make an offer. There are
occasions where a person may make some statements or give information with an
intention of inviting others to make an offer. For example, a catalogue with prices
indicated on it is not an offer to sell. On the contrary it is only an invitation to make an
offer. A person interested in buying the product specified in the catalogue, may make an
offer to buy and it is left to the discretion of the seller to either accept or reject the same.

Lapse of Offer
Section 6 specifies the instances which results in the lapse of an offer:
I. An offer comes to an end if it is revoked by the offeror at any time before its acceptance
is complete as against him and not after its acceptance;
II. If either the offeror or the offeree dies or becomes insane and the offeree comes to know
about it, before acceptance. If the offeree accepts an offer in ignorance of the death and
insanity of the offeror, the acceptance is valid;
III. If the offer is not accepted within the specified time or within a reasonable time, or if
none of it is clearly specified then the law of limitation applies after that, if none is
specified (Law of limitation applies). In Ramsgate Victoria Hotel Co vs. Montefiore,
Montefiore agreed to take up shares in Ramsgate Victoria Hotel Co in June. However,
when he received the letter of acceptance in November, he declined to take up shares.
The offer had come to an end by lapse of time and therefore he could not be compelled to
take up the shares. When an offer is made by an agent and it is accepted within a
reasonable time, the contract will be binding on the principal even though the agent may
have been guilty of delay in making the offer;
IV. On failure to fulfill a condition precedent to acceptance. In State of Madhya Pradesh vs.
Gobardhan Dass where the tender required acceptance of a tender to be accompanied by
payment of 25% of the amount and was fulfilled by the successful tenderer to make the
requisite payment the court held that the omission did not give rise to a binding contract
between the parties;
V. If it is not accepted in the mode prescribed or if no mode is prescribed, in some usual and
reasonable manner or if the offer is rejected by the distinct refusal of the offeree;
VI. If the offeree makes a counter offer, it amounts to rejection of the original offer and such an
offer by the offeree may be accepted or rejected by the offeree;
VII. If law is changed making the offer illegal or incapable of performance. According to the
Indian Contract Act, an offer may be revoked at any time provided it is communicated to
the offeree before the acceptance. Also an offer to keep an offer open for a specified time
(option) is not binding unless it is supported by consideration.
ACCEPTANCE
Under Section 2(b) of the Act, “when a person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted”. Just as in case of offer, acceptance may
also be express or implied. An acceptance is said to be express when it is communicated by
words spoken or written or by doing some required Act. It is implied when it is to be gathered
from the surrounding circumstances or the conduct of the parties. In an auction sale, the
highest bidder is assumed to be the buyer of the goods once the deal is struck.
 In order to convert an offer into a promise, acceptance should be absolute and unqualified. It
is also essential that the acceptance is given in some usual and reasonable manner. If the offer
prescribes the manner in which the acceptance is to be given, then the acceptor should adhere
to the prescribed mode. On failure to do so, the offeror can insist that his offer will be
accepted only if it is given in the prescribed manner
Conditions of Acceptance
i. An offer should be accepted only by the person to whom it is put forth. It is clear by the
rule of law that if A proposes to make a contract with B, C cannot substitute himself with B
without the consent of A. An acceptance may be withdrawn before it reaches the offeror.
ii. Acceptance of an offer should be absolute and unqualified and should conform totally with
the offer made. A conditional or qualified acceptance does not result in a valid contract. By
giving a conditional acceptance or counter offer, the original offer is deemed to have been
rejected. Once the original offer has been rejected by making a counter offer, it cannot be
accepted again, unless renewed. In Hyde vs. Wrench an offer made for the sale of a farm for
1,000 pounds was not accepted in the first instance. A counter offer was made wherein the
plaintiff expressed his willingness to buy the same for 950 pounds. When the counter offer
was rejected, the plaintiff consented to buy the farm for 1,000 pounds which was again
rejected by the defendant. A suit filed for breach of contract was not maintainable as the
counter offer implied that the original offer had been rejected. Hence, there was no valid
contract between the parties.
iii. The acceptance must be communicated to the offeror. The acceptance must be in the form
specified or in some perceptible form if not specified. A mere intent of acceptance will not suffice.
In this regard, reference may be made to an American case, Eliason vs. Henshaw the mode of
acceptance as prescribed by the offeror was not adhered to. The offeree sent the letter of
acceptance by post when it was required to be sent by wagon as indicated by the offeror.
A deviation in the mode of acceptance clearly entitled the offeror to treat the acceptance as
invalid.
2. Intention to Create Legal Relationship:
The validity of a contract is dependent on the intention of the contracting parties. A contract
will be valid only when the parties to the contract intend to create a legal relationship between
themselves. Non-existence of such an intention will not give rise to a valid contract.
Agreements of social nature do not contemplate legal relationship and hence they are not
contracts.
The parties to a contract may either specifically lay down that the agreement entered is not a
formal or legal agreement or in certain cases the non-existence of an intention to enter into a
legal relationship can be implied from the agreement itself.
3. Capacity to Contract
Section 10 specifies that an agreement to be a contract, is to entered between the two parties
who are competent to contract. The persons declared to be incompetent to contract are:
a. Minors: A minor is a person under the age of eighteen years, except when a guardian of a
minor’s person or property has been appointed by the court, in which case it is twenty-one. The
purpose of declaring minors as incompetent to enter into a contract is to protect minors against
their own inexperience. However, law tries not to cause unnecessary hardships to persons who
deal with minors..
b. Persons of Unsound Mind: Section 12 lays down a test of soundness of mind. It states that a
person is said to be of sound mind for the purpose of making a contract if, at the time of making
the contract, he is capable of understanding it and of forming a rational judgment as to its effect
upon his interests. A person who is a lunatic (who is at times of sound mind) may enter into
contract in these times. Persons who have completely lost their mental powers or those who are
drunken or intoxicated are incapable of entering into a contract. The question of unsoundness
has to be determined based on unmistakable facts and not merely on speculation. The burden of
proving insanity will be on the person who alleges it. The question whether a contract is
invalidated because of unsoundness of mind will not depend upon the belief or disbelief of the
witness but largely based upon the inference to be drawn from evidence.
c. Persons Disqualified by any Law to which they are Subject: The following persons are
disqualified by law to enter into a contract:

1. Alien Enemies: They are those persons who are not subjects of Republic of India and the
country in which they reside, is not at peace with Republic of India. An Indian who
resides voluntarily in a country hostile to India is also considered as an alien enemy.
Contracts made before war may be either suspended or dissolved depending whether
their performance would benefit the enemy or not.
2. A special privilege is granted to the foreign sovereigns, their diplomatic staff and
accredited representatives of foreign states. Such persons can enter into contracts and
enforce their performance in Indian courts. However, they cannot be sued unless these
persons voluntarily submit to the Indian Law. An Indian citizen needs to obtain the
permission of the Central Government to sue such a person.

3. A contract entered into by a company beyond its authority, as prescribed in its

Memorandum of Association and the relevant provisions in the Companies Act, is
declared as void. A company formed under the Companies Act, 1956 has a limited
contractual capacity and any Act in excess of its powers whether expressly conferred on
it or derived by reasonable implication from its objects clause in the Memorandum, is
ultra vires the company and is void.

4. Any contract with a person adjudged insolvent is not valid. It is the official receiver or
official assignee of the insolvent who can enter into contracts relating to his property and
sue and be sued on his behalf.

5. A convict is incapable of entering into a contract while undergoing imprisonment. The

incapacity to contract, or to sue on a contract, comes to an end when the sentence
expires. Also, the convict does not suffer from the rigors of the Law of Limitation as the
period of the sentence is not included in the lapsed time frame.

4. Free Consent
The fourth essential element of a valid contract is free consent. Consent is said to be free when
it is not caused by any of the following:
a. Coercion (Section 15)
Coercion is the committing or threatening to commit any act forbidden by the Indian Penal
Code, or unlawful detaining or threatening to detain, any property to the prejudice of any person
whatever with the intention of causing any person to enter into an agreement. Unlawful
detaining or threatening to detain any property is also an instance of coercion. Threatening at
gun-point, threatening to commit suicide and refusing to hand over the account books of a
business to an agent are some of the instances which amount to coercion. The party whose
consent is obtained by coercion has the right to avoid performance of the contract. In
Ranganayakamma vs. Alwar Setti the question before the court was regarding the validity of the
adoption of a boy by a widow aged 13 years. In the given case, the husband’s dead body was not
allowed to be removed for cremation until the widow adopted the boy. It was held that the
adoption was brought about by coercion and was not binding.
b. Undue Influence (Section 16)
Undue influence is defined as follows: 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 a position
to dominate the will of the other and uses that position to obtain an unfair advantage over the
other. It is to be noted that the emphasis is on the ability to dominate the will of another. Such
ability is said to be existing in cases, where a person:

1. Holds a real or apparent authority over the other. For example, income tax authority and
assessee, police and accused;
2. Stands in a fiduciary relation (relation of trust and confidence). Fiduciary relationship
implies a relationship of confidence and trust. Examples of fiduciary relationship are
solicitor and client, spiritual adviser and devotee, husband and wife.

3. Makes a contract with a person whose mental capacity is temporarily or permanently

affected by reason of age, illness or mental or bodily distress. The unconscientious use
by one person of power possessed by him over another in order to induce the other
party to enter into a contract is referred as moral coercion and is considered as a form of
undue influence. In Lakshmi Amma vs. Telengala, the executant who was aged and
suffering from diabetes made a deed of settlement of the entire property in favor of one
of his grandsons to the exclusion of his wife, his children and other grand children. The
person in whose favor the deed was made was unable to prove that the executant had
executed the deed without any external pressure while he was not of infirm mind and
was fully aware of the dispositions. The court held the settlement deed to be invalid.
The following relationships raise the assumptions of undue influence:
– Parent and child,
– Guardian and ward,
– Trustee and beneficiary,
– Religious advisers and disciple,
– Doctor and patient,
– Solicitor and client, and
– Fiance and fiancee.
c. Misrepresentation (Section 18)
Misrepresentation is the innocent or unconscious presentation of wrong facts by one party which
are taken into account by other party before entering into a contract. The person making such a
misrepresentation honestly believes that such statement is true. Section 18 defines
misrepresentation to be existing.

1. When a person positively asserts that a fact is true when his information does not
warrant it to be so, though he believes it to be so.
2. When there is any breach of duty by a person which brings an advantage to the person
committing it by misleading another to his prejudice.

3. When a party causes, however innocently, the other party to the agreement to make a
mistake as to the substance of the thing which is the subject of the agreement.

d. Fraud (Section 17)

Fraud means and includes any of the following acts committed by a party to a contract, or with
his connivance (intentional active or passive acquiescence) or by his agent with intent to
deceive or to induce a person to enter into a contract.
The essential ingredients of fraud as contemplated by subsection (1) are as under:

1. There must be a False Representation of a Material Fact.

2. The Representation should be made with Knowledge of its Falsity.
3. The Other Party should have been induced to Enter into the Contract based on the False
Representation.
4. The Other Party should have relied upon the False Representation and should have been
deceived.
5. LAWFUL CONSIDERATION:
Consideration is an important element of a contract. In day to day life, quite often promises are
made without giving them a thought. In order to make an agreement enforceable, law requires
such agreements barring a few exceptions, to be backed by consideration.
Consideration may be of following kinds:
i. Executory or future consideration, in return of a promise which is to be fulfilled
in future.
ii. Executed or present in which it is an act or forbearance made or suffered for a
promise. For example, in a cash sale, consideration is present or executed.
iii. Past consideration is the one which pays for a past act or forbearance. An act
constituting consideration which took place and is complete before the promise is made.
As per Section 23, there has to be a lawful consideration for a legal object in every contract.
Hence, the following aspects should not exist in case of consideration and object for the contract
to be declared as legal and binding.
1. It should not be Forbidden by Law:
2. Performance should not Defeat the Provisions of any Law
3. It should not be Fraudulent
4. It should not be Considered Immoral
6. LEGAL OBJECT. The sixth essential element of a valid contract is legal object. By object
it is to mean the purpose of the contract. Contracts with unlawful objects are void.
7. CERTAINTY AND POSSIBILITY OF PERFORMANCE: the agreements in which the
meaning is not certain, or is not capable of being made certain, are void. The uncertainty may
exist because of quality, quantity, price or title of the subject matter. The terms of contract
should be certain. In Keshavlal Lallubhai Patel vs. Lalbhai Trikumlal Mills Limited, the
workers of the respondent Mill went on a strike expressing their support to the Quit India
Movement. As a result, the respondent mill was closed and could not supply the textile goods
to the appellants as agreed. In a letter seeking extension of time the respondent mill cited the
reason for the failure to supply goods and stated that the delivery time of the goods stands
extended until the normal state of affairs is restored.
In Guthing vs. Lynn, the buyer of a horse agreed to pay 5 pounds extra, if the horse proved to
be lucky. The agreement was held to be void for uncertainty. The definition of void agreements
includes the wager agreements. Section 30 defines wager as an agreement between the parties
by which one promises to pay money or moneys worth on the happening of some uncertain
event in consideration of the other parties promise to pay if the event does not happen.

3.4 RESTITUTION
When a contract becomes void, any benefit derived out of the contract by one party is required
to be restored to the other. It is significant to note that the law of restitution covers only benefits
received and not losses incurred. The principle of restitution is that the defendant who has been
unjustly enriched at the expense of the plaintiff is required to make restitution to the plaintiff.
There cannot be restitution where the parties are wholly incompetent to contract (where one of
the parties is minor). Section 65 which deals with restitution applies to contracts ‘discovered to
be void’ and ‘contracts which become void’. A person who has received a benefit under any
such contract will have to restore the benefit to the person from whom it was received. In
Dharamsey vs. Ahmedbhai, a person hired a godown for a period of 12 months by paying an
advance for the entire period. When a fire broke out in the godown he was entitled to claim a
proportionate amount of rent paid in advance.

3.5CONTINGENT CONTRACTS:
Section 31 of the Act provides for such contracts and defines it as a contract to do or not to do
something, if some event, collateral to such contract, does or does not happen. In Muthu vs.
Secretary of State, a person was the highest bidder for a house which was put up for sale.
However, one of the conditions was that the sale could be confirmed only if the Collector
authorizes it. The Collector declined to confirm the sale. It was held that there was no contract.
The event on which the happening of the contract is dependent should be uncertain. Further, the
event should be collateral to the contract. The event should not form part of the consideration of
the contract though the contract is made to depend upon it. Contracts of indemnity and insurance
are examples of contingent contracts.

3.6 PERSONS WHO ARE REQUIRED TO PERFORM CONTRACTS

Where personal considerations form the basis of a contract, the promisor alone should perform
the contract. Where personal considerations do not form the basis of a contract, then the
contract may be performed by the promisor or his agent or legal representatives of the promisor
in the event of his death.

Time and Place of Performance

A contract, which does not specify the time for performance should be performed within a
reasonable time.
When a promise is to be performed on a certain day, and the promisor has undertaken to
perform it, without application by the promisee, the promisor may perform it at any time during
the usual hours of business on such day and at the place at which the promise ought to be
performed.
When a promise is to be performed on a certain day, and the promisor has not undertaken to
perform it, without application by the promisee, it is the duty of the promisee to apply for
performance at a proper place and within the usual hours of business.
A contract should be performed in the manner and at the time prescribed in the contract.
Devolution of Joint Rights and Liabilities
Where a joint promise is made, the promisee may compel any one of the joint promisors to
perform the whole of the promise. The joint promisor, who performs the contract may claim
contribution from the other joint promisors. Where any of the joint promisors defaults in
making his contribution, then the other joint promisors will have to bear even the defaulted
amount equally.
Appropriation of Payments
Where several debts are owed and where payment made is insufficient to discharge the debt, the
debtor may intimate the creditor as to the nature of appropriation. In such a case, the creditor should
follow the directions issued by the debtor.
Assignment of Contracts
Assignment of a contract means the transfer of rights and liabilities arising out of the contract in
favor of a third person either with or without the concurrence of other party to a contract.
An assignment may take place either by the act of the parties or by operation of law.
3.7 DISCHARGE OF CONTRACT
We now come to the last stage of contracts. A contract is said to be discharged when the rights
and liabilities created by such contract come to an end. Contracts may be discharged or
terminated by:

1. Performance of the contract, or

2. By mutual consent, or

3. By lapse of time (by limitation), or

4. By operation of law, or

5. Impossibility of performance, or
 6. By breach of contract.

Each of the various modes of discharge of contract are explained below:

1. Performance of Contract: The most obvious and meaningful way to discharge a
contract is to fulfill the terms and conditions agreed by each of the parties in the contract.
Section 38 provides for tender of performance. As per this section if the promisor offers to
perform his side of the contract, but the promisee does not accept his performance the
promisor is discharged from his liability. This is known as attempted performance. The
promisor may sue the promisee for the breach of contract, if he so desires.
2. Discharge by Mutual Agreement or Consent: The contract may be terminated by
mutual consent of both the contracting parties. Various cases of discharge by mutual
agreement are specified in Section 62 and Section 63. Section 62 provides about the effect
of novation as to where a new contract is substituted for an existing contract by mutual
agreement of both the parties, the new contract is basically agreed upon to adjust the
remedial rights arising out of the breach of the old contract.
3. Discharge by Lapse of Time: Any contract cannot be extended indefinitely. The
Limitation Act, 1963 provides for a certain time frame within which the contract has to be
performed (called period of limitation). If no action is taken by the contracting parties
within the period of limitation, no remedy at law will be available. It provides for a
definite time frame within which, the deprived party may seek remedy at law.
4. Dischargeby Operation of Law: A contract may be discharged by the operation of
law in any of the following ways:
i. By Merger: When the parties agree to include the previous inferior contract in a
superior contract.
ii. Law does not permit any unauthorized alteration of the terms of a written
agreement. Any such act by any one of the parties will automatically make the
contract as discharged by operation of law.
iii. By Insolvency: When a person is adjudged insolvent, he is discharged from all
liabilities incurred prior to his adjudication.
iv. Death: Where a contract is entered into, based on personal consideration and where it
is required that performance of the contract should be made by the promisor in
person, the contract will be discharged on the death of the promisor.
5. Discharge by Impossibility of Performance: A contract which is clearly impossible to
perform is discharged. A contract which has its subject as an act, which is impracticable to
perform by either of the parties is assumed to be impossible to perform and hence the
contract is discharged. Section 56 states that a contract which is made impossible to
perform due to subsequent changes is taken as void and hence discharged. This is known as,
‘supervening impossibility’ or ‘supervening illegality’.
6. Discharge by Breach of Contract: Breach of contract is often referred as the easiest
way of discharging a contract. When either of the parties does not fulfill the duties and
liabilities prescribed by the contract, the contract is said to be breached. There are two
types of breach of contract:
 i. Actual breach of contract. Actual Breach of contract may take place in two instances:
a. When the performance is actually due
b. During the actual performance of the contract.
ii. Anticipatory breach of contract. Anticipatory breach of contract is stated to have
occurred if a breach has been committed before the time for performance. When a party
explicitly denies or abstains from performing the contract or does some definite act, which
makes the performance impossible, then such a breach is an anticipatory breach of
contract.
3.8 REMEDIES FOR BREACH OF CONTRACT
The following alternatives are available for the injured party in case of a breach of contract.

a) Rescission: The injured party can rescind the contract and refuse the performance of
contract.

b) Restitution: As per Section 65, when a party treats the contract as rescinded, he makes
himself liable to restore any benefits that he has received, under the contract to the party from
whom such benefits were received. The court may refuse to rescind the contract where the
plaintiff has expressly or impliedly ratified the contract or where only a part of the contract is
sought and such part is not severable from the rest of the contract. Section 75 provides relief to
the person who sustains damages through non-fulfillment of the contract by entitling him to
claim compensation for the same.

c) Claim Damages: Section 73 deals with the compensation for loss or damage caused by
breach of contract. The foundation of the claim for damages rests in the celebrated case of
Hadley vs. Baxendale (1854). The facts of the case are: A delivered a defective shaft in his mill
to ‘B’, a manufacturer, for making a new shaft-identical to the one that is sent. ‘A’ did not make
known to ‘B’ that delay would result in loss of profits. ‘B’ by his neglect delayed the delivery
of the shaft beyond a reasonable time. As a result the mill was idle for a longer period than it
would otherwise have been, had there been no such delay. It was held, ‘B’ was not liable for the
loss of profits during the period of delay as the circumstances communicated to ‘A’ did not
show that the delay in the delivery of the shaft would entail loss of profits to the mill. Damages
cannot be awarded if the injured party did not take any reasonable steps for the loss to be
avoided. Section 74 allows for agreement of a sum to be paid as damages in case of breach of
such contract. If the contract contains any stipulation by way of a penalty for failure to perform
the obligations, the aggrieved party is entitled to receive from the party who has broken the
contract. The damages are classified into four categories:

i. General or Ordinary Damages: These are damages which naturally arise in the usual course
of things from such breach.

General Damages are usually assessed based on the actual loss suffered. The main aim of
providing general damages is to compensate the aggrieved party and not to punish the party
which is at fault.
ii Special Damages: These are awarded from a breach of contract under some peculiar
circumstances. At the time of entering into the contract the party has notice of special
circumstances, which makes special loss, the likely result of the breach in the ordinary course of
things. These are the damages which are claimed in addition to the damages arising from the
breach of contract.
In Simpson vs. London and N W Rail Co, Simpson entrusted a few specimens of his goods to an
agent of a railway company in order that the same be delivered at New Castle where an
agricultural show was to be held. The consignment note clearly specified that the delivery was
to be made in time. Because of default by the railway company, the samples arrived late for the
show. It was held that Simpson could claim damages for loss of profits.
iii Vindictive or Exemplary Damages: These are discouraged by court of law. However, in
case of breach of a promise to marry and dishonor of cheque by banker wrongfully when he
possesses sufficient funds to the credit of the customer, exemplary damages are awarded.
iv Nominal Damages: These are awarded merely to acknowledge that the plaintiff has proved
his case. Nominal damages are not awarded to compensate for the damages.
3.9 QUASI-CONTRACTS
Such type of contract where there is no element of contract but still it is considered as contract
is referred as quasi-contract. Quasi-contracts rest on the equitable principle that a person shall
not be allowed to enrich himself unjustly at the expense of another.
The Indian Contract Act provides for the following types of quasi-contracts:
a. Necessaries supplied to a person incapable of contracting or to anyone who is legally bound
to support. The persons who are incapable to contract may be minors and persons of unsound
mind.
b. Payment by an interested person on behalf of the actual party in pursuance of his own
interests is required to be reimbursed by the other party.
c. If any person lawfully does anything for another person without any intention to do it
gratuitously, such other person, has to reimburse the amount as per Section 70, though there is no
formal contract for such an act. This section does not apply to persons who have no a capacity to
contract.

Case: In Damodar Mudaliar vs. Secretary of State for India, the Government undertook the
repairs of an irrigation tank which was owned jointly by the Government and a Zamindar. Later,
the Government sued the zamindar for his share of the repairs. It was held that the Government
had carried out repairs not intending to do so gratuitously and hence the zamindar was liable to
pay compensation