Law Of Contract Notes

Question No. 1: Who is competent to contract Discuss the law

relating to minor’s agreement in India, with case laws. Also brief
about English Law Indian law in this context ?

OR

Minor’s agreements are void ab-initio. In which case the above rule was
established. Discuss in brief that case and also bring out the exceptions to the
above rule ?

OR

What do you understand by “capacity to contract” What is effect of Minor’s

agreement and when can it enforced?

OR

Discuss the nature and effects of Agreement by minor?

Answer – INTRODUCTION:- All agreements are not contracts. Section 10 of

contract deals with the condition of valid contract. According to section 10 of
Indian Contract Act, 1872 for valid contract parties must be competent and the
consent must be free. Therefore the competency of the parties to a contract is
most essentials element of a contract.

According to section 11 of Indian contract Act 1872, every person is competent

to contract who is of the age of majority according to law to which is subject
and who is of sound mind and not disqualified from contracting by any law to
which he is subject. Therefore, following persons are competent to contract –
 1. Major.
2. Sound mind.

It is evident that minor’s and unsound mind person cannot make a contract. A
Major person means who has attained the age of 18 years. The age of majority
has been decided by Indian majority act 1875. In case of guardian appointed
by the court, the age shall be 21 years.

Agreement by a minor is void-ab-initio (void in itself), such contract cannot be

enforced by law. Further the minor cannot authorise any other person to do a
contract.

In case of Mohiri Bibi vs Dharmodas Ghosh (1903) A minor Mr.

Dharmodas Ghosh executed a mortgage documents for Rs.20,000.00 in favour
of a money lender Sh. Brahmo Dutt. The money lender paid Rs.8,000.00 to the
minor. It is important that before this transaction the guardian of the minor
informed the Attorney of Money lender that he is minor. Later on a suit was
instituted by the petitioner ( Dharmodas Ghosh ) against the money lender Sh.
Brahamo dutt with the intention that the mortgage be set aside. This suit was
opposed by Money lender by saying that the above contract being voidable, he
has the right to receive the amount of the loan under section 64 and 65 of India
Contract Act, 1872 i.e. minor is bound to return back the amount.

Privy council held that,“ the contract is void ab-initio which cannot be
enforced.” It was also held that the minor could not be asked to repay the loan
taken by him. It was further held that law of estoppel cannot be applied against
the petitioner being mis-stated falsely his age because he was minor at the time
of the agreement and the agreement was void. The law of estoppel as stand in
section 115 of Indian Evidence Act was not applicable to the present case as the
plaintiff was minor at the time of making agreement, this fact was also known
to the agent of Brahmo Dutt defendant. Under Specific Relief Act 1877 Section
38 and 41 applies where party had the knowledge of minority age gets restitute
degree.
But, it has been held in various cases. A minor is bound for the beneficial
contract. The beneficial contract are those contracts which are for the benefit of
minor. The first case was S.Subramanyam v/s Subha Roy-1948 – In this case
transfer of inherited property of a minor affected by his guardian to pay off an
inherited debt was binding on him for his benefit. Here is a list of beneficial
contract-

1. Contract of Insurance Such contracts are in the benefit of minors.

2. Contract to purchase the immovable property Such contract are valid.
3. Contract of service – These are for the benefit for the minor.
4. Contract of apprentice ship Training period of any minor who is taking
training from any person, because of the training minor will save his
livelihood. It is for his benefit and one is liable to compensate that
person.
5. Contract of Marriage When guardian made an agreement for the
marriage of the minor then another party cannot enforce it, but minor
can enforce it. If agreement is made jointly by guardian and minor, it
can be enforced again on majority age.
6. Contract of Necessities- According to section 68 of the Contract Act-
1872, minor is also liable for necessaries. Necessaries means the basic
things of the life. These are mainly, Food, Shelter and clothing . If any
person supplied necessaries to minor then the minor is liable to
compensate the supplier. In case of Chapple vs Cooper The court
held that necessaries are not only food, shelter, clothes but also
education or religious and any such things which are necessary for life,
comes under the definition of necessaries. The following two conditions
are necessary for liable.

i) The supply must not be more than sufficient.

ii) The supply must be according to the standard of minor.

PETRESS VS FLEMING
The supply of a watch to a minor whose study was considered as the necessity
because to have a watch for graduate person is his necessity.

RATIFICATION OF THE MINOR’S AGREEMENT

A minor’s agreement being void- ab-initio, it is incapable of being validated a

subsequent ratification after the minor has attained the age of majority. Here is
minor accepts the contract in some terms is entered during minority then also
he is not liable. If a minor takes 2000.00 in minority and Rs.3000- after getting
majority age and said major give back Rs.5000- then this is valid and with
consideration. After getting majority age if minor uses his option to be a
partner, he will be bound for all the responsibilities of minority period, which are
against the firm.

CONTRACT BY MINOR GUARDIANS

1. If the agreement is on behalf of minor done by guardian.

2. With in his Power.
3. Guardian is capable to enter into contract.
4. The agreement will be in the interest of minor.

A case of Raj Rani vs Prem – Father agreed with the Director of Film, and
according to this agreement Director of Film will give a role to Indrani. It was
held void because no consideration was therein. It this agreement is with the
daughter then it is void ab-initio. If it is with his father then it has no value
even to think over it.

DOCTRINE OF RESTITUTION

Restitution means if an agreement is declared void, benefit should be returned.

Under section 64 & 65 of contract Act, that section 68 is applies only on
voidable agreements, Section 56 is applies on the agreement which were valid
at the time of formation but due to some circumstances(as under sec.56) it
becomes void. Under the equitable doctrine of restitution minor has to restore
back the benefit so received by him the exact things but it is applicable in case
of goods and property not in the case of money. Restitution stop where
repayments begins.

A case of Leslie vs Sheill- (1914) – It was held by the court of Appeal that the
money could not be recovered. If there were allowed that would amounts to
enforcing the agreement to repay loan, which is void under Inflants Relief Act-
1874.

Section 39(3) specific Relief Act 1877 If the court thinks he may pass an order
of restitution in any case, now a question arises whether he person did not
know about the age of minor. If minor is also not know his age. In this stage
plaintiff does not get compensation. If respondent misrepresent his age on this
point there are different view of court.

In case of KHARGIL VS LAKHAN SINGH -1928 Lahore high court, the court
ordered a minor to refund Rs.17500- which he had taken in advance for the sale
of land. When he refused to complete the contract. The court was of the
opinion that still the Specific Relief Act should apply whether the minor was the
plaintiff or the defendant. The doctrine of restitution should apply whether the
minor had taken the goods or money.

In case of, Ajudhiya Parsad vs Chandan Lal – 1937, Allahabad High Court
refused to following, extended view of restitution and held that a minor who had
taken money by mortgaging his home was not bound to restore the money.
Now section 33(2)(b) added according to this section, when a plaintiff wants to
dissolve the agreement and says that at the time of agreement he is minor than
he can get back all his profits.

DOCTRINE OF ESTOPPEL
According to rules contained in Sec.115 of Indian Evidence Act 1872, if you
make a statement today, which misleads another person, you are not allowed to
deny the statement to-narrow when the question of your liability arises. A
question whether a minor who has made a false representation about his age is
stopped from pleading his minority, was raised, but it was not decided in this
case of Mohiri Bibi. Privy Council held that where the party knows about the age
of minor this principle could not apply. The question arises that whether minor
can be stopped by false representation as to his age is now settled by this case.

In case of Nawab Sadiq Ali Khan vs Bibi Jai Kishori- 1928 It was held by
Privy Council that if a minor makes a contract by fraudulently expressing his
age more than actual then he cannot be stopped as per the rules of estoppel
that he was minor at the time of contract.

INDIAN AND ANGLO LAW

It is difficult to differentiate between both the law in respect of contract by

minor’s but generally the difference in both the law is –

1. Contract by minor under Indian law is void ab-initio.

2. It is voidable under English Law, such contract can be declared void on
the will of minor.

If the contract is for the benefit or fulfilment of necessity of minor. Then it shall
be binding.

QUESTION NO 2.- Difference between void and illegal

agreement?
OR
 All illegal agreements are void but all void agreement are not
illegal. Comments

Ans– INTRODUCTION

VOID AGREEMENTS

According to section 2(g) of Indian Contract Act 1872, Void agreement is , “

Agreement is not enforceable by law said to be void.” For instance, an
agreement by a minor has been held to be void. Section 24 to 30 of the Indian
Contract Act 1872, make a specific mention of agreement which are void.
Generally the following agreements are not enforceable by law.

1. Whose parties are not competent to do a contract i.e. minor and

unsound mind.
2. Whose parties do not have free consent i.e. they are under coercion,
undue influence fraud & misappropriation etc.
3. Whose consideration and object has not been lawful.
4. Which are immoral or against public policies.
5. Which do not create valid (illegal) liabilities between the parties.
6. Which have been declared as void by the court etc.

All above agreements are void because they cannot be enforced by law.

ILLEGAL- AGREEMENTS

Illegal agreements are such agreements whose consideration and object are not
lawful i.e. they are illegal. Such agreements are mentioned in section 23 of the
Indian Contract Act 1872. The following agreements are considered as illegal-

1. Which are prohibited by Law.

2. Which is of such a nature if followed would defeat the provisions of law.
3. Which is fraudulent.
 4. Which is causing injury to body or property of any other person.
5. Which have been declared by the court as immoral or against public
policies.

After the definition of void and illegal agreements we have considered the
following statements –

“ That all illegal agreements are void agreements but all void agreements need
not necessarily be illegal.” It can be adjudged from the following –

1. Illegal agreements are void – ab-initio which cannot be enforced by

law at any time whereas void agreement need not be void-ab-initio,
such agreements could become un-enforceable by law later. EXAMPLE-
An agreement takes place between the citizen of India and Pakistan
which was enforceable by law at the time agreement, but later on in
the event of war between India & Pakistan the agreement becomes un-
enforceable whereas agreement to pay money by A to B for illegal
intercourse is void ab-initio which cannot be enforced any time.” This
shows the illegal agreements are always void whereas void agreements
are not always illegal.
2. Parties of illegal agreements can be punished whereas the parties of
void agreements cannot be punished. EXAMPLE – An agreement to
encourage any woman for prostitution by paying her money is
punishable but an agreement by minor or without consideration is not
punishable. This also proves the fact that every illegal agreement is
void but every void agreement is not illegal because illegal agreement
is of punishable nature whereas void agreement is not. Void
agreement does not contain the element of illegal agreement whereas
illegal agreement contains the elements of void agreement.
3. Void agreement cannot be enforced at any time and illegal agreement
is also never enforceable by law. Hence illegal agreement contains
implicitly the element of illegal agreement.
 4. Illegal agreement are those which are mentioned in Sec. 23 of
contract act whereas void agreements included various other types of
agreement, like agreement by minor or unsound mind persons,
agreement without consideration etc.
5. Void agreements include illegal agreements which are not enforceable
by law, but illegal agreements need not contain all types of void
agreement. This shows that all illegal agreements are void but all void
agreements are not illegal.

Question No 3 : All contracts are agreements but all

agreements are not contracts?

OR

Discuss the rule for the formation of a valid contract when a contract
becomes complete?

Introduction : –

1. MULLA :- Every agreement or promise enforceable by law is a

contract.
2. SALMOND :-Contract is an agreement creating defining obligations
between parties.

A contract is an agreement enforceable by law. An agreement is the prime

stage of the contract. If agreement is enforceable by law or if agreement is
recognised by law then it will become a contract otherwise not.

To make contract an agreement it is essential that no contract is possible

without an agreement, but we cannot say that all agreements are contracts.
Section 2(h) of contract Act says that, “ Agreement enforceable by law is a
contract.” All agreement e.g. to see cinema is not contract, if offer is accepted
then it becomes promise. Promise is followed by consideration then it becomes
agreement and if an agreement is enforceable by law then it becomes
CONTRACT, see below :-

1. Proposal + acceptance = PROMISE

2. Promise + consideration = AGREEMENT
3. Agreement+ Enforceability = CONTRACT

AGREEMENT :- Agreement Section 2(e) “Every promise or set of promises

forming the consideration with each other, is an agreement”.

PROMISE :- Promise is an important part of the agreement. A proposal when

accepted becomes promise.

PROPOSAL/OFFER :- According to section 2(a) when one person signifies to

other his willingness to do or to abstain from doing anything, with a view of
obtaining the assent of that offer to such act or abstinence, he is said to make a
proposal.

ACCEPTANCE:- According to section 29(b) of contract act when the person to

whom the proposal is made signifies his assent there to the proposal then it is
said to be accepted. A proposal when accepted becomes promise.

CONSIDERATION :- Section 2(d) of contract act defines consideration. Section 2

says that an agreement made without consideration is void unless :-

1. Natural love and affection. Sec.25 of contract act, the parties to the
agreement must be standing in a near relationship to each other. The
promise should be made by one party out of natural love and affection
for the other. The promise should be in writing and registered.
2. Compensation for past voluntary services sec. 25(2) in Case, Sindha
v.Abrahim-1895 Bombay : The promise to compensate though
without consideration is binding because of this exception. The
 exception also covers a situation where the promise is for doing
something voluntarily”
3. Promise to pay time barred debt: Sec.25(3): The promise must be to
pay wholly or in part a time barred debt i.e. a debt of which the
creditor might have enforced payment but for the law for the limitation
of suit. The promise must be in writing and signed by the person to be
charged therewith.

ENFORCEABLE BY LAW :- in Indian Contract Act 2(h) it says that contract is

agreement enforceable by law. If an agreement is enforceable by law then it is
CONTRACT, otherwise merely an agreement.

To make an agreement a contract in Indian Contract Act section 10, the

following conditions must be fulfilled :-

1. Competent Parties :- Section 11 says, contract should be made with

person who must be major and sound mind not disqualified by law.
2. Free Consent :- Section 14, says that consent must be free, when it is
not caused by coercion, undue influence under section 16, fraud under
section 17, misappropriation under section 18 and mistake under
section 20.
3. Lawful consideration & object :- According to section 23, when
agreements consideration or object are unlawful, they are void.
4. Not expressly declare as void:- The such agreements which are made
without consideration or expressly declared to be void as per section
(25) are no contract, these are as under:-i)Agreement in restrain of
marriage section-26. ii)Agreement in restrain of trade section-27.
iii)Agreement in restrain of legal proceedings section -28.
iv)Agreement which is ambitious and uncertain sec.29. v)
Agreement by way of wages section-30 vi)
Agreement to do an impossible act section-56.
FORMALITIES PERFORMED IF NEEDED BY LAW:- The person by whom the
contract must be performed at particular time and place and performance
opportunity of payment. Thus when these conditions are fulfilled then an
agreement is made contract because these are enforceable by law.

DIFFERENCE BETWEEN AGREEMENT AND CONTRACT

AGREEMENT CONTRACT

1. Three important points for agreement are- 1. Two important points

for contract are –
(a) Offer
(a) Agreement
(b) Acceptance
(b) Enforcement
(c) Consideration

2. An agreement could be legal 2. Agreement in

or illegal. contract to be lawful
and enforceable by
law.

3. Agreement may or may not be 3. Contract is

enforceable by law
Enforceable by law.

4. Area of agreement is very wide as it can be any type 4. Area of contract is

legal, moral etc. Any agreement even if not enforceable by limited as every
law remains an agreement. agreement are not
contract.

5. The certain of valid liability is not requires in all 5. In contract the valid
agreement like, moral, religious etc. liability is created
between the parties.

Question No 4 :- Discuss the meaning of consideration? When

the consideration becomes unlawful? How does the Public
Policy Effect he consideration?

OR

An Agreement without consideration is void.” Discuss with Exceptions ?

Answer : INTRODUCTION : The consideration has important place in contract.

It is important part of Contract. A valid contract requires a consideration.
Agreement without consideration are void. The study of consideration in
respect of the subject matter is required.

Section 2 (d) of the Indian Contract Act- 1872 defines consideration. It says, “
When at the desire of the promisor, the promise or any other person has done
or abstained from doing or does or abstains from doing or promises to do or to
abstain from doing-something, such act or abstinence or promise is called a
consideration for promise.”

In other words when a the desire of one person, another person does sense act
or abstains from doing, then it consideration for the first person.

ILLUSTATION :- ‘A’ purposes ‘B’ to buy his cycle for /rs.1000.00. ‘B’ agrees to
buy that cycle for Rs.1000/-. Here Rs.1000/- is the consideration for cycle.

According to Pollock :- “ A party does or abstains from doing or promise to do or

abstain from doing something, is a price for which the promise is bought, the
promise thus given for value is enforceable.
According to Auson :- “ Consideration is that which is to be done abstain from
doing, to be bear or promises to do or which the promises abstain from doing in
respect of promise or bears it.”

ELEMENTS OF CONSIDERATION:-

1. Consideration to be at the desire of promisor.

2. Consideration can be given by the promise or any other person.
3. Consideration may be past, future or present.
4. Consideration must be legally adequate and valuable.
5. Consideration must be valid.

In case of Mirahul Enterprises V/s Mrs. Vijaya Srivastav AIR 2003, Delhi
High Court said that a valid agreement requires the consideration to be definite.

In Case :-Durga Parsad v/s Baldev The Plaintiff constructed certain shops in
a market at the instance of the Collector of that place. Subsequently the
defendants occupied one of the shops in the market. Since the Plaintiff had
spent money for the construction of market, the defendants in consideration
thereof, made a promise to pay the plaintiff commission on the articles sold
through their (defendant) agency in that market. The plaintiff failed to pay the
promised commission. In an action by the plaintiff to recover the commission, it
was observed that the consideration for the promise to pay the commission
was the construction of the market by the plaintiff. Such construction had not
been done at the desire of the defendants, but on the order of the Collector. It
was therefore held that since the consideration did not moved at the desire of
the defendants ( Promisors in this case), this did not constitute valid
consideration and therefore the defendants were not liable in respect of the
promise made by them.

TYPES OF CONSIDERATION ;- There are three types of consideration which are

as under :-
 1. Past consideration.
2. Present consideration.
3. Future consideration.

Present consideration means such consideration which is paid to the promissory

immediately. For example : ‘A’ offers to ‘B’ to sell his vehicle for Rs.50,000/-,
‘B’ pays to ‘A’ Rs.50,000/- at that moment, and ‘A’ gives the possession of
vehicle to ‘B’. This is present consideration.

Past consideration is the consideration for the service or promise performed in

past. For example :- ‘X’ at the desire of ‘Y’ takes care of the family of ‘Y’. After
three years ‘Y’ promises to ‘X’ that he shall pay him Rs.10000/- for his services
given. Here, the services provided by ’X’ in the past to ‘Y’ shall be called past
consideration.

Future consideration means such consideration which shall be paid in future. For
example :- ‘X’ promises to sell his house for Rs.75,000/- to ‘Y’ on 5th.Feb 2003,
and both parties decide that possession of house shall be delivered on
1st.Dec.2003 and on that day he payment of Rs.755,000/- shall be made. This
is future consideration, because the contract had originated on 05.02.2003 but
its consideration was to be paid on 1st December, 2003.

WHEN THE CONSIDERATION IS ILLEGAL

A valid contract requires the consideration to be valid or legal contract with

illegal consideration is not enforceable. Sec.23 of Contract Act tells those
situations in which the consideration shall be considered to be illegal. These
situations are as under:-

1. When it is prohibited by law.

2. When it is of such nature that if followed would defeat the provisions
of law.
3. When it is fraudulent.
 4. When it involves injury to the person or property of another.
5. The court regards it as immoral or opposed to public policy.

Consideration forbidden by Law:-Such agreements are void. An agreement or

act forbidden by law is that which is not permitted by law to be followed or
which is against the law. in case of Ram Sewak v/s Ramcharan : AIR 1982
Allahabad, the partners of a partnership firm made an agreement for the
concealment of profit for the purpose of deceiving tax. It was held illegal
consideration or an agreement forbidden by law.

Consideration to defeat the provisions of Law:- An agreement with such

consideration is also void, whose purpose is to defeat the provisions of law. In
other words, where an agreement is done with such consideration that if applied
would defeat the provisions of law, then such consideration and agreement shall
be considered void.

For example ‘A’ and ‘B’ agrees with the intention that they shall be able to take
any dispute related to a particular subject to the court, even though the
limitation for it has been determined,. This agreement defeats the provisions of
Limitation Act, and is therefore void.

In Nutan Kumar v/s Additional District Judge, Banda (AIR 1994

Allahabad), Allahabad High Court held that such an agreement between
landowner and tenant which is inconsistent to the provision of Rent control Act
shall be void. Such agreements cannot be enforced through court.

Fraudulent Consideration: Agreement with such consideration which are

fraudulent, are void. For example A, B and C agrees for the partition among
themselves of the profits obtained or to be obtained by fraud. Agreement is void
because its object and consideration is against law.
Consideration to cause injury to Body or property of any other person:- Such
agreement is void whose object and consideration are illegal owing to be
causing injury to body or property of any other person.

Immoral and Opposed to Public Policy:- Agreement with consideration being

immoral and opposed to public policy are void and unenforceable. Several
decisions of court in his respect have been made. Several judicial decisions
have considered following object and consideration to be immoral and opposed
to public policy :-

1. Agreement to lent house on rent for prostitution.

2. Agreement to lent vehicle to be used for prostitution.
3. Agreement to provide money to have cohabitation with the wife of any
other person.
4. Consideration of earlier cohabitation.
5. Agreement to give consideration for future illegal cohabitation.

A case of Subhash Chandra v/s Narbada Bai (AIR- 1982 of MP) A man
made agreement for maintenance with a woman. It was the result of an earlier
cohabitation with a woman with that man. Court held it to be void and
unenforceable. Agreement with consideration being opposed to public policy
are also void. The public policy does not have any universal definition, but
several judicial decisions have considered following things to be against public
policy :-

1. Insurance conscience.
2. Obstruction in freedom.
3. Elements creating restrain to trade or natural or legal rights.
4. Against good conduct etc.

The following agreements have been considered to be against public policy :

1. Agreement to cause injury to public service.

 2. Transfer of decree for the purpose of avoiding the effect of decree to
other creditors.
3. Agreement to pay money in return of marriage.
4. Agreement to bribe for adoption etc..

in case of SBI v/s Aditya Finance and Leasing co. – 1999 (Delhi) , It was
held that the land spotted or embarked for residential purposes is used for
commercial purposes by an agreement which shall be void by being against
public policy. Thus the agreement with such consideration that adversely effect
over the interest of common people or which are not proper in respect of public
shall unenforceable by being void.

AGREEMENT WITHOUT CONSIDERATION ARE VOID

As we have seen above that Consideration is essential for a valid contract.

Agreement without consideration cannot be imagined. Section 25 of Indian
Contract Act-1872 clearly provides that “ Agreement without consideration is
void.”

FOR EXAMPLE:- ‘A’ promises ‘B’ to pay him Rs.2000/- without any
consideration. This is void agreement.

Exceptions :- But the above rule have some exceptions also i.e. an
agreement without consideration in following situation is valid and enforceable
:-

1. Agreement Under Natural Love and Affection:- Agreement without

consideration due to Natural Love and Affection are valid and
enforceable provided that they are written and registered.
2. Agreement to pay compensation for past service Where any person
without the knowledge of promisor or otherwise than his prayer, does
any service or has done service and the promisor promise to
compensate him, there consideration shall not be required, with the
 following thing which are necessary :- i) An act has been voluntarily
done already for the promisor. ii) At the time of commission of that
act, promisor was competent to contract. For example ‘A’ at the desire
of ‘B’ does service for the relatives of ‘B’. Later ‘B’ agrees to pay
Rs.1000/- to ‘A’ for the service. This agreement been result of earlier
service is valid and enforceable. Such consideration is also called past
consideration.
3. Agreement for payment of Time Barred Debt. Such an agreement for
payment of a debt barred by time under limitation act, is considered to
be lawful because a time barred debt is also a good consideration as
the debt remains ever after the completion of time of recovery.
In Tulsiram v/s Samey Singh AIR-1981 (Delhi), Delhi High Court
held that an agreement for the payment of a time barred debt can be
made under Se.25(3) but it requires that the agreement shall mention
that consent has been given for the payment of time barred debt.

Question No. 5. Discuss contingent contract. Elaborate with

suitable illustrations ?

Answer :- INTRODUCTION : Contingent contract is special types of contract.

Generally in most contracts rights of parties are enforced immediately after the
execution of contract, but sometimes there are contracts whose enforcement
depends upon happening or non-happening of an event.

DEFINITION :-

Section 31 of Indian Contract Act 1872 defines that Contingent Contract

according to it : “A contingent contract is a contract to do or not to do
something, if some event, collateral to such contract does or does not happen.”

EXAMPLE:-
‘ A’ contracts with ‘B’ that if the house of ‘B’ destroyed by fire then he shall pay
Rs.10,000/- to B. It is contingent contract because the enforcement of contract
depends on the happening or non happening of an event.

Thus the contingent contract depends upon the happening of a uncertain event.
If the event is of certain nature, then it shall not be contingent contract.

ELEMENTS OF CONTINGENT CONTRACT

These are as under:-

1. The contingent contract depends upon the happening or non-

happening of an event.
2. Such event shall be of uncertain nature i.e. it may or may not be
happen.
3. Such event is not the part of mutual promises of parties.
4. Happening or non happening of the event does not depend on the will
of the parties.
5. The future uncertain even is collateral to the main contract.

Ranchoddas V/s Nathmal Hirachand and company 1951 (Bombay)

In this case the court decided and did not accepted the contention and said that
reaching of cloth to India was a method of delivery. This cannot be said
contingent contract.

NATURE OF CONTINGENT CONTRACT:-

Section 32 to 36 of The Indian Contract Act, 1872mention that various forms of

contingent contract like:-

1. i) According to Section 32 . Contingent contract to do or not to do be

anything if an uncertain event happens cannot be enforced by law
 unless and until that event has happened. If the event becomes
impossible such contract becomes void.

EXAMPLE:- A contract to pay B a sum of money when B marries C. C dies

without being married to B. The contract becomes void.

1. ii) Section 33 says : contingent contract to do or not to do anything, if

an Uncertain future even does not happens can be enforced by law
when the happening of that event becomes impossible.

EXAMPLE:- A agrees to pay to B a sum money if a certain ship does not return.
The ship is sunk. The contract can be enforced when the ship sinks.

iii) Section 34 says : that if future event on which a contract is contingent is the
way in which a person will act at an unspecified time, the event shall be
considered to become impossible when such person does anything which
renders it impossible that he should so act within any definite time, or otherwise
than under further contingencies.

EXAMPLE:- A agrees to pay B a sum of money if B marries C. C marries D. The

marriage of B to C must now be considered impossible, though it is possible
that D may die, and that C may afterwards marry B .

1. iv) Section 35 says that :- contingent contacts to do or not to do

anything if a special uncertain event happens within as fixed time
become void if, the expiration of the time fixed, such event has snot
happened, or if, before the time fixed, such becomes impossible.

EXAMPLE:- A promises to B to pay a sum of money if a certain ship returns

within a year. The contract may be enforced if the ship returns within a year,
and becomes void if the ship is burnt within the year.

1. v) Section 36 says that : contingent contract to do or not to do

anything if an impossible event happens, are void, whether the
 impossibility of the event is known or not to the parties to the
agreements at the time when it is made.

EXAMPLE: – A agrees to B, a sum or Rs.1000.00, if two straight lines should on

close a space. The agreement is void.

Contingency dependent on the behaviour of the parties. It is important that if

the performance of the promise depends on the mere will and pleasure of the
promisor, it is no promise at all but promise to pay what a third party decide is
valid promise.

Question No.6 : Define Fraud ? Distinguish between Fraud and

Misrepresentation. Whether silence amounts to fraud?

OR

What are the factors which vitiate consent and make the Agreement Void or
voidable?

OR

What is consent? When is consent said to be free under Indian Contract Act?

OR

Distinguish between coercion and undue influence.

Answer : INTRODUCTION :-

An agreement becomes contract if it fulfils the conditions of /section 10.

According to sec. 10 for an agreement becomes contract with law full object and
consideration. It means free consent is not free then the contract is invalid.
But it is voidable not void. Voidable means a contract which can be declared
void by the court at the option of other party.

under sec.2(1). Section 198, 10(a) also deines the term voidable.

Section 13 : Consent : According to Indian Contract Act 1872:- “ Two or more

persons are said to consent when they agree upon something in the same
sense.”

In the above definition it shows that (i) At least two persons are must (ii) for
the same thing and same sense.

EXAMPLE: At least two persons are must:- A agrees to sell his house to B for
Rs.50,000/- B accepts this proposal.

For same thing and same sense:- ‘ A’ have two cars; one Maruti and the other
is Fiat. He agree to sell to B. A might be thinking to sell Maruti car while B
might be thinking to purchase fiat car. In this EXAMPLE A & B do not agree upon
the same thing in the same sense, hence there is snot contract in this case.

A Free Consent :- under sec.14 Consent: is said to be free when it not caused
by : i) Coercion Sec. 5.15 (ii) Undue influence sec..16 (iii) Fraud sec..17
(iv) Misrepresentation .18 (v) Mistake 5.20.

In other words consent is free if it is not affected by coercion, undue influence,

fraud and misrepresentation. In case of consent taken by mistake the consent
shall be void.

1. COERCION ( 5.15) :

Coercion means by force or compulsion. Coercion is a method of doing consent.

This method is against the law. When any person by doing an illegal act gets
the consent of any other person on an agreement it is called coercion. It
means:

Explanation : It is immaterial whether the IPC-1860 is or is not in force in the

place where the coercion is employed.

(a) Threading to commit any act forbidden by IPC: If consent obtained by

threat of committing act forbidden by SC it called is coercion. EXAMPLE : A
kidnapped a son of B, A says you give me your scooter in Rs.50/- then I will
give you your child. B agreed, it is a coercion. Case : Masjidi v/s Ashiya 1880: It
was held that it cannot be simple upon these facts that the consent of such
person was caused by coercion.

In Raganayaswami V/s Alyar Sette, a Madrasi man died leaving behind a

widow. The relative of the dead threaded the widow to adopt a boy otherwise
they will not allow her to remove the dead body of her husband. The widow
adopted the boy and subsequently applied to cancel the adoption. The court
held the adoption is not valid.

Muthiah Chettiar V/s Karupan Chettiar

A was an agent of B. A at the end of his services denied to give account to

other agent. He said to B to release him from liabilities otherwise he shall not
give the account book. It held by coercion.

(b) Threat to commit suicide: It comes under sec.15.

In case of Ammiraja V/s Seshamma, A person held out a threat to commit

suicide to his son and wife, if they refused to execute a release deed in his
favour. They executed the deed in his favour. It was held by the court that this
coercion. According to old filled J threat to commit suicide no body can be
punishable under IPC, and suicide itself not a crime under IPC, because after
suicide no body can be punished. Only attempt to commit suicide is punishable.
(c) Un lawful detaining of any property : According to sec.15 coercion could also
be caused by unlawful detaining or threatening to detain any property to the
prejudice of any person whatsoever with the intention of causing any person to
enter into an agreement. Property may be moveable or immovable. If one
person detains unlawfully, it is coercion.

(d) To Prejudice of a person : Coercion may be against a party as well as

against any person.

(e) Legal Threatening not coercion:- A commits accident with B. B says you
give me Rs.500 otherwise I shall sue against you. It is not coercion.

(f) Place of coercion: coercion may be committed at any place. It may also be
committed even outside India.

(g) Burden of proof on Plaintiff:

(h) Remedies: Voidable or restitution.8

Andhra Sugar Ltd. v/s State of Andhra Pradesh– 1968 : It was held that the
agreement cannot be said to be by lack of free consent.

1. UNDUE INFLUENCE : SEC.( 16)

Undue influence means unreasonable influence or improper or not right

influence. When consent is taken by way of unreasonable influence or improper
way then it is not free. The consent can be declared void on this ground.
Section 16 says that when any person has such position over the other person
as to dominate his will, the person who dominates the will of the other must
have superiority over the other. This is done under the following conditions.

1.Relationship superior or inferior may be real or apparent relationship as

(a) Money lender or borrower.

(b) Income Tax Officer and shopkeeper.

(c) Income Tax Officer and assessee.

(d) Police and thief.

Case :- J.R.Bhatt v/s State of U.P. Pt. Was employed in the court of UP. He
wants a leave. Registrar said leave can be granted on the condition if you will
not come in service after the end of leave. He wrote it. It was held by servant
under undue reference influence.

2. Fiduciary Relationship :- 1. Advocate & Client. 2. Master & Servant. 3. Guru

and chela 4. Father and children 5. Teacher & student. 6.Doctor & Patient. 7.
Creditor and Debtor. 8. Trustier and benefishes. In Manu Singh v/s Umadat
Pandey, An old Hindu woman gifted the whole property to her religious guru to
get peace in heaven. It held undue influence .

Parda-Nashin women : contract with parda-nashin women is presumed to have

been induced by undue influence. She can avoid the contract unless he other
party can show that it was her intelligent and voluntary act, A case : Ismiel v/s
Amir Bibi 1902 : It was held that the women does not become parda-nashin
women.

Mental sickness:-If one party is not in position to think his interest due to
mental sickness. Case : Rani Annpurna v/s Swami Nath. A widow who did not
have any mental fitness went to creditor, she got Rs.1500/- or 100% interest. It
was held voidable because she was not in a position to give free consent. The
Party attempted to influence the will of other party. A state of mental fear is
not undue influence. If a party is in a position to influence other’s will it is not
undue influence whether other party gets damaged.
Real Damage :- If no damage is done to the Pt. Then it will not be undue
influence. Remedies : 1. Voidable u/s 19.2. Restitution u/s 64 3.damages u/s
73. The court under section 19 can declare the whole agreement as void or the
court may be declared it void on reasonable condition.

Burden of Proof. : Pt. Will have to prove that the def. Was in a position to
dominate the will of the pt. Thus if such relationship is proved by the pt. The
court will presume the undue influence. Now burden to disprove this
presumption comes on defendant, that there was no undue influence. He should
prove that he did not try to dominate other’ will.

 He paid sufficient consideration to aggrieved.

 That the plaintiff had opportunity to take free advice.
 Effect of Undue Influence:- Section 19A says when consent to an
agreement is caused by undue influence, the agreement is a contract,
voidable at the option of the party whose consent was so caused.

FRAUD UNDER SECTION (17)

Section 17 defines that “ Fraud “ includes any of the following act committed by
a party to a contract or with his connivance or by his agent with intent to
deceive another party there or his agent or to include him, to enter into the
contract( whenever a person obtains any material advantage from another by
unfair and wrongful means. It is said that he has committed fraud. Fraud is
the wilful representation made by a party to contract with the intent to deceive
the other party or to induce such party to enter into a contract.

ESSENTIALS OF FRAUD :-

1. To give a suggestion that a fact is true, while it not true: (false

suggestion) such suggestion, which is not true.
2. Active concealment of a fact which is in the knowledge of the person:
Every body has the duty to disclose the defects in the material or the
 property while entering to the contract, if it is not done then the
agreement is based on fraud. EXAMPLE :- ‘A’ agrees to transfer his
land to B but the land is already mortgaged to C, A does not disclose
this fact. It is a fraud.
3. To do such promise without intention of perform(false promise )
4. Any other act fitted to deceive.
5. Any act which is declared by law as fraudulent : such as in slavery act
for companies it has been specified that certain type of transfer of
property is fraud.
6. Fraud committed by partner or agent of the firm: such as River silver
mining v/s Smith AIR 1869: The court held that this act was done by
the Agent of company is liabe.
7. There must be a false representation i.e. A shopkeeper tells B that
these goods are fresh. It is A option to reject it. It will not be fraud.
8. Representation must have been made by the Party or by his agent:
The representation must have been made knowing that it is false
without knowing its truth. In both cases it will be fraud.
9. The representative must have been an intention to deceive.
10. Mere silence is no fraud: according to sec.17 of Indian contract
act,1872 A contracting party is not obliged to disclose each and
everything to the other party. Merely because a person does not
disclose the defects in the goods sold by him, there is no fraud. In Shri
Krishan v/s Kurukshetra University- 1976, It was held that there
was no fraud by the candidate and the University has no power to
withdraw the candidature of the candidate on that account.
11. There are two exceptional cases where mere silence may amount
to fraud- i) Duty to speak : when the circumstances of the case are
such that, regard being had to them, it is the duty of the person
keeping silence to speak. Keeping silence in such case amounts to
fraud.In case of Srinivasa Pillai v/s LIC of India, AIR-1977, It was held
that the claim is not maintainable against the insured corporation. ii)
Duty to disclose changes :- If a statement is true when made, but
 subsequently becomes false by the change of circumstances, there is
duty to disclose the change before the other party acts upon it.

Prof of Fraud

Fraud is essentially a question of fact and has to be proved by the person who
alleges that the fraud was done on him.

MISREPRESENTATION (UNDER SEC. 18)

When a false statement is made with the knowledge that it is false and also with
the intention to deceive the other party and make him enter into a contract on
that basis, it is known as Fraud,

But when the person making a false statement believe the statement to be true
and does not intend to mislead the other party to the contract, it is known as
“Misrepresentation” it is somewhat different from fraud. EXAMPLE : ‘A’ while
selling his watch tells ‘B’ that his watch is made in Switzerland, A does not know
that the watch is not made in Switzerland. It is fraud because the watch is
made in India. A is guilty of misrepresentation.

It includes :- 1) The positive assertion, in a manner not warranted by the

information of the person making it of that which is not true, though he believes
it to be true. 2. Any breach of duty which without an intention to deceive gains
an advantages to the person committing it.

ESSENTIALS

1. The positive assertion of material fact: When one party believes that
his statement is true but it is not true, it is called misrepresentation.
Case: The Ocean steam Navigation comp. v/s Sunderdas Dharmsay:
‘A’ sold ship telling it is of 28 tons but it was of less tons. ‘A’ did not
know about it. It held misrepresentation.
 2. Any Breach of duty : When on Party without intention of committing
fraud breaches duty and if he also takes benefit from the agreement it
will be misrepresentation. Case : Bamarsi Dass v/s New India
Assurance : Actually one liability of party released in that deed held
misrepresentation. There was the duty of the party to disclose the fact
of deed. B could not read it but he did not. It means he trusted on A
and it is his false statement, which held then it is Misrepresentation.
3. Innocent Misrepresentation: When false statement is made innocently
then it is Misrepresentation. Smith v/s Land & House Property Corp.: A
sold a hotel and said that all rent holders are gentleman. Actually they
it all were defaulters. It held misrepresentation. In Case of, Derry v/s
Peek(1889),it was held that the management of the company was
guilty of misrepresentation, and not for fraud. In another case : Noor-
ud-din v/s Umerao Bibi 1998: A sale deed was challenged on this
ground that it was executed under fraud and misrepresentation seller
was a blind person. He was also not paid sufficient consideration. The
possession of property was also transferred to the buyer, court
declared such sale deed to be set-aside.

FRAUD & MISREPRESENTATION DIFFERENCE BETWEEN

FRAUD MISREPRESENTATION

1. Fraud contains the intention to It does not contain any such intention.
deceive.

2. The facts are altered with the No such thing in misrepresentation. Any is
intention to deceive the other person. presented as such presented as such whereas
it does not came out to be true

3. The guilty person has the The guilty person has no knowledge of truth.
knowledge of truth.

4. Fraud is a type of tort and so It does not come under tort.

punishable.

5. Contract by fraud can be rescinded Contract by misrepresentation can only be

to demand compensation. rescinded not demand of compensation.

6. The guilty person cannot take the Such defence could be availed.
defence that the victim person as
plaintiff could have find out the truth.

MISTAKE (Section: 20-22)

The fifth element defecting the consent is MISTAKE, contract by mistake are
either void or voidable. It is not a free consent. One or both of the parties may
be working under same.

Mistake is of three kinds :-

1. Mistake in the mind of the parties is such that there is no genuine

agreement at all. There is no meeting of minds or consensus ad idem.
2. There may be mistake as to a matter of fact relating to that
agreement.
3. The mistake essential to the agreement as to the subject matter.

TYPES OF MISTAKE :-
Mistake when there is no consensus ad idem: According to sec.13, two or more
persons are said to consent when they agree upon the same thing in same
sense. If there is no meeting of minds or consensus ad idem, there arises no
contract which could be enforced.

Section 20 requires that:- Mistake of both the parties : The agreement is void if
there is mistake on the part of both the parties. In case of Ayekam Angahal
Singh v/s Union Bank Of India, AIR- 1970, It was held that since the mistake
was unilateral, the contract was not affected thereby and the same could not be
avoided.

According to Sec.21 of the Indian Contract Act which lays that mistake of law of
country is not excusable i.e. any contract is done under a mistake of law being
followed in India then such contract shall not be voidable, but if contract is
under a mistake of foreign law that i shall be void, i.e. Mistake of Foreign Law
and Mistake as to individual rights. Case : Cooper v/s Phibbs-1867: The court
held that the mistake related to general ownership shall the same effect what
the mistake of fact would have. Mistake of fact is not excusable.

EXAMPLE :- ‘A’ agrees to buy horse from ‘B’ at the time of agreement, the horse
had already died but both the parties had no knowledge of it such, agreement is
void.

The following points are important in respect of Mistake of Fact :-

1. Mistake must be mutual. In case of Courturier v/s Hastie: 1856, It was

held that the agreement was void because of the mutual mistake as to
existence of the subject matter.
2. Mistake must relate o any substantive fact, like mistake as to identity
of the parties, identity of subject matter identity of nature of
transaction etc.
3. Mistake must relate to present or existing fact.
Case : Raffles v/s Wichellehaus – 1864 : It was held that owing to mistake as to
the identity of subject matter of contract, such contract was void.

1. Mistake as to Promise:- If a mistake because of which the promise

does not reflect the real intention which was there in the proposed
agreement, such an agreement would be void. Case :Hartog v/s
Colins& Shields: 1939 It was held that there had arisen no contract in
this case because the buyer could have noticed the mistake.

Question No. 7:- Explain the law relating to agreement in

restraint of trade with reference to Indian Law along-with
exceptions?

Answer :-INTRODUCTION : Section 25 to 30 of the Indian Contract Act-1872

mentions that those agreement which are void. Void agreement are defined in
sec. 2(g) of the act. According to it :- “An agreement not enforceable by law is
said to be void.” Thus sec.25 to 30 of the act mentions following agreements to
be void :-

AGREEMENT IN RESTRAINT OF TRADE

Section 27 of the act mentions that all such agreements shall be void which
creates restraint or partial restraint in any type of occupation, trade or business
of a person. In simple language, agreements creating restraint in lawful trade,
occupation or business are void.

Indian constitution provides every person the freedom to trade, occupation or

business. This freedom cannot be interfered except in certain situation.
Freedom of trade, occupation or business is in accordance to public policy. This
is the reason that this provision has been mentioned in sec.27 of the act. But it
is important that a reasonable restraint on trade, occupation or business shall
not make an agreement void. The requirement is that restraint shall be
reasonable.
In case of, Northernfelt v/s M.N.Felt Guns and Ammunition Co. Ltd.
1894, It was held that before declaring agreement in restraint of trade to be
void, the reasonability of restraint shall be examined and the examination shall
consider mainly that whether it is reasonable or not for parties or public
interest.

EXAMPLE : If two neighbouring land owner agrees that they shall not organise
market for cattle on their lands on the same day then such agreement shall not
be void because it is in the interest of both.

In case of, Ms.S.Dey Forments Industrial Ltd v/s Ravindera Nath

S.Kamath 1999, It was held that where any person is appointed in a company
as an advisory and a condition is laid that he shall not act anywhere during his
service, there such an agreement shall not be void.

The above rules does have few exceptions which are under :-

1. Sale of Goodwill : Where the goodwill of any trade, occupation or

business is sold, there the buyer shall have an agreement with the
seller that the seller shall not do any such business within the local
limits for a specific time which shall be done by the buyer with that
goodwill. Four things are necessary for the exception- i) Trade is
similar, ii) Within specified local limits, iii) Buyer is doing such
business, iv) The restraint is reasonable in the eye of court.

In case of Gujrat Bottling Co. Ltd. v/s Coca Cola Co. 1995, It was held that
provisions related o agreement in restraint of trade shall not apply in such
matters in which are prohibited only for the time of existence of contract. If
they are applied even after the termination of contract, then i shall be void.

1. Partnership Agreements : Where there is an agreement between

partners at the time of formation of firm that any partners shall not
carry a similar or otherwise any trade during the existence of
 partnership, then such an agreement is not considered to be creating
restraint.
2. Dissolution of Partnership :- If any agreement is made between the
partners at the time dissolution of partnership or a partner shall not
carry a business similar to that of firm for a specific time, then such
agreement shall not be void provided that it is reasonable.

Question No.8 : What do you understand by ‘Quasi-contract?

State its essential features.

OR

Quasi-Contract are in law but not in fact. Explain.

OR

Quasi- contract is not the product of an agreement entered into parties but a
creation of law on the basis of equitable principles.” Discuss the above
statement and state the quasi contract relations recognised by the India in
Contract Act.?

OR

What do you understand by Quasi-contracts? Explain some relations which are

resembling to those created by contracts as incorporated under the Indian
Contract Act 1872.

Answer :- INTRODUCTION: For a valid contract there must be offer,

acceptance and consideration with some other requirements. But sometime the
position comes when there is neither offer not acceptance still there is contract.
Such position is put under the category of “ Quasi- Contract” or relation
resembling to those contract.
The term Quasi Contract generally means half or ‘semi’. It means Quasi contract
is half or semi contract. But this meaning does not fulfil our aim. It is a
confusing term. However we can say that ‘quasi contract’ means the contract,
which is equal to that of a valid contract. Chapter 5 of the Indian Contract Act
deals with such situations under the heading of certain relations resembling to
those created by contract. The chapter avoids the word ‘quasi-contract’.

Generally the contracts or agreements are the result of acts of parties. Parties
agree to do or not to do something but several times there is no agreement
between the parties, but still the liabilities arise between the parties such
liabilities are called by, Quasi-Contract.

Definition : Indian Contract act does not define the Quasi-contracts. It only
mentions that, certain relations resembling those created by contract. However
the various jurists have defined the Quasi-contract as under:-:According to
Wharton’s Law Lexicon: “ An act which has not strict form of a contract but has
the effect of it, is an implied Contract.”

According to Desai : Quasi contract or implied contracts are exceptional kind of

contracts by which one party is bound to pay money in consideration of
something done or suffered by the other party. They are not founded on actual
promises but arise when one party so conducted himself that he must be
deemed as if had made promise although he has not,”

According to Pollock:- “Quasi contracts are contracts in law but not in fact.” In
other words it can be said that Quasi contracts is not a product of an agreement
entered into parties but a creation of law on the basis of equitable principles.

Basic of Quasi-Contract : Lord Mansfied is considered as the father of this

contract. According to him, ‘Natural justice demands that one should not get
unjust profit at the cost of another unjust loss. This order has been laid down in
the case of :- MOSES v/s MACFERLAN : Such action lies for money paid by
mistake or upon a consideration which happens to fail or for money got through
imposition or extortion or oppression or for an undue knowledge taken of the
pt’s situation. Country to the law made for protection of persons under those
circumstances of the case. It is obliged by lies of natural justice and equity o
refund the money.

Under section 68 to 72 It has been recognised by Indian Contract act under the
heading of , Certain relations resembling to those contracts.

CHARACTERISTICS OF QUASI-CONTRACTS

1. These agreement are never made by parties but imposed by law.

2. One party is bound to pay money to other party.
3. Such contract gives right to one party. Again the other party in not
against world.
4. Only money can be obtained not the liquidated damages.

KINDS/ESSENTIAL OF QUASI-CONRACT

1. Necessaries supplied to a person of contracting: Sec. 68 says that if a

person who is incapable to enter into a contract is supplied
necessaries, then he is bound to compensate the suppler. Incapable
means, who are not capable under sec. 11 and 12, Minor is insane or
disqualify by law. If basic necessities are supplied to this, it will be
deemed quasi contract and its price can be recovered through medical
aid, clothes, food, marriage of minor’s sister etc., that is depending
upon him. Minor’s marriage is not a basic necessity. The ingredients of
sec.68 are as under : i) Necessaries
supplied to a person not competent to make contracts.
ii) These goods must
be for the basic needs. iii) The goods must be
according to the status of minor. iv) The supplier can recover the
price against the property of minor. It is not personal liability.
In case of Chapple v/s Cooper: 1844, It was held the things for necessities
shall be considered those without which it is not possible to live. The food,
clothing, shelter, medicine etc., are the necessaries to minor or lunatic. But it
must not be more than sufficient.

1. PAYMENT BY AN INTERESTED PERSON : According to Section 69 of act,

a person who is interested in the payment of money which another is
bound by law to pay, and who therefore pays it, is entitled to be
reimbursed by other.

EXAMPLE: ‘B’ holds land in Bengal, on a lease granted by A, who is a zamidar.

The revenue payable by A to the government being in Wlaw, the consequences
of such sale will be the annulment of B’s lease. B prevent the sale and
consequent annulments of his own lease, pays to the government the sum due
from A. A is bound to make goods to B the amount so paid.

Govind Ram Gordhan dass Sekajri v/s State of Himachal

Where Maharaja, having sold mills without paying the overdue municipal taxes
was sued by the buyer, who had to pay to save the property from being old.
The Privy Council held that he was bound by law to pay without the meaning of
the sec. Where a person is only morally bound and is not legally compellable to
pay he will not bound to pay.

1. LIABILITY TO PAY FOR NON-GRATUITOUS ACT: – When any person

lawfully does any act for another person not gratuitously and the other
person has enjoyed the benefit of that act then he is bound to
compensate him.

ILLUSTRATION:- ‘A’ is a trade man leaves goods at B’s house by mistake. B

treats the goods as him own. He is bound to pay ‘A’ for them. A Case :
Subramanyam v/s Thaippa 1961: A contractor did more build more that what
was required by the contract and did not intended act gratuitously. Court held
that the contractor was entitled to compensation for extra work.

Essential conditions of section 70:-

1. One person legally works for other

2. The act is done voluntarily.
3. He gets some benefit for this work.
4. To whom it is done takes benefit of that act.
5. Act has been done not gratuitously.

In Kanhiya Lal v/s Inder chand, the court held that section 68 does not apply
because she was a minor at sec.70 also does not apply because she did not get
any benefit. Because it was not a quasi-contract as his friend having no interest
in this payment.

1. Responsibility of Finder of Goods:- according to Section 71 of the Act, a

person who finds goods belonging to another there will be a quasi
contract . If bailment between two looses all the rights and duties of
bailer and balee will be presumed under section 165 & 169( rights and
Duties of bailee).
2. MISTAKE OF COERCION:- Section 72 of the act says that, “ when
anything is delivered by way of mistake then it is the duty of the
person to return that things to the concern person or to compensate
him.”

Sales Tax Officer Banaras v/s Kanhayya Lal : In this case it was held that the
transactions is to be ultra-wires. The firm was allowed to recover back the tax
which he had paid.

Similarly if any person takes any thing from another person by coercion i.e. by
way of force under this petition also the person is bound to return the goods to
the concerned person under quasi-contract obligation.
For EXAMPLE :- A at the point of pistol takes some gold rings from ‘B’. Here ‘A’
is bound to return the gold rings to ‘B’ under quasi contract obligation. The
word coercion is same as defined in sec.15 and the word mistake is same as
defined under sec.20. There are the provisions with regard to quasi-contract.

CONCLUSION

Thus, in all above matters there is no agreement between the parties but the
conduct and actions of parties show that an agreement has originated between
them and get binding in similar way as like a contract. This is called Quasi-
Contract.

Question No.9:- Explain the term ‘Anticipatory Breach of

Contract’ and discuss the consequences of such a breach.

OR

Discuss the consequences of breach of contract with relevant case.

OR

Who must perform the Contract? Who can demand for the performance of
Contract?

Answer: INTRODUCTION ; Contracts are important when they are performed.

There are two main questions in this respect :-

A) Who shall perform the contract.

B) Who can enforce the performance of the contract.

WHO SHALL PERFORM THE CONTRACT :- Section 40 of the Act mentions that
generally the contract shall be performed by the promisor itself if the parties
has such intentions. Otherwise the promisor can employ any other person for
the performance of contract.

Generally contract based on personal qualifications shall be performed by the

promisor himself. For EXAMPLE, ’A’ promise to paint a picture for B. The
performance of contract requires it to be done by the promisor himself because
painting in personal skill of ‘A’. Whereas the contract of sale of property can be
performed by promisor himself or by some other person.

Promisor can perform a contract by himself in the following conditions :

1. Where the intention of parties was that the contract shall be performed
by the promisor only.
2. Where the performance depends upon personal skill of promisor. Such
contracts get terminated on death.
3. By Agent :- If the performance of contract does not depend upon
personal skill, then such contract can be performed by the agent of
promisor. Generally such contracts are contracts for the sale of
property.
4. By Legal Representative : Where the promisor dies before the
performance of contract and the performance does not depend upon
personal skill of promisor, there such contracts shall be performed by
the legal representatives of deceased promisor, but only up to that
limit to which the legal Representative had the interest in the property
of deceased.
5. By Third Person:- Where promises accepts the performance from a
third person, there such promise can be performed by that third
person. In such mattes, promise cannot enforce performance from
promisor under section 41 of the Indian Contract Act.

PERFORMANCE OF JOINT PROMISES

There are provisions in the Indian Contract Act,1872 in this respect:-

 1. Under section 42 of the act when two or more persons have made a
joint promise, all such persons must jointly fulfil the promise.
2. When any one of joint promisor dies, his legal representatives shall
perform the promise.
3. Under section 43 of the act when two or more persons make a joint
promise, the promise may compel any of such joint promisors to
perform the whole promise.
4. Section 44 of the act says that where two or more persons have made
a joint promise, a release of one of such joint promisor, by the
promisee does not discharge the other promisor of joint promisors
neither does it free the joint promisor so released from responsibility to
the other joint promisor or joint promisors.

WHO CAN DEMAND FOR THE PERFORMANCE OF CONTRACT.

The following persons can demand for the performance of the contract :-

a) The first right for the performance of contract is with the promisee. He can
demand for the performance of contract.

b) If the contract is not of personal nature then on the death of promisee his
legal representative or representatives can demand the performance.

c) Where there is joint promise, there all the joint promisors can jointly
demand.

d) Where any one of the joint promisee dies, then the legal representative of
such deceased shall demand for the performance.

e) Where are promisee dies, then their legal representatives can demand the
performance.

ANTICIPATORY BREACH OF CONTRACT:

Section 39 of the Act provides for the Anticipator Breach of Contract which
means :-

“before the performance of the contract, any party to contract refuse to perform
the promise or contract or makes itself disable for performance is breach of
contract”.

EXAMPLE :- A singer enters into a contract with B the manager of theatre to

sing at his theatre for two nights in every week during the next two months and
B agrees to pay her Rs.1000/- for each night’s performance. On the sixth night
A wilfully absents herself from the theatre. B is at liberty to put an end to the
contract. In such cases promisee can cancel the contract.

The base of section 39 is “ when a party to a contract has refused to perform or

disable himself from performing his promise in its entirety, the promisee may
put an end to the contract, unless he has signified by words or contract his
acquiescence in its continuance.

REMEDIES :

The following remedies are available against the anticipatory breach of contract
:-

1. The promisee can file a suit for the breach of contract considering it to
be actual breach.
2. The promisee shall wait till the actual date of performance and then file
the suit.
3. Specific performance and Injuction : sometimes a party to the contract
instead of recovering damages for the breach of contract may have
protection to the alternative remedy of specific performance of the
contract.
4. Damages : Remedy by way of damages is the most common remedy
available to the injured party. This entitles the injured party to recover
 compensation for the party who causes the breach. Sec.73 to 75
incorporate the provisions in this regard. In case of,Hadley V/s
Baxendale-1854, It was held that the special circumstances were not
communicated by the plaintiffs to the defendants. The plaintiffs were
therefore not entitled to recover the loss. In case of, Victoria Loundry
Ltd. v/s Newman Industries Ltd. 1949, It was held that the
defendant had the knowledge of the fact. The case was referred to
official Referee to determine the damages payable in this case.
5. Quantum Meruit:- When the injured party has performed a part of his
obligation under the contract before the breach of contract has
occurred, he is entitled to recover the value of what he has done under
this remedy.
6. Measure of Damages :- That after the certain result of the breach of
contract in nearest time is to be compensated. Damages are,
therefore, to fix amount of that basis if a party takes security deposit
from the other for the due performance of the contract.
CONTRACT LAW – I – REVISION STUDY NOTES FOR
LL.B FIRST YEAR

UNIT – I
Introduction to the Indian Contract
Act, 1872
A contract may be defined as a legally binding agreement or, in the
words of Sir Frederick Pollock: “A promise or set of promises which
the law will enforce.”

Section 2(h) of Indian Contract Act, 1872 defines contract as “An

agreement enforceable by law”. Thus, formation of a contract there
must be an agreement, and the agreement should be enforceable
by law.

The agreement will create rights and obligations that may be

enforced in the courts. The normal method of enforcement is an
action for damages for breach of contract, though in some cases the
court may order performance by the party in default.

Enforceability of Contracts
 Void Contracts: A ‘void contract’ is one where the whole
transaction is regarded as a nullity. It means that at no time has
there been a contract between the parties. Any goods or money
obtained under the agreement must be returned. Where items
have been resold to a third party, they may be recovered by the
original owner.
 Voidable Contracts: A contract which is voidable operates in
every respect as a valid contract unless and until one of the
parties takes steps to avoid it. Anything obtained under the
 contract must be returned, in so far as this is possible. If goods
have been resold before the contract was avoided, the original
owner will not be able to reclaim them.
 Unenforceable Contracts: An unenforceable contract is a valid
contract but it cannot be enforced in the courts if one of the
parties refused to carry out its terms. Items received under the
contract cannot generally be reclaimed.

Agreement, Contract and Proposal

Agreement definition [SECTION 2(e)]
Agreement is defined as “every promise and every set of promises
forming the consideration for each other”. And a promise is defined
as an accepted proposal.

WHAT AGREEMENTS ARE CONTRACTS [ SECTION

10 ]
All agreements are contracts if they are made by the free consent of
parties competent to contract, for a lawful consideration and with a
lawful object, and are not hereby expressly declared to be void.

AGREEMENT BECOMES A CONTRACT IF BELOW

CONDITIONS ARE MET:
1. There is some consideration
2. The parties are competent to contract
3. Their consent is free
4. Their object is lawful

Proposal or Offer
PROPOSAL DEFINITION [SECTION 2(A)]
When one person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal.

PROPOSAL TERMINOLOGY [SECTION 2(C)]

The person making the proposal is called the “promisor”, and the
person accepting the proposal is called the “promisee”

Communication of Proposal
COMMUNICATION, ACCEPTANCE AND
REVOCATION OF PROPOSALS [SECTION 3]
The communication of proposals, the acceptance of proposals, and
the revocation of proposals and acceptances, respectively, are
deemed to be made by any act or omission of the party proposing,
accepting or revoking, by which he intends to communicate such
proposal, acceptance or revocation, or which has the effect of
communicating it.

Thus, a proposal may be communicated in any way which has the

effect of laying before the offeree the willingness to do or abstain. It
may for example be done by words of mouth, or by writing, or even
by conduct.

Promises, express and implied [SECTION 9]

In so far as the proposal or acceptance of any promise is made in
words, the promise is said to be express. In so far as such proposal
or acceptance is made otherwise than in words, the promise is said
to be implied.

An offer which is expressed by conduct is called an implied

offer and the one which is expressed by words, written or spoken,
is called an express offer.
For example, a bid at an action is an implied offer to buy, stepping
into an omnibus, and consuming eatables at a self-service
restaurant.

Case Law: Upton Rural District Council v Powell:

A fire broke out in the defendant’s farm. He believed that he was

entitled to the free services of Upton Fire Brigade and, therefore,
summoned it. The Brigade put out the fire. It then turned out that the
defendant’s farm was not within free service zone of the Upton,
which therefore, claimed compensation for the services. The court
said: “The truth of the matter is that the defendant wanted the
services of Upton; he asked for the services of Upton and Upton, in
response to that request, provided the services. Hence, the services
were rendered on an implied promise to pay for them.

Communication when complete [SECTION 4]

The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made.

An offer cannot be accepted unless and until it has been brought to

the knowledge of the person to whom it is made. This principle
enabled the Allahabad High Court in Lalman v Gauri Datt to deal
with a matter involving a very crucial question on this point.

Defendant’s nephew absconded from home. He sent his servant in

search of the boy. When the servant had left, the defendant by
handbills offered to pay Rs.501 to anybody discovering the boy. The
servant came to know of this offer only when he had already traced
the missing child. He, however, brought an auction to recover the
reward. But his action failed. BAERJI J explains: “In my opinion a
suit like the present can only be founded on a contract. In order to
constitute a contract, there must be an acceptance of an offer and
there can be no acceptance unless there is knowledge to the offer”.
Intention to Contract
There is no provision in the Indian Contract Act requiring that an
offer or its acceptance should be made with the intention of creating
a legal relationship. But in English law it is a settled principle that “to
create a contract there must be a common intention of the parties to
enter into legal obligations.”

Case law: Balfour v Balfour

The defendant and his wife were enjoying leave in England. When
the defendant was due to return to Ceylon, where he was
employed, his wife was advised, by reason of her health, to remain
in England. The defendant agreed to send her an amount of 30
pound a month for the probable expenses of maintenance. He did
send the amount for some time, but afterwards differences arose
which resulted in their separation and the allowance fell into arrears.
The wife’s action to recover the arrears was dismissed.

Family & Social matters

All that the law requires is that the parties must intend legal
consequences. In the case of McGregor v McGregor, illustration of
a binding engagement between a husband and wife. Here a
husband and wife withdrew their complaints under the agreement
by which the husband promised to pay her an allowance and she to
refrain from pledging his credit, the agreement was held to be a
binding contract.

Business matters
Supreme Court’s view
The Supreme Court noted the general proposition that in addition to
the existence of an agreement and the presence of consideration
there is also the third contractual element in the form of intention of
the parties to create legal relations.

Letters of intent
A letter of intent merely indicates a party’s intention to enter into a
contract on the lines suggested in the letter. It may becomes a
preclude to a contract. However, where a letter stated that it would
be followed by a detailed purchase order which carried an
arbitration clause, it was held that the letter was not a supply order
and the arbitration clause contained in it did not by itself fructify into
an arbitration agreement.

General Offers
Acceptance by performing conditions, or
receiving consideration [SECTION 8]
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.

Carlil v Carbolic Smoke Ball Co

A company offered by advertisement to pay 100 pound to anyone

“who contracts the increasing epidemic influenza, colds or any
disease caused by taking cold, after having used the ball according
to printed directions.” It was added that 1000 pound is deposited
with the Alliance Bank showing our sincerity in the matter”. The
plaintiff used the smoke balls according to the directions but she
nevertheless subsequently suffered from influenza. She was held
entitled to recover the promised reward.

General offer of continuing nature

Where a general offer is of continuing nature, as it was, for
example, in the Smoke Ball case, it will be open for acceptance to
any number of persons until it is retracted. But where an offer
requires some information as to a missing thing, it is closed as soon
as the first information comes in.

Offer and Invitation to Treat

An offer should be distinguished from an invitation to receive offers.
When a man advertises that he has got a stock of books to sell, or
houses to let, there is no offer to be bound by any contract. “Such
advertisements are offers to negotiate – offers to receive offers –
offers to chaffer”.

Harvey v Facey

The plaintiff relegraphed to the defendants, writing: “Will you sell us

Bumper Hall Pen? Telegraph lowest cash price”. The defendants
replied also by telegram: “Lowest price for Bumber Hall Pen, 900
pound.” The plaintiff immediately sent their last telegram stating:
“We agree to buy Bumper Hall Pen for 900 pound asked by you.”
The defendants refused to sell the plot.

The Lordships pointed out that in their first telegram, the plaintiffs
asked two questions, first, as to the willingness to sell and, second,
as to the lower price. The defendants answered only the second,
and gave only the lowest price. They reserved their answer as to
the willingness to sell. Thus, they made no offer. The last telegram
of the plaintiffs was an offer to buy, but that was never accepted by
the defendants.

 Catalogues and display of goods: A shopkeeper’s catalogue of

prices is not an offer, only an invitation to offer.
 Announcement to hold auction: An auctioneer’s
announcement that specified goods will be sold by auction on a
certain day is not an offer to hold the auction.
 Definiteness of proposal: A classified advertisement to the
effect: “cocks and hens 25s each” has been held to be not an
offer to sell.
 Free distribution of articles: Not a contract of sale

Acceptance – Section 2(b)

Introduction of Acceptance – Sec. 2(b)
When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise.

Thus “acceptance” is the assent given to a proposal, and it has the

effect of converting the proposal into promise.

This is another way of saying that an agreement is an accepted

proposal. Every agreement, in its ultimate analysis, is the result of a
proposal from one side and its acceptance by the other.

There are three factors in Acceptance:

1. Communication to Offeror
2. Communication to Acceptor
3. When Communication is not necessary

Communication of Acceptance
ACCEPTANCE BY EXTERNAL MANIFESTATION OR
OVERT ACT.
SHAH J says “An agreement does not result from a mere state of
mind: intent to accept an offer or even a mental resolve to accept an
offer does not give rise to a contract. There must be… some
external manifestation of that intent by speech, writing or other act.”

Brogden v Metropolitan Railway co.

B had been supplying coal to a railway company without any formal

agreement. B suggested that a formal agreement should be drawn
up. The agents of both the parties met and drew up a draft
agreement. It had some blanks when it was sent to B for his
approval. He filled up the blanks including the name of an arbitrator
and then returned it to the company. The agent of the company put
the draft in his drawer and it remained there without final approval
having been signified. B kept up his supply of coals but on the new
terms and also received payment on the new terms. A dispute
having arisen B refused to be bound by the agreement.

ACCEPTANCE BY CONDUCT
Mere mental assent to an offer does not conclude a contract either
under the Indian Contract Act or in English Law.

COMMUNICATION TO OFFEROR HIMSELF

Acceptance must be communicated to the offeror himself. A
communication to any other person is as ineffectual as of no
communication has been made.

Caselaw: Felthouse v Bindley – Offer cannot Impose Burden of

Refusal

Facts – “The plaintiff offered by means of a letter to purchase his

nephew’s horse. The letter said: “If I hear no more about the horse, I
consider the horse mine at pount 33.15s”. To this letter, no reply
was sent. But the nephew told the defendant, his auctioneer not to
sell the horse as it was already sold to his uncle. The auctioneer by
mistake put up the horse for action and sold it. The plaintiff sued the
auctioneer on the ground that under the contract the horse had
become his property and,
therefore, defendant’s unauthorized sale amounted to conversion.
But the action failed.”

COMMUNICATION TO ACCEPTOR HIMSELF

Communication of acceptance should be from a person who has the
authority to accept. Information received from an unauthorised
person is ineffective.

Caselaw: Powell v Lee

Facts – “The plaintiff was an applicant for the headmaster-ship of a

school. The managers passed a resolution appointing him, but the
decision was not communicated to him. One of the members,
however, in his individual capacity informed him. The managers
cancelled their resolution and the plaintiff sued for breach of
contract.”

WHEN COMMUNICATION NOT NECESSARY

In certain cases, communication of acceptance is not necessary.
The offeror may inform a particular mode of acceptance, then all
that the acceptor as to do is to follow that particular mode.

Caselaw: Carlil v Carbolic Smoke Ball

BOWEN LJ observed as: “But there is this clear gloss to be made

upon that doctrine, that as notification of acceptance is required for
the benefit of the person who makes the offer, he may dispense
with notice to himself… and there can be no doubt that where the
offeror expressly or impliedly intimates a particular mode of
acceptance as sufficient to make the bargain binding it is only
necessary for the other person to follow the indicated method of
acceptance; and if the person making the offer expressly or
impliedly intimates in his offer that it will be sufficient to act on the
proposal without communicating acceptance of it to himself,
performance of the condition is a sufficient acceptance without
notification”.

MODE OF COMMUNICATION
Acceptance should be made in prescribed manner

Acceptance has to be made in the manner prescribed or indicated

by the offeror. An acceptance given in any other manner may not be
effective. particularly where the offeror clearly insists that the
acceptance shall be made in the prescribed manner. For example,

A offered to buy flour from B requesting that acceptance should be

sent by the wagon which brought the offer. B sent his acceptance
by post, thinking that this would reach the offeror more speedily. But
the letter arrived after the time of the wagon. A was held to be not
bound by the acceptance.

Absolute and Unqualified

Section 7: Acceptance Must Be Absolute
In order to convert a proposal into a promise, the acceptance must
— (1) be absolute and unqualified, (2) be expressed in some usual
and reasonable manner, unless the proposal prescribes the manner
in which it is to be accepted.

EFFECT OF DEPARTURE FROM PRESCRIBED

MANNER
A departure from that manner does not of itself invalidate the
acceptance. A duty is cast on the offeror to reject such acceptance
within reasonable time.
1. a minor departure from the prescribed mode of communication
should not upset the fact of acceptance provided that the
communication is made in an equally expeditious way.
2. for, in a case, where the offeree was told to reply by ‘by return of
post’ it was said by the Court of Exchequer Chamber that a reply
sent by some other method equally expeditious would constitute
a valid acceptance.

Where no manner prescribed: reasonable and

usual manner
Where no mode of acceptance is prescribed, acceptance must “be
expressed in some usual and reasonable manner”. As per Indian
Contract Law, post is a reasonable mode.

WHEN CONTRACT CONCLUDED (POSTAL

COMMUNICATION)
When the parties are at a distance and are contracting through post
or by messengers, the question arises when is the contract
concluded.

Household Fire & Accident Insurance Co v Grant

The defendant in this case had applied for allotment of 100 shares
in the plaintiff company. A letter of allotment addressed to the
defendant at his residence was posted in due time, but it never
reached the defendant. Nevertheless he was held bound by the
acceptance.

SECTION 4 – COMMUNICATION WHEN COMPLETE

The only difference that the section makes is in the position of the
acceptor. In England when a letter of acceptance is posted, both the
offeror and the acceptor become irrevocably bound. But in India, the
acceptor does not become bound by merely posting his acceptance.
He becomes bound only when his acceptance “comes to the
knowledge of the proposer”. The gap of time between the posting
and the delivery of the acceptance can be utilised by the acceptor
for revoking his acceptance by a speedier communication which will
overtake the acceptance.

Counter proposals
An acceptance containing additions, limitations, or other
modifications shall be rejection of the offer and shall constitute a
counter-offer.

However, a reply to an offer which purports to be an acceptance but

which contains additional or different terms which do not materially
alter the terms of the offer shall constitute an acceptance unless the
offeror promptly objects to the discrepancy; if he does not object,
the terms of the contract shall be the terms of the offer with the
modifications contained in the acceptance.
If the proposal prescribes a manner in which it is to be accepted,
and the acceptance is not made in such manner, the proposer may,
within a reasonable time after the acceptance is communicated to
him, insist that his proposal shall be accepted in the prescribed
manner, and not otherwise; but if he fails to do so, he accepts the
acceptance.

PARTIAL ACCEPTANCE
Acceptance should be of the whole of the offer. The offeree cannot
accept a part of its terms which are favourable to him and reject the
rest. Such an acceptance is another kind of counter proposal and
does not bind the offeror.

INQUIRY INTO TERMS OF PROPOSAL

A mere inquiry into the terms of a proposal is not the same thing as
a counter-proposal. On acceptance of the proposal, the contract will
be created on the basis of the terms and conditions of the original
proposal including arbitration clause.

ACCEPTANCE WITH CONDITION SUBSEQUENT

If an acceptance carries a condition subsequent, it may not have the
effect of a counter-proposal. Thus, where an acceptance said:
“terms accepted, remit cash down Rs.25,000 by February 5,
otherwise acceptance subject to withdrawal, this was not a counter-
proposal, but an acceptance with a warning that if the money was
not sent the contract would be deemed to have been broken.

ACCEPTANCE OF COUNTER PROPOSAL

Even “where the acceptance of a proposal is not absolute and
unqualified the proposer may become bound, if, by his subsequent
conduct, he indicates that he has accepted the qualifications set
up”.

Hargopal v People’s Bank of Northern India

An application for shares was made conditional on an undertaking

by the bank that the applicant would be appointed a permanent
director of the local branch. The shares were allotted to him without
fulfilling the condition. The applicant accepted the position as a
shareholder by accepting dividends, filing a suit to recover it and by
pledging his shares.

It was, therefore, held “that he could not content that the allotment
was void on the ground of non-fulfillment of the condition as he had
by his conduct waived the conditions.

PROVISIONAL ACCEPTANCE
An acceptance is sometimes made subject to final approval. A
provisional acceptance of this kind does not ordinarily bind either
party until the final approval is given.

ACCEPTANCE AND WITHDRAWAL OF TENDERS

A tender is in the same category as a quotation of prices. It is not an
offer. When a tender is approved, it is converted into a standing
offer. A contract arises only when an order is placed on the basis of
the tender. These principles were laid down by the Bombay High
Court in the well-known case of Bengal Coal Co Ltd v Homee
Wadia & Co.

Lapse of Offer
1. Notice of revocation
2. Lapse of Time
3. By failure to accept condition precedent
4. By death or insanity of offerer

Revocation of Acceptance
Section 5: Revocation of proposals and
acceptances
A proposal may be revoked at any time before the communication
of its acceptance is complete as against the proposer, but not
afterwards.

An acceptance may be revoked at any time before the

communication of the acceptance is complete as against the
acceptor, but not afterwards.

NOTICE OF REVOCATION
Withdrawal before expiry of fixed period

Where an offeror gives the offeree an option to accept within a fixed

period, he may withdraw it even before the expiry of that period.

CASE LAW: Alfred Schonlank v. Muthunayna Chetti

The defendant left an offer to sell a quantity of indigo at the

plaintiff’s office allowing him eight days’ time to give his answer. On
the 4th day however the defendant revoked his proposal. The
plaintiff accepted it on the 5th day. Holding the acceptance was
useless.

Agreement to keep Offer open for Specified Period

Where the agreement to keep the offer open for a certain period of
time is for some consideration, the offeror cannot cancel it before
the expiry of that period.

CASE LAW: Mountford v Scott

Communication of Revocation should be from Offerer Himself

It is necessary that the communication of revocation should be from

the offeror or from his duly authorised agent. But it has been held in
the case of Dickinson v. Dodds, that it is not enough if the offeree
knows reliably that the offer has been withdrawn.

Revocation of General Offers

Where an offer of a general nature is published through

newspapers, it can be withdrawn by the same media and the
revocation will be effective even if a particular person, subsequent
to the withdrawl, happened to perform its terms in ignorance of the
withdrawal.

CASE LAW: Skarsm Ramanathan v NTC Ltd

Superseding proposals by Fresh Proposal

Where before acceptance a proposal is renewed in some parts of it

and not in its entirety as proposed earlier and the letter purports it to
supersede the earlier communication, such proposal is no longer
available for acceptance.

CASE LAW: Banque Paribas v Citibank NA

Cancellation of allotment of land

An allotment of land was made under the order of a Development

Authority.

CASE LAW: Rochees Hotels P Ltd v Jaipur Development

Authority

Revocation of Bid

In the case of an auction, “the assent is signified on the part of the

seller by knocking down the hammer”. A bid may be retracted
before the hammer is down.

CASE LAW: Union of India v Bhimsen Walaiti Ram

A liquor ship was knocked down to a bidder at a public auction. This

was subject to the confirmation by the Chief Commissioner who had
the power before granting the licence to inquire into the financial
condition of the bidder. The bidder had to pay one-sixth part of the
price immediately and in case of any default on his part the
Government had the power to re-auction the shop and the shortfall,
if any, was recoverable from the bidder. He failed to pay one-sixth
part and, therefore, the Chief Commissioner did not confirm the bid
and ordered resale. Resale realized much less than the original bid
and the question of bidder’s liability to pay the shortfall arose.

The court said: It is not disputed that the Chief Commissioner had
disapproved of the bid offered by the respondent. If the Chief
Commissioner had granted sanction in favor of the respondent, then
there would have been a completed transaction and he would have
been liable for any shortfall on the resale.

LAPSE OF TIME
An offer lapses on the expiry of the time, if any, fixed for
acceptance. Where an offer says that it shall remain open for
acceptance up to a certain date, it has to be accepted within that
date. For example, where an offer was to last until the end of March
and the offeree sent a telegram accepting the offer on 28th March
which was received by the offeror on 30th March, it was held that
the option was duly exercised.

FAILURE TO ACCEPT CONDITION PRECEDENT

Where the offer is subject to a condition precedent, it lapses if it is
accepted without fulfilling the condition. Where a salt lake was
offered by way of lease on deposit of a sum of money within a
specified period, and the intended lessee did not deposit the
amount for 3 long years, it was held that this entailed cancellation of
the allotment.

DEATH OR INSANITY OF OFFEROR

An offer lapses on the death or insanity of the offeror, provided that
the fact comes to the knowledge of the offeree before he makes his
acceptance.

In the case of Dickinson v Dodds, it was held that an offer cannot

be accepted after the death of the offeror.

SECTION 6: Revocation how made

A proposal is revoked —

1. by the communication of notice of revocation by the proposer to

the other party;
2. by the lapse of the time prescribed in such proposal for its
acceptance or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
3. by the failure of the acceptor to fulfill a condition precedent to
acceptance; or
4. by the death or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before
acceptance.

Revocation of Acceptance
According to English law an acceptance once made is irrevocable.
In the words of Anson: “Acceptance is to offer what a lighted match
is to a train of gunpowder. Both do something which cannot be
undone. This rule is obviously confined in its operation only to postal
acceptance. It is suggested in Anson that in other cases “an
acceptance can be revoked at any time before acceptance is
complete, provided, of course, that the revocation itself is
communicated before the acceptance arrives.
In India, on the other hand, acceptance is generally revocable. An
acceptor may cancel his acceptance by a speedier mode of
communication which will reach earlier than the acceptance itself.
Section 5 is the relevant provision.

Standard Form Contracts

 Exploitation of weaker party
 Protective Devices
 Reasonable notice
 Notice should be contemporaneous with contract
 Theory of fundamental breach
 Strict construction
 Liability in tort
 Unreasonable terms

Consideration [SECTION 2 (d) and

SECTION 25]
Section 25 of the Indian Contract Act, 1872 starts with a declaration
that “an agreement made without consideration is void”.
Consideration is a price of the promise.

Definitions
In the words of Pollock, “Consideration is the price for which the
promise of the other is bought, and the promise thus given for value
is enforceable.” Another simple definition is by Justice Patterson:
“Consideration means something which is of some value in the eyes
of the law….. It may be some benefit to the plaintiff or some
detriment to the defendant.”

Section 2(d) of the Indian Contract Act defines consideration as:

When, at the desire of the promisor, the promisee or any other

person has done or abstained from doing or does or abstains from
doing, or promises to do or to abstain from doing, something, such
act or abstinence or promise is called a consideration for the
promise.

It means price for which the promise of the other is bought – a

valuable considerations a price of the promise – some of value
received by the promisee as an inducement of the promise quid pro
quo ( something in return) – may be of some benefit to the plaintiff
or some detriment to the defendant.

Abdul Aziz Vs. Masum Ali

A promise to subscribe Rs.500 for re-building a mosque – not
fulfilled – secretary of mosque committee filed a suit for
enforcement of promise – Held, the promise not enforceable as no
consideration in the sense of benefit for the promisor – the secretary
of the committee suffered no detriment as nothing has been done to
carry out the repairs – no contract.

Gousmohoddin Vs. Appasahib

Suit filed by landlord L against tenant T for possession of premises
and arrears of rent – suit decreed in favour – in execution,
attachment order of movable property of T – In consideration of T
agreeing not to appeal against the decree, L allowed one month’s
time to pay – Held, valid consideration – valid agreement.

Essential Elements of a Valid Consideration

1. It must move at the desire of promisor
2. It may move from promisee or any other person (privity of
consideration)
3. It must be real, not illusory
4. It need not be adequate
5. It may be past, present or future
6. It must not be illegal, immoral or opposed to public policy
PROMISSORY ESTOPPEL
The doctrine of promissory estoppel prevents one party from
withdrawing a promise made to a second party if the latter has
reasonably relied on that promise.

The doctrine of promissory estoppel was first developed in Hughes

v. Metropolitan Railway Co [1877] but was lost for some time until
it was resurrected by Lord Denning in the controversial case
of Central London Property Trust Ltd v. High Trees House Ltd
[1947].

Promissory estoppel requires:

1. an unequivocal promise by words or conduct

2. evidence that there is a change in position of the promisee as a
result of the promise (reliance but not necessarily to their
detriment)
3. inequity if the promisor were to go back on the promise

In general, estoppel is ‘a shield not a sword’ — it cannot be used as

the basis of an action on its own. It also does not extinguish rights.

The general rule is that when one party agrees to accept a lesser
sum in full payment of a debt, the debtor has given no
consideration, and so the creditor is still entitled to claim the debt in
its entirety. This is not the case if the debtor offers payment at an
earlier date than was previously agreed, because the benefit to the
creditor of receiving payment early can be thought of as
consideration for the promise to waive the rest of the debt. This is
the rule formulated in Pinnel’s Case (1602)

“AT THE DESIRE OF THE PROMISOR”

An act or abstinence which is to be a consideration for the promise
must be done or promised to be done in accordance with the desire
of the promisor.

Durga Prasad v Baldeo

Facts: The plaintiff constructed some shops in a market under the

orders of the Collector. The defendant occupied a shop and
promised to pay some commission to the plaintiff and did not pay. In
an action against the defendant, it was held not maintainable.

Court Held: The only ground for the making of the promise is the
expense incurred by the plaintiff in establishing the Ganj (market)
but it is clear that anything done in that way was not ‘at the desior’
of the defendants so as to constitute consideration. The act was the
result not of the promise but of the Collector’s order.

Thus to constitute a good consideration, act or abstinence must be

at the desire of the promisor.

ACTS DONE AT REQUEST:

An act done at the promisor’s desire furnishes a good consideration
for his promise even though it is of no personal significance or
benefit to him.

Kedar Nath v Gorie Mohamed

It was thought advisable to erect a town hall at Howrah provided

sufficient subscription could be got together for the purpose. To this
end the Commissioners of Howrah municipality set out to work to
obtain necessary funds by public subscription. The defendant was a
subscriber to this fund for Rs.100 having signed his name in the
subscription book for the amount. On the faith of the promised
subscriptions, the plaintiff entered into a contract with a contractor
for the purpose of building the hall. But the defendant failed to pay
the amount and contended that there was no consideration for this
promise.

He was held liable. Persons were asked to subscribe knowing the

purpose for which the money was to be applied, they knew that on
the faith of their subscription an obligation was to be incurred to pay
the contractor for the work. The promise is: ‘In consideration of your
agreeing to enter into a contract to erect, I undertake to supply
money for it.’ The act of the plaintiff in entering into contract with the
contractor was done at the desire of the defendant (the promisor) so
as to constitute consideration within the meaning of Section 2(d).

PROMISES OF CHARITABLE NATURE

Doraswami Iyer v Arunachala Ayyar

Facts: The repair of a temple was in progress. As the work

proceeded, more money was required and to raise this money
subscriptions were invited and a subscription list raised. The
defendant put himself down on the list for Rs. 125 and it was to
recover this sum that the suit was filed. The plaint found the
consideration for the promise as a reliance on the promise of the
subscriber that they have incurred liabilities in repairing the temple.

Judgment: The learned judge held that there was no evidence of

any request by the subscriber to the plaintiff to do the temple
repairs. Since, the temple repairs were already in progress when
the subscriptions were invited. The action was not induced by the
promise to subscribe but was rather independent of it. Hence, no
recovery was allowed.

UNILATERAL PROMISES
A unilateral promise is a promise from one side only and is intended
to induce some action by the other party. The promisee is not bound
to act, for he gives no promise from his side. But if he carries out the
act desired by the promisor, he can hold the promisor to his
promise. “An act done at the request of the offeror in response to
his promise is consideration, and consideration in its essence is
nothing else but response to such a request.”

Abdul Aziz v Masum Ali

The defendant promised Rs.500 to a fund started to rebuild a

mosque but nothing had been done to carry out the repairs and
reconstruction. The subscriber was, therefore, held not liable.

REVOCATION OF UNILATERAL PROMISES

Errington v Errington

Facts: The owner of a house had mortgaged it. The house was in
the occupation of his son and daughter-in-law. He told them that the
house would become their property if they paid off the mortgage
debt in installments and they commenced payment.

Judgement: The father’s promise was a unilateral contract, a

promise of the house in return for their act of paying the
installments. It could not be revoked by him once the couple entered
on performance of the act, but it would cease to bind him if they left
it incomplete and unperformed.

PROMISSORY ESTOPPEL AND GOVERNMENT

AGENCIES
InPournami Oil Mills v State of Kerala, the Government was not
permitted to go back on its earlier promise of wider exemption from
sales tax in pusuance of which certain industries were set up. A
subsequent notification curtailing the exemption was held to be
applicable to industries established after the notification. A promise
which is against public policy or in violation of a statutory prohibition
cannot be the foundation of an estoppel.

ESTOPPEL OF LICENSEE
A person who had acquired title to the land of a Council by adverse
possession, agreed subsequently to hold the same under a term
license from the Council. On the expiry of the term, the Council told
him to hand over possession He tried to assert his title by adverse
possession. He was not allowed to do so. Whatever rights he
acquired became substituted under the new arrangement which he
voluntarily accepted. The new arrangement constituted a
promissory estoppel against him.

Privity of Contract and of Consideration

“PROMISEE OR ANY OTHER PERSON”
It means that as long as there is a consideration for a promise, it is
immaterial who has furnished it. It may move from the promisee, or,
if the promisor has no objection, from any other person.

Dutton v Poole

Facts: A person had a daughter to marry and in order to provide her

a marriage portion, he intended to sell a wood of which he was
possessed at the time. His son (the defendant) promised that if “the
father would forbear to sell at his request he would pay the daughter
£1000”. The father accordingly forbore but the defendant did not
pay. The daughter and her husband sued the defendant for the
amount.

Judgment: The court held that if a man should say, ‘Give me a

horse, I will give your son £10’, the son may bring the action,
because the gift was upon the consideration of a profit to the son,
and the father is obliged by natural affection to provide for his
children. There was such apparent consideration of affection from
the father to his children, for whom nature obliges him to provide,
that the consideration and promise to the father may well extend to
the children.

The whole object of the agreement was to provide a portion to the

plaintiff. It would have been highly inequitable to allow the son to
keep the wood and yet to deprive his sister of her portion. He was
accordingly held liable.

POSITION OF BENEFICIARY WHO IS NOT PARTY

Tweddle v Atkinson – as per English Law

Facts: The plaintiff was to be married to the daughter of one G and

in consideration of this intended marriage G and the plaintiff’s father
entered into a written agreement by which it was agreed that each
would pay the plaintiff a sum of the money. G failed to do so and the
plaintiff sued his executors.

Court Held: Although the sole object of the contract was to secure
a benefit to the plaintiff, he was not allowed to sue as the contract
was made with his father and not with him. It was held that no
stranger to the consideration can take advantage of a contract,
although made for his benefit.

The case laid the foundation of what subsequently came to be

known as the doctrine of “Privity of contract“, which means a
contract is a contract between the parties only and no third person
can sue upon it even if it is avowedly made for his benefit.

Dunlop Pneumatic Tyre Co v Selfridge & Co.

Facts: Plaintiffs (Dunlop & Co) sold certain goods to one Dew & Co
and secured an agreement from them not to sell the goods below
the list price and that if they sold the goods to another trader they
would obtain from him a similar undertaking to maintain the price
list. Dew & Co sold the motor tyres to the defendants (Selfridge &
Co) who agreed not to sell the tyres to any private customer at less
than the list prices. The plaintiffs sued the defendants for breach of
this contract.

Court Held: Assuming that the plaintiffs were undisclosed

principals, no consideration moved from them to the defendants and
that the contract was unenforceable by them. Only a person who is
a party to a contract can sue on it. It cannot be conferred on a
stranger to a contract as a right to enforce the contract in personam.
Also if a person with whom a contract not under seal has been
made is to be able to enforce it, consideration must have given by
him.

FUNDAMENTAL PROPOSITIONS OF ENGLISH LAW

1. Consideration must move from the promisee and the promisee
only.
2. A contract cannot be enforced by a person who is not a party to it
even though it is made for his benefit.

PRIVITY OF CONSIDERATION
In India, the view is opposite of the fundamental propositions of
English law. Acording to Section 2(d), it is not necessary that
consideration should be funished by the promisee. A promise is
enforceable if there is some consideration for it and it is quite
immaterial whether it moves from the promisee or any other person.

Chinnaya v Ramayya

An old lady, by deed of gift, made over certain landed property to

the defendant, her daughter. By the terms of the deed, which was
registered, it was stipulated that an annuity of Rs.653 should be
paid every year to the plaintiff, who was the sister of the old woman.
The defendant on the same day executed in plaintiff’s favour an
agreement promising to give effect to the stipulation. The annuity
was however not paid and the plaintiff sued to recover it.

It was held that the deed of gift and the defendant’s promise to pay
the annuity were executed simultaneously and, therefore, they
should be regarded as one transaction and there was sufficient
consideration for that transaction.

PRIVITY OF CONTRACT
The rule of “Privity of contract” meant a stranger to contract cannot
sue has taken firm roots in the English Common Law. But it has
been generally criticised.

Lord Denning observed that where a contract is made for the benefit
of a third person who has a legitimate interest to enforce it, it can be
enforced by the third person in the name of the contracting party or
jointly with him or, if he refuses to join, by adding him as a
defendant. The third person has a right arising by way of contract
and his interest will be protected by law.

Beswick v Beswick

Facts: B was a coal merchant. The defendant was assisting him in

his business. B entered into an agreement with the defendant by
which the business was to be transferred to the defendant. B was to
be employed in it as a consultant for his life and after his death, the
defendant was to pay to his widow an annuity of £5 per week, which
was to come out of the business. After B’s death, the defendant
paid B’s widow only one sum of £5. The widow brought an action to
recover the arrears of the annuity and also to get specific
performance of the agreement.
Court Held: That she was entitled to enforce the agreement. Thus,
the plaintiff was allowed to enforce the agreement in her personal
capacity, although she was not a party to it and it was considered
not necessary to infer a trust in favour of the plaintiff.

 Position in India: decisions following English law

 Decisions not following English law
 Supreme Court upholds Privity

EXCEPTIONS TO PRIVITY RULE

 Beneficiaries under trust or charge or other arrangements: A
person in whose favour a charge or other interest in some
specific property has been created may enforce it though he is
not a party to the contract.
 Marriage settlement, partition or other family arrangements:
Where an agreement is made in connection with marriage,
partition or other family arrangement and a provision is made for
the benefit of a person, he may take advantage of that
agreement although he is no party to it.
 Acknowledgement or estoppel: Where by the terms of a
contract a party is required to make a payment to a third person
and he acknowledges it to that third person, a binding obligation
is incurred towards him. Acknowledgment may be express or
implied.
 Covenants running with land: The rule of privity may also be
modified by the principles relating to transfer of immovable
property.

“…Has Done or Abstained from Doing…”

PAST CONSIDERATION
The promise is to pay for a wholly past act and is no more than an
expression of gratitude. The past act may explain why the promise
was given and may be a motive for the promise, but furnishes no
legal consideration.
McArdle, In re:

Facts: A effected certain improvements to property. The ultimate

beneficiaries of the property signed a document declaring that: “In
consideration of your carrying out certain alterations and
improvements, we the beneficiaries shall repay to you the sum
of £488 in settlement of the amount spent on such improvements.

Court Held: That as the work had all been done and nothing
remained to be done by the promisee at all, the consideration was
wholly past consideration and the beneficiaries’ agreement for the
repayment to her out of the estate was nudum pactum, a promise
with no consideration to support it. Thus, the action to enforce the
promise was rejected.

 Past act at request good consideration: Exception to the past

consideration in the English law is that a past act done at request
will be good consideration for a subsequent promise. If the
voluntary courtesy were moved by a request of the party that
gives the promise, it will bind, for the promise.
 Other exceptions are: A promise to pay a time-barred debt and
a negotiable instrument issued for a past consideration are both
valid.

POSITION IN INDIA
In India, a past consideration may arise in two ways. It may consist
of services rendered at request but without any promise at the time
or it may consist of voluntary services.

 Past voluntary service: A voluntary service means a service

rendered without any request or promise and there is a
subsequent promise to pay for the same. E.g., “If A saves B from
drowning and B later promises A a reward.” In India, the promise
would be enforceable by virtue of Section 25(2) which provides
that a promise to compensate wholly or in part, a person who has
 already voluntarily done something for the promisor is
enforceable.
 Past service at request: b

PAST AND EXECUTED CONSIDERATION

EXECUTORY CONSIDERATION
“Such Act, Abstinence or Promise is called
Consideration”
CONSIDERATION MUST BE OF SOME VALUE
Consideration as defined in the Act, means some act, abstinence or
promise on the part of the promisee or any other which has been
done at the desire of the promisor. E.g.,

A promises to give his new Rolls-Royce car to B, provided B will

fetch it from the garage.

The act of fetching the car cannot by any stretch of imagination be

called a consideration for the promise. Even though it is the only
act, the promisor desired the promisee to do. Such an act no doubt
satisfies the words of the definition, but it does not catch its spirit. It
is for this reason that English common law insisted that
“consideration must be of some value in the eyes of the law.” It must
be real and not illusory, whether adequate or not as long as the
consideration is not unreal, it is sufficient if it be of slight value only.

VALUE NEED NOT BE ADEQUATE (ADEQUACY OF

CONSIDERATION)
It is not necessary that consideration should be adequate to the
promise. The courts cannot assume the job of settling what should
be the appropriate consideration for a promise. It is up to the
parties.
INADEQUACY AS EVIDENCE OF IMPOSITION
The act in Explanation 2 to Section 25 states that “inadequacy of
consideration may be taken into account by the court in determining
the question whether the consent of promisor was freely given. E.g.,

A agrees to sell a horse worth Rs.1000 for Rs.10. A denies that his
consent to the agreement was freely given. The inadequacy of the
consideration is a fact which the court should take into account in
considering whether or not A’s consent was freely given.

FORBEARANCE TO SUE
Forbearance to sue has always been regarded as valuable
consideration. It means that the plaintiff has a certain right of action
against the defendant or any other person and on a promise by the
defendant, he refrains from bring the action.

COMPROMISE GOOD IRRESPECTIVE OF MERITS

Compromise of a pending suit is a good consideration for the
agreement of compromise. But the dispute should be bona fide. A
compromise is a good consideration “irrespective of merits of the
claim of either side” and even where there is some doubt in the
minds of the parties as to their respective rights.

Performance of Existing Duties

PERFORMANCE OF LEGAL OBLIGATIONS
Consideration must be something more than what the promisee is
already bound to do. Performance of a legal duty is no
consideration for a promise.

PERFORMANCE OF CONTRACTUAL OBLIGATIONS

 A. Pre-existing Contract with Promisor: Compliance with legal
obligation imposed by a contract with the promisor can be no
consideration for a promise.
 Promise to pay less than amount due: A promise to pay less
than what is due under a contract cannot be regarded as a
consideration.

EXCEPTIONS TO THE RULE IN PINNEL’S CASE

1. Part-payment by Third Party: Part-payment by a third party
may be a good consideration of the whole of the debt.
2. Composition:
3. Payment before time:
4. Promissory estoppel:

Position under Indian Contract Act different

B. Pre-existing Contract with Third Party

CONSIDERATION AND MOTIVE

Consideration should be distinguished from motive or a pious desire
to fulfil an obligation. “Motive is not the same thing with
consideration.”

Thomas v Thomas

Facts: “A testator, on the death of his death, had verbally said in

front of witnesses that he was desirous that his wife should enjoy
certain premises for her life. The executors, who were also the
assignees, “in consideration of such desire and of the premises,”
agreed with the widow to convey the premises to her provided she
would pay to the executors the sum of 1 pound yearly towards the
ground rent and keep the said house in repair.
Court Held: On the question of consideration for the agreement
between the executors and the widow the court pointed out that the
motive for the agreement was, unquestionably, respect for the
wishes of the testator. But that was no part of the legal
consideration for the agreement. Motive should not be confounded
with consideration. The agreement was, however, held to be binding
as the undertaking to pay the ground rent was a sufficient
consideration.

Exceptions to Consideration
CONTRACTS UNDER SEAL IN ENGLISH LAW
In English law a contract under seal is enforceable without
consideration. In the words of Anson: “”English law recognises only
two kinds of contract, the contract made by deed that is under seal,
which is called a deed or speciality, and the simple contract. A
contract under seal means a contract which is in writing and which
is signed, sealed and delivered.

EXCEPTIONS UNDER S.25, CONTRACT ACT – IN

INDIA
25. An agreement made without consideration is void unless –

 (1) it is in writing and registered

 (2) or is a promise to compensate for something done

1. Natural love and affection: A written and registered agreement

based on natural love and affection between near relatives is
enforceable without consideration. E.g., A family settlement
between a man and his wife was made for providing
maintenance to wife. This was held to be enforceable because it
was meant for deriving satisfaction and peace of mind from
family harmony.
2. Past voluntary service: A promise to compensate wholly or in
part, a person who has already voluntarily done something for
the promisor, is enforceable.
3. Time-barred debt: A promise to pay a time-barred debt is
enforceable. The promise should be in writing. It should also be
signed by the promisor or by his agent generally or specially
authorised in that behalf.

GIFT ACTUALLY MADE [S. 25 (EXPLN. I)]

The provisions as to consideration do not affect, as between donor
and donee, the validity of any gift which has actually been made. A
gift of movables which has been completed by delivery and gift
of immovable which has been perfected by registration cannot be
questioned as to their validity only on the ground of lack of
consideration. They may be questioned otherwise. Where a gift of
property was made by registered deed and attested by two
witnesses, it was not allowed to be questioned by the donor on the
ground that she was the victim of fraud which she was not able to
establish.

Unlawful Consideration and its effect

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