Indian Contract Act, 1872

[Act No. 9 of Year 1872, dated

25th. April, 1872]
 What is a Contract?
2(h) An agreement enforceable by law is a contract;

2(e) Every promise and every set of promises, forming the consideration
for each other, is an agreement;

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

2(c) The person making the proposal is called the "promisor", and the
person accepting the proposal is called "promisee",

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;

2(d) 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;
 What is a Contract?
Elements of an agreement
Agreement = offer or proposal + an acceptance of that
offer or proposal
Elements of a contract
Contract = Agreement (consensus ad idem) + legal
obligation, i.e. it should be enforceable by law

The law of Contracts is not the whole law of agreements

nor is it the whole law of obligations. It is the law of those
agreements which create obligations, and those
obligations which have, their source in agreements. -
Salmond
 What agreements are contracts
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.
Nothing herein contained shall affect any law in
force in India, and not hereby expressly
repealed, by which any contract is required to be
made in writing or in the presence of witnesses,
or any law relating to the registration of
documents. [Section 10]
 ESSENTIAL ELEMENTS OF A VALID
CONTRACT
Agreement (Minimum two parties- offer and
acceptance- consensus-ad-idem)
Intention to create legal relationship (Balfour v
Balfour [1919] 2 KB 571)
Free and genuine consent (Sec 13, 14)
Parties competent to contract (Sec 11)
Real and Lawful consideration (Sec 23)
Lawful object (Sec 23)
Agreement not declared void or illegal (Sec 10)
Certainty of meaning (Sec 29)
Meeting of Minds
Possibility of performance (Sec 56)
Necessary legal formalities (Sec 10)
 Classification of Contracts
Contracts may be classified in terms of their:
Validity or enforceability
Mode of formation
Performance
Classification according to validity or
enforceability
Valid
Voidable
Void
Illegal
unenforceable
 Classification of Contracts
Classification according to validity or enforceability
Valid
Have all essential elements discussed earlier
Voidable
An agreement which is enforceable by law at the option of one or more of
the parties thereto, but not at the option of the other or others.
[Deficiency of free consent = M, F, UI, C, M]
Void
agreement not enforceable by law is said to be void
A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable (subsequent impossibility or subsequent illegality)
Illegal
One the consideration or object of which (1) is forbidden by law; or (2)
defeats the provision of any law; or (3) is fraudulent; or (4) involves or
implies injury to person or property of another; or (5) the court regards it
immoral or opposed to the public policy.
Also taints collateral transactions with illegality
Unenforceable
Is neither void nor voidable, but can not be enforced because it lacks some
item of evidence such as writing, registration or stamping.
 Classification of Contracts
Mode of formation
Express terms stated in words (written or spoken)
Implied- terms inferred from the conduct of the
parties or circumstances.

Performance extent to which performed

Executed (wholly performed) and executory (partially
performed) or
Unilateral (at the time of formation obligation to perform
on the part of one party only) and Bilateral
 Offer and Acceptance
OFFER / PROPOSAL
A proposal is defined as 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. [Section
2(a)]

The person making the proposal is called the

"promisor", and the person accepting the proposal
is called "promisee. [Section 2(c)]
 Offer and Acceptance
How an offer is made?
Communication, acceptance and revocation of proposals:
The communication of proposals, the acceptance of proposals,
and the revocation of proposals and acceptance, 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. [Section 3]

Thus an offer can be made

by an act i.e. by words (written or verbal), by conduct
(silenceO) or by omission ( not to do something)
Implied offer

Offer implied from the conduct of the parties or from the

circumstances of the case is known as implied offer.
 Offer and Acceptance
Specific and General Offer:
an offer can be made either:
To a definite person or a group of persons, or
To the public at large
Carlill v. Carbolic Smoke Ball Co.

Cross and Counter offer

Cross offers are offers that the parties make to each other,
in ignorance of each others offers. Cross offers are
identical.
A counter offer, on the other hand is a rejection of the
original offer. It is a new offer that needs acceptance by
the original promisor before a contract is made.
Offer and Invitation to Offer
Basis for Comparison Offer Invitation to Offer
When one person
When a person expresses
expresses his will to
something to another
another person to do or
Meaning person, to invite him to
not to do something, to
make an offer, it is known
take his approval, is known
as invitation to offer.
as an offer.

Section 2 (a) of the Indian

Defined in Not Defined
Contract Act, 1872.

To receive offers from

people and negotiate the
Objective To enter into contract.
terms on which the
contract will be created.
Essential to make an
Yes No
agreement
An Invitation to offer,
The Offer becomes an becomes an offer when
Consequence
agreement when accepted. responded by the party to
whom it is made.
 Essential Requirements of a valid offer
Must be made with a view to obtain acceptance [Section 2a].

Must be made with a intention of creating legal relationship.

[ Balfour v. Balfour]

Terms must be definite, unambiguous and certain or capable of

being made certain [Section 29].

Offer must be distinguished from mere declaration of intention or an

invitation to offer.
D are Statements made without an intention to create a binding legal
obligation amount to a mere declaration of intent and not to a proposal.
An offer is distinct from an invitation to offer. College prospectus for
admission, invitation of offers by auctioneer at the time of auction,
display of goods etc. (final expression of willingness)

It must be communicated to the offeree before it can be accepted.

[Lalman Shukla V. Gauri Datt]
 Essential Requirements of a valid offer

The offer must not contain a term the non-compliance of which may be
assumed to amount to acceptance.

A statement of price is not an offer. (Harvey v. Facey)

A tender is an offer as it is in response to a invitation to offer.

Specific or Definite
Standing

The special terms, forming the part of the offer, must be dully brought to
the notice of the oferee at the time the offer is made.
By drawing his attention to them specifically
By inferring that a man of ordinary prudence could find them by exercising
ordinary intelligence

Two identical cross offers do not make a offer.

Where two parties make identical offers to each other, in ignorance of each
others offer, the offers are known as cross-offers and neither of the two can
be called an acceptance of the other and, therefore there is no contract.
Summary of Balfour v. Balfour, 2 K.B.
571 (1919).
Facts: Mr. Balfour (D) and Mrs. Balfour (P) lived in Ceylon and visited England on a vacation. The plaintiff
remained in England for medical treatment and the defendant agreed to send her a specific amount of
money each month until she could return. The defendant later asked to remain separated and Mrs.
Balfour sued for restitution of her conjugal rights and for alimony equal to the amount her husband had
agreed to send.
Mrs. Balfour obtained a decree nisi and five months later was granted an order for alimony. The lower
court entered judgment in favor of the plaintiff and held that the defendants promise to send money was
enforceable. The court held that Mrs. Balfours consent was sufficient consideration to render the contract
enforceable and the defendant appealed.
Issues
Must both parties intend that an agreement be legally binding in order to be an enforceable contract?
Under what circumstances will a court decline to enforce an agreement between spouses?
Holding and Rule
Yes. Both parties must intend that an agreement be legally binding in order to be an enforceable contract.
The court will not enforce agreements between spouses that involve daily life.
Agreements between husband and wife over matters that affect their daily lives are not subject to contractual
interpretation, even when consideration is present. Spouses normally intend that the terms of their agreements can
be varied as situations develop. The court held that it was presumed that the parties made the agreement as husband
and wife and did not intend that it could be sued upon. The court held that as a matter of public policy it could not
resolve disputes between spouses.
Note : Contracts related to the social aspect of marriage will not be enforced by the courts. Contracts
between spouses related to business relationships can be enforced, however. Courts are willing to
support negotiated divorce settlements and written statements of support.
Rose and Frank Co. v J.R. Crompton
and Bros. Ltd.
Facts: Rose and Frank Co. were the exclusive American distributor for J.R. Crompton's new paper
product. In their agreement there was a clause included stating that the arrangement was not intended to
be a formal legal agreement and would not be subject to legal jurisdiction of either the US or the UK. J.R
Crompton cancelled the agreement because they were unhappy with Rose and Frank Co.'s proceedings
and Rose and Frank Co. sued for breach. They were successful at trial, which J.R. Crompton appealed.
Issue: Can a clause be put in a contract saying that it is not legally binding, or is there a contract
anyway?
Decision: Reversed the judgment of the Court of Appeal
Reasons: Scrutton, writing for the majority, stated that although in business relations it is generally
assumed that a contract has been intended, here there is a specific clause stating the intention of the
parties not to be bound in a legal contract. In contract law it is the intentions of the parties that matters,
and here they are clearly stated. As the parties did not intend to be bound, there is no legally enforceable
contract.
Atkin, in the dissent, agreed that the document did not form a legally binding contract, but held that the
orders and responses between the parties in the process of business constituted enforceable contracts of
sale.
Ratio:
It is generally assumed that parties in business relationships intend to be bound.

If parties expressly state in an agreement that they do not wish to be bound, the courts must respect their actual
intentions.
Harvey v. Facey (1893)
Facts Letters were written back and forth
Harvey Will you sell us bumper hall pen? Telegraph lowest price -answer paid.
Facey Lowest price for bumper hall is $900.
Harvey We agree to buy bumper hall for the sum of $900 asked by you.
Harvey sued for specific performance of this agreement and for an injunction to restrain the town of
Kingston from taking conveyance of the property (Facey was previously engaged in negotiations to
sell the land to Kingston)
Issue
Was there an explicit offer from Facey to sell the land for $900 to Harvey?
Holding
No, there was not.
Rule
An offer CAN NOT be implied by writing. It can only be concrete and soundThe appellants cant
imply that Facey made an offer when he, as a matter of fact, did not make an offer.
Reasoning
(from Harvey) 1st question was willingness to sell, 2nd question asks the lowest price.
Facey only replied to the second question in regards to the price.
Harvey treated his response as an unconditional offer to sell them the price namedOnly binding
aspect is the lowest price in regards to a contract being formed.
Agreement could have ONLY been legit if Facey responded to the third telegram from Harvey.
Disposition
Reversed, judgment to the trial court in favor of Harvey is restored.
Termination or Lapse of Offer (Sec 6)
An offer lapses
after stipulated or reasonable time.
by death or insanity of the offeror or the offeree before acceptance.
An offer terminates
when rejected by the offeree.
when revocation is communicated by the offeror before
acceptance
By not being accepted in the mode prescribed, or if no mode is
prescribed, in some usual and reasonable manner.
When the condition is not accepted in case of a conditional offer.
By counter offer by offeree (acceptance of offer but subject to
certain condition or qualification).
Subsequent illegality or destruction of the subject matter.
 Acceptance
When a 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. [Section 2b]

Acceptance how made? May be express or

implied.
It is express when signified either in writing, or by word
of mouth, or by performance of some required act.
Implied when it is to be gathered from surrounding
circumstances or the conduct of the parties.

Who can accept?

 Essentials of a valid acceptance
Must be absolute and unqualified.
Must be communicated.
Acceptance by performing conditions, or receiving
consideration.
Must be according to the mode prescribed.
Must be given within the time specified or within a
reasonable time.
Must be in response to an offer.
Must be made before the offer lapses.
Must be given by the person to whom the offer is
made.
It cannot be applied from silence.
 Communication of offer acceptance and
revocation
Communication when complete [Sec. 4]
The communication of a proposal is complete when it comes to
the knowledge of the person to whom it is made.

The communication of an acceptance is complete

as against the proposer, when it is put in a course of transmission to
him so at to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the
proposer.

The communication of a revocation is complete

as against the person who makes it, when it is put into a course of
transmission to the person to whom it is made, so as to be out of
the power of the person who makes it;
as against the person to whom it is made, when it comes to his
knowledge.
 Communication of offer acceptance and
revocation
Revocation of Proposals and acceptance [Sec 5]
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 no
afterwards.

Revocation how made [Sec 6]

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 the death or
insanity comes to the knowledge of the acceptor before acceptance.
 Consideration
What the promisor demand as the price of his promise.

Something of value given by both parties to a contract that induces them to

enter into the agreement to exchange mutual performances.

In Currie V. Misa C was termed as a valuable C in the sense of the law may
consist either some right, interest, profit or benefit accruing to one party, or
some forbearance, detriment, loss or responsibility given, suffered or
undertaken by the other.

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 [Sec 2(D)]

Thus the term consideration is used in the sense of quid-pro-quo which

means something in return. This something may be some benefit, right,
interest or profit or it may also be some forbearance, detriment, loss or
responsibility upon the other party.
 Consideration
Importance of consideration:
A promise without C is purely gratuitous and, however sacred and
binding in honor it may be, cannot create a legal obligation.

Contract = promise + the C for the promise

Thus generally, a contract can not be thought of without
consideration. No consideration, no contract is the rule of law.
Abdul Aziz V. Mazum Ali and Kedar Nath V. Gori Mohamed (Re-
construction of Mosque)

Since agreement Sec 2(e), is a promise in exchange for a promise,

each promise forming consideration for other. It will therefore be an
inconsistency to think of an agreement and consequently contract
without C.

Thus, we can say:

Except in certain cases, a contract without C cannot be thought of
and if made, it is devoid of any legal obligation.
 Rules as to consideration
C must move at the desire of the promisor.
C may move from the promisee or any other person.
Stranger to contract V. stranger to C
A stranger to consideration can sue but a stranger to a contract
can not (privity of contract). Exceptions:
Beneficiary in a trust
Provision of marriage expenses of female in joint hindu family
Family members who were not part in a family settlement
Assignment to a contract
An acknowledgement of a liability
Contracts entered into through agent
C need not be adequate.
C must be real and valuable.
Physical impossibility, legal impossibility, uncertain consideration, illusory consideration
C must be legal.
C may be present (executed), future (executory) or past.
Must be something which the promisor is not already bound to
do.
 Exceptions to the rule
No Consideration no contract
An agreement without C is valid if:
It is expressed in writing and
It is registered (under the law of R), and
It is made on account of natural love and affection, and
Made between parties standing in a near relation to each other. [Section
25(1)]

A promise without C is valid if, it is a promise to compensate wholly or

in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to
do. [Section 25(2)]

A promise to pay, wholly or in part a debt which is barred by the law of

limitation can be enforced if (a) it is in writing, and (b) is signed by the
debtor or his authorised agent. [Section 25(3)]

Creation of Agency
Completed gift
Free Consent
Two or more person are said to consent when they
agree upon the same thing in the same sense. (Sec
13) (Bala Devi v. S. Mazumdar)

"Free consent" defined (Sec 14)

Consent is said to be free when it is not caused by
coercion, as defined in section 15, or
undue influence, as defined in section 16, or
fraud, as defined in section 17, or
misrepresentation, as defined in section 18, or
mistake, subject to the provisions of section 20,21, and 22.
Consent is said to be so caused when it would not have been
given but for the existence of such coercion, undue influence,
fraud, misrepresentation, or mistake.
Free Consent- Coercion
"Coercion" is the committing, or threatening to commit, any
act forbidden by the Indian Penal Code (45 of 1860) or the
unlawful detaining, or threatening to detain, any property, to
the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement. (Sec 15)

Include fear, physical compulsion and menace to goods.

It may proceed from or may be directed against persons who

are stranger to contract.

Threat to commit suicide

Free Consent- Undue Influence
16. "Undue influence" defined
1. A contract is said to be induced by "undue influence" where the relations
subsisting between the parties are such that one of the parties is in a
position to dominate the will of the other and uses that position to obtain
an unfair advantage over the other.
2. In particular and without prejudice to the generally of the foregoing
principle, a person is deemed to be in a position to dominate the will of
another -
a) where he hold a real or apparent authority over the other, or where he stands in
a fiduciary relation (holding of something in trust for another) to the other; or
b) where he makes a contract with a person whose mental capacity is temporarily
or permanently affected by reason of age, illness, or mental or bodily distress.
3. Where a person who is in a position to dominate the will of another,
enters into a contract with him, and the transaction appears, on the face
of it or on the evidence adduced, to be unconscionable, the burden of
proving that such contract was not induced by undue influence shall be
upon the person in a position to dominate the will of the other.
Free Consent- Fraud
"Fraud" means and includes any of the following acts committed
by a party to a contract, or with his connivance, or by his agents,
with intent to deceive another party thereto or his agent; or to
induce him to enter into the contract;
1.the suggestion as a fact, of that which is not true, by one who
does not believe it to be true;
2.the active concealment of a fact by one having knowledge or
belief of the fact;
3.a promise made without any intention of performing it;
4.any other act fitted to deceive;
5.any such act or omission as the law specially declares to be
fraudulent. (Sec 17)
Free Consent- Misrepresentation
"Misrepresentation" means and 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 intent to deceive, gains
an advantage to the person committing it, or anyone claiming
under him; by misleading another to his prejudice, or to the
prejudice of any one claiming under him;
3.causing, however innocently, a party to an agreement, to make
a mistake as to the substance of the thing which is subject of the
agreement.

Distinction between fraud and misrepresentation

Intention, belief, remedy, discovery of truth
Free Consent
19. Voidability of agreements without free consent
When consent to an agreement is caused by coercion, [***] fraud or
misrepresentation, the agreement is a contract voidable at the option
of the party whose consent was so caused. A party to contract,
whose consent was caused by fraud or misrepresentation, may, if he
thinks fit, insist that the contract shall be performed, and that he shall
be put on the position in which he would have been if the
representations made had been true.
Exception : If such consent was caused by misrepresentation or by
silence, fraudulent within the meaning of section 17, the contract,
nevertheless, is not voidable, if the party whose consent was so
caused had the means of discovering the truth with ordinary
diligence.
Explanation : A fraud or misrepresentation which did not cause the
consent to a contract of the party on whom such fraud was practised,
or to whom such misrepresentation was made, does not render a
contract voidable.
Free Consent
19-A. Power to set aside contract induced by
undue influence - 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.
Any such contract may be set aside either
absolutely or, if the party who was entitled to
avoid it has received any benefit thereunder,
upon such terms and conditions as the Court
may deem just.
Free Consent- Mistake
Mistake may be defined as a erroneous
belief concerning something. It is of two
kinds:
Mistake of law
Mistake of fact- bilateral and unilateral
Free Consent- Mistake of Fact

Bilateral Mistake- when both parties to the

agreement are under a mistake of fact
essential to an agreement; the agreement
is void.
Mistake as to the existence of the subject matter
mistake as to the identity of the subject matter
Mistake as to the title to the subject matter
Mistake as to the quantity of subject matter
Mistake as to the quality of subject matter
Mistake as to the price of the subject matter
Free Consent- Mistake of Fact
Unilateral mistake- a contract is not voidable
merely because it was caused by one of the
parties to it being under a mistake as to a matter
of fact. (Sec 22)
Exception to the above rule
Where the mistake is as to the nature of the
contract.
Mistake as to the identity of the person
contracted with
Free Consent- Mistake of Law

Effect of mistake as to law: A contract is

not voidable because it was caused by a
mistake as to any law in force in India; but
mistake as to a law not in force in India
(Law of a foreign country) as the same
effect as a mistake of fact and agreement
in such a case is void.
Understanding the difference
Misrepresentation occurs when a person makes an untrue assertion of fact (or in some
cases an omission of fact). It is based on someone's actions.
Fraud is essentially knowing or intentional misrepresentation, and is differentiated from
negligent misrepresentation and innocenent misrepresentation. Negligent
misrepresentation occurs when a person did not know he or she was making a
misrepresentation when he or she should have known that he or she was doing so.
Innocent misrepresentation is where there was a misrepresentation but the person making
the misrepresentation had no duty to know that it was.
Mistake is where someone believes that a fact was true when in fact it was not. It is based
on someone's belief.
Difference in remedy:
Mistake voids a contract, so third party rights are irrelevant.
Misrep, however, merely makes a contract voidable.

Mutual or common mistake--for example where the subject matter of a contract is destroyed or
rendered substantially different after formation
Mistake of identity
 In Spice Girls Ltd v Aprilia World Service (2002) the Spice
Girls had made a misrepresentation by conduct when they
participated in a photo shoot to promote a contract with
Aprilia. At the time of entering the contract Aprilia believed that
all the Spice Girls would remain members of the group until
the end of the tour. However, at the time of entering the
contract, the Spice Girls were aware that Geri Halliwell, one of
the members of the group, was going to leave the group on
27 May 1998. Aprilia claimed that the Agreement had been
induced by misrepresentation.

Misrepresentation had also taken place, according to the

Court of Appeal, by the group members participating in such
things as logos, images and other material which suggested
that there were five members of the Spice Girls.
 Capacity of Contract
Who are competent to contract [Sec 11]
Every person is competent to contract who is of the age of
majority according to the law to which he is subject, and who is
sound mind and is not disqualified from contracting by any law to
which he is subject.

Incapacity may arise from:

Minority
Mental incompetence
Status (disqualified by law)
Minority
According to section 3 of Indian Majority Act, 1875, a minor
is a person who has not completed 18 years of age.
However, in following cases, a minor attains majority after
21 years of age:
Where a guardian of minors person or property has been
appointed under The Guardians and Wards Act, 1860, or
Where the superintendence of minors property is assumed by a
Court of Wards.
Minors Contract
A contract with or by a minor is void and a minor, therefore,
cannot, bind himself by a contract. (Mohiri Bibi v. Dharmodas
Ghose, 1903)
A minor can be a promisee or a beneficiary.
A minors agreement can not be ratified by the minor on his
attaining majority.(void ab-initio: Ramaswami V. Chattiar)
 Minors Contract
If a minor has received any benefit under a void contract, he
can not be asked to refund the same.
A minor is always allowed to plead minority even in case of
misrepresentation. (Doctrine of estoppel) Leslie v. Shiell
A minor cannot be a partner in a partnership.
Minors parents/guardians are not liable to a minors creditor
for the breach of contract by the minor whether the C is for
necessaries or not.
A minor can act as an agent and bind his principal by his acts
without incurring personal liability.
A minors estate is liable to a person who supplies
necessaries of life to a minor, or to one whom minor is legally
bound to support (Sec 68)
goods and services like defending a suit, education, medical,
legal advice etc.- both.
goods suitable to the condition in life of the minor and to his
actual requirements at the time of sale and delivery.(Nash v.
Inman and Roberts v. Gray)
Mental incompetence
What is a sound mind for the purposes of
contracting (Section 12)
A person is said to be of sound mind for the propose of making a
contract, if, at the time when he makes it, he is capable of
understanding it (terms) and of forming a rational judgment as to its
effect upon his interest.
A person who is usually of unsound mind, but occasionally of sound
mind, may make a contract when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound mind.

Lunatics- suffers from intermittent intervals of sanity and insanity

Idiots- completely lost his mental power; is permanent
Drunken or intoxicated- suffers from temporary incapacity

Agreements entered into by persons of unsound mind are void.

Mental incompetence
68. Claim for necessaries supplied to person
incapable of contracting, or on his account
If a person, incapable of entering into a contract, or
anyone whom he is legally bound to support, is supplied
by another person with necessaries suited to his
condition in life, the person who has furnished such
supplies is entitled to be reimbursed from the property of
such incapable person.
Incompetence through status

Incompetence may arise from political,

corporate, legal status etc.
Alien- alien friend (country is at peace)and alien
enemy (country is at war)
C made before the war are dissolved or suspended
Companies or corporations- beyond the
Memorandum or Object
Insolvent-until obtain a certificate of discharge
Legality of object (Sec 23-24)
What consideration and objects are lawful, and
what not
The consideration or object of an agreement is lawful, unless
-It is forbidden by law; or is of such nature that, if permitted it
would defeat the provisions of any law or is fraudulent; or
involves or implies, injury to the person or property of another;
or the Court regards it as immoral, or opposed to public
policy.
In each of these cases, the consideration or object of an
agreement is said to be unlawful. Every agreement of which
the object or consideration is unlawful is void.
Agreements void, if consideration and objects
unlawful in part
If any part of a single consideration for one or more objects, or
any one or any part of any one of several consideration of a
single object, is unlawful, the agreement is void.
Performance of the Contract (Sec 37-67)
Obligations of parties to contract (Sec 37)
The parties to a contract must either perform, or offer to perform, their
respective promises, unless such performance in dispensed with or excused
under the provision of this Act, or of any other law.
Promises bind the representative of the promisor in case of the death of such
promisors before performance, unless a contrary intention appears from the
contract.
Effect of refusal to accept offer of performance (Sec 38)
Where a promisor has made an offer of performance to the promisee, and the
offer has not been accepted, the promisor is not responsible for non-
performance, nor does he thereby lose his rights under the contract.
Every such offer must fulfill the following conditions
(1) it must be unconditional;
(2) it must be made at a proper time and place, and under such circumstances that
the person to whom it is made may have a reasonable opportunity of ascertaining that
the person by whom it is been made is able and willing there and then to do the whole
of what he is bound by his promise to do;
(3) if the offer is an offer to deliver anything to the promisee, the promisee must have
a reasonable opportunity of seeing that the thing offered is the thing which the
promisor is bound by his promise to deliver. An offer to one of several joint promisees
has the same legal consequences as an offer to all of them.
Performance of the Contract (Sec 37-67)
Who should perform?

Person by whom promises is to be

performed (Sec 40)
If it appears from the nature of the case that it
was the intention of the parties to any contract
that any promise contained in it should be
performed by the promisor himself, such
promise must be performed by the promisor.
In other cases, the promisor or his
representative may employ a competent person
to perform it.
Performance of the Contract (Sec 37-67)
Contracts which need not be performed
If the parties mutually agree to substitute the original
contract by a new one or to rescind (to repeal or annul)
or alter it (Sec 62).
If the promisee dispenses with or remits(diminish), wholly
or in part the performance of the promise made to him or
extends the time for such performance or accepts any
satisfaction for it (Sec 63).
If the person, at whose option the contract is voidable,
rescinds it (Sec 64).
If the promisee neglects or refuses to afford the promisor
reasonable facilities for the performance of his promise
(Sec 67).
Performance of the Contract (Sec 37-67)
Performance of Joint promises
Devolution of Joint Liabilities (Sec 43)
When two or more persons make a joint promise, the promisee may, in the absence of
express agreements to the contrary, compel any one or more of such joint promisors to
perform the whole promise.
Each promisor may compel contribution: Each of two or more joint promisors may compel
every other joint promisor to contribute equally with himself to the performance of the
promise, unless a contrary intention appears from the contract.
Sharing of loss by default in contribution: If any one of two or more joint promisors make
default in such contribution, the remaining joint promisors must bear the loss arising from
such default in equal shares.
Effect of release of one joint promisor (Sec 44)
Where two or more persons have made a joint promise, a release of one of such joint
promisors by the promisee does not discharge the other joint promisor, neither does it
free the joint promisor so released from responsibility to the other joint promisor or joint
promisors.
Devolution of joint rights (Sec 45)
When a person has made a promise to two or more persons jointly, then unless
contrary intention appears from the contract, the right to claim performance rests, as
between him and them, with them during their joint lives, and, after the death of any one
of them, with the representative of such deceased person jointly with the survivor or
survivors, and, after the death of the last survivor, with the representatives of all jointly.
Performance of the Contract (Sec 37-67)
Time, Place and Manner of Performance
Time for performance of promise, where no application is to be made and no time is
specified (Sec 46) - Where, a promisor is to perform his promise without application by the promisee,
and no time for performance is specified, the engagement must be performed within a reasonable
time.
Time and place for performance of promise, where time is specified and no application to be
made (Sec 47) - When a promise is to be performed on a certain day, and the promisor has
undertaken to perform it without the application by the promisee, the promisor may perform it at any
time during the usual hours of business on such day and at the place at which the promise ought to
be performed.
Application for performance on certain day to be at proper time and place (Sec 48) - When a
promise is to be performed on a certain day, and the promisor has not undertaken to perform it
without application by the promisee, it is the duty of the promisee to apply for the performance at a
proper place within the usual hours of business.
Place for the performance of promise, where no application to be made and no place fixed for
performance (Sec 49) - When a promise is to be performed without application by the promisee, and
no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to
appoint a reasonable place for the performance of the promise, and to perform it at such a place.
Performance in manner or at time prescribed or sanctioned by promise (Sec 50) - The
performance of any promise may be made in any manner, or at any time which the promisee
prescribes or sanctions.
Performance of the Contract (Sec 37-67)
Performance of Reciprocal promises
51. Promisor not bound to perform, unless reciprocal promisee ready and willing to
perform
When a contract consists of reciprocal promises to be simultaneously performed, no
promisor need perform his promise unless the promisee is ready and willing to
perform his reciprocal promise.

52. Order of performance of reciprocal promises

Where the order in which reciprocal promises are to be performed is expressly fixed
by the contract, they shall be performed in that order, and where the orders is not
expressly fixed by the contract, they shall be performed in that order which the nature
of transaction requires.

53. Liability of party preventing event on which contract is to take effect

When a contract contains reciprocal promises and one party to the contract prevents
the other from performing his promise, the contract becomes voidable at the option of
the party so prevented; and he is entitled to compensation from the other party for any
loss which he may sustain in consequence of the non-performance of the contract.

54. Effect of default as to the promise which should be performed, in contract consisting or
reciprocal promises
When a contract consists of reciprocal promises, such that one of them cannot be
performed, or that its performance cannot be claimed till the other has been
performed, and the promisor of the promise last mentioned fails to perform it, such
promisor cannot claim the performance of the reciprocal promise, and must make
compensation to the other party to the contract for any loss which such other party
may sustain by the non-performance of the contract.
Performance of the Contract (Sec 37-67)
Effect of Failure to perform at a fixed time (Sec 55)
When a party to a contract promises to do a certain thing at or before a
specified time, or certain thing at or before a specified time and fails to do
such thing at or before a specified time, the contract or so much of it as
has not been performed, becomes voidable at the option of the promisee,
if the intention of the parties was that time should be of essence of the
contract.
If it was not the intention of the parties that time should be of the essence
of the contract, the contract does not become voidable by the failure to do
such thing at or before the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to him by such
failure.
If, in case of a contract voidable on account of the promisor's failure to
perform his promise at the time agreed, the promisee accepts performance
of such promise at any time other than agree, the promisee cannot claim
compensation of any loss occasioned by the non-performance of the
promise at the time agreed, unless, at the time of acceptance, he give
notice to the promisor of his intention to do so.
 Discharge of Contract
A contract may be discharged (Rights and
obligations created by it come to an end) in
following ways:
By performance or tender
By mutual consent
By subsequent impossibility
By operation of law
By breach

By performance or tender:
the obvious mode of discharge is by performance, that
is, the parties have performed or offer to perform, their
respective promises.
The offer of performance or tender has the same effect
as performance.
 Discharge of Contract
By mutual consent:
If the parties to a contract agree to substitute a new contract
for it, or to rescind or alter it, the original contract is
discharged. [Sec 62]
Novation substitution of new contract for the original one;
either between same parties or different parties.
Rescission cancellation of all or some of the terms by mutual
agreement
Alteration changing of certain terms by mutual agreement
Remission acceptance of a lessor some than what was
contracted for or a lesser fulfillment of the promise made.
(without consideration)
Waiver relinquishment or abandonment of a right.
Merger where an inferior right possessed by a person
coincides with a superior right of same person.
 Discharge of Contract
By subsequent impossibility [Sec 56]
An agreement to do an act impossible in itself is void.
Contract to do an act afterwards becoming impossible or
unlawful: A contract to do an act which, after the contract is
made, becomes impossible or, by reason of some event which
the promisor could not prevent, unlawful, becomes void when the
act becomes impossible or unlawful.
Subsequent impossibility in England is referred to as Doctrine of
Frustration.
A contract is deemed to have become impossible of performance
under following circumstances:
Destruction of subject matter of the contract.
By the death or disablement of the parties.
Subsequent illegality
Declaration of war
Non-existence or non-occurrence of a particular state of things
 Discharge of Contract
Exceptions: apart from cases mentioned above,
impossibility does not discharge contract. Some
of the circumstances in which a contract is not
discharged on the ground of subsequent
impossibility are:
Difficulty of performance
Commercial impossibility
If the third person, on whose work the promissor relied
fails to perform
Strikes, lockouts and civil disturbances
Failure of one of the objects
 Discharge of Contract
Effect of Supervening Impossibility
A contract to do an act which, after the contract is made,
becomes impossible or, by reason of some event which the
promisor could not prevent, unlawful, becomes void when
the act becomes impossible or unlawful.

Where one person has promised to do something which he

knew or, with reasonable diligence, might have known, and
which the promisee did not know to be impossible or
unlawful, such promisor must make compensation to such
promisee for any loss which such promisee sustains
through the non-performance of the promise.

When an agreement is discovered to be void, or when a

contract becomes void, any person who has received any
advantage under such agreement or contract is bound to
restore, it, or to make compensation for it, to the person
from whom he received it.
 Discharge of Contract
By operation of law
Discharge under this head may take place as follows:
By death
By insolvency
By merger
By the unauthorized alteration of terms of a written document
By breach of Contract
Breach may arise in two ways:
Anticipatory breach when a party repudiates the C before the time
fixed for performance arrived or when a party by his own act
disables himself from performing.
Consequences: promisee may either (1) rescind the contract and
treat the contract as at an end, and at once sue for damages, or (2)
may elect not to rescind but to treat the C operative and wait for the
time of performance and then hold the other party liable for the
consequence. In later case the party who has repudiated may still
perform if he can.
Thus the C is discharged only when the aggrieved party accepts the
repudiation of the contract i.e. elects to rescind the contract.
 Discharge of Contract
Actual breach may take place
(a) at the time when performance is due person does not perform his
part at the stipulated time.
55. Effect of failure to perform at fixed time
When a party to a contract promises to do a certain thing at or before a
specified time, and fails to do such thing at or before the specified time, the
contract or so much of it as has not been performed, becomes voidable at
the option of the promisee, if the intention of the parties was that time should
be of essence of the contract.
If it was not the intention of the parties that time should be of the essence of
the contract, the contract does not become voidable by the failure to do such
thing at or before the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to him by such
failure.
If, in case of a contract voidable on account of the promisor's failure to
perform his promise at the time agreed, the promisee accepts performance
of such promise at any time other than agreed, the promisee cannot claim
compensation of any loss occasioned by the non-performance of the
promise at the time agreed, unless, at the time of acceptance, he give notice
to the promisor of his intention to do so.
(b) during the performance one party fails or refuses to perform his
obligation.
 Remedies for Breach of a Contract

As soon as either party commits a breach

of the contract, the other party becomes
entitled to any of the following relief:
Rescission of the contract
Damages for the loss sustained or suffered
A decree for specific performance
An injunction
Suit on Quantum Meruit
 Remedies for Breach of a Contract
Rescission of the contract
When a breach is committed by one party, the other party may
sue to treat the contract as rescinded. In such a case the
aggrieved party is freed from all obligations under the contract.
Person rescinding the C is entitled to compensation for any
damage which he has sustained because of non-fulfillment of C.

Damages
Generally speaking are of four kinds:
Ordinary damages
Special damages
Vindictive, or Punitive or Exemplary damages
Nominal damages
Remedies for Breach of a Contract
Ordinary damages
Are those which naturally arose in the usual course of things from
such C. The measure is the difference between the contract price
and market price at the date of breach.
Special damages
Are claimed in case of loss of profit etc. when there are certain
special or extraordinary circumstances present and their existence
is communicated to the promisor, the non performance entitles the
promisee to not only claim ordinary damages but also damages that
may result there from.
Vindictive, or Punitive or Exemplary damages
Are awarded with a view to punish the defendant and not solely with
an idea to compensate the plaintiff.
Nominal damages
Are awarded in cases of breach of C where there is only a technical
violation of legal right but no substantial loss is caused thereby. The
damages awarded in such cases are very small.
Duty to mitigate damages suffered
Remedies for Breach of a Contract
A decree for specific performance
Where damages are not adequate remedy, the court may direct the
party in breach to carry out his promise according to terms of the
contract. This is called specific performance of contract. Generally it
is granted where:
Monetary compensation is not an adequate relief
The contract is of a personal nature
Where it is not possible for the Court to supervise the performance of
the contract
The contract is made by a company beyond its objects
An injunction
Means an order of the court. Where a party is in breach of a
negative term of contract (does something which he promised not to
do) , the Court may, by issuing an order, prohibit him from doing so.
Suit on Quantum Meruit
Means as much as is merited (earned). The normal rule is that
unless a party has performed his promise entirely, it can not claim
performance from other. However there are certain exceptions to
this rule.